Transcript: The crackdown on Ukraine’s oligarchs

This is an audio transcript of the FT News Briefing podcast episode: ‘The crackdown on Ukraine’s oligarchs’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, December 6th, and this is your FT News Briefing.

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Markets are betting that the Federal Reserve is going to cut interest rates pretty soon. But economists say hold your horses. And the US Supreme Court just heard a crucial case that could derail a plan for a wealth tax.

Joe Miller
This is the most watched tax case at the Supreme Court in many, many decades because we have progressives out there wanting to impose a billionaire’s tax, wanting to tax people on their wealth, not necessarily on their income.

Marc Filippino
Plus, Ukraine is cracking down on its country’s oligarchs. I’m Marc Filippino, and here’s the news you need to start your day.

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Economists and Wall Street are having a bit of a disagreement about when the Federal Reserve will start cutting interest rates. The majority of leading economists think the US central bank will hold off on cuts until July of next year at the earliest. That’s according to a new FT survey out today. And these economists expect the Fed to lower interest rates by just half a percentage point or less in 2024. But investors think the Fed will start cutting interest rates in March and lower the overall rate by a full percentage point by the end of next year. Now, it’s not clear what the Fed is actually going to do. The Fed is kind of mysterious like that. But with inflation falling and job growth stalled, the central bank is definitely grappling with just how long to keep rates elevated.

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The US Supreme Court heard a case yesterday that could shut down Democrats’s attempt to impose a wealth tax.

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Marc Filippino
Now, the case itself is a challenge to a one-off tax on offshore profits from the Trump administration. But experts say the decision could have a domino effect. They’re calling it the most important tax case in decades. The FT’s Joe Miller covered the oral arguments yesterday. He joins me now. Hi, Joe.

Joe Miller
Hello.

Marc Filippino
All right. So before we get into the wider implications, what are the facts of the case itself?

Joe Miller
The facts of the case itself are rather mundane. It’s about two people from Redmond, Washington, Charles and Kathleen Moore, a couple who invested in an Indian farming company over many years. And because of this tax that was imposed in 2017 under the Trump presidency, they were landed with a roughly $15,000 one-off tax on the profits that the company had made over the years. They sued the US government for a refund, saying that they had not received the cash that this company had made and therefore it was unrealised income and that it was unconstitutional for them to be taxed on that because it hadn’t actually landed in their pockets.

Marc Filippino
All right, Joe, so Charles and Kathleen Moore, they definitely care about this. But what are the broader implications of this $15,000 dispute?

Joe Miller
The impact of this and the reason why, you know, this is the most watched tax case at the Supreme Court in many, many decades is because we have progressives out there, including President Joe Biden, wanting to impose a billionaires’ tax, wanting to tax people on their wealth, not necessarily on their income. And what the justices are being asked to decide here is, does the 16th Amendment preclude the government from taxing people on unrealised gains? And what really is the definition of income? How is it measured and how broadly can the federal government apply that definition?

Marc Filippino
So, Joe, does the government need to rip up its fiscal plans and start from scratch if the Supreme Court says the government can’t tax people on unrealised gains?

Joe Miller
Probably. But not only that. They probably have to rip up large parts of the existing tax code. In fact, the solicitor general, who is arguing on behalf of the US, warned the court that if they upheld the Moore’s challenge, it would cost the government several trillion dollars in lost revenues over the years. But it’s fair to say the justices on both sides of the divide probably shared the scepticism towards the Moore’s arguments. We had Justice Sotomayor, who’s obviously an Obama appointee, you know, saying that what the Supreme Court has been doing for the last hundred years has been studiously avoiding, basically narrowing down what this amendment means.

Sonia Sotomayor
Because we recognise that it’s dangerous to do that. We then have to come up with a working definition that applies to every piece of property and every way in which people gain wealth.

Joe Miller
And we even had Samuel Alito of, you know, a hard line conservative saying that . . . 

Samuel Alito
If we rule in the petitioners’ favour, then large important pieces of the tax code will also logically fall.

Joe Miller
So we got the sense that justices are concerned that this would have repercussions that go way beyond the Moores and their individual complaint.

Marc Filippino
I have to imagine that this would be tough for Democrats, right?

Joe Miller
Indeed. I mean, the wealth tax has been quite a central pillar of Joe Biden’s program since he came into office. And it would involve taxing, you know, a 25 per cent levy on those with a net worth of more than $100mn. And the Biden administration says that this would allow them to raise hundreds of billions of dollars for the US government and enable it, as you say, you know, to fund various pledges. So, yes, it’s very much a central pillar of the Biden administration, but also, you know, some fairly prominent Republicans, like the former House speaker Paul Ryan, who helped draft the original Trump Act, come out and say that he thinks that you spike a possible wealth tax, you’re also spiking, you know, the ability of the federal government to raise money in a whole load of other ways.

Marc Filippino
Joe Miller covers the US legal system for the FT. Thank you, Joe.

Joe Miller
Thank you very much.

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Marc Filippino
Ukraine’s oligarchs once dominated the country’s economy. They had monopolies on energy and commodities with the help of politicians and the judiciary. But the Russian invasion has upended their grip on power. Ben Hall is the FT’s Europe editor. He’s been following the fate of these politically influential tycoons, and he joins me now. Hey, Ben.

Ben Hall
Hello.

Marc Filippino
So tell me a bit about Ukraine’s oligarchs before the war started. What sectors did they control?

Ben Hall
Well, they were across very many sectors. They made their wealth essentially by taking over old Soviet-heavy industry and building those companies into more powerful players and eventually into a sort of monopoly or at least dominant positions in the Ukrainian economy. So we’re talking about extractive industries, iron ore, coal, gas. And also the media the oligarchs bought up, created private TV stations and used those as a sort of vector of their influence. It was a way of exercising political influence, and that’s how they became so rich.

Marc Filippino
And when did that change, Ben? When did the oligarchs start to lose their influence and wealth?

Ben Hall
It began to change back in 2014, when Russia annexed Crimea and parts of eastern Ukraine in the Donbas region, which is where a lot of heavy industry, including factories and mines owned by the oligarchs. So they started to lose their wealth back in 2014. And obviously that accelerated enormously with Russia’s bombardment and invasion of 2022. But they’ve also lost power in other ways even before the full-scale invasion.

Marc Filippino
Yeah, Ukraine has been on an anti-corruption campaign for a couple of years now, something that really took off under President Volodymyr Zelenskyy, right?

Ben Hall
Yes. I mean, Zelenskyy was elected in 2019 on a pledge to clamp down massively on corruption in Ukraine, including by reducing the power of the oligarchs. And you can, to a degree, say that the oligarchs were at the pinnacle of this system because they corrupted the state and politics and the judiciary and the public administration, and in order to maximise their business gains and profits. So he went after them as a part of a kind of broad-brush strategy which has also been demanded for many years actually by Ukraine’s supporters, the International Monetary Fund, the EU and other G7 powers, most notably Washington. And now that Ukraine is very heavily dependent on foreign aid to survive through this war, it is really having to bend over backwards to clamp down on corruption, not least because corruption cases and corruption allegations could be so noxious to its western support.

Marc Filippino
Yeah, and not only western support for its war, but as we’ve talked about on the show before, Ukraine is trying to become a member of the European Union. It’s trying to become a member of Nato. And because of that, do you think the oligarchs might be gone for good?

Ben Hall
You will find very few Ukrainians outside the presidential administration or the government who would say that with any certainty. And I think that’s because they’ve been a feature for most of Ukraine’s post-independence period and also because they’re down, but they’re not out. They’re still wealthy businessmen with a lot of influence. So I think the answer to that question will really come with time and it will require Ukraine to put in place independent institutions. But Ukraine has promised to do so and will be expected to do so as part of its accession process to the EU.

Marc Filippino
Ben Hall is the FT’s Europe editor. Thanks so much, Ben.

Ben Hall
Thank you.

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Marc Filippino
Before we go, I have some news from our colleagues at FT Weekend magazine. If you live outside the UK like me, it might be tough for you to get your hands on a physical issue of the magazine. But this Saturday they are putting out a global issue. It’ll be printed all over the world, so look out for it in your Weekend print subscription. Or you can go buy it at your local newsstand.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.