How the UK is finally getting a handle on London’s dirty money

Dame Margaret Hodge, a veteran of the British Labor Party, hailed the British government’s attempts to tackle Russia’s dirty money.

Four steps in the process of washing dirty money, which are at the center of the legislation, have been defined by the FinancialTimes.

After spending several years stuck in legislative purgatory, Britain’s Economic Crimes (Transparency and Enforcement) Bill came into force in March, with Russia invading Ukraine the force needed to do so. cross the line.

The bill aims to establish a register of foreign entities and their beneficial owners, amend the Financial Sanctions Act and reform Britain’s Unexplained Wealth Ordinances to empower criminal investigators.

Ms Hodge said she was promised in 2015 by [former prime minister] David Cameron that it would become law.

However, the political climate then was very different, with Mr Cameron and his executive preoccupied first with a general election and then with a referendum on UK membership of the EU.

A London awash in Russian money was not an urgent matter.

Even a year ago, when Ms Hodge raised the possibility of imposing sanctions on Chelsea owner Roman Abramovich in response to Moscow’s alleged poisoning and imprisonment of opposition leader Alexei Navalny, the suggestion came to nothing.

“Navalny said if the West really wants to support democracy, we should act by sanctioning Putin’s cronies,” she said.

Although London’s reputation as a willing host of dirty money predates this century, its nickname of Londongrad is well deserved.

A big factor was the UK’s controversial golden visa scheme, which it scrapped in February this year.

The scheme was launched by the Labor government in 2008 and allowed people with a minimum of £2million in investment funds and a UK bank account to apply for residency.

Essentially, the more money an applicant had and intended to invest in the UK, the faster their visa application. At the same time, the applicant was allowed to remain in the UK indefinitely.

The scheme effectively opened the floodgates to the money of the oligarchs. The problem was that the money was often not clean.

‘In theory there were checks on this but in practice it didn’t work,’ Ms Hodge said.

“Of course it was abused by oligarchs and kleptocrats who wanted to bring their dirty money to London and use the scheme to establish the legitimacy and credibility of what was considered a trusted jurisdiction.”

Illustrating the scale of the problem, 6,312 golden visas – nearly half of all those issued – have been investigated by UK authorities for national security risks, said Spotlight, a watchdog. anti Corruption.

The four stages of money laundering

There are four steps in the dirty money washing process: placement, layering, integration and defense. London provided a hospitable environment for all four.

Placement

The vehicles for putting dirty money into a financial system are shell companies.

In the UK, all businesses must declare beneficial ownership to the government account House of Companies Register. However, this process was easy to exploit given the few regulatory measures put in place to verify the veracity of the information concerned.

This meant that false names could be entered with relative impunity: Mickey Mouse and Adolf Hitler were two notable examples.

It has also led to some addresses in the UK registering thousands of businesses.

Applications are usually approved within 24 hours.

It is this loophole that the government’s new economic crime bill aims to close.

Overlay

With the dirty money put into the system through shell companies, the next step is to layer it, moving it through a series of complex economic transactions that move the money away from its source.

At this point, the UK’s flexible banking system kicks in. According to Transparency International, around 86 banks have been implicated in the transfer of corrupt wealth around the world. A tax haven, the British overseas territories such as the Virgin Islands are points of this pecuniary odyssey.

The integration

Once the money has taken a step back, the next step is to integrate it. With the help of lawyers and real estate agents, acquiring assets is the way to do it and property is the asset of choice.

Russian oligarchs like Abramovich, who in 2011 bought a Kensington mansion for £90million, have traditionally used Grade 1 or 2 listed mansions in the heart of London.

Roman Abramovich is now selling the Kensington mansion he bought for £90million in 2011. Bloomberg

Not all oligarchs are as happy as Abramovich to put their name to their assets. Transparency International estimates that around 84,000 homes in the UK are held anonymously and that £6.7billion of UK property has been bought with suspect wealth.

Defense

The last step is to protect the wealth and reputation of its owner. Britain’s libel laws are pro-rich, making the high courts good places to make headlines, but often vexatious claims.

It’s not just the levers of the state that have been favorable to the oligarchs so far – London has also served as the crucible for the emergence of an entire industry whose sole purpose is to defend wealth from prying eyes.

Given the clout of those who fund it, it often overwhelms the press and broadcasters who may have thought to investigate ill-gotten gains.

The invasion of Ukraine, a turning point?

Sanctions on Russian oligarchs mark a short-term shift in the war on dirty money, but the long-term impact of Russia’s invasion of Ukraine largely depends on the bill’s success on economic crime to shed light on opaque property.

If the legislation has teeth, then the war may well mark the moment when Londongrad loses its ‘grad’ suffix.

UK-sanctioned oligarchs — in pictures

Updated: April 26, 2022, 2:27 p.m.