As the war in Ukraine began in February this year, London has come under increasing scrutiny for its role in enabling financial crimes from (but not only) Russian kleptocrats and oligarchs. What began as an optimistic vision to boost investment in Britain, evolved into a more sinister business model which has plagued the British capital and entrenched divisions between the 1% and the rest of British society. In this article, I aim to demonstrate how London became the world’s dirty money capital, highlighting its evolution in a modern-day context and highlighting the impacts as well as solutions and steps the British government is taking against financial crime in the British capital.
The story of London welcoming foreign capital is one which can be traced back to after the Second World War where Britain was losing its large and expansive empire and looking for a new role and identity in the world. Reinforced by the 1956 Suez Canal Crisis, large-scale sell-offs of British Pound Sterling across the world resulted in the Bank of England looking towards a new market where they encouraged British banks to borrow, as opposed to buy, US Dollars to do deals. In doing so, British banks were able to simultaneously avoid Bank of England regulations and American ones too (as they were not purchasing them). As is commonly known, banks tend to prefer loose regulation. The result of this was Britain making offshore banking a mainstream industry; an industry which thrives with the use of particular jurisdictions allowing for lighter regulations. By the 1960s, business was booming in London, as it became known as the place to curtail financial regulations. At the same time, the British government was encouraging Britain’s offshore territories to specialise in financial and corporate services also, so that Britain would be even better equipped at helping clients who wanted to hide their cash in being able to do so. These British overseas territories and crown dependencies included places like Bermuda, The British Virgin Islands and the Cayman Islands, in addition to places like Hong Kong and Gibraltar. The 1980s left Britain with a selection of territories in which they could help clients hide their cash. At the same time, nobody appeared bothered or concerned with where the money was coming from.
This historical context sets the backdrop for what was to evolve on the large-scale abuse of Britain’s financial services (in addition to Britain’s role as an enabler turning a blind eye to it). 1991 was the year the Soviet Union had fallen. The collapse of the Soviet Union led to ex-Soviet nationalised industries becoming sold at a fraction of their true value to private individuals. As these individuals became rapidly wealthy in a relatively unstable country, Britain saw an opportunity to benefit from this money, and so introduced the Golden Visa Scheme. The Golden Visas were aimed towards wealthy foreigners who, so long as they promised to reside long-term in Britain and invest a large sum of money, would be granted British citizenship. For the Russian oligarchy, investing a million or two was a small price to pay, especially for residing in a city which would grant their money greater stability and offer them the opportunity to clear their reputation (London offers an array of public relations companies and law firms specialising in helping corrupt, wealthy foreigners appear more dignified). Following the introduction of the golden visas, London gained the new nickname “Londongrad”, an allusion and emphasis on the large sum of Russian money stored within the British capital. According to The World Bank, Britain is one of the easiest places in the world to open a company (in Scotland it is even easier). Registering a company takes as little as 24 hours and doing so consists of very few checks. Following the war in Ukraine, it has become supposedly tighter, however this is yet to be robustly verified. If illicit money cannot be tracked, then nobody can see where it came from and who owns it, and in the context of the war in Ukraine, this opens an important discussion on how the UK supports individuals with close ties to the Kremlin and the war in Ukraine.
£13 trillion worth in British assets are owned by foreign individuals. Not all of these individuals are involved or engaged with illicit activities, however the figure goes to show that Britain is extremely reliant on foreign capital in the modern age (the annual GDP of Britain is approximately £3.2 trillion). In London alone, at least £1.5 billion is owned by Russian kleptocrats. Combined with the kleptocrats from other countries (for example those of Azerbaijan or Brazil), it becomes increasingly difficult for the British taxpayer to be able to compete with these foreign individuals, as house prices rise and it becomes increasingly difficult to buy a home. It is in London’s interest to clean up their act as an enabler of financial crime, especially since the City of London has become so important in part to its reputation as a clean and legitimate place to do business. Association and engagement with illegal activity serves to undermine the reputation and legitimacy of the City of London, and the economic success of the capital on a whole. The war in Ukraine has led to some positive and long-overdue changes in Britain, such as the removal of the Golden Visa scheme and the passing of a long-delayed economic crime bill. Despite this, compared to other countries around the world, Britain does not invest enough against corruption, despite its immense economic costs.
Ultimately, Britain must ensure that they robustly amend their approach to financial crime. With money laundering costing Britain over £100 billion annually while the uk invests a mere £852 million tackling it, it becomes clear that if urgent action is not taken, then Britain will continue being the world’s largest enabler of financial crime, and British citizens will continue to suffer the consequences. Britain has already taken certain steps such as the removal of the Golden Visa scheme and the passed crucial bills which were long overdue, however if Britain does not step up their efforts to tackle corruption, then the problem will continue to plague the country and capital.