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Londongrad must fall – or the US could raze it to the ground

Loopholes in UK financial law have long enabled London firms to launder oligarchs’ wealth. Here’s why America is getting impatient

Casey Michel
12 March 2022, 12.01am
A protester in London holds a 'Seize Londongrad Assets' placard
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Vuk Valcic/Alamy Live News

It is now clear that the country that has acted as the key enabler for Russian kleptocracy for the past few decades is the United Kingdom.

What is less clear is how far London is willing to go to take responsibility for this role, and to clean up its own backyard.

Despite recent rhetoric, London still remains wide open for oligarchic wealth, moving and laundering untold billions with few checks, keeping these transnational money-laundering networks cycling.

Which is why it’s time for the US to step in.

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Over the past few months, Washington has taken a clear global lead in the broader fight against transnational money laundering. While the US stands as a money-laundering haven of its own, the White House has taken significant moves in the past year to finally clean up the American mess – not least elevating corruption to a core national security threat and releasing a seminal counter-kleptocracy strategy document late last year that specifically called out a number of American industries and loopholes. Just this month, president Joe Biden used the State of the Union address to specifically let oligarchs know that the US was “coming for [their] ill-begotten gains”.

Washington knows it can’t beat back modern kleptocracy itself – and it knows which jurisdiction it has to tackle first: London. While the alliance between the US and the UK remains tight, we’re already seeing early indications that American officials are leaning on British partners to clean up the UK’s kleptocratic mess.

Early this year, a report from the Center for American Progress, the think tank considered closest to the White House, specifically called for the US to push British partners to tackle Russian oligarchs burrowing the finances in “Londongrad”. Days later, The Times reported that American officials had expressed “dismay and frustration” with London’s lethargic approach to the problem.

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Sign reading "BUILT WITH BLOOD MON£Y" in front of Guildhall covered in fake blood on day 5 of Extinction Rebellion protests in London 27 August 2021
‘Financial skulduggery isn’t just something that happens in the UK; there has been a concerted and decades-long effort to encourage it to do so’This is an extract from ‘Butler to the World: How Britain Became the Servant of Tycoons, Tax Dodgers, Kleptocrats and Criminals’ by Oliver Bullough, published by Profile Books at £20 hardback, ebook and audiobook on 10 March

And with good reason. Washington well knows that the UK has long been the preferred destination for illicit Russian capital, tied directly to the oligarchs who propped up and profited from Russia’s bloody regime. And American officials are fully aware that British law, accounting and property firms may use loopholes to help sanctioned Russian oligarchs skirt Western sanctions – undercutting not only the recent sanctions regime, but threatening American national security in the process.

Which is why, in recent weeks, chatter about a novel solution has begun bouncing around Washington: sanctioning British firms willingly working with Russian oligarchs.

That is, if London isn’t able to pass the requisite policies ending money-laundering loopholes for the law firms acting as oligarchs’ henchmen, it may be time for the US to bring the hammer down.

We’re hardly there yet, of course. But thanks to Russia’s bloody invasion, that day may arrive sooner than most in London realise.

That risk is one of the reasons Downing Street has finally moved on its long-stalled Economic Crime Bill. After years of doing nothing, London has decided to finally take steps to address British culpability for the world of modern offshoring.

Most importantly, the bill will create a registry of all offshore-owned property. With tens of thousands of British properties steered by anonymous offshore vehicles with opaque ownership, the registry could undercut the British property industry’s role in moving billions in questionable or illicit wealth. Elsewhere, the bill will strengthen the dormant Unexplained Wealth Orders (UWO) programme, and form a new group to specifically investigate those evading London’s expanding sanctions regime.

The past week appears to have been a paradigm shift in London’s approach to combating domestic money laundering industries

A new property register, a renewed UWO push, a dedicated cell going after those dodging British sanctions: all of it is an opening salvo to prove the oligarchs’ best days are behind them. Combined with housing secretary Michael Gove’s call to draft legislation to seize oligarchic property without any compensation, the past week appears to have been a paradigm shift in London’s approach to combating domestic money laundering industries.

But it’s far too early to celebrate. Plans to include reforms of the much-maligned Companies House company register within the Economic Crime Bill have been dropped. Instead, ministers published a white paper outlining potential improvements down the road, not least finally funding and enforcing the wildly porous register. But it’s unclear when any of these new moves will actually come. Likewise, the proposed property registry still allows offshore companies six months to register – plenty of time to offload the assets and move the proceeds elsewhere.

All of which means London’s initial turn against kleptocracy may be less than the sum of its parts. As such, it is incumbent on the UK’s allies – especially those in Washington – to step up the pressure on Downing Street, on legislators, and on any and all British partners trying to slow-walk these pro-transparency reforms.

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