Londongrad tries to kick its 30-year habit of Russian money

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LONDON, Feb 28 (Reuters) – VTB Capital last week lowered a large Russian flag on its palatial building opposite the Bank of England in London’s financial district, signaling a withdrawal from one of the world’s major centers of monetary flows.

Hours earlier, Britain said it was freezing the assets of Russia’s biggest investment bank as punishment for Moscow’s invasion of neighboring Ukraine, part of what the government has called its biggest set of sanctions.

Britain has targeted Russian banks and members of President Vladimir Putin’s inner circle, imposed a ban on Russia selling debt in London markets, and restricted its citizens’ deposits.

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These and other planned moves could signal the end of “Londongrad” as the Western capital of choice for Russian oligarchs flaunting their wealth in European luxury hotspots.

London has also been a favorite place for Russian companies to raise foreign capital, many of which wanted to be listed on the stock exchange to gain international financial respectability, and more than 20 of them, with a total market value of more than 400 billion pounds ($536). billion), are listed on the London Stock Exchange (LSE).

VTB Capital, the investment banking arm of VTB, Russia’s second largest bank, was established during the 2008 global financial crisis as a symbol of Russia’s attempts to promote the country’s integration into the global economy.

The lender said it was “taking all necessary steps to resolve the situation with each of our customers” and was “committed to continuing cooperation with customers and partners in accordance with the law”.

Britain said the bank, which has raised tens of billions of pounds for the Russian government and state-owned companies through London markets, was being targeted because it was controlled by the Russian state. He gave VTB Capital 30 days to terminate any transactions, potentially allowing the bank to move assets and transfer operations elsewhere.

Nonetheless, the LSE suspended VTB Capital on February 25, the first full day after the measures were announced, meaning the bank could no longer trade shares on behalf of clients.

VTB Capital, which had already scaled back its presence in London after the Brexit disruptions, did not respond to a request for comment.

The exact scope of the new sanctions will not be disclosed in legislation until this week and most of the names of the 100 Russian oligarchs and entities Britain has promised to target have not been revealed.

So far Britain has only sanctioned ten Russians, with minimal assets in Britain, giving others a chance to move them to offshore proxies. Over the weekend, Russian billionaire Roman Abramovich said he was handing over management of Chelsea football club to the team’s charitable foundation amid calls for it to be sanctioned. Read more

“If the government decides to act, London could have a significant impact on the activities of (Putin’s) inner circle,” said Tom Best, an international investigations partner of Paul Hastings in Washington.

IN OVERDRIVE

Russian companies have developed deep-seated tentacles in Britain’s financial system in the thirty years since the collapse of the Soviet Union, prompting the UK Parliament’s Security and Intelligence Committee to warn in 2020 that his influence was so deep-seated that it “can no longer be unraveled”.

While Russian billionaires are best known for their high-end mansions in Belgravia and Knightsbridge, the protection afforded by the English legal system, along with light regulation, has also made London a haven for much of their private wealth. .

Russians have more than £27 billion invested in Britain where they come to bank, shop, educate their children and go to court, according to government data.

With around 60% of the wealth of Russia’s wealthiest households held abroad, this has come under increasing scrutiny in the build-up to the invasion of Ukraine.

And, as happened before previous rounds of sanctions imposed in 2014 and 2018, some Russians braced for ownership changes to be triggered in the event of new sanctions to soften the blow, people said. close to them.

Two with billions of dollars in the West are among those preparing to protect their fortunes, they added.

“Law firms have been working in overdrive,” one said.

Financial transparency campaigners say even more Russian money is flowing to British tax havens, including the Cayman Islands and the British Virgin Islands, than to London.

But the UK government has not said if, or how, it will force the network to disclose the true owners of the assets.

Roman Borisovich, a former Moscow investment banker who is now an anti-corruption campaigner, said that with London being the biggest hub of Russian money in the West, the British government needed to do much more.

“The UK is the weakest link letting down the effort of the whole Western alliance,” Borisovitch said, adding that the measures announced so far “are not even enough”.

Mikhail Khodorkovsky, who was once Russia’s richest man but fell victim to the Kremlin, also said Britain and the United States needed to take tougher measures to prevent Russian money from gaining political influence in Washington or London.

“If you say you put three oligarchs under sanctions, tell Putin he’s a bad man and stop him from shopping in Milan, then Putin will just laugh,” he said.

MORE DIFFICULT MEASUREMENTS

Unlike Russia’s annexation of Crimea in 2014 or a nerve agent attack blamed on Russia in southern England in 2018, British officials say this time is very different.

“Our clear intention is to stifle the Russians’ use of London as a place of storage or fundraising,” one told Reuters.

Britain will announce more sanctions, including against prominent people and companies, they said, adding that the size of the team involved in putting them in place had tripled in two months. Read more

Some British lawmakers, Russian businessmen and anti-corruption campaigners are skeptical about stopping Russian money flowing into London’s housing, finance and energy markets.

Liz Truss, the Foreign Secretary, told lawmakers in a private meeting last week that London law firms were delaying efforts to implement sanctions against Russian oligarchs, according to Ben Bradshaw, a member of the opposition Labor Party.

Even if the accounts could be traced, a major obstacle for British sanctions officials seeking to freeze individual accounts held by Russian billionaires could be the system of tiered trusts by which most hold their private wealth.

“I think most of them have already moved their accounts just to make sure they don’t fall under sanctions,” said Sergei Aleksashenko, a former vice president of Russia’s central bank currently in exile. in the United States after falling out with Putin’s government.

However, Britain’s decision to ban commercial flights, including Aeroflot, and all Russian private jets will have a dramatic impact, said Chris Weafer, director of Moscow-based consultancy Macroadvisory and a long-time British fellow. date of the Russian investor community.

Russia responded with a ban on British airlines.

“The ban on Aeroflot put the final nail in what used to be Londongrad,” Weafer said, pointing to the number of Russian children in school in Britain and the use of medical facilities in London by Russians. , as well as its world famous stores.

($1 = 0.7460 pounds)

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Editing by Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

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