Dismantling Londongrad was an interesting title of an article in The Economist this week. The news has been reporting on the yachts of the Russian oligarchs ever since the European governments started impounding them as part of sanctions against close associates of Vladimir Putin. However, the movement to impose sanctions on these billionaires has also raised an embarrassing question about their property acquisitions in London: Hence “dismantling Londongrad”.
The use of the London property market as a way to hide the fortunes of foreign nationals is nothing new. It has been going on for years, and is certainly not the sole preserve of the Russians. London has been a favorite depository of illicit money, perhaps second only to Switzerland, of virtually every despot in the world.
Mega-yachts are a lot sexier than old buildings, or even large country estates, and so they have received far more media coverage. However, the visibility of the recent sanctions has brought this other style of money-laundering to an embarrassing level for the British Government. To quote the Economist article, “Corrupt capital flows to Britain from all over the world, but no one doubts that Russian loot is a major contributor to a money-laundering problem that the British National Crime Agency puts conservatively at £100 billion (US$125 billion) a year”. Dismantling Londongrad has become a priority.
From time-to-time, the U.K. Government has made half-hearted attempts to curb the flow of dirty money into Londongrad but the latest attempt, fueled by public embarrassment, looks to be a little more substantive. For example, they are set to abolish the “Visas-for-Cash” scheme, which allowed almost anyone with enough cash to take up residence in the U.K., and buy property. The supposed benefits hawked by the Government for such schemes have been largely discredited by an analysis of the costs they incur.
The British Government’s new initiative also proposes to address its satellite locations for hiding illicit money: Cayman Islands, British Virgin Islands, Jersey among other such jurisdictions.
The problem facing such proposed changes is more a matter of process than it is of law. The laws are basically in place: They just need to be tweeked. However, enforcement has been abysmal. One priority is the oversight of lawyers, who play a central role in putting together crooked off-shore structures, and fending off scrutiny of those who engage in financial chicanery. The Economist says it’s about time for the statutory regulator, the Solicitors Regulation Authority, to show some teeth and punish those lawyers who are tempted by the promise of enormous fees. The largest fine the regulator has announced to date was £232,500 (US$300,000), which would translate into about a week’s worth of fees for lawyers in that business.
Fighting this sort of corruption is admittedly difficult. The legalities are complex, and are deliberately designed to be complex. The current British anti-corruption efforts, are spread across 100 agencies and police forces, which is ridiculous, not to mention totally inefficient. The system is woefully short of forensic investigators, and funding. For example, the total budget for all those 100 entities is between £40-50 million a year, which is approximately, the annual wage bill for the top three of Roman Abramovich’s Chelsea Football players. Relative peanuts.
If the British Government is really serious about dismantling Londongrad, and all similar corruption that is embarrassing the country, and damaging its financial reputation, it will need substantially more funding and expert manpower. It’s not rocket-science, but it will be expensive.