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Have sanctions against Russia ended London's financial honeymoon?

Have sanctions against Russia ended London's financial honeymoon?
By Euronews
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Hedonism Wines is one of the most expensive, if not THE most expensive wine shop in London where you can buy a vintage bottle of wine or a 55-year-old whiskey for as much as 120,000 pounds.

Its owner is Russian multi-millionaire Yevgeny Chichvarkin. But selling fine wine and spirits has not always been his calling. Chichvarkin used to own one of Russia’s leading mobile phone companies.

However in 2008 he was accused of kidnapping and extortion, charges he claims were made up by corrupt officials wanting bribes. He sold his business and bought a one-way ticket to London.

“There is no corruption here. If you read that a member of parliament used government money to pay for some ticket to Spain, aaah, they fire him immediately. From the Russian point of view there is no corruption in London at all,” he opined.

Little or no corruption, plus a business-friendly visa for those with more than one million pounds to invest, has made London a magnate for Russian and Soviet-born oligarchs for years.

The latest Sunday Times Rich List included three of them among the UK’s five richest men. Chelsea football club owner Roman Abramovitch is one. He made his fortune of an estimated 18 billion euros back in the 1990s during the former USSR’s privatisation period of its petrol companies

Uzbek-born Alisher Usmanov, Russia’s richest man and co-owner of the Arsenal football club is on the list. But they are not all Russian either

Ukraine’s richest man, oligarch Rinat Akhmetov, paid 140 million pounds for an apartment at One Hyde Park which is said to be the world’s most expensive address.

And they have not just bought expensive flats or mansions. They have also put their children in schools, and invested in the London Stock Exchange and the City – using money some critics argue has not always been the “cleanest”.

It is estimated that Russian and Eastern European buyers represent 10 percent of luxury residences.

But one estate agency director says he hasn’t seen a rush of new potential buyers from the east because of the ongoing crisis in Ukraine.

“London has always, always, always been a relatively safe haven. You’ve got the security of ownership of any property, you trust the system, they trust the legal system. We are much more welcoming than a lot of countries. They don’t feel suddenly that the rules are going to change and you can’t own that property anymore and vice-versa,” explained Jonathan Hewlett, Director, Savills estate agency

But for some the rules have changed. Rules that could possibly put a strain on the financial honeymoon between London and its rich Russians.

Last March, following the annexation of Crimea by Russia, the US and the EU imposed sanctions on certain individuals said to be close to Putin. Sanctions that include freezing assets and blocking visas to travel abroad.

Yet while the US has also sanctioned Russian companies, banks and their CEOs, the EU has gone more for Russian politicians and army leaders.

Some argue it is a political compromise. The EU is Russia’s biggest trading partner and it imports over 80 percent of the gas and oil that Russia exports.

“EU sanctions have tended to focus on those directly responsible for Russian policy to Ukraine. So it’s been military people. People who are on the ground in Crimea, Russian parliamentarians who were instrumental in pushing through certain pieces of legislation, including the resolution which allows President Putin to deploy troops to Ukraine. Whereas Putin’s inner circle, the business people who actually have the houses in London; the children in British schools and universities, the estates in the home counties, those people aren’t directly involved. So EU sanctions thus far haven’t really touched them and it would be difficult to do so,” said Nicholas Redman of the International Institute for Strategic Studies.

It is estimated that companies from Russia and former Soviet states have raised over 82 billion dollars in London in the past two decades.

But two months after the first sanctions were introduced, has London, or more specifically the City felt any effect from them?

Banking and corporate lawyer Sergei Ostrovsky told euronews: “Sanctions are fairly limited. They are limited to a number of individuals, the companies they control. But they don’t really bite in terms of having a direct legal effect on Russian companies doing business in the UK, or UK financial institutions doing business with Russian companies. But where the sanctions are damaging is where they create the atmosphere of uncertainty and suspicion, hostility, call it what you will.”

Bill Browder of the Hermitage Capital Management Fund has made tougher sanctions against Putin a personal mission ever since his lawyer Sergei Magnitsky died in a Moscow prison in 2009. Magnitsky had just revealed a huge corruption scam involving 230 million dollars in fraud when he was arrested.

Magnitsky was working for Browder’s investment company which had made big profits after pouring millions of dollars into Russia starting in the mid 1990s.

Browder eventually got the US to place sanctions against those involved in Magnitsky’s death but the EU never followed suit. He believes the EU needs to get tougher if it wants to stop east-west tension from escalating.

“The Europeans have sanctioned a certain number of people but they haven’t touched the Putin oligarchs. The guys who hold Putin’s money and if you want to stop Putin from doing all this terrible stuff, you have to impose a cost on him. Putin has a lot of money and he holds that in the name of other people. And the United States has started to touch those people but the Europeans have deliberately not done so. And it’s a real problem if you want to sanction people but you don’t sanction the right people,” he said.

But does Putin deserve to be sanctioned for annexing Crimea? Or for placing Russian troops on Ukraine’s border when tension in eastern Ukraine escalated?

Many Russians argue that if anything it is NATO which is to blame.

Back in 1994, when Ukraine gave up its nuclear weapons in exchange for recognition of its borders by both the west and Russia, the agreement also contained a provision of neutrality – a provision Moscow says has been broken by NATO.

“We know that Ukraine, as well as Georgia back in 2008, toyed with the idea of NATO membership. And NATO membership was dangled in front of them, even though the prospect of that was never particularly realistic. But again it’s this threat of NATO emerging right on Russia’s doorstep that pushed things off the cliff. And that’s resulted in Crimea, in the annexation or reunification as the Russians and Crimeans would term that. But on the part of Russia it was a defensive step,” explained journalist Dmitry Linnik, the London bureau chief for Voice of Russia.

It is a defensive step that has seen President Putin’s popularity rise to record levels of 80 percent at home. For many Russians, annexing Crimea is seen as a just cause; one which has given Russia a new sense of national identity and one which sanctions cannot take away.

For some, the effect of the sanctions, like Putin himself, are unpredictable.

“Although it’s possible to impose a great deal of pain, it’s not possible to determine what the political result of that pain will be. Yes; potentially broad-sectoral and banking sanctions could do huge damage to the Russian economy, could fraction support for Putin, could maybe force him to seek a settlement. It could also however consolidate the Russian regime, it could push out progressives, technocrats, pro-western elements from within the Russian elite, and as a result you could end up with a Russia that is much more isolationist, much more difficult to deal with and we’d be no better off in Ukraine. And that’s the dilemma for western policy makers. There’s their own costs and the very uncertain benefits,” concluded the International Institute for Strategic Studies’ Nicholas Redman.

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