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The United Kingdom has made bold statements on the severity of its crackdown on Russian money invested in London's real estate market and its pursuit of oligarchs who own businesses in its dependent areas.
But the actuality is far less striking. A committee of Westminster MPs has deemed the UK agencies to be slow to respond and the legal mechanisms available to them to be inadequate[i].
Foreign Affairs Committee members, who have just released a study titled "The Cost of Complacency: Illicit Finance and the War in Ukraine," are not convinced that London has abandoned its reputation as a sanctuary for Russian and Chinese (among other) filthy money.
Given that only those holding 25 percent or more of a company's shares or interests are required to report their involvement, the MPs criticise the simplicity with which those seeking to avoid declaring their beneficial ownership can do so. The language is straightforward. “Oligarchs could divest themselves of any legal interest in or control of their assets, such as transferring property to their children but continue, in all practical respects to enjoy it.”
The difficulty of utilising criminal law to freeze corrupt riches has been a long-standing criticism of law enforcement, thus the United Kingdom developed a civil law procedure, the Unexplained Wealth Order.
To the degree that only one UWO has resulted in the restoration of corrupt assets to the state, legal actions by oligarchs have been incredibly successful. MPs are pessimistic that the ECA will enable the state to penetrate the veil of offshore firms storing illegal money more effectively, despite the measure's inclusion of some remedies.
“The difficulty in investigating kleptocratic wealth is that the property may have been purchased via complex offshore structures,” said the report.
In the chase of illicit money, the law is not the only obstacle the prosecutors face. They are hampered by resource constraints, which have plagued prosecuting authorities for decades. “Law enforcement budgets prevent them from hiring financial investigators, technical experts and legal expertise.”
MPs express fear that the United Kingdom may become a "paper tiger" that growls at dishonest wealth holders but fails to reign them in. Increasing the financing of major anti-corruption prosecutors, such as the Serious Fraud Office and the National Crime Agency, would be one way to enhance performance (but certainly not the only way).
Citizenship arrangements have proven to be just as ineffective. During the Golden visa program's operation, oligarchs entered the United Kingdom largely undetected.
Those allowed to invest £1 million (and later £2 million) in the nation between 2008 and 2015 were exempted on the basis of "blind confidence" (a word used by the MPs) that the money was pure.
It took until February 2022 (and the invasion of Ukraine) for the British government to recognise the threats the programme presented to the financial system. A retroactive assessment of Tier One visa holders revealed that the British government had sanctioned no less than seven visa holders.
MPs assert that the United Kingdom was a follower rather than a leader in the application of sanctions, citing the disparity between the UK's bellicose declarations about its battle against oligarchical riches and its implementation.
“The order in which oligarchs and others were sanctioned does not appear to be based on a coherent strategy but on following where allies led,” say the MPs, a damning indictment of British preparedness for Russia’s well signalled invasion of Ukraine.
More positive is the government's rapid formation of a Sanctions Taskforce. From December 2021 to April 22 of the following year, the size of the force increased from 48 to around 150, although doubts persist over funding. Persistent doubts exist over the funding and resourcing of a sanctions system that is straining the capabilities of enterprises, financial institutions, and the government.
The quantity of information and assistance private sector operators need from the government to avoid violating regulations that would put them at risk complicates the situation. "The government has a responsibility to assist institutions through the abrupt shift in policy, not least since it has imposed harsh punishment for violations."
Pressure on corrupt Russian money as a result of the invasion of Ukraine has put a rocket under the British government's lax approach to dirty wealth. The true test of the British government's recent boldness will be if the pressure leads to actions that annoy some of the government's and financial community's allies.
By fLEXI tEAM