‘All bluster and no teeth’: UK is ‘weak link’ allowing Russian oligarchs to dodge sanctions

No new funding earmarked for ‘kleptocracy unit’ or crackdown on abuse of companies register

Ben Chapman
Friday 04 March 2022 18:49 GMT
Nadine Dorries suggests Roman Abramovich should be sanctioned by UK

Britain is the “weak link” in efforts to freeze Russian oligarchs’ wealth, campaigners have warned, as it emerged that Putin cronies may be able to dodge sanctions and carry on dealing with UK companies.

Anti-corruption campaigners said it was becoming increasingly clear that the UK's sanctions regime was "all bluster and no teeth", despite claims by foreign secretary Liz Truss that oligarchs would have "nowhere left to hide".

It came as the government confirmed to The Independent that there was not currently any new funding allocated for a clampdown on the abuse of shell companies registered in the UK, or for a new "kleptocracy unit" at the National Crime Agency. A small number of officers have been moved from other duties to work in the unit and plans are moving forward “at pace”, the Home Office said.

Without more resources, authorities will not be able to prevent widespread abuse of Companies House to incorporate entities used for money laundering, said financial crime expert Graham Barrow.

There is a time lag between announcing the crackdown and “doing the job properly” he said. “During which time the criminals intent on abusing companies house will be working out other ways.”

This week, the foreign secretary launched an attempt to push emergency legislation through parliament that would allow more of Vladimir Putin's inner circle to be sanctioned and more of their real estate, yachts and financial assets to be frozen.

Despite London’s reputation as a hub for Russian money, just 16 entities have been named by the UK government since the invasion of Ukraine began last week, compared to 490 sanctioned by the EU, 371 by Switzerland and 118 by the US.

Among those sanctioned by the UK are Igor Shuvalov, Russia’s former deputy prime minister, and billionaire Alisher Usmanov who were added to the list on Thursday.

While ordinary Russian citizens are expected to be hit hard by western sanctions, which are threatening to cause a banking crisis and economic turmoil, ultra-rich oligarchs are thought to be making efforts to rapidly move their assets out of the reach of western authorities.

Experts warned that with each day that goes by, rich Russians have further chances to hide their wealth, blunting the west's ability to strike at Mr Putin's political powerbase.

The UK has come under intense pressure in recent days to toughen up its stance against Russian money linked to the Kremlin. Billions of pounds of Russian wealth has been held in London or via companies registered in offshore tax havens which the UK ultimately has control over.

The small number of Russians who are subject to UK sanctions able to evade them. Holes in UK sanctions laws mean that it is legal for sanctioned Russian oligarchs to buy luxury property or have their yacht repaired in the UK, as long as they use an account registered in a country that has not sanctioned them, campaign group Spotlight on Corruption said.

However, legal experts argued that the perceived loophole would not be exploited in practice.

Jonathan Fisher QC of Bright Line Law said: “Whether it may be technically legal or not is beside the point. In practice, it will not happen.

“The reality is that if you want to buy property in the UK, you need a UK lawyer and the lawyer’s activity would be caught by the sanction.”

What is not in dispute is that prosecutions for sanctions breaches in the UK are vanishingly rare. The Office for Financial Sanctions Implementation (OFSI) has issues only issued 6 fines in the past 5 years. No criminal cases for sanctions breaches have been brought for 12 years.

The reforms put forward by Ms Truss this week, first reported by the Financial Times, would not tackle these weaknesses. The foreign secretary wants to speed up the process of sanctioning people with close ties to Mr Putin and reduce the evidence threshold for proving those links.

“The sanctions legislation needs a proper overhaul to address known loopholes, and both law enforcement and the OFSI need a massive resourcing boost,” said Sue Hawley, executive director of Spotlight on Corruption.

“Without this, the UK will remain the weak link in the chain.”

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