UK backtrack on fraud crackdown threatens to undermine Russian sanctions

(CN) — A resigning minister has accused the British government of planning to scrap a long-awaited piece of legislation clamping down on fraud, sparking consternation among anti-money laundering campaigners.

In a fiery resignation speech to the House of Lords on Monday, the former counter-fraud minister Lord Theodore Agnew accused the government of “arrogance, indolence and ignorance” in its failure to clampdown on fraud, adding that the Treasury “appears to have no knowledge of, or little interest in, the consequences of fraud to our economy or society.”

His resignation letter was later shared publicly, in which he stated that the government had made a “foolish decision” to “kill off the prospect of an economic crime bill.”

Agnew's resignation could scarcely come in a worse international context for the government, as the United Kingdom's position within the wider NATO–Russia stand-off over Ukraine is undermined by its so-called "Londongrad" reputation for abetting the money laundering of Russian oligarchs.

The U.S. State Department is reported to have expressed concern over the scale of dirty money from Russia being funneled through property and shell companies in London and South East England.

Speaking to The Times on Friday, a diplomatic source in Washington said, “The fear is that Russian money is so entrenched in London now that the opportunity to use it as leverage against [Russian President Vladimir] Putin could be lost.”

“[President Joe] Biden is talking about sanctioning Putin himself but that can only be symbolic. Putin doesn’t hold his money abroad, it is all in the kleptocrats’ names and a hell of a lot of it is sitting in houses in Knightsbridge and Belgravia right under your government’s noses,” they added.

The concerns follow years of warnings from authorities over the U.K.’s role in sustaining Russian kleptocracy.

In 2018, the parliamentary committee on foreign affairs concluded that “turning a blind eye to London’s role in hiding the proceeds of Kremlin-connected corruption risks signaling that the U.K. is not serious about confronting the full spectrum of President Putin’s offensive measures.”

The U.K. is in part susceptible to money laundering due to extremely lax company registration laws. In Britain, an individual can register a company with Companies House for only 12 pounds ($16), with the government body stating that it “does not verify the accuracy of the information filed.”

The government has refused to tighten the rules for years, despite ridicule over clear exploitation of the registration system. Public registers show companies with directors named “Adolf Tooth Fairy Hitler,” “Donald Duck”, and “Jesus Holy Christ,” the latter of which gives his occupation as “creator” and his country of residence as “heaven”. Richard Murphy of Tax Research U.K. has described the lack of regulation as “an officially licensed mechanism for the delivery of fraud.”

The issue has been further highlighted following accusations that billions of pounds of public money have been lost to fraudulent claims made to the Coronavirus Business Interruption Loan Scheme, a financial support measure for firms during the pandemic.

An investigation by Bloomberg last year found that some companies received millions of pounds in government support despite only being registered hours before a claim was made, or despite having demonstrably ceased trading years prior to a claim. Bloomberg’s findings are supported by some of Lord Agnew’s statements.

This week the opposition Labour Party accused Chancellor Rishi Sunak of writing off 4.3 billion pounds ($5.8 billion) of fraudulent claims attached to the coronavirus business support package. Sunak has denied the accusation, which threatens to undermine his position in the Conservative Party as he prepares to launch a leadership bid to replace the beleaguered Prime Minister Boris Johnson.

Lax laws around property ownership, where Russian money is particularly concentrated, are also of significant appeal to money launderers. Writing for Open Democracy this week, Member of Parliament Layla Moran highlighted that there is no requirement to state who is the intended owner, or ultimate beneficiary, of a property purchase in the U.K. Instead those looking to conceal their identity can purchase property through the director of a holding company, which are frequently based in low-regulation British overseas territories.

MP Tom Tugenhadt, chair of the Foreign Affairs Committee, has argued that Putin is emboldened by the lack of action taken in the U.K., as it allows him to escape the financial consequences of economic sanctions placed on Russia.

Speaking to the BBC this week, Tugenhadt said, “A lot of the dirty money that sadly is causing the instability — both here in Bosnia and indeed in Ukraine and of course in Russia — flows through our markets in London. This is an area sadly that has much too much to do with us and we cannot ignore."

Economist Thomas Pikkety highlighted the scale of Russian kleptocracy in a blog post back in 2018, stating that “the offshore assets alone held by wealthy Russians exceed one year of GDP, or the equivalent of the entirety of the official financial assets held by Russian households.”

“In other words, the natural wealth of the country,” he continued, “has been massively exported abroad to sustain opaque structures enabling a minority to hold huge Russian and international financial assets. These rich Russians live between London, Monaco and Moscow: some have never left Russia and control their country via offshore entities.”

The U.K. has frequently taken a hard diplomatic line on Russia, particularly since the Skripal affair, in which a Russian double agent and his daughter were publicly poisoned by the nerve agent Novichok in the English town of Salisbury. But critics argue that the government’s tough diplomatic approach is meaningless if no action is taken on financial crime.

A long-delayed British intelligence report on Russian influence on U.K. politics, released in 2020, stated that successive governments had “welcomed the oligarchs and their money with open arms, providing them with a means of recycling illicit finance through the London 'laundromat', and connections at the highest levels with access to U.K. companies and political figures.”

It added that there are “lots of Russians with very close links to Putin who are well integrated into the U.K. business and social scene.”

In his resignation speech, Lord Agnew did not allude to corruption, instead stating his belief that the government’s anti-fraud measures were failing primarily due to a lack of resources and widespread incompetence.

The U.K. government denies that it plans to scrap the economic crime bill, but has also refused to indicate when it intends to go forward with the legislation.

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