Britain welcomes dirty money from Russia and former Eastern bloc countries – with few questions asked

February 25, 2023 12:05 pm

In 2014, when Vladimir Putin’s “little green men” annexed Crimea, David Cameron talked tough on Russia. In 2018, when Russia was accused of trying to assassinate Sergei Skripal in Salisbury, Theresa May talked tough on Russia. When Russia invaded Ukraine last year, Boris Johnson didn’t talk about anything else. Now, Rishi Sunak has been eager to boast of his own efforts. But Britain’s position is built on foundations made of sand until we fix our dirty money problem.

Since the fall of the Soviet Union, Britain has welcomed dirty money from Russia and former Eastern bloc countries – with few questions asked. This has earned our capital the notorious nickname “Londongrad”. Russian oligarchs used British corporate laws and structures to establish secretive trusts in British tax havens, acquire luxury property, snap up football clubs and purchase influence with our top politicians.

This entire scheme has been enabled by a network of professionals – bankers, accountants, lawyers, and estate agents. Our flimsy rulebook, weak enforcement and opaque financial services sector have turned Britain into the money laundering destination of choice.

And that’s enabled not just Russians, but all sorts of criminals and kleptocrats to clean their money on our shores. Today, economic crime costs our economy at least £290bn every year. This is equivalent to our education and health budget combined. Under the pretence of welcoming all business, the UK has welcomed bad business, risking its reputation as a place to do safe and clean business.

The long-awaited Economic Crime and Corporate Transparency Bill, which is championed as the solution to our dirty money epidemic, is now being scrutinised in the House of Lords.

As it stands, the Bill is deeply flawed and even creates new loopholes to be exploited. In the House of Commons, working with colleagues from across the House, I made a raft of recommendations to encourage the Government to be more effective in tackling economic crime.

A key victory was a concession from the Government to introduce new criminal offences for companies and senior managers who fail to prevent, or indeed actively enable, money laundering and fraud. The threat of personal liability is the only real way to deter the facilitators, and change behaviours.

Aside from this commitment, ministers have so far blocked all our other proposals aimed at improving the Bill. First, they refused common sense proposals to give teeth to our corporate register, Companies House. Big loopholes still exist here, making it incredibly difficult to determine who owns a company and to check whether it is being used as a vehicle to launder dirty money.

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Second, we made proposals to strengthen law enforcement agencies, which are hopelessly under-funded and ill-equipped to take on deep-pocketed oligarchs. It only costs £12 to set up a company in the UK, compared to an average of €300 across Europe. Raising this fee by a small amount would help raise additional funds to combat economic crime. The cash from these fees should be ring-fenced, alongside money raised from fines, into an economic crime fighting fund.

Third, we must finally bring an end to the abuse of British courts to silence critical voices – often known as “lawfare”. There is a fundamental flaw with our defamation laws that allows wealthy individuals to muzzle journalists and whistleblowers working in the public interest by simply embarking on lengthy libel actions. When journalist Catherine Belton wrote a compelling book on the rise of Putin and the nefarious role played by oligarchs, she and her publishers became embroiled in several vexatious lawsuits, which cost them around £1.5m.

The Government has yet to deliver changes, despite repeatedly promising to do so. Amendments we are proposing to this Bill would go a long way to solving this problem by empowering courts to throw the most abusive lawsuits.

Finally, the Bill fails to tackle gaping holes in our sanctions regime. If the war in Ukraine ended tomorrow, frozen assets could be returned to sanctioned oligarchs. We propose to compel sanctioned individuals to disclose all their assets, regardless of the network of offshore trusts and shell companies they are concealed behind. Failure to disclose such assets would result in the Government being able to confiscate and repurpose them. This would be a powerful first step to show our support for Ukrainian reconstruction efforts.

These pragmatic reforms will likely be put to a vote in the House of Lords in the coming weeks. I passionately hope that peers will grasp the opportunity to pass meaningful changes to this Bill, that will go a long way to banishing dirty money from Britain’s shores.

We cannot sit on our hands any longer. Failure to act will see Britain labelled as hypocrites for good.

Dame Margaret Hodge MP is Chair of the APPG on Anti-Corruption and Responsible Tax

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