Londongrad: what is the cost of Russian-linked illicit finance in the UK?

In the 1990s, Russia’s new capitalist class largely made their money from the questionable privatisation of state assets; they then looked for places to securely save and spend their new wealth, away from the legal chaos of post-Soviet Russia.

London, according to the House of Commons Intelligence and Security Committee, has been seen as “a particularly favourable destination for Russian oligarchs and their money” since the introduction of the UK’s investor visa scheme in 1994.

The UK provides the rule of law, but also light-touch regulation, along with investment opportunities in the capital’s property and financial markets. Another big draw was the secrecy provided by anonymous UK shell companies, and the City’s web of offshore financial centres.

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And, as well as world-class private schools and a cosmopolitan social scene, there were lawyers, accountants and PR experts to launder money and reputations.

Why were they welcomed?

For good reasons, as well as for mercenary ones. It was genuinely believed that welcoming Russian companies and business leaders would improve relations with Russia, and help to raise corporate standards there. The investments they made would benefit the UK, too. “The presence of these exotic creatures, the billionaires, is good for the whole ecosystem,” declared the then mayor of London, Boris Johnson, in 2014.

Today, there are thought to be 150,000 Russians living in London – most of whom have no links to the Kremlin, and many of whom have come here to escape it: Mikhail Khodorkovsky, for instance, once Russia’s richest man, spent a decade in jail after exposing state corruption. However, it is now widely accepted that the UK was far too welcoming.

How much Russian money is in London today?

A vast amount. In the seven years from 2008, when Labour introduced the Tier 1 “golden visa” scheme, 700 Russians and their families invested upwards of a million pounds each in the UK to gain a fast-track to British citizenship. As of this year, official figures recorded £27bn in Russian investment in Britain.

Transparency International estimates that since 2016, £1.5bn-worth of UK property has been bought by Russians accused of corruption or links to the Kremlin. In 2020, the Home Office reported that the UK “continues to see a significant volume of Russian, or Russian-linked illicit finance channelled through the UK economy”.

London has been used, entirely legally, for foreign capital-raising by Russian companies, such as the energy giant En+. More than 20 of them, with a total market value of more than £400bn, are listed on the London Stock Exchange, giving them an arguably undeserved respectability.

Why is all this so problematic?

Russia is widely regarded as a kleptocracy, a mafia state run by an elite that has vastly enriched itself. Its businessmen are not normal businessmen. According to “Moscow’s Gold”, a report by the Foreign Affairs Committee, “the contemporary oligarchs owe their wealth to the president”. In exchange, they act as “a source of private finance for the Kremlin”.

That raises moral and security questions about handling their money; the bond also “forces them to do all sorts of chores for Putin”. This is a worrying prospect, given that Russian influence has become such a powerful force in the UK. Since Boris Johnson became leader of the Tory party, it has received £2m in donations from Russian-linked sources. Several members of the House of Lords have worked for companies linked to the Russian state.

What is being done now?

Since Putin’s invasion of Ukraine, unprecedented steps have been announced to close down the “London laudromat”. An asset freeze has been imposed on all major Russian banks; over 100 companies and oligarchs have also been hit with asset freezes, travel bans and sanctions. The “golden visa” scheme has been scrapped.

A new Economic Crime Bill has been promised, which will reform company rules so that those holding assets through offshore shell companies have to declare their ownership on a register. A new “Kleptocracy Cell” will be set up in the National Crime Agency to target sanctions evasion and corrupt assets hidden in the UK. Russian companies have been prohibited from raising finance on UK markets, and the Kremlin from issuing sovereign debt there.

Will it work?

In theory, it ought to. But Britain has pledged numerous anti-Russian crackdowns before – after the murder of Alexander Litvinenko in 2006, the annexation of Crimea in 2014, and the Salisbury poisonings in 2018. Unexplained Wealth Orders were introduced in 2018 to target the illicit wealth of foreign officials suspected of corruption and those involved in serious crime.

But, owing to the high cost of applications, the Government has only issued four since. Besides, at this point, such a campaign may be, at best, a matter of damage limitation.

Why can so little be done?

Because, according to the Intelligence and Security Committee, many Russian oligarchs are “to all intents and purposes now apparently legitimate” in the UK.

The Anti-Corruption Foundation founded by the jailed opposition leader Alexei Navalny has compiled a list of 35 oligarchs whom it describes as “key enablers” of “Putin’s abuses”. They include Roman Abramovich and Oleg Deripaska, who have long-standing links to Britain. Both deny such a role, and their position here is thought to be legally unimpeachable.

London’s law firms have been very helpful and ferociously protective of their Russian clients, with the help of Britain’s plaintiff-friendly libel laws. “For the UK,” said the FT last week, the invasion of Ukraine “should be a wake-up call over whom it is willing to do business with”.