US government fears dirty money in ‘Londongrad’ would kneecap sanctions on Russia

US diplomats have expressed ‘dismay and frustration’ at the government’s failings, according to reports

President Vladimir Putin (AP)

US government officials fear suspected dirty money flowing into London would undermine efforts to sanction Russia over the Ukraine crisis.

US State Department officials have expressed “dismay and frustration” at the British government’s failure to tackle the flow of Russian funds into the city which has been dubbed “Londongrad”, according to The Times.

“The fear is that Russian money is so entrenched in London now that the opportunity to use it as leverage against Putin could be lost,” a source in Washington said. “Biden is talking about sanctioning Putin himself but that can only be symbolic. Putin doesn’t hold his money abroad, it is all in the kleptocrats’ names and a hell of a lot of it is sitting in houses in Knightsbridge and Belgravia right under your government’s noses.”

It comes as tensions in Ukraine continue to mount. British organisations have been warned to bolster their digital defences due to “malicious” cyber incidents in Ukraine.

The National Cyber Security Centre (NCSC) has updated its guidance to UK firms and groups and said it is investigating the recent reports of “malicious cyber incidents in Ukraine”.

The Kremlin has also said that the US response to Russia’s demands have left “little ground for optimism” in resolving tensions.

Members of Ukraine's Territorial Defense Forces, volunteer military units of the Armed Forces, train in a city park in Kyiv, Ukraine (AP)

In 2016, the government put the amount of corrupt money flowing into the UK at £100bn a year. In 2020 parliament’s intelligence and security committee said that oligarchs were drawn by “a light and limited touch to regulation, with London’s strong capital and housing markets offering sound investment opportunities.”

Duncan Hames, director of policy at Transparency International UK, said: “It’s no secret that Britain provides a ‘laundromat’ for the dirty money and reputations of those from Russia and elsewhere. This not only impacts the citizens of the countries living under corrupt regimes, but also presents security concerns for the UK. The government should bring forward long-overdue reforms to prevent criminals and the corrupt from stashing their ill-gotten gains in premium real estate here.”

On Tuesday Tory MP John Penrose, Boris Johnson’s anti-corruption chief, accused the government of delaying an economic crime bill that would have exposed the kleptocrats’ use of shell companies to buy British property.

The Tories are reported to have received £2m from donors with Russian links since Johnson became prime minister in 2019 prompting calls from select committees for the government to shut down the “London laundromat.”

American financier Bill Browder, who led a campaign against Russia’s global reach since the murder of his lawyer, Sergei Magnitsky, a decade ago, said British enforcement had become a “laughing stock” and had become a “haven” because of a lack of enforcement rules.

When the intelligence and security committee released its 2020 Russia report, it concluded - as many campaigners warned - that Russians who owed their fortunes to connections with President Putin and the Kremlin had embedded themselves in London assets using suspect money from the state.

Alongside this, the National Crime Agency (NCA) is also understood to be preparing to help hit high net worth individuals with Unexplained Wealth Orders in the event of an escalation in Ukraine.

Unexplained Wealth Orders could be deployed against Russians with multi-million-pound property assets in London, and would force those suspected of having close links to President Putin to explain where their wealth originates or face having all the UK assets confiscated by the government.

Ms Truss said: “The UK is working with our partners on these sanctions, including high-impact measures targeting the Russian financial sector and individuals.”

The Independent has approached the Foreign Office for comment.