For decades, London has become the go-to global destination for Russian oligarchs. But this could all be about to change due to the conflict in Ukraine.
Heavy sanctions have been placed on Russia and Russian citizens living elsewhere in the world, including (and especially) in the UK.
Assets have been frozen of even high-profile oligarchs such as Chelsea FC owner Roman Abramovich, who is in the process of trying to get the club sold after it was given a special license by the UK Government to continue operating.
Leading the charge against Russian oligarchs in London and the rest of the UK is the Economic Crime Bill, which has been fast-tracked through Parliament.
Here, we analyse what it is and how it could impact the property market.
Speeding up oligarch sanctions
The Economic Crime Act, designed to ‘harden and quicken’ UK sanctions against allies of Russian leader Vladimir Putin, was rushed through Parliament at rapid speed, with MPs on all sides backing the legislation. It became law on March 15 after being expedited through the House of Commons to receive Royal Assent – a reaction to the events currently taking place in Ukraine.
The Government says its Act will prevent wealthy Russians from using the City of London ‘for money laundering and hiding ill-gotten gains’.
It became law earlier this month in double-quick time because of the global pressure for action to be taken against Russia, which invaded neighbouring Ukraine last month.
According to the BBC, the UK is considered to be awash with Russian money and other cash ‘looted from the former Soviet Union’.
Very often, this money is embedded in vast amounts of property – ranging from commercial office blocks to huge mansions. The BBC says the true owners of these properties are hidden ‘in a web of secretive shell companies’. Often, these organisations merely exist on paper and are typically registered in offshore tax havens – making them much harder to track and keep tabs on.
The Economic Crime Act – which has been on the cards since 2016 – is designed to help end this murkiness and lack of transparency. However, it had only been shelved as recently as January this year, a move which was heavily criticised and which saw the departure of Lord Agnew, the Government’s fraud minister, who quit his role.
The Ukraine conflict, though, changed the whole picture and forced a Government U-turn. But, because of the rushed nature of the legislation, only part of the original plan has made it into law, due to there simply not being enough parliamentary time to debate the other proposals.
What has been introduced as a result of the legislation?
The new law has created a register of overseas ownership of UK land and property, with punishments for withholding details. It also overhauls Unexplained Wealth Orders and makes it easier to prosecute ‘anyone involved in sanctions-busting’.
The foreign ownership register is crucial because, if an individual owns a property, investigators and the public can find out who they are.
The BBC points to the greater success the police have when it comes to seizing the property owned by Britain’s drug lords, because it’s often easier to identify and typically bought with the proceeds of their criminal activities.
By contrast, finding out who owns homes becomes more problematic when they are registered to a company overseas whose beneficiaries are carefully disguised. As a result, it is much tricker to discover money stolen from abroad as it’s laundered through the UK property market.
The hope is that the register will make things much more transparent and harder to evade, but critics may suggest that hardened criminals and money launderers will have ways and means to avoid such scrutiny.
How will the new register function?
Under the new rules, a lawyer registering ownership of land property will have to declare in public records who ultimately benefits from it – meaning, in theory, that unscrupulous people hiding wealth in luxury abodes, mega mansions and office blocks could finally become more visible.
The new register will apply to any property purchased in the last 20 years, or since 2014 in Scotland, and if the person registering the property is unable to identify the beneficiary, the property will be frozen in effect. In other words, the owner won’t be able lease it, sell it or raise a mortgage – rendering it useless.
While ‘dirty money’ campaigners are said to be delighted, the BBC also says that some have concerns.
“One fear is that it may be too difficult to prosecute lawyers or company agents who fail to reveal beneficiaries - because a court would have to be sure they had acted knowingly or recklessly,” the BBC article said.
“Another concern is that the package has too many loopholes to ensure that ultimate beneficial owners become known. For instance, if someone uses a front company, registered in Panama, to legally own property on their behalf - and there's no shareholder who owns more than a quarter of that company, then the register won't reveal their identity.”
George Crozier, spokesman for the Chartered Institute of Taxation, told the BBC: “For the sufficiently determined owner of a UK property who wants to remain anonymous, we think the Act leaves loopholes.”
Meanwhile, Dr Susan Hawley, from Spotlight on Corruption, an expert campaign group on dirty money, told the BBC that the law won’t ‘unpack the Russian doll’.
There are others who believe that suspects – for example those who may be keeping property for Putin – could ensure assets are sold off or wealth spirited away from the UK before the Economic Crime Act is in full force. While the government scrapped its original plan to allow overseas entities 18 months to adhere to the new disclosure rules, and reduced this deadline to only six months, Labour’s proposals to shorten this to just 28 days was voted down.
Helena Wood, the Rusi think tank’s financial crime expert, believes that a lot of people in Kensington and other very expensive areas in the capital will be sticking property on Rightmove as we speak.
“Practically speaking, these measures were never going to deal with [current] dodgy Russian assets. But they will mean it will be less likely that someone will want to hide money in the UK,” she confirmed to the BBC.
How effective will it be?
While the speed at which the Bill has become law has been welcomed, lawyers remain concerned that the implementation of the Act will lack teeth.
They argue that fines for non-compliance with the register are low when compared with the individual wealth of those compelled to use the register. Meanwhile, some worry about the resources at hand to enforce the new law and bring forward prosecutions, with concerns about a huge backlog of cases, poor IT systems, high staff turnover and budget cuts. There are also concerns about the accuracy of the information held on Companies House, which the register will rely on to verify the information provided.
This article explores the new Act in detail and whether it has enough teeth to be effective, while an expert from the University of Portsmouth has claimed the Economic Crime Act has various loopholes.
The true strength of the new Act is only likely to become clearer over time, but critics will remain frustrated that it took a war in Europe to finally get the Government to take action on cleaning up London’s dirty money problem.