On Monday, Liz Truss warned Russian oligarchs that there would be “nowhere to hide” their dirty money in London. Which is kind of odd when you think about it, since the statement includes the implied admission that the money is already there.

The threat of Putin’s kleptocracy seeped into Britain long before he began piling armored divisions on the Ukrainian border. Yet the money kept flowing, Britain kept fences off stolen wealth from its cronies, and repeated promises to tackle the problem came to nothing.

This failure is a national embarrassment and has fueled a slew of conspiracy theories: that conservatives are bought and paid; that the Kremlin has Kompromat keep ministers in line; that the City of London has a special helpline in the heart of parliament.

The real story, however, is much more alarming, but requires telling, because you can’t understand London’s love affair with Russian money without understanding the story of the city’s rebirth as a center. financier and engine of our national economy. . They are, in fact, the same story.

Once you understand this, you can see why government after government has been so reluctant to chase the oligarchs’ money. They are like doctors watching a cancer grow bigger and bigger in a vital organ: the operation will paralyze their patient, so they leave him in place, even if – eventually – it will kill him. But this choice can no longer be postponed. If we are to save British democracy, we must take a scalpel from a tumor that was sown in 1955.

At the time, the Soviet Union had a problem. Its great rival, the United States, had ended World War II as the undisputed center of the world economy; if the USSR wanted to trade with the world, it needed dollars. The global financial system was less globalized at that time. In order to ensure democratic control over wealth, governments have imposed limits on money in ways that are difficult to understand today. They limited the amount of money you could move across borders, for example, or the interest rates you could charge on loans you took out.

This meant that, if you had dollars, you kept them in the United States, where they were subject to Federal Reserve scrutiny. But Soviet officials feared that if Cold War tensions grew more strained and their dollars were in New York, the US government could seize them, cutting Moscow off from international markets.

The City of London also had a problem, albeit a very different one. Britain was broke, with a huge hangover from funding its war effort. The capital flows that had supported the incomes of financiers had shrunk and the pound sterling had lost its role as the world’s premier currency. Banks were moribund and ambitious young Britons preferred to work in academia, industry or government.

The solution to the two-power problems came through two banks: Moscow-based Narodny (MNB), Soviet-owned but London-based, and Midland, a scrappy challenger unable to attract the deposits it needed to compete with its more established rivals. MNB lent its dollars to Midland, which used them to buy books, with which it was able to expand its business in the UK.

It may not seem like much, but these two banks had invented the most significant financial invention of the second half of the 20th century: the eurodollar. By transacting with dollars outside the United States, they retained the advantages of American currency – its strength and convenience – while removing its drawback: the heavy hand of the American government.

As the pound declined, more and more London banks began to appreciate this new form of currency, which could cross borders unhindered, could be exchanged easily and was completely unregulated. They used books for domestic transactions, but held separate accounts for Eurodollars, which they described with a word borrowed from maritime law to describe something beyond the reach of government: offshore. Soon, other banks noticed the innovation as well, coming from Japan, mainland Europe and the United States to take advantage of the new discovery.

The Eurodollar could have appeared almost anywhere, and embryonic versions have appeared in Canada, Switzerland and elsewhere in Europe. But in these countries, governments recognized the threat that floating currencies posed to their sovereignty and stifled it. Memories of the Great Depression and the misery and war that followed it were still raw, and Democratic politicians wanted to make sure they could always put people before wealth.

In the City, however, the Bank of England liked the idea of ​​freeing up cash, and it did. “It is a quintessential example of the kind of business London should do both well and profitably,” wrote a Bank official in 1963. “If we were to stop business here, it would shift to other centers with a consequent loss of revenue for London.

At that time, the market was worth around $5 billion. In four years, he was worth $13 billion. In the late 1960s, it was worth $40 billion. That’s when other countries started to surrender, to abandon their own efforts to stop their banks from leaving, and the market really took off. Today it is the largest in the world: all dollars are offshore, as are pounds, euros, Swiss francs and, with a few exceptions, just about every other currency in the world.

This economic model did not stop there. Our finance professionals have sought out countries whose governments imposed limits on wealth that their owners found onerous, and exceeded them. In the Cayman Islands, Americans found a haven for all the money they didn’t want to pay taxes on, and this once-obscure turtle-fishing archipelago is now a world-class financial center. In the British Virgin Islands, tycoons from China and criminals from Latin America have found cheap and opaque shell companies to hide ownership of their assets. And in Britain itself, generations of oligarchs – from the oil-rich Gulf countries, from the ex-colonies of Asia and Africa and, of course, from the post-Communist countries of Eastern Europe – found a warm welcome.

What we offer them is a paradise: not just a tax haven, but a paradise for everything. They can buy property here and they don’t need to tell anyone because they can hide their property behind a shell company. Here too, they can manage their liquid assets, either in a discreet bank or in a boutique private office. They can send their children to one of our world-class schools, buy their art at one of our auction houses, and meet their friends at a fancy restaurant while their wives and/or mistresses shop at Harrods (because, let’s be honest, these oligarchs are pretty much all male).

If a business competitor complains about it, they can settle the dispute in our commercial court, thanks to our world-leading legal sector. And if they want to keep tabs on the running of their adopted country, they can dine with a minister for not much more than they would spend on vacation. They can buy anything in London and thanks to the way politicians have starved our law enforcement no one with the power to do anything about it will ever know if the wealth was honestly acquired .

Politician after politician has stood up in parliament to insist that there is no place for dodgy money in London. But then the lobbying begins. Each of these sectors – finance, law, real estate agencies, auction houses, education – begins to argue for exceptions and loopholes, and nothing is done. In 2014, for example, after it was revealed that specific shell structures called Scottish Limited Partnerships had been used to launder money stolen from Moldova, Scottish National Party politicians campaigned for the law be reinforced. Not only did this not happen, but the Treasury actually further deregulated the structures, in order to protect the City’s competitive advantage.

It’s a supercharged version of that same business model concocted by Moscow Narodny and the Midland in the 1950s. It depends on UK regulations, with weaker enforcement and oversight than other countries, so the wealth comes here, and we can derive income from it. It’s not just the oligarchs who profit from our offshore services, but also corporations: the City collects fees on all wealth, whether acquired honestly or dishonestly.

The risk is obvious. If it’s not enough for Britain to deprive other countries of the money they need and lower levels of taxation and regulation everywhere by providing a haven for the rich, we are also acting like a giant Florida for a magnified version of Al Capone’s gangsters. , and giving them a playground to threaten the world. We prioritize the interests of the few over the wishes of the many, whether those select few are mean, nasty, or simply averse to publicity.

It’s not a revelation. Multiple parliamentary inquiries have revealed the seriousness of the problem in recent years, including the 2019 Intelligence and Security Committee (ISC) inquiry into Russian wealth in the UK. Truss should be commended for saying she would do something, but let’s wait until the laws are written into the statutes before congratulating her. After all, Boris Johnson fought to prevent the publication of the ISC’s report on Russia – and this is not the action of a man who seeks to put democracy before money.