Crushing the Russian oligarchs? We’ve tried that before

I think Andrew had been hoping that I would share a few contacts, but it seemed not to have occurred to him that essentially the people he was looking for would not exist. There was no concerted law enforcement effort against Chinese money laundering, I told him, so there was no investigator who could talk to him about it. There have been essentially no prosecutions so none for him to look into, and there is almost no research into where the money has been going, how it’s been getting there, or indeed how much of it there is.

Back in 2013 the National Audit Office calculated that of every hundred pounds earned by criminals just 26p is ever confiscated. And if anything that understates the failure, because it doesn’t take into account the far larger volume of illicit wealth that is stolen overseas and either imported to the UK or laundered through the British financial system on its way elsewhere.

Financial skulduggery isn’t just something that happens in the UK; there has been a concerted and decades-long effort to encourage it to do so. Britain operates as a gigantic loophole, undercutting other countries’ rules, massaging down tax rates, neutering regulations, laundering foreign criminals’ money.

It’s not just that Britain isn’t investigating the crooks, it’s helping them too. Moving and investing their money is of course central to what the UK does, but that’s only the start: it’s also educating their children, solving their legal disputes, easing their passage into global high society, hiding their crimes and generally letting them dodge the consequences of their actions. I had known this before, but I had never thought of it as a single phenomenon. It was Andrew’s questions that crystallised the matter in my mind.

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“If someone’s rich, whether they’re Chinese or Russian or whatever, and they need something done, or something hidden, or something bought, then Britain sorts that out for them,” I said. “We’re not a policeman, like you guys, we’re a butler — the butler to the world.”

The idea of Britain as a butler was not one that had occurred to me before, but the more I thought about it, the more appropriate it seemed. This world-leading British industry exists to solve problems for its clients, discreetly and profitably, as Jeeves did for Bertie Wooster. And the way Wodehouse describes Jeeves can be surprisingly sordid. In Without the Option, for example, one of Bertie’s friends has been jailed for punching a policeman and risks falling out of his wealthy aunt’s favour if she finds out about it. After a tortuous series of mishaps, Jeeves is able to solve everything owing to his access to police secrets. If you focus on Jeeves’s actions rather than on his smooth-talking, soft-shoed manner, you end up with something extremely dark: a mercenary, a fixer-for-hire. “Good Lord, Jeeves! You didn’t bribe him?” “Oh, no, sir. But it was his birthday last week, and I gave him a little present.”

Amusing of course, but I’ve heard Ukrainian lawyers talk about how they’ve settled tricky legal disputes with the help of “a little present”, and it never sounded funny the way they said it. Take away Jeeves’s immaculate appearance, his educated accent and his ability to quote Marcus Aurelius, and you have not a butler but a consigliere.

Thanks to the work of Transparency International and Global Witness, as well as the publicity generated by our London Kleptocracy Tours (they’re based on the Hollywood Tours, but my friends and I highlight properties belonging to people accused of corruption rather than those belonging to people involved in films), many MPs have become increasingly concerned about Britain’s failure to do anything about the dirty money flowing through its system.

Unexplained wealth orders were dubbed the McMafia law because of the McMafia TV show

BBC

It was to answer their concerns and to cut through the problems created by criminals hiding their wealth in multiple jurisdictions that the government brought in a new tool, the unexplained wealth order, which came into effect in early 2018. Since UWOs passed into law just before the screening of the McMafia television show, they inevitably came to be dubbed the McMafia law, and were widely hyped in the press. Ministers revelled in the unaccustomed praise and their new image as sheriffs riding into London Town to drive out the bad guys. “This government is determined not to let organised criminals — like the McMafia mob — act with impunity,” wrote Ben Wallace, the minister for economic crime, in The Sun.

UWOs are a good idea, and at the time I found myself in the unexpected position of being non-cynical about a British government initiative. UWOs had the potential to finally turn the country away from butlering. They are designed to work by allowing the authorities to cut through all the offshore defences and political obfuscation that can be built around criminal wealth to stop the authorities from confiscating it. If served with a UWO, the owner of wealth has to explain where it came from, whereas normally prosecutors have to show that it’s criminal. In its assessment at the time the Home Office estimated that, once the law had bedded in, about twenty UWOs would be issued each year, at a relatively low cost to law enforcement of no more than £1.5 million over the next decade, set against the recovery of at least £6 million of criminal wealth. That meant the government would even make a profit from the law.

Sadly, the initiative often ran aground on the same shoals that have doomed many similar ideas in the past: the government’s failure to fund adequately the agencies tasked with enforcing the law meant they did not have the resources to properly investigate.

National Crime Agency [NCA] officers were at first excited about these new powers and privately canvassed many of Britain’s leading anti-corruption activists about which oligarchs they should be targeting first, since they were determined to win their first cases. But 2018’s first UWO was a bit of a disappointment, being targeted at property owned by the wife of an Azeri banker who had already been jailed in Baku. In Azerbaijan he had been prosecuted for embezzlement, but since it is a place dominated by a small clique of oligarchs, his real crime is more likely to have involved falling out with the ruling family. He wasn’t exactly the kind of whale that the government had said it was going after.

Fortunately, however, 2019 brought better news, with the announcement of an unexplained wealth order against properties linked to the ruling family of Kazakhstan, a post-Soviet kleptocracy that had been dominated by former president Nursultan Nazarbayev since independence in 1991. Back in 2015 Global Witness had published an extensive report into London properties that appeared to be owned either by the president’s grandson or by Rakhat Aliyev, who had divorced the president’s daughter Dariga Nazarbayeva in 2007 but then, shortly before the report came out, killed himself in an Austrian prison cell while awaiting trial for murder.

Dariga Nazarbayeva, whose ex-husband, Rakhat Aliyev, was at the centre of an unexplained wealth order case

SHAMIL ZHUMATOV/REUTERS

It was true that Aliyev had fallen out with his ex-father-in-law and been driven out of the first family, which meant that targeting him wasn’t quite like going after a top-ranking kleptocrat, but he had been notorious for using his position as head of Kazakhstan’s security service to extort wealth and steal businesses, so his was precisely the kind of “McMafia money” London should not be sheltering. At last there was the kind of action that the government had promised when UWOs were introduced. If dirty money, even if it belonged to a sundered offshoot of the ruling family of an oil-rich kleptocratic state, could be driven out of London, it would be an unmistakable signal that Britain was getting out of the butlering business.

You will probably not be too surprised to discover all did not go as the optimists wished.

Ownership of the properties involved — two houses and two apartments — was disguised behind two Panamanian foundations, a foundation registered on the Dutch island of Curaçao and a shell company registered on the obscure British island of Anguilla. The UWOs, therefore, were directed at these shell structures plus the solicitor who appeared to run the foundations rather than at any named tycoon, but the NCA’s supporting documents made clear its investigators suspected the properties had been bought with Aliyev’s cash. Shortly after a court agreed to issue the UWOs, however, the NCA received a 268-page letter from the famously potent London law firm Mishcon de Reya (tagline: “It’s business. But it’s personal”) informing them that the properties had not been owned by Rakhat Aliyev at all. Instead, both of the apartments and one of the houses belonged to his ex-wife Dariga Nazarbayeva, while the other house belonged to their son Nurali. They had purchased the properties after she and Aliyev’s divorce had been finalised, the letter said, so the source of the money could not have been Aliyev.

Mishcon de Reya contested everything that the NCA was trying to do, bringing in an expert to demolish its understanding of the structure of Panamanian foundations and providing Kazakh court documents to prove that its clients’ wealth was entirely independent of Aliyev’s. Reading the final judgment is like reading the report of a match between Manchester City and Hereford FC: the embattled non-league side did its best, but its players were swept aside.

“The NCA case presented at the ex parte hearing was flawed by inadequate investigation into some obvious lines of enquiry,” the judge concluded in April 2020 in an extremely critical assessment. “Furthermore, I consider that the NCA failed to carry out a fair-minded evaluation of the new information provided.” She discharged the UWOs, and thus ended any bid by the NCA to confiscate the properties. The agency said it would contest the decision, but an appeal court judge refused it permission to do so on the grounds that “the appeal has no real prospect of success and there is no other compelling reason why an appeal should be heard”.

It was a total defeat, a humiliation, made all the worse by the fact there were so many open goals presented to the NCA, which its investigators apparently failed to notice. Even if the properties did not belong to Aliyev but to his ex-wife, it surely would have been at least worth asking how the daughter of the head of a country where the average person earns £600 a month had managed to amass enough wealth to buy a London property empire valued by some newspapers at £80 million. And if she was going to rely on Kazakh court documents to show that she had no involvement in any of Aliyev’s crimes, then wasn’t it at least worth questioning the legitimacy of those courts’ judgments, given that they came from a judicial system ultimately controlled by her dad? The NCA, however, did not seem to feel it warranted further investigation; Dariga Nazarbayeva and her son presented evidence to show they were successful self-made entrepreneurs, and the court agreed with them.

I know one academic expert on corruption who was so bewildered by the NCA’s capitulation that he speculated — not entirely in jest — that it must have been ordered from on high: perhaps senior officers received a call from Britain’s embassy in Kazakhstan asking them to present a deliberately weak case? I am sure that did not happen, but the real reason for the agency’s failure is even more troubling. The NCA simply doesn’t have the resources to go up against a law firm like Mishcon de Reya, and neither do any of Britain’s law enforcement agencies. They have been starved for so long that they are demoralised by defeat and hollowed out by the steady departure of their officers (the NCA’s Command and Control Centre loses its entire workforce on average every three years, and has effectively become a training ground for private sector compliance officers, who can instantly earn salaries 20 to 30 per cent higher than in the supposedly elite crime-fighting force).

In its report into Russian interference in the UK published in July 2020, a month after the NCA’s request to appeal the Nazarbayeva decision was rejected, parliament’s intelligence and security committee quoted NCA director-general Lynne Owens as conceding that her officers might not be able to use UWOs against oligarchs at all any more. “We are, bluntly, concerned about the impact on our budget, because these are wealthy people with access to the best lawyers,” she said. “I’ve got a very good legal team based within the National Crime Agency but had a lot of resource dedicated out of my relatively small resource envelope on that work.” Translation: Britain, a G7 country with an economy worth nearly $3 trillion, is not prepared to pay its law enforcement agencies enough to investigate dirty money.

The NCA’s International Corruption Unit has an annual budget of just over £4.3 million. A judge ordered it to pay half a million pounds immediately to cover the legal costs incurred by Dariga Nazarbayeva and Nurali, and it is expected to have to pay a million more before it is done. Even before paying its own costs, therefore, this case alone will cost the International Corruption Unit more than a third of its entire annual budget. The UWO is a powerful weapon, but if enforcement agencies lack the resources they need to deploy it, it will sit on a shelf gathering dust. It’s like giving a hospital a powerful new scanner but not enough money to employ technicians. From the government’s perspective, UWOs were a triumph, garnering article after article about their tough stance against kleptocrats and their kleptobrats. From Butler Britain’s perspective, they were a triumph too: rich clients and their children can continue to enjoy their wealth without worrying about being disturbed. From a law enforcement perspective, however, they were a dud.

The NCA had planned to bring 200 UWOs over a decade and predicted a total cost of around £1.5 million but blew more than that on this single case, which ended in a defeat that may have doomed the UK’s entire anti-money-laundering strategy. Depressingly, this possibility was predicted in 2017 when parliament debated the UWOs. An amendment tabled by Nigel Mills MP would have capped the costs that respondents could incur so they could not outgun the NCA by engaging expensive lawyers, all ultimately to be paid by the taxpayer. The government, however, rejected this idea, arguing that the prospect of being forced to pay the respondent’s costs in the event of an unsuccessful UWO would be an important check on the state abusing its new powers. And so it has turned out. In fact, the prospect has all but stopped the state using the powers at all.

This is a story that will alarm anyone thinking that the sanctions against Roman Abramovich and other Russians mark a change in the UK’s position on accepting oligarchs’ wealth. It is a certainty that the sanctions will be challenged in court. Those same law enforcement agencies who crumbled when their unexplained wealth orders were challenged will be forced to defend them. My prediction is that they will fail.

The new economic crime bill will do nothing to change this calculation, since it contains nothing that will help to drive kleptocratic wealth out of this country (it is not, in fact, an economic crime bill in any meaningful sense anyway). Finally tackling the dirty wealth that has polluted our economy requires a recognition that tackling a kleptocracy such as Putin’s is not something that can be done on the cheap: our frontline officers’ agencies need the people, resources and tools to face down the oligarchs’ lawyers and win.

No minister has yet acknowledged this simple reality and, until they do, I will not believe that Boris Johnson’s government has any intention of changing Britain from being a butler to being a policeman. Until it does, suspicious wealth will keep having a home here.
Extracted from Butler to the World by Oliver Bullough, published by Profile Books at £20