The UK Government has been one of the most effective supporters of Ukraine in military terms after Russia's full invasion in February 2022, while London has remained quite a safe environment for Russian billionaires and political operators making Moscow's bid in international relations.
The pressure to clean things up has been mounting during the past few months, and British public agencies have announced new measures. Yet, there is a high mountain to climb, as Kremlin-linked businessmen still find loopholes and opportunities to launder ill-gotten money and to protect the Russian state interests. Members of the political and financial elites have been bought by Russian money since the 90s, as the deep-entrenched interests and lavish expenses brought to the city a sarcastic nickname to describe the trend – Londongrad.
There are fears that the momentum to reverse this trend could be lost just as it happened after two other huge geopolitical moments: the annexation of Crimea in 2014 and the Skripal affair in 2018.
Open Source Investigations is starting a series of feature stories about Russian money in London, the profiles of Russian businessmen and their modus operandi, and the response of the British Government and its NATO allies.
The Government's official position is that the UK and its allies have "introduced the most severe sanctions ever imposed on any major economy in response to Russia's aggression towards Ukraine", and such sanctions are being increased "in a sustained way". Over 1,500 people and entities have been sanctioned since Putin's illegal invasion of Ukraine. The UK Government has set out four objectives:
- to bring a large and lasting cost on Putin and those close to him for the illegal invasion of Ukraine;
- to cripple Russia's war machine to help ensure Putin loses the war in Ukraine;
- to maximise influence on Putin to convince him to end his brutal war;
- to show the world that the Russian Government's actions have severe consequences.
Official data released last April showed that, besides maximising economic pressure on Russia, the UK provided £2.3 billion in military aid and £1.5 billion in economic and humanitarian support to Ukraine.
Secrecy and inertia
Still, much criticism of current affairs comes from within the political system, media, and NGOs. Sir David Alton, member of the House of Lords, stated recently, in an op-ed in The Telegraph: "Secrecy and inertia are the two main reasons why our sanctions system is not working". Lord Alton is pushing for harsher legislation in Parliament that would oblige sanctioned oligarchs to declare all assets held in the UK, going back to six months before they were sanctioned. "We have built a financial services sector within which crooks, oligarchs and kleptocrats are playing an interminable game of cat and mouse with law enforcement… And now we are finding that those crooks, oligarchs and kleptocrats know the rules of this game – and their loopholes – better than we do ourselves. Accepting that our existing sanctions policy is not fit for purpose is important. However, what we can and should do right now is find a way to make sure that what sanctioned Russian assets we have managed to identify and freeze are taken away from these oligarchs and put toward Ukrainian reconstruction efforts. As it stands, if the war in Ukraine were to end tomorrow, we'd have little choice but to hand back £18bn worth of frozen assets to their dubious owners with no questions asked. This is the distinction between freezing and seizing, and we simply cannot allow it to happen", said Lord Alton.
A recent investigation by Reuters exposed the lack of effectiveness of the UK's new legislation that requires property-ownership disclosure, aimed at cracking down on Russian oligarchs and corrupt elites laundering illicit wealth. Foreign companies holding UK property had to identify their "beneficial owners" in a new public register, with a deadline on January 31. Government data found that the people behind more than 10,000 UK-property-owning foreign companies remain shielded from public view. More than 19,700 overseas companies had disclosed ownership of UK property by the deadline, which means about two-thirds of all the property-owning foreign companies. About 5,500 companies, or nearly 30% of the more than 19,700 companies that did register with Companies House, didn't identify any individual owners. Many of those disclosed as beneficial owners entities in countries known for business secrecy, such as the British Virgin Islands or Panama. Only four Russian nationals under British government sanctions appeared on the register. They were: Vladimir Potanin, one of Russia's wealthiest businessmen; Russia's former first deputy prime minister Igor Shuvalov and his wife; and Alexander Frolov, the former chief executive officer of Evraz, a Russian steel and mining company.
Some sanctioned Russians who have been linked to UK properties were absent from the register, including Roman Abramovich, Alisher Usmanov and Oleg Deripaska.
NGOs and politicians have criticised the Government for leaving loopholes that allow wealthy individuals to avoid making disclosures, such as through the use of trusts.
A wider Russian strategy
The extreme violence displayed by Russia in 2022 made public opinion more sensitive to the realities that had been exposed for at least 20 years regarding Londongrad. Different entities and experts sounded the alarm about the rotten system within the UK.
After last year's military attack, a report of Transparency International, an anti-corruption campaign group, stated that at least 150 properties in the UK worth £1.5bn were owned by Russian businesspeople and officials who have been accused of corruption or having links to the Kremlin. Of the £1.5bn in UK property identified by anti-corruption experts, more than £1bn is held by companies based in secrecy havens. The majority of these are UK Crown dependencies and overseas territories like the British Virgin Islands and the Isle of Man. The group also accused Britain's professional services industry, which includes lawyers and property firms that tailor their services to wealthy elites from former Soviet republics, of enabling corruption. These professionals have helped oligarchs or officials linked to corrupt regimes hide more than £2bn of their wealth in the UK, according to a report by Chatham House published in 2021.
A report published by the Foreign Affairs Committee of the House of Commons in 2018, in the wake of the brazen Russian state's operation to kill Sergei Skripal inside the UK, stated: "The use of London as a base for the corrupt assets of Kremlin-connected individuals is now clearly linked to a wider Russian strategy and has implications for our national security".
Other conclusions regarding "Londongrad" were as follows:
- The assets stored and laundered in London both directly and indirectly support President Putin's campaign to subvert the international rules-based system, undermine UK's allies, and erode the mutually-reinforcing international networks that support UK foreign policy.
- The size of London's financial markets and their importance to Russian investors gives the UK considerable leverage over the Kremlin. But turning a blind eye to London's role in hiding the proceeds of Kremlin-connected corruption risks signalling that the UK is not serious about confronting the full spectrum of President Putin's offensive measures.
Safe haven for corrupt wealth
A more recent report of the same Committee, published in October 2022, implied that driving dirty money, including from Russia, out of the UK is a security priority." The Government's unwillingness to bring forward legislation to stem the flow of dirty money is likely to have contributed to the belief in Russia that the UK is a safe haven for corrupt wealth. It is shameful that it has taken a war to galvanise the Government into action. The measures in the Economic Crime (Transparency and Enforcement) Act 2022, while welcome, do not go far or fast enough and do little to address the fundamental mismatch between the resources of law enforcement agencies and their targets. Although Ministers have spoken eloquently in the House about the need to clamp down on kleptocrats, rhetoric has not been matched by constructive action. Meanwhile, corrupt money has continued to flow into the UK", according to this report.
A report by the Intelligence and Security Committee of the Parliament in December 2022 admitted the UK had been welcoming Russian money for many years with few questions – if any – being asked about the provenance of this considerable wealth." The Committee highlighted the urgent need for the UK Government to disrupt this illicit financial activity, questioning the efficacy of the existing measures", stated the report.
Some of the most notorious Kremlin-linked oligarchs residing or doing business in London:
Evgeny Lebedev – dual British and Russian national, son of a former KGB agent, owner of the Evening Standard and friend of former PM Boris Johnson. He was put forward for a peerage by Downing Street in March 2020, against the advice of MI5. He is known to have introduced many Russian kleptocrats to the British money laundering system, comprising lawyers, financial experts, PR firms and politicians, an ecosystem that he kept oiling with extremely lavish parties.
Mikhail Fridman – Russian-Israeli businessman, born in Lviv/Ukraine. He is investigated for money laundering by the UK's National Crime Agency. Fridman is the majority owner of Alfa Group, one of Russia's largest privately owned investment groups, and is on the EU sanctions list over the Russian invasion of Ukraine. The EU called Fridman, 58, "a top Russian financier and enabler of Putin's inner circle".
Viktor Fedotov - dual British and Russian national, oil tycoon. According to Pandora Papers, he was linked through a Russian firm to a massive corruption scheme leaked in 2021. Fedotov owns £25m-worth property in the UK and donated £1.5m to the Conservative Party through the UK energy firm Aquind, which he controls.
Igor Shuvalov - a former Russian first deputy prime minister who owns an £11.4m apartment in London. In 2022, at the beginning of the military offensive, he was the chair of the Russian state development bank, VEB, which plays an important role in funding the country's defence sector.
Roman Abramovich – former owner of the Chelsea Football Club, which he reportedly bought on Vladimir Putin's orders. At the moment of the invasion, Abramovich owned £200 million worth of property in the UK.