Is going after Russian oligarch's property assets the key to inflicting pain on Putin?

Mark Hollingsworth
Is the tide turning on the ‘complacent approach’ to money from oligarchs linked to the Kremlin, including Oleg Deripaska?: Alamy

“We are going after the money,” Boris Johnson promised after being questioned on the absence of specific measures to impose sanctions and financial penalties on the UK assets of Russian oligarchs closely aligned to President Putin. But when pressed by MPs on why decisive action was not being taken, the foreign secretary replied: “This is not a country where we in the government can say ‘Oi! We think this so-and-so deserves to have his or her collar felt’. This is not how it works.”

While Theresa May may yet impose sanctions against Putin-supporting billionaires in response to the attempted murder of the Russian spy Sergei Skripal, her government’s track record has been marred by procrastination and prevarication.

Privately, the prime minister regards the exploitation of London as a haven for dirty Russian money as a serious problem. She once listened in stunned silence as a senior MI6 officer briefed her on the activities of Russian organised crime and certain oligarchs in the UK. And in 2016 she authorised the National Security Council to review why and how wealthy Russians buy property in London. But she has been nervous about taking action. For the past three years she has dithered on implementing a legally-enforceable register that will force all foreign companies that own UK property to disclose the identity of their owners.

Freezing property assets is the key to inflicting pain on the Russian state and its compliant plutocrats. Since 2004, £190m of UK property has been subject to criminal investigation as suspected proceeds of corruption. The London property market has been skewed by laundered money, as The Independent revealed exclusively in 2014. Prices are being artificially driven up by wealthy, influential, foreign men who want to hide their assets in the UK.

Multi-million pound payments are accepted without their origin being questioned. Oligarchs hide ownership behind anonymous shell companies registered in secretive jurisdictions while a London address offers a veneer of legitimacy and prestige that helps launder reputations as well as cash. Transparency International estimates that Russians account for £729m of the £4.4bn acquired in UK property via what it regards as “suspicious wealth”.

There is no suggestion that all London property bought by Russian oligarchs is derived from illegal or criminal sources. For some Russian plutocrats buying luxury property in London is a symbol that they have been accepted by the British establishment. This is illustrated by the eleven bedroom Regency house on Belgrave Square that Oleg Deripaska, regarded as one of Putin’s favourite oligarchs, snapped up for £17m through an offshore company registered in the British Virgin Islands in 2003 and now worth £45m.

Oleg Deripaska’s 11-bedroom Regency house on Belgrave Square is seen as a symbol of acceptance by the British establishment (Alamy)

Built in the 1820s, it was formerly the home of Sir Henry “Chips” Channon, society host, Conservative MP and notoriously indiscreet diarist. It was designed for entertaining royalty and diplomats with its grand staircase, Madame Récamier sofas and flamboyant decor. When Harold Nicolson arrived at the house for dinner, he exclaimed: “Oh my God, how rich and powerful Lord Channon has become.”

The equally grand and historic mansion Beechwood House, set in 11 acres of land in Highgate, north London, was bought by the powerful oligarch Alisher Usmanov in 2008 for £48m from the Emir of Qatar. Usmanov is a major shareholder in Arsenal football club and has amassed a £14bn fortune from metals and commodities and has long been regarded as a pro-Putin figure. And his fellow football-loving oligarch Roman Abramovich owns houses on Kensington Palace Gardens and Chester Square, Belgravia, and apartments on Eaton Square and Manresa Road, Chelsea.

One Hyde Park, one of the wealthiest residencies in the world, was famously bought up by Russian oligarchs (Alamy)

It is not just prestigious houses that attract Russian billionaires. The UK is also a top destination for wealthy Russians to spend their money on art collections, expensive cars and private schools for their children. In return for their cash, the UK often grants them visas and, in some cases, citizenship.

Since 2008 individuals have been able to obtain “golden visas” if they invest as little as £2m in a UK business. And for £5m, they gain the right to become a UK resident on a temporary basis and then, after five years, a British citizen. By 2014, almost 700 rich Russians had paid for entry using this method, with Roman Rotenberg, son of Putin’s former judo partner Boris Rotenberg, being the most prominent example. He owns a mews house on Cadogan Lane in Belgravia.

The government is taking some action to stop London becoming what David Cameron described as a haven to hide “dodgy foreign cash”. The National Crime Agency (NCA) is investigating a list of wealthy individuals, not just oligarchs, to assess if they have used the UK to launder their fortunes.

An estimated 149 individuals are restricted on their travel and ability to conduct business in the UK. And the Unexplained Wealth Orders is now law, whereby the NCA can demand that the oligarch explain the origin of his wealth. But the problem with this order, according to a Russian businessman, is that the individual in question could too easily lie about his source of wealth and instead produce a document that shows his fortune was based on, for example, share dividends.

Roman Rotenberg gained entry to the UK using the ‘golden visas’ method (Getty)

Boris Johnson protests that the government cannot act directly against the pro-Putin brigade because it cannot interfere in criminal investigations. But it could make specific changes to the law, notably an amendment to the Sanctions and Money Laundering Bill, which would give Magnitsky-type powers to freeze the UK assets of relevant individuals, including intelligence agents or other officials who have abused human rights.

The government could also implement the register of individual owners of foreign and offshore companies that own UK property. But that bill has been delayed until 2021 and campaigners smell a cover-up after the government announced that one reason for the delay is that the Business Department has commissioned research on the impact of the register on investment decisions.

“This is a crucial moment for the UK’s future trading relationship with the rest of the world, and we must proceed with as good an understanding as possible of the potential impacts on legitimate inward investment,” said foreign office minister Lord Ahmad.

Progress to legislation has thus been painfully slow. An insight into why political rhetoric has not resulted in legislative action can be gleaned by the recent flotation on the London stock exchange of the Russian energy company En+, then owned by Deripaska and chaired by former Conservative energy minister Lord Barker. For it revealed a fundamental dispute between MI6 and the financial regulators on how to make oligarchs who park their assets in London more accountable and transparent.

MI6 and the prime minister’s national security advisor, Sir Mark Sedwill, were furious with the Stock Exchange and Financial Conduct Authority for failing to consult them and conduct the required due diligence of En+. Their main concern was about whether Rusal, a subsidiary of En+, had been manufacturing aluminium powder used by Russian arms firms for military purposes. Rusal adamantly denied it – yet its own website previously indicated that the defence industry was among the users of the type of aluminium powder it manufactured.

Sir Mark Sedwill was furious when the required due diligence of En+ was not carried out ahead of its flotation on the London stock exchange (Getty)

The En+ group could be a candidate for new sanctions as the Russian state-owned VTB Bank is a major shareholder with a 4.35 per cent holding, while Deripaska is known for being close to the Russian President. Leaked US diplomatic cables described Deripaska as “among the two to three oligarchs Putin turns to on a regular basis” and is “a more-or-less permanent fixture on Putin’s trips abroad”.

Indeed, when the US imposed sanctions on seven oligarchs and the 12 companies they own or control last week, shares tumbled. Deripaska was among those affected, as was Rotenberg.

Still, Britiain cannot follow suit. And the anger of National Security officials and MI6 En+'s flotation last year stemmed precisely from their belief that it typified the complacent approach to Russian money in London, which the infamous oligarch Boris Berezovsky once told me was “70 per cent dirty”. The inability to impose sanctions is similarly emblematic.

The London Stock Exchange has long been a vehicle for Russian companies and oligarchs to raise money in shares and bonds – an estimated $200bn (£140bn) since 2004. Last summer, Russia’s largest gold producer Polyus, controlled by Suleyman Kerimov, a Russian senator awarded the Order of Merit by Putin, raised $879m. There are now 57 predominantly-Russian companies listed on the London Stock Exchange, more than anywhere else outside Moscow.

A little-noticed loophole to avoid sanctions is that Russian sovereign debt is permitted to be sold in London. “We are allowing Russian sovereign debt to be sold in the UK and that debt is being used to reimburse Russians to bring back their money onshore in Moscow terms,” said the Conservative MP Tom Tugendhat, chairman of the Foreign Affairs Committee. “As that gold is moving towards Moscow, we are quite extraordinarily enabling those bond and debt auctions...This is one of those areas where sanctions on businesses are being compensated by the Russian state.”

Just hours after Theresa May’s retaliation against the poisoning of Sergei Skripal, Gazprom issued a $750m eurobond in London and the following day the Russian government joined in by issuing a $4bn bond in the capital. Within hours, the Russian Embassy issued a revealing tweet: “Business as usual?”

Could the nerve-agent attack in Salisbury be the unwitting catalyst for finally cleaning up dirty Russian money in London? (Getty)

The oligarchs have always believed they were untouchable in London and the government has responded by some tough promises. The security minister Ben Wallace recently referred to the “Laundromat case” in which ghost companies – many based in the UK – were used to channel Russian money through western banks. “What we know from the Laundromat expose is that certainly there have been links to the [Russian] state,” he said. “The government’s view is that we know what they are up to and we are not going to let it happen any more.”

But the irony is that it is the attempted assassination of a Russian spy and double agent living in Salisbury and the murder of Russian businessman Nikolai Glushkov in Surrey that could be the unwitting catalysts for finally cleaning up dirty Russian money in London.

Mark Hollingsworth is the author of “Londongrad – From Russia with Cash’’