01 March 2006
New Money-Laundering Report Gives Russia Good Marks
Russia's legal framework, political will, Putin's support praised
By Jeffrey Thomas
Washington File Staff Writer
Washington -- The U.S. State Department’s latest report on money laundering and financial crimes gives Russia high marks for its efforts to combat a scourge at the root of both terrorism and the narcotics trade.
The report, released March 1 by the State Department’s Bureau for International Narcotics and Law Enforcement Affairs as the second part of the 2006 International Narcotics Control Strategy Report, cites in particular Russia’s development of a solid legislative and regulatory foundation for combating money laundering and terrorism financing and its political will and capability to improve the region’s capacity for countering these crimes. (See related article.)
The report also notes that Russian President Vladimir Putin “sent a clear signal of support when he approved a national money laundering strategy in June 2005 and charged an inter-agency commission to implement the strategy in the short term.”
SIZE, SCOPE OF PROBLEM
Money laundering is the disguising of money made from illegal activities or sources, such as narcotics trafficking, or intended for illegal uses, such as terrorism. The September 11, 2001, terrorist attacks on the United States gave new urgency to a long-standing fight to cut off funding for terrorist organizations and organized crime.
The campaign against money laundering is complicated because terrorist organizations often derive their funding not only from general crime but also from sources that might appear to be legitimate businesses and even charities.
As recently as 2001, Russia was on the international Financial Action Task Force (FATF) list of Non-Cooperative Countries and Territories. Thanks in large part to the passage of broad legislation against money laundering and the Russian government’s increasingly successful monitoring work, Russia was removed from the Non-Cooperative Countries list in 2002, and, in 2003, after further progress, was admitted to FATF.
Russia’s Federal Service for Financial Monitoring (FSFM) estimates that Russian citizens might have laundered as much as $7 billion in 2005, according to the new State Department report, which categorizes Russia, like the United States itself, as a country of “primary concern.” This classification means that in Russia, as in the United States, financial institutions engage in transactions involving significant amounts of money generated by serious crime; the classification is not a criticism of Russia’s effort to combat the problem.
The U.S. Treasury Department’s December 2005 U.S. Money Laundering Threat Assessment says the FBI believes $36 billion from all the states of the former Soviet Union are laundered annually through U.S. shell companies and accounts based in states such as Delaware and Wyoming that have overly permissive laws. The full text of the assessment (PDF, 81 pages) is available on the department’s Web site.
During the first 10 months of 2005, Russia’s FSFM said it carried out 3,803 financial investigations and referred 2,026 of them to law enforcement agencies for possible criminal investigations.
Russia now is prosecuting high-level money-laundering cases, according to the report, and has revoked the licenses of 37 banks for failing to observe banking regulations.
“This increased targeting of suspect credit and non-credit institutions demonstrates Russia’s broad-based commitment to enforcing its anti-money laundering and counterterrorism financing legislation and an improvement in compliance levels as a result of its actions,” the report says.
The report also offers examples of Russian-U.S. cooperation in high-profile cases involving terrorist financing. For example, in one recent case that led to the conviction of a British national in an American court, the arrest resulted from U.S., Russian and British collaboration on an 18-month sting operation.
The report also cites Russia’s “strong leadership role” in bringing the Eurasian region “up to international standards in its capacity to fight money laundering and terrorism financing.”
RECOMMENDATIONS
Russia still has some remaining “vulnerabilities” that need to be addressed, according to the report, including official corruption, shell companies and nontraditional banks and insufficient transparency in the financial sector and the corporate environment.
“Russia should also commit adequate resources to its regulatory and law enforcement entities in order to help them fulfill their responsibilities,” the report says.
Regarding needed legislation, the report calls for a law that would enable law enforcement to seize not only business acquired with the proceeds of criminal activity, as at present, but also to seize otherwise legitimate businesses that are used as “instruments” to commit or facilitate crime. Such legislation has been proposed by the Putin government and currently is being reviewed by the Duma, the report notes.
But despite those criticisms, the report concludes, “Russia should continue to play a leadership role in the region with regard to anti-money laundering and counterterrorist finance regime implementation.”
An electronic journal devoted to the global war on terrorist financing is available in Russian and English.
The full text of the two-volume 2006 International Narcotics Control Strategy Report is available on the Department of State web site.
(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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