Crazy Rich Londoners

City of London. With surging inflation and bad economic news dominating the news agenda, this week, we decided to take a look at the extreme wealth that lives in London. There are more billionaires here the New York, Moscow or even Hong Kong. Often that money enters without question that Britain's National Crime Agency estimates that the UK's dirty money problem runs into the hundreds of billions of pounds annually.

But Russia's invasion of Ukraine is forcing the government to rethink its custom of rolling out the red carpet good morning. Russia has invaded Ukraine. At President Zelinski has accused Russia of nuclear terror. This is a threat to European Security and stability. Britain and America have again warned Russia of devastating sanctions if it invades Ukraine. Boris Johnson announced asset freezes on five Russian banks and three high net worth individuals.

For our part, today, the UK is announcing the largest and most severe package of economic sanctions that Russia has ever seen. This is the first trash, the first barrage of what we are prepared to do. So just how ingrained is dirty money in London and can it be

weeded out? Francine is away this week, so I asked Bloomberg Senior writer Stephanie Baker to join me in the studio along with Caroline Knowles, Professor of sociology at Goldsmith's University of London and author of Serious Money Walking Plutocratic London. In her book, Professor Knowles gives an account of her walks through the streets of London's gilded districts, from right here in the city to notting Hill, Chelsea and Richmond, and she tries to understand the lives of the super

rich and how they continue to shape our city. And to do our own research, we sent one of our producers to retrace some of her steps. I love this idea of walking around these districts of London as well. And you've got a real sense from the pavement of the yawning gaps now between the haves and haves not in London, a lot of it driven by the wealth that's created within a square mild of where we're sitting right now, that yawning gap, according to your book, seems

to be getting worse. Is that right? Yes? I think so. If you look at what happened after the banking crisis and after COVID, those who already have a great deal of money became a lot richer, and those who didn't visibly became poorer. And you see an expansion, and you see it around here of homeless population sitting around the streets, and you know, the number of of unhoused people in London just goes on rising. I think it's currently around

ten or eleven thousand. And that seemed that that London was getting both richer and poorer at the same time. And I was interested in what were the sort of mechanisms of consolidation of the plutocracy in the city, and how could one begin to think about that, what were the infrastructures that made London a wealthy city that's also poor. That meant these two things could coexist, and the pandemic

has made things worse, all right, it certainly has. I mean it's increased the wealth of the wealthier, but for for those who are you know, on moderate incomes, um, the median income in London is still only just about thirty four thousand pounds a year. For those people, life became tougher and tougher, and for those who struggled to find housing, which seems to you to be one of

London's most pressing social problems if you like that. Well, while we've build plenty of houses that they're unaffordable to most of the population, that what you have was this widening gap between halbs and have not really so that London, it seems to me, is becoming an experiment in the you know, the coexistence of wealth and want. It's definitely I can bring you in here as well. You've written for many years at Bloomberg about money trails around London.

What's changed in recent years in terms of how wealth is created in the city and how it's spent More broadly, Yeah, well, I arrived in London in and it has changed so much since then, from rise of Canary Wharf to the transformation of Hackney at East London that was once the affordable place to live and is now super trendy and

super expensive. And then you go to places like Belgravia or Mayfair which have just gotten richer and richer, and in some cases feel a little bit hollowed out, I would say, because so many foreigners have bought property in those neighborhoods and they don't live there all the time. People which are coming it's more looks like businessmans who looks at health only for the investment, keeping empty for the long time and then selling to the other people.

So there's no community, right. It's the dark, the dark windows at night, doesn't it around Mayfair exactly? So I've a londonal life and there's been a massive influx of money, foreign money. Most of the people in these houses don't actually live here anyway, so you wouldn't ever really see them. Right.

It sucks the life, doesn't it. The street life is sucked out of those very wealthy area is I think notting Hill is probably a very good example where go back twenty thirty years and you had black activists, you had community activists around housing, you had a much more colorful, vibrant landscape. And now, if you think about it, those streets are fairly sterile and expensive. And every year at Carnival, of course, the people who are own those big stucco houses,

what do they do? They board them up? Don't they go somewhere else? Tuscany? Yes, absolutely. As you walked around the streets, Caroline, where where else was really striking to you? Where this yawning gap between what you called the house and have nots has just been has become unsustainable. The way I think about streets is that streets tell stories too. I mean, people tell stories, but what happens on the street is also a series of stories. And the stories

in places like Belgravia, are you know, enormously wealthy? Are serviced? Are you know? Even the facade you've got these uniform stucco railing porches with pillars, And if you go around Eaton Square, of course there are sort of concierge standing in uniforms in bowler hats. Although what's interesting if you think about Mayfair is the kind of standoff between hereditary

wealth like the Grosvenors and Middle Eastern influence. When I mean there's a struggle between oil revenues and hereditary wealth in in Berkeley Square. Um. You know, the Duke of Westminster was the losing bid on buying that, so he's losing. Is that the aristocrats are losing? How are they can't compete with the petro dollars. No, they can't. And if you look at the the latest rich list, the people at the top of that, with one or two exceptions,

are international. So one of the most concerning things about the reach of Bill and Am into London and British society is the possible impact on government and influence. And we know that the Conservative Party auction off things like dinners and access at their parties. Definitely, is the influence of Russian money, particularly something that potentially sways policy that has an outsized influence on the government's thinking. It's a really good question. I think it's hard to tell because

of the lack of transparency. What we can see is Russian money flowing into political parties, in particular the Tory Party. There's a woman named Lubov Chernukin as she was born

in Russia, but she is now a British citizen. Lubov Chanukin has donated large sums to the Conservatives to play tennis with David Cameron and Boris Johnson and one thirty five thousand pounds for a night out with Teresa May and members of the Cabinet, and she has donated more than two million pounds to the Conservative Party on the other side's reason. May is a loup of Junikin, who

is the wife of former Russian minister. Her wealth comes from her husband, Vladimir, who has strong links to the Kremlin. She's the top female donor to the Conservative Party and it's unclear why she's done that and what she's gotten in return. Um. You know, there have been various reports looking at the source of her wealth, and you know, some leaked files showing that her husband had done business

with a sanctioned Russian oligarch named Suliman Karimov. Um. So, I think there's real questions about the flow of money into politics, whether or not there are enough checks on what is the origin of that money, uh, and what is the agenda really behind it? Uh. You know, there are plenty of other examples of that. Uh. You know, for instance, you have guinea. He is the rich Russian born son of an ex KGB agent, and he of course owns the Evening Standard and has hosted various charity

parties and events where Boris Johnson has attended. And he two years ago became a member of the House of Lords. And what we've learned recently is that that was against the recommendation of the security services, who had raised questions about him and becoming a member of the House of Lords because of his father's KGB past. Did Boris Johnson intervene to elevate Ev Gainey Ledvedev to Lord Leddev of Hampton and Siberia, and money, of course trump those security

concerns exactly. There's also what we don't see, you know, what they do in the clubs, the kind of cognitive capture of government by wealthy foreigners and wealthy people in general, where you know that there's nothing is said, but there is a sense of being in a certain location social location to other which kind of fuels some of these things.

I think, what should the government be doing. They've claim that they're going to clean up the flows of money coming into London, that London is not going to be the world's laundromat that it's sometimes has claimed to be, and the government have tried to put legislation through. But is it enough, Stephanie, I mean, are they are they actually taking this seriousty or is it very difficult for the British government to disentangle itself from the from all

of this wealth. I think the Russian money is so deeply embedded in London and the UK it's going to be very, very difficult to unravel. Using London to laund a dirty Russian money has its origins in the politics of the nineties and two thousands, an era of political engagement with Vladimir Putin. You know, it all started as a result of the Golden visas offered to the world's global elite and exchange for at least two million pounds

in investment into the country. Those schemes started in the mid nineties and you know they've changed over the years, but that that really ushered in. You know, hundreds of wealthy Russians who made their home here felt comfortable because they felt like their property and their wealth was protected here in a way that it wasn't in Russia, and the rules were very lax. Many Russians were allowed to come in with as little as one million, then it

was up to two million. All you had to do was prove that the money was in your name for a few months, and then you could invest it in government bonds. It was such a safe bet. It was almost very safe compared to other capitles around the world, of other major cities. I mean, it was much easier to come here, was it, then say go to New York. All we really rolled out the red carpet for wealthy individuals, you know, in particular Russians. It's such a it's a

short flight from London to Moscow. You know, Russians were attracted by elite British private schools, by the high quality of private healthcare. I think, you know, London has a unique ecosystem as well, built on what you say for dealing with wealth. I think in the United Kingdom a lack of political will to actually do very much about this. We already have unexplained wealth orders which we haven't really used.

I mean, there is a growing apparatus that could be used to end the opacities of wealth and the offshoring and hiding of money and laundering of money. But we seem very reluctant to because of the economic impact. They're worried about frightening people off, or taking the capital and lodging it in Dubai or I mean what I guess. I mean the thing about capital it is always very mobile anyway, isn't it. So if it's going to go, it's already gone if it doesn't like what's here. So

it's a very odd thing. But it seems to be that that's the kind of all is to attract foreign direct investment and other kinds of international investments that whatever social cost to the city as a whole. I wanted to talk about property because no discussion of wealth in London is completely that talking about about property, and it is it's often described as a great way to launder

money as well, potentially. In June we had reports about sanctioned Russians buying property at One Hyde Park that was that building has been such a symbol, hasn't it of the um sometimes rather crazy prices of London property. I mean, Stephanie, can you tell us more about this and what it

tells us about UK transparency laws? Right? So for those who don't know what One Hyde Park is, it's this luxury apartment building across from Herod's that launched about a decade ago, ten twelve years ago, and um, you the prices range from anywhere from three to I think the top penthouse sold for an excess of a hundred and thirty million pounds and I was looking at the ownership

of it. Yes, there were reports and I've looked at some of the data behind this that there are about three flats there that are owned by companies or individuals linked to sanctioned Russians. They did not buy them after the sanctions came through. Those were existing owners. But I think the real story of one Hyde Park is there are about thirty flats that are owned by offshore companies where we have no idea who the ultimate beneficial owner is and who knows some of those could be Russian, uh,

you know. And I think that's the real problem facing London. And of course the Economic Crime Bill that the government rushed through in the wake of the war in Ukraine is attempting to deal with that. The UK government says they are stepping up their game. They're putting forward an Economic Crime Bill two members of Parliament today that would put in place a register that would enforce the owners of these assets, largely property across the UK, to have

their real identities rather than climbing behind shell companies. And it's going to go back. The legislation was fast tracked in a bid to target Russian oligarchs over the Ukraine invasion. But is it going to Is it going to work? Tom Keating is the director of the Financial Crime Security Studies at our US. I called that bill a botched job. It's not actually going to shine a light is it

on who owns these places? Yeah? I mean the Economic Crime Bill is something that's been languishing for years and it was only the carnage in Ukraine that forced the government to finally act. And it does a few things. One, it toughens up the sanctions regime. It makes it easier to impose penalties for sanctions violations. It makes it easier

to go after unexplained wealth orders. This is, you know, court efforts to target individuals, make them prove the source of their wealth, that they actually have clean money to buy and hold the assets that they have here. But the real thing that it does is create this register of overseas companies that own property in the UK. But

it's full of loopholes. You know, you can create a company still based in someplace like the British Virgin Islands and find a few relatives or friends to hold less than twenty which is the threshold at which beneficial ownership must be disclosed, and you still can shield who the ultimate identity, who the ultimate owner is. And I'm just I mean, this comes to the point I really want to go into next, which is this question of secrecy.

There is this absolute paranoia of of transparency and it's remarkable. And you have to give everyone names, sort of stage names in your book because they won't be referred to by their means. Why do wealth and secrecy go together like this? It's curious, isn't it. I mean, they wouldn't have spoken to me if they've been on the record, if I was using their real names. I mean, that

just wasn't going to happen. They're extremely coy about how much money they've got, how they've got it, often obscuring the origins of their wealth with philanthropy and art collections and other things. You know, I coined this term that I borrowed, which is that the wealth is in a

way of nervous condition. They I think the wealthy know that what they do the sources of their wealth, that they live in such a different way from the rest of Londoners that actually that's indefensible, and I think that's what they're covering up. It's not they do anything so very there's a sense of conscience there. Do you think that actually really there is a whole mix. But I think generally they don't want to step over the homeless

on the way to the opera. They probably wouldn't mind investing and paying a little more tax to to even up the playing field a little bit. I mean, Stephaniely, so we've got this transparency bill, you can circumvent it, as you've described, But how is London stocking up on this with other big financial centers around the world. You know, in America, is it easier to consider your wealth or the motive is still the same, or what's the difference

in London. It's a real mixed picture. I mean the US has taken similar steps to try to um, you know, crackdown on money laundering through real estate, but ultimately there are certain states in the United in the United States that are bigger tax havens than the likes of Cayman or b v I. And so there are real problems there, I mean, the lack of transparency and states like Montana, Nevada. I mean, the list goes on is enormous, and you know, it has led to, you know, accusations of hypocrisy that

the US preaches, you know what it doesn't practice. Um So, I you know, I think that the UK is taking the step the right direction, but ultimately, for instance, with the Overseas Register, it doesn't matter if you do you're required to disclose, if there's no if there are no checks on the information that you provide, and there's no budget for company's house to actually monitor and audit the

information that is submitted there. And I think the real change won't happen until company's house is empowered and financed properly. I think it is a resource issue, isn't it very much? Because the British state in many ways is so much poorer than the well see who can afford the best lawyers and so on to avoid tax So I think, you know, I think it's a question of not just passing legislation, but as you say, is resourcing it properly

and making it enforcible and giving it some teeth. What sort of change can we realistically expect to try to make this a more equal city. You could do something about shifting resources from the very rich into home building for people on moderate and pour incomes in London of solving the housing crisis, it should not be beyond a wealthy city or a city with this much money going

through it to actually solve the problem of homelessness. It wouldn't be that expensive, and actually it would be possible, but it you know, you need to empower local authorities to have and spend money. They don't often don't have the right resources, and so I think some small redistributions would be in order to make a start on that kind of gap which exists, you know, kind of city where so much the GDP comes from finance and comes from the square mile in Canary Orphans and the hedge

funds in Mayfair. Is there a model in which that can coexist with a more equal society as well? It's difficult, isn't it. And you know, the whole question of counting prosperity through GDP is ablematic, isn't it. So I'm not quite sure how one would deal with that, but I mean certainly making a start on tax taxation and taxing wealth and raising council taxes so that people who live in these luxury properties pay multiples of what the rest us pay would be a would be a start. I

think you could begin with that. I'm not saying that you can change the entire system, but if you move a few of the pieces on the board, the mosaic would look a little bit different, and it might just move slightly in the right direction. Karen Nols, thank you so much for talking to in the City, and Stephanie Baker, thank you so much to thank you. Thank you. I'm David Merritt, and that's it for this week's episode in the City. We will be back next week and in

the meantime. If you like the show, please rate it and check out the Bloomberg UK website for more news and views. Special thanks our guests Stephanie Baker and Caroline Knowls. This episode was produced by Summersadi and Elina Ganatra. The head of Limbo Podcasts is Francesco Levi.