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Oliver Bullough is the author of “Butler to the World: How Britain became the servant of oligarchs, tax dodgers, kleptocrats and criminals,” which will be published on March 10.
LONDON — The first man to sell a piece of the United Kingdom’s capital to a post-Soviet Russian was, at first, very happy to tell me about it. He was a real estate agent — podgy, English like an extra from a Hugh Grant film, and he laughed out loud at how easily the money had come in. The sale occurred in early 1992. Communism had collapsed a few weeks earlier, and a man called “Alex something-or-other” plus two friends literally walked in off the street, into his London agency, and said they wanted some apartments.
“It’s bugging me I can’t remember his surname, but he’s gone on to greater things,” the man said. “He’s probably a billionaire by now.” Alex and his two friends bought a flat each at prices from £200,000 to £320,000, and the commission from the sale probably bought the estate agent a new car. The money he’s made since from sales to Russians will have not only bought him a house or two, but put his kids through school. “It’s been very common to sell to Russians,” he said. “If they wanted it, they’d pay it, it didn’t matter what the price was.”
What a triumph, and what profits. It’s no wonder he loved reminiscing about it. But he and I were talking not in the early 1990s but five years ago, and even then, more and more people were wondering if selling large chunks of our cities to Russians hadn’t been a bit foolish. Vladimir Putin had just staged his strike on the 2016 U.S. election. The Russian president had annexed Crimea and was interfering ever-more-brazenly in other people’s countries. A few months after we spoke, the estate agent wrote to me to ask that I leave his name out of the book I was writing.
If the virtue in welcoming the Russian money was questionable then, now — with Putin’s tanks on the outskirts of Kyiv and Russia a pariah facing the kind of sanctions only previously imposed on countries like Iran — a trade like the estate agent’s would be career-ending.
London is facing a long-overdue reckoning with its role in creating the Russian kleptocracy, and it’s going to make a lot of people uncomfortable. I suspect many London-based professionals are currently wishing they could cancel the records of the deals they’ve done with Russians over the last three decades.
Shell game
London’s financial ties with Moscow did not, of course, begin in 1991. From the 1950s, the Soviet Union took to keeping its dollar deposits in a London-based bank, out of concern that keeping them in the U.S. would put them at risk of being frozen (a prescient worry, in the light of recent events). These offshore services provided a lucrative income stream for a Britain that was at the time struggling to find a post-imperial place in the world.
Soviet institutions were skilled at hiding their financial transactions behind shell companies registered in places like Jersey, and it is widely believed that the KGB used the secrecy available in Britain’s offshore territories, as well as in Switzerland and other similarly discreet jurisdictions, to move its money around undetected.
Since many of today’s newly rich Russians came out of the Soviet ruling elite, it is unsurprising that they sent their money through the same pathways as their predecessors. As the 1990s went on, a series of scandals caused prosecutors in the U.S. and Switzerland to start to pay more attention to the flood of unaccountable wealth. Not so in the U.K., where London seized the opportunity to make the most of its sudden competitive advantage as a major financial center where wealth would be left unmolested.
The largest ex-Soviet money-laundering scandals that have been exposed in recent times have all had a British nexus, thanks to the total absence of checks on the information entered when creating companies or other corporate structures at Companies House, the U.K.’s registrar of companies.
When managers at the Tallinn branch of Danske Bank wanted to offer clients moving tens of billions of dollars complete anonymity — as impenetrable as anything available in Zurich in its prime — they packaged up a U.K.-registered limited partnership together with an account. That was only possible thanks to Britain’s failure to insist that company registrations provide reliable ownership information.
As a way to attract investment, it worked. Russians by the hundreds bought expensive property in London’s tony Belgravia, Knightsbridge and Highgate neighborhoods, as well as in the leafy counties around the capital. Transparency International has identified £1.5 billion worth of property owned by wealthy Russians in the U.K., and that is clearly just the exposed tip of the buried mountain of wealth.
Between 2008 and 2015, 706 Russians bought Tier One “golden” visas to secure residency in the U.K., on top of an unknown number in the years previously, when the visas had a slightly different name, bringing at least £729 million of investment into the British economy. There were no checks on the origin of the money, nor indeed requirements it actually be invested in the U.K. It just had to be invested in a British company, which could in turn own property in Russia.
‘The new normal’
At times it seemed like the whole city was in on the game. It wasn’t just estate agents and the government’s visa department that were profiting — but accountants, financial institutions, fine art dealerships, yacht brokers, private schools and reputation managers. Members of the House of Lords served on the boards of major Russian companies, which floated on the London Stock Exchange. Long-running battles between Russian tycoons in the Commercial Court netted lawyers millions of pounds worth of fees. The City of London loved Russian money, and officials’ sole focus was on maintaining the flow.
It’s not that nobody was aware of the potentially corrosive effect of Russian money. It’s that nobody in power was interested in doing anything about it.
Thanks to people like Boris Berezovsky — the hyperactive tycoon who fell out with Putin and in 2000 fled to the U.K. where he waged a loud propaganda campaign against the Russian president — there was a misconception among journalists that London was a hotbed of the Russian opposition. In reality, the U.K. was a playground for anyone with money to spend, whatever their political views, or in some cases whatever crimes they might be associated with.
In 2006, after Russian agents came to London to kill the dissident Alexander Litvinenko with polonium-210, the U.K. government took almost no substantive action. “This case is obviously causing tension with the Russians. They are too important for us to fall out with,” an anonymous minister in then-British Prime Minister Tony Blair’s government told the media before Litvinenko’s body was even buried.
In 2017, following a fresh money-laundering scandal, members of parliament pushed for some minimal changes to company law to prevent U.K. shell structures being abused for money laundering. The Treasury responded by deregulating them further, in a remarkable demonstration of how determined the government was to keep the money flowing, whatever the cost.
A few years later, a 2020 report by parliament’s Intelligence and Security Committee concluded that “Russian influence in the UK is ‘the new normal’, and there are a lot of Russians with very close links to Putin who are well integrated into the UK business and social scene, and accepted because of their wealth.”
It was a sobering report, offering an alarming conclusion, but Prime Minister Boris Johnson’s response was to claim — ludicrously — that it was an attempt to delegitimize Britain’s departure from the EU and dismissed its finding altogether. As recently as January, a government minister resigned in disgust at Johnson’s government’s failure to tackle illicit finance.
Ukraine effect
This is the context of Britain’s Ukraine-inspired scramble to expose and expel dirty Russian wealth and its owners.
In a nutshell, not much has changed. Many of the measures are gimmicks. Canceling golden visas is meaningless, since most of their recipients long ago gained citizenship; blocking the TV channel RT will have little impact, because few people watch it anyway. And those measures that are potentially significant — such as a long-promised but never-delivered measure to force offshore companies with property in London to reveal their true owners — won’t bring results for months.
A white paper on Companies House contains measures that could theoretically end its role as the primary vendor of the shell companies used to launder money out of Russia but cleaning up the mess caused by decades of deliberate under-regulation will take more than legislation.
At the core of Britain’s acceptance of dirty Russian wealth has been chronic underfunding of law enforcement. Even at a generous assessment, British enforcement agencies spend just £42 million a year on tackling financial crime. Most experts estimate that at least twice that much would be needed to make a dent in the problem, and Johnson has not promised any extra resources, beyond rebranding an office in the National Crime Agency “the Kleptocracy Unit.”
For too long, Britain — like the estate agent who sold that first house — saw Russian cash solely as a source of profits, without realizing that oligarchs don’t stop being oligarchs just because they’ve left Moscow. Extracting their money, and the influence it buys, from Britain will be the work of years, and needs far more attention than the government has so far given it.