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London, Eyes Shut

Original illustration by Rafael Mediodia '26, a Graphic Design major at RISD

In response to Russia’s invasion of Ukraine in February 2022, then-Prime Minister of the United Kingdom Boris Johnson pledged to embark on “a remorseless mission to squeeze Russia from the global economy.” The United Kingdom not only imposed sanctions on 1,500 Russian individuals and entities but also fast-tracked the long-promised Economic Crime and Corporate Transparency Bill through Parliament. This new legislation increased investigations of suspicious assets and businesses, added new cryptocurrency regulations, and introduced the Register of Overseas Entities (ROE). The ROE requires that foreign organizations owning UK property identify a “beneficial owner”—anyone with over 25 percent ownership of an overseas entity, trust, or firm. If the property was bought after 1999, the beneficial owner must register their personal information with Companies House, the executive body in charge of registering UK businesses.

This is an important step for a country that has been inundated with international money laundering and tax evasion. Banking secrecy laws, low tax rates, high interest rates, few strict regulations, and Britain’s network of secrecy havens in its territories and Crown Dependencies all attract international investment––some of it licit, some of it not. London in particular has gained a reputation for harboring the funds of Eurasian oligarchs through flashy assets ranging from yachts to mansions to soccer clubs, earning it nicknames such as “Londongrad,” “Moscow on the Thames,” and, perhaps most damningly, “the London Laundromat.” 

So, how does the United Kingdom’s new legislation fare against this deeply ingrained system that props up money laundering? Unfortunately, it has not been nearly as effective as hoped. Kleptocrats are still finding ways to dodge sanctions and launder money through London real estate, leaving many Russian-owned assets unfrozen and unregistered.

To understand Britain’s complex relationship with Eurasian dirty money, one has to understand the history of British offshore banking. Post-Bretton Woods, the United States emerged as the world’s dominant financial power. In response, the United Kingdom found a new financial niche in what is known as the Eurodollar market. Because of an informal agreement between British banks and the government, deals conducted in foreign currencies (usually USD) between non-residents can occur outside the United Kingdom’s jurisdiction. Since these economic activities take place outside of both US and UK regulatory environments, they are known as “offshore.” Realizing that there was an international market for the loosely regulated trade of USD, the United Kingdom set up its offshore banking system accordingly. 

Simultaneously, the United Kingdom encouraged its territories and Crown Dependencies to become tax havens in order to support their economies and give itself access to overseas banks. At the center of this web was the City of London, which, complete with its own set of special exemptions and banking freedoms, became the epicenter of this new offshore banking network. Money from tax evasion, bribes, drug trafficking, and other unsavory sources was accepted into British tax havens and eventually funneled to London, where it could then be invested in legitimate assets.

In the 1950s, fearing that the United States would freeze dollar-denominated assets held in New York, many members of the Soviet bureaucracy moved their assets into the British offshore Eurodollar system. However, the real surge of Eurasian money flowed into the British offshore system after the fall of the Soviet Union. When it dissolved in 1991, party elites and up-and-coming businessmen quickly bought up recently privatized and egregiously undervalued state assets. This created an elite class of politically powerful Eurasian businessmen who scrambled to store their stolen wealth in the British banking system.

The United Kingdom welcomed these oligarchs with open arms, and by the mid-2000s, an entire industry was built on attracting their foreign investment. Fleets of lawyers, wealth managers, and real estate agents helped oligarchs set up trusts holding overseas shell companies to invest in London real estate. A ‘golden visa’ program even provided visas for foreigners who could prove they had 2 million pounds available for passive investment. 

The government’s vetting of new businesses and potential financial crimes also proved to be extremely weak—and remains so to this day. The United Kingdom is one of the easiest places to register a new business, and Companies House registers new companies practically automatically without verifying the applications’ legitimacy. Even today, obviously fake names like “Adolf Tooth Fairy Hitler” and “Truman Michael Miser-Lord SR00GE-SPYPRIEST” are labeled business owners on the official Companies House website. 

When the Ukraine war began in February 2022 and the United Kingdom formally committed to countering Russian President Vladimir Putin’s war machine, flurries of British sanctions froze £48 billion of Russian assets by March 2023. Still, freezing assets is not seizing them. Confiscating property requires authorities to first sift through trusts and shell companies to determine the true owner of an asset, then prove it was obtained with the proceeds of a crime. Considering that much of the kleptocratic wealth in the United Kingdom has been there for many years and that finding evidence of a crime would require the cooperation of the Kremlin, this may prove extremely difficult, if not impossible.

What about the Economic Crime and Transparency Bill? Unfortunately, there are still multiple legal loopholes that allow overseas actors to avoid registering their business-owned properties. A would-be beneficial owner can dilute their ownership stake to below the critical threshold of 25 percent by sharing the company with family members and acquaintances, for instance. Legal property ownership can also be transferred through the use of partnerships and offshore trusts.

Although it is inherently difficult to measure money laundering due to its obscured nature, data suggests that these loopholes are being exploited. In February 2023, international watchdog Transparency International identified 52,000 UK properties owned by offshore companies that remained unregistered. A paper from the London School of Economics and the University of Warwick released in August 2023 found even more alarming numbers. According to their data, of 109,000 properties owned by overseas entities, nearly 71 percent were not registered with Companies House due to registration errors, trusts, partnerships, or non-compliance. And according to a Reuters report, only four sanctioned Russian individuals were even registered with Companies House following the ROE. 

The Economic Crime and Corporate Transparency Bill is ineffective because it imposes new regulations on an activity that is based on exploiting loopholes and working around rules. To effectively fight Russian financial crimes, the United Kingdom needs to strengthen the investigative and operational capabilities of law enforcement to target Russian dirty money on a case-by-case basis. Luckily, new and more powerful legislation is being introduced. The proposed Seizure of Russian State Assets and Support for Ukraine Bill would enact the aggressive seizure of Russian state assets in order to fund Ukrainian reconstruction efforts. 

Disentangling UK banking from dubious foreign investment is not an easy process, but it is a necessary one. As a country vocally opposed to the war in Ukraine, the United Kingdom has a responsibility to enact more aggressive legislation and confront its history as a hub for Russian dirty money.