During the course of the 1990s these four men built huge fortunes at electric speed by exploiting the flawed post-Soviet scramble to build a Western-style market economy. Though it was Russia itself that was the source of their personal wealth, it was London that provided the backdrop to the next phase in their meteoric climb up the global rich lists.
For Abramovich, London has helped to satisfy his apparently insatiable appetite for conspicuous consumption. For Deripaska, banned from entering the United States, the capital has been a crucial base for building his diverse and colossal global business empire. Before his incarceration, Khodorkovsky used London to woo the British political and business establishment in his international campaign to transform his tarnished global reputation. For Berezovsky, who has been fighting extradition since 2001, London has provided a refuge from Russian prosecutors who have accused him of alleged tax evasion and fraud, charges that he has strenuously denied.
In contrast to the corrupt, politicized judiciary in Russia, London has also offered legal sanctuary and a fair due process of law. While indicted Russian businessmen have been arrested and detained in Spain, France, Italy, and the United States, Britain has refused to accept any of the dozens of extradition attempts by the Russian authorities, souring diplomatic relations in the process. ‘I think they [Russians] feel that this is a country of law,’ said Berezovsky. ‘They feel that they are well protected here.’1
London has long attracted the extravagantly rich, but the post-millennium wave of foreign wealth was unprecedented. In the decade up to 2008, trillions of pounds of foreign capital settled in the UK. For those who make money out of money, it was a golden decade for tax lawyers, accountants, and bankers. ‘The British have found a new vocation,’ said William Cash, the well-connected publisher who founded Spear’s Wealth Management Survey, the glossy quarterly that chronicles the activities of the super-rich. ‘That is being the financial bag-carriers of the world. Britain’s ruling classes used to own the wealth. Now they’ve become the fee-earning servants, servicing the global financial elite.’2
By 2007, before the devastating impact of the global economic meltdown of the following year, London had displaced New York as the financial capital of the world. It did so by providing an unrivalled tax avoidance industry and a much lighter regulatory touch. After 9/11 and a series of highprofile financial scandals on Wall Street, the US Government passed a new law - the Sarbanes-Oxley Act - which imposed much tougher corporate requirements on the disclosure of information, accountancy procedures, and the process of listing on the New York Stock Exchange. This made New York less attractive to the world’s business rich and London seized its chance. The United States also introduced much tighter visa restrictions for foreign businessmen, which did not compare favourably with the more open UK border controls.
For moneyed Russians London also provides logistical advantages: the flight from Moscow is just four hours, while south-east England enjoys a ring of airports with facilities for private jets. According to James Harding, editor of The Times, ‘From London it is possible to work a normal day and talk to Tokyo in the morning and Los Angeles in the afternoon. A businessman can get on a plane from Moscow and be in central London in five hours, from Bombay in seven, even from Beijing in nine. This is one of the reasons why over the past twenty-five years London has turned itself into an international marketplace while New York has remained essentially a domestic financial capital.’3
However, tax remains the primary factor. ‘New York is obviously very stable, but most of the other big centres of wealth management would have questions over them’, said David Harvey of the Society of Trust and Estate Practitioners whose members unashamedly help wealthy families pay as little tax as is legally possible.‘Tokyo’s gone through a period of depression, Singapore is relatively new, and Germany was until recently a tax-heavy jurisdiction. If you’re looking to avoid tax legally, you’re as well going to London as anywhere else.’4
The UK boasts an unrivalled tax-avoidance industry - and an abundance of highly paid accountants able to devise complex ways of hiding an individual’s wealth. In 2007 the International Monetary Fund ranked London alongside Switzerland, Bermuda, and the Cayman Islands as ‘an offshore financial centre’.
Most countries have required their residents - including wealthy foreigners - to pay domestic taxes on their worldwide income and capital gains. In the UK foreigners can claim they are ‘domiciled’ abroad even though they may have lived in Britain for years and have British passports. Under this rule, ‘non-domiciles’ would only pay tax on their UK income and not on overseas income, usually the bulk of their earnings. Furthermore, by purchasing property through offshore trusts, foreign buyers could avoid both capital gains tax when they sell and most of the stamp duty usually paid at the initial purchase.
For a Russian billionaire living in London, his earnings from his homeland have been tax-free in the UK.‘There is one reason above all why these people are coming to London and that is the tax law,’ said Natasha Chouvaeva, a London-based Russian journalist. Although this advantage was partially reduced in 2008 when, following a mounting media and public outcry, the government introduced a £30,000 annual levy on non-domi-ciled residents, it was an inconsequential sum for the superrich.
The origins of the oligarchical influx lie in the privatization of Russia’s vast and valuable state assets in the 1990s, an explosive process that enriched the few, opened up a huge gulf between rich and poor, and enraged the Russian people. A World Bank report in 2004 showed that, in effect, thirty individuals controlled 40 per cent of the $225 billion output of the Russian economy in its most important sectors, notably in natural resources and automotives. The study concluded: ‘Ownership concentration in modern Russia is much higher than in any country in continental Europe and higher than any country for which data is available.’5
Little of this unprecedented accumulation of wealth has been invested in Russia in business or charity. Rather, most of the money has been secreted abroad, with billions of dollars hidden in a labyrinth of offshore bank accounts in an array of tax havens, from Switzerland and Jersey to the British Virgin Islands and Gibraltar. Much has ended up being deposited in and managed by British banks. Stashed away, it has been almost impossible to trace. Despite attempts by Russian and British law enforcement agencies, little of it has been recovered and requisitioned back to Russia.
Russia is where the money originated, but it has not been a comfortable place to spend it - too many people pointing fingers in Moscow restaurants, too much scrutiny by the tax police, and the constant fear of assassination. The Russian rich cannot go anywhere without bodyguards and bullet- and bomb-proof cars. Even wearing bespoke suits attracts attention. But in the UK or Europe they have been able to go mostly unrecognized and can relax, spending their gains without fear of censure or of being called to account. After buying their multi-million pound town houses and country estates, they have indulged their sybaritic lifestyles, cruising in St Barts, skiing in Gstaad, and shopping in Knightsbridge.
For their wives it has been heaven. ‘London is a metropolis,’ said Olga Sirenko, who edits a website for Russian expatriates. ‘It is fashionable. It has all the boutiques and the culture. Moscow doesn’t have that kind of chic.’ Aliona Muchinskaya, who has lived in Britain since 1991 and runs her own PR company, says that Russians now dismiss Paris as being ‘too dowdy and villagey’. London, by contrast, is ‘bustling and busy with its restaurants and nightclubs. Russians can hire Rolls-Royces and private jets more easily here.’
On arrival in London the first port of call for the affluent, socially aspiring Russian was to the estate agent, notably Savills, Knight