Boris Johnson’s attempt to clamp down on Russian wealth in the UK over Ukraine is too little too late, experts have warned.

On Tuesday 22 February, the UK authorities sanctioned three oligarchs and five Russian banks after Russia recognised the so-called ‘People’s Republics’ in eastern Ukraine – the two separatist entities that were set up after the Euromaidan revolution in 2014. After some British MPs expressed concern about the modest sanctions package announced, Johnson said that “this is only the first barrage” – and that the UK could go further if Russia takes more Ukrainian territory.

The oligarchs, Gennady Timchenko, Boris Rotenberg and his nephew, Igor Rotenberg, are all believed to have close ties with Vladimir Putin. All three are already sanctioned in the US. The banks are Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank.

“The banks and entities are already persona non grata in the UK financial market, as they have been under US sanctions for years now,” said Maximilian Hess, fellow at the Foreign Policy Research Institute. “Johnson pledged more is coming, but if it is action such as this, it’s just more of the same.”

An alternative option could be to restrict Russian companies’ access to investment in London – a threat made by the UK prime minister at the weekend as shelling increased in eastern Ukraine.

But City of London commentators told openDemocracy that the “heyday” of Russian finance in London has ended – and the UK Conservative Party’s own history of close connections to Russian businesspeople could be evidence the threat had potentially little substance.

These connections could include Russian businesspersons who “are a champagne glass removed from Westminster’s political elite”, Hess said.

More competitive

Unfortunately for the City, the Russia crisis comes in the middle of an attempt to make London a more attractive market for overseas businesses.

The UK authorities are attempting to maintain the UK’s business brand internationally in the wake of Brexit, while the City regulator, the Financial Conduct Authority, recently announced reforms designed to ‘strengthen the UK’s position as a leading global financial centre’ after a government review.

Ildar Davletshin, head of Russia research at investment bank Wood, said possible tension between the push to make London more attractive for raising capital and the UK authorities’ potential actions against Russian finance could be avoided – if the latter was “executed well”.

That, Davletshin said, could involve differentiating between oligarch-owned businesses – mostly in the natural resource sector – and other companies operating in the country.

Russian companies that raise funds in the UK are not necessarily in Russian oligarchs’ sphere of influence. Last year, for instance, a Russian discount retailer, Fix Price, raised £1.8bn after it listed its shares on the London Stock Exchange. At a May 2021 webinar aimed at promoting the City of London to Russian business, UK ambassador to Russia Deborah Bronnert called the Fix Price example “encouraging”, saying it would hopefully pave the way for other firms to follow suit.

“Doing business in Russia and being completely isolated from the Russian government is almost impossible,” Davletshin said. But the list of actual Russian oligarchs close to the Kremlin is “not long”, he noted.

Thirty-one of the most politically and financially significant Russian companies are listed on the London Stock Exchange, with a combined market value of £468bn, according to the data company S&P Global. London-listed Russian oil, gas and mining companies paid their government £39bn in taxes in 2020, according to a recent Guardian analysis of payments to government disclosures. These are the companies not currently affected by the sanctions that the UK government could use to hit Russia.

While London is the largest listing and trading venue for Russian securities outside the country, Russian business on the London Stock Exchange has dwindled compared to the late 2000s, said Vikram Lopez, senior analyst at corporate intelligence firm REDD.

“There’s a set of law firms, accountancy firms and investors who will be upset if this [the closure of London to Russian companies] does go ahead. Certain Russian stocks still provide high dividend yields for UK asset managers,” he said.

Hess of the Foreign Policy Research Institute was more blunt in his appraisal of Johnson’s threat: “This is dealing with yesterday’s problem to look like you’re fighting today’s battle.”

Davletshin said it was important to keep the door to Russia’s middle class open, as they “are definitely concerned about the current state of affairs” in the country, and this should include not “closing the doors” on entrepreneurs and startups who could look to the UK market for investment.

But, he said, the collapse of the share price of Russian companies over Ukraine and the threat of sanctions on Russian sovereign debt and state banks could de facto shut out Russian companies from the UK money markets.

“I don’t think any Russian company would consider [listing shares] in London or even in Moscow in the current environment,” he said.

An embarrassing conversation

But while the UK authorities are concerned with maintaining the UK’s stature as one of the world’s leading finance hubs, the government is under increasing pressure to take up its anti-corruption mandate. Critics of the UK government cite the delay over the Economic Crime Bill as evidence of a lack of commitment to anti-corruption reform and financial transparency.

“The UK has been seen as a bit of a laggard on the kleptocracy front,” said Hess.

In 2020, the so-called ‘Russia Report’ by Parliament’s Intelligence and Security Committee expressed concern over the role of Russian money in UK political life. A 2019 analysis by openDemocracy found that the Conservative Party had received more than £3.5m in donations from Russian sources since 2010.

Observers have also pointed to tension between the US and UK over the lack of energy the UK authorities have put into the anti-corruption agenda, after the Biden administration released a new policy on countering corruption in December.

Threats over Russia’s access to UK investment “are also about showing the US that the UK will not become a potential area for loopholes on anti-corruption,” Hess said.

Earlier this month, UK authorities introduced new sanctions legislation that will allow them to target Russian companies and oligarchs, including the option of freezing their assets in the UK.

Russian sanctions experts recently told openDemocracy that they did not believe UK measures would impact the thinking in the Kremlin, as pro-business voices have largely been shut out in favour of intelligence and defence officials.

In any case, given the “deep inroads” into political circles of the UK professional and financial services industry, Hess said, there will need to be “a far wider, and probably more embarrassing, conversation”.