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All Aboard London’s Kleptocracy Tour
A jaunt around the British capital’s dodgiest dealings.
Yesterday morning I boarded a white, unmarked bus parked alongside the river Thames, not far from the Houses of Parliament. In today’s London, which is second only to Hong Kong in the number of tourists it hosts each year, visitors can see the city by bike, foot, black cab, helicopter, or speedboat, or pick from a wide assortment of bus tours (royal, original, historic, or modern). In recent years, however, London has grown famous for a less encouraging trait: it has become a city of choice for unscrupulous politicians, businessmen, and government officials from across the globe, who, by hook or by crook, have acquired bags of cash that need rinsing and investing. Why not, then, a kleptocracy tour of London?
For now, the tours are invitation only, aimed primarily at journalists and interested eccentrics. They are organized by the anti-corruption activist group ClampK, and the one I’m attending this week is timed to draw attention to a high-level anti-corruption summit that Prime Minister David Cameron is hosting in London today. Many commentators see some irony in all this, given the appearance of Cameron’s own father in the Panama Papers (though, in that case, a tax-dodging motive seems unlikely). And as the tour progresses, elaborating the U.K.’s enabling role in global corruption, a mention of Cameron’s recent reference to other countries being “fantastically corrupt” elicits wry smiles from those on board.
The early birds on the bus with me chat about this. They include a German TV crew; Ned, a self-described venture capitalist with messy hair and a large rip in his jacket shoulder; and our guide, Roman Borisovich, a former banker who founded ClampK. Today’s tour will take in properties in the wealthy neighborhoods of Knightsbridge, Belgravia, and St John’s Wood.
“Let’s get rolling!” says Borisovich. But we have barely moved before he’s pointing out the window and listing evidence of financial misbehavior. The first property is in Whitehall Court, a building that used to be the headquarters of the U.K.’s foreign intelligence agency, MI6. It is now owned by Russia’s deputy prime minister, Igor Shuvalov. The cost, says Borisovich, was 114 times Shuvalov’s government salary. While Shuvalov claims that his wife is an investor with a Midas touch, Borisovich is skeptical: “These are badly camouflaged bribes.”
Borisovich defines kleptocracies as countries where rulers are motivated by stealing money rather than representing citizens. In his view, Russia fulfills the definition perfectly because it never penalizes big fish for stealing, at least in a judicial sense. Since diplomatic pressure rarely works, “the only way for the West to go after kleptocracy is to go after the money,” he says.
The tour features lots of Russian examples. As the bus circumnavigates Buckingham Palace’s external wall, I start to wonder whether — with his hard accent and Cold War-like references to “the West” — this emphasis might be a reflection of Borisovich’s personal interests. Then Oliver Harvey, who runs Deutsche Bank’s European currency research, stands up.
Last year, Harvey published a report in which he looked closely at the “net errors and omissions” in the U.K.’s balance sheet. At their peak, between 2007 and 2011, these averaged between £10 billion and £15 billion ($14.5 billion to $21.7 billion) per year, which was about 20 to 40 percent of the U.K.’s current account, says Harvey. “I thought it was very striking, and I couldn’t believe the statistical authorities hadn’t pointed this out before.” Harvey showed that, over time, these flows have correlated not only with secret flows of money out of Russia (as recorded by the Russian central bank), but also with London property prices. “The Russian central bank manager himself has said that a lot of these outflows of money from Russia are connected to criminal activity,” says Harvey.
But why London over other globally oriented cities? The first problem, says Borisovich, is that the money is allowed come in with few effective restrictions. The second is that U.K. law offers remarkably robust ownership protection, which means that the owners of ill-gotten gains don’t usually have to worry about enforcers in their home countries taking the money back. Borisovich notes that several U.S. cities also have problems with dirty money from abroad, but on nowhere near the same scale as London.
To explain, he offers the example of some so-called “mirror trades,” which he says were conducted by Deutsche Bank on behalf of some of Putin’s cronies who were on a sanctions list. “About $10 billion was laundered in Moscow and London equally. Who’s investigating this? The U.S. Department of Justice. They can do it because [the trade] is denominated in U.S. dollars.” By contrast, he says, the U.K. requires a criminal conviction in the country of origin — unlikely in cases when the criminal in question is the president or some other high official.
The bus turns at Knightsbridge station and heads down Sloane Street, famous for its row of designer stores catering to the dripping rich. Borisovich points to an apartment owned by the 21-year-old daughter of Russia’s poorest member of parliament. Sarcastically, Borisovich notes that “he doesn’t even own a car” — officially, of course. Around the corner sits one of the world’s most expensive residences, the modernist monstrosity 1 Hyde Park, in which Ukraine’s richest man, Rinat Akhmetov, spent over $197 million on two apartments, equivalent to $7,883 a square foot. Borisovich sees the address as a veritable honeypot for kleptocrats. Even former Nigerian oil minister Diezani Alison-Madueke tried to buy an apartment there shortly before her arrest on suspicion of corruption and bribery last October.
Nearby, at 28 Wilton Place, the son of former Egyptian President Hosni Mubarak — ousted in the Arab Spring of 2011 — used to live in a five-story terraced house worth $10.4 million. As we move into the grand, nineteenth-century elegance of leafy Belgrave Square, home to dukes and embassies, Borisovich can barely keep up. In one direction, there is a property owned by a Russian aluminum tycoon with links to a conflict that killed scores of people in the 1990s. In another lies a building owned by a Ukrainian magnate whose assets were frozen just over a week ago.
Representatives of ClampK are keen to point out that the issue at hand isn’t merely justice — it’s also bad economics. The attraction of owning property in the city is that prices have kept going up. These expensive houses are unproductive in a broader sense, generating nothing in terms of innovation. Moreover, they bring a social cost by pushing Londoners out of the center of the city. Because they are often empty, local businesses that give London its village-like feel — cafes, laundries, and so on — go bust, and tax revenue and rents for local governments dry up accordingly. According to Arthur Doohan, ClampK’s self-described “silent partner,” the effect is so substantial that a local compelled to buy a home for seven times his annual salary can probably blame hot money that has flowed into the London property market for up to three of those seven multiples, says Arthur Doohan.
Doohan also sees a larger danger. He views corruption as an infection that spreads and becomes almost intractable if it isn’t treated in time. While the U.K. currently enjoys one of the cleanest civil administrations in the world, he thinks the sleeping pool of questionable foreign money poses a threat to the quality of governance. “The pool of dirty money is enormous, and if it comes under threat it will seek ways to bribe people here.”
So what to do? In an article published yesterday, Cameron promised that today’s summit will constitute “the biggest demonstration of political will in tackling corruption that we have ever seen.” The proposals the prime minister is putting forward are heading in the right direction, says Borisovich, but they aren’t sufficient. They include a global anti-corruption agency and an open register that will enable civil society to find out which foreign individuals and companies really own U.K. property. This would also identify “beneficial owners” — those who put their names to companies in place of others. Cameron expects the Netherlands, France, Nigeria and Afghanistan to copy this move.
The British overseas territories, such as the Virgin Islands, figure prominently in the “Panama Papers,” and this, too, is a problem the government must tackle if it hopes to maintain its credibility on this issue. But there’s little hope that offshore corruption can be stemmed so long as the problem continues to fester in the very heart of the United Kingdom. For the foreseeable future, London’s kleptocracy tours are in no danger of running out of sights to see.
The photo shows One Hyde Park in central London on March 22, 2012.
Photo credit: CARL COURT/AFP/GettyImages