During the past decade London has proved a magnet for rich Russians. But the billions of rubles that pour into the City of London could be under threat, as Britain weighs economic sanctions against Russia following Moscow’s annexation of Crimea.
In London’s wealthy districts of Kensington and Chelsea, street names like Moscow Road and St. Petersburgh Place point to the historic appeal for wealthy Russians.
Parts of the city are affectionately known as ‘Londongrad’ by Russian residents. Much of the allure stems from the security London affords, says Nicholas Redman of the International Institute for Strategic Studies.
“We have a court system here, and property rights system in Britain, which you just do not have the equivalent of in Russia. And so people that have made money in Russia like to have a base here in order to feel more secure in the future,” said Redman.
Global trade hub
That security is under question as Britain draws up stronger economic sanctions against Russia in case of further incursions into Ukraine.
The City of London is a hub for Russian businesses pursuing global trade. Nearly 70 Russian companies are listed on London stock markets, including energy giants Rosneft and Gazprom.
The threat of sanctions has caused the postponement of at least two stock offerings, though, as the appetite for Russian securities has fallen, according to Moscow-born Sergei Ostrovsky from the Russia division of global law firm, Ashurst.
“There will a period of caution while people put on hold projects, which can be put on hold, adopt the wait and see position," said Ostrovsky. "And where they will be cautious to take on new projects. In the long term it is difficult to see for an easy replacement for the city of London where Russian business is concerned.”
Prime London property is another favored investment. Real estate agents highlight the $39-million sale in 2012 of a 12-bedroom house in Kensington, complete with movie theater and swimming pool - the ideal investment for a Russian oligarch.
Broker Ed Mead, Executive Director of real estate agent Douglas and Gordon, said, “The secrecy laws here allow you to buy a property in an offshore or a company name. You pay an enhanced stamp duty [tax]. And I think they quite like the anonymity that provides them.”
Analysts debate issue
Russia’s President Vladimir Putin relies on the support of influential oligarchs with lots of money parked in London, said Redman of the International Institute for Strategic Studies.
“If large members of the Russian elite are being seriously inconvenienced, if their wealth is being wiped out, if they are no longer welcome in the kind of places that they are used to going in, then it is reasonable to assume that their loyalty would at least be tested,” he said.
Sanctions would not have an immediate effect on Russia’s wider economy, said Elizabeth Stephens of insurance brokers Jardine Lloyd Thompson. “We have seen with Iran, we saw with Iraq under [Saddam] Hussein, it takes many years for that to come to fruition. And in the interim, the European Union would hurt their own economies as well.”
Analysts say that trade-off is being debated in capitals across Europe - none more so than in London.