Catherine Belton and Andrew MacAskill

LONDON (Reuters] – VTB Capital last Thursday lowered a large Russian flag in its palatial structure opposite the Bank of England, London’s financial district. It was a sign of a retreat from one of world’s main centres of money flows.

Just hours earlier, Britain announced that it would freeze the assets of Russia’s biggest investment bank in punishment of Moscow’s invasion of Ukraine. This was part of the largest ever set of sanctions.

Britain, which has targeted Russian banks as well as members of President Vladimir Putin’s close circle, placed a ban on Russia selling its debt in London’s market and limit deposits for its citizens.

This and other moves may signal that Londongrad is no longer the Western capital of preference for Russian oligarchs. They now live in luxury European hot spots.

London was also the most popular venue to foreign capital-raise by Russian businesses. Over 20 Russian listed companies, which have a market value exceeding 400 billion pounds (or $536 billion) are on the London Stock Exchange.

VTB Capital was Russia’s second-largest bank and the first to be established as an investment banking branch.

Lender said they would “take all appropriate measures to resolve each client’s situation” and that they are “determined to continue cooperating with clients and their partners in compliance with the law”.

Britain claims that VTB Capital, which has raised millions of pounds through London’s market for Russian governments and state-owned firms, is being targeted by Russia because it is controlled by the Russian state. VTB Capital has been given 30 days by the Russian government to close any transactions. This could allow VTB Capital to transfer assets or move operations to another bank.

The LSE did suspend VTB Capital, however, on February 25, the first day following the announcement of the actions. This meant that the bank couldn’t trade shares for clients.

VTB Capital was already reducing its presence here in London due to the disruption caused by Brexit. VTB Capital didn’t respond to our request for comment.

This week’s legislation will reveal the precise scope of the sanctions. The names of most of those 100 Russian oligarchs or entities that Britain has pledged to target are not yet known.

Britain has sanctioned 10 Russians so far, but they have minimal assets here. This gives others the chance to send them offshore to proxy addresses. Roman Abramovich, a Russian billionaire, said that he would give management to Chelsea’s soccer team to charity foundation. This was in spite of calls to sanction him.

Tom Best in Washington, who is an international partner of Paul Hastings, said that London’s actions could have a significant impact on the activities of the… (Putin) inner circle.

IN OVERDRIVE

In the 30 years following the collapse of the Soviet Union, Russian business has encroached on Britain’s financial systems. The British security and intelligence committee warned in 2020 that Russia’s influence is so deep that it cannot be removed.

Russian billionaires may be best-known for the luxury mansions they own in Belgravia or Knightsbridge. However, London has been a safe haven for much their private wealth due to the English legal system and light regulation.

Government data shows that Russians have over 27 billion pounds of investment in Britain. They come here to shop, bank and educate their kids.

In the lead up to the invasion, 60% of Russia’s wealth was held overseas.

According to people familiar with the matter, some Russians are prepared to have ownership changes triggered in case of additional sanctions, just as they did before the previous round of sanctions that were imposed in 2018 and 2014.

They added that two people with millions of dollars are part of a group who has been trying to protect their fortunes.

One said, “Law firms are working in excess.”

Campaigners for financial transparency claim that more Russian money is flowing into British tax havens (including the Cayman Islands) than it does into London.

The British government is not yet clear on whether or how it will require this network to reveal the real owners of assets.

Roman Borisovich (an ex-investment banker from Moscow who now works as an anti-corruption advocate) said that London is the most important centre of Russian funds in the West and the British government should do more. 

Borisovich stated that “the UK is the weakest link in the Western alliance’s efforts” and added that “the measures proposed so far are not even remotely adequate.”

Mikhail Khodorkovsky was Russia’s once richest man, but he fell prey to the Kremlin. He also stated that Britain and the United States should take stronger measures to prevent Russian money from gaining political influence in Washington, DC, or London.

He said, “If you tell Putin you’re putting three oligarchs on sanctions, tell Putin he’s a bad person and stop him from shopping in Milan. Then Putin will just laugh.”

TOUGHER MEASURES

British officials insist that the situation is different from what happened after Russia annexed Crimea in 2014 and a nerve agent attack in South England blamed on Russia in 2018.

One source told Reuters that the Russians are trying to stop London being used as a location to raise or keep money.

Britain will add more sanctions to its list, which includes high-profile businesses. They also said that the number of people involved in the implementation of them has tripled over the past two months.

Some British politicians, Russian businessmen and anti-corruption campaigners remain skeptical about Russian money entering London’s financial, energy, and housing markets.

According to Ben Bradshaw of the Labour Party, Liz Truss, foreign minister, said to lawmakers last week in private that London law firms were stalling efforts to implement sanctions on Russian oligarchs.

Although accounts can easily be tracked, the multi-layered trust system that holds most of their private wealth could pose a problem for British sanction officials looking to ban Russian billionaires from opening accounts.

Sergei Aleksashenko is a former deputy chair of the Russian Central Bank and now exiled in America after falling out of favor with Putin’s government.

However, Britain’s decision to ban all commercial flights (including Aeroflot) and Russian private jets, will have a significant impact on the economy, according Chris Weafer. He is a director at Macroadvisory in Moscow and has been a longtime member of Russia’s investor community.

Russia replied by banning British airline flights.

Weafer stated that “The Aeroflot ban had put the last nail in what was Londongrad”, pointing out the large number of Russian-born children attending school in Britain, and their use of London’s world-famous medical facilities.

($1 = 0.7460 pounds)