London ball

How London and the United States became havens for dirty money

Dawn over the City of London © Evening Standard / eyevine

When Liz Truss recently to get up in parliament to announce a ‘hit list of oligarchs’, Britain’s foreign secretary said she wanted ‘a situation where they can’t access their funds, their trade can’t flow, their ships can’t cannot dock and their planes cannot land”. His speech, along with others from the Commons floor lambasting the oligarchs and their associates, was just one stark example of how Vladimir Putin’s savage attack on Ukraine has starkly exposed the phenomenon known as “Londongrad”.

The warm home that the British establishment and its financial system offer dirty money from the post-Soviet sphere and elsewhere may finally begin to be seen as the embarrassment – ​​and worse – that it is. Take Dmitry Firtash, revealed in 2006 as co-owner of the Ukrainian Russian gas shipping company that has long given Moscow a stranglehold on Kiev. After spending money profusely on everything from luxury homes to Cambridge scholarships and political donations, Firtash’s social status in the UK seemed to know no bounds – he was feted by parliamentarians and a shook hands with the Duke of Edinburgh – until he was arrested in Austria by an FBI. indictment for corruption.

Lots of excellent reporting over the past decade has revealed how corrupt elites around the world launder money in the West. Yet the focus has been on looting as much as laundering. The how and why of the transformation of rich countries into servants of autocrats – or, in Oliver Bullough’s powerful metaphor, butlers – have not received the attention they deserve. A number of new books have set out to change that – and their timing, unfortunately, couldn’t be better, as tougher sanctions on Putin’s cronies become a weapon of choice in the Western crackdown on his aggression.

In world butler, Bullough takes the UK to task. Jeeves, the unflappable butler in PG Wodehouse’s Bertie Wooster series, beloved by thousands of British and Anglophile readers, may not be an obvious angle of attack. But Bullough’s objective is precise: “As Wodehouse writes, it’s very funny, but [if] you focus on Jeeves’ actions rather than his gentle, gentle ways, you end up with something extremely dark: a mercenary, a repairman for hire. And that’s exactly what, says Bullough, Britain has become in its drive to serve all comers as long as they pay enough.

Bullough takes his metaphors seriously, to the point of enrolling in a school for real butlers (he was kicked out after a flower-decorating course, once he was branded a money-laundering researcher). The butler goes far beyond accepting deposits from the world’s corrupt: it extends to providing them with (lavish) lodgings, educating their children, honoring them in every way, naming rights in world-class British universities to royal patronage, as well as catering to all the minor needs the super-rich might need.

It all started, in Bullough’s very readable account, with Britain’s disastrous military adventurism at Suez in 1956, when it joined France and Israel in trying to unseat the nationalization of the canal. by Egypt. It ended in humiliation as the American opposition exposed Britain’s post-war strategic impotence. His thesis is that after the strategic withdrawal, the ‘butler’ became the answer to US Secretary of State Dean Acheson’s challenge that Britain had ‘lost an empire, but not yet found a role’. The role would be to facilitate the flow of money around the world, no questions asked.

Several factors came together to make this happen. Bullough describes a post-war city of London determined to insulate itself from government regulation, ready to embrace innovations that would mean good business for financiers. He also points out how, in a world of hard currency scarcity – withholding dollars was the means by which Washington forced London to ditch Suez – there was a lot to like in allowing unregulated cross-border money flows. national. For Bullough, whose previous book moneyland explored corruption in the global financial system, the mid-century emergence of the Eurodollar system of offshore dollar transfers, and Britain’s butler role are two sides of the same dirty coin.

Then there was the imperial detente. “If Westminster were at the head of the British empire”, writes Bullough, “the City [of London] was its heart, pumping money into the financial arteries that spanned every continent and every city in the world. In Bullough’s account, the “butler” came to the rescue of British finance. world butler is packed with stories of how past or remaining outposts of the empire, from the British Virgin Islands to Gibraltar, have reinvented themselves as places to secrete money or escape onerous rules.

American kleptocracy, by corruption researcher Casey Michel, gives the US the same treatment that Bullough gives the UK. Reading the two together makes one somewhat skeptical of Bullough’s thesis that the UK is particularly depraved when it comes to dirty money. As Michel shows, some of the deepest tax havens in the world are US states, including not only Delaware (inventor of the shell company, according to the author), but also Nevada, South Dakota and Wyoming.

Like Bullough, Michel masterfully recounts the tragicomic results when outraged autocrats encounter usable financial and legal systems – like the “bling dictator” of Teodoro Nguema Obiang Mangue, son of the detestable president and famous for his dozens of luxury cars and boats, his friendships with American pop stars and his collection of Michael Jackson memorabilia.

Michel gives Washington a more mixed assessment than state governments – which, in this context, is a relative compliment. But Washington is also guilty of leaving too many gaps in otherwise decent anti-money laundering laws for a number of transactions and professions, including real estate. Just an example from Michel’s book: in “Trump SoHo. . . the most closely affiliated New York construction of the entire Trump family. . . 77% of unit sales went to buyers who fit money laundering profiles”.

These two books will leave the reader in no doubt that the United States and the United Kingdom have a large class of “facilitators” or service providers such as bankers, lawyers, estate agents, accountants and public relations consultants needed to give dirty money a good home. . This term gives the title to another book of this genre, Facilitatorswhere the international financial class is taken to task by Frank Vogl, a former economics journalist and communications advisor to financial institutions who laments the future of the professions for which he has spent his life working.

America’s empowering class is perhaps the most dangerous, given its influence on the politics of a more powerful country. But the United States has successful heroes in Michel’s story. They range from the late Senator Carl Levin, who attached anti-money laundering provisions of the Patriot Act after 9/11, to the dogged investigators who tracked down Obiang’s money, and to a Justice Department unit for confiscating the kleptocrats’ assets. More recently, a bipartisan vote in Congress banned front companies last year, and the Biden administration has embarked on an anti-corruption agenda.

Bullough’s heroes, on the other hand, are few and far less powerful than Michel’s: backbenchers without the staff enjoyed by US lawmakers or underfunded regulators. Bullough argues that there is something particularly conducive to the ‘butler’ about Britain’s peculiar set-up. The unwritten social codes of the country; the exclusive solidarity and tacit obsession of its upper class with money; the common law tradition and resistance to codified rules — all combine to thwart repression or even the will to crack down.

In Britain’s financial elite, “guys don’t tell other people how to behave,” writes the author. So the old quirks of British law, from Scottish limited partnerships to private criminal prosecutions, have become perfect instruments for crooks to hide their money and silence their critics.

Both Bullough and Michel deserve praise for going beyond moralizing and pointing out how a corruption-driven industry is not only unsavory, but can harm a country’s real economic prospects. In his account, Michel shows how the abandoned factories of the American Rust Belt have become bizarre conduits for laundering dirty money. Investors in their twenties from an Orthodox Jewish community in Miami are reportedly showing up, devoid of industrial or corporate experience, but brimming with money that US authorities say comes from Ukrainian corruption. They would pay beyond the odds for metalworking plants and buildings in remote communities that desperately need outside investment.

But these communities languished as the new owners were indifferent to development; all they needed was the security and discretion offered by obscure American land and real estate holdings.

The attack on Ukraine shows that America’s and Britain’s enabling industries (although they are not the only ones) are clear international security risks. It is amazing that it takes war in Europe for politicians to realize this. All the more credit to the writers who continually lift the veil on the unseemly parts of the financial services industry and urge us all not to look the other way. There are signs that governments are being pressured to end their reliance on dirty money inflows.

Reading these books, you realize that we are still far from that, despite the current sanctions. This reader, at least, won’t believe things have changed until he sees it.

world butler: How Britain Became the Handmaid of Tycoons, Tax Evaders, Kleptocrats and Criminals by Oliver Bullough, Profile, £20, 288 pages

American kleptocracy: How the United States Created the Largest Money Laundering Scheme in the World in history by Casey Michel, St Martin’s Press, $29.99 / Scribe UK, £18.99, 368 pages

The catalysts: How the West Supports Kleptocrats and Corruption – Endangering Our Democracy by Frank Vogl, Rowman & Littlefield, $32/£25, 216 pages

Martin Sandbu is the FT European economic commentator

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