Britain's New Safety Measures Put Russian Assets at Risk
23 March, 2018

Following the recent poisoning of ex-spy Sergei Skripal on British soil, Prime Minister Theresa May announced the expulsion of 23 Russian diplomats, as well as plans to freeze the Russian state assets that could harm the U.K.. But like other Western financial centers, London remains a popular place for Russian oligarchs and businessmen to buy assets… and launder money.

“Many of Putin's inner circle enjoy lives of luxury in the West, in London and other cities too. And they're very keen to protect that,” Nate Sibley, Program Manager at the Hudson Institute's Kleptocracy Initiative, told Hromadske. “And they’ve been given free reign to do so as long as they don't interfere in politics back home.”

While the impact these measures will have on the Russian economy remains to be seen, Sibley also explained that going forward a “deep look” at the offshore financial system is in order:

“I hope that this is the beginning of a broader conversation, which rather than clamping down on a few individuals who will just be replaced by others, this will help attack the whole system by which the authoritarian regimes like Putin's manage to spread their financial influence,” he said.

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To find out more about the consequences of Britain’s decision to freeze Russian assets, Hromadske spoke to Nate Sibley, Program Manager at the Hudson Institute’s Kleptocracy Initiative.

What Russian assets do we know about? What do they own in London?

The short answer is rather a lot. The investments are mainly in real-estate. They own – a couple of years ago it was estimated that they buy one in five of every house that's worth over 10 million pounds. That's a significant chunk of London's luxury real-estate market. The Deutsche Bank has also estimated that over 1.5 billion dollars that's laundered into London every year – about half of that comes from Russia.

Can you explain why London is such a popular place among Russian oligarchs and businessmen to buy assets and to keep money there?

Well it has what Russia doesn't, it has the rule of law. When they – we all know Russian oligarchs like to steal from Russian public budgets, but it's not safe for them to keep that money in Russia. They have political rivals, they can't rely on the courts to protect those assets once they've got them. So what they do is they like to move them out, usually through anonymous sort-of offshore jurisdictions, and they like to get them into safe, real-estate safety deposit boxes, basically, in London. And what they don't have access to is an amazing professional services industry. They can protect their money, they can keep it in luxury real-estate but they could also rely on the courts to back up their ownership of this stuff. And then they can also protect their reputations. They can employ lawyers and PR firms to shut down any criticism of them in the U.K. because it has particularly bad libel laws. So it's a really – even in a way the United States isn't – it's a really perfect place for them. And it's also a short flight back to Moscow if they want to go back as well.

Do you know what assets will be frozen? Prime Minister Theresa May also made her announcement a few days ago – have there been any development and have there been any assets frozen?

Not that I'm aware of. I'm not sure that it's something we would hear about publicly at this stage. So at the moment my understanding is – and I'm not a lawyer so I'll make that qualification – but under the criminal finances act that was passed last year, they can freeze assets but that's supposed to be done sort of quietly, it's not a public operation. What they've agreed to in the past couple of days is to add a sort of global Magnitsky amendment to a money laundering bill which would enable them to make public those measures that they will be taking. So I'm not aware that anything's been done yet, but I'm sure they're looking very carefully at it. I know that the National Crime Agency – which is sort of Britain's version of the FBI I suppose – it's a new agency and they've been looking very carefully at this issue. They have a new power and it's called "unexplained wealth orders" and what this means is that if a wealthy Russian or a someone suspicious of any country around the world turns up in London with a suspicious amount of wealth – they're a public official with a small salary but they're buying houses worth fifty million pounds, the British government can say: "Hey – you need to explain to us where you got this money, or we'll take you to court and we'll restrain the assets and potentially even seize them if you don't provide satisfactory proof." And that's a really important development and I think the government might well be asking the National Crime Agency to allocate more resources to that, perhaps, in response to what's happened.

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How will this situation influence the Russian economy and what influence will it have on Putin's inner circle?

We know that  – without naming names – many of Putin's inner circle enjoy lives of luxury in the West, in London and other cities too. And they're very keen to protect that and they've been given free reign to do so as long as they don't interfere in politics back home. So if the British government, because of Putin's behavior, if the British government starts coming after their assets they're going to turn around to Mr. Putin and say: "Hey! We had a deal! You said we'd be left alone to enjoy our lives in the West but you've been provoking the West and now our assets are under threat." So this could cause some discord within Putin's inner circle, I think. As to the sort of effect on the wider, Russian economy, you saw Russia floating a load of Euro bonds on the British stock market the day all this happened. So what we're looking at at the moment is quite targeted measures against individuals. The British government hasn't really talked about clamping down on some of the state-linked commercial interests that operate on Britain's stock exchanges at the moment, so that might be an avenue they'd pursue. Again I'm not an expert on that area but that's certainly something that I think they would look at carefully.

British ally the United States, supported the decision of the United Kingdom to expel Russian diplomats from London. What do you think, will they support it in any other way, or only by words? And is there any possibility that the U.S. will also freeze the assets of Russian businessmen and oligarchs?

It was great that the U.S. and other allies came out [and] stood shoulder to shoulder with the U.K. The U.S. has done more than it looks like. You see a lot of headlines, you know, "Trump Loves Russia" and so-on and so-on. Actually, many sanctions have been passed in the past year. There's a lot of pressure behind the scenes, there's a lot of tension. The day it happened some sanctions were issued which were actually unrelated to the incident in Britain, in retaliation for the election happening earlier, to the U.S. Presidential election in 2016. But if you look at the laws that Congress have passed, particularly the "Countering America's Adversaries Sanctions Act" from last year, that mandates the White House to do some pretty extraordinary things in terms of standing up to Russian financial influence in the U.S. The problem is, they've only gone sort of maybe even a third of the way on all of these measures that they've been asked to do. So they've been asked to publish a list of criminally linked oligarchs and the elicit oligarchs that they're keeping in America and elsewhere. So of course what we got was just, unfortunately, it sounds like they did a lot of research behind the scenes and then perhaps, that went into the classified version. But publicly all we saw was a sort of "copy and paste" job from a Forbes list of oligarchs. So the framework is very much here in the U.S., it needs political will and action to follow up on and I think the tone you've heard from the White House in the last few days gives us hope that that might be on the horizon.

Finally, what influence can this situation have in the future? What influence and what consequences can it have in European, democratic countries and also in Russia?

We've worked on this issue – sort of malign, behind the scenes kleptocracy for several years now. But we have never experienced the level of interest, particularly in elicit financial networks, that's going on at the moment. And if there is – I believe that this is also an instance of democracy exposing its or finding out its flaws and, you know, starting to do something about them. So the best outcome that could happen from all of this would be if we took a look not so much at the individuals, the oligarchs and so on who we want to target. That needs to be done, that's fine, but we need to look deeper, at the system that enables them to steal money in the first place and move it into the West, and then use it for nefarious purposes when it's there. That means we need to look very carefully at the offshore financial system, which is not really offshore – we all know it's run through Western financial centers like London, like New York and I hope that this is the beginning of a broader conversation, which rather than clamping down on a few individuals who will just be replaced by others, this will help attack the whole system by which the authoritarian regimes like Putin's maange to spread their financial influence.

/Interview by Liuda Kornievich

/Written by Eilish Hart