New Times,
New Thinking.

The Tories talk tough on Russia but welcome its dirty money

The government can pander to London’s bloated financial and property markets or it can champion democracy. It can’t do both.

By James Bloodworth

Anyone who has been paying attention to the unfolding crisis in Ukraine can get a fairly clear idea of what’s going on from following the news. Even those mouthing ineffective “peace” slogans and mumbling about “Nato expansionism” and the Iraq war sound increasingly unconvinced by their own arguments. Russia wants to reclaim its “sphere of influence” and for the Kremlin that is synonymous with stamping out Ukraine’s fledgling democracy.

Yet it is also true that most discussions in the West as to whether Vladimir Putin will launch a full-scale invasion of Ukraine amount to idle speculation. If the Russian leader does send his tanks over Ukraine’s eastern border, there is very little the West can do about it, at least militarily speaking. For all the straw-manning by some on sections of both the left and the right about the “warmongering” of Western leaders, American and European leaders have made it abundantly clear that a Russian invasion of Ukraine won’t trigger a Western military response.

Instead, economic sanctions are being touted as the main weapon with which Western nations can punish the Kremlin for any further violation of Ukraine’s territory (Russia already invaded the Donbas region in 2014, illegally annexing 10,000 square miles of Ukrainian land). Sanctions can have a big impact, even if their implementation can feel akin to appeasement when faced with military aggression. According to the Atlantic Council think tank, the sanctions imposed on Russia in the aftermath of 2014 have hit foreign credits, foreign direct investment and may have reduced Russia’s economic growth by as much as 3 percentage points a year. That’s not nothing and Boris Johnson has promised further “heavy economic sanctions” should Russia go ahead and invade Ukraine.

But what impact do sanctions really have in a country where 500 people control more wealth than the poorest 99.8 per cent and when vast amounts of that wealth (estimated to be as much as $1trn) are stashed abroad? Britain is up to its neck in this money, earning it the nickname “Londongrad” because of its toleration of Kremlin-backed oligarchs. A 2016 government report put the amount of corrupt money flowing into the UK at £100bn a year. Transparency International has identified property worth an estimated £1.5bn that it believes has been bought with suspect Russian money.

Conservatives are fond of saying that capitalism and democracy go together — that one bolsters the other — yet capitalism’s defenders seem increasingly unable to distinguish between individuals who engage in legitimate business and what the dissident Russian chess grandmaster Gary Kasparov calls “agents of a rogue criminal regime”. As Kasparov says: “Their money is not theirs, it is Russia’s. Their companies are the means to launder money and spread corruption and influence.”

While Liz Truss, the Foreign Secretary, has promised that Putin’s cronies will have “nowhere to hide” if an invasion of Ukraine goes ahead, the UK government has made little progress when it comes to introducing curbs on money laundering. It was similarly slow to act during the last major flashpoint in Ukraine in 2014: an early government briefing at the time argued that Britain should “not support, for now, sanctions… or close London’s financial centre to Russians” due to fear of the economic impact on the City of London.

The government is issuing near daily warnings about the “imminence” of a Russian invasion of Ukraine. On Tuesday 15 February Truss warned that Russian troops could reach Kyiv, the capital, “very, very quickly”. She added that Britain must “give the message to Vladimir Putin that there can be no reward for aggression”.

Yet judging by the fate of the Economic Crime Bill, which anti-corruption groups consider vital in stopping Britain being used by kleptocrats to launder money, the government is not treating Britain’s designation as a safe haven for dirty Russian money with the same urgency. Last month, when delivering a speech to a democracy summit hosted by Joe Biden, the US President, Boris Johnson promised a “year of action” on fraud. However, last week ministers quietly killed off the Economic Crime Bill due to what they claimed was a lack of parliamentary time.

Britain’s lack of urgency when it comes to tackling dirty Russian money has alarmed the US government. A report that came out in the US last week, written by a former Obama-era official, said that “uprooting Kremlin-linked oligarchs” would be a “challenge given the close ties between Russian money and the United Kingdom’s ruling Conservative Party, the press and its [Britain’s] real estate and financial industry”.

Indeed, individuals with business links to Russia or Russian-born donors have given almost £2m to either the Conservative Party or its individual constituency associations since July 2019, according to the Electoral Commission. Labour is calling on the Tories to return the money.

Cynics in the West sometimes like to pretend there is no difference between dictatorship and democracy, between the Russian system and our own. Such statements represent the height of self-indulgence: this sort of lazy and pernicious nonsense can only be espoused by those who have no experience of living under an autocratic system. But the preservation of democracy requires more than bellicose rhetoric and military grandstanding. As the investigative journalist Oliver Bullough, author of Moneyland, an unflinching account of the power of offshore wealth, wrote in the Times of the latest crisis in Ukraine, “The Kremlin’s cronies can sit back and watch Putin toss a coin for their country’s future. If it comes up heads, they dominate more territory; if it’s tails, their Picassos, mansions and superyachts are safe anyway.”

Through its unwillingness to stem the kleptocratic flow of dirty money from post-Soviet elites, the Conservatives are undermining the democratic principles they purport to be standing up for. As a 2018 report by the Foreign Affairs Select Committee concluded: for the government to ignore “London’s role in hiding the proceeds of Kremlin-connected corruption risks signalling that the UK is not serious about confronting the full spectrum of President Putin’s offensive measures”. Or as Roman Borisovich, who runs “kleptocracy tours” highlighting Russian oligarch-owned properties in London, put it more recently, the message to Russia is: “Play nice, you are welcome to come with your stolen loot.”

If it wasn’t clear before then it ought to be now: the government can pander obsequiously to the whims of London’s bloated financial and property markets or it can champion democracy and self-determination. It can’t do both, and it must decide which it thinks is more important.

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