6 April 2022

How a rushed bill to hammer the oligarchs will backfire

By

As the West pursues its campaign of sanctions, economists have hung up their grey suits and ill-patterned ties to be drafted in as our most powerful weapon against Putin.

And they have proven remarkably effective, inflicting near half a trillion dollars worth of damage, slashing a third off the value of the rouble, causing shares in the largest banks to fall by over 50%, and forcing the Moscow Stock Exchange to halt operations after tanking by some 40%.

The United Kingdom has decided to take this a step further, with the recently passed Economic Crime Bill. Having been fast-tracked through Parliament, it is designed to land a significant blow on Putin’s oligarchs by improving scrutiny of the Russian money swilling around ‘Londongrad’. It involves the tightening up of asset ownership laws, with the creation of a register of all overseas investors holding assets within the United Kingdom, along with their identity and details of assets held. 

However, due to the Government’s giddy eagerness to be seen as taking a hard stance on Russia, they have overlooked a number of problems.

Most critical is the bill’s impact on foreign dissidents. The UK has long prided itself on being a safe destination for those fleeing persecution, and has recently opened a pathway for upwards of 2.9 million Hong Kongers. The Economic Crime Bill will force such people to register personal details about their finances, making them vulnerable to foreign agents with advanced hacking skills. The Chinese government has previously shown their willingness to target the assets of dissidents, as evidenced by the 2020 freezing of accounts owned by Hong Kong exile Ted Hui Chi-fung. This comes as part of a wider crackdown on Beijing’s opponents residing abroad, with ‘Operation Fox Hunt’ leading to 680 foreign dissidents being arrested.

Equally forgotten is the bill’s likely detrimental impact on foreign investment. The UK has a bustling economy with foreign investment at its core. Our ‘Foreign Direct Investment’ (FDI) ranking is the second highest in the world, standing at 81% of GDP. In comparison, the United States, the destination with the highest level of FDI, works out at around 22% of GDP. Our reliance on international firms really can’t be overstated.

It is therefore alarming that this legislation threatens to disrupt the very source of capital our economy’s success is levied upon. Framing foreign investors as little more than potential financial thieves severely risks our standing as a hospitable nation for international business. The assumption of guilt implied in forcing people onto a register like common criminals will do little more than discourage investment.

In its understandable urge to seen as hard on Putin, the Government is jeopardising our credentials as a haven for foreign dissidents and a centre for international business. In the haste with which the Economic Crime Bill has been rushed through Parliament, many of its consequences have been entirely ignored. The sooner the Government has a rethink, the better.

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Charles Bromley Davenport is a Research Associate at the Adam Smith Institute.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.