clock menu more-arrow no yes

The UK could seriously punish Russia for the spy attack. Here’s why it probably won’t.

London benefits too much from corrupt Russian money in the UK to crack down on it.

Dan Mullan/Getty Images

The UK is firing back at Russia in retaliation for a nerve agent attack on a former Russian spy on British soil — but it’s unclear if they’ll make use of the hardest-hitting weapon in their arsenal.

During a speech in Parliament on Wednesday, British Prime Minister Theresa May laid out a plan of action to punish Moscow for the shocking poisoning on March 3 in Salisbury, England, that left Sergei Skripal and his daughter Yulia Skripal critically ill.

The British have said it’s “highly likely” that Russia was behind the attack, and British Foreign Secretary Boris Johnson deemed it “the first offensive use of a nerve agent in Europe since the Second World War.”

In response, May announced that the UK will expel 23 Russian diplomats from the country, suspend high-level contacts with the Kremlin, step up security checks at the borders, and have top officials boycott the World Cup in Russia this summer. The UK also plans to crack down on corrupt Russian oligarchs who stash billions in London real estate and banks.

Russia, which has denied responsibility for the attack, announced on Friday that it has opened an investigation into the poisoning and agreed to cooperate with British investigators.

May’s announced actions against Russia might sound bold, but analysts say they’re actually less aggressive than they could be and are primarily symbolic. “I would say so far it’s been a measured response,” Charles Kupchan, a director for European affairs on the Obama administration’s National Security Council, told me.

And experts are doubtful that May is serious about following through on the one retaliatory action she’s mentioned that actually could do incredible damage in Moscow — freezing the assets of corrupt, wealthy Russian businessmen, which could hurt Russian President Vladimir Putin’s inner circle.

“There is no evidence beyond the rhetoric that the [UK] government has ever been serious about tackling dirty money — quite the contrary, in fact,” James Nixey, the head of the Russia and Eurasia program at Chatham House, a London think tank, told me.

There’s a simple reason for that: London — or at least some of its most influential players — benefits from turning a blind eye to illicit Russian money.

Follow the money! Wait, maybe don’t follow the money!

Rich Russians love sending their money to London. Many have invested in real estate there or have their money managed by the British banking system. “I’d say the bulk of Russian wealth goes through London in one way or another,” Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, told CNN.

A lot of that money has been gained through corruption and is laundered through real estate investments. London is among the top three destinations in the world for Russian money laundering through real estate, according to Michael Carpenter, a former director of Russia policy on the National Security Council during the Obama administration.

Russian investors also funnel illicit money through shell corporations registered in the UK. Those corporations allow their owners to remain at least somewhat anonymous and are used to hide money that would otherwise appear suspicious.

On Wednesday, May said she would seize Russian assets from corrupt sources and step up record-keeping on shell corporations. It’s a natural target for the British, since so much of the Russian wealth in London is owned by powerful businessmen with ties to the Kremlin. If she seizes their wealth, she could make Putin and his associates think twice about meddling in the UK again.

But as the New York Times reports, the law that May would use to crack down on assets gained from corruption has “been in effect since last year and has been little used.” And the British government has little to show for earlier campaigns promising to shine a light on shady shell corporations.

Experts say they expect the disconnect between rhetoric and action to continue into the future, because the UK has a lot to lose by getting serious about it.

London attracts a lot of foreign investment precisely because it doesn’t seriously scrutinize the origins of the money used to buy real estate or funneled into shell corporations that register there. In fact, the UK has a reputation as a haven for the global 1 percent due to that no-questions-asked attitude.

Foreign investment has contributed to the explosive growth of London’s property market, signaled international confidence in the British economy, and helped the UK attract foreign talent.

It has also lined the pockets of many of London’s most powerful players.

“UK governments have shied away from hitting the moneyed Kremlin-linked interests that, by an extraordinary coincidence, enrich a well-connected stratum of UK-based bankers, accountants, solicitors, and estate agents,” Chatham House’s Nixey told me.

In order for May to get serious about seizing Russian assets, she would have to confront those beneficiaries of London’s lax attitude toward laundering. She would also have to endure the cost of spooking foreign investors and cutting off a serious source of revenue for London — property taxes.

“Do you turn a blind eye to mafia money because it makes your city richer?” Carpenter asks, summing up May’s dilemma.

Another reason to think May might shy away from getting tough on dirty money: The economy is already in a fragile state. The UK is struggling with weak economic growth and hurriedly preparing to exit the European Union in 2019, a move that could upend a lot of the UK’s trade and investment relationships with Europe.

The last thing the UK wants right now is more instability. In other words, London might be in too precarious of a position to really bring the heat against Russia by cracking down on dirty money.

Russia also has the ability to retaliate against the British economy. Trade between the UK and Russia is worth about $14 billion a year. The UK exports cars, machinery, and chemical products to Russia, and Moscow could either put punitive tariffs on these products or ban them altogether. The British oil giant BP has a roughly 20 percent stake in Russia’s state-owned oil company Rosneft, and Russia could potentially expropriate BP’s stake in the company.

So if London doesn’t decide to crack down on corrupt Russian money, then what other options are left?

Sanctions against Russia could be a tough sell

The UK also has the option to impose new sanctions against Russian elites and the Russian economy. But it has to go through the EU, and that might be a tall order.

The EU, along with the US, has already imposed plenty of sanctions on Russia’s financial, energy, and defense industries in order to punish it for its territorial expansion into and backing of separatist rebels in Ukraine, which began in 2014.

Despite the sanctions, Russia appears as confident as ever these days: It has continued to back rebels in Ukraine, intervened in the Syrian civil war, and used cyberhacking to interfere with elections across the Western world.

Some countries in the EU are skeptical that a new round of sanctions could change Putin’s geopolitical ambitions — and they’re also worried about the blowback.

After Europe targeted Russia with sanctions as punishment for intervening in Ukraine in 2014, Russia unleashed counter-sanctions against Europe. The counter-sanctions, which included bans on imports of meat, fruits, vegetables, and dairy products, halved Europe’s agricultural exports to Russia. Moscow could intensify its bans on European exports and take a bigger bite out of Europe’s economy.

On top of all that, the UK won’t have a lot of leverage pressing the case for sanctions at the EU, considering that it’s preparing to leave the bloc next year.

While some Russia hawks in the West want to use sanctions to halt the construction of a natural gas pipeline to Europe known as Nord Stream 2, that too has downsides for the UK’s allies: The pipeline has European investors and thus would wreak havoc on some European energy companies.

The UK could potentially try to get the US to use its friendship with Saudi Arabia to deal a blow to Russia’s reliance on oil exports. Saudi Arabia could suspend its quiet deal with Russia designed to boost oil prices as a gesture of support to the US and the UK.

The UK also has the option to invoke Article 4 of NATO to call a meeting of the alliance to discuss military options. Article 4 states that the group “will consult together whenever, in the opinion of any of them, the territorial integrity, political independence or security of any of the parties is threatened.”

However, Adam Thomson, a former British ambassador to NATO and head of the European Leadership Network, told the New York Times that the provision typically applies to threats that are larger in scale than the targeted poisoning of one spy.

To sum up: The British are acting somewhat cautiously at the moment. They have a lot of possible tools they could use to step up pressure on Moscow. But the best one they have is likely to gather dust.

Sign up for the newsletter Sign up for The Weeds

Get our essential policy newsletter delivered Fridays.