The wind is turning against Russian money in Britain – POLITICO

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Oliver Bullough is the author of Butler to the World: How Britain Became the Servant of Oligarchs, Tax Dodgers, Kleptocrats and Criminals, to be published March 10.

LONDON – The first man to sell part of the UK capital to a post-Soviet Russian was initially delighted to tell me about it. He was a real estate agent—chubby, English like a Hugh Grant film extra, and he laughed out loud at how easy the money had come in. The sale took place in early 1992. Communism had collapsed a few weeks earlier, and a man named “Alex either way” and two friends walked into his London agency literally off the street and said they wanted some flats.

“It bugs me that I can’t remember his last name, but he’s grown into something bigger,” the man said. “He’s probably a billionaire by now.” Alex and his two friends each bought a flat at prices ranging from £200,000 to £320,000 and the commission from the sale likely bought the estate agent a new car. The money he has since made selling to Russians will not only have bought him a house or two but also put his children through school. “It’s very common to sell to Russians,” he said. “If they wanted it, they would pay for it, no matter what the price.”

What a triumph and what gains. No wonder he loved remembering it. But he and I weren’t talking in the early 1990s, it was five years ago, and even then, more and more people were wondering if it wasn’t a bit foolish to sell large parts of our cities to Russians. Vladimir Putin had just staged his strike for the 2016 US election. The Russian President had annexed Crimea and was meddling in foreign countries with increasing bravado. A few months after our conversation, the real estate agent wrote to me and asked me to remove his name from the book I was writing.

If welcoming the Russian money was questionable then, now – with Putin’s tanks on the outskirts of Kyiv and Russia a pariah facing sanctions previously only imposed on countries like Iran – a deal like that of the real estate agent would be the career end.

London is facing a long-overdue reckoning with its role in creating Russia’s kleptocracy, and that will make many people uneasy. I suspect many London-based professionals are currently wishing they could nullify the records of the deals they have made with Russians over the past three decades.

shell game

London’s financial ties with Moscow did not, of course, begin in 1991. From the 1950s, the Soviet Union began holding its dollar deposits in a London-based bank out of concern that storing them in the US would put them at risk of being frozen (a prescient concern in light of recent events). These offshore services provided a lucrative source of income for a Britain that was at the time struggling to find a post-imperial place in the world.

Soviet institutions were adept at hiding their financial transactions behind shell companies registered in places like Jersey, and it is widely believed that the KGB took advantage of the secrecy available in the offshore territories of Britain, as well as in Switzerland and other similarly discreet jurisdictions, to move his money around undetected.

Given that many of today’s nouveau riche Russians came from the Soviet ruling elite, it is not surprising that they sent their money through the same channels as their predecessors. During the 1990s, a series of scandals caused prosecutors in the US and Switzerland to start paying more attention to the tide of untold riches. Not so in the UK, where London seized the opportunity to make the most of its sudden competitive advantage as a major financial center where wealth would go unmolested.

The biggest ex-Soviet money laundering scandals uncovered in recent times have all had a UK connection, thanks to the total lack of controls on information entered into Companies House, the UK’s business register, when companies are formed or other corporate structures are incorporated.

When managers of Danske Bank’s Tallinn branch wanted to offer clients moving tens of billions of dollars complete anonymity – as impenetrable as anything available in Zurich at its heyday – they packed a UK-registered limited partnership along with an account. This was only possible because Britain did not insist that company registrations contain reliable information on ownership.

To attract investment, it worked. Hundreds of Russians bought expensive properties in London’s posh boroughs of Belgravia, Knightsbridge and Highgate, as well as in the leafy areas surrounding the capital. Transparency International has identified £1.5 billion worth of property owned by wealthy Russians in the UK, and this is clearly just the exposed tip of the buried mountain of wealth.

Between 2008 and 2015, 706 Russians bought “gold” Tier One visas to secure stay in the UK, in addition to an unknown number in previous years when the visas had a slightly different name, totaling at least £729m of investments brought in the British economy. There were no checks on where the money came from, nor were there any requirements that it actually had to be invested in the UK. It was only necessary to invest in a British company, which in turn could own real estate in Russia.

‘The New Normal’

At times it seemed like the whole city was involved in the game. This benefited not only real estate agents and the government’s visa department, but also accountants, financial institutions, art dealers, yacht brokers, private schools and reputation managers. Members of the House of Lords served on the boards of major Russian companies listed on the London Stock Exchange. Protracted battles between Russian tycoons in the Commercial Court brought lawyers millions in fees. The City of London loved Russian money, and officials focused solely on keeping the flow going.

It’s not that nobody was aware of the potentially corrosive effects of Russian money. It’s like nobody in power was interested in doing anything about it.

Thanks to the likes of Boris Berezovsky — the hyperactive tycoon who fell out with Putin and fled to Britain in 2000, where he launched a vocal propaganda campaign against the Russian president — there was a misconception among journalists that London was a hotbed of Russian opposition. In reality, Britain was a playground for anyone with money to spend, regardless of their political views or, in some cases, what crimes they might be associated with.

After Russian agents came to London in 2006 to use polonium-210 to kill dissident Alexander Litvinenko, the British government took virtually no action. “This case obviously creates tensions with the Russians. They are too important for us to argue with,” an anonymous minister in the government of then British Prime Minister Tony Blair told the media before Litvinenko’s body was even buried.

In 2017, following a new money laundering scandal, MPs pushed for some minimal changes to company law to prevent UK letterbox structures from being used for money laundering. The Treasury responded with further deregulation, which was a remarkable demonstration of the government’s determination to keep the money flowing at all costs.

A few years later, a 2020 report by Parliament’s Intelligence and Security Committee concluded that “Russian influence in the UK is ‘the new normal’ and there are many Russians with very close ties to Putin who are well are integrated into the British business and social scene, and accepted because of their wealth.”

It was a sobering report that offered an alarming conclusion, but Prime Minister Boris Johnson’s response was to claim – ridiculously – that it was an attempt to delegitimize Britain’s exit from the EU and dismissed his finding altogether. As recently as January, a government minister resigned in disgust at Johnson’s government’s failure to crack down on illicit finance.

Ukraine Effect

This is the context of Britain’s Ukraine-inspired scramble to expose and evict filthy Russian wealth and its owners.

Bottom line, not much has changed. Many of the measures are gimmicks. Canceling golden visas is meaningless since most of their recipients acquired citizenship a long time ago; The blocking of the RT TV channel will do little because few people watch it anyway. And those measures that may matter – like a long-promised but never delivered measure to force offshore companies with property in London to disclose their true owners – will yield no results for months.

A white paper on Companies House includes measures that could theoretically end its role as the main seller of the shell companies used to launder money out of Russia, but cleaning up the mess caused by decades of deliberate under-regulation will take more than legislation.

At the heart of Britain’s acceptance of filthy Russian wealth was law enforcement’s chronic underfunding. Even at a generous estimate, UK law enforcement spends just £42million a year fighting financial crime. Most experts estimate it would take at least twice that amount to contain the problem, and Johnson has not promised any additional resources other than renaming an office in the National Crime Agency the Kleptocracy Unit.

For too long, Britain – like the real estate agent who sold the first house – saw Russian money purely as a source of profit, without realizing that oligarchs don’t stop being oligarchs just because they left Moscow. Wringing the money and influence it buys out of Britain will be years’ work and will require far more attention than the government has given it so far. The wind is turning against Russian money in Britain – POLITICO

Fry Electronics Team

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