How London Grew to become a Playground for Putin’s Oligarchs – Boston Overview

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I met up with journalist Oliver Bullough by the Knightsbridge tube station in central London. A financial crime reporter who began his career as a foreign correspondent based in Russia, Bullough has long been interested in the intersection between foreign wealth and political skullduggery. We were meeting to discuss his latest book, Butler to the World: How Britain Became the Servant of Tycoons, Tax Dodgers, Kleptocrats and Criminals.

He had suggested we do our interview in Knightsbridge because this section of London is where oligarch wealth is most concentrated. Immediately down the street from where we stood was 1 Hyde Park, the most expensive apartment complex in London (when it was built in 2010). From its entrance, you can see three different Rolex outlets. We passed underneath the shadow of Harrods, Britain’s most famous luxury department store, which is estimated to contribute a greater share to the UK economy than the country’s entire fishing industry. The broad avenue of Cromwell Road bustled with businessmen going from one office to another while fashionable couples sat at outdoor cafe tables, a steady stream of black luxury SUVs arriving to whisk them away. Just down the road was Belgrave Square and the home of Oleg Deripaska, a Russian billionaire and industrialist with ties to the Kremlin. Further on was Eaton Square, known by locals as “Red Square” for its high concentration of wealthy Russians.

However, since the start of Russia’s “special military operation” in Ukraine in February 2022, the United Kingdom has joined with NATO allies in launching a series of tariffs and bans on imports of Russian goods, including minerals and energy, and the freezing of Russian state assets. Meanwhile, individual Russian oligarchs with ties to Vladimir Putin’s regime who live or own property in the UK have suddenly found themselves the objects of public scrutiny and the target of sanctions. Billionaire football club owner Roman Abramovich publicly stepped back from his team, Chelsea, and is expected to sell it. Even staff who crew Russian superyachts may find themselves in British crosshairs.

But why did so much Russian money flood into London in the first place? And given its obvious connections to crime and state corruption, how had it been allowed to remain? These questions are at the center of Bullough’s book. To answer them, he suggested a walking tour to a nearby property connected to the heart of the crisis in Ukraine.

—Daniel Penny


Daniel Penny: Britain is often thought of as a strong defender of global democracy and the rule of law. How did it become home to so much money tied to foreign corruption and kleptocracy?

If you’re a possessor of wealth, the two things you hate most are taxes and scrutiny.

Oliver Bullough: The interesting thing about the UK is that it almost has two different foreign policies. One is about supporting democracy, defending freedom around the world, participating in NATO, sending arms to Ukraine. But simultaneously there’s a separate foreign policy, which is more run out of the Treasury. The Treasury is in the business of welcoming the money of all the people who are doing the precise opposite.

These two policies are in very obvious, direct contradiction with each other. So you ended up with this insane situation where both are happening simultaneously, and the international policy is very different from the domestic policy. The Russian kleptocracy has received very significant financial and legal help from Britain’s professional services sector—lawyers, accountants, financial planners, fixers of all various sorts, taken together what I call our butler sector. When it comes to the broad spectrum of oligarchy-enabling services, no one does it like we do. From educating their children to selling them luxury goods, structuring their tax affairs, managing their wealth, selling them property, providing them with literal butlers, providing them with captains for their super yachts, and hiding their wealth via a network of tax havens, we do it all.

Eighteen years ago, Ukraine had its Orange Revolution. At the time, I was living in Moscow, which wasn’t politically a very hopeful place. There was a big rollback of rights: business rights, media rights, everything. In Ukraine there was an attempt to reelect Viktor Yanukovych, who was heavily backed by Putin. And it failed, because the people wouldn’t put up with it. Huge protests went on for weeks in the winter of 2004 into 2005. Yanukovych’s loss humiliated Putin.

So there was a gas standoff whereby, in order to remind the Ukrainians who was boss, Putin essentially doubled the price of gas the next winter. And the Ukrainians faced a rather invidious choice: either pay extremely inflated prices for gas or not have any gas. And in the winter, Ukraine, like most of eastern Europe, is almost entirely reliant on Russian gas. They tried to stand up to Russia and live without gas, but that didn’t work. It totally destroyed the coalition that built the Orange Revolution.

But Putin didn’t do this on his own. Gazprom, Russia’s state-owned gas monopoly, didn’t do it on its own. It needed an ally in Ukraine, so it sold the gas to Ukraine via an intermediate company that was half owned by a Ukrainian, a relatively young businessman, pretty much unknown at the time, named Dmitry Firtash. He made an incredible amount of money on the deal. Billions. And what did he do with the money? He brought it here. Starting in 2007, he went on a huge drive to integrate into the British establishment, very successfully.

When it comes to the broad spectrum of oligarchy-enabling services, no one does it like we do.

DP: I know he was a donor to Cambridge University.

 
OB: Cambridge Ukrainian Studies was set up in 2010 because of his generosity. He was welcomed into the university’s Guild of Benefactors in 2011. He was welcomed by the Duke of Edinburgh himself: within four years of arriving in the UK with all this money, he was hanging out with the Queen’s husband! He got to open trading in the London Stock Exchange, he was going to Parliament for parties. That’s pretty vertical social climbing.

I knew he’d bought himself a place to live in London, but I didn’t know where it was. So I thought, “Well, I’m gonna look him up in the phonebook.” And what I found was 12a Brompton Square, which is here, that house, that little door down there.

That, according to the phonebook, is the property of his wife. It didn’t look like an oligarch’s property to me though, really. It’s just a row of nice, perfectly pleasant houses—admittedly on a very tony street around the corner from the Victoria and Albert Museum. But this guy’s got billions and billions. I thought, “Well, I’ve come all this way, so I’ll have a look around.” So I turned down Cottage Place, around the back of the block. And I walked past this old tube station, and that’s when I came to this place, this giant unmarked modern structure directly behind 12a Brompton Square. And I thought, “Wow!”

 
DP: It’s a bit of a fortress!

OB: Yeah, with the pillars. It’s clearly a new build, right? It’s modern, it’s grand, and it’s got CCTV all over the place. And interestingly, if you look up the plans, which I have, what you can see is only half of it. It actually goes down as far as it goes up. In the second basement, there’s a swimming pool. The back of the other side of the block is redone in this same brick. That rowhome, 12a Brompton Square, is essentially the back door out of this building. They bought a row of houses here, knocked them down, built this huge thing and then bought a flat on the other side and knocked through to give it a discreet back door.

So Firtash made an absolute fortune from essentially helping Vladimir Putin to bring Ukraine to heel, then built himself this house. But even this wasn’t enough for him. So in February 2014, he bought the whole block.

DP: This whole garage and the tube station next to it?

OB: This is the old Brompton Road tube station, closed in the 1930s. This was a Ministry of Defense building, used for the Territorial Army, which is our equivalent of the National Guard. And they decided it was surplus to requirements and sold it to Firtash. Having bought the first place for an estimated £60 million, he bought this place from the Ministry of Defense for £53 million. And obviously, nothing’s happened with it since he bought it.

He was allowed to buy it with a mortgage from the Ministry of Defense, and he only had to pay a third of the price upfront. That was a mortgage designed to encourage social housing. So who knows what he promised them. And then he has recently said in an interview that his idea was to turn it into a Ukrainian cultural center. But as you can see, none of it’s happened.

And the reason is that you Americans just refuse to play ball. You guys had a different attitude to Firtash—just because someone’s got a load of money, that isn’t any reason necessarily to go into business with them. And instead, the FBI investigated and indicted him for corruption in relation to a titanium deal in India. So he’s been stuck in Vienna battling extradition ever since.

 
DP: In your book, you trace the beginning of the UK’s relationship with this kind of money all the way back to the Suez Crisis and the collapse of the British Empire. According to your argument, that is when Britain becomes a butler. Can you talk about why you chose that moment as the inflection point and what significance it has for explaining the current situation in the UK?

OB: Britain didn’t use to help other people be oligarchs. If anyone was going to go around the world looting and knocking off foreign governments, it was us. But at some point, we stopped doing that and started helping other people to do it. When did that happen?

That’s clearly a postimperial story. And it’s about money. And it’s all tied up then in the development of offshore finance and the transformation of the City of London from being an imperial financial center managing British money to essentially an offshore financial center managing anyone’s money. And the Suez Crisis is when you can see that happen.

It didn’t start exactly at the Suez Crisis; it happened before in 1955 in a very small way with Midland Bank borrowing dollars against pounds to avoid regulations. But it went mainstream with the Suez Crisis in 1956 because the pound was in a lot of trouble after Britain’s failed invasion of Egypt. There was a financial crisis, fuel rationing, and speculative attacks on the pound. The future of the entire sterling system had been thrown into doubt. The solution was that the City of London stopped really using pounds and started using dollars. That’s when it changes from being an oligarch to servant. 

DP: And this was the invention of the Eurodollar. Can you say what that was?

OB: To understand what a Eurodollar is you need to understand that all dollars are Eurodollars now. Before the neoliberal turn under Nixon, Carter, and Reagan, dollars weren’t like what they are now, because they couldn’t move around everywhere. The United States was really quite restrictive on what you could do with the U.S. dollar, because it had strong anti-usury laws. Financial institutions, for example, were very limited in what interest rates they could charge. So if you had money to lend out, you could do it, but there wasn’t much profit in it. They were deliberately trying to restrain the power of finance.

Under the Bretton Woods system (established by the allies to create the post-war international economy), governments were trying to prioritize stability and employment over speculation and tax evasion. But there are people who really like speculation and tax evasion, and if you could find a way to help those people, there were really good fees to be earned in it. And that’s what London-based financial institutions started doing. London started helping people move money so they could dodge taxes and speculate.

The discovery that caused this to really take off was the realization that if you brought U.S. dollars to London, you could charge whatever the market accepted, so it became much more profitable to do business with dollars in London than it was in New York. So U.S. banks just opened branches here, then started routing all their international business through London rather than New York. That is what we mean when we talk about the Eurodollar. It had all the upsides of the dollar—the vitality of the U.S. economy, the convenience, the international currency aspect—with none of the downsides, notably the restrictions that were placed on it by the U.S. Federal Reserve. And by using dollars rather than pounds, you dodged the British regulations. So you ended up with this wonderful space where there were no rules at all.

If you brought U.S. dollars to London, you could charge whatever the market accepted, so it became much more profitable to do business with dollars in London than it was in New York.

DP: You talk about other offshore interventions in the book as well. The British Virgin Islands play an important role in the story you tell, as does Gibraltar. How do those places relate to Britain in a way that advances the wealth of kleptocrats and oligarchs?

OB: When the British Empire shriveled away, there remained a few parts that didn’t become independent immediately: the Turks and Caicos Islands, the Cayman Islands, the British Virgin Islands, places like that. There’s very few people there and few avenues outside of tourism for making a decent living. But they do have one really useful additional resource, which is that they are connected to the United Kingdom, which meant that our lawyers can operate there. The courts appeal to our courts. So they’re part of a very reliable legal system that everyone trusts. Yet at the same time, they pass their own laws. The legal hardware is British, but the software is not.

And that is quite useful, because it means that even though Britain is really generous toward wealth, these places can be a lot more generous—they can get rid of taxes, for example. So all of these places essentially got rid of taxes and have made it very hard to discover who owns anything. And if you’re a possessor of wealth, the two things you hate most are taxes and scrutiny.

And so all of these bits of Britain left around the world have ended up being like supercharged versions of Britain. There’s this whole network of places which specialize in different things and offer different services. Gibraltar is the most astonishing example. It’s a naval base: a rock with a tiny little town. And it has transformed itself completely by enticing gambling companies to set up there. Because you get to be British enough to bounce trade into the British market without having to pay British taxes.

DP: Toward the end of Butler to the World, you talk about efforts by the UK government to intervene in this situation, most of which don’t seem to work. Can you tell me about Britain’s unexplained wealth orders? Those were supposed to be a solution to some of the problems of oligarchs with mysterious cash showing up and just going on a buying spree, right?

Britain didn’t use to help other people be oligarchs. If anyone was going to go around the world looting and knocking off foreign governments, it was us.

OB: It is very difficult to prosecute financial crime involving oligarchs (or anyone who moves in multiple jurisdictions) because you need to get evidence from another jurisdiction to bring to your court. That’s very hard to do, and very hard to convince the court that the evidence is reliable. This means if you bring money here, it’s very difficult to prove if it’s of criminal origin. So the idea of an unexplained wealth order was to try and turn that on its head and say, “Look, we think your money is dodgy. So we’re going to freeze it, and you have to prove to us where it came from.”

DP: Which sounds like a great idea.

OB: Ireland has had some success using unexplained wealth orders against people involved in organized crime. But because the orders in the UK didn’t include any additional resources for law enforcement agencies to enforce them, it just ended up the same as always. Just this sort of embarrassment. The UK is very good at passing laws, very bad at enforcing them. There’s a term for this: legalization by underenforcement. You don’t want the embarrassment of having something be legal that others look down upon. But it’s hugely profitable. So you pass some laws but don’t enforce them, and you get the same result. It’s still essentially legal, without the bad PR.

DP: What is the current state of affairs now that the United States has been pressing so hard for sanctions and the rest of the world seems to be going along with it?

OB: Britain has, after a slow start, been OK when it comes to sanctioning people. This is sort of in the wheelhouse of the first foreign policy, doing the right thing after the fact. But considering how much stuff has been frozen here, it is just a demonstration of how much came here in the first place.

DP: Who are some of the people who have had their assets frozen?

OB: Roman Abramovich, who owns the Chelsea Football Club. Oleg Deripaska, who has got his family’s place on Belgrave square. There were some anarchist squatters there ten weeks ago. He’d been previously sanctioned by the United States, never been convicted of any crime, but undoubtedly a controversial man with very deep connections to politics in Russia for a long time, and a significant fortune. And no one appears to have thought to investigate his money as it came in and bought up a lot of real estate. But as soon as some anarchists threaten property, the police can charge in!

DP: Is there a big difference between the Labour and Conservative parties and their attitudes toward the corrupting influence of oligarchs?

OB: There were some good policies from the Labour government in 2010 and there were some decent policies from the Tory government under David Cameron. Neither of them did enough, but they both did bits and bobs. So it’s not a party political issue at all. There are some MPs now who are pretty good on this issue. Margaret Hodge, Tom Tugendhat, Kevin Hollinrake, Liam Byrne, and Andrew Mitchell fight really hard to get stuff done.

DP: As an American, it’s hard for me to imagine that kind of bipartisanship.

OB: They work together, they do a bit. It’s more that Britain’s postimperial development strategy has been based around the City of London, finance, an open economy, and undercutting Wall Street. And if we start checking the origin of cash, investigating, prosecuting, confiscating, then maybe the money won’t come here. And the fear is that then maybe all these high tax–paying bankers will go and pay tax somewhere else.

There is a rich tradition of people coming to Britain and just being absorbed into the ruling class.

It should be said that Boris Johnson is particularly bad. For example, he tried to suppress a report into Russian interference in the UK, which had some really important recommendations for how to get Russian money out of the financial system and politics. He even put Evgeny Lebedev, the son of an ex-KGB spy Russian oligarch, in the House of Lords, which is kind of extraordinary.

The Ukraine crisis has changed a lot of things. But before that came along, Johnson, despite having promised President Joe Biden in December at the Summit of Democracy that he was going to do all these things, he clearly had no intention of doing them. And one of his ministers, Lord Agnew, resigned as a result of corruption in Johnson’s government. It’s only because of Ukraine that Johnson has changed his tune.

DP: What is it about Britain that makes it a uniquely excellent habitat for oligarchs?

OB: There is a ruling class here with a substantial amount of soft power, and there’s a kind of cultural romance built around them. They are a class of people that other wealthy people aspire to be part of. Whether that’s Europeans coming here, Gulf sheiks coming here, Russians coming here—there is a rich tradition of people coming here and just being absorbed into the ruling class. It’s become a process, and there’s a whole industry that’s set up to help wealthy individuals from elsewhere become members, as it were. They don’t quite meet you off the plane, but—you hire these consultants and they help you buy the showy house, tell you to give money to the right art gallery or university, you gain a reputation, you hang out with the right people, you set up a foundation. There’s a whole framework that people follow.

Did they do it on purpose? I think that very little that Britain does is on purpose. There’s a long debate around many things about whether they happen because of corruption or incompetence. But I always think that what we need is a word for the third option, which are things which are accidentally profitable. Britain’s butlering industry is like the offshore market. It was discovered, it wasn’t created.