Why is London so attractive to tainted foreign money?
The war in Ukraine has prompted some action, but the problems run deep
For years London has been awash in Russian money, much of it begrimed. Rich Russians flocked to the capital for a variety of reasons. Some were looking for a stable home for legitimate wealth. Some sought tax benefits. Others were seeking to launder dirty money, or to recycle wealth earned in circumstances which, though not brazenly criminal, looked corrupt to Western eyes.
With a huge financial centre and a preference for light-touch regulation, Britain was an ideal place to rinse stained money. The country is relaxed about foreign ownership of trophy assets, from newspapers to football clubs. London has oodles of luxury property, an ideal repository for large bundles of cash in need of washing. Lawyers, bankers and other professionals offer reassuringly discreet, and expensive, service. Add in the draw of top-notch schools and universities, and no wonder the National Crime Agency (NCA) thinks the country has a money-laundering problem amounting to £100bn ($125bn) a year.
Successive British governments did little to discourage the Russian influx. The war in Ukraine brought about an abrupt change. Britain has slapped sanctions on more than 1,600 individuals and businesses, including over 100 oligarchs and family members who got rich under President Vladimir Putin’s kleptocracy, or made sweet with him to keep fortunes intact.
A long-delayed economic-crime bill that makes it easier to prosecute international corruption cases was rushed through Parliament in March, less than three weeks after Russian forces entered Ukraine. The government has scrapped the investor-visa scheme, introduced by Sir John Major’s government in 1994, that allowed any foreigner with a few million pounds to spare who passed (fairly rudimentary) checks to buy residency.
The welcome mat is now being taken away from Russian oligarchs. But getting rid of the capital’s "Londongrad” nickname is a narrower and easier task than abating the overall flow of dirty money into Britain. The country has sought to attract footloose global capital for decades, and not just from post-Soviet countries: Chinese citizens have accounted for a third of the investor visas handed out since 2008. And noble attributes of Britain’s common-law system, which include independent courts and strong property rights, are attractive to illicit actors, too. "Criminal money seeks out many of the same protections as clean money. If you stole your wealth, you’ll be just as determined as anyone else not to have it stolen from you in turn,” says Jason Sharman of Cambridge University.
Reducing the amount of dirty money flowing into the country will therefore be hard. It requires further action in four areas in particular: the law itself; the conduct of those who practise it; the court system; and, above all, enforcement of the rules.
Start with the law. As well as liking destinations that respect the rule of law, kleptocrats also flock to places where financial secrecy is most strongly enshrined. Britain is a curate’s egg. It was the first g20 country to introduce a public register of company owners, in 2016. But those who file false (or no) information are unlikely to get caught; if they are, penalties are not draconian.
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