Labour’s John McDonnell proposes five-point plan against Russian oligarchs

On Sunday 18 March, Shadow Chancellor John McDonnell demanded that the government impose a £1bn ‘Oligarch Levy’. McDonnell called on chancellor Philip Hammond to introduce five measures to strengthen the UK’s hand in imposing effective sanctions and breaking up offshore financial networks used by Russian oligarchs. McDonnell said:

The Chancellor needs to introduce serious measures that would strengthen the hand of the authorities that want to impose penalties on those found to have been involved in the events of the past fortnight.

1) Introduce ‘Oligarch Levy’

The ‘Offshore Company Property Levy’ would tax purchases of UK property by offshore trusts located in tax havens. HMRC would target offshore purchases associated with money laundering and tax avoidance. McDonnell claims that, if introduced now, this would have a direct impact on Russian oligarchs. He said:

If we want to really take the fight to the gangster politicians and Russian elites hiding their money in the UK, then we need serious measures like the ‘Oligarch Levy’, which will hit them where it hurts – in their wallets.

First proposed by Prof Prem Sikka of the University of Essex and included in Labour’s 2017 manifesto, Labour estimates that a 15% levy could raise up to £875m a year from Russian “suspicious wealth” holdings in the UK.

2) Extend Beneficial Ownership Register

McDonnell called for the extension of the beneficial ownership register to Crown Dependencies and Overseas Territories.

This register has listed the ultimate beneficiaries of companies owned in the UK since 2016. Yet Crown Dependencies and Overseas Territories have no such register. This has allowed foreign financial networks to enjoy the benefits of the UK law from within the jurisdiction of tax havens. This likely benefits money launderers, criminals, and tax dodgers.

Labour promises a fully transparent, publicly accessible register of all trusts showing their assets and beneficiaries. McDonnell said:

It’s time to call an end to the use of our financial system and property market as a hiding place for rich foreign oligarchs and their money men by implementing measures like full transparency for tax havens and our levy on secret offshore property purchases.

3) Tighten ‘Politically Exposed Person’ scrutiny

A ‘politically exposed person’ is defined as someone who is more likely to be involved in corrupt practices. At present, the definition applies to high-level government figures, their families, and their close associates. Such people require additional scrutiny by financial institutions.

Transparency International has found £4.4bn of suspicious wealth in the UK. Russian people hold around one fifth of this. Yet, according to McDonnell, the government has used “empty rhetoric” instead of tightening scrutiny. This, he suggests, risks allowing corrupt individuals and their wealth to slip through the net. McDonnell calls for tighter enforcement by financial institutions and the government.

He said:

We need to see less empty rhetoric from leading Tories competing for the leadership of their party, and more action from the top of government to strengthen any financial sanctions we impose on Russia.

4) Enforce Unexplained Wealth Orders

Since 31 January, relevant authorities have been able to use an Unexplained Wealth Order (UWO) to require people to account for the origins of their assets when their income is inconsistent. This allows civil authorities to confiscate illegal wealth. They haven’t used a UWO so far, though.

Labour proposes that UWOs are used to seize illegal wealth, and that the National Crime Agency is properly funded.

McDonnell said:

The next Labour government will take a sledge hammer to money laundering and tax avoidance, and call an end to the exploitation of our financial system and property markets by the global elites.

5) Apply ‘Magnitsky clause’ against human rights abusers

Sergei Magnitsky was a Russian tax accountant who revealed details of a massive state-sponsored fraud. He died in a Russian prison under suspicious circumstances. Labour tabled amendments during the committee stage of the Sanctions and Anti-Money Laundering Bill. These called for a ‘Magnitsky clause’ to apply sanctions to those responsible for Magnitsky’s death and other violations of human rights. This was opposed by Conservative MPs, claims Labour.

Government response

Philip Hammond has not yet responded to John McDonnell’s five measures. As reported in The Law Society Gazette on 14 March, Theresa May hinted at an amendment to the Sanctions and Anti-Money Laundering Bill to include a ‘Magnitsky type provision’ and new powers to impose sanctions in response to violations of human rights. May said the government could also freeze Russian state assets:

wherever it has the evidence that they may be used to threaten the life or property of UK nationals or residents.

May did not give details, but clearly this could involve exercising UWOs. However, this bill does not come into force until the Brexit transitional period. It will have no immediate effect.

Featured image via Flickr