Britain’s current lining up with NATO allies in indignant criticism of Putin’s claim of defensive posture for Russia seems at odds with the cosy financial relationship that has grown up since well before the collapse of the Soviet Union and a steady stream of Russian oligarchs and their money heading for London. They have been made welcome, with the introduction  of the “Magnitsky” laws simply serving to slow the traffic down and drive much of it underground.

This accommodating approach goes back to the mid-20th century. After the second world war, Britain was all but bankrupt, the City of London was somnolent, and economic power had largely shifted to Wall Street. City bankers wanted to get back into business, but were frustrated by the weakness of the pound, and its unsuitability as a means to finance the world’s trade.

Their salvation came from an unlikely quarter: the Soviet Union, which didn’t want to keep its dollar reserves in US banks. Instead, it kept them in London, where British banks began lending them to each other in an entirely unregulated market – they became known as “Eurodollars” – thus giving birth to offshore finance, and providing the City with the start-up capital it needed to get back in business.

The practices of a bowler-hat-and-pin-stripe City created a demand for less stodgy financial handling, preferably with tax0free status. British Crown Dependencies, being outside HM Treasury control, had already developed a side-line in this trade, with the Chanel Islands and Isle of Man leading the way. However, other pink spots on the map —especially those with access to American markets—soon followed suit, including Bermuda, Bahamas and Cayman Islands.

The process was simplicity itself: transfer money to offshore financial institutions or businesses domiciled in such places and the money could enter the UK as domestic finance with few questions asked. It was not long before it struck wealthy individuals that funds processed this way were not only tax-free but “laundered” as to their origin. Examine documents exposed in the Panama Papers for an idea of the turnover that such “business” has achieved.

By the time Communism collapsed, Soviet institutions were routinely sending their money through Britain’s offshore territories, and the City was booming. The Central Bank in Moscow even had a shell company in Jersey, which it used to hide money from the government that it was supposedly a part of.

For decades, British politicians have welcomed Russian money to our shores. They have celebrated when oligarchs have bought our football clubs, cheered when they’ve listed their companies on our Stock Exchange. They have gladly accepted their political donations and patronised their charitable foundations.

According to Russia’s Federal State Statistics Service, Russian investors held financial assets in the UK worth a total of £2.6bn. That seems small indeed. The UK ONS (Office of National Statistics) provides a broader measure of Russian investment in the UK, and assessed it at £25.5bn. But that’s about what Finland has invested in the UK, so this figure still seems small.

These statistics are misleading. Russian money that moves through another jurisdiction before arriving in Britain is not counted as Russian. Since the overwhelming majority of money that enters and leaves Russia does so via tax havens such as Cyprus and the Bahamas, this means the official figures reflect only a small portion of Russian money reaching the UK.

At least £68 bn has flowed from Russia into Britain’s offshore satellites such as the British Virgin Islands, Cayman, Gibraltar, Jersey and Guernsey. And it’s not only the UK. At the same time, £94bn has poured out of Russia into Cyprus, £13bn into Switzerland, and £23bn into the Netherlands.

This wealth is not actually in these offshore centres— it is merely registered there, to obscure its origins. Russian officials, with wealth disproportionate to salary, use this anonymity to spend money in London without anyone catching on. More than half of Russians’ total wealth is held offshore—some £597bn.

This cash is diluted into the great tidal flows of liquid capital that pour in and out of the City of London every day, from every corner of the globe. The stashes created by Russian kleptocrats is, thanks to the skilled attentions of the tax havens’ best brains, indistinguishable from any ordinary investment.

Analysts at Deutsche Bank looked at discrepancies in the records of money that flows into and out of the UK, and concluded that since the early 1990s, £133bn had arrived without ever being publicly accounted for, with half likely to be Russian. And Deutsche Bank ought to know, as it was a significant culprit in spiriting money out of Russia without informing the authorities—£7.5bn in total.

Putin may be hiding money in the financial equivalent of sleeper cells, ready to buy influence. More importantly: no one steals money if they can’t keep it. By letting Putin’s allies launder their illicit fortunes and hide them in our country, we are drawing a line under their crimes, and rewarding them for actions a country with global financial standing should not condone.

Not all the money stays in the financial markets—oligarchs have taken over from Gulf sheiks in making outrageous purchases. They particularly like property, but at the top end of the market and preferably within 3 miles of Buckingham Palace. Since their arrival, property prices in Kensington have risen eight-fold, with Abramovitch’s fetching a cool £125m. Transparency International published a report which identified 160 properties in the UK, together worth £4.4bn, that had been bought by what it called “high-corruption-risk individuals”. Most of those properties were in London.

Oligarchs and their families come and enjoy such purchases courtesy of tier 1 investor visas, which provide successful applicants with residency in exchange for an investment of  £several million in government bonds. In one year, Russian citizens made up 764 of the 3,396 people who paid for these so-called “golden visas. This arrangement brought in around £800m of Russian investment.

The “Magnitsky Law” is named for a lawyer who died investigating £230 million of dirty money stolen from Russian companies of an investor called Browder. In pursuit of those responsible, Browder traced the money to 11 different countries. All, except Britain, have brought charges against those responsible.

Many British institutions have indeed accepted donations from wealthy Russian businesspeople: Sadiq Khan’s City Hall from Elena Baturina, whose husband was mayor of Moscow; the Conservative party from Lubov Chernukhin, whose husband was one of Putin’s ministers, and who paid £160,000 to play tennis with Boris Johnson and David Cameron in 2014.

Britain dos not make prosecution easy. In order to prosecute a foreign crook, you need to prove their money originated in a crime of some kind, and that requires evidence from overseas. Essentially, if you want to prosecute a Kremlin insider, you need evidence from the Kremlin, which it will not provide, and that stops investigations from progressing. Also, all wealthy Russians have political connections. If the UK does gain cooperation from Russian investigators in a prosecution, the defendant will invariably claim, often with good reason, that he is being politically persecuted, which allows his lawyers to discount the evidence being used against him. Then there is the brutal option: killing the witness is probably why Alexander Litvinenko died of Polonium poisoning.

The oligarchs now have the big accountancy firms advising them where best to stash the money, to conceal it, to disguise it, all kind of things. The brains of this pinstriped mafia are available to everyone. They’re for hire The introduction of unexplained wealth orders, which came into effect in February this year. Once a UWO has been issued, property is frozen, and its owner has to respond and justify why they own it. But that will only confiscate property; it won’t put anyone in jail.

In 2018, a Foreign Affairs Committee report demanded a more coherent government approach to the “assets stored and laundered in London (which) both directly and indirectly support President Putin’s campaign to subvert the international rules-based system, undermine our allies, and erode the mutually reinforcing international networks that support UK foreign policy.”

The present abrasively belligerent stance taken by Putin over Ukraine has been met by threats of “strong sanctions” by Britain and it’s NATO allies. But the history of Putin’s cabal of oligarchs who launder billions through Britain vie tax havens demands action on the provocations already evident. In cases where evidence emerges that someone is corrupt, that person should be prosecuted and/or kicked out of Britain. But this alone is insufficient; we need to find the dodgy money that is already here. Confiscating it and finding a way to return it to the Russian people would diminish those who mean us harm, while simultaneously helping those we wish to befriend.

“The time when we might have done something about this was 20 years ago, when it wasn’t particularly sophisticated, and the large sums of money were just arriving in the country,. By ignoring the provenance of dirty cash, and allowing it to be spent on property, British authorities have cleansed it of its taint: it is legitimate investment now. Unpicking all that is a real challenge.”

—Jon Benton, NCA

#1002—1,531 words

This blog uses material from the Guardian’s long read: How Britain let Russia hide its dirty money