In 2016 the mafia expert, Roberto Saviano, caused a stir by naming the United Kingdom as the most corrupt nation in the world. Admittedly, this statement could have been designed to cause a fuss and sell a few books but it was not without justification. The argument was that lax finance regulation combined with access to the EU enabled offshore investment to transform the City of London into a hotbed for money laundering and financial crime. Since then there have been various anti-corruption summits, myriad rounds of legislation and multiple manifesto pledges regarding the subject - all of which have amounted to little change.
The topic re-emerged at the forefront of the public agenda amid rising tensions between Russia and NATO. Putin has yet again positioned troops on the Ukrainian border after advertising his intentions back in July 2021 with a provocative essay entitled “On the Historical Unity of Russians and Ukrainians.” Some dismissed it as a harmless piece or propaganda, others deemed it tantamount to a war declaration. One thing was certain though, despite the retreat of 70,000 Russian troops in April 2021, this particular thorn in NATO’s side was not going to go away. Since then we’ve witnessed a gradual escalation of tensions and the distinct possibility of war. At the time of writing, Russia has established a ‘peacekeeping force’ in the supposedly independent regions of Donetsk and Luhansk. Putin claims to be defending the interests of separatist groups who consider themselves Russian, both culturally and politically. Everybody else has recognised this speech for what it is – a very euphemistic declaration of war.
On the face of it there’s no connection between British finance regulation and Eastern European geopolitics but US experts appear to think otherwise. Firstly, it’s vital to acknowledge Russian influence in Britain; London is often referred to as ‘Londongrad’ by anti-corruption activists and for good reason. According to Transparency International, over 2000 British companies have demonstrable links to Russian corruption and money-laundering cases. These cases reportedly involve funds worth £82bn. Another facet of Russian influence is property, with over £1.5bn worth of British property having been bought by Russians. It’s also no secret that these properties are located at the very heart of British politics with about 28% located in Westminster.
In 2020, a report by Parliament’s Intelligence and and Security Committee confirmed that this Russian influence, enabled by lax regulation, was seeping into our politics and our government. At a time when Brexit had not yet been supplanted by COVID as the primary political focus of public interest, much of the speculation related to Russian meddling in referendums and elections. However, a disturbing conclusion that went under the radar was the sheer amount of Russian money that had been pumped into British politics. The report effectively pointed out that Russian oligarchs and kleptocrats were able to shift large amounts of ‘dirty money’ into the UK and then use it to influence government policy.
Fast forward almost a year and the government is starting to get tough on Russia, or is it? Despite the invasion of Ukraine, the extreme sanctions that were promised don’t appear to have materialised. With Putin critic Bill Browder deeming them to be “tepid.” He has a point, although the PM has ordered asset freezes on five large Russian banks, he overlooked the two largest – VTB and Sberbank. Meanwhile, although 3 associates of Mr Putin were hit with asset freezes and travel bans, the legion of Putin’s cronies stationed in London emerged relatively unscathed. Kier Starmer criticised the government’s response as lacking whilst also pointing out Mr Johnson’s failure to deal with dirty Russian money in London.
Incidentally, the three oligarchs targeted by these sanctions have been subject to US sanctions since 2018. Overall the US response has been more comprehensive than that of the UK although there are still those who say Mr Biden has not gone far enough. Many point to the “nuclear option” which, surprisingly enough, is not military intervention but instead the exclusion of Russia from the SWIFT Financial System which transfers money between banks. This is not a threat to be taken lightly, this system involves over 11,000 financial institutions and effectively offers a means of making cross-border transactions. In 2012, the exclusion of Iran in 2012 caused foreign trade to decrease by 30%, oil revenues to decrease by 50% and (according to some) the start of positive diplomacy.
However I digress, the emergency sanctions introduced in response to the invasion are just the tip of the iceberg. The UK’s position as an outlet for dirty Russian money is both a blessing and a curse. In theory, the government has the power to hit Putin where in hurts and deny his kleptocratic cronies the wealth generated by their assets based in Britain and British tax havens. Conversely, the consequent Russian presence in the UK has led to a degree of political influence which, though hard to prove, could explain the somewhat lax response. Even officials in the US are reportedly concerned that Russian influence has led to inertia on the government’s part.
The solution is unclear but it is important to be wary of this particular factor that affects government policy on Russia. Many are quick to dismiss economic sanctions as performative and ineffectual but they simply don’t have to be. If Britain targeted Putin’s cronies and confiscated the fruits of financial crime, we could hit the Russian government where it hurts.
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