Written evidence from Dr Pete Duncan (AFP0031)

Submitted by Dr Peter J S Duncan

(UCL School of Slavonic and East European Studies)

Executive summary

• Since the early 2000s the Kremlin has sought to create new networks to promote its interests and penetrate political parties
• These activities increased substantially after the Ukraine crisis, when Western states introduced sanctions
• Russian and Ukrainian money is being laundered through London and the authorities have been ineffective in stopping this.

Self-description

1. I am Associate Professor of Russian Politics and Society at the School of Slavonic and East European Studies (SSEES), University College London. I have lectured at SSEES on Russian affairs for 31 years. Prior to that I lectured at the University College of Wales, Aberystwyth, and then was a researcher at Chatham House. I know Russian, have made nearly 40 visits to the USSR, Russia and Ukraine, and have published six books on Russia and Eastern Europe.  This submission focuses on Russia and Ukraine.

Interference in the domestic affairs of the UK and its partners

2. The USSR and then, since 1991, the Russian Federation have always sought to create constituencies in other countries to lobby for their political, strategic and economic interests and to promote a positive image of Russia. With the fall of the Soviet Union, these initiatives became less active in the 1990s. In the mid-2000s they were reborn with the growing assertiveness of Russia under President Vladimir Putin, powered by higher oil and gas prices and motivated by increased tensions with Western countries, especially the USA and UK.

3. Following the ‘coloured revolutions’, particularly the Rose Revolution in Georgia in 2003 and the Orange Revolution in Ukraine in 2004, the Kremlin began to fear that NATO countries were intending to use information warfare and NGOs to undermine not only its influence within the post-Soviet states but ultimately to change the regime in Russia itself.

4. In 2007 the Russian presidential administration set up, with the support of the Moscow Patriarchate of the Russian Orthodox Church, the international organization Russkii mir, ‘Russian World’. This was in order to appeal to a broad audience of people around the world interested in Russian language and culture. In 2008 the Russian Ministry of Foreign Affairs created Rossotrudnichestvo to encourage links between Russian émigrés and the Russian embassies of the countries they resided in. These two organizations, Russkii mir and Rossotrudnichestvo, perform similar functions to those of the friendship societies (such as the Anglo-Soviet Friendship Society) co-ordinated by Moscow during the Cold War. At the same time the Kremlin made legislative changes to make the work of Western-funded NGOs inside Russia more difficult, and acted to reduce the reach of the British Council by closing its offices outside Moscow.

5. Additionally, the number of intelligence agents active in Western countries has increased significantly. These are mainly from the SVR (Foreign Intelligence Service) and the GU (formerly GRU, the intelligence service of the Ministry of Defence). Additionally, in Britain, there is some activity by the FSB (Federal Security Service), primarily among Russian émigrés. The FSB and the SVR are the main successor organizations of the KGB. Russian intelligence services and their agents have since the 1990s become entangled irretrievably with organized crime.

6. The Russian intelligence services were mainly concerned with economic and military intelligence, but more recently sought to promote interference in British politics. Working through Sergey Nalobin, a first secretary in the political section of the Russian embassy in London, they sought to penetrate the Conservative and Labour parties. Using a PR firm, they established the ‘Conservative Friends of Russia’. The aim was to attract not only politicians but also companies and businesspeople with interests in dealing with Russia and wealthy Russians: banks and financial services, property companies and estate agents, and perhaps public schools. This was initially successful in achieving high-level support within the party. Sir Malcolm Rifkind MP, the former Defence Secretary and Foreign Secretary, became the honorary president. They overreached themselves when they launched a campaign against Chris Bryant MP, the chair of the all-party parliamentary group on Russia. Mr Bryant was famous for his defence of human rights in Russia, including LGBT rights. The SVR clearly wanted someone more sympathetic to the Kremlin. The publication by the Conservative Friends of Russia of an old picture from the Internet of Mr Bryant in his pants led to a scandal and the resignation in November 2012 of Sir Malcolm and other leading Conservative figures from the organization.[1] It was dissolved and then re-formed as the Westminster Foundation for Democracy, and continues to function under that name. The ‘Labour Friends of Russia’ on the other hand, never gained traction.

7. Russian interference in the politics of NATO and EU members increased dramatically after Russia’s annexation of Crimea and covert military intervention in Eastern Ukraine. Sanctions imposed by the EU, the United States, Canada and others, coming on top of the fall in the oil price in 2014 hit the Russian economy hard. Average living standards in Russia have fallen in every one of the last five years. Additionally, the targeted sanctions pioneered by America against people close to Putin or implicated in key decisions have hit hard. The ‘Crimea effect’ which boosted Putin’s popularity inside Russia to high levels has now dissipated. Since this re-election to the presidency in March 2018, an election in which the Kremlin decided who his opponents would be, dissatisfaction has grown.

8. The aims of the interference in Western politics are to end the sanctions and to reduce the level of criticism coming from the West of Russia’s domestic and foreign policies. This criticism can weaken Russia’s international position and encourage human rights activists and Putin’s other opponents inside Russia. The strategic aim is to weaken Western collective institutions, especially NATO and the EU.

9. Long before the Brexit referendum, Moscow had given succour to the then principal advocate of Britain leaving the EU, UKIP. Nigel Farage, then the UKIP leader, appeared regularly on the Russian propaganda TV channel RT. UKIP’s agitation played a major role in the referendum being called in the first place. The departure of Britain from the EU would not only weaken the EU but also remove from it one of the principal backers of sanctions against Russia. Prior to the referendum, the Russian Ambassador Aleksandr Yakovenko offered Arron Banks cheap access to shares in a Russian mining company at a time when he was playing a prominent role in the Leave EU campaign. While the National Crime Agency found no proof of Mr Banks’ companies giving money illegally to the Leave campaign, it remains the case that the source of a substantial donation has not been identified and the suspicion remains that the money has its origins in Russia. Since the referendum, within the office of the Leader of the Opposition, Jeremy Corbyn MP, there has been strong resistance to the idea of the Labour Party returning to a ‘Remain’ position. Two of the key figures in this, Seamus Milne and Andrew Murray, were associated in the 1980s with the publication Straight Left, an organ of the Stalinist wing of the Communist Party of Great Britain. Given the politics of the Communist Party at that time, it would have been natural that they might have had contact, however unknowingly, with the KGB.

10. In the United States, the Mueller report did not prove collusion between the 2016 Trump presidential election campaign and the Kremlin. Nevertheless, much evidence was found of Russian interference to swing the election in favour of Trump. Actions by Moscow aimed at weakening the EU by strengthening the Far Right are well known, and more have probably still to come to light. Russia lent Marie Le Pen’s Front National nine million euros via the Prague-based First Czech Russian Bank. (This bank has since gone bankrupt.) In Germany, Russia helped Alternative für Deutschland by circulating a false story of a girl having been raped by Muslim refugees. The German Committee on Eastern European Economic Relations has acted as a lobby inside the country for a long time in favour of economic links with Russia. In Italy, an allegation has been made of support from Russia for Matteo Salvini’s Liga.

11. Finally, in relation to Russia, I should emphasise that despite the efforts of the Kremlin agencies, Moscow’s influence in British universities is low. Putin’s kleptocracy and murderous, authoritarian state does not find its supporters. Among the Russian Studies community, opposition to Putin is probably even lower than among the university teaching population as a whole, owing to greater familiarity with the situation. The murder of Aleksandr Litvinenko, who exposed the crimes of the Putin regime and the security services, and the poisonings in Salisbury present a most unattractive, as well as rather incompetent, face. Nevertheless, Russkii mir is active on British campuses. I have personal knowledge of a Russkii mir employee planting a bugging device to record an academic discussion on Russia held by the British International Studies Association in Edinburgh.

Recommendations on political interference

12. Since 1992 Russia has repeatedly used the threat to increase prices of oil and gas exports, or to cut off flows entirely, in order to achieve political and economic gains in the post-Soviet states, including the Baltic States. So far it has not used the energy weapon against West European countries, preferring to create a reputation as a reliable supplier, in order to secure regular export income. Nevertheless the danger exists of the energy weapon being used against West European states in the future, particularly against Germany because of its increased dependence on Russian gas supplies through Nord Stream. Diversification of supply away from Russia is not necessarily a solution if it leads to greater dependence on Middle Eastern autocracies. Two solutions are available. One is to reduce overall dependence on fossil fuels, thus also meeting the need to reduce climate change, which the House of Commons has declared constitutes an emergency. The other is to strengthen cooperation between with EU, NATO and Commonwealth states to act in solidarity with countries which are threatened by Russian pressure, by putting counter-pressure in other fields.

13. The international response to the poisonings in Salisbury in March 2018 shows what can be done. Twenty-two states showed solidarity with Britain by acting against Russian intelligence agents operating in their countries. This was a major setback for Russian intelligence.

14. Similar responses are needed in relation to violations of human rights and political repression in Russia and other autocratic states. Countries where independent opinion is stifled are more likely to go to war than countries where political issues can be freely debated. Democracies do not go to war against each other.

15. It is a myth that autocracies create more successful national strategies than democracies, because they are supposedly able to mobilise resources more effectively for state aims than democracies. One of the reasons for the growing crisis in Russia is the lack of reliable information going to the leadership and to Putin in particular. All major TV channels are under state control and public discussion is limited. The population is fed with false information about the intentions of Western countries. Putin does not like to hear bad news, and he prefers to receive his briefings from the intelligence services rather than the civilian ministries. As a result, he is presented with a more favourable picture of the world and of the likely impact of his military and other actions than accords with reality. Thus in order to reduce the dangers of armed conflict it is essential to support free media in autocracies. The British government should provide more resources to the BBC and the British Council to promote free flows of information into Russia and other authoritarian states. Separate organizations aiming directly to investigate and oppose propaganda from autocratic states should be given more support.

Money Laundering: A Case Study

16. The case of Dmytro Leonidovich Chernyavskiy, (aka Dan, Daniel, Dmitri Chernyavskiy) (hereinafter DC) has been reported to the Cabinet Office earlier this year. He was born on 16 July 1971 in Donetsk, eastern Ukraine. He resides in Kyiv. DC has Ukrainian, Russian, Montenegrin, Croatian and Israeli citizenships. He usually travels to Britain on his Ukrainian passport on either a tourist or a business visa. DC also uses his aide Ms Liudmila Ivasiuta (a Ukrainian National on a tourist visa) to conduct his business on the territory of the UK on his behalf (including hiring or sacking staff, conducting negotiations; most recently she purported to become a Director of the London based business).

17. DC is the son-in-law of the oligarch Gennadiy Bogolubov, the founder of the Ukrainian commercial bank Privatbank, and married to his daughter Katerina Bogolubova.

18. He is closely connected to the Ukrainian oligarch Ihor Kolomoiskiy, who bought Privatbank from Bogolubov. Bogolubov currently lives in Eaton Square, London.

19. Bank4you business group was opened by DC to facilitate money transfers (claiming  the possibility of carrying out crypto-currencies transfers as well as normal bank transfers). Some of the companies in the group are registered in England such as Bank4u Card Solutions Limited, Bankforyou Limited (Reg No. 8708906 Registered in England and Wales, Authorised and Regulated by the Financial Conduct Authority No: 662977, incorporated on 27 September 2013). The other entities are based elsewhere: in Luxembourg (where the main office of the group is shown on their website); Emiett Ltd in Cyprus (a company which provides loans); and Dan Business based in Belize.

20. Another business group Tax4you was created by DC to return custom duties to the private individuals via online application. None of the customers received the tax refund, and the business operated without any licence for such activity. The business is still in operation.

21. DC stole identities of clients of Privatbank and Tax4you to open bank accounts with their details at Bank4you, to be used in money laundering without the knowledge of the individuals. Visa Credit Cards on these accounts were then opened and used all over Europe (the list can be provided). The loophole in the regulation was used to siphon small transactions that fall below the level of the radar for the Financial Conduct Authority (FCA) (less than £500 transactions) but that multiplied by the sheer number of accounts with the personal details means that millions and millions of pounds have been laundered. The proceeds were used to buy properties to conclude the legitimisation of the proceeds.

22. Furthermore, DC sought to extend his operations in the UK to get hold of more personal data. For that purpose DC acquired shares in St Patrick’s College  (https://www.dailymail.co.uk/news/article-2971217/Britain-s-biggest-college-banned-recruiting-abroad-publicly-funded-student-numbers-increased-zero-4-000-just-one-year.html) and the London School of Business and Finance. Under the pretence of providing loans through Bank4you to the students, DC got access to the personal details of thousands of students. DC then uses the data to open accounts in the branches of his business not only in London but also in Paris and Luxemburg. In 2015 DC extended his operations in the UK educational sector and bought a share in the business of another school - London Waterloo Academy (LWA). The school provides educational courses to around twelve thousand students. The successful growing business was seeking additional capital investment which DC promised to provide. However, after he bought a share of the business from the former owner of the business and acquired the majority of the shares, he failed to provide the promised investment because the owners of the business refused, under the provisions of the Data Protection Act, to provide him with the personal details of all the students.  DC then went into litigation in 2016 with the owners of the LWA which is still ongoing. The official reason for litigation is that the owners of the business misrepresented the financial information about the business. The LWA was bought by Tzedakah Funds S.C.A., based in Luxembourg, with the help of companies such as Kevad Ltd, a UK registered business, and other companies.

23. It is important to note that DC’s name as an alleged money launderer has been in the public domain since 2013 after he headed a money laundering operation based on the construction and renovation of sports facilities for the Euro Championship 2012 held in Ukraine. State funds allegedly amounting to 360 million dollars were misappropriated in a sophisticated scheme authored by DC.

24. The use of different names, multiple nationalities, numerous companies opened in the UK and operating with the nominal director of Adam Lane, makes it virtually impossible to prosecute or pursue legal action against DC.

25. Ironically, DC himself likes to use the English legal system to settle disputes. He has used an employment tribunal (https://assets.publishing.service.gov.uk/media/5c1a540240f0b60c2c1c79b5/Mrs_E_Giganova___Others_-v-_Tax_Free_4_U_Limited___Others_-_Case_Number_2201597_2018_-_Preliminary.pdf) and a London commercial  County Court). He works through his aide, Ms Ivasyuta, who provides witness statements for the courts but never appears in person in the court of law. The link between DC himself, Ms Ivasyuta and their staff has never been questioned seriously in courts despite the numerous witness statements from their former employees. The legal system works in isolation; the joining of the dots is not happening between the FCA, the National Crime Agency (NCA), the Metropolitan Police and the Home Office. The wide scale of money laundering schemes provide impunity for individuals as DC. Furthermore, law firms such as Burlington’s https://burlingtonslegal.com/  are being used to provide the official address of his companies and for legal protection.

Recommendations on money laundering

26. Coordination needs to be improved between the FCO, the Home Office, the police, the FCA, the NCA to combat money laundering. It would seem that the institution best placed to ensure this is the Cabinet Office. The investigating bodies should recruit Russian-speaking consultants who have cultural knowledge of the patterns of behaviour of post-Soviet criminal networks, in order to enhance our understanding of the schemes which the criminals operate. Additionally, a user-friendly mechanism to report money laundering and other financial crimes is needed. The financial and banking regulations should be tightened up to make it harder to open financial institutions that are instrumental in money laundering. International cooperation will be needed to make these regulations effective.

10 October 2019