The threat of the West slapping tougher sanctions on Russia after the devastating Malaysia Airlines crash in eastern Ukraine has given London-based Russian oligarchs and firms the jitters, with both groups taking steps to avoid being caught out by further punitive measures, British media reports said.
EU foreign ministers on Tuesday agreed to widen the list of individuals and entities targeted by asset freezes and visa bans, and also raised the possibility of restricting Russian access to European capital markets, defense and energy technologies.
British Prime Minister David Cameron on Monday said he wanted broader sanctions to target "the cronies and oligarchs" around President Vladimir Putin, while his spokesman said Britain was ready to consider sanctions that would damage its own interests, including in the financial sector.
The threats seem to be having an effect, as Russian oligarchs have started moving their money out of London to keep it safe, Cameron's spokesman said, The Daily Telegraph reported Tuesday.
"The measures that have been taken with regard to individuals and entities has got a correlation with some of the financial flows we have seen across Europe, including here in London. That is certainly the case," the spokesman was quoted as saying.
They may be unduly worried, however, as the spokesman said he had seen little evidence that London-based Russian tycoons were involved in supporting the Ukraine rebels ? the condition for being sanctioned, Reuters reported Tuesday.
Meanwhile, London City financial institutions are in damage control mode, assessing existing deals with Russia and reviewing client lists to avoid being hit by sanctions, with particular attention to those imposed last week by the U.S.
"The long arm of the U.S. sanctions regime reaches well outside U.S. borders, so financial institutions in the City and elsewhere cannot afford to be cavalier," Chris Tattersall, a partner at accountancy firm Grant Thornton, was quoted as saying Tuesday by The Financial Times.
"Financial institutions will be reviewing their proscribed lists and making sure they are fully up to date and applied properly throughout their systems. If they are providing correspondent banking to a bank in Russia that could provide services to a [sanction-hit] individual, they should be concerned," Tattersall said.
Outflow from Russia Funds Hits 6-Month High After Plane Crash
The outflow of capital from Russia-dedicated funds reached a six-month high in the wake of the downing of Malaysia Airlines flight MH17 in rebel-held eastern Ukraine last week, a report by UralSib Capital said.
As investor sentiment plummeted, Russia-dedicated funds lost $172 million in the week ending July 23, the investment bank reported Friday, citing data from Emerging Portfolio Fund Research.
The outflow was split evenly between traditional funds and exchange-traded funds, which lost $87 million and $86 million, respectively.
This was the fifth consecutive week of losses for Russia-dedicated funds and the largest weekly outflow since the final week of January.
?Sentiment towards Russia took a huge blow after the downing of the MH17 airliner, which occurred during the reported week,? the report quoted analyst Slava Smolyaninov as saying. It will be ?several weeks? before the full collateral damage of the crash can be assessed, he added.
The deaths of the 298 people on board flight MH17, which is thought to have been shot down by a surface-to-air missile, has goaded the United States and European Union into upping the pressure on Russia to de-escalate the situation in eastern Ukraine.
The threat of sector-wide economic sanctions from the U.S. and EU has further crushed market sentiment, Smolyaninov said, but not all the news is bad.
?We believe dividend inflows over the next couple of weeks should help stabilize the market in the short term. The case for Russian equities remains highly dependent on an economic turnaround and a stabilization of corporate margins, both of which we expect,? he said.