Britain could weaponize London's 'safe haven' against Putin

  1. Russian elite favors London for schools, shops and access
  2. Practical barriers to linking Russians with their UK assets
  3. Creating hostile environment could cost UK financially

The Shard has become a symbol of Middle Eastern investment in London. By Daniel Chapman (Flickr) [CC BY 2.0], via Wikimedia Commons
The City of London financial district viewed from south of the Thames. By Daniel Chapman (Flickr) [CC BY 2.0], via Wikimedia Commons
Wealthy Russians have long valued the City of London as a “safe haven” for their money. This gives the UK government a potentially powerful weapon as it considers responses to a nerve agent attack on a former spy in south-west England, according to sanctions experts.

After finding that former double agent Sergei Skripal, 66, and his daughter, 33, had been targeted with a nerve agent produced by the Russian state, on March 14 UK Prime Minister Theresa May announced that her government will expel 23 Russian diplomats and explore financial penalties, including freezing state assets.

May said Britain would look into a range of business restrictions, and work into a pending sanctions bill elements of the so-called Magnitsky Act.

The U.S. Magnitsky Act, spearheaded by campaigner and financier Bill Browder in the name of his lawyer Sergei Magnitsky who died in a Russian prison after uncovering a $230 million fraud, places targeted asset freezes and other sanctions on Vladimir Putin’s key allies.

Speaking to WikiTribune after the Skripal attack, Browder condemned the British government’s “complete failure” to create consequences for murders linked to the Kremlin.

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Turning the City from safe haven to weapon

Writing for London-based international affairs think tank Chatham House, John Lough and James Sherr said, “the UK is the repository of a national asset of very high value to Russia: the City of London.” [The City is a self-governing part of central London dominated for centuries by finance].

Britain has allowed “key Russian stakeholders” to use London’s services, stock exchange, and property market for illegitimate and even illegal purposes, they argued. As well as its open market and pro-business legal system, London’s shops, private schools, and easy access from Moscow are all cited as a draw for the Russian elite (Economist).

The UK is seen as a “safe haven” for corrupt money from all over the world, Dominic Kavakeb of anti-corruption NGO Transparency International told WikiTribune.

Lough and Sherr urged the UK government to turn London’s financial clout into an asset to Britain by using asset freezes, money-laundering investigations, and visa cancellations against allies of the Kremlin.

“Whatever conclusions are drawn from any investigation into this case, the UK must still do more to prevent overseas individuals from using financial secrecy and anonymous ownership to launder their wealth through London,” said Kavakeb.

Practical and legal challenges to targeted sanctions

Peter Lilley, founder of Proximal Consulting, which advises companies on risk and due diligence in international finance, told WikiTribune that he expects the UK government to adopt some version of the Magnitsky Act.

“What the UK government may want to do is identify and isolate Russian individuals who are considered to be close to Putin,” said Lilley. Doing so could be difficult, as demonstrated when the U.S. Treasury Department released its list of Putin allies, which is suspected of having been copied from a Forbes magazine list of richest Russians.

Targeting the Kremlin and its allies through their ownership of high-end London property could be particularly problematic, said Lilley. Much of this property was purchased via offshore companies, which may in turn be registered to individuals working for the oligarch in question, he said.

“Then we are back to the burden of proof that has to fall on the UK government: that the Kremlin was responsible for the attack on Skripal, that the relevant oligarch has strong links to the Kremlin, and that the oligarch owns the relevant London property,” said Lilley.

Financial penalties could come at a price

The British government will also be considering the potential negative impact of plugging the flow of Russian money around London, Lilley suggested. Imposing financial penalties such as the Magnitsky sanctions could have a “substantial” impact on the City of London, particularly for some of the bankers, lawyers, and accountants who have made “eye-watering amounts of money from Russian clients,” said Lilley.

London’s reputation could also take a knock-on effect to its reputation. The UK economy is reliant on the City as a world-leading center of international business, with 11 percent of national GDP in 2016 coming from financial services, according to a European Parliament report.

“The danger for the UK economy is that ‘genuine’ Russian businesspeople and investors will no longer look on London and the UK as being favorable to them and move their money/investments to more favorable jurisdictions,” warned Lilley.

Kavakeb was more optimistic, arguing that the UK’s lax attitude has made it complicit in global corruption.

“Helping to prevent this, rather than giving a getaway vehicle to the thieves would allow the UK to be seen as a bastion of the rule of law and be a safe and secure climate to invest into,” said Kavakeb.

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