Today, Explained - From Russia with cash

Episode Date: June 21, 2022

Oligarchs from Russia and beyond stash their cash in British banks, which play a central role in the global offshore economy. This episode was produced by Miles Bryan, edited by Matt Collette, fact-checked by Victoria Dominguez, engineered by Paul Mounsey, and hosted by Noel King. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

It's Today Explained. I'm Noelle King. When Russia invaded Ukraine, the United States and the international community decided to go after Russia's oligarchs, the really rich guys who often made their money in really corrupt ways. Reporters went to Dubai to track luxury apartment purchases and to Italy to track down yachts. Writer Oliver Bullough, who spent a good part of his life on the crooked Russian oligarch beat, did not have to go very far at all. You can write about Russian corruption

really well without leaving the UK. In fact, I think you can probably write about it more accurately without leaving the UK because all the money ends up here. It ends up in London. Maybe stolen from over there, but it ends up here. The oligarchs and the accountants and the lawyers and the developers who serve them. Coming up. delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for

super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. It's Today Explained. I'm Noelle King. Oligarchs have been in a lot of trouble since Russia invaded Ukraine. Their yachts have been seized. Their jets have been seized. Their assets have been frozen. Oliver Bullough's new book, Butler to the World, is about how the British have been quietly assisting oligarchs for decades. Now, Oliver is interested in all of this

because he started his career as a reporter and a writer in Russia. So I'm from Wales. I grew up on a farm in mid Wales and always had this weird and not really explicable obsession with the former Soviet Union, then the actual Soviet Union. And it just seemed the most interesting place than the actual Soviet Union. And it just seemed the most interesting place in the world. Everything was interesting there. When I was a student, I used to go and travel around there in my holidays. And then after I graduated, I just moved to Russia.

And I became a journalist not really out of any desire to become a journalist, just because I needed a job. And I suppose I had this, in retrospect, incredibly naive idea that I would be sort of witnessing Russia's transition to democracy and freedom and the kind of development of a new kind of society. You know, the only time in history you would ever see such a firm kind of autocracy transitioning into democracy it was going to be great uh but that isn't what happened obviously about three weeks before i arrived in russia a man called vladimir putin became prime minister so instead of writing about democracy i ended up writing about this rather depressing reverse instead instead but all the time there was this sort of weird you know kind of backbeat to what i was writing about which is that editors would call up from london and be like this guy's just bought a

football club who is he or this guy's just bought himself the biggest house in london after the one that belongs to the queen who is this guy or or whatever's just bought himself the biggest house in London after the one that belongs to the queen. Who is this guy? Or whatever, you know, these kinds of questions. And what was strange was people who were oligarchs in Russia and generally seen as being, you know, terrible violators of all that was right and proper. As soon as they got in a plane and flew to the UK, they became entrepreneurs or philanthropists or you know providers of foreign direct investment so you know my friends and I used to get quite annoyed about this because it all seemed a bit hypocritical and so we started running these things called the

kleptocracy tours hello I'm Oliver Bullough welcome to Hyde Park for 400 years Londoners have been coming here to freely speak to freely assemble to sun, to horse ride, to do all the things that are most fun to do in London in an open space. But we're not here to talk about Hyde Park. We're here to talk about one Hyde Park, the building behind me, which is probably the most exclusive gated community in the world. It's a bit like the Hollywood tours, you know, when you put people in a bus and point out, you know, the house that belongs to, I don't know, Scarlett Johansson or whoever, Robert Downey Jr. And but instead of that, we point out houses that belong to like Russian oligarchs or, you know, Russian deputy prime ministers or whatever. I mean, oligarchs from wherever.

What we're looking at here, apart from me, obviously, is 60 million pounds worth of house. And if that doesn't look like much house for 60 million pounds, that's because you're only looking at half of it. And because of that, I sort of became the kleptocracy guy. In your book, you refer repeatedly to the United Kingdom as the butler to the world. What do you mean? What are you saying there? So this particular metaphor derives from a conversation I had with an American academic called Andrew a few years ago. And because of the kleptocracy tours, and because I'm one of the kleptocracy guys, when he came to London to look into Chinese money laundering in particular, and, you know, London doesn't just launder Russian money, it launders all the money. So Chinese, whatever,

it all comes through here. And he came here. And every time he asked me about, you know, what's the equivalent of the Southern District of New York? And I'd have to say, well, we don't, we don't have that. Or, you know, what's the equivalent of Homeland Security investigations? I said, well, we don't have that either. And what's the equivalent of, you know, the Department of Justice's kleptocracy initiative or whatever? And I said, well, I'm afraid we don't have that either. And so it went on. And eventually, I just had to stop him and say, look, we don't have any of those things here. United States, you're the policeman of the world, right?

You do these investigations. You bring these cases. You prosecute people. We don't do that here. There's no money in that. And then I was like, well, if the US is the policeman of the world, what's Britain at this stage? And I suppose what I was thinking was something

along the lines of consigliere in a mafia film. You know, the kind of guy who sits in the back room of an Italian restaurant in Brooklyn with the Don, and, you know, wearing a white vest and a wife beater, you know, one of those singlets, and they discuss business over pasta, sort of thing like that. Oh, look, I've been a consigliere you know one of those singlets and and they discuss business over pasta sort of thing like that oh look i've been a consigliere for a lot of years don't go to preamble just tell me what's on your mind you got some unhappy people out there but but that's very

much not british so what i was thinking what's the british equivalent and then it struck me well butler that's it butler we're the butler to the world we we're beautifully dressed and we're very polite and we we've got the right accent and all that. But we're utterly amoral. If you want something done, as long as you can pay us, we'll sort it out for you. So we're like the dark Jeeves with the polite conciliary. That's what we are. Here's where the conversation gets difficult. How did this start? What's the genesis of a country wherever, we'd send in the warships and bombard them until they changed their mind. And so the transition from that, from being the kind of oligarch to being the butler is a really interesting one that gets very little attention in Britain or anywhere else, weirdly, because it's kind of significant, I think. And it's very much a post-imperial story. You know, we went bust as an empire, and we needed a new way of

making a living. And it's a little bit like an aristocrat who, you know, he used to have the big house and the place in town and a yacht, and he was a member of all the right clubs. And he knew how to be an aristocrat perfectly because he was one but then he goes bust so what's he got left well he all he's got left is his knowledge of how to be an aristocrat so instead of being one himself he sells that knowledge to other people who want to be one um and that's a little bit like what britain does britain lost the empire but it still knows how to do all the stuff it used to do when it was an empire and there is this there is this moment when this happens, the moment when this business model is discovered. It's completely accidental.

And it happened a surprisingly long time ago, in 1955, in the depths of the Cold War. Stalin was dead, but he'd only been dead for a couple of years. And the Soviet Union was concerned that if it kept its dollars, which it used, obviously, for financing its international trade in New York, then the US government might freeze them if there was a geopolitical crisis. So it wanted to be able to put them somewhere else. Where would they be safe from the enforcement arm of the US government? And the Soviet Union had a bank in London, the Moskovsky-Narodny Bank. It didn't do much, but it did exist. And so it moved its dollars to

London. It thought, well, they'll be safe in London. We'll just put them there. And then there were banks in London that were starved of capital and they desperately wanted some capital from anywhere. They didn't much care where. So the Moskovsky-Narodny Bank lent its dollars to a British bank, which was called the Midland Bank. And both banks realised, totally by accident, this wasn't ever intended, that they'd stumbled upon this amazingly profitable thing. Because at the time,

there were all sorts of restrictions on what you could do with dollars. The US government was very strict on how much interest you could charge, where you could put dollars, what you could do with them, and so on. It strict on how much interest you could charge, where you could put dollars, what you could do with them and so on. It was very tightly controlled. And the British government

did the same thing with pounds. But if you move those dollars to London, the British restrictions didn't apply because you weren't dealing with pounds. And the US restrictions didn't apply because you weren't in the US. So they had miraculously invented with this one trade,

which soon became an awful lot of trades. They'd invented a space that had no law. They'd totally knocked a hole through the global financial regulatory system. And they needed a term for what they'd discovered. So they called what they'd invented offshore. This is where it comes from. And from this little idea, this miniature single trade between the Muskowski-Narodny Bank and the Midland Bank, just to put dollars in London rather than New York, they built an entire offshore empire. This is where it all comes from. And it's kind of the invention that changed the world, because pretty soon it wasn't just

Soviet banks moving dollars to London. It was American banks and Japanese banks and German banks and every bank because it was so much more profitable to do business in a place where there are no rules. And that meant in order to try and catch up with what the Brits were doing, the Americans had to cut their regulations. And so did the Germans. And so did the Japanese. Everyone had to try and chase the city of London in this race to the bottom. And what this meant was that for the owners of wealth, the clients who had hired Britain,

the butler, there were fewer and fewer onerous restrictions on what they did with their money. So the taxes were lower, the regulations were fewer, the restrictions were fewer. And it just became easier and easier to be very rich. And that's what Britain did. It transformed the world from a place where if you had money, there were onerous restrictions to follow to a place where there weren't. And that's what I mean by being a butler. You know, that's what our clients wanted. And that's what we provided. We started by talking about your early career in Russia. You watched

the rise of the oligarchs. These were men who owned huge swaths of Russia's natural resources. They were well-connected. They became billionaires. And there was one in particular, he's in the book, who you are very interested in. Who is this man? Dmitry Firtash. Support for Today Explained comes from Ramp. is the corporate card and spend management software designed to help you save time and put money back in your pocket. Ramp says they give finance teams unprecedented control and insight into company spend. With Ramp, you're able to issue cards to every employee with limits and restrictions and automate expense reporting so you can stop wasting time at the end of every month. And now you can get $250 when you join Ramp. R-A-M-P dot com slash explained. Cards issued by Sutton Bank. Member FDIC.

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BetMGM operates pursuant to an operating agreement with iGaming Ontario. Oliver, before the break, you introduced us to this oligarch, Dimitri Firtash. Tell us about him. the perfect encapsulation of Britain's willingness to take money from anyone, whoever they are, wherever the money comes from. He is a Ukrainian billionaire, or used to be a billionaire, whether he still is, I'm not sure. And basically, he became very wealthy, selling gas on behalf of Vladimir Putin to Ukraine. One of the richest men in Ukraine, Dmitry Firtash, made billions in natural gas, mining and agriculture and long supported pro-Putin political forces in Kyiv. It's an important job because Ukraine, as we know now,

has been constantly striving to break free of Russian control and has been for 30 years. And the most important tool that Russia has had to prevent it from breaking free, to punish it for breaking free and to dissuade it from doing so is gas. You know, the Ukrainian economy is very dependent on gas because of the Sovietviet legacy and that gas tends to come from russia or through russia um so dimitri fitash is the guy who vladimir putin's gas company gasprom hand-picked to be its man in ukraine and what's a man with billions of dollars gonna do with them if he's ukrainian because you know ukraine is a super lovely country um but there isn't that much to buy there if you've got billions of

dollars. So he needed somewhere else to spend them. And he looked around and quite obviously, the place he chose to bring them was the UK, was London. As Boris Johnson said when he was mayor of London, as the jungles of Sumatra are the natural habitat of the orangutan, London is the natural habitat for the billionaire. And so he came here in 2007, just after he'd earned the money. No one really knew what he looked like, right? This is a totally unknown person. And he set up a British Ukrainian society,

which was a charitable organization with a number of members of the House of Lords, members of the House of Commons on the committee, people who were happy to take some freebies from him and to go on some nice, all expenses paid trips he started giving some money to cambridge university britain's second oldest and second most prestigious university and he gave so much money in fact to for to create the center of ukrainian studies that by 2011 just four years after he arrived he was he got to hang out with the queen's husband the

duke of edinburgh he was brought into the Guild of Benefactors, this incredibly prestigious club of generous donors. By 2013, he is opening trading on the London Stock Exchange, and he's hanging out with the Speaker of the House of Commons, John Bercow, which is also amazing. He's bought himself a mansion in central London, just down the road from harrods the big luxury shop and uh and then when another crisis breaks out in ukraine this is 2014 the annexation of crimea and so on which is what's leading up to the crisis that we're living through now um he is brought in by our foreign office the foreign ministry here to advise them what to do

about putin you know this is a man a man whose social ascent from unknown Ukrainian businessman to person who hangs out with the Queen's husband, advises the government, you know, owns a mansion and so on, is just vertical. It's extraordinary. And that's what you get in Britain. If you come here with a lot of money, you get to hang out with members of the House of Lords, members of the House of Commons, with the Queen's husband,

with top academics, you get feted by the great and the good, you get to open trading in London Stock Exchange. But what's so extraordinary about this story, and how this draws the comparison between Britain, butler to the world, and the United States, policeman to the world, is the fact that all the time that this was happening, the US was investigating his wealth, was interested in what he was doing, and he was indicted by the FBI and arrested in Vienna on a US arrest warrant. The US claims it's been investigating him since 2006 for suspected bribery and setting up a criminal organization. Eight years he's been stuck in Vienna battling extradition to the U.S.

Firtash denounces the Russian invasion and denies reports he has ties to Vladimir Putin or links to Russian organized crime, calling those lies and smears. Firtash says he's asked American officials for permission to leave Austria and return to Ukraine, where his industrial plants, Britain says, brilliant, get your money over here. What can we sell you? America starts investigating and tries to indict the guy. That's the distinction between your country and ours. And I think it's an example which really explains a lot. All right. So you have this situation in which these guys are coming into the UK with tons of money. They're setting up societies. They're getting away with a lot of stuff. And then Russia goes marching into Ukraine and suddenly much of the Western world is just angry at Russia. How has the conversation in Britain changed since Russia invaded Ukraine?

Are the oligarchs getting more attention, more negative attention? There has been a complete shift in the conversation. You say you have no links to Vladimir Putin, but despite the city of your birth being under attack, you've offered no condemnation. Some might conclude you're more concerned about your money than your country. What would you say to them? I'm also worrying about the country. It's not to say that there wasn't negative attention towards them in the past. You know, if you look at some of the things that Russia or Putin has done in Britain or in Europe more broadly over the last few years,

it's not surprising there was negative attention, right? I mean, in 2006, Russian spies killed Alexander Litvinenko, a refugee, a former spy living in this country who was helping the British security services. They killed him with polonium-210, possibly the most deadly substance known to man. The details of the case seem stolen from a spy novel. Surveillance video shows the Russian agents at the London hotel where they allegedly injected a powerful dose

of the highly radioactive element polonium-210 into Litvinenko's tea during a meeting there. In 2018, they tried to kill Sergei Skripal, another emigre in this country, another ex-spy. Obviously, they invaded Georgia in 2008. They invaded Ukraine in 2014. I mean, you know, Russia's been doing a lot of bad stuff. And yet throughout that period, despite a bit of sort of rhetorical chat, Russian money has been welcome in this country. Russian oligarchs have been welcome here. They've owned our football clubs, they've bought property and so on. It hasn't been enough. What's happened in Ukraine in the last couple of months has been transformational

in the conversation. But in terms of what's actually happened, obviously a lot of oligarchs have been sanctioned, which is good. But all of the money that came here, it came here through loopholes in the law, through deliberate problems, deliberate openings left in the law, thanks to an incredibly underfunded law enforcement apparatus, thanks to incredibly strict libel laws that makes it very difficult for journalists to write about the rich and the powerful. And essentially, none of those things have changed. Oliver, can I ask you why an ordinary person, British, American, or otherwise, who's trying to pay a mortgage or get a kid through grade school or make it through a two-hour commute should care that some people are extraordinarily rich and other people make

a good living catering to them? Who's really getting hurt? Yeah, it's a really important question. And you're right, it is a difficult one to answer. I think at the moment, when everyone is watching on television, what the Russian oligarchy is doing to ordinary people in Ukraine, there is a visceral emotional response to that. And we can say who's getting hurt? Well, people just trying to be free in Ukraine are getting hurt. But obviously, you know, that doesn't have the same relevance to those of us in Western countries who aren't currently being bombed by the Russians. But I think the question is more about the difference between short term benefit and long-term benefit.

There is a short-term benefit to Britain and to other countries from this money arriving in our economies. You know, it pays lawyers, it pays taxes, and it looks good. It flushes our balance sheet nationally. But in the long term, what are we actually doing? What are we actually selling when we bring these people into our countries? Oligarchs don't stop being oligarchs when they get off the plane in London or JFK or wherever. They want the same things that they want at home. They want preferential treatment before the law. They want to muzzle journalists. They want to be able to rig the economy and the political system in their favor. That's what they do. And they're going to keep trying to do that. So if we want to preserve democracy, which is, you know, what we

inherited from our parents and our grandparents, and we'd like to, certainly I would like to pass on to my children, then we need to start thinking about what it is we're selling. If we're selling people preferential treatment, which is what Butler Britain does, right, we're selling people preferential treatment, that is inherently antithetical to democracy. Because if some people have preferential treatment, you're not a democracy anymore. And so that's why I think everyone should care. Because essentially, we're going to wake up one day and we're going to be living in an oligarchy too. And that is something that, as the

experience of Russia and Ukraine and lots of places show, that once it's become established, it's very, very hard to unestablish that. Today's show was produced by Miles Bryan. It was edited by Matthew Collect. It was engineered by Paul Mouncey. And it was fact-checked by Tori Dominguez. I'm Noelle King. It's Today Explained. Thank you. you