June 21, 2021

The Londongrad Laundromat and its consequences 

Ross Gill, BEARR Trustee
May 2021

Oliver Bullough’s Moneyland tells the compelling story of how extreme wealth has been siphoned off some of the world’s poorest and weakest states, laundered and hidden, with the support of the tax and legal systems in the UK and elsewhere. Since Moneyland was published three years ago, Oliver has become a leading investigator of the global corruption trail, as well as an advocate for reform, currently publishing on the Codastory website and with a new book due to be launched next year. In May, The BEARR Trust invited Oliver to give our summer lecture, looking at London’s role in the money-laundering ‘laundromat’.  You can watch the video on our YouTube channel here.

Corruption is by no means unique to BEARR’s region of operation in Eastern Europe, Central Asia and the Caucasus. But it exerts a profound impact on social, economic and political outcomes in the region. Oliver’s career as a journalist started in Russia and he wrote two books on Russia and the Caucasus before Moneyland. The links between corruption in Russia and the wider financial system led to his investigation of the broader context. Indeed, John Lloyd, the former Financial Times Moscow correspondent, who chaired our lecture, pointed out how Moneyland’s subtitle, “why thieves and crooks now rule the world and how to take it back” echoes Alexei Navalny’s charge against the “crooks and thieves” of the Putin regime.  

Much of the human cost of corruption afflicts everyday community life in the former Soviet Union. Oliver brings this to life by citing the example of the impact of corruption on the Ukrainian health system: friends in Kyiv needing blood clotting medication for their haemophiliac daughter are unable to afford the bribes needed to obtain what should have already been paid for through the health budget.  

What is the connection between ‘London’ and these consequences at grassroots level? London is a key money-laundering nexus, through its combination of under-funded oversight and high levels of secrecy,  alongside strong property rights. For several years, Oliver has run ‘kleptocracy tours’ of west London, highlighting the property assets of some of the leading oligarchs. Aside from the mansions in Knightsbridge and St John’s Wood, these include an entire (former) Tube station acquired by the Ukrainian oligarch Dmytro Firtash (although Firtash himself is unable to enjoy the benefit, remaining in Vienna while he fights extradition to the United States). London’s property market is only one element of the oligarchs’ conspicuous consumption though: the impacts on the markets for art and private education are also significant.  

But the real problem is that we don’t know where the money comes from. A key challenge is the rise of UK shell companies, especially Scottish limited partnerships, which, while benefiting from the credibility and ‘respectability’ of UK law, are required to provide very little information regarding beneficial control and are frequently ultimately controlled by largely untraceable entities in tax havens such as the British Virgin Islands.  

The role of these companies in international money laundering is well-documented: money stolen in the Danske Bank money laundering scandal was substantially channelled via UK shell companies. The theft of around $1 billion from the Moldovan banking system in 2014 was also transferred to UK-registered shell companies, the ultimate beneficiaries of which have remained concealed.  

Why doesn’t the British Government do something about it? There has indeed been pressure from politicians on all sides to address the issue: Roger Mullin, formerly the Scottish National Party’s Westminster Treasury spokesman, raised the harm caused by Scottish limited partnerships on several occasions. But the blockages to reform come down to two factors, which reflect wider obstacles to systemic change.  

• First, shell companies also have non-corrupt uses. The legal structure for Scottish limited partnerships dates back to 1907, and from the 1980s, they were increasingly used by hedge funds to hold assets. While legitimate financial institutions blazed the trail, criminal interest followed. This problem is widely cited in Moneyland, where vehicles set up for tax efficiency are utilised as vehicles for criminal activity – but the significant interests that benefit from legal use present a barrier to reform.  
• Second, there is political and commercial pressure to ensure that Britain is “open for business”. The Government did in fact consult on changes to the rules relating to limited partnerships but saw further regulation as damaging to UK competitiveness. Essentially, says Oliver, “the needs of the City were put ahead of the needs of the former Soviet Union”.  

Meanwhile, some other reform pledges have been allowed to languish for several years. The Government committed to legislate for an open access registry of beneficial owners of property in 2019, although this has yet to happen. Earlier pledges to reform company registration processes have also not yet materialised.  

Aside from legal reform, enforcement of existing laws is undermined by resourcing. The Parliamentary Intelligence and Security Committee report on Russia published last year noted the limited resources available to the National Crime Agency, despite the NCA’s central role in the fight against financial crime, and the substantial legal resources that wealth-holders can often call upon.  

Reporting on financial crime and corruption is vitally important, both to expose the networks that ultimately damage communities and institutions and to raise wider public awareness. But the UK’s defamation laws also impede reporting: Karen Dawisha’s book on Putin’s Kleptocracy was not published by a UK publisher because of the threat of libel action, and Catherine Belton is currently subject to a series of legal actions, including from the Rosneft estate.  

All this suggests that the outlook for addressing the UK’s role in international corruption is not very optimistic. However, the commitment of the Biden Administration to international tax reform holds out signs of hope. Public opinion can make a difference too: greater awareness of the consequences of corruption can create greater pressure to tackle its causes.