Britain Targets Russian Billionaires

As the U.S. goes after a handful of Russian oligarchs with its latest round of sanctions, the U.K. is under pressure domestically and from abroad to tighten controls and shed its reputation as a place to launder corrupt money. The U.K. National Crime Agency estimates that more than £90 billion ($127.5 billion) of such money enters the U.K. each year, feeding a vast industry of property companies, lawyers, bankers, and accountants. A lot of that comes from Russia, and ends up in high-end real estate. About a fifth of suspicious property purchases from 2008 to 2015, £729 million worth, were made by Russians, according to anticorruption watchdog Transparency International. “In terms of the levels of financial flows that go through London, it’s likely that it’s one of the biggest hubs of money laundering in the world,” says Ben Cowdock, the group’s lead researcher on dirty money in the U.K.

On April 10 the top U.S. sanctions official, Sigal Mandelker, issued a warning while in London, saying U.K. banks will face “consequences” if they continue to do business with blacklisted individuals and entities. “The government’s in a very difficult situation,” says Tom Keatinge, head of the Royal United Services Institute’s Centre for Financial Crime and Security Studies in London. There are “expectations that you’re going to be able to roll up billions of pounds of illicit Russian finance.”

The U.K. has announced a review of 700 visas granted to wealthy Russians and has a new tool to target corrupt funds, so-called Unexplained Wealth Orders. Regulators used it for the first time in February to freeze two properties worth £22 million owned by an unidentified individual. Last year the Financial Conduct Authority fined Deutsche Bank AG £163 million—the largest penalty ever in Britain for violating money laundering rules—over the transfer of $10 billion of unknown funds from Russia to offshore bank accounts.

Michael O’Kane, head of business crime at the law firm Peters & Peters, says a number of Russians have recently approached the firm for advice. “I think it’s definitely starting to have a chilling effect,” he says. “As relations deteriorate between the two countries, they may well start to look at alternative places to go.”

Russians, who’ve long favored the U.K. as a place to send their children to school and for its legal protections, were alarmed even before the U.S. sanctions. The lawyers of two Russian billionaires with homes in the U.K. say their clients had in recent months asked major accounting firms to review their finances, including their income and the taxes they paid, going back at least 15 years. The lawyers say the auditors found nothing improper.

One of the most prominent Russian billionaires in the U.K., along with Chelsea soccer club owner Roman Abramovich, is Alisher Usmanov, who owns a Tudor mansion that once belonged to J. Paul Getty and 30 percent of London soccer club Arsenal F.C. All of Usmanov’s U.K. assets “were acquired using earned income received after payment of tax in strict compliance with British law,” the Moscow-based businessman’s office said in an emailed statement. Usmanov has “all necessary documents, including the reports of legal and audit firms.”

Andrey Yakunin, who has a $400 million investment fund in London, says there’s a risk of a “witch hunt” in the U.K., though less risk than elsewhere. Yakunin’s father, Vladimir, who until 2015 ran the state-owned Russian Railways monopoly, is an ally of Russian President Vladimir Putin. Yakunin, who has British citizenship, has denied getting help from his father and says he can account for how he does business and the origin of all funds to “any regulator.” Exiled Russian businessman Andrey Borodin, whose mansion in Berkshire was the most expensive property in the U.K. when it was acquired in 2011, doubts there will be any “big names” among Russians targeted in the U.K. because business tycoons have “a lot of lawyers, consultants, bankers.” Yet Russians are likely to shift to other jurisdictions. “They will still send their children to schools in the U.K.,” he says, “but they won’t keep their money here.”

BOTTOM LINE - An estimated £90 billion of corrupt money enters the U.K. each year, feeding a vast cottage industry of lawyers, bankers, and accountants.