Why London Is Crucial to the Success of the West’s Sanctions Against Russia

After Russian forces invaded Ukraine, the United States, UK and European Union announced a raft of sanctions aimed at weakening Russia’s economy, its banks and hitting its rich elites – including sanctioning President Vladimir Putin himself.

The measures include freezing trillions of dollars worth of assets owned by  Russian banks, companies and businessmen, cutting them off from Western financial markets and restricting tech exports. There is debate about excluding Russia from the global interbank messaging network SWIFT, but that option has not yet been taken. 

Either way, the general idea is to degrade Russian industry, push its economy into recession and strangle the wealth of its richest oligarchs.  

But the big question is, will these kinds of measures – the West’s only realistic weapon against Russian military aggression in Ukraine – rattle Putin and his billionaire associates enough to curtail Russia’s attack on Ukraine? 

The answer is complicated, and weirdly, mostly revolves around London. The city, known as the Kremlin’s “laundromat” because of the huge amounts of Russian cash that is laundered through it. London has very wittingly become a key battleground in the West’s response to Putin’s military aggression.

Oliver Bullough, author of Moneyland: Why thieves and crooks now rule the world and how to take it back, told VICE World News the range of sanctions targeted at the Russian economy, particularly on banking and the high tech imports and exports, “are a positive”. But they represent a long term game. 

“These economic sanctions are more like a boa constrictor around the Russian economy, squeezing it to try and eventually persuade Putin and other Russians that this military aggression is doing them more harm than good. But it is difficult for me to be enthusiastic about a long term gain when I have friends in Kyiv and the tanks are rolling in.”

“Russia is a mafia state,” said Bullough.“The instruments of government in Russia are not used to administer justice or services, they are used as weapons by the rulers of Russia to expropriate property and to bully opponents.” Putin’s “court” operates like a mafia crew, with local and regional mafias acting on the wishes of a national mafia, run by the godfather, Putin himself,” said Bullough. 

It is Putin and his inner circle who hold all the power and money in the country. So the thinking goes, attack this clique and you cut off the snake’s head. Because it is run like a cartel, Russia’s wealth is concentrated among a small group of people, which makes it vulnerable to attack.

“Russia’s economy is incredibly unequal. The top 500 wealthiest people own more than the bottom 99.8% of the population. It makes America look like a hippy commune,” said Bullough. “But the oligarchs don’t trust each other, so half of the wealth of this small group of people who own almost everything – therefore half of all Russia’s national wealth – is held outside Russia. That is actually a point of weakness for them. 

“These people are all about money and accumulation, so you target them by hitting their offshore money. These people don’t want to lose their wealth, because they went into this game to get wealthy, and if this war is costing them money, they will have a word in Putin’s ear about the war in Ukraine and say ‘hey, enough’!”

“The calculation is that by hitting Putin’s associates. the West will persuade them to change his mind. But that assumption does not necessarily hold,” said Bullough. “Is he even listening to them now?” 

In a recent stage-managed TV appearance, Putin humiliated his spy chief, a big player in Putin’s circle and a friend since their days in the KGB. The clip hints at the extent to which Putin is operating in isolation. 

However, Bullough thinks targeting Putin’s super-rich friends is worth a go anyway. “Even if it doesn't work in changing Putin's behaviour, we are still taking wealth away from the Russian mafiosi, so it’s a net good thing to do.” 

London, which Bullough calls “Kremlin’s banker”, is the most important destination in the world for Russia’s elite to launder their money and hide wealth. This is where to get at them. However, there’s been a symbiotic relationship between Russia’s kleptocracy and the capital’s financial district, “the City”, for decades. 

“The City was the engine of the British Empire, but when the empire ceased to exist, it looked for other opportunities, and the opportunity it found was by being an unregulated space,” explained Bullough. “The post-war rebirth of the City of London was based on undercutting Wall Street on regulations, where dollar trade could take place without the heavy hand of the Federal Reserve or the US government. 

“So essentially being under-regulated and offering offshore services is what London is for,” said Bullough. 

While London turns a blind eye to the dirty money – made from looting Russia’s public utilities, among an array of other criminal acts – the financial sector has become a major beneficiary of the huge amounts of Russian cash that flowed into the zone. 

“The idea that we suddenly need to turn around and say, ‘Hang on a second, what’s this dirty money doing here?’ runs counter to all of the processes that have established the City of London as the great success that it has become since its re-invention,” he said. 

“The whole point of offshore services is that they are less regulated than onshore services. That’s why it's so hard for the government to regulate and investigate all this dirty Russian money, because all of those things are deliberately not investigated in order to maintain the capacity and advantage of the City.” 

There were many names mentioned in the West’s sanction list of Russia’s super-rich. Yet most of the main players in Putin’s court have so far managed to stay away from the firing line. Of the list of 35 “key enablers” of Putin’s regime identified by Alexei Navalny, an anti-corruption campaigner who survived being poisoned with a nerve agent, only four have been sanctioned by the UK government. 

“I’m disappointed that the close circle around Putin have not yet been targeted,” said Bullough. It takes money to make money, but it also takes money to hide it. This inner circle are highly adept at cloaking their wealth, it is hard to prove anything against them. 

“I was hoping those people, who have become astonishingly wealthy solely because they are Putin’s friends, who have properties here in London or the south of France, would be hit hard. It may be that those sanctions are being held in reserve, but that seems weird, what are we holding them in reserve for?”

Financial secrecy, where banks and other institutions hide information about their customers, is a massive problem for those trying to chase down the oligarch’s money.

“The concept of sanctions depends on knowing who owns what, and what is owned by who, and financial secrecy breaks that chain,” said Bullough. “If you can own things using multiple layers of shell companies in multiple jurisdictions, it’s astonishingly hard, even for the best-resourced law enforcement agency, to find out who owns what. Russian oligarchs have been very sophisticated over a long period of time in hiding their assets behind shell companies. Unpicking that is not something you can do in a week, it can take years.” 

There have been efforts to deal with the problem. For example in 2017 the UK introduced Unexplained Wealth Orders, where a court can demand people  explain how they managed to acquire an asset, such as a mansion. If they can’t it can be taken off them. But in practice investigators are way too under-resourced to cut through the complex financial webs spun by the oligarchs. 

On Friday the EU and UK announced sanctions freezing the foreign assets of Putin himself, and his foreign minister Sergei Lavrov. But Bullough said these will be largely symbolic. 

“Putin challenges what the word ‘rich’ means, because if Russia is your current account, you can just take whatever you want. In terms of gaining results, I don't know what sanctioning him would achieve.”

“I very much doubt anything will happen to Roman Abramovich to be honest, he’s a resourceful guy, I don’t think he’s going anywhere,” said Bullough about Britain’s most famous billionaire oligarch, the owner of London’s Chelsea Football Club, currently one of European football’s most successful teams. Bullough said Abramovich, thought to be a favourite of Putin, is unlikely to have his £125 million London mansion seized or thrown out of football anytime soon. “If they go after him then things have got really real, and I don’t they’ve got real yet,” said Bullough. 

“These people are rich and resourceful and you can’t do it on the cheap,” said Bullough. At the most basic level he said “we need to know who owns what. If you own property, you have to declare who you are, whatever shell companies you use”. He said loopholes which hide the ownership of bank accounts and which prevent the authorities from knowing who is laundering money, need to be closed, and law enforcement properly resourced. 

“The important point is that governments in general, and the UK government in particular, have not been taking the issue of investigating and confiscating corruptly acquired wealth as seriously as its owners have taken to defending it,” said Bullough. “And until they do, we will keep losing. They are going to throw everything at defending this wealth, so we need to throw a lot more.”

Way too late, the British government has been kicked into action by the Ukraine crisis. 

This week UK Prime Minister Boris Johnson announced a new “kleptocracy cell” would be set up in the National Crime Agency (NCA) to target the hidden wealth of Russian oligarchs in the UK. MPs are lobbying the government to speed up the Economic Crime Bill, aimed at reducing corruption and tackling the kleptocrats.  

One of them, Bob Seely, a Conservative MP on the foreign affairs committee which produced the Moscow’s Gold report into Russian corruption in the UK, told VICE World News: "Is there a secret, corrupt conspiracy? No. It’s out there in the open. Our successive political leaders have said they are not prepared to pay an economic price, up till now, for Russian sanctions.”

Seely continued: “We’re prepared to lecture the Germans on their dependency on gas but we’ve been happy to go along with the status quo for the sake of the City of London, the law firms, the PR outfits, the 'reputation manager’ industry, the private investigator industry, all of whom have done well out of sometimes questionable kleptocrat and oligarch money. All this builds up obvious vested interests.”

Additional reporting by Helen Nianias.

Oliver Bullough’s upcoming book “Butler to the World: How Britain became the servant of tycoons, tax dodgers, kleptocrats and criminals,” is published in March 2022.