The UK government has threatened to take action against Kremlin-linked oligarchs who have turned London into their playground if President Vladimir Putin orders an invasion of Ukraine.
But decades of loose regulation and courting of Russian investors mean that some Putin allies are now so deeply integrated into UK society that it would be difficult to root them out of the city that’s come to be known as “Londongrad.”
Foreign Secretary Liz Truss said Monday that new sanctions legislation would allow the UK government to target a broader range of individuals and businesses with links to the Kremlin.
“Whether you support Russia’s aggressive actions against Ukraine, or you’re of wider significance to the Kremlin, we will have the power to sanction you,” she said. “Nothing is off the table and there will be nowhere to hide.”
The UK government won’t have to look very hard for some oligarchs.
Wealthy Russians flocked to London over the past three decades after gaining entry to the United Kingdom via investor visa programs, according to a report published by the Intelligence and Security Committee of Parliament in 2020. Light-touch regulation, lucrative investment opportunities and a legal system that can be used to settle disputes helped attract the oligarchs.
“There are a lot of Russians with very close links to Putin who are well integrated into the UK business and social scene, and accepted because of their wealth,” said the parliamentary report, which described London as a “laundromat” for dirty cash.
“The UK welcomed Russian money, and few questions — if any — were asked about the provenance of this considerable wealth.”
The Russian government, which has amassed more than 100,000 troops along the border with Ukraine while denying that it plans to invade, described the UK threat of new sanctions as “extremely worrying.”
“It’s cause for serious concern for international financial structures and businesses,” Kremlin spokesperson Dmitry Peskov told reporters during a conference call on Monday. “It’s an open attack on business.”
How to target dirty money
Many Russian oligarchs made their fortunes when state-owned companies were privatized in the chaos following the collapse of the Soviet Union. In London, they found an army of lawyers and bankers who were willing to help them invest in UK companies and London property, according to analysts.
“Financial and professional services firms have long made the UK a comfortable home for dirty money,” experts at Chatham House think tank wrote in December. “Many of the financial services provided by enablers are legal, while others are of uncertain legality due to secrecy and lack of prosecution.”
The cash is difficult to track, but money laundering costs the United Kingdom more than £100 billion ($135 billion) a year, according to the National Economic Crime Centre. Transparency International has identified more than £1 billion ($1.35 billion) worth of UK property bought with suspicious wealth that originates in Russia.
Still, the government may struggle to freeze the wealth controlled by oligarchs because UK rules allow shell companies to be used to obscure the ownership of property and other assets. A more effective strategy would be to strip targeted Russians of their visas, according to Tyler Kustra, an assistant professor of politics and international relations at the University of Nottingham in England.
“These oligarchs and high ranking people in Russia, they don’t want to spend all their time in Moscow,” he said. “They enjoy being able to fly to Heathrow, to get out and live in their townhouses in Belgravia, Chelsea and Kensington, and to shop at Harrods.”
“If we were to sit down and take away their visas, that would be a lot scarier to them,” added Kustra, who studies economic sanctions.
The UK government appears to be thinking along similar lines. On Monday, Truss said the new sanctions would allow the United Kingdom to “act swiftly in lockstep with the US and other allies to freeze assets and ban travel.”
The United Kingdom has other tools at its disposal. Since 2018, the government has been able to issue Unexplained Wealth Orders, which require a targeted individual to explain how they purchased an asset. If the origin of the funds cannot be explained, the asset can be confiscated.
In practice, such orders have seldom been used. They were issued in only four cases between 2018 and June 2021, according to the House of Commons Library.
Sanctions with teeth
Critics say the government’s hands-off approach, coupled with the ability of oligarchs to use the legal system to shield themselves from scrutiny, has allowed Russian expatriates to wield huge influence in the United Kingdom.
“The links of the Russian elite to the UK — especially where this involves business and investment — provide access to UK companies and political figures, and thereby a means for broad Russian influence in the UK,” the Intelligence and Security Committee of Parliament said in its 2020 report.
“To a certain extent, this cannot be untangled and the priority now must be to mitigate the risk and ensure that, where hostile activity is uncovered, the tools exist to tackle it at source,” it continued.
Even so, Kustra said the United Kingdom can help deter Moscow from ordering an invasion of Ukraine by targeting oligarchs in the country and coordinating its response with the European Union and the United States, which has the power to make Russian banks “radioactive.”
“Previous rounds of sanctions have been imposed symbolically, and given the very serious concerns we have over Russia dismembering one of its neighbors … it behooves the government to go and put some teeth behind these measures,” said Kustra.