'Examples will be made': UK looks to target Russian assets and improve scrutiny

  1. UK has encouraged Russian investment with few questions
  2. Unexplained Wealth Order is new investigatory tool for authorities
  3. Government expected to make a statement but avoid discouraging business

Football clubs, luxury apartments, and stock exchange investments are among the UK business interests of wealthy Russians that could be targeted if the government wants to add to diplomatic tactics over the nerve agent attack on a former Russian spy. Experts told WikiTribune that British regulators could enforce rules already in place without new measures if they wanted to send a message to Russian President Vladimir Putin and his allies.

Since UK Prime Minister Theresa May said it was “highly likely” the Russian government is responsible for the attack on a former Russian spy and his daughter in a small English city, her government has been under pressure to penalize Putin and his allies by targeting assets that might have been bought using illicit wealth.

Speaking to a parliamentary committee on March 21, UK Foreign Secretary Boris Johnson said it’s not the place of government to direct law enforcement agencies toward political or diplomatic opponents.

“This is not a country where we in the government can say ‘oi we think this so and so deserves to have his or her collar felt,'” said Johnson. “They must decide on the basis of the evidence whether a crime has been committed and whether to prosecute.”

However, Johnson also suggested work is being done, both in government and law enforcement, to crack down on the flow of illicit money coming into the UK, and to target Putin’s allies via the wealth they have stashed in the UK.

The National Crime Agency (NCA) is currently working on “various lists of names of persons that are of interest to them,” Johnson told MPs.

Inside Stamford Bridge, home of Chelsea FC, owned by Roman Abramovich by Ungry Young Man via Flickr https://www.flickr.com/photos/markusunger/33056752743/
Inside Stamford Bridge, home of Chelsea FC, owned by Roman Abramovich by Ungry Young Man via Flickr https://www.flickr.com/photos/markusunger/33056752743/

UK capital a sweet spot for ill-gotten wealth

London’s role as a haven for foreign wealth, with few questions asked, is well documented and has been encouraged with specific visas for those willing to pay.

Property, either commercial or residential, has long been the easiest asset in which to invest overseas wealth, said Justin Urquhart Stewart, a London-based financial adviser and former stock broker. High-profile acquisitions such as football clubs are also popular.

Roman Abramovich, 13th on the Sunday Times Rich List, which tracks the wealthiest people in the UK, owns West London’s Chelsea Football Club, valued at $1.85 billion by Forbes. Abramovich also owns two properties worth a collective £150 million ($213m) in London’s Belgravia Square, according to a 2008 court case, as well as five other properties in the UK and more around the world (Telegraph).

Chelsea’s North London rivals Arsenal (valued at $2 billion) are 30 percent owned by Uzbek-Russian Alisher Usmanov, an ally of Putin, who also owns one of North London’s most valuable mansions (Camden New Journal).

Beyond the capital, another Premier League club, Bournemouth FC, “hardly known as one of the most international or exciting clubs in the country,” said Urquhart Stewart, is majority-owned by Russian petrochemicals tycoon Maxim Demin.

Russia’s first deputy prime minister, Igor Shuvalov, owns two flats in Whitehall Court purchased in 2014 for £11.4m (Guardian).

New power to fight corruption introduced

Shuvalov, whose official salary in 2014 was £114,000, was singled out this week by UK MP Vince Cable as a potential target of an Unexplained Wealth Order (UWO). This new power – the government defines a UWO as “a civil power and an investigation tool” – came into effect on February 1. It allows authorities to seize assets they reasonably believe were obtained with illegally acquired money. A payment that far outweighs what a person could expect to afford on their official salary, for example, might call a particular acquisition into question.

Anti-corruption experts told WikiTribune such measures could be an effective way to turn London, long seen as a “safe haven” for Putin’s allies to store their wealth, into a weapon to penalize the Kremlin for its suspected activity abroad.

However, they said authorities could be hampered by difficulties linking a property with its “beneficial owner” (the wealthy person who actually brought it). The named owner can be someone paid to sign the paperwork, or the property can be officially owned by an offshore company, which in turn can have a named director who is paid for the role.

Without being able to identify the beneficial owner of property, Unexplained Wealth Orders will be difficult to enforce, Urquhart Stewart suggested.

On March 22, after a year-long consultation process, the government announced plans for a new register of overseas ownership, billed as a “world first” in fighting corruption and a way to “crack down on criminal gangs laundering dirty money in the UK.”

Anti-corruption campaign group Transparency International has advocated for a registry of overseas ownership. It also supports Unexplained Wealth Orders as the best way to address the use of UK assets, particularly London property, as a means to hide ill-gotten profits.

The register announced today is a “spot on” way to address these issues, said Urquhart Stewart.

“This is exactly the sort of proposals I would expect to have in place,” he said, while emphasizing that such a register would need to apply to companies and property ownership already owned by wealthy Russians. “If not, there is an echoing noise of a stable door.”

The register will not be in place until 2021, and the government emphasized it will “proceed cautiously, striking the right balance between improving transparency and minimizing burdens on legitimate commercial activity.”

Paternoster Square, home of the London Stock Exchange By gren (Self-published work by gren) [Public domain], via Wikimedia Commons
Paternoster Square, home of the London Stock Exchange. Photo by gren (Self-published work by gren) [Public domain], via Wikimedia Commons

Making up for years of lax enforcement

MPs asked Johnson about tackling Russian companies, including state-owned businesses and banks, that use London’s financial market as a forum to register, do business, and raise and trade debt. The Foreign Secretary was pressed on concerns that this could be a way for Russian entities to evade existing sanctions.

Many companies from Russia and neighboring countries also float on the London Stock Exchange (LSE), taking advantage of relaxed accounting and reporting standards, said Urquhart Stewart.

“Frankly [they’re] not giving a clear and transparent view of actually what’s going on, so that’s an alternative way of getting money in [to the UK],” he said.

Some Russian companies have been happy to list themselves in London, where reporting standards are less stringent than other financial centers.

In recent years, regulators have seemed reluctant to prevent the flow of money into London using the powers at their disposal, said Urquhart Stewart.

“What you tend to find is banks tend to go through the process of asking where the money came from, but it’s a very basic process and once an explanation is given it’s accepted and on they go,” he said.

In New York, London’s main rival as a global financial center, “some of those [company] directors would already be in prison,” said Urquhart Stewart.

In the same way, companies can issue bonds in the UK, which are invested in by another party. That process that can easily be exploited to launder money, he said.

Making ‘examples’ of bad actors

Addressing concerns over the use of London as a forum to do business might be considerably more difficult than seizing high-profile assets, said Urquhart Stewart, as there’s a high risk it could affect legitimate businesses. The threat of doing so could undermine the image of London as an attractive place to do business.

“I rather worry about grand statements and broader rules” he said, adding that such measures often don’t have their intended effect, and can harm legitimate businesses.

“What you don’t want is to push people away from London, particularly with Brexit where you want to encourage London as the most international market in the world,” he said

“Rather than coming up with sweeping statements, actually properly enforcing the rules that are already there – not just in the letter but also in the spirit,” might be the best way to address these issues, he said.

“I think there’ll be some examples being made,” said Urquhart Stewart.

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