An economic cost to the UK?
Some object that sanctions and tighter supervision would hurt UK commercial interests. Business would be lost at a time of low growth and uncertain post-Brexit economic prospects. There would, moreover, be a cost to the private sector in the form of extra compliance. These arguments are outweighed by others.
First is the matter of national security. Set against the UK’s obligation to protect its citizens, considerations of potential economic cost are of secondary importance. Organs of the Russian state have murdered and attempted to murder British citizens. The priority must be to minimize the risk that they will do so again. The financial services sector and DNFBPs have had to adapt to the introduction of anti-terrorism legislation and regulations that were also deemed essential for national security; they can and must adapt again.
Second, how significant would a loss of financial business from Russia be? As noted, in relative terms Russia is not a major source of investment for the UK; nor is it vital to the future of the UK’s services sector. If tighter supervision did reduce financial flows from Russia, presumably some would be of dubious provenance, in which case the UK would be better off without them. And it is most unlikely that all Russian money would be driven away by having to comply with more rigorous standards. Many Russian businesses have legitimate interests and ambitions that they would still want to realize in the UK. They should be welcomed like any law-abiding commercial partners.
Third, more transparent and robust financial supervision would bring long-term gains. By turning away illicit money, not just from Russia, in time the UK would make its business environment more secure and trustworthy. As it did, it would benefit from being seen as a country that lived more clearly by its word and international commitments, reducing the divergence between what its leaders say and what many observers believe they do. In terms of its reputation and soft power, the UK would gain by being perceived as a place where the rule of law and transparency are more firmly entrenched than ever.
Fourth, and a related point, a UK prepared to countenance an economic cost would enjoy greater authority with its partners and allies because it would have signalled that it really was ‘walking the walk’. Lithuania provides a telling case study. For it, the imposition of EU sanctions on Russia and Russian counter-sanctions on the EU led to a loss of exports to Russia estimated at 2.73 per cent of GDP, markedly higher than the EU median of 0.13 per cent.81 Lithuania has been one of the most credible advocates of EU restrictive measures against Russia precisely because it has been willing to incur this cost.
81 Hanson, P. (2017), ‘Western Sanctions: Helping the Russian Leadership Ride Out Recession’, Chatham House Expert Comment, London: Royal Institute for International Affairs, 10 March 2017, https://www.chathamhouse.org/expert/comment/western-sanctions-helping-russian-leadership-ride-out-recession (accessed 13 Oct. 2017).