London, playground of the rich

The capital is enjoying an unprecedented glitzkrieg as Russian oligarchs, Middle-Eastern sheikhs, Indian plutocrats, American millionaires and Kazakh socialites flock to its convenient time zone, deregulated money markets, abundance of white-stucco mansions and instant access to old-school cred.

Once described by Sir Arthur Conan Doyle as “the great cesspool into which all the loungers and idlers of the Empire are irresistibly drained”, London has become more like an overcast Monaco: a private playground for the super-rich.

“Yes there is Monaco and Cap Ferrat, but London is where everyone likes to go, despite the awful weather,” says one socialite, who has partied with the wealthy for more than 30 years. “The very rich are respected here — unlike in New York.”

Despots attend London’s universities, corrupt African officials squirrel away millions in its banks and Russian billionaires — whose numbers are back to pre-2007 levels — prop up its high-end auction houses, 24-hour nannying services and Kensington estate agents. Political turmoil in the Middle East has only added to the demand as the region’s rich rush to protect their wealth.

Almost 70 per cent of super-prime property in the capital is now bought by overseas buyers, according to Savills, the estate agents. Penthouse apartments such as those in One Hyde Park, London’s most expensive development, sell for £140 million. Forbes calculates that there were 34 billionaires in London in 2006. Now there are more than 50, with another 20 living outside the capital.

“We’re booking God knows how many tables at Heston [Blumenthal’s new restaurant] at the Mandarin Oriental,” says Aaron Simpson, co-founder of Quintessentially, the private-members club. “The BRIC crowd [Brazil, Russia, India, China] are coming into London much more regularly. They are less conscious of showing their wealth.”

At the centre of the new glitterati is Goga Ashkenazi, the 31-year-old Kazakh businesswoman who counts the Duke of York, the socialite Tamara Beckwith and the financier Robert Hanson as friends. “She turns up everywhere, Zelig-like,” says a society journalist. He should have added: in a £220,000 chauffeur-driven Bentley.

And last month Dasha Zhukova, Roman Abramovich’s girlfriend, hosted the season’s most glamorous party, the Surrealist Ball — but forgot to attend. In June, Alexander Lebedev, the Russian tycoon and former KGB agent, will spend hundreds of thousands on the sixth annual Raisa Gorbachev Foundation dinner, a white-tie event at Hampton Court attended by everyone from Orlando Bloom to Vivienne Westwood.

The British upper classes, so used to running the show, find themselves demoted to financial and social fixers. “The British are the financial bag carriers of the world,” is how William Cash, the publisher of Spears Wealth Management Survey, puts it.

There is much to admire about these private-jet plutocrats, especially if you are a fan of Chelsea Football Club. Despite uniquely favourable rules allowing them to pay tax on their British but not overseas income, the UK’s 123,000 so-called non-doms still paid £5.9 billion in income and capital gains tax in 2008-9, according to Treasury figures. Since 2004, UK non-doms in the UK have paid a total of £25.1 billion in taxes.

Another group of people exists, however. Campaigners point to a darker side to London’s huge influx of foreign wealth. Dig beneath the surface, they say, and what emerges are sordid allegations of money-laundering and corruption, tax avoidance and evasion on a massive scale — all taking place under an apparent umbrella of government complacency.

According to Transparency International (TI), £15 billion of dirty money is laundered through the UK each year, the vast majority through London. The capital now languishes at 20th place on TI’s corruption perception index, a record low below Qatar, Japan and Barbados.

“The UK is a natural haven for corrupt politicians wishing to stash their looted funds,” the group says. “In many respects the UK is itself an offshore financial centre in addition to being the mother country for many small jurisdictions that are more generally regarded as offshore financial centres.”

The capital’s most high-profile recent miscreant is Saif Gaddafi, the son of Colonel Muammar Gaddafi, the Libyan leader. Studying at the London School of Economics by day, Saif partied in clubs such as Annabel’s by night before retiring to his £10 million Hampstead house, complete with hot tub and suede-lined indoor cinema. Using the capital as a springboard, Saif developed acquaintances with a number of influential people, including the Duke of York. Most egregiously, Saif arranged for billions of pounds to flow into the capital via the Gaddafi- controlled Libyan Investment Authority (LIA). Last month the Treasury froze $12 billion of UK-based Libyan assets held in banks such as HSBC.

Why was London so attractive to Saif and his cronies? Last year, Mohamed Layas, head of the LIA, was revealed by a diplomatic cable released by Wikileaks to have favoured the city because of the “ease of doing business” and the “uncomplicated tax system”.

Anthea Lawson, head of the transparency group Global Witness, puts it more bluntly. “Any despot in the world can easily hide their identity behind the nominee shareholders and directors of a British-registered company. The UK isn’t collecting information on the beneficial ownership of companies. You can incorporate a company without anyone knowing who you are.”

Freezing Gaddafi’s funds was presented as a triumph, she says. “But it actually highlights a catastrophic failure of anti-money laundering laws that are supposed to ensure that corrupt politicians do not get easy access to finance.”

Opening a bank account or forming a company here can be done in minutes over the internet, with worryingly few identity checks, according to Professor Jason Sharman, an Australian academic and tax expert. He surveyed 22 countries in 2009 to measure how easy it was to set up anonymous companies in each. In this country — the worst offender — he managed to create seven shell companies and two bank accounts without showing proof of his actual identity.

“The US and the UK do a much worse job collecting information on the owners of shell companies than offshore financial centres,” Sharman says. “The former collect little or no information on those behind shell companies, they provide financial anonymity that is widely held to facilitate money laundering, tax evasion, grand corruption and the financing of terrorism.”

Companies House, the UK agency set up to enforce company law in the UK, is overwhelmed by its workload, according to Richard Murphy, of Tax Research UK, who estimates that more than 500,000 UK companies “disappear” from registers each year.

About a third of these companies are struck off by Companies House before they have ever filed accounts, Murphy says, leaving regulators totally unaware of their trading history. “As a result, UK companies can easily be used by those seeking to undertake tax and commercial fraud without risk of their activities being disclosed, even though the companies are meant to publish their accounts,” he says.

The situation is not likely to improve. Last year it was announced that 250 out of 1,100 Companies House jobs were to be cut. “We go through a statutory process before striking off any company. That protects any interested party.”

In many ways, London has always been a honeypot for foreign wealth. As early as 1893, more than half the stock on London’s Stock Exchange was foreign. In 1903, Sir Felix Schuster, chairman of the Union Bank of London, told colleagues: “We are, it is admitted, the financial centre of the world; this is more than a phrase, it is a fact.” In the 1950s, London became the world’s first “offshore” financial centre after UK law was disapplied to financial transactions conducted in foreign currencies.

Today, the City of London accounts for 43 per cent of the world’s derivatives trading and contributes more to the UK in terms of corporation tax than North Sea oil and gas. A 2006 study suggested that foreign direct investment in the capital contributed £52 billion to the UK economy and made up more than a quarter of London’s own economy. No wonder David Cameron and the preceding Labour Government actively encouraged the free flow of foreign capital into the city.

Wealthy foreigners prepared to invest £10 million in Britain will now be given a fast-track right to settle in the country, it was announced last month. So-called non-doms are allowed to pay tax only on money brought into this country rather than on all their income, costing the country, according to the TUC, £3.8 billion in missing taxes.

In 2007, Mike Warburton, a partner at the accountants Grant Thornton, calculated that the UK’s 54 billionaires, of which about two-thirds were thought not to be domiciled in the country, paid income tax of just £14.7 million on their £126 billion combined fortunes. “The very wealthiest people can live here and pay very little tax if they wish,” Warburton says. “But these people generate a huge amount of value for the UK through associated business and professional services. A 2003 consultation paper for Labour had two headings on it: Fairness, and What’s Best for the Economy. The two things sometimes conflict.”

London’s attitude is so violently pro-business that Timothy Geithner, the US Treasury Secretary, issued a rare rebuke in February, criticising the capital’s “light touch approach to financial regulation”. It was consciously designed, he said, “to pull financial activity from New York and from Frankfurt and Paris to London”.

Geithner is unlikely to be happy about the Government’s new Bribery Act, which is meant to bring Britain in line with the tougher US anti-corruption laws by banning bribery payments made by UK companies at home and overseas.

To the joy of foreign investors and the consternation of anti-corruption campaigners and UK investment funds, Ken Clarke, the Justice Secretary, confirmed last month that dozens of foreign companies listed in London will be exempt from the legislation. “An African \[company\] or whatever listed on Aim \[the Stock Exchange’s international market for smaller companies\] will not in itself be covered by the Act,” he said. One highly successful asset manager says: “If the Bribery Act is not enforced consistently you would have the highly perverse outcome that a UK-listed Russian company could pay a bribe to win a piece of business and not fall foul of the law, whereas a British company that did the same, would. It’s completely un-levelling the playing field and takes the teeth out of the Act, because the majority of growth in London comes from foreign companies.”

New York’s Foreign Corrupt Practices Act, by contrast, was implemented in the late 1970s and catches bribery perpetrated by both US and foreign companies.

Such disparities will continue to tempt wealth towards London from New York. Although the US city has more billionaires, most of them — such as Michael Bloomberg — are home-grown. Social observers say that New York is now seen as less accommodating than London, particularly to European and Middle-Eastern billionaires, who prefer a city only hours away from their homeland with the added benefits of a favourable tax system, stable property market and centralised time zone.

As the Arab Spring continues to pulverise long-established regimes in the region, wealth managers in both London and Switzerland report a flood of interest from wealthy individuals anxious to protect their gains.

“My BlackBerry has been ringing non-stop,” says Trevor Abrahmsohn, estate agent to the super-rich. “In the past three weeks I have taken four inquiries from the Middle East on long-term lets of £20,000 a week. There’s no question: whenever the tree is shaken and the wealth drops money will inevitably find its way to London.”

Unfortunately, that applies both to those seeking democracy and those using the capital as a bolthole for their wealth.

The chichi checklist

School Harrow, Westminster and Winchester for boys; St Mary’s Ascot for girls.

Home Bishops Avenue near Hampstead Heath (the President of Kazakhstan reportedly owns a £50 million pile there). Belgrave Square and Kensington Palace Gardens and The Boltons nearby are still de rigueur. At One Hyde Park apartments sell for £120 million, and those who fancy the nomadic life have already reserved their £10.6 million space aboard Quintessentially One, a private members’ luxury yacht and club. Commitment-phobes choose the Dorchester.

Restaurants The Ivy, the Wolseley and Claridge’s still hold a certain cachet, along with the Park Lane hotels and their restaurants. Hakkasan Mayfair, Dinner by Heston Blumenthal and Zuma in Knightsbridge are suitably expensive.

Shops Harvey Nichols, Selfridges, Harrods and Bond Street — though they are sometimes willing to join hoi polloi at Bicester Village because bargain hunting, though unnecessary, is just too much fun.

Hair Richard Ward in Chelsea Party fixtures The Surrealist Ball in March and, in June, the Raisa Gorbachev Annual Gala Dinner at Hampton Court and the Royal Academy of Arts Summer Exhibition party. The Henley Regatta is inked in the calendar, though the most extravagant parties are at home.

Clubs Annabel’s, Tramps, Mahiki, and for risqué evenings, The Box. A private members’ club (or two) is mandatory; popular options include The Hurlingham Club and Raffles in Chelsea.
Mary Bowers