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How Russia Stashes Its Wealth in the UK
11 June, 2018
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In 2014, Russia's former first Deputy Prime Minister Igor Shuvalov declared he was renting a flat in central London’s Whitehall Court. Today, however, anti-corruption bodies believe Shuvalov wasn’t a tenant, but rather the owner of two flats – worth £11.44 million – within the affluent block. These flats are among some 176 properties that Transparency International U.K. believes to have been purchased with illicit or suspicious funds.

The United Kingdom is a haven for dirty money, with the National Crime Agency estimating more than 90 billion British pounds is being laundered through the U.K. annually. Often this money is linked to the Russian oligarchy and their associates.

According to Transparency International U.K., the property market is a hotspot for stashing illegal funds. It found that £4.4 billion went into 176 properties, purchased with suspicious money in the U.K. More than one-fifth of those investments have been linked to Russia.

But Russia’s dirty money isn’t just used within the U.K. real estate market- it’s also used to buy the right to live there. A £2 million investment can provide foreigners with the right to live in the U.K. through the Tier 1 or Golden Visa Scheme, which allows them to apply for permanent residency after five years. A  £10 million investment cuts that wait down to two years.

Rachel Davies, head of advocacy at Transparency International U.K., says the scheme, which was set up in 2008, didn’t have any anti-money laundering checks for the first seven years of its operation.

During this time 3000 people – 700 of whom were Russian – applied for the visa.

“So the reason we think this scheme was used to launder money was because when the government introduced the money laundering checks in 2015, the number of applications dropped sharply, which gives us real clues,” Davies said.

Photo credit: Dmytro Rusanov/HROMADSKE

Tensions between the U.K. and Russia have been rising. Earlier this year, the poisoning of former Russian intelligence officer Sergei Skripal and his daughter Yulia in Salisbury prompted the U.K. government to expel more than 20 Russian diplomats. The U.K. also vowed to review the visas of some 700 wealthy Russians, who came into the country prior to 2015 via the investor visa scheme.

Hromadske spoke to Rachel Davies, head of advocacy at Transparency International U.K., about whether recent tensions between the two nations will affect the flow of Russians and their wealth into the U.K.

You have identified 176 properties, and that's just properties alone, purchased with what is believed to be £4.4 billion of stolen wealth. A fifth of this allegedly belongs to Russian citizens, and Ukraine is actually not that far behind with more than £700 million invested into these properties. Can you tell us about the extent of Russian wealth in the U.K.?

The U.K. is a center of Russian money laundering, essentially. We mentioned this £4.4 billion figure. I think what is important to note is that is just the tip of the iceberg because this figure is what we found just by looking at open source material, so court documents, the leaks from the Panama Papers. If it wasn't for these we wouldn't know about this at all. So the real figure, because so much of this is hidden, the real figure is probably much, much higher. As you said, we found £4.4 billion worth, and a fifth of that is from Russia. There was a Deutsche Bank research report a few years ago that estimated that about a hundred million pounds have flowed out of Russia secretly. Unfortunately, we don't know exactly how much of that is in Britain because of the nature of the problem. So much of this happens secretly. For example, if you had millions of pounds, you could buy a property in London anonymously, open a company in the British Virgin Islands and not put your name on it, and when you buy that property in London you don't even have to tell the U.K. authorities who you really are. Not the U.K. land registry, not our law enforcement, no one will know but you.

That figure of more than £900 million of what is suspected to be stolen money invested in the U.K., that's just real estate alone. Do you have an estimation or even an idea of how much of stolen money lies in other U.K. assets?

We don't have a figure because of the nature of the problem but we do know that money has been flowing into other sectors such as education or luxury goods, or art for example. Art at auction houses in the U.K. are very vulnerable to money laundering because the people at work are just not equipped to do the due diligence on their clients, and of course art, even a single painting can carry a lot of wealth. It's a way to launder a lot of money in one transaction. We do of course have some figures around the property market and that has been particularly problematic. Think of one property that's just a five-minute walk from parliament, it's owned by someone very high up in the Russian government, who earns roughly £112,000 a year, this property, or two properties, are between eleven and fifteen million pounds. So this politician would have to save every single penny of his salary for 100 years, not spend any of it for a hundred years, to afford this property. Which of course raises the question of where this money came from.

Your report outlines how this money is used to purchase visas under the Golden Visa Scheme. Russians are some of the biggest investors in this Golden Visa Scheme, which basically allows them to invest large amounts of money in the U.K., which gives them the permission to reside in the U.K. Can you tell us about that scheme, how does it work and how many Russians are estimated to have purchased visas through this scheme in the U.K.?

The U.K.'s Golden Visa Scheme was set up in 2008, and for the first seven years of the operation, it didn't have any anti-money laundering checks, which is really worrying for us. So the Home Office would grant the visa with a promise of investments. They'd grant the visa before the money had been put in a U.K. bank account expecting that the banks, the financial institutions do anti-money laundering checks, right? Of course, when the money came into the financial institutions, if they had some suspicions about the person applying, and the source of the wealth, they'd say, hold on, the Home Office had just granted them a visa. I'm sure it's fine, they must be legit. And they wouldn’t do any of the diligence checks. So 3000 people in total applied for a visa between what we call the ‘blind faith’ period, that's 2008 to 2015, bringing in a minimum of three billion pounds, 23 percent of those people were Russian. But the only group of individuals that beats the Russian contingent is people from China. How it works is, if you have two million pounds, you promise to put it in a U.K. bank account for a while, you can take that later, and then you can apply for permanent residence within five years, and if you're even richer and you can put in ten million pounds, you can apply for permanent residency within two years. So the reason we think this scheme was used to launder money was because when the government introduced the money laundering checks in 2015, the number of applications dropped sharply, which gives us real clues.

Photo credit: Dmytro Rusanov/HROMADSKE

Earlier this year, there was the widely reported incident where a former Russian intelligence officer, Sergei Skripal, and his daughter Yulia were poisoned, which prompted the U.K. to take action and that led to diplomatic expulsions. Is this expected to have an impact on the amount of Russian wealth flowing through the U.K. and the number of Russian citizens gaining visas through this scheme?

That's a very interesting question. I think only time will tell. I have seen some noises in London from some lawyers for example that were saying "now you're bringing in some of these measures, Russians won't come here". For example, they often cite something called the unexplained wealth order, which is where the U.K. law enforcement can go to an individual, maybe a politician overseas, or who has links to serious crime, and unknown income, is really not enough to buy the massive mansions that they're buying in London. They say "please explain the source of your wealth," and this is something that came into force after this diplomatic crisis, although it was already on track to happen. What's interesting is also that people are saying that Russians won't come here, what's interesting about that is that tools like this cannot actually be used for political football. They can only be used against people involved in corruption or serious crime. So it's interesting that there's this noise of Russian individuals are going to be leaving. Either they've misunderstood the law, or they're involved in serious crime or corruption and they're worried about this. But whether this will have a long-lasting effect I think probably, but I think only time will tell.

This unexplained wealth order is something that Transparency International has been calling for. What kind of long-term impacts do you expect this to have on Russian money laundering in the U.K.?

Before we had the unexplained wealth order, our law enforcement was really dependent, in order to seize an asset, in order to seize a property, either on a conviction of that person in their origin state, a conviction of corruption or serious crime, or enough information coming from the law enforcement in their origin state. Obviously, in many countries, convictions for corruption sometimes don't come about for decades, or ever. Particularly in countries in crisis or a country has their government where a lot of corruption happens. And in terms of showing information, unfortunately, dirty money can cross borders unhindered, police can't. So they're really reliant on the right information coming from the law enforcement in that country, and we've seen in certain cases the allegations that bribes have been paid to that law enforcement to stop them giving information to the British police so the hands were kind of tied in terms of building enough evidence to bring to court. So what the unexplained wealth order does it gives the police an opportunity to build evidence. So let's say I'm the health minister of a country outside Europe, and my annual salary is $30,000, and I've just bought two ten million pound mansions, and there's nothing in my asset declarations to suggest I could have bought that, law enforcement can now come and say "Hey, huge gap between your income and your assets. Maybe it's fine, just show us proof of legitimate income, show us what we've missed." If I can do that, then that's okay. If I'm unable to do that, they can use the fact that I cannot explain where this wealth came from as additional evidence that they can take to the court judge and potentially seize the assets. So I'm really hoping if the U.K. government implements this law and uses it wisely and uses it well, then we'll see more assets being seized, and therefore the U.K.. won't be seen as such an easy place like it is at the moment. It won't be such an easy place to hide your money which is dirty. And I hope that we'll see less dirty money coming in and more assets being seized and returned to the Russian citizens, returned to citizens of Ukraine, citizens around the world, from which this money has been stolen in the first place.

Photo credit: Dmytro Rusanov/HROMADSKE

Following the Skripal attack, U.K. Prime Minister Theresa May wanted to review the visas of some 700 wealthy Russians. Is this going to have an impact on the people that are already there and what kind of impact on the people that are already there, and what kind of impact can it have on Russians who are wanting to use this scheme to come into the U.K. in the future?

In terms of impacts, we are calling on the government at Transparency International, we are calling on them to look. Not just at the 700 Russians but the 3000 people that came through the system from 2008 through 2015 where there are no money laundering checks. Theresa May said very briefly there will be a review, we've written to the home secretary a couple of months ago saying "please give us more information, we'll just look at the golden visa part of this, will you look at the people in the blind faith period?" So far we've heard nothing back. I'm not yet reassured they will really properly review this. The question is still out on that. In terms of Russians coming in the future, I think it's fine for Russian citizens to come to the U.K. if they have legitimate, honestly-gained money, they're not involved in corruption or crime, and now that there are further money laundering checks in place, yes I hope it will deter and put off those that will be bringing corrupt money and have a history of criminal activity. I hope they will be put off from coming but I also hope that honest Russian citizens that have hard earned honest money won't be put off from coming to the U.K. and they will still feel welcome.

/By Natalie Vikhrov