Billions parked in ‘Londongrad’ undermines Britain’s tough talk on Russia sanctions

London: The ease with which Russian billionaires can stash billions of dollars in property and other assets in London is taking the bite out of the UK’s tough talk on sanctions against Russia for any incursions into Ukraine.

Reports this week that a key piece of legislation designed to fight money-laundering and dirty money inflows into the UK from Russia and elsewhere may be delayed aren’t helping.

As the West strives to take a united stance on possible sanctions, Britain is struggling to shake off its reputation as the place to be for wealthy Russians looking to park their billions – one that has earned the British capital the “Londongrad” moniker. The continued ability to bring funds from Russia into Britain with secret ownership of assets could dent the effectiveness of sanctions, said Tyler Kustra, a professor of politics at the University of Nottingham.

Participants at the Russian Debutante Ball in London, a city that has earnt the moniker Londongrad. Credit: Alamy Stock Photo

“A lot of this money is hidden between numerous levels of shell corporations,” he said. “We can sanction a Russian politician, a Russian general as much as we want but we don’t necessarily have the ability to seize their assets because we don’t know who the true owner of those assets are.”

Russia has amassed tens of thousands of troops on Ukraine’s border, sending tensions soaring. While officials in Moscow have repeatedly said they have no intention of invading the country, Western allies are discussing a variety of measures should activity escalate.

The US and its allies are honing in on a package of sanctions that would include targeting Moscow’s ability to convert currency. Energy penalties and cutting off access to the Swift system, which manages 42 million financial transactions daily, are also on the table. Britain’s Foreign Secretary Liz Truss said she would not rule out personal sanctions on Russian President Vladimir Putin and is co-ordinating her efforts with France, Germany and the US.

The Russian embassy in London. Credit: Getty Images

“We will make sure that we have the wherewithal to have a very severe package of sanctions in the case of any Russian incursion into Ukraine,” Truss told Parliament on January 25.

The UK could also turn to a tool known as Unexplained Wealth Orders. The National Crime Agency plans to increase issuance of such orders if the situation escalates in Ukraine, the i newspaper reported on Thursday. That could mean those suspected of having ties to Putin would have to justify the origins of their wealth or face having UK assets confiscated. The NCA didn’t immediately respond to a request for comment.

Even that effort may not go far enough, said Fiona Fernie, a tax dispute specialist at the accounting and business advisory firm Blick Rothenburg.

“Unexplained wealth orders are one part of the regulatory armory but none of these measures are going to catch everybody,” she said.

The government’s tough talk belies a more benign approach to letting Russian money into Britain. Since the 1990s, when a new generation of Russian oligarchs made their fortunes from the privatisation of state assets under president Boris Yeltsin, many have beaten a regular path to the UK.

Russians accused of corruption or with ties to the Kremlin have bought about £1.5 billion ($2.9 billion) worth of real estate in the UK capital, according to Transparency International.

They’ve been drawn by Britain’s twin attractions: the scope for largely anonymous investment orchestrated through its Companies House business registry and the promise of a justice system that affords even suspicious money a fair hearing in the event of disputes.

An Economic Crimes Bill, initially set for a vote this year, is aimed at creating a registry of overseas companies that own UK property, reform the Companies House registry to curtail the use of shell companies and improve the verification of company directors’ identities.

The prospect that a vote on the bill, already delayed, may be postponed yet again has legislators on both sides of the aisle worried. A government official said it plans to implement the bill “as soon as possible” but this week wouldn’t commit to tabling it in the coming parliamentary year.

“This legislation is essential for the credibility of this country and this government, particularly when we have a crisis in Ukraine and all sorts of Russian oligarchs waiting to move money into this country if they can.” Conservative MP John Penrose said on Wednesday in Parliament. “The well of excuses after three or four years of promising this piece of legislation or its related pieces has now run dry.”

Bloomberg