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Russia - United Kingdom - Offshore. Money laundering and tax havens

2 2018 June
Tags:United Kingdom, Russia, Economy, Money Laundering, Analytics, Investments, Banks

In March, the British Parliament's International Affairs Committee asked me to come and talk about what can be done with dirty Russian money. As a journalist, I wrote a lot about financial corruption in the former Soviet Union, but such an invitation surprised me. In the end, in the 1990-ies, when I was still in school, British politicians have already met super-rich Russians and their money in open arms. Politicians held festivities when oligarchs bought our football clubs, and rejoiced when the oligarchs registered their companies on our stock exchange. The British gladly accepted their donations for political purposes and supported their charitable foundations.

When journalists and scholars pointed out that with the help of these riches of doubtful origin, the oligarchs can influence our democracy and weaken the dictatorship of the law, most of the time their opinion was simply ignored, because they were uncomfortable prophets calling on parliamentarians to fear Russians and the gifts that bring them. However, in March, after poisoning former intelligence agent Sergei Skripal and his daughter Julia in Salisbury, these previously ignored prophecies suddenly turned out to be the main topic of the parliamentary debate. "But those who want to harm us, I will say simply: you are not welcome here," Teresa May stated in her speech at the House of Commons 14 March, in which she accused of poisoning Russia. "In our country there is no place for either these people or their money."

The entire political class of Great Britain supported the Prime Minister in her decision to dramatically change course. Those members of parliament, who for a long time called their country's openness to trade issues the greatest advantage, suddenly wanted everyone to think that they were taking a tough stance against the kleptocrats and the activities of these same kleptocrats. Having admitted to the UK a huge amount of Russian money, these members of parliament were suddenly deeply concerned that Vladimir Putin - through his influence on the super-rich Russians - could influence our institutions. Suddenly they wondered if they had sold to Putin a rope on which he could hang us.

That's why 28 March, I appeared at the committee meeting in room number six, located on the upper floors of the Palace of Westminster, which is furnished with heavy furniture, overlooking the Thames and in which lies a carpet that can cause a headache. The Foreign Affairs Committee exists to monitor the work of the Ministry of Foreign Affairs - that is, in fact, to follow the work of Boris Johnson (Boris Johnson) - but its members can study absolutely any issues at their discretion. This time, they decided to check the purity of the money that Putin and his associates store in the UK and offshore to explore new opportunities for tightening sanctions.

I brought with me a list of questions that I wanted to discuss: how can we strengthen our anti-money-laundering protection mechanisms; how can we ensure transparency in the issue of property owners; as members of parliament should stop taking money from distrustful oligarchs from the former Soviet Union if they want to achieve the same from others.

But the first question asked by the former Minister of International Development, Priti Patel, knocked me out of the rut: "Could you clarify to the committee the extent of money laundering so-called dirty money through London?"

This is a fairly extensive topic, on which you can write a whole book, and even the National Agency for Combating Crime is unlikely to be able to respond clearly and concisely to it, let alone me. Then she asked the second question: "In what assets were these hidden money invested?"

I tried very hard - I mentioned real estate, training in private schools, luxury goods - but, I believe, and she, and I realized that I could not cope with the task. I should have given them concrete examples with time frames, dates and names. The inconvenient truth is that although I wrote 20 years about Russia and its neighbors and all the time analyzed the corruption situation in detail, it never occurred to me to find out how many stolen Russian money had settled in the United Kingdom, or to track where they were invested.

If even such a person as I showed such criminal indifference to such details, should we be surprised that politicians who have a lot of other priorities can not figure out what exactly we are dealing with. And the next two months I spent on finding answers to the questions asked by the committee.

The situation was even more alarming than I had expected.

* * *

One way to start figuring out how much Russian money is in the UK - and how many of them are dirty - is to analyze official data. According to the Russian Federal State Statistics Service, as of the end of September, in the United Kingdom, Russian investors owned assets worth 3,5 billion dollars or 2,6 billion pounds sterling. Our own Bureau of National Statistics gives a much larger figure: according to his estimates, at the end of 2016, it amounted to 25,5 billion pounds.

This may seem like a huge amount, but nationally it's trivial. Only investors from Finland invested twice as much in the UK, but for some reason we do not worry that the Finns can destabilize our democracy. Unfortunately, official statistics in a certain sense confuses us. Russian money that passes through a different jurisdiction before it gets to the UK is no longer considered Russian, and since most of the money leaving Russia and coming to us first passes through tax havens such as Cyprus and the Bahamas, that official figures reflect only a small part of the money that members of parliament are interested in.

Over the past decade, 68 billion pounds have come from Russia to such offshore satellites as the British Virgin Islands, the Cayman Islands, Gibraltar, Jersey and Guernsey. This is seven times more than the amount of money that came to the United Kingdom directly from Russia. (About 94 billion pounds came from Russia to Cyprus, 13 billion pounds to Switzerland, and 23 billion pounds to the Netherlands, which also has its own network of tax havens.)

In fact, this money is not at all in these offshore centers: they are simply registered there, which helps to hide their origin. If you are a Russian official whose state is absolutely disproportionate to your official salary, such anonymity allows you to spend your money in London so that no one will ever guess that you are a fraud. According to the estimates of the French economist Thomas Piketty, more than half of the wealth of Russians are offshore - about 800 billion dollars (597 billion pounds) - and belong to a small number of people, perhaps just a few hundred people. "Rich Russians live between London, Monaco and Moscow," Picetti wrote in his blog in April. "Post-communism has become the worst ally of hypercapitalism."

This means that there is no separate pipe through which dirty Russian money is pumped to the United Kingdom and for which we could install a measuring device in order to know its throughput. This money is dissipated in the huge tidal waves of capital, which daily and from all sides roll and roll back from the City of London. Thus, the dirty money of Russian scammers and kleptocrats - thanks to the skills and abilities of the best minds in tax havens - can not be separated from conventional investments.

One of the few studies that attempted to analyze this phenomenon was a study conducted by Deutsche Bank analysts who, in 2015, drew attention to discrepancies in data on the flow of money that had arrived and flowed from the United Kingdom. They concluded that, since the beginning of the 1990, a total of 133 billion pounds had arrived in the United Kingdom, of which no one publicly reported. According to Deutsche Bank analysts, "less than half" of this amount was most likely owned by Russians, which means that Russians could have secret assets in the United Kingdom for a total of 67,5 billion pounds - in addition to the officially declared figure. (But this is still a relatively small amount compared to the assets of German, American and French investors.)

Whose money is this? How do they get here? Analysts of the bank did not seek an answer to this question. However, if they wanted to do this, they should go through their organization and talk with their colleagues, because, as it turned out, Deutsche Bank itself was engaged in withdrawing money from Russia without informing the authorities about it. Less than two years after the publication of this report, entitled "Dark Matter", it became known that Deutsche Bank's traders in Moscow secretly withdrew their clients' money from Russia - about 10 billion dollars (7,5 billion pounds) - illegally using the mechanisms of the stock market . (As a result, the bank had to pay fines of 425 million dollars (317 million pounds sterling) in the US and 163 million pounds sterling in the United Kingdom.)

If institutions such as Deutsche Bank help to hide Russian capital, it's no surprise that no one can say the exact amount of money that has come to the United Kingdom. Thus, it is impossible to give an exact answer to the first question of the International Affairs Committee-one can only say that the amount of Russian money in the UK is much larger than the amount that official statistics tell us.

There are two reasons why we should be concerned. The first is that, while the probability of this is rather small, Putin hides money in the United Kingdom for the financial equivalents of sleeping cells, ready at any moment to enter the game and gain influence in the event of a crisis. The second reason is more significant: no one will steal money if they have nowhere to hide. By allowing Putin's allies to launder their stolen capitals and hide them in our country, we draw a line under their crimes and reward them for actions that we should not encourage. Do we really want Britain to be the place where the Kremlin hides stolen money?

* * *

To try to answer the second question of Priti Patel - in which assets this money was invested - we need to analyze how the rich Russians reacted to the collapse of communism. They decided to spend their suddenly released money on assets that they had been deprived of for a long time and which no one else could take away from them. First of all, they bought luxury goods and real estate outside their home country, especially in London.

At the beginning of 1993, the rich Russians were still quite a new phenomenon, so that the Independent published an article about three Russians who bought flats in Kensington - at a price ranging from 200 thousand to 320 thousand pounds sterling - under the heading "Real estate is a harbor for wealthy refugees." A month later, a Russian tycoon spent 1,1 million pounds on a house in Hampstead, and then fully furnished it. "He brought only four television sets and a full van of packages from Harrods to the house," the real estate agent told the Evening Standard.

Those purchases were just the first signs of a tsunami-riches that hit the south-east of England and had amazing consequences. In 2013, the real estate agency Knight Frank reported that almost a tenth of all buyers of London luxury real estate are from the countries of the former Soviet Union, and another real estate agency Savills noted that Russians like to buy the largest houses. Over the past 20 years, the average house price in Kensington has grown eight-fold, and in part this growth is explained by the influx of Russian money.

The ideal personification of the ostentatious expenditure of money was the oligarch Roman Abramovich, who in 2003 bought the Chelsea football club. But even his London house, worth 125 million pounds, belongs only to the second category in the league of spending money. In April 2011, the Ukrainian bought the most expensive apartment in the world - a penthouse in the residential complex One Hyde Park - for 136,4 million pounds. Five months later, the Russian bought a luxurious Park Place house next to Henley-on-Thames for 140 million pounds. Russians, who bought houses for just a few tens of millions of pounds sterling, hardly deserve attention.

But one of these Russians was an 42-year-old banker named Grigory Guselnikov, who moved to London in 2008. Together with his family, he traveled to the United Kingdom on the Tier 1 investment visa, which provides successful applicants with a residence permit in exchange for investment (at that time the investment was to be at least 1 million pounds sterling) in government bonds. From 3396 people who received these so-called golden visas eight years before September 2015, 764 people were Russians - they became the second largest group of successful applicants after Chinese citizens. As a result, about 800 million Russian investments were attracted to the United Kingdom, but this flow declined markedly after April 2015, when the British authorities began to check the origin of the money for which government bonds were purchased. As soon as the verification of sources of the acquired capital began, and the price of the visa has doubled, the number of applications for investor visas has sharply decreased. In the last quarter of last year, only 16 Russians applied for a gold visa.

According to Guselnikov, the sudden panic of politicians around Russian money in the UK is simply inappropriate. When we met him in his office in a house with a huge terrace on Grosvenor Square, he began by saying that Russian money has less influence on British business than many believe. "I can not remember a single large enterprise, not a single large company controlled by Russians. They open restaurants, wine shops, they buy luxuries, such as, for example, football clubs. "

"The impact is very noticeable in the real estate sector," Guselnikov continued. "First of all, London real estate." His most notable investment was a store on the ground floor of the One Hyde Park complex, a store that had a Rolex license and which he bought in 2011 for 12 million pounds sterling (and three years later sold it for 20 million pounds). This investment showed curious dynamics in the upper layers of the real estate market, where the price of residential real estate is inflated to incredible proportions, far exceeding the potential revenue that it can bring. "There is a store with advertising, 300 square meters and costing 12 million pounds. The apartment above it has no advertising, it does not have a store, and it can not bring money. It is the same size as the store, that is 300 square meters, and it costs 25 million pounds. The store was twice cheaper than an apartment, and it was very funny, "he said with a laugh.

Further, Guselnikov noted that the idea that Russians are some cunning minds buying up pieces of British territories in order to weaken from the inside is a great misconception. "You need to understand why people buy real estate abroad: they see it as their allowance, they want to diversify the risks. In Russia you need to constantly be ready to lose everything - you never know what will happen next, "he explained. "They're just spending their money here." They do not invest, they spend ".

According to Guselnikov, one of the reasons that the super-rich Russians come to the UK is education. His own children studied in private schools, although they already have British passports, so they did not get on the list of those 2806 Russian children studying in the United Kingdom at schools that the Board of Private Schools studied last year. Multiplying the number of children by the average cost of education and living, which are paid annually by the parents of these children, we can say that every year in UK private schools from Russia receives at least 48,3 million pounds.

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