In response to Russia’s refusal to back down in its thinly veiled support for rebels in Eastern Ukraine, the European Union agreed to intensify economic sanctions against Moscow on Tuesday.  While falling short of crippling sector-wide sanctions against Russia’s vital energy and finance industries, the new package sends a strong message, targeting state-owned banks as well as restricting sales of arms, some forms of technology, and equipment used to refine oil. The US announced additional sanctions of its own, cutting off three additional Russian banks from US financing.

Thus far, sanctions against Russia have been relatively effective and the newest round is sure to intensify the strain on a faltering Russian economy.  The ruble is in a freefall, $68 billion in capital left Russia in the first six months of 2014 (more than all of 2013), and any investor with common sense wants nothing to do with Russian enterprises because of the potential risk of being hit by sanctions.  Hitting Russian companies with sanctions is an essential first step, but if the US and the EU really intend to hit Putin and his cronies where it truly hurts, they need to look outside Russia.

Behind the anti-Western rhetoric on the vices of capitalism put out by Russian elites and media, $318 billion in illegally obtained money is frittered away annually in the oil-rich empire- kickbacks, bribes, drug money, and tax fraud are the lifeblood of the Russian elite.  In order to keep up appearances and ensure that it is safe, Russians certainly aren’t keeping these enormous sums of money in their personal bank accounts.

The Kremlin elite stows away its dirty money in a variety of forms; offshore bank accounts, real estate holdings, and the establishment of dummy companies nominally controlled by a third party in tax havens like the Bahamas. If this all sounds familiar, it should. It’s exactly how organized crime in the US operates.

The US and the EU are not without fault here. For years they have accepted, and in some cases encouraged, this money with little more than a wink and nod, knowing full-well its origin.  As Ben Judah of Politco has stated: “Europe is really run by an elite with the morality of a hedge fund: make money at all costs and move it offshore.”

Given the events of the last few months, the indifference toward dirty Russian money needs to end.  There is no doubt that the U.S. Treasury, FBI, and CIA know where the Russians are storing their cash. Targeting it will be a punch in the gut to Putin and his closest ring of friends who believe Westerners are too greedy to end the profits they gain from holding dirty money.  The latest round of sanctions indicates that the US and the EU are willing to incur costs to hit Russia economically.  If they want the strategy to really work, they need to begin treating the Russian elite like the organized criminals they are, and it starts by following their money.

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