Press Article

Welcome to Londongrad

Michael Freedman, 05.23.05 

Armed with big wallets and bigger dreams, Russia’s elite make the British capital their home away from home. One morning this April, in a conference center near Westminster Abbey, London Mayor Ken Livingstone welcomed 1,200 Russian government and business guests. Large and powerful companies, including Sibneft, Norilsk Nickel and Alfa Bank, were represented. The mayor, known as Red Ken for his left-leaning ways, invoked the «warmth and sympathy» Britons feel for an old ally against Hitler. He encouraged business leaders to look upon the London Stock Exchange as the world’s «most approachable» financial market. And he noted that Russian tourists now spend as much as Americans. «Russians,» he concluded, «are welcome in this city, both as individuals and for the business that they bring.»

Yet Russians need no invitation. After seven decades of communism and two of gangster capitalism, an estimated 250,000 of them and other Russian speakers from the former Soviet Union now live in London. Countless more have property or a financial presence there. It is a launching pad for personal or professional ambitions. Many are seeking Western partners for investment and are burnishing their image with a coterie of Western lawyers, investment advisers and public relations agents. They have injected hundreds of millions of pounds sterling into the U.K. economy, buying houses and luxury goods.

The best-known among them include the oligarchs, the cadre of men who walked off with Russia’s valuable natural resources and state-owned enterprises, often amid murky, corrupt and even violent privatizations. While many of these wealthiest Russians have also bought homes in France, New York or Israel, London has clearly emerged as a destination of choice. Russians are lured by its four-hour proximity to Moscow, strong capital markets and favorable tax laws. «London is a metropolis,» says Olga Sirenko, a Russian who moved there in 1997 and now edits a Web site for Russian expats. «It is fashionable. It has all the boutiques. It has all the culture. Moscow doesn’t have that kind of chic.»

Nor does Moscow have a judicial system like Britain’s that protects them from unwelcome inquisitors. «I think they feel this is a country of law. They feel they are well protected here,» says a notable among them, Boris Berezovsky, in England since 2001.

The ties between Russia and England date back centuries. In 1555 Czar Ivan the Terrible granted a group of English merchants a monopoly on the trade of furs, timber and cloth, thus establishing the Muscovy Company. Centuries later Lenin plotted from London. After the Bolsheviks took power, Russian aristocracy and intelligentsia also headed to London.

Many of these postrevolution Russians assimilated into British culture, and by the late 1980s it seemed to some expats there was no Russian community in London at all. But that began to change in the 1990s, a tumultuous decade for Russia and its lawless economy. The gap between the wealthiest and poorest Russians widened. By 2004, 40% of the nation’s $546 billion economy was controlled by 22 business groups, according to Moscow investment firm Hermitage Capital Management, a concentration of power unheard of in developed capitalist nations.

Money flowed out as fast as the millionaires. Between 1998 and 2004, $102 billion in capital left Russia, according to Hermitage Capital. Much of it went to offshore accounts in Switzerland and elsewhere. From there it is impossible to trace, but tax lawyers say the U.K. offers unique tax advantages to people with assets offshore. Most countries require their residents, foreigners included, to pay taxes on worldwide income and capital gains. But  U. K. residents can set up their offshore accounts in such a way as to legally avoid these taxes, says Joel McDonald, a lawyer at the law firm Salans in London. Thus a Russian billionaire can hold stock offshore, sell it and use the proceeds to buy a London mansion-all without paying taxes on the gain. The  U. K. government has considered closing the loophole but pulled back. That would mean killing the property market, to say nothing of denting the pay of international lawyers and accountants. «It’s quite a great industry for a U.K. tax adviser,» says McDonald.

Wealth buys an emigre not just a lifestyle but a day in court, something that may or may not be available in the Wild West legal system of Russia (see On My Mind, p. 42). England, with its legal establishment and highly trained public relations firms, affords some legal predictability. Among the first to take advantage was Berezovsky, once the wealthiest man in Russia. Dubbed «Godfather of the Kremlin» by FORBES for his strong ties to the Yeltsin government, he fell out with Russian President Vladimir Putin and fled Moscow in 2000, landing first in France.

But the Russian government pursued Berezovsky, accusing him of fraud and seeking extradition. In 2003 London police arrested him. Bond was set at $160,000. Half was posted by Lord Timothy (Tim) Bell, a powerful p.r. man who had orchestrated Conservative Party campaigns in the Margaret Thatcher era. The remainder was posted by Stephen Curtis, a once-obscure London lawyer who rose to prominence as managing director of Group Menatep, a holding company established by oligarch Mikhail Khodorkovsky for Yukos oil and other assets. (Curtis died a year later in a mysterious helicopter accident.)

Initially the U.K. government refused to grant Berezovsky asylum. But he says he felt certain he would get a fair hearing in his extradition proceedings. A bit of intrigue may have helped: A tale emerged about a Russian agent ostensibly sent to murder Berezovsky by stabbing him with a poison-filled pen while he attended the London hearings. The plot, if there was one, was thwarted, and Berezovsky’s lawyers successfully argued he had a well-grounded fear of persecution in Russia.

From his Mayfair office Berezovsky has since fashioned himself as an anti-Putin crusader. To show disapproval of the 2003 arrest of Yukos’ Khodorkovsky, he rented hundreds of Mercedes limousines, bearing placards of protest, and had them driven past the Russian consulate in London. He says that Putin’s crackdown on wealth and business has put 25,000 wealthy Russians in London in the last two years. «Mainly they are businessmen,» he says. «Some of them are very rich. Some of them are middle scale.»

Berezovsky acknowledges his figure is no more than a guess. But clearly interest in the U.K. is rising among his countrymen. In 2000 the U.K. granted 114,000 visas to Russians; by 2003 the number had increased by 52%. Londoners began to take notice that summer, when Roman Abramovich, a onetime business partner of Berezovsky and an oil magnate now worth $14.7 billion, retained Skadden, Arps partner Bruce Buck to broker a $233 million deal to buy Chelsea Football Club.

Buck became chairman of «Chelski,» as it became known, and Abramovich poured $289 million into the team, catapulting it to the top of league standings. In Russia Abramovich had been so reclusive a newspaper offered a prize for his picture. In London, though, he’s seen attending virtually every game, often with his wife and with fellow billionaire Sibneft President Evgeny Shvidler. Yet he managed to remain opaque, stoutly refusing to do interviews.

The famously eager British press-and the public at large-lapped up news about the enigmatic billionaire. The tabloid Sun, for instance, reported the prospect of a West End musical about Abramovich. Aliona Muchinskaya, a Russian who runs a public relations agency, says she was suddenly inundated with calls from companies that wanted to sell luxury goods to Russians, a contrast to stereotypes of a decade earlier. «The cliche was that all these Russian women are picking up potatoes,» she says. «And all of a sudden, it’s just like, boom! It’s not like that. It’s all Russian women are beautiful. They all wear fur. They’re wearing diamonds. They have yachts.»

To tap this market, real estate agent Savills hired a Russian-speaker. So did Knight Frank, another London real estate agent, which now also advertises that it has offices in Moscow. Patrick Ramsay, head of residential business there, figures the agency has sold 20 to 30 homes to Russians in England in the last year, worth in excess of $100 million. Many have purchased homes in Surrey, a ritzy London suburb. But central London’s property market is affected in equal measure. Last summer the Sunday Times noted that a «ripple went through the elite community of the world’s superrich» when a «mystery billionaire» paid $75 million for a house at 15 Kensington Palace Gardens, next door to Kensington Palace itself. The paper traced the ownership to Leonard Blavatnik, a Russian-born American who formed investment shop Renova with school friend, oligarch and billionaire Viktor Vekselberg.

Retailers are attempting to tap the market, too. On Sloane Street, one of London’s most exclusive shopping enclaves, Sandra Buecking, manager of Fendi, seeks Russian clients by contacting high-end London hotels to determine which offer Russian-language television. She says big-spending Russian women have different tastes in clothing than the more genteel British-«Think leopard print,» she says. So she recently hired a Russian employee. «They’re in hot demand,» she says. «And also, a friendly, pleased-to-meet-you, upbeat Russian isn’t easy to come by.»

Indeed, Russia’s elite are using London as something of a playground, a place where they can talk more freely about their home country and enjoy their newfound wealth. Oleg Deripaska, the former metals trader who emerged from the violence of Russia’s aluminum industry unscathed and in control of Russian Aluminum (Rusal), takes classes at the London School of Economics. Worth $5.8 billion, he sponsored an exhibit at London’s Somerset House in 2003 and reportedly owns, via a holding company, a $50 million house in London.

There is business opportunity, too. Russian telecom Sistema recently completed the largest-ever initial public offering by a Russian company on the London Stock Exchange, raising $1.56 billion. Last summer Nikolai Smolenski, then age 24, paid an estimated $27 million for TVR Engineering, the iconic English sports car manufacturer. In Russia he was known as the «baby oligarch,» the son of oligarch Alexander Smolenski, whose banking business collapse in 1998 wiped out thousands of customers. The son’s plans for his new company include global expansion and customizing $160,000 cars with gemstones. «He obviously knew a lot of wealthy people who could afford to buy these kinds of things,» says the seller’s lawyer, Neil Myerson.

So at least for now the influx of Russian wealth in London appears likely to continue, particularly as concerns linger about safety at home. Tension heightened this March after an unsuccessful attempt to murder Anatoly Chubais, head of power company Unified Energy System, architect of Russian privatization and the «father of all Russian oligarchs,» as Pravda put it. Moreover, Khodorkovsky’s 2003 arrest, the subsequent trial and dismantling of Yukos has put into question the Kremlin’s commitment to free markets and the rule of law. Putin made a move to restore investor confidence in March by assuring companies the government would not review controversial privatizations of the 1990s. But in April, just as the Russian elite gathered in London for an investment conference, Russian authorities hit the TNK-BP oil company with a $1 billion tax bill.

Amid this climate of fear and intrigue, 840 people headed later that evening to London’s Royal Albert Hall for the Russian Rhapsody concert. The guest list included Prince Andrew, the Queen’s second son, as well as Gazprom founder and former prime minister Viktor Chernomyrdin and TNK-BP board member Viktor Vekselberg. There in the elegant London hall men in tuxedos and women in slinky, sparkly gowns gathered during the cocktail hour. Statuesque models stood motionless, their chests displaying enormous diamond necklaces, one worth $18 million. Soon enough the New Russia State Symphony Orchestra took up Tchaikovsky and Sviridov, and in the safe cocoon of London the glitteratski smoked, spoke freely and loudly-and downed shot after shot of vodka.