War in Ukraine: Illicit Finance

Debate between Neil Coyle and Bob Seely

Thursday 17th November 2022 Westminster Hall

[Bob Seely (Isle of Wight) (Con)]

I beg to move,

That this House has considered the Second Report of the Foreign Affairs Committee, The cost of complacency: illicit finance and the war in Ukraine, HC 168, and the Government response, HC 688.

It is a pleasure to serve under your chairmanship, Mr Efford. In speaking to the report today, I will outline a series of points made by the Committee in this report and in its 2018 “Moscow’s Gold” report. I will also talk about SLAPPs—strategic lawsuits against public participation —and the case for more action on lawfare.

Our report finds that the UK sanctions response to the war, while ambitious, was initially limited by a lack of resourcing, and the new beneficial owners register still contains loopholes that put some individuals under the threshold for having to declare beneficial ownership. That is against the public interest. The report, which I strongly endorse—I encourage folks to read it should they have time—proposes a number of reforms, including new transatlantic sanctions partnerships, so that London and New York can work more closely together, and the appropriate resourcing of enforcement agencies. Both reports, and the Intelligence and Security Committee, note the lack of funding for the National Crime Agency and other serious crime organisations in the country and that some of them are threatened by the lawyers of oligarchs—potential bad actors. We believe that to be very strongly against our national interest.

In my opinion, and I think also in the opinion of the Committee and many people engaged with this issue, including the right hon. Member for Barking (Dame Margaret Hodge) and other hon. Members, the UK and its offshore territories have for too long turned a blind eye to the transfer and concealment of illicit or semi-licit—if that is a word—wealth, and have granted a number of high-risk individuals political and judicial protections that they do not deserve.

We have built a significant industry catering to the needs of some really quite unsavoury characters. To date, vast sums of both illicit and licit finance have been recycled through the UK’s bespoke package of the financial services industry, legal services, public relations services, private eyes, estate agents, luxury assets, concierge services, visa and citizenship routes and the private education system.

Transparency International and various other bodies have estimated that the amount of wealth, criminal or otherwise, that has flowed from the former Soviet Union via corrupt German and Scandinavian banks, via UK shell companies, to tax havens—sadly, very often the UK—is probably between £500 billion and £1 trillion. That is one of the greatest flows, probably the greatest flow, of illicit wealth in the history of humanity. The fact that we in London are a core part of that flow is frankly pretty shameful.

I was discussing the issue with the great Bill Browder the other day. One of the problems is that this is not just Colombian drug cartel money; this is money that has come from deeply corrupt, but potentially legal deals. For example, an executive at one of the big state gas or oil firms at some points in the 1990s could, if they had the connections, buy an oilfield or a gasfield equivalent to the North sea, for $100,000.

By borrowing that money off organised crime or other areas, that person would effectively become a billionaire overnight, by the sometimes legal, sometimes not, but deeply unethical transfer of state assets—the privatisation of state assets using organised crime as muscle and bureaucratic connections to facilitate it. That is what has happened in the former Soviet Union—in not only Russia, but also Ukraine back in the day, especially under Yanukovych and others, and Kazakhstan. Clearly, that has enriched a small number of people in the United Kingdom, but I do not believe it has been good for the United Kingdom as a whole. It is not good for our reputation and for London as a service industry—although it is undoubtedly true that it has very considerably enriched a small number of people.

In 2018, the Foreign Affairs Committee published an excellent report under the previous Chairman, my right hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), called “Moscow’s Gold: Russian Corruption in the UK”. That report detailed that, despite the Government’s crackdown on Russian activity in the wake of the Skripal poisoning, back before the Ukraine war, business simply continued as usual for most of Putin’s allies in the United Kingdom.

One of the depressing things for me is that I was saying this before I was an MP, so nobody was listening, and have said it as an MP—and still nobody really listened. In 2007, back in the Munich conference speech, Putin declared a new cold war against the west. We have studiously done our best to turn a blind eye because it was too difficult for western states to get their heads around the fact that, in President Putin, we had an aggressive rival who did not accept the international system, would openly challenge it and would fight wars on his borders to secure what he thought were his vital interests—we can debate that or not. After his speech the invasion of Georgia happened, and then in 2014 there was the invasion of Ukraine through proxy groups that confused some people, but should not have done.

Before, during and after those events we have had a wave of assassinations, imprisonments and arrests. I met with Alexei Navalny’s chief of staff. Navalny now may be the most high profile political prisoner in the world; he is in a detention camp in permanent solitary confinement. That is the price for challenging President Putin. Last night, I was chatting to Marina Litvinenko, the wonderful wife of Alexander Litvinenko, who was murdered in Piccadilly back in 2006—he died of radiation poisoning. The problem is that we repeatedly turned a blind eye. Our love of Russian money flowing through the financial and legal systems clouded our moral judgment. That has enabled Putin’s regime. We need to learn from those errors and mistakes.

What is the scale of the problem today? From 2008 to 2015, there were no state checks on tier 1 golden visas. At least eight individuals now sanctioned, or under investigation, are thought to have obtained citizenship through those means. They are citizens like you or me, Mr Efford. How can that be right or in the national interest? The National Crime Agency estimates that money laundering costs the UK £100 billion annually. Serious or organised crime is estimated to have a price tag of £37 billion.

Russians accused of corruption or having close links to the Putin regime have bought at least £1.5 billion worth of property in Great Britain according to Transparency International—that is a vast amount of property. One of the reasons why so many people are struggling with their mortgages is that there are vastly inflated prices for property in London and the south-east. That is in part because it is seen as an easy way to launder money: to pay over the odds for property and then to sell. Even if it is then sold at a loss of 10% or 20%, these people have laundered—legalised—a vast amount of corrupt and criminal, or semi-corrupt and semi-criminal, money.

That £1.5 billion is part of nearly £5.5 billion worth of property in the UK that has been purchased through offshore shell companies. That problem happened under new Labour and the coalition with the Liberal Democrats. What on earth is this country doing allowing offshore shell companies to be vehicles to buy property? It is just wrong. It is wrong that so many people close to Putin own so much property in this country. It is wrong that so many offshore vehicles have been used. What on earth are we doing allowing that to happen, and what on earth are we going to do to stop it? I would love the Minister to reassure us, rather than just saying that we are concerned about it.

[Neil Coyle (Bermondsey and Old Southwark) (Ind)]

The hon. Gentleman is making an excellent speech and I congratulate him. I want to be clear that this is not just an issue about Russia. In my constituency and elsewhere, the red princes and princesses of communist China are buying up property and inflating prices. We should not just focus on Russia when we talk about illicit finance.

[Bob Seely]

I thank the hon. Member for his very sensible point. There is absolutely a wider issue. As well as shell companies, there are vast developments on the south side of the river, around the US embassy, where entire blocks are being bought up as investment options rather than being used to provide housing for Londoners. That is shocking, especially because we have a housing shortage. There is a wider argument on reform of our housing in the UK for giving options first to allow ordinary folks to be buying it, rather than—as much as we love them—Hong Kong, Chinese or Indonesian investors to block buy endless numbers of flat and rent them out or never have them occupied.

I was going to talk a bit about the Azerbaijani laundromat. Between 2012 and 2014, about £3 billion went through UK shell companies as part of the so-called Azerbaijani laundromat; funding was dispersed from Azerbaijani officials to various outlets in this country. As well as that, London’s open economic environment has been a key centre for raising finance for companies or individuals over whom there are now very considerable question marks.

In 2017, En+ was floated on the London stock exchange, raising £1.5 billion from international investors in an initial public offering. We now know—well, we knew at the time—that En+ was very closely associated with Oleg Deripaska, despite his ownership of companies linked to supplying Russian military materials and sanctioned Russian shareholders. He himself is now sanctioned, I believe. En+ and Oleg Deripaska were part of a considerable lobbying effort by a former Member of the House of Lords—a former Conservative Minister, as much as it shames me to say it—to separate Deripaska from En+ in frankly pretty questionable circumstances.

Shortly after the Skripal poisoning, Russia continued to sell Russian sovereign debt in London, facilitated by the sanctioned Russian bank VTB. While our financial services provide anonymity to those who wish to invest, many UK legal firms have sought to further silence those who question the origin of investments.