Tackling Russian money: a first step towards cleaning up the act of British businesses abroad?

Tackling Russian money: a first step towards cleaning up the act of British businesses abroad?

On Thursday last week, Alisher Usmanov (pictured with Vladimir Putin) became the latest oligarch with ties to the Kremlin to see his assets frozen by the British government in response to the invasion of Ukraine. This latest addition brings the total number of Russian entities and individuals sanctioned in the United Kingdom (UK) to 253.

Over the years, the inclination to turn a blind eye only allowed the wealth of Russian oligarchs to become further embedded in the capital. So much so that – on the eve of the Ukraine crisis – US diplomats publicly expressed doubts that the UK would be able to wean itself off the money of Putin’s kleptocrats.

Despite these challenges, the UK is making much welcomed progress. Recent changes in legislation that make it easier for the British government to introduce sanctions in line with the US and EU mark a clear ethical shift away from tacit complicity and towards robust action against dirty foreign money.

Keeping bad company.

Extricating the domestic economy from unsavoury individuals and organisations, however, says little about the UK’s willingness to do the same abroad. Until now, the conduct of UK-based firms overseas and their links with notorious dictators has largely evaded scrutiny. However, much like the issue of Russian money, it is an issue that has been hiding in plain sight for too long to continue being unaddressed.

When it comes to foreign ventures, British businesses have a track record of consorting with the wrong type of crowd. For instance, during its longstanding business relationship with the authoritarian Aliyev government in the former Soviet Republic of Azerbaijan, BP repeatedly ignored overt displays of corruption. Alongside Shell, BP has been one of the main Western investors in Russia’s energy sector, making it a key economic partner of Putin’s oligarchical regime.

The big four wrongdoers.

But if dealing with unsavoury dictators is one thing, having a role in facilitating corruption and fraud in their fiefdoms is quite another. When it comes to engaging in such behaviour, the big four accounting firms – all of which are headquartered in London and are not shy to use the British brand to gain respectability – are repeat offenders.

The scandals involving fraudulent or negligent audits – most of which have their roots in corruption and bribery – have become too numerous to count. Last year, for instance, PwC signed off the accounts of Hong Kong based property developer Evergrande just months before its balance sheets revealed $89bn in outstanding debt and $300bn in overall liabilities. Similar scandals have also engulfed other ‘Big Four’ firms: EY was recently caught having signed off on fraudulent accounts during its 10-year audit of Germany’s Wirecard, while Deloitte was embroiled in a 2019 corruption scandal related to the awarding of lucrative contracts in South Africa.

A slew of scandals.

But for sheer magnitude and widespread corporate malpractice, the collapse of $14bn Abraaj, audited by KPMG, arguably takes the biscuit. Prior to the scandal, the Dubai-based private equity firm was seen as a leading example of profit-making through socially responsible investments and counted the likes of the Bill and Melinda Gates foundation and the World Bank’s International Finance Corp. among its marquee investors.

After investors caught onto misappropriation within one of Abraaj’s funds, the entire house of cards quickly crumbled—and questions sprang up over how auditor KPMG had failed to uncover the ongoing irregularities, including the most basic fraudulent practices such as transferring of money between funds to cover gaping holes of liquidity.

How is that possible? Well, the presence of a revolving door connecting KPMG Lower Gulf with Abraaj’s senior management certainly would explain the light-touch approach by the UK-incorporated auditor. One of its beneficiaries was Abraaj’s former Chief Financial Officer, Ashish Dave, who became a partner at KPMG before returning once again to the private equity firm.

Taken together, the Big Four’s actions in overseas jurisdictions illustrate a degree of corporate malfeasance, dishonesty and corruption that can no longer be ignored or shrugged off.

Protecting the UK brand.

Adopting a more robust approach to tackling imported dirty money in London while applying loose ethical standards to how British businesses – and especially the Big Four – conduct themselves abroad is therefore likely to become an unsustainable stance, steeped in hypocrisy.

Reigning in the malpractice of the Big Four not dismisses the charge of hypocrisy but also serves another crucial purpose, which is to prevent the devaluation of the British brand. This is especially important now, as the UK government uses all its soft power and reputation to strike trade deals in the services sector.

For Europe, the change of tone on Russian sanctions brings with it short-term optimism about the UK’s resolve to also crack down on the misdeeds of its auditing firms overseas. However, the long-term hope remains that these initial steps indicate a will to definitively shelve the plans to slash standards and regulation in the wake of Brexit. If anything, there is a distinct air of optimism that stringent European-style ethical guidelines on business may soon stage an unexpected comeback in Britain.

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