After months of rising tensions, last week finally saw Russia take definitive action and begin its long-anticipated invasion of Ukraine. The US, UK, EU and others have imposed targeted sanctions on Kremlin-affiliated individuals and banks, and cut off some Russian banks’ access to SWIFT, with more measures still to follow.
Alongside the universal condemnation of Putin’s actions, we believe it is vitally important for the UK to look at its own relationship with Russia and consider how it enables the Kremlin. Demands that this moment should mark a turning point have come from politicians on both sides of the aisle, media outlets of all persuasions, and anti-corruption campaigners. But such demands are not new. The UK Parliament’s Intelligence and Security Committee published a damning report in July 2020 which accused successive governments of allowing dirty Russian funds to infiltrate the UK: “The UK welcomed Russian money, and few questions – if any – were asked about the provenance of this considerable wealth.” Chatham House has published a report entitled “The UK’s Kleptocracy Problem”, and Transparency International has revealed the volume of UK property owned by Russians accused of corruption or linked to the Kremlin (worth in excess of £1.5bn). The US has also raised concerns: a spokesman for the Center for American Progress, a Biden-aligned think tank, has said “there is clear concern in the US government about the influence of Russian money in the UK”.
We welcome the British government’s announcement that it is bringing forward legislation to address Russian corruption by creating a register for the beneficiaries of overseas firms. This will deliver on a government pledge made five years ago to end secret offshore ownership; draft legislation was drawn up in 2018, but has been put on hold ever since. However, momentum must not be lost with the passing of the Bill; every effort must be made to implement its provisions as soon as possible (official sources have warned this could take up to a year).
The government has also promised to make long-overdue reforms to the UK corporate registry Companies House, requiring anyone who owns, runs or controls a UK company to verify their identity. Companies House will also be given new powers to challenge information. Again, this promise is welcome but pressure must be maintained to make sure that this additional economic crime bill is brought before parliament, and that the reform measures are implemented, as soon as possible.
We support the calls of organisations such as Transparency International UK and anti-corruption figures such as Graham Barrow and Oliver Bullough, in calling for the UK government to take this moment to act. It is not a question of uncertainty over how to tackle the problem - there is general consensus on what needs to be done. What is lacking is adequate resourcing and political will. The invasion of Ukraine must be a turning point for these long-demanded reforms.
Beyond the immediate measures promised by the government, the UK should also commit to making progress on the following fronts:
Applying greater pressure to crown dependencies such as Jersey, Guernsey and the Isle of Man and to British oversees territories, such as the British Virgin Islands, to introduce much greater transparency and to introduce unrestricted public registers of company ownership. Transparency International UK has identified 2,189 BVI entities used in 48 Russian money laundering and corruption cases involving more than £82 billion worth of funds diverted by rigged procurement, bribery, embezzlement and the unlawful acquisition of state assets.
Conducting a retrospective review of the 200 “golden visas” issued to Russian millionaires over the past seven years (following the closure of the scheme last week).
Making greater use of Unexplained Wealth Orders, often cited by the government as a significant development in anti-kleptocracy efforts, despite the fact only four have been issued in four years (none under the current government, and none of which were brought against Russian nationals).
Reviewing the number of agencies involved in investigating and prosecuting kleptocracy cases following criticisms that too many agencies are involved (the National Crime Agency, the Serious Fraud Office, City of London police, and local forces).
Financial crime compliance professionals have long called for reforms in these areas, and have shown themselves willing to work with the authorities to achieve them. We hope that the new Economic Crime Bill marks a genuine change in stance, and that all parties involved can work together for maximum effect. We at FINTRAIL and the FinTech FinCrime Exchange are ready to do whatever we can to help support these efforts. It is regrettable that these measures were not taken sooner, but hopefully a meaningful shift in political will can reduce the role the UK plays in enabling not just the Kremlin but corrupt and dangerous regimes the world over.