You Cannot Just Take an Oligarch’s London home

It has taken Russia’s invasion of Ukraine for the UK to pursue more concerted action against the flow of dirty money through the City of London and the capital’s property market. Government reforms announced on Monday focused on lifting the veil of secrecy around corrupt real-estate ownership. These are just the first steps toward potentially seizing assets — but the steps are significant.

Multimillion-pound properties in London have proved a convenient and safe place to stash Russian fortunes. Hereon, anonymous foreign beneficiaries of British real estate are to face restrictions on selling if they hide behind shell companies. Whether these changes lead to a sudden outbreak of transparency in the property sector remains to be seen.

Assuming the chain of ownership extends to trusts in offshore jurisdictions, the UK would still appear reliant on cooperation from those overseas authorities. The first line of legal defense would be to argue that the suspect properties are indeed owned by corporate entities rather than individuals — just as the big banks and consulting firms own houses for client meetings.

If the success of those measures is doubtful, one related change could make a more substantial difference: the new regime for “unexplained wealth orders,” whereby the British National Crime Agency (NCA) forces people to demonstrate they obtained suspect wealth legitimately.

While these are a conceivably valuable weapon in the fight against money laundering, their effectiveness so far has been limited. Cases are necessarily tortuous as they involve delving into history and unpicking opaque legal structures.

Legal resources matter here: The targets’ pockets are deep, and they can afford to throw money at securing the best-resourced law firms and slickest advocates in a legal war of attrition.

For the government, the stakes are high. Failing in an unexplained wealth order has historically meant picking up the other side’s astronomical bill. That falls on a taxpayer purse already strained by the COVID-19 pandemic.

However, under the reforms, a British law enforcement agency would no longer automatically have to pay the other side’s costs if it loses. It just has to persuade the court the failed action was reasonable. That radically alters the economics and legal dynamics, and should enable the NCA to bring more cases.

The tail wags the dog in British litigation: The “loser pays” model means potential costs determine whether an action is bought in the first place. If one side can proceed with an effective indemnity, it changes the game.

The key question now is whether more cases will lead to more wins — and, ultimately, to confiscation of assets. This could be a critical moment for the judiciary. Oligarchs would be aware that British courts have historically been resistant to depriving people of property rights without strong justification. It is an almost instinctive aversion.

The distinction between a corporate and a human actor is also firmly entrenched. Both tenets are enablers of secret, indirect real-estate ownership; both now face challenge.

British Cabinet Minister Michael Gove is assessing how to seize British property owned by Russian oligarchs with links to Russian President Vladimir Putin without paying them compensation, but government lawyers are concerned about legal objections, because this would undermine property rights, the Financial Times reported. Nevertheless, the political and legislative context is evolving rapidly — and that is likely to feed through to the courts.

“The cornerstone of common law is that property rights are respected. I think that is changing,” said Jonathan Fisher, a visiting professor at the London School of Economics. “We have seen a number of cases where confiscation has been upheld in financial crime.”

Judges might be willing to allow an erosion of property rights so long as it is proportionate, he said.

The courts would be busy, the arguments would be drawn-out and the so-called London laundromat would continue to generate fees for the legal teams involved.

However, outspending the government on lawyers might no longer be a viable strategy for those with something to hide.

Article credit: https://www.taipeitimes.com/News/biz/archives/2022/03/06/2003774251