Megayachts in Legal Limbo: The Costly Conundrum of Seized Russian Assets

Falmouth, Harbor, Antigua and Barbuda—In a predawn operation last year, two dozen armed police officers and five FBI agents descended upon Falmouth Harbour, Antigua. Their target: the Alfa Nero, a 270-foot megayacht believed to be owned by Andrey Grigoryevich Guryev, a Russian phosphates magnate sanctioned by the U.S. due to his links with President Vladimir Putin.

Since that day, the $120 million Alfa Nero, a floating palace resembling a football field in length and complete with an infinity pool that transforms into a dance floor, has languished in this serene harbor. It stands as a tangible symbol of the West's economic battle against Russia and the complexities involved in managing and disposing of seized Russian assets. For Antigua, a nation of 93,000, it has evolved into a financial nightmare.

The taxpayers of this cash-strapped nation are currently burdened with the staggering cost of maintaining the stationary vessel, which amounts to $28,000 per week. This includes expenses such as the salary of an Italian captain and $2,000 per day in diesel fuel to power the vessel's air conditioning system. Turning off the air conditioning poses a significant risk, as it could lead to mold infestation within 48 hours, potentially damaging the yacht's opulent interior and the precious Miro painting on board. A skeleton crew of six individuals, who have exhausted the yacht's supply of Champagne, lobsters, and caviar, toil tirelessly to ensure that one day the vessel can sail away from its current predicament.

Tom Paterson, the marina's dock master, humorously describes the situation, saying, "You take thousand dollar bills, tear them up, and just keep going." The Alfa Nero's fate is just one example of the extensive efforts by dozens of governments worldwide to pressure Putin into ending the war in Ukraine by targeting his wealthy associates. The Russian Elites, Proxies, and Oligarchs Task Force, a multinational government entity responsible for coordinating sanctions, reported that approximately $58 billion in assets belonging to oligarchs, including yachts, mansions, and investments, have been frozen or blocked due to their connections to the Kremlin.

Initially, the aim was to make life uncomfortable for Putin's allies by obstructing access to their wealth. However, as the conflict persisted, efforts shifted towards permanently confiscating these assets. Nevertheless, freezing an asset doesn't immediately grant authorities the right to take ownership and sell it. In most cases, this can only happen after a complex legal process establishes that the sanctioned individuals committed crimes, a process that can take months or even years.

European countries have launched over 300 criminal investigations against sanctioned Russians, while the U.S. Justice Department has assembled a team of 50 officials tasked with building criminal cases that could potentially generate hundreds of millions of dollars from the sale of sanctioned Russian assets, with the proceeds intended to aid in the reconstruction of Ukraine. However, despite these efforts, the total amount of assets delivered to Ukraine by the U.S. thus far is just $5.4 million, with neither the U.K. nor the European Union successfully converting frozen assets into funds.

Anders Ahnlid, who leads the EU's working group on frozen Russian assets, acknowledges the immense costs borne by Ukraine and the moral imperative that the party responsible for inflicting such costs should pay. However, he underscores the importance of adhering to legal procedures in this endeavor.

In practical terms, it is often taxpayers who end up footing the exorbitant bills required to maintain a fleet of high-end yachts and mansions that remain off-limits while sanctions persist. Attempts to expedite the sale of these assets by bypassing protracted legal proceedings have encountered significant challenges.

Earlier this year, the Antiguan government, citing concerns that the Alfa Nero posed a risk to the harbor in the event of a hurricane, passed new legislation and seized the ship outright.

Subsequently, they attempted to sell it to former Google CEO Eric Schmidt for $67 million during the summer. However, a company associated with Guryev mounted a last-minute legal challenge to block the sale, and Schmidt withdrew from the deal. Presently, the Antiguan government is seeking a new buyer for the megayacht.

The process of transitioning from freezing an asset to confiscating it is legally complex. Being sanctioned does not inherently constitute a crime; therefore, authorities must establish both ownership of the asset, often concealed behind a web of shell companies, and a legal violation to justify its confiscation as proceeds of a crime. Deputy Attorney General Lisa Monaco highlighted that the U.S. is potentially leaving substantial sums on the table from asset seizures, and the Department of Justice has urged Congress to expand the government's capacity to transfer proceeds to Ukraine, including broadening the range of seized assets eligible for transfer.

The Department of Justice has seized two megayachts purportedly belonging to sanctioned Russians and is in the process of attempting to confiscate them. The first, the $300 million Amadea, was transported to San Diego from Fiji at the expense of U.S. taxpayers. The second, the Tango, a $90 million yacht, is claimed by U.S. authorities to be owned by Viktor Vekselberg, a sanctioned oligarch closely tied to Putin, who faces accusations of tax fraud, money laundering, and the use of counterfeit documents and shell companies to evade sanctions and conceal his ownership of the Tango.

Building a strong legal case for the seizure of assets is a time-consuming process, involving meticulous investigative work such as examining bank and property records, establishing connections, and interviewing witnesses across the globe. David Lim and Michael Khoo, DOJ officials leading Task Force KleptoCapture, which enforces sanctions on Russians, emphasized the need to meet the burden of proof in court, which often involves gathering evidence and witnesses from overseas jurisdictions that may not be particularly amicable to the U.S.

In Italy, law enforcement officials have seized at least four yachts, 20 luxury homes, and various assets such as cars and artwork since the spring of 2022. The Italian government allocated €13.7 million ($14.8 million) to cover immediate maintenance costs for assets such as yachts and villas, though actual expenses are considerably higher.

Benjamin Maltby, a lawyer at Keystone Law specializing in advising on megayachts, noted that a general rule of thumb is that big yachts cost approximately 10% of their value per year to maintain. This includes regular hull maintenance, continuous operation of air conditioning units, crew salaries, insurance, and marina rent.

Forcing owners to cover the maintenance costs themselves is a challenging endeavor, as sanctioned parties are prohibited from using the financial system to transfer funds without special government permission, a process that can span months or even years. Some European countries, like Spain, permit sanctioned owners to move funds to pay for maintenance expenses.

Selling a recently sanctioned yacht proves equally difficult. Potential buyers are often hesitant to acquire a secondhand sanctioned vessel, fearing that it might be reclaimed by its original owners once it enters a different legal jurisdiction. As a result, many of these yachts remain in limbo, with no viable market.

Andrew Adams, the former director of the KleptoCapture task force, emphasized the need to maintain the value of these assets, stating, "There is a market for yachts. There is no market for moldering yachts."

One of the most high-profile instances of Russian boat confiscation did not involve a government but a private entity. J.P. Morgan successfully appealed to have the yacht Axioma sold at auction to recover €20.5 million owed to the bank by a sanctioned Russian oligarch. The vessel, featuring a 3-D cinema, was auctioned for $37.5 million to an undisclosed buyer in Gibraltar, where it was subsequently impounded.

Crew members aboard the Alfa Nero experienced a predicament all their own. After the invasion of Ukraine, the yacht turned off its transponder to evade tracking but was ultimately located by U.S. officials. Guryev, the sanctioned Russian linked to the vessel, had claimed that the Alfa Nero wasn't his but that he occasionally used it. The boat was officially owned by a British Virgin Islands company named Flying Dutchman, managed by Opus Private, a fiduciary services firm based in Guernsey. Opus Private represented a trust of which Guryev's daughter is the beneficial owner, as confirmed by court filings in Antigua.

The yacht, originally staffed by 37 crew members, found itself entangled in a legal quagmire. Its owners were barred from using the financial system to cover its expenses or to sail it away. Opus Private asserted that they had done everything within their power to obtain the necessary licenses for payments and had communicated their position to the Antiguan government, to no avail.

The Alfa Nero faced additional woes, including a sewage system malfunction that led to the discharge of raw sewage into the harbor. Moreover, it became uninsurable as safety equipment guarantees expired, coinciding with the onset of hurricane season. Most of the crew members departed due to unpaid wages, with 26 crew members subsequently filing a lawsuit in Antigua, a country that enforces sanctions through a treaty with the U.S. They sought $2.2 million in unpaid wages from the yacht's undisclosed owner.

A skeletal crew persevered on board, diligently polishing the decks and bartering vintage wine stored on the ship for basic provisions. Eventually, in February, the remaining crew staged a mutiny, submitting a letter to the Antiguan government expressing their inability to cope with the situation. According to Darwin Telemaque, CEO of the Antigua port authority, these key crew members were vital for the vessel's operation and safety in the event of a storm. If the megayacht were to capsize, it could obstruct Falmouth Harbor, a critical financial lifeline for the island.

Consequently, the government decided to enact emergency legislation to seize the yacht, auction it, use the proceeds to settle maintenance costs, and retain the surplus for the nation's treasury. The Antiguan government requested the U.S. Treasury's permission to sell the vessel, a request that was granted in June.

The opportunity to purchase a world-class yacht at a discounted price generated considerable interest. Telemaque received inquiries from as far away as Algeria. Former Google CEO Eric Schmidt emerged as the winner of the auction, offering $67 million. However, a company associated with Guryev's daughter launched a last-minute legal challenge to halt the sale. Schmidt, apprehensive due to the ongoing legal battle, ultimately withdrew from the deal. This led to another lawsuit against the Antiguan government, this time from Warren Halle, a U.S. real estate magnate who had submitted the second-highest bid. Halle contended that since Schmidt hadn't transferred the funds within a specified seven-day deadline, his bid should be disqualified.

Andrea Maccaferri, the acting captain of the Alfa Nero, remains uncertain about the yacht's future. He likens life on the stranded vessel to that of a monastery, with meals served promptly at noon and 6 p.m. by a British chef. Constant vigilance is required to monitor weather reports and track hurricanes, which pose a significant threat to the vessel.

For Deidra Cochrane, an office assistant at the marina, the Alfa Nero is a frequent topic of conversation on her daily commute. Many locals are skeptical that the government will successfully sell it, and even if they do, they question whether the island's residents will benefit significantly. She remarks, "It's a boat that creates a lot of scandal and opinion."

At the Skullduggery bar and restaurant beside the marina, a group of regulars sips vodka and expresses concern that Antigua's decision to take on a Putin ally might alienate wealthy Russian customers who typically flock to the island during the winter months. One patron offers a humorous warning, saying, "Don't flick the tiger's balls."

When Maccaferri ventures into St. John's, the nation's capital, he refrains from wearing the red polo shirt adorned with the Alfa Nero logo, apprehensive that Russian agents may target him. He humorously speculates that whoever sails the Alfa Nero out of the harbor might encounter a submarine with a red star waiting for them.

In conclusion, the story of the Alfa Nero encapsulates the intricate web of challenges and legal complexities that governments face when attempting to seize and liquidate assets linked to sanctioned Russian oligarchs. The saga of this megayacht is emblematic of the broader struggle to hold wealthy elites accountable for their role in international conflicts while navigating the legal intricacies of asset confiscation and ownership. As the international community grapples with these dilemmas, the fate of assets like the Alfa Nero remains uncertain, leaving a tangible reminder of the global repercussions of geopolitical tensions.

By fLEXI tEAM