If you’re looking for Russia’s weak point at the moment, you could do worse than start at a house on West Heath Road in leafy north London. It looks modest enough, but it would probably set you back $15 million.
It is the primary residence of Andrey Yakunin. His father, Russian Railways chief executive Vladimir Yakunin, is a former KGB agent and longtime pal of President Vladimir Putin. He was also a lead organizer of the Sochi Olympics and heads National Glory of Russia, an organization that aims to protect Russians from Western culture. (In a barely-readable book called Problems of Contemporary World Futurology, he predicted the collapse of the West in 10-20 years). His wife, Natalya, is in the same trade. She heads Sanctity of Motherhood, which propagates the “many-child family” through traditional Russian values and Orthodox Christianity. Their son Andrey is a fund manager, a graduate of the London Business School, and a specialist in “mid-market business hotels,” particularly ones that adjoin Russian train stations. His son, in turn, attends a posh English private school.
The Yakunin family is Putin’s Kremlin in microcosm, a hypocritical spookocracy that rejects everything about the West except its money, houses, and consumer goods. It also encapsulates the Kremlin’s weakness. If Putin’s Ukraine adventure causes Europe to freeze assets and inconvenience the Kremlin elite, then Putin will find himself losing support fast—from the constituency he needs the most.
Putin may project a macho image by getting his guns out at any opportunity, but his actual power is based on elite support, and the elite supports him because he has made it rich beyond the dreams of avarice. For example, Vladimir Yakunin and Putin were neighbors in St. Petersburg. Putin made Yakunin head of Russian Railways, and now, Yakunin owns a palace outside Moscow, where the bathhouse alone has a reported floor area of 15,000 square feet.
The Russian economy is vulnerable. The ruble has tumbled, as has Russia's stock market too. But that will not bother the elite, which keeps its money in dollars and spends as much time in the West as in Moscow—and that encapsulates how hard it is for Europe to take action. In London, thousands of people—the estate agent who sold the home on West Heath Road; the brokers who shift Andrey Yakunin’s stock; the lawyers who sign off on his deals; the teachers at his son's school—have a piece of Russian action. And this isn’t just a London problem. Andrey Yakunin has a brother in Geneva. (There are just the two Yakunin boys. The appeal of the many-child family appears to have struck Natalya Yakunin late in life.)
Other rich Russians live all over Europe—France, Spain, Italy, Cyprus—and they spend a lot of money. If Europe wants to punish Putin, it has to persuade its citizens to forgo that cash.
Take British private schools. According to the Independent Schools Council, there were 2,174 Russian children boarding in the UK last year. Average fees are $15,000 a term, meaning Britain earns somewhere around $100 million a year from Russians in school fees alone. If Prime Minister David Cameron imposes sanctions on the Russian elite, he’ll have to explain why a quarrel in a faraway country means private schools should lose that revenue stream.
Those pupils’ parents need somewhere to stay, and they don’t appear to like hotels. Almost five percent of “prime” properties bought in London last year went to Russians, according to Knight Frank, as well as three percent of the $3.6 billion new-build market. If the Russian cash dries up, some real estate agents are going to be forced to delay buying a new car, and Cameron has an election in 14 months' time.
English law regulates many energy contracts in Russia, and oligarchs love using the London courts to resolve their disputes. Reports in The Lawyer detail the sums of money on offer, with lawyers regularly picking up millions from oligarch clients. More than 60 percent of the London Commercial Court’s workload now comes from Russia and Eastern Europe, and the pay-offs are huge. Lord Sumption waited until he had finished defending Russian billionaire Roman Abramovich, for a reported fee of $5 million, before taking up a position on Britain’s Supreme Court.
Cameron’s re-election hopes will be boosted by a buoyant stock market, and more than 50 companies that operate in Russia are listed on the main market of the London Stock Exchange. That means a lot of work for London financial professionals, not least in the debt market, which has been tapped by—among many other—Russian Railways.
In his book, Vladimir Yakunin bemoaned the effect Western culture was having on his fellow Russians. “In particular, Russia demonstrates that, despite the inertia of civilizational consciousness, the modification of values will be inevitable if it is unprotected,” he wrote. “China still shows resistance to external influences. Possibly, the continuing language barrier plays a role. But when the Chinese learn English, the erosion of Chinese civilization will accelerate.”
Contrast that with what he told the Itar-Tass news agency last month when asked to reflect on the falling ruble: To Russian Railways, "the weakening of the ruble is a factor that negatively affects our economy,” he said. “Unfortunately, so far we cannot find long money in Russia... In the West, we find resources for a term of seven to 15 years.”
He did not specify where Russian Railways, or any of the other Russian mega-companies that have borrowed London’s money in recent years, would find its cash when the West collapses owing to its “global attempt at forcing a system—one where a minority lives—upon the world”. Nor was he asked where Russian Railways would find its cash were London to block its access to its deep pool of credit. Fortunately for him, it doesn’t look like he’ll have to: On March 3, a photographer captured a document, held by a government official attending a National Security Council meeting convened by Cameron, that says Britain "should not support, for now, trade sanctions … or close London's financial centre to Russians."
Historically-minded Russians are fond of quoting Lord Palmerston, a 19th century prime minister, who said: “Britain has no eternal allies and no perpetual enemies, only interests that are eternal.” Not much has changed since then. London lives to make money, which Russians have a lot of.
This article has been updated.
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Oliver Bullough is the London-based author of The Last Man in Russia.