London needs to be tougher on its oligarchs

It isn't the Polish, or the Bulgarian or the Romanian immigrants Brits need to worry about. It's the corruption brought by fabulously wealthy oligarchs from places such as Russia and Ukraine

160953288
The power of Russian money
Dabrowski_headshot
Nathan Dabrowski
On 27 January 2014 18:48

When Peter the Great visited London in 1698 as a part of his Western European tour, William III put the Elizabethan mansion Sayes Court at the sovereign’s disposal so as to be closer to the city’s ship yards that fascinated the young man so much.

An historical account of the property penned after Peter left the city documented the sorry state of the house: “All the floors were covered with grease and ink…[a]ll the chairs in the house, numbering over fifty, were broken, or had disappeared.”

To commemorate the monarch’s brief stay, Czar Street was inaugurated some years later.

Today, Eastern Europe’s masters are back and are leaving a similar string of destruction in their wake. While the political class has endlessly fretted over migrant workers, London has silently become a playground, and battleground, for Eastern Europe’s most undesirable elements: the oligarchs.

Attracted by the UK's open-door philosophy to foreigners with oodles of money, this questionable class of tycoons from the former Soviet Union and its satellites has relocated to London en masse.

Born out of the fire sale of state assets following the collapse of the Soviet Union, the oligarchs quickly emerged as their countries’ new elite.

Some fled to escape the wrath of cross political leaders back in Eastern Europe, others simply because foreign capitals provided a more agreeable setting for their business ventures. The continent taxes too much and the Americans ask too many questions, making London, and its regulatory and fiscal advantages, an ideal home away from home.

They have, of course, brought millions in fees and commissions that nourish the demi-monde of City bankers, lawyers and estate agents that serve them.

Oligarchs have invested millions of pounds in worthwhile projects that make London better off. Seeking to secure London as a global financial hub, the government’s accommodating policies have attracted an unprecedented amount of foreign companies and investment. Twenty years ago, 19 percent of the FTSE 250 were foreign companies while today that figure stands at 44 percent, with some two-thirds of the companies in the oil and gas sector.

Like Cyprus though, some are beginning to see the downside of overlooking rules for the sake of attracting capital and fear that the British, like William III, will be left footing the bill for their guests’ wanton destruction.

With them, these guests have brought unsavory business practices and disregard for the rule of law. While much of the intrigue may be confined to the occasional lethal dispute-settlement, strictly “in the family,” (between oligarchs), turning a blind eye to the rules risks seeing British business interests fall prey to their unscrupulous ethics.

The City’s new class of resource tycoons has shown little respect, even contempt, for minority stakeholders and business partners. To attract the swashbuckling oligarchs and their billions, authorities have allowed them to list in London while only offering a sliver of shares.

This made it easy for them to retain a tight grip over the control of their companies and resist Western corporate governance standards. British investors, on the other hand, have often been left holding the short end of the stick.

The spectacular legal battles that continually provide the press with material have helped expose the murky dealings of the city’s oligarchs, as well as shady dealings behind their fortunes. One estimate reckons that 60 percent of the London commercial court’s work involves parties from Eastern Europe and Russia (quite often suing each other).

The multi-billion pound battle between Russian oligarchs Boris Berezovsky and Roman Abramovich revealed the corruption and collusion that built empires in the 1990s, while the Eurasian Natural Resources Corporation’s (ENRC) sacking of two independent directors by oligarch-backers, after objections to a controversial mining project, raised concerns about corporate governance.

Most recently, the majority shareholders of the British company JKX Oil and Gas fell prey to a London-based billionaire duo known as “the raiders”. Last June, Ukraine’s Igor Kolomoisky and Gennady Bogolyubov launched an undisclosed, concerted effort to thuggishly raid JKX by ousting the company’s chief executive and co-founder Paul Davies and seizing control of the board without going through the costly process of launching a full takeover.

The board reacted quickly and decisively, rallying the shareholders against the Ukrainian challengers.

A ruling from a London court would later vindicate the management’s concerns, a judge saying that even the mention of these notorious raiders among the company’s shareholders made banks hesitant to lend to the company.

Bogolyubov and Kolomoisky perfected their unconventional methods in their native Ukraine, where they have raided dozens of companies through sometimes illegal and often unethical means.

New rules from the City’s regulators should help instill sounder management practices and protect British interests while still keeping the City’s door open to those ready to play by the rules. Eradicating the thuggish practices of oligarchs, however, must begin at the source, in Russia and her ex-Soviet Satellites, where little has changed in the over two decades since the fall of the Berlin Wall.

In today’s race to the bottom, authorities somewhere in Europe will be ready to bend the rules, sell passports or simply look the other way.

Nathan Dabrowski is a freelance journalist and an Eastern Europe correspondent, based in Krakow

Comments
blog comments powered by Disqus

We are wholly dependent on the kindness of our readers for our continued work. We thank you in advance for any support you can offer.

 
Options
Advertisement
Recommended
Advertisement
Advertisement