As Russia began its shocking invasion of Ukraine, the UK government fought back with sanctions on the wealthy Russians living on UK soil. This, in turn, has pointed a spotlight on the activities of these super wealthy UK based Russians. As the atrocities mounted, people started to take more of an interest – why were there so many Oligarchs in London? How did they all get there in the first place? Have we been rolling out the red carpet to individuals known to be corrupt, with shady financial histories and chequered pasts? Have we been turning a blind eye with too little focus on financial regulation, in the journey to build London up to be the financial superpower it’s become?
Where does it all start? The classic Russian oligarchs made their millions from siphoning off Russian state assets in the 90’s. When the Soviet Union broke down, a small set of well-connected and very ambitious Russians grabbed these state owned assets, corporations and financial institutions – and made a lot of money. A newer set of oligarchs have formed under Putin, with fortunes being made from potentially over inflated government deals with kick-backs for those in the loop.
Fast forward things, and it seems lots of these ill gotten gains have ended up in London. The phrase ‘London Laundromat’ and ‘Londongrad’ are freely used to reference Russian money being laundered in London. But why exactly has London been one of the preferred locations for Russian oligarchs to ‘wash’ their dirty money?
We’ve looked at a few of the key reasons here…
UK disclosure rules – High end UK property has for a while been attractive to Russian investors. Large swathes of central London are or have been Russian owned. There is very limited disclosure required for foreign owners of UK property, which has made it easy for Russians to buy up large expensive properties. Russians and other wealthy non UK residents have been able to buy properties through shell companies based offshore, where Directors are not disclosed and privacy is maintained.
The ‘Golden Visa’ programme – Launched in 2008 this allowed wealthy foreign investors to fast track their UK residency rights. If you planned to invest £2m in the UK the wait for residency was reduced to 5 years, if you upped this to £10m it was shortened to two. It’s estimated that between 2008 and 2015 c.3,000 of these were handed out, with c.700 finding their way into Russian hands. The scheme has definitely been abused over the years, by wealthy Chinese in addition to Russians. UK politicians have always gone to great lengths to show they won’t get in the way of business. The scheme came to an abrupt end following the invasion of Ukraine, no more visas for cash.
Weak regulatory enforcement – It’s estimated that over £100bn is laundered in the UK each year, but the budget for fighting that economic crime is less than 1% of that. Realistically, it’s just not enough and the rules are not tough enough and not enforced. Successive governments have been too chummy with wealthy Russians. Both Major and Blair encouraged the golden visa programme; Ken Livingstone encouraged Russian companies to view London as their ‘natural base in Europe’; through to Boris Johnson who is close to Evgeny Lebedev – son of Russian billionaire. There are plenty of other stories of uncomfortably close relationships, the lure of Russian money and power seems to have been too much over the years.
How does the ‘laundry’ actually operate? This is why London is so attractive, because the process uses the full array of services that London has to offer. First the dirty money is ‘placed’ from foreign accounts to UK shell companies. Fast, private and fairly easy. Then it’s ‘layered’ – banks and other well established financial institutions are used to move the money around the world. Then it’s ‘integrated’ – used to buy assets, property and other luxury goods. Finally it’s ‘defended’, by the libel laws and lack of enforcement.
Seems they have been untouchable? The Russians have always had plenty of cash left over to spend on expensive legal defence, respected PR firms and government lobbying. They have been able to see off any attacks on the financial affairs, which has also contributed to the historical lack of action against them and made them appear to be ‘untouchable’.
This is a deep rooted issue which has built up over many years. London has enjoyed growth and success on the availability of Russian capital, and some say it’s been core to London’s ‘business model’. However, the recent events have forced bigger changes which some see as long overdue.