Boris Johnson claims the UK is rooting out dirty Russian money. That’s ludicrous

 Oliver Bullough in The Guardian

We were warned about Vladimir Putin – about his intentions, his nature, his mindset – and, because it was profitable for us, we ignored those warnings and welcomed his friends and their money. It is too late for us to erase our responsibility for helping Putin build his system. But we can still dismantle it and stop it coming back.

Russia is a mafia state, and its elite exists to enrich itself. Democracy is an existential threat to that theft, which is why Putin has crushed it at home and seeks to undermine it abroad. For decades, London has been the most important place not only for Russia’s criminal elite to launder its money, but also for it to stash its wealth. We have been the Kremlin’s bankers, and provided its elite with the financial skills it lacks. Its kleptocracy could not exist without our assistance. The best time to do something about this was 30 years ago – but the second best time is right now.

We journalists have long been writing about this, but it is not simply overheated rhetoric from overexcited hacks. Parliament’s intelligence and security committee wrote two years ago that our investigative agencies are underfunded, our economy is awash with dirty money, and oligarchs have bought influence at the very top of our society.

The committee heard evidence from senior law enforcement and security officials. It laid out detailed, careful suggestions for what Britain should do to limit the damage Putin has already done to our society. Instead of learning from the report and implementing its proposals, Boris Johnson delayed its publication until after the general election and then, when further delay became impossible, dismissed those who took its sober analysis seriously as “Islingtonian remainers” seeking to delegitimise Brexit.

That is the crucial context for Johnson’s ludicrous claim this week to the House of Commons that no government could “conceivably be doing more to root out corrupt Russian money”. That is not only demonstrably untrue, it is an inversion of reality. On leaving the European Union, we were told that we could launch our own independent sanctions regime – and this week we saw the fruit of it: a response markedly weaker than those of Brussels and Washington.

The Liberal Democrat MP Layla Moran, speaking with parliamentary privilege on Tuesday, listed the names of 35 alleged key Putin “enablers” whom the Russian opposition politician Alexei Navalny has asked to be sanctioned. Blocking the assets of everyone on that list and their close relatives would be a truly significant response from Johnson to the gravity of the situation. But it would still only be a start.

Relying solely on sanctions now is like stamping on a car’s accelerator when you’ve failed for years to maintain the engine, pump up the tyres or fill up the tank, yet still expect it to hit 95mph. Other announcements in the last couple of days have amounted to nothing more than painting on go-faster stripes. Tackling the UK’s role in enabling Putin’s kleptocracy, and containing the threat his allies pose to democracy here and elsewhere, will require far more than just banning golden visas or Kremlin TV stations.

For a start, we need to know who owns our country. Some 87,000 properties in England and Wales are owned via offshore companies – which prevents us seeing who their true owners are or if they were bought with criminal money. Companies House makes no checks on registrations, which is why UK shell structures have featured in most Russian money-laundering scandals. Imposing transparency on the ownership of dirty money in this way would strike at the heart of the London money-laundering machine. Governments have promised to do this “when parliamentary time allows” for years, yet the time has never been found, and instead they’ve listened to concerns from the City that such regulations would harm its competitiveness.

Above all, we need to fund our enforcement agencies as generously as oligarchs fund their lawyers: you can’t fight grand corruption on the cheap. Even good policies of recent years, such as the “unexplained wealth orders” of 2017, which were designed to tackle criminally owned assets hidden behind clever shell structures, have largely failed because investigators lack the funds to use them. We must spend what it takes to drive kleptocratic cash out of the country.

Johnson is not the first prime minister to fail to rise to the challenge – Tony Blair and David Cameron both schmoozed with Putin even when it was obvious what kind of a leader he was. And I don’t think Johnson is personally corrupt or tainted by Russian money; he’s lazy, flippant and unwilling to launch expensive, laborious initiatives that will bring results only long after he himself has left office and is unable to take the credit for them. It is time, however, for his colleagues to step up and force him into action. This is a serious moment, and it requires serious people willing to invest in the long-term security of our country and the future of democracy everywhere.

Fraudsters of the world, come to London. And bring your dirty money

Kleptocrats love this country, knowing full well they’ll be free from proper scrutiny writes Nick Cohen in The Guardian

‘No one can say how many in the UK are living off immoral earnings.’ Illustration: Dominic McKenzie/The Observer 



There is no better representation of the decline of the English upper class into the global rich’s servant class than Ben Elliot. On the one hand, the co-chairman of the Tory party is now a rent collector, hauling in money for the Johnson administration from the Russian rich and native hedge fund bosses.

On the other, he is an actual servant: an upmarket flunkey, to be sure, praised by society magazines for his “puppyish schoolboy charm”, but a flunkey nonetheless. Elliot is a founder of the Quintessentially “concierge” service that gives the super-rich anything they want: luncheon on an iceberg; the Sydney Harbour bridge closed for a wedding proposal. There’s nothing Elliot won’t do for paying customers up to and including arranging a meeting with our future sovereign. Camilla, Duchess of Cornwall, is Elliot’s aunt and it appears that no considerations of good form or good manners have prevented him monetising the connection. Not that the prince appears to mind. A Quintessentially advert interrupts a montage of shots of yachts and celebrities to quote his royal highness as saying he is “particularly grateful” to Quintessentially for organising a party he attended. Members of Elliot’s Quintessentially club donate to the Conservatives. The Conservatives gave Elliot £1.4m of taxpayers’ money in 2016 to “attract the right high-value individual investors to the UK through bespoke programmes”. If on arrival, those high-value individuals went on to show how valuable they were by hiring Quintessentially and donating to the Tories, the circle would be complete.

Upstairs has moved downstairs in the remains of the Tory day and a large segment of British capitalism is now employed as the best servants money can buy. The law, PR, City, estate agency and banking know that easy riches come from serving the large part of the world where it pays to forget Balzac’s warning that the secret of a great fortune no one can explain is invariably an undetected crime. For want of an agreed name I propose “Corruptistan” to cover Russia and the ex-Soviet states, the kleptocracies of Africa and the Middle East and probably soon China as the communist elite learns how to expatriate its wealth. 

Given the secrecy of the financial system, the defunding of the police and regulatory authorities and the English libel law, no one can say how many in the UK are living off immoral earnings. But two statistics and one quotation give us a measure of the UK’s dependency culture. Graeme Biggar, of the National Economic Crime Centre, said a “disturbing proportion” of criminal money from the old Soviet Union is “laundered through UK corporate structures”. Companies House, meanwhile, has become a front organisation for organised crime. So welcoming is it to criminals that 335,000 of its listed companies do not reveal the name of their beneficial owners. And 4,000 of the names it appears to reveal turn out on close inspection to belong to children aged two or under.

Last month, Professor Sadiq Isah Radda, a Nigerian anti-corruption official, encapsulated the consequences of the UK’s tolerance of theft. An opponent of corruption in Nigeria, home to countless online scams? A joke figure, you might think. But Radda spoke with a seriousness no government minister can muster when he said the UK was “the most notorious safe haven for looted funds in the world today”. The corruption we facilitate destablised Nigeria and, he might have added, many other countries besides.

Last week, a handful of MPs asked why the Conservatives were so peculiarly soft on this particular crime. In 2017, they promised a law that would compel the foreign owners of UK property to reveal their identities. (The willingness to allow private and state criminals to launder their wealth anonymously through the prime London property market was Radda’s main charge against Boris Johnson.) Nothing has been heard of this bold “anti-corruption strategy” since.

Likewise, the government has said it wants to stop Companies House being a crime scene where anyone can set up a firm without proof of identity or the most cursory checks. Even the Conservative party appeared to agree that it should not be harder to apply for a passport than to set up a shell company. But once again nothing happened.As for the recommendations in the Russia report on money laundering, they vanished as soon as they were made.

The SNP’s Alison Thewliss asked: “I wonder who benefits from this delay. Is it the oligarchs and those to whom they donate?” Pat McFadden, Labour’s shadow chief secretary to the Treasury, asked Conservative MPs why they thought “their party has been such an attractive destination” for £2m in gifts from Russian donors.” Change must come soon or not at all. Britain has benefited so greatly from the wealth of the corrupt we may soon be at the stage where we cannot afford to clean ourselves up. So many people are making so much money, what was once outrageous has become normal. This to my mind is why the security services and the judges just shrug when oligarchs with links to hostile foreign powers use the intimidatory costs of England’s unreformed legal system to menace critics. No one likes hard questions about a nation’s guilty secrets, not even the men and women who are professionally obliged to ask them. Labour certainly believes that tolerance of fraud is now part of the government’s economic strategy and the Treasury wants to loosen what few protections exist to compensate the financial services industry for the Brexit debacle.

Cynical readers may not care as long as the UK can wallow in streams of hot money. They should recall how many times con artists have tried to fleece them. Online fraud is the crime you are most likely to suffer from, yet nowhere in the government’s online safety bill is there a word about fighting the fraudsters who flourish on social media platforms. Once the Tories started turning a blind eye, they found it impossible to stop.

You cannot profit from economic crimes committed abroad while enjoying the rule of law at home. The presence of the global plutocracy’s valets at the top of government and society shows the UK no longer even bothers to pretend that it can.

The UK is one of the most corrupt nations on Earth

Fortunes are being made by political favourites, while Brexit could cement London’s reputation for money laundering writes George Monbiot in The Guardian

‘Awarding coronavirus contracts to unusual companies, without advertising, transparency or competition now appears to have been adopted as the norm.’ Photograph: Andrew Milligan/PA


Fear, shame, embarrassment: these brakes no longer apply. The government has discovered that it can bluster through any scandal. No minister need resign. No one need apologise. No one need explain.

As public outrage grows over the billions of pounds of coronavirus contracts issued by the government without competition, it seems determined only to award more of them. Never mind that the consulting company Deloitte, whose personnel circulate in and out of government, has been strongly criticised for the disastrous system it devised to supply protective equipment to the NHS. It has now been granted a massive new contract to test the population for Covid-19. 

Never mind that some of these contracts have reportedly cost taxpayers £800 for every protective overall delivered. Never mind that at least two multi-million pound contracts appear to have been issued to dormant companies. Awarding contracts to unusual companies, without advertising, transparency or competition now appears to have been adopted as the norm. Several of the firms that have benefited from this largesse are closely linked to senior figures in the government.

Every week, Boris Johnson looks more like George I, under whose government vast fortunes were made by political favourites, through monopoly contracts for military procurement. Any pretence of fiscal rectitude or democratic accountability has been abandoned. With four more years and the support of the billionaire press, who cares?

The way the government handles public money looks to me like an open invitation to corruption. While it is hard to show that any individual deal is corrupt, the framework under which this money is dispensed invites the perception.

When you connect the words corruption and the United Kingdom, people tend to respond with shock and anger. Corruption, we believe, is something that happens abroad. Indeed, if you check the rankings published by Transparency International or the Basel Institute, the UK looks like one of the world’s cleanest countries. But this is an artefact of the narrow criteria they use.

As Jason Hickel points out in his book The Divide, theft by officials in poorer nations amounts to between $20bn and $40bn a year. It’s a lot of money, and it harms wellbeing and democracy in those countries. But this figure is dwarfed by the illicit flows of money from poor and middling nations that are organised by multinational companies and banks. The US research group Global Financial Integrity estimates that $1.1tn a year flows illegally out of poorer nations, stolen from them through tax evasion and the transfer of money within corporations. This practice costs sub-Saharan Africa around 6% of its GDP.

The looters rely on secrecy regimes to process and hide their stolen money. The corporate tax haven index published by the Tax Justice Network shows that the three countries that have done most to facilitate this theft are the British Virgin Islands, Bermuda and the Cayman Islands. All of them are British territories. Jersey, a British dependency, comes seventh on the list. These places are effectively satellites of the City of London. But because they are overseas, the City can benefit from “nefarious activities … while allowing the British government to maintain distance when scandals arise”, says the network. The City of London’s astonishing exemption from the UK’s freedom of information laws creates an extra ring of secrecy.

The UK also appears to be the money-laundering capital of the world. In a devastating article, Oliver Bullough revealed how easy it has become to hide your stolen loot and fraudulent schemes here, using a giant loophole in company law: no one checks the ownership details you enter when creating your company. You can, literally, call yourself Mickey Mouse, with a registered address on Mars, and get away with it. Bullough discovered owners on the Companies House site called “Xxx Stalin” and “Mr Mmmmmm Xxxxxxxxxxx”, whose address was given as “Mmmmmmm, Mmmmmm, Mmm, MMM”. One investigation found that 4,000 company owners, according to their submitted details, were under the age of two.

By giving false identities, company owners in the UK can engage in the industrial processing of dirty money with no fear of getting caught. Even when the UK’s company registration system was revealed as instrumental to the world’s biggest known money-laundering scheme, the Danske Bank scandal, the government turned a blind eye.

A new and terrifying book by the Financial Times journalist Tom Burgis, Kleptopia, follows a global current of dirty money, and the murders and kidnappings required to sustain it. Again and again, he found, this money, though it might originate in Russia, Africa or the Middle East, travels through London. The murders and kidnappings don’t happen here, of course: our bankers have clean cuffs and manicured nails. The National Crime Agency estimates that money laundering costs the UK £100bn a year. But it makes much more. With the money come people fleeing the consequences of their crimes, welcomed into this country through the government’s “golden visa” scheme: a red carpet laid out for the very rich. 

None of this features in the official definitions of corruption. Corruption is what little people do. But kleptocrats in other countries are merely clients of the bigger thieves in London. Processing everyone else’s corruption is the basis of much of the wealth of this country. When you start to understand this, the contention by the author of Gomorrah, Roberto Saviano, that the UK is the most corrupt nation on Earth, begins to make sense.

These activities are a perpetuation of colonial looting: a means by which vast riches are siphoned out of poorer countries and into the hands of the super-rich. The UK’s great and unequal wealth was built on colonial robbery: the land and labour stolen in Ireland, America and Africa, the humans stolen by slavery, the $45tn bled from India.

Just as we distanced ourselves from British slave plantations in the Caribbean, somehow believing that they had nothing to do with us, now we distance ourselves from British organised crime, much of which also happens in the Caribbean. The more you learn, the more you realise that this is what it’s really about: grand larceny is the pole around which British politics revolve.

A no-deal Brexit, which Boris Johnson seems to favour, is likely to cement the UK’s position as the global entrepot for organised crime. When the EU’s feeble restraints are removed, under a government that seems entirely uninterested in basic accountability, the message we send to the rest of the world will be even clearer than it is today: come here to wash your loot.

Who painted my money white

How Britain let Russia hide its dirty money

For decades, politicians have welcomed the super-rich with open arms. Now they’re finally having second thoughts. But is it too late? By Oliver Bullough in The Guardian


In March, parliament’s foreign affairs committee asked me to come and tell them what to do about dirty Russian cash. As a journalist, I’ve spent much of my career writing about financial corruption in the former Soviet Union, but the invitation came as something of a surprise. After all, ever since I was at school in the 1990s, British politicians have welcomed Russian money to our shores. They have celebrated when oligarchs have bought our football clubs, cheered when they’ve listed their companies on our Stock Exchange. They have gladly accepted their political donations and patronised their charitable foundations.

When journalists and academics pointed out that these murky fortunes could buy influence over our democracy and undermine the rule of law, they were largely dismissed as inconvenient Cassandras warning MPs to beware Russians bearing gifts. But earlier this year, after the poisoning in Salisbury of the former spy Sergei Skripal and his daughter Yulia, those little-heeded prophecies jumped straight into the pages of Hansard. “To those who seek to do us harm, my message is simple: you are not welcome here,” Theresa May told the House of Commons on 14 March, in a speech that blamed Russia for the attack. “There is no place for these people, or their money, in our country.”

Britain’s entire political class joined the prime minister in this screeching handbrake turn. MPs who had long presented the nation’s openness to trade as a great virtue suddenly wanted to be seen as tough on kleptocrats, tough on the causes of kleptocrats. Having allowed so much Russian money into Britain, these MPs were now seized with concern that Vladimir Putin might, through his power over his nation’s super-rich, be able to influence our institutions. Were we selling Putin the rope with which he would hang us, they wondered.

That is why, on 28 March, I took a seat in committee room six, a chamber high up in the Palace of Westminster, with heavy furniture, a view over the River Thames, and a carpet like a migraine. The foreign affairs committee exists to monitor the work of the Foreign Office – essentially, to keep an eye on Boris Johnson – but its members can investigate any subjects they choose. This time, they had chosen to look into the money Putin and his cronies hold in Britain and its overseas territories, with a view to exploring fresh opportunities for sanctions.

I had brought along a list of things I wanted to talk about: how we should improve our defences against money laundering; how we need transparency about who owns property; how MPs themselves must stop taking money from dodgy ex-Soviet oligarchs if they want others to do the same.

Oliver Bullough talking to the the Foreign Affairs Committee in March. Photograph: parliamentlive.tv

But the first question, from Priti Patel, the former international development secretary, threw me: “Can you give the committee a sense of the scale of so-called ‘dirty money’ being laundered through London?” she asked.

It is a vast question, worthy of a book in itself, and one that even the National Crime Agency would struggle to answer, let alone me. Then came her second question: “What assets has that hidden money gone into?”

I tried my best – I mentioned property, private schools, luxury goods – but I think she and I both knew I’d fluffed it. I should have brought along specific examples, with times and dates and names. The embarrassing truth is that, although I have written about Russia and its neighbours for two decades, during which I have increasingly specialised in analysing corruption, it had never really occurred to me to ascertain precisely how much stolen Russian money had found a home in the UK, or to chart exactly where it had ended up.

If someone like me had been this culpably incurious, it is hardly surprising that politicians with dozens of other priorities have had to scramble to understand what we’re facing. But for the past couple of months, I have belatedly tried to discover an answer to the foreign affairs committee’s questions.

It turns out that the situation is even more worrying than I had suspected.
One way to begin investigating exactly how much Russian money there is in Britain – and how much of it is dirty – is to look at the official data. According to Russia’s Federal State Statistics Service, at the end of September, Russian investors held financial assets in the UK worth a total of $3.5bn (£2.6bn). Our own Office of National Statistics provides a broader measure of all Russian investment in the UK, and assessed it – at the end of 2016 – at £25.5bn.

That seems like a lot of money but, on a national scale, it’s small change. Investors from Finland alone have a stake in Britain worth twice that much, and we don’t lose sleep over the Finns destabilising our democracy. Sadly, the statistics are telling a misleading story. Russian money that moves through another jurisdiction before arriving in Britain isn’t counted as Russian and, since the overwhelming majority of money that enters and leaves Russia does so via tax havens such as Cyprus and the Bahamas, this means the official figures reflect only a small portion of the money the MPs were interested in.

Over the past decade, £68bn has flowed from Russia into Britain’s offshore satellites such as the British Virgin Islands, Cayman, Gibraltar, Jersey and Guernsey. That’s seven times more money than has flowed directly from Russia into the UK. (On top of that, some £94bn has poured out of Russia into Cyprus, £13bn into Switzerland, and £23bn into the Netherlands, which has its own network of tax havens.)

This wealth is not actually in the offshore centres – it is just registered there, which helps to obscure its origins. If you’re a Russian official whose wealth is wildly disproportionate to your salary, this anonymity allows you to spend your money in London without anyone realising you’re a crook. The French economist Thomas Piketty estimates that more than half of Russians’ total wealth is held offshore in this manner – some $800bn (£597bn) – and by a tiny number of people, perhaps just a few hundred. “Rich Russians live between London, Monaco and Moscow,” Piketty wrote in a blogpost in April. “Post-communism has become the worst ally of hyper-capitalism.”

This means that there is not a single sewer pumping dirty Russian cash into the UK to which we can attach a meter, so as to measure its output. Instead, the cash is diluted into the great tidal flows of liquid capital that pour in and out of the City of London every day, from every corner of the globe. The ordure churned out by Russian crooks and kleptocrats is thus, thanks to the skilled attentions of the tax havens’ best brains, indistinguishable from ordinary investment.

Gorey harbour in Jersey, a UK crown dependency and international finanical centre. Photograph: Brian Lawrence/Getty Images

One of the few studies to forensically address this phenomenon came from analysts at Deutsche Bank, who, in 2015, looked at discrepancies in the records of money that flows into and out of the UK, and concluded that since the early 1990s, £133bn had arrived here without ever being publicly accounted for. They estimated that “less than half” of that sum was likely to be Russian, which means that Russians could have secret holdings here of up to £67.5bn, on top of the officially declared figure. (That is still a small amount compared with the holdings of German, American or French investors.)

So whose money is this? How is it getting here? The bank’s analysts didn’t look into that question. However, had they wanted to, they could have walked down the hall and asked their colleagues, since it turned out that Deutsche Bank itself was a significant culprit in spiriting money out of Russia without informing the authorities. Less than two years after the report – called Dark Matter – was published, Deutsche Bank traders in Moscow were caught secretly moving $10bn (£7.5bn) of their clients’ money out of Russia by illegally exploiting the stock market. (As a result, the bank had to pay finesof $425m (£317m) in the US and £163m in the UK.)

With institutions as sophisticated as Deutsche Bank working to hide Russian money, it is unsurprising that the total amount in the UK remains vague. So there is no real answer to the foreign affairs committee’s first question, except to say that the volume of Russian money in Britain is far larger than the official statistics would have us think.

There are two reasons why we should be worried about this. The first is the low-probability but high-impact chance that Putin is hiding money here in the financial equivalent of sleeper cells, ready to slip out and buy influence when a crisis comes. The second is more significant: no one steals money if they can’t keep it. By letting Putin’s allies launder their stolen fortunes, and hide them in our country, we are drawing a line under their crimes, and rewarding them for actions we should not be condoning. Do we really want Britain to be the Kremlin’s fence?

To attempt an answer to Priti Patel’s second question – what assets has all this money gone into? – we need to look at how wealthy Russians responded to the collapse of communism. They chose to spend their newly freed money on assets they had long been denied, and ones that could not be taken away from them. Above all, they bought luxury goods and property outside their own country, particularly in London.

In early 1993, rich Russians were enough of a novelty for the Independent to report that three of them had bought flats in Kensington – at prices between £200,000 and £320,000 – under the headline “Property – a haven for rich refugees”. A month later, a Russian tycoon dropped £1.1m on a house in Hampstead, and then bought all the contents, too. “All he took into the house were four televisions and a vanload of carrier bags from Harrods,” an estate agent told the Evening Standard.

Those purchases were the first ripples of a tsunami of wealth that crashed over the whole south-east of England, with spectacular consequences. In 2013, an analysis by the estate agency Knight Frank estimated that almost a tenth of all buyers at the top end of the London market came from the former Soviet Union, while rival estate agents Savills calculated that Russians like to buy the biggest houses of any group of purchasers. Average house prices in Kensington have risen eightfold over the past two decades, at least partly thanks to the influx from Russia.
The poster boy for ostentatious expenditure has been the oligarch Roman Abramovich, who bought Chelsea football club in 2003. But even his London house – valued at £125m – was second division in the spending league. In April 2011, a Ukrainian bought the world’s most expensive flat – the penthouse at One Hyde Park – for £136.4m. Five months later, a Russian bought Park Place, a stately home near Henley-on-Thames, for £140m. Russians who acquired homes valued merely in the tens of millions barely deserved notice.

Among those lesser buyers was a banker called Grigory Guselnikov, a boyish 42-year-old who moved to London in 2008. He and his family came on tier 1 investor visas, which provide successful applicants with residency in exchange for an investment (of, at the time, £1m) in government bonds. In the eight years to September 2015, Russian citizens made up 764 of the 3,396 people who paid for these so-called golden visas – making them the second largest group of applicants, after Chinese citizens. This arrangement brought in around £800m of Russian investment, but the flow dropped markedly after April 2015, when the UK authorities began to check the origin of the money used to buy these government bonds. Once rigorous checks were put in place and the price of the visa was doubled, the number of applications fell sharply. In the final quarter of last year, just 16 Russians applied for a golden visa.

Guselnikov believes that politicians’ sudden panic about Russian money in Britain is misplaced. When we met in his office in a grand terraced house on Grosvenor Square, he began by pointing out that Russian money had less influence over British business than people think. “I can’t recall any big enterprise controlled by Russians, or any big company. They open restaurants, wine shops, they buy luxury stuff like football clubs.

“Where the impact is significant is real estate,” Guselnikov continued. “And primarily real estate in London.” His most high-profile investment was the shop that houses the Rolex concession on the ground floor of One Hyde Park, which he bought in 2011 for £12m (and sold for £20m three years later), and which demonstrates the peculiar dynamics at the top end of the property market, where the price of residential property is inflated beyond any conceivable income it could generate. “There is a shop, with advertising, 300 sq metres and the price is £12m. The flat above has no advertising, no shop, no ability to make money; it’s the same size, 300 sq metres, and cost £25m. The shop was two times cheaper than the flat, that was really funny,” he said, with a laugh.

His second point was that it was a misconception to think Russians are Machiavellian masterminds buying up slabs of Britain in order to undermine us from within. “You have to understand why people buy real estate abroad – they see it as their pension, they want to diversify the risk. In Russia, you have to be ready to lose everything, you never know what will happen,” he said. “They just spend money here. They don’t invest, they spend.”

One reason the Russian super-rich come to Britain, Guselnikov said, was for education. His own children attended private schools, although they now have British passports, so they were not counted among the 2,806 Russian children attending schools surveyed by the Independent Schools Council last year. By multiplying that total with the average fees parents pay, we can calculate that a minimum of £48.3m comes to Britain’s private schools each year from Russia.

Guselnikov said banks had become more stringent in their checks on the provenance of money in the last few years, so it was unlikely that significant flows of dirty money were entering the UK from Russia any more. But he conceded things had been different in the past. “If any dirty money is invested in UK property, it was before 2008; or before 2011 at the latest, not now. I don’t think the UK’s attractive any more, I don’t think it’s possible any more,” he said.

It may well be that, as Guselnikov said, many honest Russian businesspeople have indeed been behind these purchases of London property. However, thanks to tax havens and skilled enablers from the world’s major financial institutions, their money has been mingled with the proceeds of theft, bribery and corruption. Imagining that Britain will be unscathed by this influx is the macro equivalent of letting a kidnapper, a bent copper, and a heroin trafficker move into your village, and still expecting warm chats at the school gates.

Transparency International published a report last year, which, relying only on public sources of information, identified 160 properties in the UK, together worth £4.4bn, that had been bought by what it called “high-corruption-risk individuals”. Most of those properties were in London, and half of them were within three miles of Buckingham Palace – and that is just a fraction of the true total. “There is currently no credible deterrent in place for money-laundering failings from estate agents,” the report noted.

Two years ago, a former fund manager called Bill Browder gave evidence to parliament’s home affairs committee in which he revealed how $30m (£22m) that had been stolen from the Russian state by a group of corrupt police officers and officials had come to the UK, via 12 different banks, and been spent on an array of luxury goods: $176,000 went on chartering a private jet; $192,000 on redecorating a yacht; $20,000 on private school fees; $41,000 on a wedding dress; $295,000 to pay off an exclusive women-only credit card that offers “the most privileged and luxurious service”.

Browder, who was born in the US but is a British citizen, ran a successful Moscow-based fund until 2007, when the corrupt officials fraudulently claimed ownership of two of his investment companies. They realised that, by fiddling the books, they could claw back the $230m in taxes that he had paid on the year’s profits, which is what they did. The $30m that ended up in the UK derived from this act of grand larceny. When Browder’s lawyer Sergei Magnitsky exposed the fraud, he was arrested and detained in jail, where he was beaten and denied treatment for pancreatitis until he died. Browder has devoted the years since Magnitsky’s death to seeking justice for his lawyer, and punishment for those responsible. He employs a team of forensic accountants, who have traced the movement of the money that was stolen from the Russian budget.

The spending that he described to parliament fitted the pattern laid out by Guselnikov: it was being blown on luxury goods, rather than being invested to win influence over British politics or society. But that doesn’t mean we shouldn’t be concerned about it. This money should have been paid as taxes and spent on hospitals, schools and other services in Russia. Instead, it had been stolen from taxpayers and splashed on an absurd array of goodies. This is the kind of money Britain has been happily fencing for decades. Even now, British MPs only seem to care about it because its owners might harm our national security, rather than because it should be returned to the people it was originally stolen from.

Browder told the home affairs committee that he had traced chunks of the stolen money to 11 other countries – including France, Switzerland and the US – and investigators in every one of those countries had opened criminal cases based on the information he provided. But in Britain – where he had spoken to the Metropolitan police, the Serious Organised Crime Agency (now part of the National Crime Agency), the Serious Fraud Office, and HMRC – he had been turned away every time.

Why was Britain the only country that declined to act on the information Browder provided? His conclusion was that too many influential people – lawyers, bankers, accountants, property developers – were dependent on dirty Russian money for their livelihoods. “If that money was stopped,” he said in 2016, “certain people would find themselves without businesses, and I think those people have political weight in this country.”

Many British institutions have indeed accepted donations from wealthy Russian businesspeople: Sadiq Khan’s City Hall from Elena Baturina, whose husband was mayor of Moscow; the Conservative party from Lubov Chernukhin, whose husband was one of Putin’s ministers, and who paid £160,000 to play tennis with Boris Johnson and David Cameron in 2014.

 

Prime minister David Cameron with Russian president Dmitry Medvedev in Moscow in 2011. Photograph: Stefan Rousseau/PA

But it is not venal politicians who are stopping British police conducting investigations into the laundering of Russian money in the UK. According to Tristram Hicks, who was the detective superintendent in charge of economic crime at the Met until 2009, and who now acts as a freelance consultant to police forces around the world, the problem is far more serious than that.

In order to prosecute a foreign crook in Britain, you need to prove their money originated in a crime of some kind, and that requires evidence from overseas. Essentially, if you want to prosecute a Kremlin insider, you need evidence from the Kremlin, which naturally it will not provide, and that stops investigations from progressing. And this is not just a British problem. After France, Switzerland and the Netherlands received information from Browder that some of the stolen $230m had been spent in their countries, they froze the assets in question – but their criminal investigations are yet to secure convictions. Only US prosecutors have managed a result, and even that was just an out-of-court settlement, without an admission of guilt by the defendant. “You cannot underestimate the technical hurdle that is bringing the evidence to a British standard for a British court,” Hicks said.

That isn’t the only obstacle to investigating money laundering. Given that all wealthy Russians have political connections – otherwise, they wouldn’t be wealthy – if the UK does gain cooperation from Russian investigators in a prosecution, the defendant will invariably claim, often with good reason, that he is being politically persecuted, which allows his lawyers to discount the evidence being used against him.

Take Andrey Borodin, the owner of that £140m house in Henley-on-Thames. He arrived in Britain in 2011, pursued by Russian charges of having defrauded his own bank. Borodin insisted the charges were politically motivated, and gained asylum here. Had prosecutors brought charges in the UK, his lawyers could have discounted any evidence from Russia as the revenge of political rivals, and Hicks conceded this would essentially doom the prosecution’s case. “That’s hard to argue against,” he said.

There is also a third difficulty that Hicks didn’t address, which is just as serious. If a wealthy, ruthless Russian faces investigation, he can stop any chance of prosecution by killing the witnesses. This may well have been what happened to Alexander Litvinenko, who was murdered with radioactive polonium-210 in 2006, and who was working with Spanish and British authorities to expose Russian money flows. It may also explain the death of Alexander Perepilichny, a 44-year-old banker who was helping Browder’s team to understand the destination of the $230m stolen from the Russian budget, and who died while jogging in Surrey in 2012. Investigators at first thought he had suffered a heart attack, but it appears that he may have been poisoned with a rare plant extract.

In short, to bring a successful money-laundering prosecution against a wealthy Russian, officers need to win cooperation from Moscow, which is all but impossible; to convince a UK court that any cooperation that does result was not politically motivated, which is extremely difficult; and then to keep their witnesses alive, which has proven rather hard. In the circumstances, it’s not surprising that the NCA decided bringing a prosecution in the Magnitsky case was not the best use of its resources.

The amazing thing is that we have tolerated this situation for so long. Britain has consistently welcomed Russian money, and consistently ignored the warnings of those concerned about what it is buying. In March 2000, when Putin was still just acting president and had spent six months pulverising Chechnya, Tony Blair dashed to St Petersburg to be the first western leader to secure a meeting with the new man, and to urge more investment in each other’s countries.

At least Blair could claim not to have known what kind of man Putin was, but David Cameron had no such excuse. In September 2011, Cameron went to Moscow to seek business for the City of London, although most of the facts that are currently concerning MPs about Russia were already known. Litvinenko had been murdered five years previously, and Russia had given one of the Met’s suspects in the case a seat in parliament. Magnitsky had died in jail two years earlier, and his tormentors were walking free. But Cameron went to Moscow anyway.

“The whole point about trade is that we are baking a bigger cake and everyone can benefit from it and this is particularly true, perhaps, of Russia and Britain. Russia is resource-rich and services-light whereas Britain is the opposite,” Cameron told students at Moscow State University, on a trip that also involved meetings with Putin and his then placeholder president Dmitry Medvedev.

In his speech, Cameron boasted that Russian companies accounted for a quarter of share offerings on the London Stock Exchange. “Governments need to remember that businesses don’t have to invest in our country – they choose to. And we need to help them make that choice,” Cameron said. “It means minimising the burden of regulation so that business and entrepreneurship can flourish.”

With a prime minister who considered regulations on the origin of money to be a burden, it’s unsurprising that not many of them were made. This approach did not of course begin with Cameron, or even with Blair. In fact, it goes back to the mid-20th century. After the second world war, Britain was all but bankrupt, the City of London was somnolent, and economic power rested on Wall Street. City bankers wanted to get back into business, but were frustrated by the weakness of the pound, and its unsuitability as a means to finance the world’s trade.

  Vladimir Putin and Tony Blair in Downing Street in 2003. Photograph: Grigory Dukor/Reuters

Their salvation came from an unlikely quarter: the Soviet Union, which didn’t want to keep its dollar reserves in US banks. Instead, it kept them in London, where British banks began lending them to each other in an entirely unregulated market – they became known as “Eurodollars” – thus giving birth to offshore finance, and providing the City with the startup capital it needed to get back in business. By the end of the communist period, Soviet institutions routinely sent their money through Britain’s offshore territories, and the City was booming. The Central Bank in Moscow even had a shell company in Jersey, which it used to hide money from the government that it was supposedly a part of.

This is one of the problems with trying to ascertain the volume of dirty Russian money in London: how far back do we go? Do the fees Midland Bank received for banking Soviet money in the 1950s still count as Russian cash, and if so, are they dirty? Does the commission the estate agent earned by selling those flats in Kensington in the early 1990s count as dirty money? And what about the £800m that Russians paid for government bonds in return for golden visas? Or the $41,000 of Magnitsky money that was spent on a wedding dress in London? How many times does money have to circulate in the economy before we decide it’s not dirty any more?

This money is so deeply embedded in the UK that extracting it, or even identifying it, would be an unrivalled feat of investigation. “It would be impossible,” says Prem Sikka, professor of accounting at Sheffield University. “They have the big accountancy firms advising them where best to stash the money, to conceal it, to disguise it, all kind of things. The brains of this pinstriped mafia are available to everyone. They’re for hire.”

Recently, I spoke to Jon Benton, who led teams fighting dirty money at the Met and the NCA, and advised Cameron at the Cabinet Office, until his retirement in 2016. “We used to get these suspicious activity reports coming in, Russian ones, all the time. It would be for an investment or a property or a load of other things,” Benton said. “You’re looking at something that doesn’t look right, doesn’t smell right, but we had a tiny number of resources. To get caught up in some really complex Russian money-laundering case, when we weren’t going to get any assistance – you have to weigh it up. Do I try to throw lots of resources at this, when I know I’m really going to struggle to get the door open?”

Benton was optimistic about the introduction of so-called unexplained wealth orders, which came into effect in February this year. Once a UWO has been issued, property is frozen, and its owner has to respond and justify why they own it. But that will only confiscate property, Benton noted. It won’t put anyone in jail.

“The time when we might have been able to do something about this was 20 years ago, when it wasn’t particularly sophisticated, and the large sums of money were just arriving in the country,” he said. By ignoring the provenance of dirty cash, and allowing it to be spent on property, British authorities have cleansed it of its taint: it is legitimate investment now. “Unpicking all that is a real challenge. The reality is that it’s probably the hardest area to penetrate in the world.”

We don’t know how much dirty money there is in the UK, nor do we know exactly where it is, and there’s nothing we can do about it. Or rather, there’s nothing we can do about it with the laws as they stand, and without giving greater resources to law enforcement agencies. Almost 100,000 UK properties are currently owned via offshore companies, obscuring their ownership, many of them undoubtedly by Russian criminals and kleptocrats we could happily do without. The government has promised to force these offshore companies to disclose their true owners, but that won’t be until 2021. For the next three years, criminals will be free to profit from their property in the UK without admitting they own it. Why can’t we hurry that up? To answer both of Priti Patel’s questions – how much money is there, and where is it? – we need transparency.

The foreign affairs committee published its conclusions this week, drawing on the evidence that I and others gave it, and they were impressively robust. Its report demanded a more coherent government approach to the “assets stored and laundered in London (which) both directly and indirectly support President Putin’s campaign to subvert the international rules-based system, undermine our allies, and erode the mutually reinforcing international networks that support UK foreign policy”.

Earlier this week, it was reported that Abramovich is finding it hard to renew his British visa, and some newspapers are speculating that this suggests Britain is already pioneering a new approach to Russian money, one that demands checks on the fortunes even of the very richest, and even when there is no apparent evidence of corruption. We do not yet know the reasons for the delay in the Chelsea owner’s visa, but such checks should be welcomed anyway: in cases where evidence emerges that someone is corrupt, that person should be kept out of Britain. But this alone is insufficient; we need to find the dodgy money that is already here. Confiscating it and finding a way to return it to the Russian people would diminish those who mean us harm, while simultaneously helping those we wish to befriend.

That requires strengthening Britain’s investigative power. The National Crime Agency and the UK’s police forces currently lack the resources to bring the prosecutions that could really make a difference to criminals’ calculation about whether to bring their money here. If we wish to prevent Russian kleptocrats from buying our country, we need to start catching them and their enablers in the act, and prosecuting them. That is the only true deterrent.

Britain's role in the growth of tax havens

Andrew Verity in The BBC


Here's the received wisdom: when the British Empire faded in size and significance after World War Two, a few scattered islands around the globe wanted to keep their imperial ties to London.

The British government had to find a way to reduce the economic dependence of the likes of Bermuda, Montserrat or the British Virgin Islands, so it awarded them special tax-exempt status, creating the conditions for a thriving financial services industry.

Yes, tax evasion and money laundering may have got a little out of hand from time to time, but overall it succeeded in lifting them out of dependence on the UK government.

But there's a deeper story. It wasn't by design that the remnants of a dying British Empire morphed into a world leader in offshore financial services, selling secrecy and tax avoidance to multi-nationals and the wealthiest individuals in the world.

Instead, the crucial moment was more of an accident - which gave rise to advantages no-one had foreseen.

And it began not in Bermuda or Jersey but in another offshore centre - "offshore" not to the UK, but to the US - the City of London.

Incentives to avoid

When the 20th Century began, income tax was in single digits and progressive taxation - charging richer people a higher rate - had barely begun.

In the run-up to World War One, chancellors of the exchequer - from Asquith to Lloyd George - began raising taxes to pay for social reforms, such as the old age pension.

As the war progressed, the state demanded more and more income tax from every citizen and higher rates for the wealthy, leading to a top rate of 30% by 1919.

Accountants to wealthy individuals began to devise ways to avoid tax. Clients could become resident in Jersey, where tax rates were far lighter.

Or, if they wanted to stay in London, they might put their money in a trust registered elsewhere, perhaps on the Isle of Man, where in theory it was no longer theirs - and therefore not visible to the prying eyes of an Inland Revenue inspector.

David Lloyd George served as Chancellor in Herbert Henry Asquith's government, before rising to PM in 1916

But it was in the dying days of the Empire that the offshore financial services industry truly boomed.

Defined by purpose rather than geography, "offshore" means any jurisdiction that seeks to attract investors on the basis of light taxes and looser regulations.

On that basis, the epicentre of the offshore industry is not Nassau in the Bahamas or George Town in the Cayman Islands.

As author Nick Shaxson points out in his fascinating offshore expose, Treasure Islands: "The modern offshore system did not start its explosive growth on scandal-tainted and palm-fringed islands in the Caribbean, or in the Alpine foothills of Zurich. It all began in London, as Britain's formal Empire gave way to something more subtle."

By accident - not design

In 1957, Britain and its imperial remains were trying to recover from a financial crisis. The previous year the UK had joined forces with France and Israel to try to recapture the Suez Canal after it was nationalised by the defiant anti-colonial Egyptian President, Gamal Abdel Nasser.

Viewing the invasion as European imperialism at its worst, the US refused any assistance.

By the end of 1956, a run on the pound was under way. The Bank of England wanted to curb the outflow of pounds by boosting interest rates sharply, but Her Majesty's Treasury had other ideas.

Since the Bretton Woods economic conference of 1944 towards the end of World War Two, countries had agreed to control movements of capital to curb the speculative flows into and out of countries that had worsened the economic crises of the past.

If, say, Tate & Lyle wanted to invest several million pounds in a new sugar production facility in Jamaica, it would need signed approval from Her Majesty's Treasury.

Normally this was a formality. But during the Suez crisis, the Treasury announced that, on a temporary basis, it would no longer approve foreign capital investments.Image copyrightREUTERSImage captionThe Bank of England did not get its way against the Treasury

The City's merchant banks were alarmed. Arranging finance for projects in the former colonies was their lifeblood. How would they avoid ruin?

Digging through the archives, financial academic Gary Burn unearthed what happened next.

Hearing the banks' complaints in a series of meetings, the Bank of England agreed in late 1957 to allow the commercial banks to continue to lend and borrow to foreign clients on two conditions:
the lending had to be in a currency other than sterling, and
both sides of the transaction - the lender and the borrower - had to reside somewhere other than the UK
"The decision was momentous in all respects," says one of the leading experts in offshore finance, Prof Ronen Palan of City, University of London. "They simply deemed certain transactions as not taking place in the UK. Where did the transactions take place for regulatory purposes? Nowhere.

"I think it wasn't at all by design; it was a mistake. They didn't understand the implications. It was seen as an accounting device."

The so-called "Eurodollar" was born - a global offshore financial market, transacting in dollars and allowing unlimited sums to be borrowed and lent, but under the control of no single state. No act of Parliament (or Congress) sanctioned the decision. There was no thoughtful policy-making, no careful debate.

Success of the Eurodollar

The Treasury was at first left in the dark. But within years the implications were obvious - this could revive the City of London's fortunes.

"By the time the Treasury figured it out, they thought, 'this is good business for the City'," said Prof Palan.

Banks from all around the world could borrow and lend in dollars without being subject to US tax or banking regulations - making banking in dollars more profitable out of London than out of Wall Street.

Offshore banks didn't have to hold money in reserve for every dollar they lent (as they would in the US), which would dramatically cut their costs.

While transactions were arranged in London, the lenders and borrowers could be registered anywhere. But the parties to Eurodollar transactions needed addresses.

So, zero-tax jurisdictions from the Cayman Islands to the Montserrat were used by London's investment banks as the official tax residences of their wealthy customers.

Clients could avoid both tax and undesirable scrutiny - for example from the US tax authorities.

In the British Overseas Territories, local laws were passed to attract more registration business, collecting modest fees that mounted up. No need for a bank branch out there - just a drawer in an offshore lawyer's filing cabinet.

The City of London began its recovery to become the centre of finance it is today

Howls of protest from the US government were ignored. Between 1960 and 1970, the size of the Eurodollar market went from $1bn to $46bn.

In the 1970s, countries rich in petrodollars from soaring oil prices were faced with a dilemma: repatriate the money to New York - where they would be taxed on it - or keep it offshore.

By 1980, the so-called Eurodollar market was worth more than half a trillion.

After the deregulation of the City of London in the 1986 "Big Bang", US banks joined in, setting up in London.

And as the 1990s and 2000s progressed, it became the undisputed global centre for foreign currency trading.

Not for the weather

Banks' wealthy individual and corporate clients didn't incorporate in the Cayman Islands or the British Virgin Islands because they liked the weather there - many never visited.

Offshore centres were attractive to businesses looking to reduce their tax bill, but sometimes, more importantly, to avoid what they regarded as excessive regulation.

Cayman Islands-registered companies were used heavily, for example, by the energy giant Enron as it built its business model based on fraudulent accounts.

Tax-free, light regulation jurisdictions, including the Bahamas, the Cayman Islands and Delaware in the US, became the corporate locations of choice for legitimate hedge funds.

They were also used to incorporate the vehicles at the heart of the global financial crisis - the 'structured investment vehicles' that did not show up on bank's balance sheets and bought billions of mortgage-backed securities, massively increasing the unnoticed risks in the global financial system which led to the crisis of 2008.

Likewise, the British Virgin Islands has been used by many legitimate businesses. It has also become the favourite secrecy jurisdiction for clients of the Panama-based law firm exposed in last year's Panama Papers revelations, Mossack Fonseca.

Since those revelations, governments around the world have pledged to improve transparency with measures such as automatic information sharing and registers of beneficial owners of offshore companies.

Many of those measures are yet to be enacted or tested.

But as the Paradise Papers are now confirming, the secrets of Britain's offshore empire are no longer quite so safe.

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'Reputation laundering' is lucrative business for London PR firms

Oppressive foreign regimes are often such valuable accounts that they are considered worth the risk of a backlash


Mark Sweney in The Guardian


From foreign governments of dubious repute and dictators looking for an image overhaul to propaganda videos and fake Wikipedia entries – if there is a PR brief of dubious ethical nature that needs a fix then more often than not it is one of London’s big-name agencies that gets the call.

Bell Pottinger’s public vilification and expulsion from its own trade body for running a social media campaign to stir up racial tension in South Africa for the wealthy Gupta family has lifted the lid on the secretive and highly lucrative business of representing controversial clients.

Over more than three decades in the business Tim Bell, Margaret Thatcher’s favourite PR man, who left Bell Pottinger last summer, has amassed something of a who’s who of what could charitably be called sensitive clients.

These have included the Pinochet Foundation and the governments of Bahrain and Egypt, and there was a $500m (£384m) contract to make fake al-Qaida videos in Iraq for the US government.

“You say words like Pinochet and ‘oh my god that is bad news’, but I don’t accept that,” Lord Bell said. “There are two sides to every story and you have to handle it so your side is prevalent. I don’t know why they are [considered] risky clients. They are only risky if what you are trying to promote an idea that isn’t sound.”

He cited Alexander Lukashenko, the Belarusian president who has been called Europe’s last dictator, as an example of when taking on such clients went wrong. “There are lots of people I regret having got involved with. Lukashenko went well for six months then changed his mind [about the strategy], behaved differently and I resigned the account.”

Foreign governments with oppressive regimes are often such valuable accounts that they are considered worth the risk of a potential PR backlash.

The Portland agency, founded by Tony Blair’s former adviser Tim Allan, has previously advised Vladimir Putin and worked with Kazakhstan, Jordan and Morocco.

A contract with Qatar, which has been heavily criticised for its record on human rights, is focused on building a government affairs function. Portland declined to comment but Allan has previously said such work is about “openness and engagement” and that opening up secretive nations is “not an affront to democracy”.

Late last year the PR guru Matthew Freud picked up a hugely valuable brief from Saudi Arabia, which has executed more than 150 people in each of the last two years.

The account, led by deputy Crown Prince Mohammed bin Salman, was pitched to a number of corporate PR firms in London. The PR agency Freuds declined to comment but at the time of winning the business said it was focused on a “programme of economic, educational and cultural modernisation to help diversify the economy and create a sustainable and prosperous future for Saudi’s young people.”

A senior PR executive said: “Tyrants, dictatorships and governments that may not be democratic, or are sliding into one-party states, tend to come to places like London, New York and Washington effectively for reputation laundering. If you are cynical about it, that is what it is.”

A number of senior PR executives agree that Bell Pottinger working for the Gupta family, which has been accused of benefiting financially from its close links to the South African president, Jacob Zuma, is not in itself a PR crime.

But stoking racial tension in a country that has struggled to achieve balance in a post-apartheid era is a particularly egregious strategy to have pursued, and not one that is rife among the dark arts employed by UK agencies.

“I think that Bell Pottinger’s work is an outlier,” said Danny Rogers, editor-in-chief of PR Week. “They are accused of creating fake news and blogs, a serious transgression. It is not typical of what the British PR industry does. Work varies from what you would consider to be institution-building and opening communications by governments to the extreme end of the sort of work Bell Pottinger was doing for the Guptas.”

Francis Ingham, director general of the trade body PRCA for the last decade, said the UK industry was “overwhelmingly ethical and professional”.

“There is always the occasional rogue element and our role is to punish them,” he said.

Ever the risk-taker, Lord Bell, after leaving the agency he co-founded, immediately looked for more of the same, setting up Sans Frontières, the same name as the arm of Bell Pottinger that handled sometimes controversial geo-political work.

Bell, who has also represented clients including the News UK chief Rebekah Brooks and the entertainer Rolf Harris, said the Bell Pottinger scandal would prompt the industry to take cover for a while but then it would be business as usual.

“There will be a lull for a while, then people will forget the controversy and people will come back,” he said.

Yet, even the hard-bitten Bell admitted there were some clients beyond the pale even for him. He turned down representing Zimbabwe’s president, Robert Mugabe, as well as the Labour party (“I wouldn’t have done a good job”).

“I wish we hadn’t taken the Guptas,” he said. “And I would like to have worked for BP, to have handled the Deepwater Horizon incident. As long as there is controversy about things there will be controversial characters. You can’t spend your life regretting what you do.”

Offshore finance: more than £12tn siphoned out of emerging countries

Analysis shows £1.3tn of assets from Russia sitting offshore, as David Cameron prepares to host anti-corruption summit.

 

Russian banknotes. A detailed 18-month research project has uncovered a sharp increase in the capital flowing offshore from developing countries, in particular Russia and China. Photograph: Maxim Zmeyev/Reuters


Heather Stewart in The Guardian


More than $12tn (£8tn) has been siphoned out of Russia, China and other emerging economies into the secretive world of offshore finance, new research has revealed, as David Cameron prepares to host world leaders for an anti-corruption summit.

A detailed 18-month research project has uncovered a sharp increase in the capital flowing offshore from developing countries, in particular Russia and China.

David Cameron under pressure to end tax haven secrecy



The analysis, carried out by Columbia University professor James S Henry for the Tax Justice Network, shows that by the end of 2014, $1.3tn of assets from Russia were sitting offshore. The figures, which came from compiling and cross-checking data from global institutions including the International Monetary Fund and the United Nations, follow the Panama Papers revelations of global, systemic tax avoidance.

Chinese citizens have $1.2tn stashed away in tax havens, once estimates for Hong Kong and Macau are included. Malaysia, Thailand, and Indonesia – all of which have seen high-profile corruption scandals in recent years – also come high on the list of the worst-affected countries.

Henry, a former chief economist at consultancy McKinsey, told the Guardian his research underlines the fact that tax-dodging is not the only motivation for using tax havens – criminals and kleptocrats also make prolific use of their services, to keep their wealth secret, and their money safe. He said the list of users of offshore jurisdictions is like the cantina scene in Star Wars, where a motley group of unsavoury intergalactic characters is assembled. Henry said: “It’s like the Star Wars scene: you have the tax dodgers in one corner, the arms dealers in another, the kleptocrats over here. There’s also those using tax havens for money laundering, or fraud.”

Oil-rich countries including Nigeria and Angola feature as key sources of offshore funds, the research finds, as do Brazil and Argentina. Henry said the owners of this hidden capital are often so keen to secure secrecy and avoid their wealth being appropriated back home, that they are willing to accept paltry financial returns rather than investing it in ways that might promote economic development. Charging just 1% tax on this mountain of offshore wealth would yield more than $120bn a year — almost equivalent to the entire $131bn global aid budget.

The TJN is urging Cameron to push for agreement on a series of issues at this week’s summit, including a tougher crackdown on the banks, lawyers and other professionals who facilitate financial secrecy; and an obligation on all politicians to make their personal financial situation transparent.

The prime minister published a summary of his tax affairs last month, after the Panama Papers leaks revealed that his father had set up an investment fund, Blairmore, based in the offshore jurisdiction of Panama.

Henry argued that when senior figures in authoritarian states such as China use tax havens to guard their money safely, they are effectively free-riding on the legal and financial systems of other countries. “All of these felons and kleptocrats are in a way essentially dependent on the rule of law when it comes to protecting their money,” he said.

He said it was not just exotic locations such as the Cayman Islands where money can effectively be hidden, but also some US states, such as Delaware, where it is possible for foreign investors to start up and run a company without making clear its ultimate ownership – something all UK firms will have to do from later this year.

Tax havens don’t need to be reformed. They should be outlawed

Richard Brook in The Guardian


The Panama Papers are not really about a central American state. They are a glimpse through a Panamanian keyhole of an orgy of tax evasion, money laundering and kleptocracy – amid the legitimate financial planning – hosted by the world’s tax havens. Seven years after world leaders came together at a post-financial crisis G20 summit in London and committed to end tax haven abuse, it is clear from these papers that no such end is in sight.

The good intentions have translated into a blizzard of international agreements on sharing information, amnesties through which tax evaders can come clean, and prosecution drives of variable quality to nail the cheats. All are demonstrably inadequate. Information will not, and cannot, be exchanged to any meaningful extent by countries and territories whose “offer” is that they don’t ask for it or will turn a blind eye to being deceived.

Amnesties teach rich tax evaders that, even if they are caught, they will get off far more lightly than somebody overclaiming a few pounds in social security benefits. Criminal pursuit of offenders, certainly in the UK, is little more than a joke. One prosecution from 1,000 tax evaders using HSBC’s Swiss accounts is the now infamously poor punchline.

Here, the Panama Papers lay bare another national disgrace: Britain’s longstanding role at the centre of the offshore web. More than half of the 200,000 secret companies set up by the Panama lawyers Mossack Fonseca were registered in the British Virgin Islands, where details of company ownership don’t have to be filed with the authorities, never mind be made public.

While this week’s leak is on an unprecedented scale, it exposes a historic as well as current failing. As the British empire faded away after the second world war and territories such as the British Virgin Islands drifted into the constitutional limbo of semi-independence, they were encouraged to develop financial services as a way of sustaining precarious economies. If this meant a few of the world’s wealthier people paid a little less tax, thought successive British governments, it was a price worth paying for not having to support the territories.

Late 20th-century financial liberalisation turned this already complacent calculation into something more lethal. With fortunes sloshing freely across borders, tax havens became voracious parasites on the world economy, most seriously sucking the life out of some of its poorer parts. All the great national robbers of recent decades, such as Nigeria’s Sani Abacha, have used tax haven companies, including British Virgin Islands ones, as the getaway cars.

Despite this long trail of evidence, leading economies refuse to address the problem at its source. The UK has great leverage over its 17 overseas territories and crown dependencies, all of which depend on the mother country for security and happily trade off its legal system. At a stroke our government could shut down the British Virgin Islands corporate system, for example. But under influence from a banking system that thrives on the legal benefits of offshore centres such as the British Virgin Islands and the Cayman Islands, it takes a more relaxed view. Asked recently about whether Britain’s overseas territories should publish registers of beneficial owners of their companies, foreign office minister James Duddridge replied that these were a “direction, rather than an ultimate destination”. The Panama Papers should expose this indifference for the great scandal that it is.

Without leaks like this week’s, nothing would be publicly known about the tax haven companies now exposed. And next to nothing would be known by the authorities in the countries affected. Yet, alongside dozens of other tax havens, the British Virgin Islands can claim to be on the Organisation of Economic Cooperation and Development’s “white list” of approved jurisdictions, having met conditions imposed for exchanging information. That’s right: a major centre of international financial crime, home to the shell companies of Vladimir Putin’s associates and any number of other money launderers and sanctions-busters, is endorsed by the rich nations’ club.

With around $1tn a year still flowing out of developing countries to tax havens, it is clear that coaxing these territories into increased transparency can achieve only marginal gains. The recent series of leaks poses a more potent threat: anybody contemplating hiding income offshore must now factor in the risk that many years later the details could make their way from an office such as Mossack Fonseca’s into the wider world. Far better, even the greediest might think, simply to pay the tax and get on with life.

But for others, especially those looting serious money, the offshore attractions will remain. There will be further added layers of secrecy: phoney foundations and fake beneficial owners with no names mentioned even in internal emails. A small proportion of scams will be exposed in the press and documentaries featuring telegenic palm trees and yachts will continue to hit our TV screens. But the tax havens will keep their place in the world.

To tackle the cancer of corruption at the heart of the global financial system, tax havens need not just to reform but to end. Companies, trusts and other structures constituted in this shadow world must be refused access to the real one, so they can no longer steal money and wash it back in. No bank accounts, no property ownership, no access to legal systems. The anti-corruption summit being hosted by David Cameron in May is an opportunity to start the international team effort that this would require. The world has been entertained by tax havens long enough.

Russians profit from Britain's offshore secrecy

The UK's approach has attracted many post-Soviet billionaires, including some on the run

• David Leigh, Harold Frayman and James Ball
• The Guardian, Tuesday 27 November 2012 18.21 GMT

Ukrainian billionaire Rinat Akhmetov used a BVI company to buy the most expensive flat sold in London, at One Hyde Park. Photograph: Sergei Supinsky/AFP/Getty

Also read HSBC - A case of Discrimination

Britain's friendly regime of offshore secrecy has tempted an extraordinary array of post-Soviet billionaires to descend on London, sometimes to the sound of gunfire.

Vladimir Antonov fled permanently to Britain after his father, Alexander, was gunned down in a Moscow street in 2009. Another associate, German Gorbuntsov, narrowly survived a volley of shots in London last March.

When Antonov bought a luxury yacht in Antibes, the Sea D, he was careful to register its ownership to an anonymous British Virgin Islands (BVI) entity, Danforth Ventures Inc.

He also found funds to try to take over the ailing Swedish car manufacturer Saab, though he did not take control. He did succeed for a while in owning the even more ailing Portsmouth football club.

Antonov is currently on bail in Britain. Lithuanian authorities are trying to extradite him for allegedly looting their collapsed bank Snoras, which he denies.

The allegation that oligarchs exploit Britain's offshore secrecy regime to shift assets out of their own countries is not an uncommon one. One refugee from the law is the Kazakh billionaire Mukhtar Ablyazov, who was allegedly last seen in February heading out of London on a coach to France. Ablyazov has been sentenced to 22 months in jail for contempt of court as the BTA Bank in Kazakhstan attempts to pursue his maze of offshore assets. The bank's lawyers claim Ablyazov has made off with £4bn using BVI and Seychelles companies, nominee directors and layers of front men. Ablyazov denies it.

These billionaires justify their use of British-controlled secrecy jurisdictions because they say they must protect themselves from corporate predators and political enemies in their home countries.

Another fleeing oligarch, the Georgian Badri Patarkatsishvili – a partner of fellow exile Boris Berezovsky– was found dead in 2008 in his Surrey mansion. Patarkatsishvili's business manager, Eugene Jaffe, managed £500m of the Georgian's assets from a central London office through a BVI company, Salford Capital Partners. Jaffe's company was owned in turn by an opaque BVI trust he set up called Montana River.

The wild-west financial landscape of post-Soviet Russia has attracted at least one entrepreneur from the British Isles to exploit the possibilities of the BVI secrecy regime. We have traced BVI entities used in Russia by the man once known as the richest in Ireland, the property developer Seán Quinn. He expanded into schemes for shopping malls in Moscow and Kiev.

He has now declared himself bankrupt and has received an Irish jail sentence for contempt, as the now state-owned Anglo Irish Bank seeks to recover what it says is a missing £2bn.

Other post-Soviet financiers have used Britain's secret offshore facilities for widely different purposes. The London-based Latvian oil trader Evgeny Tikhonov set up an entity in the BVI to hide a total of $2.4m (£1.5m) that his employer, Shell, subsequently convinced a British civil court he was wrongly skimming off from fuel deals. He was, however, acquitted of criminal charges over this.

The fund manager Igor Tsukanov, another arrival in the fashionable west London area of Notting Hill, kept funds in the BVI that will have apparently legally sheltered them from Russian taxes.

Dimitry Sergeev, a mobile phone games entrepreneur from Novosibirsk, whose firm was BVI-registered, faced a potentially costly dispute with a small Manchester supplier over some allegedly unpaid invoices. A source there said: "We decided it was too difficult to bring a legal action in the BVI." Sergeev did not comment.

Undoubtedly the most flamboyant post-Soviet beneficiary of Britain's offshore secrecy regime is Rinat Akhmetov, the richest man in the Ukraine. From a base in the coal-mining Donetsk region, he has personally acquired industrial assets estimated to be worth £11bn. He shifted £136m out of the former Soviet republic in 2007, in order to buy the most expensive flat sold in London, at One Hyde Park.

Asked why he hid behind a BVI company, his company spokesman in the Ukraine said it was "for internal structuring reasons". He added: "Water Property Holdings Limited fully paid all taxes and charges … as required by applicable laws in the UK. This includes payment in February 2011 of stamp duty land tax (SDLT) at a rate of 4% which amounted to £5.467m."

Legal use of BVI entities to disguise Russian movement of funds into British companies, also appears to be widespread. In one example we have unearthed, a British-registered firm, Pennard Chemicals Ltd, with an address at rental offices in Cannon St in the City of London, has had declared revenue over the last 3 years of more than 100 million euros, described as commission on unspecified Russian deals. Pennard Chemicals named director, The Hon Andrew Moray Stuart, with an address in Mauritius, is one of the sham nominees the Guardian/ICIJ research has identified. The shareholder, Imex Executive Ltd, is a BVI entity set up by a Moscow incorporation agency. In turn, its sham nominee directors include Jesse Hester in Mauritius and a sham nominee shareholder, Brenda Cocksedge. These nominees sell their names, without exercising genuine control or ownership. The real owner, according to company records we have seen, is named as Ivan Kovlachuk.