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Taking aim at oligarchs, UK moves to shut down ‘London laundromat’

With the British government announcing sweeping sanctions against an influential Russian kleptocratic elite, it would appear the so-called “London laundromat” is closed for business. But the impact of oligarchy in the U.K. leaves a legacy that is harder to shake.

LONDON (CN) — Russia’s invasion of Ukraine has prompted widespread acknowledgment in the United Kingdom of the country’s complicity in Russian money laundering for decades, with significant illicit economic activity located primarily in London.

With the political landscape quickly shifting, and amid increased scrutiny of Russian financial arrangements in the nation’s capital, British Prime Minister Boris Johnson told Parliament on Wednesday that the government was doing “everything it can to expose ill-gotten Russian loot.”

“What we are bringing forward now is the exposure of the ownership of properties in London and across the whole of the U.K. in a way that has not been possible before, and that I believe will continue to tighten the noose upon [Russian President Vladimir] Putin’s regime,” Johnson added.

In line with European measures, the U.K. has announced extensive asset freezes targeted at Russian banks and firms operating in the country. It has also implemented export bans on a series of strategic goods, and intends to bring forward a long-delayed Economic Crime Bill to tighten lax company registration laws.

In addition, 27 firms with Russian links have been forced to cease trading on the London Stock Exchange, including Gazprom, the world's largest gas producer, and Severstal, the largest mining company in Russia.

But it is sanctions against named individuals that have drawn the most attention. Since the 1990s, a high-profile class of affluent Russian investors, many with former or current links to Putin’s Kremlin, have relocated to London, where their largely unscrutinized wealth has bought them influence, status and power, and earned the British capital the nicknames "Londongrad" and the "London laundromat."

In the week since the invasion was launched, the U.K. government has stated its intention to rapidly clamp down on the activities and assets of influential Russian oligarchs with British connections who are perceived to be close to the Kremlin. The Foreign Office has drawn up a list of hundreds of individuals upon whom it intends to place sanctions, and announced the formation of a so-called "oligarch taskforce" with responsibility for identifying and targeting the assets held by named individuals.

“We want a situation where they cannot access their funds,” Foreign Secretary Liz Truss told Parliament this week.

Individuals publicly named thus far include Igor Shuvalov, a former Russian deputy prime minister with an extensive property portfolio in London, and Alisher Usmanov, a Putin ally who is reported to own large estates in London and southeast England. The Foreign Office claims the two have a combined wealth of more than 19 billion pounds ($25 billion).

The perception in Westminster is that by freezing the assets of the international Russian elite, political pressure on the Putin administration is increased, though the Russian president’s domestic power is heavily entrenched and the extent to which he remains reliant on oligarchical support is unclear.

The U.K. government’s new approach is a dramatic U-turn on a decades long and largely bipartisan consensus in Britain which overlooked, and often even encouraged, the investment of kleptocratic Russian wealth in London and southeast England.

Demonstrators hold a pro-Ukraine rally outside Downing Street in London on Feb. 26, 2022. (AP Photo/David Cliff)

The capital city’s appeal to billionaires who emerged from the Soviet collapse was wide-ranging: strict libel laws, loose tax and property registration laws, exclusive social scenes and world class private education, to name a few. Next to no questions were asked about the suspicious circumstances in which the billions were acquired, either by property traders or politicians for whom the wealth was widely regarded as welcome.

In July 2020, a long-awaited and long-delayed report from Parliament's Intelligence and Security Committee, which had been investigating links between the Kremlin and the British government, found that “there are a lot of Russians with very close links to Putin who are well integrated into the U.K. business and social scene, and accepted because of their wealth.”

It accused successive governments of “welcoming oligarchs with open arms” through the issuing of so-called "golden visas" which permitted wealthy investors to bypass the normal checks and procedures required to settle.

It further added that their money “was also invested in extending patronage and building influence across a wide sphere of the British establishment – PR firms, charities, political interests, academia and cultural institutions were all willing beneficiaries of Russian money, contributing to a ‘reputation laundering’ process.”

The report concluded that suspicious Russian wealth was so integrated into the functioning of the British economy that “to a certain extent, [it] cannot be untangled.”

A recent report from think tank Chatham House reached similar conclusions, suggesting that Britain is the “global money-laundering capital” and finding that “post-Soviet elites are ensconced in the U.K., fight their legal battles in the U.K. and seek to gain cultural and political influence in the U.K. via philanthropy and political donations, especially to the governing party.”

It further found that Putin allies “settle down, donate to charities, threaten journalists with legal actions and make political connections. As government has failed to address this problem, British professional services provision to kleptocracies is undermining the fairness and efficiency of the legal system.”

Chatham House also highlighted how feuds between Russian elites regularly fueled organized crime in London and southern England, citing the high-profile cases of Boris Berezovsky, Alexander Litvinenko and Sergei Skripal, among others.

Unchecked Russian wealth invested in property is also regarded to have had a significant impact in rapidly driving up property prices in London and southeast England, fueling a housing crisis which has made large swathes of the capital unaffordable for most domestic consumers.

With political developments moving rapidly this week, it seems likely that the "Londongrad" era in which oligarchic influence could be bought with indemnity is coming to an end. On Friday, the chair of the House of Commons Defense Committee, Tobias Elwood, echoed the new common sense in British politics, stating: “We should leave no stone unturned in isolating these oligarchs from their investments, including the seizure of properties and yachts. Don't forget it's not their wealth, this is the stolen wealth from the Russian people which is utilized to keep Putin in power."

Nevertheless, the British government has faced criticism this week from members of Parliament and the European Union for the speed at which it is implementing sanctions. The Foreign Office has thus far only sanctioned eight individuals, and has blamed legal obstacles and limited investigative capacity for not being able to move more quickly.

The slow pace has raised concerns of widespread capital flight, with oligarchs moving to liquidate their assets before property seizures take place. If the British government’s stated aim to ensure “there is nowhere for any of Putin's cronies to hide” is to be achieved, then time is very much of the essence.

That the remaining political contestation is one of pace, rather than direction, is striking. As the world watches Ukraine and awaits Putin’s next move, the wholesale severing of decades-long ties between the British establishment and Russian elites appears to be unstoppable.

Categories / Financial, Government, International, Politics

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