The flow of Russian money into the British capital is slowing as result of Brexit and the political freeze of relations between London and Moscow. But the market remains robust and despite the rhetoric from Westminster, many of the measures to tighten money laundering have in-fact had limited success.
The poisoning of the Russian double agent Sergei Skripal and his daughter Julia in Salisbury in March last year caused a robust response and equally strong rhetoric from the British government. 23 Russian diplomats, which the UK had identified as intelligence officers using diplomatic cover, were told to pack their bags. The British also lent on their allies and over 100 Russian diplomats were kicked out of Western countries. According to MI5 and MI6, this dealt a serious blow to Moscow’s overseas spying capabilities.
A report by a committee of MPs entitled ‘Moscow’s Gold’, published in 2018, advised the UK government that these anti-espionage measures were not enough, and that Britain must stop “President Putin and his allies hiding and laundering their corrupt assets in London.”
The report continued that, “the government must show stronger political leadership in ending the flow of dirty money into the UK.”
Easier said than done, you might think. But what the report does not say is that the UK government has been trying to stop the flow of ‘dirty money’ into the UK long before the Skripals made the headlines; so-far with limited success. It also raises the uncomfortable question of racial profiling. By no means all Russian money is dirty and dirty money comes to the UK from many countries, including from some of our allies like Saudi Arabia.
The Chelsea Scape Goat
Perhaps in order to make its point clear, London decided to make a high-profile example of Roman Abramovich, the billionaire owner of Chelsea Football Club. After a number of unexplained delays when trying to renew his visa last May, Abramovich became an Israeli citizen. All board meetings, which Abramovich as owner of the club needs to attend, are now held outside the UK, and the proposed £1 billion redevelopment of Chelsea’s Stamford Bridge Stadium was put on hold.
The policy of making life difficult for Putin’s oligarchs appears to be reflected in the latest immigration statistics on who has been granted Tier 1 visas. The so-called Tier 1 investment visa gives individuals UK residency in return for £2 million worth of investments. At their height in 2014, 165 Russians obtained these visas, but in 2018, just 29 were granted to Russian citizens.
Measures to Stop the Influx of ‘Dirty Money’
Much noise has been made by British politicians about Unexplained Wealth Orders (UWOs), which are part of the 2017 Criminal Finances Act. The idea is that the act can be used to stop people buying London property with money earnt through corruption.
But so far, they have barely been used. Ben Cowdock, Senior Research Officer at Transparency International, told Belong that UWOs should be “a tool [to] make it easier for police to seize illicit assets.” But he admitted, “thus far UWOs have only been used in relation to a single case.”
There have been no UWOs against Russians made public. Although the National Crime Agency said there are active investigations into Russians, it has refused to go after people just because they are Russian.
Another tool in the British government’s box are draft laws for a public register, which will force UK Overseas Territories and Crown Dependencies to publish the names of who really owns companies registered in their jurisdiction. The idea is to stop people hiding behind shell companies set up in Jersey or the British Virgin Islands from buying London property with illicit wealth. But according to Cowdock, “this process may not be complete until 2023.”
Economics not Politics
Regardless of the intentions of politicians in Westminster, it is a cocktail of largely economic factors that has in fact resulted in a slowdown of Russian investment into the UK. Dimitry Zakirov, who runs Longrad, a Mayfair based consultancy that specialises in advising wealthy Russians on London and UK real estate, explained to Belong that the recent increase in Stamp Duty is playing a bigger role than politics in the reduction in investment.
“The biggest reasons are the cooling down of the London property market, the increase in Stamp Duty and the economic situation in the CIS (countries of the former Soviet Union),” he said. Zakirov also admitted that while last year Brexit wasn’t a factor for investors going elsewhere, it has now become “a big part of it. We are still doing deals, but not on the same level as 2014, we have to be more creative now,” he said.
Zakirov explained that statements coming out of the House of Commons were not helping an unfavourable economic climate. He referred to a recent Home Office policy to review the visas of 750 Russian millionaires as being a particular problem.
“If we assume that all Russians have dirty money because their passport says they are Russian. Plus if you’re honest and you declare all your assets, why would you go for a country that wants to do a strip down currency search on you? You’d go for Monaco, Switzerland or America instead,” he said.
UK Education a Major Pull
Katya Zenkovich, who heads up the Russia desk at Knight Frank, told Belong that for her the level of activity is back at 2014 levels. She explained that a UK education is still a huge pull for her clients. “Probably 80% of my clients come here for educational reasons and they are planning to establish a family life in the UK, they are making their lives here,” she said.
Neither Zenkovich or Zakirov are that concerned about the UK government’s declarations about dirty Russian money or current and proposed anti-corruption legislation. Both Knight Frank and Longrad carry out strict due diligence tests on sellers and buyers. “They come to us already ready, I don’t get cowboys trying it on,” says Zenkovich.
She explained that while political considerations have had an impact, “its an international impact, its not UK specific and London is still attracting high net worth individuals.”
The City More Powerful than Westminster
The in-flow of money into London from corrupt individuals and countries has been going on for centuries. Money from emerging markets is a crucial source of liquidity for the City of London. Some of them are far more corrupt than Russia, and with Brexit and the loss of EU finance, emerging markets will become even more important for the UK if London is to retain its position as one of the top financial centres in the world.
As a result of the political chill between London and Moscow, there were no Russian companies listed on the London stock exchange in 2018; that’s compared to 15 in the previous 8 years. With the UK’s options narrowing as a result of Brexit, any serious regulatory overhaul of how the city works, is unlikely. Any attempt to make it tougher for dirty foreign capital from Russia or anywhere else to be invested in the City of London is not something many in the UK establishment are going to support.