Molly Pollock covers a shocking report published days before Christmas that got virtually no coverage. Nine words from the quote below sums UK plc up exactly “the UK remains in practice a global money-laundering capital.”
“Without actively complicit service providers facing prison and negligent ones facing punitive fines, it is hard to see how transnational kleptocracy can be arrested in the UK, however well-drafted the law. The net effect of these weaknesses in legislation, implementation and enforcement is that the UK remains in practice a global money-laundering capital.”
Yet at a time when Russia is pounding Ukraine into dust, and the EU and numerous other countries are imposing immediate sanctions and seriously considering appropriating properties and other assets owned by Russian oligarchs, the UK has given them thirty days to make arrangements to move their money to other jurisdictions and to sell their assets in the UK. Chelsea football club is said to be on the market for £3 billion with a number of luxury properties in and around London up for sale.
In December 2021 Chatham House published a Research Paper – The UK’s kleptocracy problem: How servicing post-Soviet elites weakens the rule of law. Chatham House, the Royal Institute of International Affairs, is a world-leading policy institute based in London, with a mission to help governments and societies build a sustainably secure, prosperous and just world.
The paper seems to have attracted little attention or comment, though meriting widespread reading and coverage. It should be read by all for its relevance at this time and the swift and decisive actions that need to be taken to preserve our democracy.
The introduction to the paper states:
“Amid legal uncertainty as Soviet state institutions unravelled in the 1990s, opportunities arose for the elites of the successor states to profit individually from the transfer of Soviet-era assets. The ensuing wealth transfers have provided much business for British professional services firms. But the provision of these services to post-Soviet kleptocrats and their associates has undermined the integrity of important UK institutions and weakened the rule of law.”
The new normal
It’s long been known that British politicians had been receiving large donations from Russian oligarchs, some also enjoying other benefits such as holidays in luxurious surroundings. But for Chatham House to publish a paper on kleptocracy in the UK was seen as significant. Fourteen ministers in Boris Johnson’s government and two MPs on the Intelligence and Security committee received donations from individuals and companies linked to Russia and the Kremlin, with Russian influence at the highest levels of society becoming “the new normal“.
“Financial and professional services firms have long made the UK a comfortable home for dirty money. The rapid deregulation and growth of London as a centre for these services since the 1980s coincided with the end of the USSR and the rise of the post-Soviet kleptocracies. As Soviet state institutions unravelled and Russia and other successor states were governed in the context of legal uncertainty, new opportunities arose for the elites of those countries to profit individually from the privatization and transfer of Soviet-era property, natural resources and industrial holdings.”
This vast influx of money significantly increased business for British banks, law firms and wealth managers, as funds were stashed offshore or diverted into luxury properties, yachts, jet planes, even football clubs. Although measures to tackle illicit finance and money laundering have been introduced, they have had little impact on stemming large-scale capital flight from developing nations. Moreover loopholes in the law have been exploited to the benefit of kleptocrats and their associates. Authoritarian agendas have appeared along with the undermining of the integrity of key domestic institutions.
A growth business is reputation laundering – a process by which evidence of corruption and authoritarianism in the kleptocrat’s home country is minimised or obscured, with kleptocrats rebranded as engaged global citizens. When perpetrators acquire a shiny new ‘clean’ image, their money-laundering practices become invisible, with the individuals themselves becoming influential voices in Western democracies. These kleptocrats have made political friends and entered high-society networks through the funding of political parties.
Silencing critics through the legal system
“The English court, despite libel-law reforms in 2013, remains a jurisdiction of choice for those wishing to aggressively manage their reputation.”
The standard defence is that lawyers must take on and represent such clients. This is belied by increasing awareness that cases such as these are taken not for their legal merit, but for the effect of silencing a critic by locking them into a long legal struggle. The Good Law Project, funded mainly by volunteers, so with limited finance, also appears to have been subjected to this strategy.
The Chatham House paper cites names of those who have been involved in political and charitable donations and in more questionable practices. Also those who have used the courts to protect their privacy and to kick back against what they regarded as reputational damage. Another Russian who gets a mention is Baron Lebedev, of Hampton in the London Borough of Richmond upon Thames and of Siberia in the Russian Federation. Lebedev was given the title by Boris Johnson. He and Lebedev had been friends and political allies since 2009, but the move was said to show Johnson’s contempt for Britain’s intelligence agencies. The paper concludes with a suggestion for an effective anti-kleptocracy strategy.
Russian and Kremlin connections
The 2020 report of the UK parliament’s Intelligence and Security Committee stated that:
“Several members of the Russian elite who are closely linked to Putin are identified as being involved with charitable and/or political organisations in the UK, having donated to political parties, with a public profile which positions them to assist Russian influence operations. It is notable that a number of Members of the House of Lords have business interests linked to Russia, or work directly for major Russian companies linked to the Russian state.”
“British social and political institutions remain open to hidden influences from Russian and post-Soviet elites. Such weaknesses are chronic and institutional – they are not just about a small number of examples of wrongdoing.”
Equal before the law
Less understood is how the enabling of these transfers of wealth has affected the rule of law within the UK itself. The concept of the rule of law can be defined, according to the Law Society of England and Wales, as characterizing a system where ‘laws are made democratically, everyone is protected by and accountable to the same laws – including government – with independent courts there to uphold these in a way that is accessible, fair and efficient’.
It doesn’t take Chatham House to point out that “all are not equal before the law – and that the implementation and enforcement of the law is not efficient.” Sidelining and manipulation of Parliament, for example the proroguing. On 24 September 2019 the UK Supreme Court ruled that the Government’s decision to prorogue Parliament for five weeks was unlawful, and that Parliament has not in fact been prorogued.
What has become known as Partygate, when numerous parties are widely believed to have been held in the Number 10 complex and associated government buildings, raised a great deal of anger as the politicians who made the laws and rules were accused of breaking them whilst others conformed. Many people were not allowed to say goodbyes to loved ones in hospital, comfort those in homes, were themselves fined for walking in a park or meeting with a few friends. All whilst our rulers were ignoring laws and enjoying the company of others over drinks and snacks. One rule for them…
The rule of thieves
Kleptocracy or the ‘rule of thieves’ has found a new generation of analysts in the last decade. The UK’s Financial Conduct Authority’s definition is ‘a political economy dominated by a small number of people/entities with close links to the state’. This is the abuse of high-level power to benefit the few at the expense of the many, causing significant harm to individuals and society, the subversion of political office for personal enrichment and advantage.
Kleptocrats gain from the system through their close political connections and status and by a lack of institutional oversight and accountability. The paper differentiates between kleptocrats who are are usually government officials, senior officials or a close family member, and oligarchs who tend to be a member of the country’s business elite or a close family member, lacking formal power but sometimes with political influence. Working through global networks they effectively mix illicit funds with legal ones.
In the post-Soviet period there was a seizure of private assets and the creation of what is known as the ‘shared treasure’. The lines between the state (especially the security services), private business and criminality became blurred just as these countries were consolidating their domestic institutions. During the 1990s top political figures acted as a protection for those lower down the chain who sent money upwards in a system that resembled that of an organised crime structure. Then, during the following decades these single sources of income were diversified through new domestic and international investments, wealth management and integration with international capital markets. In making these diversifications they exploited the opacity of this capital and continue to do so.
Money is hidden through a variety of trusts, shell companies and bank accounts with structures “‘layered’ through multiple jurisdictions (for example, a Singapore company, owned by a British Virgin Islands (BVI) company, in turn owned by a Liechtenstein trust) and utilize nominee ‘proxy’ owners and directors, with the aim of obstructing political rivals and any would-be investigators”.
Though the proceeds of these can be spent on legitimate, personal items, this is not always the case. The Chatham House paper cites what was known as the Azerbaijani Laundromat scandal where $2.9 billion was channelled through four UK shell companies over a two-year period, with some of the money used for lobbying activities, including the bribing of European politicians.
The paper covers reasons why the UK is a key hub for post-Soviet elites such as exiled former insiders to under-the-radar representatives of regimes still in power – who settle in the UK. It also looks at what the UK provides in terms of professional services in residency by investment (golden visas) and property to meet the demand from these elites for places to hide and spend their dubious wealth. It looks at political influence, corrosion of the rule of law, and how the UK is exposing itself to possible influence from those who retain allegiance to kleptocratic regimes.
The Tier 1 (Investor) scheme, the golden visas, provided residency in the UK, and ultimately British citizenship, for over a thousand members of elites from post-Soviet kleptocracies. The UK government failed to realise the money-laundering and security risks that this scheme presented.
“According to the NGO Spotlight on Corruption, 6,312 ‘golden visas’ – one-half of all such visas ever issued – are being reviewed for possible national security risks by the Home Office.” Between 2008 to 2019, only 9 per cent of ‘golden visa’ applications were rejected, compared to 42 per cent of asylum applications.
In October 2015, a report by Transparency International UK commented that it was ‘highly likely that substantial amounts of corrupt wealth from China and Russia have been laundered into the UK’ through the Tier 1 scheme. Yet it was only this week due to pressure over the Russian invasion of Ukraine that the scheme was closed down by the Home Secretary.
Annex, Table 1 of the paper lists 99 known purchases of UK residential property by politically exposed persons and high-risk individuals from post-Soviet countries, 1998–2020.
“We argue that the UK has a kleptocracy problem. The country’s international reputation has already been undermined by the inflow of suspect capital from the servicing of post-Soviet elites. Beyond this question of image, there are serious questions to consider of the integrity of the UK’s public institutions and the equitability of its laws. Efforts must be made to recover Britain’s reputation and integrity, not simply on moral grounds, but because the fairness and efficiency of the country’s rule of law are at stake.”
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