oDR: Analysis

The UK can sanction Russian luxury property. But will it?

As tension heightens over Ukraine, experts say targeting the Russian elite’s UK property would be difficult – and could be a ‘nuclear option’

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Thomas Rowley
16 February 2022, 9.32am
One expert called sanctioning Russian property “a nuclear option for the City of London”
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RichardBaker / Alamy Stock Photo

A luxury mansion in leafy Surrey owned by a pro-Kremlin oligarch. A central London penthouse property controlled by a former Russian public official.

These are among the high-value, Kremlin-linked UK properties that the British government could target with its new Russian sanctions legislation – if it wishes to do so.

Russian businesspeople and officials accused of corruption or links to the Kremlin own at least 150 properties worth £1.5bn, according to Transparency International. If those individuals were sanctioned, the economic use of their assets, including property, would be frozen. Sanctioned individuals would not be able to sell, rent or remortgage their property to free up capital.

Campaigners, commentators and politicians have long argued that UK authorities should look to take such action. But experts warn there’s little to stop members of the Russian ruling class from moving their assets offshore before the UK authorities decide to act – and the government could disagree over how widely to use the sanctions at all. Here’s what you need to know.

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What does the new law actually mean?

The UK’s updated Russia sanctions legislation has been written with a broad scope, allowing the UK government to target individuals who have been involved either in “destabilising Ukraine” or “obtaining a benefit from or supporting the government of Russia”.

The categories of ‘benefit’ and ‘support’ are also broadly written, and include people or companies working in Russia’s defence, electronics, energy, finance and construction sectors.

Michael O’Kane, head of business crime at law firm Peters & Peters, suspects that the UK government has already drawn up a list of targets in case – in the words of Boris Johnson – the “first Russian toecap” crosses into Ukraine.

“Under this new legislation, you don’t have to show that an asset is disproportionate to an individual’s income,” he told openDemocracy. “You just need to show that there are reasonable grounds to suspect that the person is essentially benefiting from supporting the government of Russia. And that’s a pretty broad test.”

In turn, the legislation draws on existing regulations that permit the freezing of any economic activity associated with a designated person’s property in the UK. To designate someone under UK sanctions, the foreign secretary must put forward their name and supporting evidence of their involvement in a sanctionable activity.

"Oligarchs who potentially have assets that are vulnerable have an awful lot of time to reorder their commercial positions"

Maya Lester QC, of Brick Court Chambers, said: “Based on past experiences, the UK government first receives legal powers for sanctions, then it gives a list of names – with reasons. They have to state the basis for thinking that they have reasonable grounds to suspect that an individual is sanctionable, which is not a hugely high legal threshold.”.

Those grounds, she says, can be supported by evidence in the form of reports from NGOs and civil society organisations, as well as investigative journalism. “There is no need for a criminal conviction, and these are not like corruption sanctions requiring proof of misconduct,” she added.

Asked what to expect next, O’Kane pointed to the fact that the UK government has given itself new sanctioning powers, but has threatened their implementation only if Russia makes further incursions in Ukraine.

“This gives those oligarchs who potentially have assets that are vulnerable an awful lot of time to reorder their commercial positions,” he said. This could include moving funds offshore or restructuring corporate entities, O’Kane said, noting that, until the sanctions come into force, this activity would be perfectly legal.

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Why might the government be reluctant to act?

While the new amendments set a potential legal framework for sanctioning Russian elite property in the UK, analysts are cautious that there are political hurdles to clear, too.

“We’ve seen the UK government refusing to take any real substantive response because they’re worried about harming the competitiveness of the City of London,” said Oliver Bullough, author of ‘Moneyland: Why Thieves And Crooks Now Rule The World And How To Take It Back’.

“For decades, Britain had this wonderful combination of extremely strong property rights, and extremely weak investigative agencies. Oligarchs adore this: if you get your money here, then it’s protected by the full majesty of the British courts.”

A tougher climate of financial transparency for the UK, he believes, “would need to overcome spectacular bureaucratic opposition from the Treasury, and the business department, which have consistently blocked attempts to do anything about this for a long time.”

The UK’s poor track record on financial corruption

Does the UK have a poor track record on financial corruption?

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.

That legislation would provides further powers for Companies House, the UK business registry, as well as introducing an overseas property register that should assist with revealing anonymous property ownership.

Following the January resignation of Lord Agnew, the government’s anti-fraud minister, who claimed that the bill had been dropped from the legislative agenda, the government has since committed to pushing the legislation through.

On Tuesday, The Guardian reported that a former government minister claimed he was “‘leant on”’ by Downing Street over attempts to legislate for a public register of overseas property ownership.

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Ben Godwin, who is head of analysis at PRISM Political Risk Management, an investment advisory firm, says that sanctioning elite property in the UK “is a nuclear option for the City of London”.

“You can maybe turn the screws on the Russians, but what about China, Nigeria, the Gulf states? It sends a message that we can, at the turn of a hat, expropriate any property that we feel like.

“There’s a simple problem that, in the UK, we have the rule of law. And that’s exactly why Russian oligarchs have parked all their money in London property, rather than Moscow or somewhere else.”

Indeed, Godwin points to two other problems associated with sanctioning Russian luxury property: the “astronomical” cost of getting sanctions cases “against people with almost limitless resources” through UK courts, and the chance of “dragging the UK authorities into internecine conflicts” involving rival oligarchs and foreign law enforcement officials with dubious agendas.

An anarchist flag flies from a mansion
A £15m London mansion bought by Russian billionaire Andrey Goncharenko, which in 2017 was occupied by squatters from the Autonomous Nation of Anarchist Libertarians
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Mark Kerrison / Alamy Stock Photo

Godwin also points out that forcing Russian elite money out of the UK is not a straightforward route to pressuring the Kremlin.

“Putin’s point of view is: when you’ve made money out of Russia, and you’ve taken that abroad, it’s your own fault if something happens to it,” he said.

Asked what kind of message UK sanctions would sends to the Russian business community, Sergey Glandin – the head of sanctions law and compliance at Russian law firm Pen & Paper – said: “Many of the people around the Russian president are already sanctioned, so there is no message.

“If the United Kingdom will sanction family members [of prominent Russian officials and businesspersons], then that’s a different conversation.”

‘No silver bullet’

Edward Lucas, a writer who regularly comments on kleptocracy and security issues, is wary that “there is no silver bullet” for the concentration of suspect wealth in the UK.

“We have constructed a system which works very well for the Russians and is very bad for national security. And we’ve done this over 30 years,” says Lucas, who will stand as the Liberal Democrats’ candidate for the Cities of London and Westminster parliamentary seat at the next general election.

"The sheer amount of things that have been forgiven because we want to do business with the Kremlin is amazing"

To change the UK’s ‘open arms’ policy for suspect wealth, Lucas says it’s not only a question of more resources for UK law enforcement, but a “normative shift”.

“Even as a parliamentary candidate, I can nudge the Overton Window on this [issue], and at least try to keep it at the centre of the political debate,” he told openDemocracy.

Bullough is also optimistic about the future, in contrast to the “failure of generations of the political class” in the UK previously. He notes the increased interest from Labour, Liberal Democrats, Conservatives and the SNP in anti-corruption and transparency issues.

“The sheer amount of things that have been forgiven over the years because we want to continue to do business with the Kremlin is amazing,” Bullough said.

But, on the anti-corruption front, he says: “Across the House of Commons, there seems to be a realisation for a particular kind of ambitious politician that there is ground to be made.”

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