By Andy Ford
In Looting with Putin, Richard Brooks has created a real tour de force of investigative reporting. In it he exposes the facilitation, by British lawyers and accountants, of corruption and the plunder of the former USSR on an epic scale. Although actually carried out by kleptocrats and crony capitalists close to Putin, the whole exercise would have been impossible without the active help of British legal firms and auditors. Anyone who wants to understand the fall of Stalinism and its consequences needs to read this report.
The restoration of capitalism in the USSR was an economic disaster almost without precedent. Russian GDP fell by 60%, which is about double the fall in the USA after the Wall Street Crash 1929. The only comparison would a catastrophic defeat in war. The human costs were immense, with life expectancy falling from 63 to 57 for men, antibiotic resistant-TB spreading across Russia and the republics, and real wages falling by 20% in the two years after capitalist restoration.
The main consequence was the transfer of the natural resources of the USSR to a tiny elite of with links to the Communist Party or KGB. These ‘oligarchs’ are the people who needed to launder the proceeds of their crimes, who needed to get huge sums out of the country, and who also needed to get themselves shiny new lifestyles in London to escape the hell-hole they left behind in Russia. This would have been impossible without the help of ‘reputable’ British companies. Richard Brooks shows how it was done.
It is ironic that at the same time that Teresa May fulminates against the Russian regime, her followers and funders in The City of London are still today falling over themselves to assist that same regime and its cronies. Money talks after all.
Industries acquired by dubious means
Brooks shows how immediately after fall of Gorbachov in 1991, lawyers, bankers, accountants and management consultants hastened to set up in Moscow. With the help of money from the US, IMF and World Bank, they initially advised on the ‘Shock Therapy’ of the then Russian Prime Minister Yegor Gaidar, which broke up state industries and deregulated prices, resulting in mass poverty. But the main chance came in the second wave of privatisations in the mid-90s, where the vouchers handed out to Russian citizens after 1991 were ‘acquired’ by dubious means by a very small number of proto-capitalists with links to Boris Yeltsin. The big accountancy firms – Ernst and Young, KPMG, PwC and Deloitte – were on hand to advise on company set-ups, audits, mergers and tax affairs – for a percentage of course.
These blue-chip City firms were supposed to guarantee business standards, probity and transparency. But Brooks shows that as a rule they looked the other way. An Ernst and Young executive is quoted as saying “A big client is like God…If you lose a major account, no matter how justified you are, that’s the end of a career”. As a result, auditors often “looked right past” funds being siphoned out of the firms they were auditing.
Gazprom is a major example used by Brooks to demonstrate the process. An American capitalist by the name of Bill Browder had bought shares in Gazprom. Wondering why its profits were so low, considering its massive gas reserves, he looked into its affairs and found huge frauds taking place, to the tune of billions of dollars, with oil assets being transferred to cronies for nominal sums – all while PwC was signing off the accounts. The subsequent ‘independent’ report was performed…by PwC!
Britain is a haven for corrupt shell companies
Brooks also describes the route for stolen money out of Russia using Latvian banks. Two former Communist Youth League leaders had set up the Parex Bank in Riga. The Parex accounts were riddled with thousands of ‘shell companies’ behind which all sorts of corrupt officials were sheltered: business men and mafia types from Russia and the former Soviet republics. Britain is a particular haven for shell companies, which are usually nothing more than a brass plate and a lawyer paid to be a nominal director. A single empty shop in Cardiff is home to thousands of such ‘companies’ which conduct little or no commercial activity except the movement of money.
An employee reported the frauds in Parex to the auditors, Ernst and Young, in 2002. But the whistle-blower was sacked and had to flee the country. Parex subsequently needed a $1 billion-dollar bailout from European tax payers as part of the crash of 2008.
In 2000, Putin made a deal with the oligarchs – they left the politics to him, and he left money-making to them, so long as a percentage headed back to Putin and other state officials. Khodorkovsky broke the agreement and soon found himself in jail. Brooks describes the privatisation of Lukoil in 2002, where top-notch city firm Linklaters advised on the sale – which just happened to enrich the deputy oil minister who owned 20% of the company at the time.
Linklaters, in company with Ernst and Young, also advised on the privatisation of Rosneft after it was seized from Khodorkovsky. The answer to concerns expressed by Linklater’s senior Russian partner was “Russia is a high risk, high reward market”. Indeed, in 2008 KPMG boasted a 63% growth in Russian business. PwC also increased its income from $378 million to $861 in 3 years from 2005.
But PwC were put in an embarrassing position by Putin. When he wanted to steal Khodorkovsky’s business he needed them to agree that embezzlement had been taking place. The problem was that PwC had issued clean audit certificates for 10 years! In 2007, therefore, under pressure from Putin, the company withdrew its own previous audit certificates. Reuters noted that “The decision is likely to be welcomed by the Kremlin” (!)
London firms enmeshed in oligarchs’ businesses
All of this would have been impossible without the help of the “City gentleman” back in London. Brooks shows that since 2004, Russian companies have raised more than $200 billion on the London Stock Exchange with the London ‘magic circle’ law firms of Linklaters, Clifford Chance, and Allen & Overy getting good slices of the fees. The firms have become enmeshed with the Russians with partners from PwC and KPMG sitting on the boards of the oligarchs’ firms.
Much of the loot from business activities in Russia makes its way to London for further transmission to Britain’s numerous tax havens or to use property purchases to launder money. The Tory government’s ‘investor visas’ have nicely helped the process along too. If you have £1 million to spare and specialist London lawyers on hand, chances are you will get through the immigration process. Then the ‘Big 4’accounting firms are ready to help with ‘tax efficiencies’ – for a fee.
Huge swathes of central London property have been bought up by Russian and other crony capitalists, with the real ownership hidden behind a web of shell companies. In fact, it is one of the reasons for London’s runaway house prices. One example given by Brooks is of Vladimir Antonov, a Russian banker, who bought property in Notting Hill with help from top City lawyers MacFarlanes, before being charged with theft of 290 million Euros from a Lithuanian bank.
Brooks describes a typical ‘Russian laundromat’:
“The proceeds of anything from rigged state contracts to customs frauds and plundered public budgets were stripped out of the country via the small republic of Moldova. Fake debts were then created between shell companies, and corrupt Moldovan judges enforced judgement on them, resulting in vast payments to the local Moldiconbank (whose auditor Grant Thornton might also be thought to have questions to answer). The funds are then transferred to Latvia, by now happily an EU member”.
$13 billion went through one Latvian bank, twenty times the value of the actual bank. Nothing was said by auditors Ernst and Young, or by their successor PwC.
Another disgraceful aspect of all this has been the willingness of expensive London law firms to act for corrupt oligarchs to silence their critics using the London courts. American financier Bill Browder got the treatment when he drew attention to the imprisonment and subsequent death in custody of his Russian lawyer, Sergei Magnitsky, for exposing fraud. The Russian police inspector involved could somehow find the cash to engage top London firm Olswang to sue Browder in the London courts. The case was thrown out for “abuse of process” but many people would not have Browder’s legal and financial firepower to withstand the ‘abusive process’.
And it’s not just the firms pandering to the Russian elite. In 2011 David Cameron set off with Allen & Overy, Ernst and Young and Eversheds, amongst others, to visit Moscow, to restore business relations after the murder of Alexander Litvinenko in 2006. Kenneth Clarke said Britain could be “lawyer to the world”
Money-laundering through London continues on a vast scale
The money-laundering continues right up to the present day. Brooks describes how, earlier this year, a markets-analyst was sacked from the state-owned Sberbank for pointing out that Gazprom was being run, not for its shareholders, let alone customers, but for its ‘contractors’. Gazprom reports very low profits for its size – because nearly half its income is hived off in phony contract fees to oligarchs close to Putin. Almost half its profits disappear that way. Yet PwC signed off the accounts up to 2015. And when Theresa May announced ‘new sanctions’ after the Skripal poisoning, the Russian embassy mischievously pointed out that Gazprom had just raised $750 million in London! Some sanctions!
Obviously, the effect of this wanton looting is terrible for the Russian working class. The resources of a huge chunk of Eurasia – oil, gas, aluminium, nickel, diamonds – are being siphoned off by a tiny group of a few hundred capitalist crooks while the population of Russia struggles in grinding poverty and insecurity. But what about the effect in Britain?
Here the country’s brightest and best young talents are being put to work on essentially unproductive activity, moving money round tax-havens, dreaming up schemes to use tax loopholes, looking the other way when signing off dodgy accounts, arranging investor visas for crooks and using the British libel courts to stifle criticism. Imagine if those people were doing something useful – to develop science, industry and technology or teaching the next generation.
And the baleful influence of the City has been felt in British manufacturing for decades as the profits are taken by the City to place in its glorified casino rather than being re-invested. Hence the chronically low productivity of British industry. The Ryder Report back in 1975 found that the root cause of the collapse of British Leyland had been a lack of investment, despite being profitable. All the profits had been sucked out by the City, leaving more or less an empty husk.
The symbol of British capitalism used to be the imperial lion; now it’s more like a pack of mangy dogs rooting through other people’s rubbish.
September 11, 2-18
Looting for Putin can be found as a supplement in Private Eye September 7-20. Price £2.00.
Note: Who are the oligarchs?
http://uk.businessinsider.com/richest-russian-oligarchs-putin-list-2018-1?r=US&IR=T
