How Britain Can Really Go After Corrupt Russian Elites
(Bloomberg) -- After British Prime Minister Theresa May promised to continue cracking down on corrupt Russian elites following the poisoning of a former spy and his daughter, one man’s name came up repeatedly in the parliamentary debate that followed: Sergei Magnitsky.
The lawyer died in a Russian prison in 2009 and his friend and former business associate Bill Browder said it’s his story that demonstrates how the U.K. can really hit Russia where it hurts -- if it wants to.
Browder, a former hedge fund manager in Moscow who Interpol have declined to turn over to Russia, spent almost a decade lobbying western governments to investigate money he said was spirited overseas from a $230 million fraud that Magnitsky uncovered in Moscow. Almost all of the governments contacted opened probes, according to Browder, except the U.K.
“The British authorities rejected our requests five times,” he said in an interview following May’s announcement of punitive measures against Russia, including the expulsion of 23 undeclared Russian spies.
London is a favorite destination for wealthy Russians to buy property, keep money and send their children to elite private schools. Some of Russia’s biggest companies have listings on U.K. exchanges and raise funds there. Investors this week were clamoring for 750 million euros ($927 million) of bonds being sold by state-owned energy giant Gazprom PJSC.
That should give the U.K. wide scope to inflict pain on President Vladimir Putin’s close aides and business supporters, albeit at a potential cost to the economy amid the uncertainties of Britain’s exit from the European Union.
The trouble is, according to Browder, there is little enforcement for May to “continue.” The effect of British hesitation to confront Moscow over as many as 14 unexplained past deaths has been to create a permissive environment for Russians to carry out crimes in the U.K., he said: “I’m talking about both murder and financial crimes.”
That may be about to change. New legal tools came into force in January that should make the job of U.K. prosecutors less difficult as they seek out laundered money.
Unexplained Wealth Orders now put the onus on public officials with low salaries and yet with multimillion dollar London mansions to convince a judge they were bought with legitimately acquired money. Until now, it was up to investigators to provide evidence that the assets were bought with the proceeds of bribery, or other illegally acquired income.
A so-called Magnitsky amendment in the U.K.’s new Criminal Finance Act enables courts to freeze the assets of those who torture or otherwise abuse the human rights of whistle blowers. The government has also proposed creating a registry of the beneficial owners behind offshore shell companies used to buy assets in the U.K.
In addition, language May used in her response to the poisoning of Sergei Skripal and his daughter, Yulia, in provincial England hints at a possibility the U.K. could use a 2001 anti-terrorism law to pursue Russian state assets, said Michael O’Kane, senior partner at Peters & Peters.
That law has been invoked only rarely, but notably after the 2006 polonium poisoning of former Russian intelligence agent Alexander Litvinenko, said O’Kane, whose law firm specializes in white-collar crime.
A spokesman for the U.K.’s National Crime Agency, which handles money laundering investigations, said the NCA “will make use of all the powers available to tackle the illicit finance and illegal activity of serious criminals and corrupt elites. This area of work is one of the agency’s highest priorities and rapid progress is being made.”
Asked about Browder’s claims that the NCA declined to investigate evidence of money laundering connected to the Magnitsky case, the spokesman said the agency does not confirm or deny the existence of investigations.
Still, none of the boosts to U.K. law is likely to provide a quick solution. The Unexplained Wealth Orders may be of less value against corrupt officials from Russia than some other countries, said Roman Borisovich, a Putin opponent who campaigns against money laundering in the U.K. That’s because the Russian government will protect its own, providing any documentation required, he said.
Similarly, the Magnitsky amendment stops short of laws passed in the U.S. and other countries.
While those establish a list of abusers subject to penalties, in the U.K. investigators will have to make each case in a court before being able to act. The proposed registry, meanwhile, may take several years to materialize and will depend on cooperation from offshore tax havens.
“What’s really lacking is political will on the part of the U.K. government,” said Borisovich, who runs occasional bus tours of London that stop at the alleged properties of corrupt politicians and business people from around the world.
Calls for a full Magnitsky Act have gained support since the attack on the Skripals. But what really has to happen, said Borisovich, is for the U.K. to de-list state-owned Russian companies from the stock exchange. It should also end the exemption from sanctions related to the conflict in Ukraine that allows subsidiaries of Russian state banks to do business in London and elsewhere in Europe, he said.
It all might come at a cost to the U.K., he said, but it should be a bearable one.
“These are arms of a state that has been involved in a nerve gas attack on British soil,” said Borisovich. “At the very moment May was making her speech in parliament, Gazprom, another arm of the Russian state, was placing a bond in U.K. capital markets,” he said. “It isn’t even funny.”
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