London party

UK takes cleaning up London of ‘dirty’ Russian money seriously

As Russia continues its war in Ukraine, the UK is set to “crack down on Russian money in the UK”, Prime Minister Boris Johnson announced this week. This signals a long-awaited reversal in historically laissez-faire attitudes toward Russian oligarchs and their heavy investment in British institutions.

Transparency International has identified more than two thousand UK-registered companies used in money laundering and corruption cases in Russia, implicated in more than £82 billion ($109 billion) of misappropriated funds, for example , through embezzlement and illegal acquisition of state assets. The advocacy group also identified some £1.5billion of London properties owned by Russians accused of corruption with links to the Kremlin.

Why we wrote this

Britain has long been home to “dirty” Russian money – earning its capital the nickname “Londongrad”. But the war in Ukraine prompts the government to finally do something about the corrupt oligarchs.

Escalating violence in Ukraine has ‘completely changed’ Britain’s flippant approach to Russian money, says Kathryn Westmore, senior fellow at the Royal United Services Institute, a British think tank on the army and security.

Key to the changes is Mr Johnson’s resurrection of decade-old legislation that would require anonymous owners of property to identify themselves or the property cannot be sold. Violators of the law would face five-year prison sentences.

“It’s hard to be happy that new transparency legislation is coming soon,” says Ms. Westmore. “But it is very necessary.”

London

For years, Londoners have largely ignored the wealthy Russian oligarchs living among them.

The people of Highgate, North London, certainly knew they were there. Every weekend, tours of billionaire homes pass by Russian-owned Witanhurst, the second largest home in the UK after Buckingham Palace.

Likewise, they knew, a few miles away in Belgravia, where Londoners have renamed Eaton Square “Red Square”, because of its high concentration of Russian tycoon owners – among them Roman Abramovich and Oleg Deripaska, two billionaires closely allies with Russia President Vladimir Putin.

Why we wrote this

Britain has long been home to “dirty” Russian money – earning its capital the nickname “Londongrad”. But the war in Ukraine prompts the government to finally do something about the corrupt oligarchs.

But the lack of public scrutiny – and the active welcome the oligarchs have received from several UK governments over the years – appears to be coming to an end.

As Mr Putin continues the war in Ukraine and new questions are raised about the origins of the oligarchs’ fortunes, the UK is set to ‘crack down Russian money in the UK’, the Prime has announced. Minister Boris Johnson on March 1. This signals a long-awaited shift in the historically laissez-faire attitudes toward the oligarchs and their “Londongrad” playground.

The London Laundromat

In three decades, London has established itself as the global hub of choice for Russian “dirty” money. Russian oligarchs are believed to have diverted money from Russian state assets, often with the help or approval of Mr Putin. They eventually transferred that wealth to the UK for safekeeping and investment – which the country greeted with some questions, according to a 2020 report by the Parliamentary Intelligence and Security Committee.

According to the report, this reception “provided ideal mechanisms through which illicit funding could be recycled through what has been called London’s ‘laundry’. The money was also invested in extending patronage and building influence across a wide sphere of the British establishment – PR firms, charities, political interests, universities and cultural institutions. were all willing recipients of Russian money, contributing to a “reputation laundering” process.

Transparency International has identified more than two thousand UK-registered companies used in money laundering and corruption cases in Russia, implicated in more than £82 billion ($109 billion) of misappropriated funds, for example , through embezzlement and illegal acquisition of state assets. The advocacy group also identified some £1.5billion of London properties owned by Russians accused of corruption with links to the Kremlin.

The mood in Britain began to turn against the Russian oligarchs even before the invasion. On February 17, the government scrapped the so-called “golden visa” program introduced in 2000, which granted residency to wealthy foreigners in exchange for large-scale investments – the larger the visa, the faster the visa would be granted. Many Russian millionaires were among the beneficiaries.

But escalating violence in Ukraine has “completely changed” Britain’s flippant approach to Russian money, says Kathryn Westmore, senior fellow at the Royal United Services Institute, a British military think tank and security.

Key to these changes is Mr Johnson’s resurrection of legislation first proposed by former Prime Minister David Cameron but ignored for nearly a decade. The bill would require anonymous owners of a property to identify themselves, otherwise the property could not be sold. Violators of the law would face five-year prison sentences.

“It is shameful that the situation in Ukraine had to happen for this to happen,” Ms Westmore said. She, like many Britons worried about the dark nature of Russian influence in Britain, welcomes the opportunism shown by Boris Johnson.

“It’s hard to be happy that new legislation addressing transparency is coming,” she says. “But it is very necessary.”

The UK also has other tools. In 2018, it introduced Unexplained Wealth Orders (UWOs), a means by which it could require a wealthy person suspected of corruption or criminal connections to explain the origins of their wealth. UWOs have only been used a handful of times, but the new bill should bolster their usefulness.

Additionally, Minister Michael Gove is working on a proposal that would make it easier for the government to seize the assets of oligarchs closely associated with Mr Putin.

Russian currency, British institutions

When Labor MP Chris Bryant last week read a government document leaked to parliament identifying Mr Abramovich, the owner of Chelsea football club, as having links to the Russian state and engaging in “activities and corrupt practices”, a chain of events had been set in motion that shed light on the influence that Russian wealth had on British cultural institutions.

Fans take pictures outside Stamford Bridge, home of Chelsea soccer club in London, March 3, 2022. Russian businessman Roman Abramovich said on Wednesday he would sell the club amid growing pressure for the oligarchs to be hit with sanctions over the Russian invasion of Ukraine. .

Mr Abramovich acquired his wealth from Russian oil after the fall of the Soviet Union and bought Premier League football club Chelsea in 2003. His wealth turned them into a winning team, but few questioned his intentions , or indeed, the true source of his fortune. Football, like much of Britain, has “simply bent the knee to foreign capital”, says Jonathan Liew, sports journalist at The Guardian.

But after years of being viewed as a benevolent figure, he is now the subject of intense scrutiny, even from a once glowing government, Mr Liew says. The Johnson government’s ‘furious backlash’ and ‘performative outrage from football authorities suggests that the real red line was not morality, but public relations’.

Yet whatever his motivation, the UK’s role as a global hub for Russian money “puts his government in a uniquely strong position to undermine Putin’s kleptocracy… by attacking financial secrecy”. , says Tom Burgis, author of “Kleptopia: How Dirty Money is taking over the world.

Russian companies have sought out London as a place to raise foreign capital and global influence; in total, they have a market value of over £400 billion listed on the London Stock Exchange. And some £68billion of Russian money has been funneled into offshore UK tax havens, such as the Cayman Islands and the British Virgin Islands, via London, raising new questions about how and where that wealth ended up. been generated.

Dismantling the City of London’s financial secrecy, with its links to tax havens and reputation-management law firms, will come at a cost, Mr Burgis said. “But the UK is now faced with a choice: whose side is it on?”

Russian influence in power

Amid a crackdown on Russian money in Britain, Mr Johnson may have to look closer to home. The ruling Conservative Party has received some £2million in donations from Russia-linked sources since Mr Johnson took office in 2019, Electoral Commission data shows. Intelligence authorities warn such gifts may not be for altruistic reasons as Russians seek to establish broad influence in UK

World-renowned universities and cultural institutions have also “encouraged” Russians to settle, RUSI’s Ms Westmore says. “The UK offers a kind of stamp of legitimacy,” she says, “not just from a financial point of view, but also from a social and cultural point of view.”

A property market open to foreign investors, the rule of law and a functioning legal system have, ironically, encouraged the systemic flow of Russian wealth to Britain, she adds.

For financial crime analysts like Ms Westmore, a new offshore property register is a step in the right direction and will have a ‘deterrent’ effect, but will require ‘time and strict enforcement’.

It’s not just about the money, she says, but about the UK’s role in not facilitating wider corruption. “We have to make sure we get it right.”