OF THE DAM Of the sanctions the West imposed on Russia following its invasion of Ukraine, the most symbolically powerful, if not the most economically significant, were those aimed at Vladimir Putin’s cronies. The British government trumpets the fact that it has announced measures against more Putin-linked plutocrats than any other country. He’s less eager to talk about why that might be. London has long been a destination for dirty money. Corrupt money is flowing into Britain from around the world, but no one doubts that Russian plunder is a major contributor to a money laundering problem that the National Crime Agency conservatively puts at £100 billion (125 billion) per year.
Dodgy money has been drawn to London by some of the same things as the clean variety, including a longstanding openness to foreign investment and strong property rights. Another attraction, however, is the financial secrecy offered by both Britain and its network of offshore satellites, from Jersey to the Cayman Islands. It has helped make Britain more obscure than classic havens such as Panama and Liechtenstein, according to a respected global index of financial secrecy. Political obsequiousness also played a role. Successive governments have sought to woo the oligarchs and their billions, for example by peddling “investor visas” that gave them residency.
Politicians have overstated the benefits and underestimated the costs of rolling out the welcome mat. In the macroeconomic scheme of things, the gains were small and concentrated, mainly lining the pockets of a select group of bankers and lawyers. Costs were more pervasive. London’s growing reputation as a repository of tainted money has undermined its financial center and tarnished its legal system.
The government is committed to cleaning up. But if he is serious, he will have to go beyond the botched measures of the past. In 2016, Britain became the first g20 countries to set up a public register of business owners. But that didn’t finish the job. The register is little monitored: of the half-dozen convictions to date for knowingly providing false data, the most publicized was that of an activist who posed as a former minister to expose his faults. Similarly, government attempts to rein in Britain’s offshore territories have been half-hearted, as evidenced by the scandal that engulfed the British Virgin Islands, whose leader was arrested on allegations of drug trafficking and money laundering.
Ministers seem more determined this time. They have abandoned the visa-for-cash system; proposed reforms to a libel law that allows oligarchs to scare off critics; and fast-tracking an Economic Crimes Bill which, among other things, will impose more transparency on foreign owners of UK property. What Britain really needs, however, is not more laws but better enforcement.
A priority is the oversight of lawyers, who play a central role in building shady offshore structures and defending against scrutiny by those who engage in financial scams. Ethical standards have slipped as more lawyers have been tempted by big checks from plutocrats. This has put cracks in the industry’s “good guy” regulatory system, which relies heavily on self-policing. It is time for the statutory regulator, the Solicitors Regulation Authority, to show teeth and punish those who fail. The highest fine she announced to date was £232,500, just more than a top firm could charge a deep-pocketed Russian customer for a week’s work.
A second priority is to make government investigators and prosecutors more effective. Corruption cases are difficult; money trails are complex and cross-border. In Britain, the task of compiling such cases is split between more than 100 agencies and police forces. Their combined budget to tackle cross-border corruption is just £40-50m, roughly the same amount as the annual wage bills of the three highest-paid players at Chelsea, a football club that Roman Abramovich , an oligarch under sanctions, is looking to sell. .
As a result, anti-corruption agencies suffer from a chronic shortage of forensic investigators, and prosecutors lack the budgets to bring more than the occasional case. This must change. Cleaning up Britain’s dirty money problem isn’t rocket science, but it will cost money. ■