A Ranking from U.S. News & World Report |

An attempted murder of a Russian former spy sparks a policy change targeting Russia.

(Jack Taylor/Getty Images)

By Thomas K. Grose, Contributor | June 13, 2018, at 11:29 a.m.

The U.K. Moves to Clean Up Laundered Money

LONDON — Chelsea’s soccer team won the United Kingdom‘s coveted FA Cup in May but its owner, Russian multi-billionaire Roman Abramovich, wasn’t on hand to savor the victory. His visa expired in April, and since then the 51-year-old oil tycoon — who is worth $11.5 billion and also owns a $121.5 million house in London — hasn’t been able to re-enter Britain because his application for a new visa remains under review.

While the British Home Office won’t comment on specific cases, it appears that Abramovich – who has not been accused of any crimes, but is close to Russian President Vladimir Putin – is one of around 700 wealthy Russian visa-holders in Britain who are being asked to provide proof that their wealth comes from legitimate sources.

That crackdown is a sea change in British policy. For the past two decades, the U.K. had put out the welcome mat to Russian oligarchs and asked few questions about the origins of their riches.

It also may be the first of more steps to come. The British government of Conservative Prime Minister Theresa May is under pressure to stanch the flow of ill-gotten gains into the country via wealthy Russians in the wake of the attempted murder in March of Sergei Skripal. A Russian former spy, Skripal and his daughter Yulia were poisoned in the cathedral town of Salisbury with the nerve agent Novichok. May’s government says Moscow was behind the attack, a charge that Moscow stridently denies.

“The Skripal affair is a game-changer that has changed the politics of this issue,” says Nigel Gould-Davies, a Russia expert and associate fellow at the Royal Institute of International Affairs, a London think tank.

Parliament’s Foreign Affairs Committee, in a report released in late May, urged Downing Street to “show stronger political leadership in ending the flow of dirty money into the U.K.” Despite tough talk and the expulsion of 23 Russian diplomats from Britain after the attempted assassination of Skripal, allies of Putin “have been able to continue ‘business as usual’ by hiding and laundering their corrupt assets in London,” it said.

Moreover, the report added, Russian cash in Britain – which also includes Moscow’s use of Britain’s financial services sector to issue sovereign debt and float Russian companies – directly and indirectly supports Putin’s aggressive foreign policies by helping to give his regime a financial underpinning. Putin’s overseas adventures include military action in Crimea, Ukraine and Syria, meddling in U.S. and European elections, and supporting far-right populist parties in Europe. “This has clear implications for our national security,” it warned.

Since the fall of the Soviet Union in December 1991, wealthy Russians have “wanted a hedge against instability at home, so they tend to keep their money abroad,” explains Richard Connolly, director of the Center for Russian, European and Eurasian studies at the University of Birmingham. London is a favored destination because the U.K., particularly its financial-services sector and property market, emphasized its “light touch regulation of foreign, not just Russian, money,” Gould-Davies says.

[READ: Companies Use These Countries to Reach Tax Havens]

Unsurprisingly, “many hundreds of billions of pounds” a year of corrupt proceeds are laundered through Britain, the National Crime Agency says, although it doesn’t say what percentage of that amount is Russian. Expensive London properties are a big draw for oligarchs. “They’re allowed to buy up houses, many of which have no one actually living in them. They’re just a place to park their wealth,” Connolly says. Transparency International estimates that $5.9 billion worth of U.K. property was bought by suspicious wealth, and Russians account for nearly $1.2 billion of that amount.

But Connolly says calculating how much Russian money pours into Britain is difficult because it’s often funneled through other countries, making it hard to trace. “Establishing the total amount of Russian assets in London is next to impossible.”

In the recent past, Tier 1 visa holders such as Abramovich were given 40 months of residency if they invested at least $2.7 million in the country. But in 2015, the rules were tightened, and after the attack in Salisbury, the Home Office ordered a review of the sources of wealth of some 700 current Russian holders.

In January, a new law came into effect that allows U.K. authorities to scrutinize “unexplained wealth” and take civil actions against assets held in Britain that fail to pass muster. This law, which Gould-Davies says “could prove significant,” will likely be used primarily against officials whose London lifestyle appears beyond their obvious means of income. One example cited by Transparency International is Igor Shuvalov, a former Russian first deputy prime minister. A company Shuvalov owns spent $15.4 million in 2014 on two apartments, but he’s declared his official annual salary is around $151,000.

Parliament approved in May a Sanctions and Anti-Money Laundering Act that includes a so-called Magnitsky amendment that will allow officials to ban individuals suspected of human-rights violations and freeze their assets. The U.S. passed a Magnitsky Act in 2012, a law named after Sergei Magnitsky, a Russian lawyer who blew the whistle on state corruption and died in police custody.

The U.K. version has “real, though limited, significance,” Gould-Davies says. It’s not as comprehensive as the U.S. law because it only covers human-rights abuses, but not serious corruption.

[READ: These Countries Are Viewed as the Most Corrupt.]

Gould-Davies says the new laws and visa-tightening could help ease the contradiction between confronting the growing Russian threat and “helping to make secure the wealth of elites who play an important role in Putin’s regime.” It’s not certain, however, that May’s government will take full advantage of the laws – it lobbied against adding the Magnitsky amendment to the sanctions law, but was forced to back down by a cross-party group of supporters. Connolly says he believes Britain will eventually dust off the welcome mat to Russian oligarchs, once the spotlight lit by the Skripal poisoning dims, because of the revenue they bring in.

Even if the government does opt to crackdown on corrupt Russian assets, Gould-Davies says, the impact is uncertain. “We can’t be sure (if) the oligarchs will try, or be able, to exert a moderating influence on Putin.”

But Connolly doubts it will change anything, partly because money is fungible. If Russian oligarchs no longer believe London is a safe haven for their assets, they’ll move them to someplace that is. The crackdown, he says, “is cathartic, we’re seen as ‘doing something,’ which may play well to the domestic audience, but it won’t change Moscow’s behavior.”

Tags: RussiaUnited KingdomVladimir PutinTheresa Maypoliticsdiplomacymoneywealth,economy


Thomas Grose is a freelancer based in London. Follow him on Twitter.
COURTESY: US NEWS AND WORLD REPORT
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