Boris Johnson announced sanctions against Russia yesterday in response to its invasion of Ukraine that made him and his government looked like a laughingstock. Five banks and three oligarchs, each of whom had already been sanctioned in the USA for some time, will now face UK sanctions that are likely to have little impact upon them, or Russia. The words ‘token' and ‘gesture' are too good to describe such inadequate measures in the face of Russian aggression against Ukraine.
For the record, saying this does not mean that I am suddenly delivering a pro-establishment line, as some from the left are seeking to claim. Nor am I seeking to exonerate some of the actions of the Ukrainian government, where corruption appears to be rife. Nor am I ignoring the actions of NATO states, where I think some actions have been inappropriate. I am quite firmly of the opinion that at present Ukraine would be as useful a member of NATO or the EU as both Hungary and Poland are currently proving to be. However, none of this exonerates the actions of Putin and his oligarchs within the kleptocracy that rules Russia, and so I think robust sanctions are now required to address the issues that have arisen and to end for good the industrial levels of money laundering in the UK.
I explained my reasoning for demanding new sanctions on Russia on Sunday. As I argued then:
This [conflict] is about illicit behaviour. Russia has no right to Ukrainian assets. But then, many Russian leaders' claims over assets are illicit. But that is also true of many Ukrainian leaders' claims as well. We need to understand the consequences.
There have always been illicit claims to assets. What has changed is that in the last forty or so years the mechanisms for making those claims have been widely promoted in the name of supposed economic freedom.
All the apparatus of tax havens, backed up and supported by the City of London, has been used to facilitate illicit claims to which blind eyes have been turned.
As I then noted
Why does this matter? Because what the West has very clearly said for a long time is that the UK and other countries will turn a blind-eye to Russian illicit assets and as a result Russia has come to believe that making claim on such assets is acceptable.
I think that Putin's belief in our turning a blind eye extended to his expectation that we would ignore the claims he has been making on Ukraine. We created his belief that he could get away with whatever he wanted. Johnson's pathetic sanctions will only confirm that, in my opinion.
As a consequence, I argued:
There is a war needed now. It is a war on corruption that is required.
The City has to swept clean, and if that means lawyers, bankers and accountants cannot survive the process, so be it.
Tax havens need to be consigned to history.
If we are to eliminate the risks arising from avarice, from corruption, from illicit behaviour, and the nodded complicity with this that countries like the UK have provided, then we need genuine transparency.
There is, however, a very particular dimension to this. As I also said:
We are suffering the consequence of limited liability. Putin has limited liability in one sense for his actions in Ukraine. He and we know that.
But we are also suffering the consequence of the abuse of limited liability companies that have been used to hide actions from view without belief that consequences follow.
That has to change. We need details of ownership and the full accounts of every limited liability company on public record now, without any exceptions. That is the price we must pay to end corruption.
If we need action as a result of what is happening in Ukraine it is that we need this renewed focus on transparency and accountability. They are really what democracy is all about. And we have forgotten that fact.
There is no transparency and accountability in Russia, but there is precious little here in the UK either, in truth.
So what do we need now? In other words, what would I have expected to make sure that we can now sweep away the opacity, corruption and basic fraud that is destroying UK markets, UK credibility as a finance centre, and our way of life? I suggest a number of things.
First, we need a massive increase in the resources required to police corporate corruption in the UK. These resources are easy to find. It costs £12 a year to have a UK company. If we think it will be appropriate to charge £20 for a pack of lateral flow tests from 1 April then we can charge a great deal more for the privilege of limited liability. I suggest an annual fee of at least £250 a year for a company. There were. according to Companies House, 4,837,908 companies in the UK at 31 December 2021, which includes 384,998 in the course of removal and liquidation. 4.4 million active companies would, if charged £250 a year, contribute revenues of £1.1 billion to tackle this issue. Of course, the number of companies might also fall considerably as a result. That, in itself, would be good news.
Second, every company that is on the register should be required to do three things within three months to make sure we know the minimum level of data that is required about companies registered in the UK. These are:
- To file their most recent full accounts as supplied to shareholders on public record. The time to end the farce of UK companies filing meaningless abbreviated accounts has arrived.
- To prove the identities of all their directors.
- To prove the identity of all those controlling more than ten per cent of the company, using the various definitions of control that the Companies Acts provide.
By proof I mean that reference to a proven document of identity must be supplied. For the vast majority this would simply require the use of the government gateway with which many are familiar to acquire a passport, to file their tax return or get a driving licence. We cannot rely on third parties to check this proof when the systems to check it already exist. For those unable to use such a mechanism then notarised proof of identity should be provided instead, with original documents being required by Companies House. Given the scale of the issue we face I see no reason why three months is an unreasonable time scale to do any of this.
In the event that any of these requirements are not met then I suggest the simple solution is that the company in question should be notified that it will be struck from the Register of Companies. This provides a few weeks for remedial action but after that the company should be closed. Nothing will get rid of corrupt companies quicker than this.
Thereafter we need other measures. First, all but small companies should now be audited.
Second, all companies that pursue activity in the UK, including those who rent property, should be required to file full accounts at Companies House.
Third, all groups should be required to file proper consolidated accounts so that we really know what is going on within them.
Fourth, if a group of companies is controlled from outside the UK one of the UK companies that forms part of the group should be required to file group accounts for the UK based entities, even if it is not the parent company of all the entities in question. We can no longer permit the opacity that offshore owned groups enjoy in the UK.
Fifth, all banks, lawyers and accountants should be required from now on to advise annually any information that they hold for any UK based company as to the total sums banked by that entity during the most recent annual period for which it prepares accounts, or a period of their choice if no accounts have been prepared. The aim is simply to identify the scale of unreported activity. There should be substantial penalties for non-compliance. The data should, of course, be shared with HM Revenue & Customs.
Do these things and we could massively clean up the UK company registry. At the same time we could crack down on all forms of fraud, tax evasion and corruption. And the additional resources available to Companies House would ensure that all these measures can be policed, ensuring that deficiencies in accounts and in the absence of data can be tackled by our authorities in a way that has not happened for decades.
I am well aware that some will object to the proposals I am making. For them I have a simple question. It is, what is it about the corruption that current arrangements permit that you think of benefit? I would be interested to know.
And before anyone complains that what I am suggesting goes far beyond what is required to beat Russian abuse, my answer is that I do of course know that. But what is being exploited is a systemic failure, and it is the systemic failure that must be tackled.
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Love it. Scalpel like this is.
This would hit Putin and his mates right where it would hurt them – in their pockets. And a fair few number of Western oligarchs too. And maybe that’s the problem? It’s the architecture and infrastructure that needs tackling.
Only if the West truly reforms itself can we gain a moral authority over Russia. To take the ethos from ‘To Kill a Mockingbird’ where we actually have the imagination to stand in their shoes and look at ourselves as the Russians see us in a critical way (weak, lax, lacking in principles, easily bought). To have undoubted moral authority only when innocent people start to die as they may do in the Ukraine is too late and human tragedy.
The world needs internationally binding and robust ways of tracking money and other stuff – it needs leadership to set standards as you suggest here Richard so that failed rogue states like Russia have no excuse to take unacceptable and lethal liberties and start trouble like they are doing in the Ukraine.
BTW, in reference to my post to Vinnie about ‘How China Avoided Shock Therapy’ – I just read about this stuff – you are the doer. I ‘do’ too in my way – slowly increasing the number of affordable homes in the town I work in. I will try to do a summary of the book about China at some stage – the first chapter.
Thanks
“…what is it about the corruption that current arrangements permit that you think of benefit?”
This is the key question and the one that everyone who supports such proposals – and the opposition parties in parliament in particular – should be asking. But are they?
In the meantime, I have another dodge for you: ‘electronic money institution’ (EMI). Private Eye had a feature on these in their 4th February issue. The article opens with this accurate little gem:
‘While official indifference to money laundering and economic crime persists, the opportunities provided by the UK government for bad guys come thick and fast. The latest offering…is the innocuous-sounding “electronic money institution”.’
An EMI is ‘…a type of company that processes payments without being a proper bank and with correspondingly less regulation and internal control.’
And guess what, of the 260 EMIs so far set up 37 had owners or directors from the former Soviet Union. PE continues…’So lax is the regulation of EMIs that these “institutions” are freely bought and sold…Regulators are supposed to look at any new buyer, but Britain’s financial Clouseaus are not the fleetest of foot.’
And the article concludes: ‘It’s a good time for questionable payment companies. Chancellor Rishi Sunak has recently instructed the FCA to target growth of financial services as well as regulate them, while the payment companies shrewdly style themselves as “fintech” and thus at the cutting edge Sunak is so keen on. With less than 1% of financial service companies coming under FCA examination in any year, and half-heated attempts at reining in the UK’s shell company industry already failing, the money launderer’s British toolbox remains full of all the best gadgets.’
So, there was plenty for Johnson’s government to aim at with sanctions. But they didn’t and they won’t. Why? Because, ultimately, they are not on the side of the ordinary people of Ukraine – or indeed the ordinary citizens of the UK or anywhere else. The only citizens the Tory party are interested in are the rich, and it really doesn’t matter where they come from – and certainly not Russia. So, don’t expect anything of any consequence from Johnson, or Sunak et al. They all know on which side their bread’s buttered – and who butters it.
Thanks Ivan
I have something else to worry about
The Conservatives dare not upset their Russian donors too much so are soft pedalling on sanctions. Liz Truss says there is more in the locker but the horse has bolted already. Putin is playing a clever game but his military does not have not the capability of defeating and successfully occupying the whole of Ukraine. They are mainly dependent on conscripts who have no interest in upsetting their mothers in getting killed or maimed in a pointless war with no obvious cause – look at the time and effort the Russians needed to suppress Chechnya. Putin does not want to commit his crack troops too soon, he can’t forget Afghanistan.
I did see mention of confiscating all Oligarch owned property in the UK.
Also, looking a lot more in depth into money laundering.
Unsure of the legality etc…
Maybe you know a little more about this?
My question is “what are sanctions for?” If it is to clean up UK company abuse of the tax system and money laundering in London then the above fits the bill. There also needs to be better policing of the legal, banking and accounting professions who are complicit in money laundering and without whom it would not be possible. All that is a laudable aspiration but shouldn’t need a Russian invasion of Ukraine to achieve it or to precipitate it. A fee of £250 is not going to put off a multi million pound money laundering operation. It might shut down a few sole traders who operate via a limited company and force them to file sole trader or partnership accounts but it won’t put off criminals.
If sanctions are to provide support for Ukraine and the abuse of its territory by another state then the above will do little. Operations will move somewhere else like Malta or Northern Cyprus where there is already substantial sums of Russian cash washed through western banks or ways will be found around any filing requirements with the help of the afore mentioned lawyers, bankers and accountants.
But you have to begin, and we can begin here…..
There is another aspect which seems not to have been covered anywhere. Members of the Russian government are personally siphoning off billions, reflected in lifestyles way beyond their supposed official incomes. They need to be exposed in a campaign of publicity aimed at Russian people who still live in poverty in large numbers. That will of course also expose those who have facilitated the theft.
Russia’s size and natural resources means that Russian people should be well off. That they are not is a consequence of the theft, massive levels of military expenditure and mismanagement. Those countries that escaped the Soviet Empire have done far better.
True
But not Ukraine, I think?
It is good to have some specific, targeted objectives here; which are completely lacking in Johnson’s proposals. I hestitate to draw attention here, but I have just written two articles for Bella Caledonia on the subject of the failure of Johnson’s proposals and on the background: first, Pecunia non olet’, and second ‘Pecunia non olet (2): The Londongrad Laundromat Reprieved’.
I have not attempted to draw up the specific regulations. I now wish I had waited sufficiently long to provide a link to your article, Richard. I do believe we need a Company Security Commission, an independent, adequately funded Commission resourced by high standard forensic accountants, sharp corporate lawyers and tax specialists, and a strong IT/digital arm of technical specialists. Plus Bayesian statisticians to assist targeting investigative effort.
Might I share either article here?
This article and the one after suggest that Russia is well placed to survive any sanctions.
http://m.email3.telegraph.co.uk/nl/jsp/m.jsp?c=%40E3G3kn%2FVGN6rWoLepA0xXSnsuy7G0D5VI%2FG9zwiJ0IU%3D&WT.mc_id=e_DM1545698&WT.tsrc=email&etype=Edi_EIn_New&utmsource=email&utm_medium=Edi_EIn_New20220215&utm_campaign=DM1545698
If Russia retaliates against sanctions by cutting off the gas and oil to Europe, whole will come off worst? Who’s economy will blink first? Germany or Russia?
The US doesn’t rely on Russian oil/gas, so can play “hardball”. Europe is much more vulnerable.
It’s Realpolitik writ large.
Sanctions need to be smart, and targeted at the oligarchs and the powerful in Russia.
We should not be imposing sanctions which will harm ordinary Russians as this will just strengthen Putin. Don’t do what we did with sanctions in Iraq.
Agreed
“We should not be imposing sanctions which will harm ordinary Russians as this will just strengthen Putin.”
The end is high-minded, but if you are going to say that, I consider in such a crisis as this, it is incumbent on you to say how you think that can be done. For example, do we prevent civilian aircraft engine parts from such as GE or Rolls-Royce from being sanctioned?
Notice also there are consequences for ordinary British people. BP has a 19.75% share in the Russian oil Rosneft. BP remains probably among the most important stocks in the UK stock market, and for UK pensions. It is not possible to stand up to aggression (and I do not forget the long history of Western failure here, now being exposed) without any consequences for ordinary people. History is no more than the story of precisely the opposite.
I couldn’t agree more with your analysis or your proposals. This makes perfect sense and I would like to support you on this. How can I help?
Organisations like Transparency International do practical campaigning on those issues
My job is to create ideas