How a legal loophole prevents Spain from sanctioning Russian oligarchs

A legal anomaly which doesn’t exist anywhere else in the EU is preventing Spanish authorities from freezing or seizing the assets of Russian billionaires in Spain, many of whom are being allowed to keep their wealth hidden. 

How a legal loophole prevents Spain from sanctioning Russian oligarchs
Several oligarchs’ super yachts docked in Spanish ports have been seized since Russia invaded Ukraine, but the anonymity Spain's legal system grants to partners in companies is stopping Spain from having access to all their assets. (Photo by Josep LAGO / AFP)

In Spain, there is no way to know who is a partner in a company (socio de una sociedad).

Unlike in the rest of EU countries, the content of the shareholders’ register is private and can’t be accessed by anyone – not even investors, creditors or the State – through Spain’s Mercantile Registry. 

In the United Kingdom, France and even Switzerland, the details of limited liability companies can be viewed online by anyone. 

But not in Spain, where registering legalises the LLC or PLC, without the details of the business having to be disclosed. 

This anomaly is impinging on the Spanish government’s ability to fight against fraud and corruption, as disclosed by online Spanish daily Vozpópuli, and currently is one of the chief reasons why sanctions by the Spanish State against Russian oligarchs aren’t proving effective.

This legal reform introduced by former Spanish Prime Minister Felipe González in 1989 turned Spain into a sort of paradise of untraceable opaque companies.

The general consensus among legal experts is that the Spanish government isn’t doing enough to sanction Russian oligarchs, as for now it’s limited itself to freezing assets, not seizing them.

Earlier in April, Spain’s General Council of Notaries (CGN) sent a letter to the Spanish government urging them to implement new legal measures that will allow for the fortune of the Russian oligarchs in Spain to be embargoed.

Their demand has not fallen on deaf ears, as Spain’s Justice Ministry is now drafting a law that will make sure real estate belonging to Russian oligarchs can be confiscated and their owners evicted, even if these properties are registered in the name of figureheads or intermediaries. 

The measures should also ensure notaries and property registrars can have access to the information they need to carry out these embargoes, which should result in the anonymity of Russian partners in companies in Spain being scrapped.

A total of 862 people and 53 entities with links to Putin have so far been named as targets for asset freezes and travel ban measures since sanctions against Russia were introduced by Spanish authorities on March 15th, according to registry stats.

It’s worth noting that Spain’s National Securities Market Commission (CNMV) does not break down all the shares in listed companies that do not exceed 3 percent of the company’s share value so there may be many more Russian investors who also remain unknown as a result. 

Spain did also stop issuing so-called golden visas to Russians – a scheme which allows non-EU nationals who purchase a €500,000 property or invest large amounts to gain Spanish residency – but Pedro Sánchez’s government dragged its heels on the matter and has allowed existing Russian golden visa holders to hold onto their residency.  

Several oligarchs’ super yachts docked in Spanish ports have been seized as well since Russia invaded Ukraine. 

2018 data from Spain’s Ministry of Foreign Affairs show that Russia ranked 41st among the largest investors in Spain, with just over €470 million. 

Russian investments focus primarily on real estate and construction (45 percent), hotels and tourist accommodation (35 percent) and the metal industry (close to 4 percent).

READ ALSO:  How much influence does Russia have over Spain?

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Russia expels dozens of Spanish and other European diplomats

Moscow on Wednesday kicked out 27 diplomats from Spain, as well as dozens more from France and Italy in retaliation for the expulsion of Russian diplomats from European countries as part of a joint action against Russia's campaign in Ukraine.

Russia expels dozens of Spanish and other European diplomats

Spain has lashed out at Russia for expelling 27 Spanish diplomats in what appeared to be a tit-for-tat response over a similar move by Madrid against Russian diplomats over the Ukraine conflict.

The employees of the Spanish embassy in Moscow and the Spanish Consulate General in Saint Petersburg “have been declared persona non grata” and will have seven days to leave Russia.

 “Russian authorities justify this decision on grounds of reciprocity for the expulsion of 27 Russian embassy officials in April. But that expulsion was based on justified security reasons, which are not present in this case,” a foreign ministry statement said.

The Spanish decision was taken in early April just days after dozens of bodies in civilian clothing were found on the streets of Bucha just outside Kyiv following the withdrawal of Russian troops, raising allegations of Russian war crimes.

At the time, the foreign ministry said it would expel the Russian diplomats on grounds they were “a threat to (Spain’s) interests and security”.

The Russian ambassador was not among those asked to leave.

The ministry told Spanish ambassador Marcos Gómez Martínez that the expulsion of Russian diplomats from Madrid “would have a negative impact on Russian-Spanish relations”.

Spain’s decision was part of a coordinated move across Europe that saw more than 200 Russian envoys sent home in 48 hours on grounds of alleged spying or “national security reasons” as outrage grew over the atrocities in Ukraine.

More European diplomats expelled

Russia’s foreign ministry said in a statement it was expelling 34 “employees of French diplomatic missions” in Russia and gave them two weeks to leave the country.

Moscow made the announcement after summoning France’s ambassador to Russia, Pierre Levy, and telling him that the expulsion of 41 employees of Russian diplomatic missions was a “provocative and unfounded decision”, the statement said.

While there was no official statement, the foreign ministry’s spokeswoman Maria Zakharova confirmed to Russian news agencies that 24 Italian diplomats had also been expelled.

The foreign ministry in Paris said France “strongly condemns” the expulsion of its diplomats by Russia, adding that this step from Moscow had “no legitimate basis”.

It said the work of French diplomats in Russia “takes place fully within the framework of the Vienna Convention on diplomatic and consular relations” — whereas Paris expelled Russian staff in April on suspicion of being spies.

‘Hostile act’

Italian Prime Minister Mario Draghi condemned the expulsions as a “hostile act” but said diplomatic channels must remain open “because it’s through those channels that, if possible, peace (in Ukraine) will be achieved”.

Separately, municipal lawmakers in Moscow on Wednesday backed a decision to name a previously unnamed area in front of the US embassy in Moscow “Donbas Defenders Square”.

The name refers to a majority Russian-speaking region in eastern Ukraine that Russia says it is liberating as part of its military campaign.

In February 2018, a street outside the Russian embassy in Washington was named after Boris Nemtsov, an opposition politician who was shot dead outside the Kremlin in 2015.

President Vladimir Putin in late February sent troops into Ukraine, saying the campaign aimed to stop the “genocide” of Russian speakers in the pro-Western country.

In response Moscow has faced a barrage of international sanctions and growing isolation from the global community as relations with the West deteriorate to Cold War levels.