How Boris Johnson’s Party Shielded Russian Oligarchs’ Cash
Known as the City of London, the UK’s financial industry has been a bastion of secrecy for decades — and a top destination for Russian assets. A recent report from Transparency International showed that more than 20 percent of the nearly $9 billion in total property value in the UK associated with potential money laundering is connected to the Kremlin.
The UK has become an attractive destination for oligarch cash thanks in part to laws that allow British property owners to hide their identities behind shell companies, and there is no common list of ownership. Plans for a public registry began five years ago with the goal of having one in place by 2021, according to London mayor Sadiq Khan, but Johnson and his predecessor Theresa May stalled the plan.
According to the UK-based Centre for Public Data, 250,000 overseas entities now own property in England and Wales, which is up from 88,000 when the Conservatives first took office in 2010. Since the start of 2021, 623 registered companies have been set up by Russian nationals who live and work in Russia, according to a recent analysis in OpenDemocracy.
Dirty money is “breaking the social contract,” said Susana Ruiz of Oxfam, which works on transparency and tax issues. “It undermines trust in officials and the economy. It’s a system that allows oligarchs, not just Russians, to hide their assets from the scrutiny of revenue authority, and it creates a lot of disruption in society. In the end, the burden of taxation is falling on those that can’t escape. Why do we need a war to make us understand that we need to consider tracking and freezing global assets?”
Mark Bou Mansour, the spokesperson for the UK-based Tax Justice Network, said that financial secrecy across the world, and particularly in the UK, allows financial institutions to court dictators and other illicit sources of financing.
“The main concern is any efforts right now to track down assets of people who have been sanctioned are going to be hampered by loopholes in laws governing the global financial sector,” said Bou Mansour:
For decades governments have been courting dictators through ‘eyes wide shut’ regulations, which has made it impossible to track down assets held. The UK has been backpedaling on a lot of its transparency initiatives. A lot of measures have been started before and then put on hold.
Promises of Reform, but Glaring Loopholes UK transparency advocates have been complaining about their country’s financial secrecy regime for years — but only now, after Russia’s invasion of Ukraine sparked an international outcry, are Johnson and his party signaling a willingness to try to look like they are listening.
This week, for instance, Johnson sanctioned billionaire Chelsea Football Club owner Roman Abramovich and six other wealthy Russians, including Oleg Deripaska. The two billionaires had been closely linked to the Conservatives by Lord Greg Barker, who was made a member of the House of Lords by former prime minister David Cameron in 2015. Barker had worked for Abramovich’s Sibneft oil group and had been until this week chairman of Deripaska’s En+ Group.
Meanwhile, Johnson and his party endorsed legislation that they say would help regulators sanction the assets of Russian billionaires, thereby pressuring Putin’s government to back down.
“We are targeting oligarchs’ private jets, we’ll be targeting their properties, we’ll be targeting other possessions that they have,” said Johnson’s new foreign secretary, Liz Truss. “There will be nowhere to hide.”
However, when the draft of the legislation was released last week, transparency advocates panned the proposed legislation for being full of loopholes. It contained an eighteen-month implementation timeline, and fines of just £500 ($668) per day for noncompliance with the disclosure requirements — chump change for billionaires.
Even that meager fine was stripped from the bill that passed the House of Commons this week, with any fines being deferred to a regulatory process, although the implementation timeline was reduced to six months after vocal complaints from advocates.
The ruling Conservatives also rejected proposed amendments from the opposition Labour Party that would have strengthened the bill, including amendments that would have called on the government to reveal how it would reform the UK’s error-ridden business registry, known as Companies House, as well as a proposal that would have mandated a study as to whether or not enforcement agencies have sufficient funding to enforce the new legislation. Johnson’s party also rejected Labour Party demands for the bill to be implemented in twenty-eight days, rather than in six months.
“Prosecution isn’t really an option, because for instance the owner lives in Russia, which doesn’t extradite its citizens,” said Transparency International’s Steve Goodrich.
He added that the transition period means that holders of potentially illicit funds “looking to make a swift exit for the door have it held wide open for them.”
A similar gap between tough rhetoric and action seems to be evident in the regulatory arena. There, Johnson’s minister for financial services, John Glen, recently pledged that “we will not hesitate to take further action as it is needed, including by strengthening the Treasury’s powers to enforce financial sanctions.”
But he then said that the British government would change existing transparency laws aimed at derivatives — which are already notoriously opaque and poorly regulated — to make the rules less difficult for the country’s finance sector.
“(I) said that we would amend the scope of the transparency regime for fixed income and derivatives markets. This will ensure our regulation is more effective and less burdensome,” he said. “I’m very aware some critical voices say that these changes will result in a more opaque market, with trading not properly reported or scrutinized. I strongly disagree.”
A Flood of Cash to Johnson and His Party
Johnson’s slow-walking on wealth transparency reflects the influence that the City of London has in the Conservative Party that has ruled the UK for a dozen years.
Unlike in the United States, political parties in the UK are allowed to accept donations of any size, with Johnson’s Conservatives receiving more than $14 million in contributions from City tycoons since December 2019, including leading private equity and hedge fund managers.
Lobbying firm Squire Patton Boggs, which represented Russian banks Gazprombank, Sberbank, and VTB Bank in 2014, donated more than $30,000 to British Conservative MPs in 2015.
Lubov Chernukhin — the former wife of a former deputy finance minister of Russia, Vladimir Chernukhin — has donated more than $2.6 million to the Conservatives since 2012, including over $100,000 in 2021, according to Sky News. Vladimir Chernukhin is a former director of Polyus, a Russian gold mining firm closely tied to Putin-connected billionaire Suleyman Kerimov.
Other major donors to the Conservatives likely have vested interests in maintaining the veil of secrecy on ownership in the country. They include:
Jon Wood, who runs a Bermuda-based hedge fund, donated $98,000 to Johnson’s successful 2019 effort to lead the Conservative Party. Wood has also donated over $1.3 million to the Conservatives since 2019.