Russia has gamed the anti financial crime system to pursue its own interests, despite being a mix of autocratic, corrupt and criminal enterprise – with action by the ineternational community slow on targeting financial crime, even now – which should change.
In this article, Russia’s actions and the international community’s inaction are summarised focussing on and hoping to learn the lessons on how to be more effective in future in fighting financial crime.
By John Cusack – The Editor Financial Crime News.
To Download as a PDF Click HERE: Russia and Financial Crime April 2022 PBD 6
In March 2000, Vladimir Putin was elected Russian President, just 7 months after becoming Prime Minister, and just a few months as interim President following the shock resignation of Boris Yeltsin Russia’s first post independent President, following the collapse of the Soviet Union (1) just a decade earlier. Vladimir Putin faced many challenges in his relatively quick succession rising from a KGB operative into political office and then quickly succeeding and immediately pardoning Yeltsin on all possible corruption charges. The country was in the midst of its 2nd conflict with Chechnya, a Russian region of mainly Muslims that was fighting for cessation, it’s economy was in trouble, huge stakes in state assets had been grabbed by powerful oligarchs, and Russia had seen former Warsaw Pact countries, Poland, Hungary and the Czech Republic joining NATO under fierce Russian opposition (2).
Just 3 months later, Russia was included in FATF’s first blacklist of countries in 2000 (3), but was removed in 2002 and without delay and with international support became a full FATF Member in 2003. Since then, until today Russia has gamed the system, yet it had never been publicly criticised by FATF despite many recognising it as a mix of autocratic, corrupt and even a de facto criminal enterprise.
Russia was reviewed by FATF in 2008 (4), which identified material weaknesses, though the FATF list at this time (the High Risk Countries list) was not used against FATF Members (5). The Head of Russia’s FIU (Rosfinmonitoring) co chaired the Egmont Group’s plenary in St Petersburg in 2012 (6), and even took over the rotating FATF Presidency between 2013/14 (7).
In 2019 (8) the latest FATF Report on Russia was published. FATF ratings of effectiveness portrayed Russia and its actions positively, with scores placing Russia in the top 5 of 125 countries reviewed, particularly with 2 Highly Effective Ratings for IO6 Financial Intelligence & IO9 TF Investigations & Prosecutions, following the UK, Israel, Spain, USA & with the same score as New Zealand, just ahead of Sweden & San Marino, based on FCNs simple scoring model. Out of 125 countries rated on effectiveness, by FATF through 11 Immediate Outcomes, just 8 countries registered the highest available rating of Highly Effective with just 18 HE ratings in aggregate across these 8 countries and across all 125 countries. Just 6 HE ratings were reported in 4 core effectiveness ratings.
Russia was included in FATF’s first blacklist of countries in 2000, but was removed in 2002 and has never been considered for listing since despite being a country often described as a mix between autocratic and criminal enterprise.
Russia’s relative success in the FATF 4th round MER was largely due to the work of the Russian FIU headed by KGB veteran Yury Chikhanchin, and, in particular, the use of financial intelligence as well as the number of Terrorism related investigations and prosecutions.
The result certainly raised eyebrows seemingly underplaying the threat and overstating the response, and not putting Russia into a broader context. The prevailing view has been that Russian ML threats are very significant, including due to very high levels of corruption, and that time and again Russian ML is prevalent not only in Russia but is exported all around the world. That the Russian FIU head reports and meets personally with President Putin himself, has significant resources (staffed by 800 (9) – which can be compared to an estimated 303 (10) in 2021 in the US FIU FinCEN) and has access to a wealth of financial data, across government, is expert at tracing funds, and using “sophisticated technologies with [a] high degree of automation” to analyse more than 30 million suspicious transaction and other similar reports annually, helping direct and triggering in-depth investigations into a wide range of crimes, may be accurate but many commentators question how that capability is really put to use.
For example, the former FATF President (between 2018/19 from the US – Marshall Billingslea) accused Russia’s FIU of “facilitating state-sponsored money-laundering schemes and plays a key role in President Vladimir Putin’s efforts to maintain his grip on power, with the FIU, “firmly” under the control of Russia’s Federal Security Service, or FSB, and primarily serves as an instrument of authoritarianism rather than an agency that combats financial crime.” and that “control over the FIU helps Moscow devise complex networks to obscure the origin of profits from a wide range of illicit activity, including corruption, sanctions evasion and arms sales, and move those funds through Western banks” (11)
That the international community missed numerous opportunities to use available tools that were designed to encourage progressive action to tackle financial crime and punish regressive ones has emboldened Putin’s Russia into the events that are shocking the world today in Ukraine, necessitating in response unprecedented sanction counter measures. That these measures have yet to directly target serious criminality is odd, but can be seen as a continuation of errors made in dealing with Russia since its independence 30 years ago, and a preoccupation with targeting non FATF member countries especially smaller less developed countries or small economies, with commensurate low capacity to implement the full 40 recommendations, and not those (including Russia) where outsized risks, including corruption and state embedded criminality, have long been evident.
The rise of Putin and the Russian elites that surround and sustain him are reasonably well documented, but in reviewing these we are reminded how we reached this point. We need to consider some of the key milestones along the way, and most importantly, we should be scrutinising failings we need to learn from, which in many respects also apply to other third countries and not just to Russia.
Since the early 1990’s…..
Since the early 1990’s, following the collapse of the Soviet Union, President Yeltsin’s Independent Russia embarked on a flawed “voucher privatisation” programme and then a “loans for shares” scheme. This led to state assets being syphoned to a privileged few through cronyism and to those with access to capital, which also included an opportunity for criminal funds to bank roll the mass acquisition of state assets. These schemes led to the amassing of immense wealth for private individuals, who became known as the “oligarchs” (12). Oligarchs are simply described as one of the select few people who rule or influence leaders in an oligarchy—a government in which power is held by a select few individuals or a small class of powerful people. These came to include, for example, Roman Abramovich, who notably bought a collection of Russian oil businesses privatised in 1995 (under the umbrella of Sibneft) and paying around US$250 million, which was then a decade later sold back to the Russian State valued at US$13 billion and bought by Gasprom in 2005 (13). According to the BBC, evidence has been presented that bribes were involved in securing the purchase of Sibneft, and that as a result of the deal the Russian government was cheated out of approximately US$2.7 billion, though Abramovich denies this (14).
US investigations into Russian money laundering…..
As the late 90’s began to see the transition of power from Boris Yeltsin to Vladimir Putin, a major investigation at the Bank of New York in 1999 revealed huge amounts of Russian monies had been laundered (15). Up to that point, the US and the US dollar had been seen as a destination of choice for Russian money flows abroad, but the high profile nature of the case which was followed by senate and law enforcement investigations, saw less Russian money heading obviously to the US and more to Europe, in particular to London and to Switzerland, via Malta or Cyprus using offshore companies, trusts and foundations, facilitated by gatekeepers and in time using golden visa schemes which warmly welcomed Russian wealth.
Putin elected in 2000 as President…..
When Putin came to power in 2000, he took publicly visible steps to ensure that the Yeltsin oligarchs were clear what was expected of them – that was to stay out of politics and respect the Russian state in order to keep hold of their now significant assets. Putin pursued further privatisation of state-owned properties in which allies close to him, particularly cronies and those from the intelligence agencies were placed as senior executives in order to maintain Kremlin control.
A “court” around Putin, was established including 3 components – his cronies, technocrat-managers, and security agency colleagues—comprising the “first three circles” of Putin’s authoritarian kleptocracy (16). Tightening his grip on the country he made high profile examples, particularly of 3 Yeltsin oligarchs, like Boris Berezovsky, Vladimir Gusinsky and most tellingly Mikhail Khodorkovsky. Khodorkovsky was arrested and spent 10 years in a Russian jail on fraud charges but more likely on orders from Putin. After the chaotic Yeltsin years, the first two terms under Putin saw the Russian economy grow buoyed by high oil prices that raised the standards of living for many Russians (17).
Putin’s journey to increasing autocracy…..
Public support for Putin began to wane though following the global economic crises in 2008 and increasing personal unpopularity culminating in street demonstrations in 2011, which Putin clamped down on, winning a rigged 2012 Presidential election, which Putin’s campaign chief described as “the cleanest elections in all of Russia’s history” (18).
Reforms to address economic stagnation where drawn up with the media reporting that “the problem was that the reforms needed to achieve such growth—fighting corruption, protecting property rights, privatisation and integration into the global economy— threaten the elite’s ability to hold on to power”, and “for those in power, a big piece of a shrinking pie is preferable to no piece of a growing one, which is what most of the current elite would receive under a fair legal system with clear rules and predictable enforcement” (19).
Whilst outwardly, Russia portrayed an image that it was open for business and changing for the better through the hosting of global events like the Sochi Olympics of 2014, and the successful bid to host the 2018 FIFA World Cup, things were changing for the worse. An altogether more authoritarian regime began to exert itself and test the boundaries, and appetite of the international community, to meaningfully resist. For example, following the Winter Olympics, Russia acted on its initial invasion plans into Ukraine by seizing control of and annexing Crimea and occupying eastern regions. This followed political and military support for the Assad regime in Syria, which also continued after the first Ukrainian invasion with allegations of chemical weapons usage. Then there was the allegations of interference in the US elections of 2016, and accusations of carrying out the chemical poisoning of both Sergei Skrypal on UK soil in 2017, and opposition leader Aleksander Navalny in 2020. Limited sanctions followed each event, but as is now clear, those sanctions were used to signal disapproval, rather than with the expectation or ambition that it would change Russian behaviour, or change the course and the future ambitions of Putin’s Russian state.
Capital flight and illicit financial flows…..
Throughout the 30-year existence of the new Russian State, capital flight (money that left Russia) is estimated to have been a staggering 1US$ trillion (20) as Russians actively moved wealth from Russia to foreign countries.
“For 30 years after the collapse of the Soviet Union, Russia subsidised the global financial system by US$1 trillion. And if we take the entire former Soviet Union, then the amount of exported capital is US$2 trillion” – Sergei Glazyev, economic adviser to Putin in 2019.
The Russian elite (including oligarchs), in search of trophy assets, properties, cars, yachts and investments, as well as those that considered foreign assets a hedge against holding only Russian domestic assets, were also moving large amounts of funds out of the country. It seems that even Russia’s elite do not trust a regime that may someday come for their property. This fear of expropriation has long fuelled massive capital flight from Russia to jurisdictions where the law will generally protect private property – should they not be subject to sanctions, or there is no evidence of criminality (though much less than 1% of estimated criminal assets are seized in any event). By some estimates, it has been suggested that 50% of all Russian financial wealth is held offshore, a figure that compares unfavourably with the corresponding figures for the United States (4%), Europe (10%), Latin America (22%), and Africa (30%). (21)
In his December 2013 address to parliament, President Putin noted that in the preceding year “US$111 billion worth of Russian goods passed through offshores and partial offshores” and that half of Russia’s US$50 billion in foreign investments also ended up in tax havens” (22). A year later in 2014, the Russian parliament passed a law, (“CFC Law,”) (23) requiring Russian tax residents to file a declaration by 2017, listing all controlling interests they have in businesses that are not subject to the Russian tax regime. The response was to avoid having to disclose their foreign assets, so 40-50% of rich Russians reportedly promptly took up tax residence abroad or transferred their foreign assets to relatives who were not Russian tax residents. What apparently spooked these Russians most, was not tax but the prospect that state agencies would leak their financial information to enemies and rivals, or abuse it themselves.
Mixed in with these financial flows are, almost certainly, large amounts of funds from corruption, serious criminality and monies that leave but are not declared back in Russia, ultimately also evading tax collection. Russian designed “Laundromats” have been used to funnel monies, with the help of facilitators, including so called professional gatekeepers, which have, wittingly or unwittingly, ensnared banks that had lax anti-financial crime controls. These have included numerousEuropean banks who were all fined significantly for offences linked to underlying significant Russian illicit money flows.
Russia is one of the most unequal societies in the world…..
Those exporting Russian wealth of course include the most wealthy of individuals. The 500 richest Russians wealth stood at US$640 billion in 2021, but these 500 make up less than 0.001% of the Russia’s population, and their combined wealth was still higher than that of the poorest 114.6 million, or 99.8% of the adult population (24).
The 500 richest Russians wealth stood at US$640 billion in 2021, but these 500 make up less than 0.001% of Russia’s population, and their combined wealth was still higher than that of the poorest 114.6 million, or 99.8% of the adult population.
The origin of this wealth has long been discussed, but its legitimacy has come under scrutiny like never before, with many of Russia’s elites finding their assets and businesses now the subject of international sanctions. These assets and businesses are in what could now be considered hostile jurisdictions, and can be identified, investigated or seized, and although perhaps not at risk because of suspicions of corruption or criminality, they are now at risk as a consequence of being too closely associated with Putin’s regime.
Putin himself claims to be a humble public servant with a modest income of US$140,000, and has disclosed assets of an 800 sqm apartment and 3 cars. Some have described him as possibly the richest man in the world. According to Bill Browder, Hermitage Capital CEO and Kremlin critic (the man behind Magnitsky Sanctions) Putin’s personal fortune is closer to US$200 billion (25). Last year, Alexander Navalny’s anti-corruption foundation revealed that Putin’s wealth is, (for example) claimed to include a 190,000 square foot mansion that overlooks the Black Sea, estimated at a value of US$1.4 billion. This coastal property is reputed to be the largest private residence in the country, and serves as Putin’s private palace, endearingly referred to as “Putin’s Country Cottage” (26). .Apart from the Black Sea Mansion, 19 other houses and 700 cars, Putin supposedly has a collection of 58 aircraft and helicopters including a US$716 million dollar Ilyushin Il-96-300PU plane called “The Flying Kremlin”, and a US$100-million-dollar megayacht called “Graceful” (27).
A list released by the US Treasury Department in 2018, dubbed the “Putin list”, consists of 210 prominent Russians, many with close ties to the Kremlin, with many now sanctioned. The US was required to publish the list ,and to consider whether to sanction these individuals under legislation that was meant to punish Russia for its interference in the 2016 US election, as well as its human rights violations, annexation of Crimea, and ongoing military operations in eastern Ukraine. The list included:
- 114 senior political figures with close ties to Russian President Vladimir Putin, including his chief spokesman, Dimitry Peskov, Foreign Minister Sergey Lavrov and then Prime Minister Dimitry Medvedev; and
- 96 oligarchs with a net worth of $1 billion or more, including the aluminium magnate Oleg Deripaska, Chelsea football club owner Roman Abramovich, and the media and tech magnate Alisher Usmanov.
Whilst the US Treasury said the list was “based on objective criteria drawn from publicly available sources,” the oligarchs named in the list were an exact match of a list of 96 Russian billionaires compiled by Forbes magazine the year before (28).
According to Forbes, the losses to Russia’s elite due to sanctions and the weakened ruble has taken its toll on the wealth of Russia’s billionaires, with only “83 Russians on the 2022 Forbes list of the World’s Billionaires, down from 117 last year. The remaining Russian billionaires are worth a collective US$320 billion–an eye-watering US$263 billion less than a year ago” (29). These billionaires have lost, on average, 27% of their wealth or US$2 billion each since last year. Six tycoons saw their wealth drop by a double-digit billion-dollar sum: Leonid Mikhelson (-US$10.9 billion), Alexey Mordashov (-US$15.9 billion), Gennady Timchenko (US$10.7 billion), Vagit Alekperov (-US$14.4 billion), Suleiman Kerimov (-US$11.4 billion) and Tatyana Bakalchuk (-US$10.9 billion).
Endemic corruption & state embedded criminality…..
Endemic corruption together with such high levels of state embedded criminality in the worlds 11th largest economy (30) make Russia a special case, because of:
- Levels of corruption in Russia. According to TI’s Corruption Perception Index, Russia scored between 22 and 29 for the past 25 years (anything under 50 is deemed as poor), and serves to highlight Russia as the worst rated G20 country (by far), with corruption considered to be endemic (31). Russia enjoys the unenviable distinction of occupying the 136th rank (out of 180) with Angola, Liberia and Mali in the 2021 Index. Estimates for the cost of corruption that have been produced by different sources demonstrate a wide range and variation of metrics, with Russian government sources much more conservative than estimates provided by non-government agencies, for example: Corruption is estimated by the Russian state at 30% of estimated criminal proceeds (US$3 billion) representing USD 1 billion. Costs of corruption amounts vary, with 3.5%, 7%, 25% & 33% of GDP all estimated by various sources which could amount to US$425 billion.
- The connections between serious organised crime and those in the Russian state, particularly across law enforcement and in the intelligence services, makes Russia stand out in terms of the G20, (world’s largest economies) behind Turkey (9/10), and equal with Brazil (8.5/10), as being countries where the state significantly enables serious criminality rather than confronts it (32).
Endemic corruption together with such high levels of state embedded criminality in the worlds 11th largest economy and adding drug and human trafficking, cybercrime, green crimes and the arms trade to the mix makes Russia a very special case for concern
Outsized criminality in Russia…..
Whilst Russia is not the only place where crimes like drug trafficking (33), human trafficking (34), and organised crime (35) are prevalent, Russia also plays a leading role in cybercrime, considered to be the fastest growing of financial crimes and green crimes, in particular illegal logging is a major generator of criminal proceeds in Russia. For example:
- Russia is considered by European intelligence officials as the world leader in cybercrime, with more Russian advanced criminal groups with hacking abilities than most other countries, and worryingly, with ties to Russian intelligence services (36). Whilst China leads in terms of cyber espionage (37), Russia dominates in cybercrime, for example, “74% of the revenue derived from ransomware attacks – or about US$400m in cryptocurrency – was connected to malware strains likely affiliated to Russia. In addition, most of the ransomware money collected by threat groups are laundered through services primarily catering to Russian users,” according to Chainalysis (38).
- Russia is also associated with other illicit trades including “environmental” or “green crimes” including illegal logging (39), fishing (40), wildlife (41) and mining (42). For example Russia possesses a quarter of the world’s timber reserves, valued in 2013 as much as US$28 trillion. By comparison, the country’s oil and gas reserves were valued at US$19 trillion and US$7 trillion, respectively (43). Illegal logging is estimated by the former Russian Prime Minister, Dmitry Medvedev, at between 10 – 20% of the total volume of logging and by the Russian Prosecutor General’s Office (2013) at nearly 50%. In 2021, wood represented 1.06% of Russian exports valued at US$5 billion (44). Most exports (approx 60%) go to China, then onward to international markets (45).
- Arms Dealing: Russia is one of the largest arms exporters (46) with over US$15 billion in sales in 2020, and more than US$50 billion on order. Russia exported arms to 45 countries, with the top 5 being Algeria, China, Egypt, India, and Vietnam. Russia was responsible for 20% of global arms exports. The arms trade is considered to be one of the most corrupt businesses in the world, with estimates that 40% of all corruption cases in international trade are linked to arms deals – even though the arms trade only accounts for about 0.5% of global trade (47).
What was missed and lessons that should be learned…..
Whilst many in the international community have responded by imposing meaningful sanctions, the effectiveness of many of these measures depend upon the thousands of financial crime fighters that implement these sanctions and police the system. With wave after wave of complex sanctions to deal with, there is hardly time for financial crime fighters to consider whether the past has lessons for the future, for example consider whether in addition to existing sanctions, the lack of targeting of Russian criminal assets and activities is a missed opportunity, as it has been over the last 30 years.
For example, missed opportunities extend to:
- failing to effectively question or challenge the sources of oligarch or Russian elite wealth, as and when invested outside Russia and where strong ties to the Russian State remained. Many countries established promoted golden visa schemes to encourage foreign investment and advantages to elites from Russia. Russian oligarchs, politicians and business leaders have long understood how to hold assets at arms-length, opaquely and whilst still enjoying the financial and other benefits. This will now need to be undertaken at an altogether new level, following the imposition of a plethora of sanctions. The risks for those involved will be high and as such may dissuade some, but the close connections between the Kremlin and criminality is likely to become stronger to aid these activities, as well as targeting potentially friendly countries (48)
- Failing to investigate and follow the money from the underlying laundromats funds transfers once discovered, in order to prosecute serious criminality and seize substantial criminal funds, and to take the necessary steps to strengthen anti money laundering defences, including the use and transparency of offshore companies and trusts, company registries, real estate registries and the responsibilities and oversight of gatekeepers.
- Failing to effectively target Russian organised criminal activity including cybercrime and illegal logging as well as OC leadership (for example Semion Mogilevich, a supposed leader of Russian Organised Crime Group and considered by some as Russia’s bosses of bosses) is not even sanctioned, and is living in Moscow. The FBI have just announced a US$5 Million reward for information leading to his arrest and/or conviction (49).
- Failing to take into proper consideration significant threat factors (50), such as corruption and state embedded organised crime, into the FATF Review published in 2019 (51), and not questioning sufficiently the work of the FIU, which appears both impressive but highly selective, which allowed Russia to avoid any suggestion it should be listed on FATF’s so called “Grey List”,
- Failing to challenge Russia as a FATF Member, especially where they could use their influence to object to changes proposed by others to strengthen the international response to fighting financial crime. This might, for example, make it harder to wash funds through the Russian laundromats using shell companies facilitated by professional gatekeepers, or support additional requirements on information sharing and international cooperation.
- Failing to upgrade the international community’s capability and cohesion to wage an effective response using sanctions, for too long relying largely on financial institutions individually to do the heavy lifting, with ever more parties sanctioned and complex sanctions becoming the norm. It’s time to reimagine how to deploy a collective shield to prevent sanctioned parties accessing and using the international financial system rather than the patchwork approach of individual financial institutions that has been the norm for the last 20 years.
That not enough has been done to tackle financial crime is clear. That by not doing so has enabled Putin and the Russian State to become emboldened is also obvious. A grave situation like Ukraine should not be what it takes to arouse the international community that it has to be totally committed about going after financial crime perpetrators. So far, enhancing the fight against financial crime as a retaliatory act towards Russia has not been part of the conversation, though establishing a multinational task force (52) (including Europol (53)), to hunt down sanctioned assets is a start. That actions over the last 30 years haven’t come close to meeting even agreed commitments or reasonable expectations, is profoundly concerning, and this doesn’t just apply to Russia, but Russia demonstrates what can happen by not taking action earlier. The problem with Russia has been ignored for far too long in order to maintain an international task force consensus and/or the result of a well-meaning engagement strategy largely predicated on hope, has proven insufficient. Hope is never the basis for an effective strategy. Russia is not the only country against which action to fight financial crime is urgently needed, though it’s particular threat profile means it’s clearly the top priority.
For comprehensive materials on financial crime see FCN Materials, including the Financial Crime Threat Assessment & Country Dashboard.
See HERE for the Russia Country Threat Assessment 2020
1 Vladimir Putin was appointed Prime Minister on 9th August 1999, and acting President on 21st December 1999, following Boris Yeltsin’s resignation with his confidence ratings at just 4%, he told Putin, “to take care of Russia”. In his resignation speech on TV, Yeltsin asked for forgiveness stating, “I want to ask you for forgiveness because many of our hopes have not come true. And what we thought would be easy turned out to be painfully difficult. I ask for forgiveness for not having lived up to some of the hopes of the people who believed that we would be able to make a single leap from the grey, stagnating, totalitarian past into a bright, prosperous and civilised future. I believed it myself. It seemed, one leap and we would conquer everything. But it could not be done in one leap.” NATO expansion to former Warsaw Pact countries began in April 1999, with Poland, Hungary and the Czech Republic joining under fierce Russian opposition. Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia joined in 2004, Albania and Croatia joined in 2009, Montenegro in 2017 and North Macedonia in 2020. As of 2022, NATO recognised 3 countries with membership aspirations, Bosnia, Georgia and Ukraine.
2 NATO expansion to former Warsaw Pact countries began in April 1999, with Poland, Hungary and the Czech Republic joining under fierce Russian opposition. Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia joined in 2004, Albania and Croatia joined in 2009, Montenegro in 2017 and North Macedonia in 2020. As of 2022, NATO recognised 3 countries with membership aspirations, Bosnia, Georgia and Ukraine.
3 See: https://en.m.wikipedia.org/wiki/FATF_blacklist. The original FATF blacklist included the Bahamas, Cayman Islands, Cook Islands, Israel, Lebanon, USA, Marshall Islands, Nauru, Niue, Panama, Philippines, Russia & St Kitts and Nevis.
4 See: https://www.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20Russia%20ES.pdf. The 2008 FATF Report on Russia reports for 40 Recommendations: 10 Compliant, 10 Largely Compliant & 17 Partially Compliant & 1 Non Compliant & 2 N/A And for 9 Special Recommendations: 0 Compliant, 3 Largely Compliant & 4 Partially Compliant & 2 Non Compliant.
5 See: http://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/fatfstatement-28february2008.html. high risk countries are: Uzbekistan, Pakistan, Iran,Turkmenistan, Sao Tome & Principe, & Northern Cyprus
6 See: https://egmontgroup.org/wp-content/uploads/2021/09/2012_Saint_Petersburg_Russia_–_Co-Chairs_Statement.pdf
7 See: https://www.fatf-gafi.org/documents/documents/objectivesforfatf-xxv2013-2014.html
8 See: https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Executive-Summary-Mutual-Evaluation-Russian-Federation-2019.pdf. The FATF reported for 40 Recommendations: 7 Compliant, 29 Largely Compliant & 5 Partially Compliant (R6 Terror Sanctions, R7 PF Sanctions, R13 PEPs, R16 Wire Transfers, R25 Transparency of BO Legal Arrangements), And for 11 Immediate Outcomes; 2 High (FIU IO6/Investigations & Prosecutions I09), 4 Substantial & 5 Moderate.
9 See: https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Russian-Federation-2019.pdf. P57.
10 See: https://home.treasury.gov/system/files/266/13.-FinCEN-FY-2022-CJ.pdf
11 See: https://www.moneylaundering.com/news/former-fatf-president-accuses-russias-fiu-of-facilitating-money-laundering/
12 The original so called Yeltsin Oligarchs were 7 in number: Vladimir Potanin (Norisk Nickel), Michael Friedman (Alfa Bank), Mikhail Khordokovsky (Yukos Oil), Boris Berezovsky (Media), Vladimir Gusinsky (Media) & Alexander Smolensky (Banking). Note Potanin in not sanctioned.
13 See: https://www.bbc.co.uk/news/world-europe-60736185
14 See: https://www.bbc.co.uk/news/world-europe-60736185
15 See: https://www.bbc.co.uk/news/world-europe-60736185
16 See: https://www.fpri.org/wp-content/uploads/2021/11/even-thieves-need-a-safe-.pdf. The main Putin oligarchs is composed of old friends and colleagues from his days as Deputy Mayor of St. Petersburg. The court includes the “Ozero Summerhouse Co- operative” members like Andrei Fursenko, Yury Kovalchuk, Arkady and Boris Rotenberg, Nikolai Shalamov, Gennady Timchenko, and Vladimir Yakunin, as well as long- time acquaintances now serving as captains of industry and state: German Gref (CEO of Sberbank), Dmitri Kozak (Deputy Kremlin Chief of Staff), Alexei Kudrin (Chairman of the Accounts Chamber), Dmitri Medvedev (Security Council Deputy Chairman, former President and Prime Minister), Alexei Miller (CEO of Gazprom), and Igor Sechin (CEO of Rosneft). The court also includes several present and former members of the Russian security agencies, most notably Nikolai Patrushev (Security Council Secretary), Alexander Bortnikov (Federal Security Service Chief), and Sergei Ivanov (Special Representative of the President, former Chief of Staff and Minister of Defense). These three components of Putin’s court—his dacha co-op cronies, technocrat-managers, and security agency colleagues—comprise what Åslund calls the “first three circles” of Putin’s authoritarian kleptocracy.
17 See: https://www.fpri.org/wp-content/uploads/2021/11/even-thieves-need-a-safe-.pdf. From 1999 until the global financial crisis of 2007-2009, the country’s “per-capita gross domestic product (GDP) doubled in constant prices (equivalent to the average annual growth rate of 7 percent) and grew sixfold in nominal dollars—from $270 billion to $1.7 trillion in constant prices.”2 Unfortunately, the party was not to last. After recovering from the financial crisis, the Russian economy began to stagnate in 2012. Relative to the United States, and China, Russia started to shrink.
18 See: https://www.theguardian.com/world/2012/mar/04/putin-alleged-voter-fraud-russian-election
19 See: https://www.themoscowtimes.com/2013/12/04/the-return-of-stagnation-a30204
20 See: https://www.themoscowtimes.com/2019/10/24/russia-capital-outflow-trillion-ussr-putin-economist-a67891
21 See: https://www.fpri.org/wp-content/uploads/2021/11/even-thieves-need-a-safe-.pdf. Thomas Piketty, Capital et idéologie (Paris: Seuil, 2019), note 26, p. 700
22 See: Vladimir Putin, Presidential Address to the Federal Assembly, Dec. 12, 2013, Official Kremlin Website, at http://en.kremlin.ru/events/ president/news/19825
23 See: Federal Law No. 376-FZ of Nov.
24, 2014, “On amending Parts I and II of the Russian Federation Tax Code (in respect of taxation of the profits of controlled foreign companies). See: https://www.themoscowtimes.com/2021/06/10/majority-of-europeans-dont-trust-russias-coronavirus-vaccines-poll-a741791
25 See: https://fortune.com/2022/03/02/vladimir-putin-net-worth-2022/
26 See: https://www.businessinsider.com/putin-palace-leak-479-photos-navalny-ice-rink-pole-dancing-2022-1?r=US&IR=T
27 See: https://www.businessinsider.com/putin-palace-leak-479-photos-navalny-ice-rink-pole-dancing-2022-1?r=US&IR=T
28 See: https://www.businessinsider.com/putin-palace-leak-479-photos-navalny-ice-rink-pole-dancing-2022-1?r=US&IR=T
29 See: https://www.forbes.com/sites/daviddawkins/2022/04/05/heres-how-big-a-hit-russias-billionaires-have-taken-in-the-past-year/
30 See: https://researchfdi.com/world-gdp-largest-economy/
31 See: https://www.transparency.org/en/cpi/2021
32 See: https://ocindex.net/country/russia. Russia is rated 8.5/10 for State Embedded Actors, the same as in Brazil being the highest in the G20, behind Turkey 9/10), followed by Mexico & Indonesia and China Indonesia & South Africa at 7.5/10, Mexico & China at 7/10. This can be compared to the USA at 5/10, UK at 3/10 & Australia at 2/10.
33 See: https://ocindex.net – “Drug Trafficking: Russia is a key transit & destination country for heroin. A third of the global turnover of heroin passes through Russia, largely sourced from Afghanistan, through Central Asia or the South Caucasus. The drug is sometimes transported through Russia via Belarus & Poland to Western Europe. Notably, criminal networks, with the participation of Turkish nationals, are involved in the heroin trade from Afghanistan to Western Europe via Russia. Synthetic drugs as well as the ingredients are sourced from South-eastern Asia and China, with drugs then manufactured in local laboratories in Russia. Meth is smuggled from the Czech Republic, Slovakia, the Baltic States, China, Iran, Belarus and Ukraine. Russia’s synthetic drugs market is second only to cannabis and its supply chain accommodates both local and foreign criminal actors, although street-level distribution is essentially still in the hands of domestic gangs. Market actors largely prey on teenagers and young people, who are also the majority of users. Russia is also a destination and source country for cannabis. Some is grown domestically but most of it comes from the Middle East and North Africa, often by sea.”
34 See: https://ocindex.net – “Human Trafficking – Russia is a source, destination & transit country for human trafficking. Russia is a major international transit & destination hub for victims of forced labour from countries in E Europe, C Asia & Africa. Meanwhile, HT out of Russia mainly consists of women & children For the purposes of sexual exploitation & includes destination countries across Europe Asia & N America.”
35 See: https://ocindex.net – “There are 8 to 12 major nationwide OC Networks, and each small group within the network controls a specific segment of the illicit supply chain, for example, drug transportation or distribution. Most networks emerged from mafia-style gangs. These mafia-style groups are confined to particular cities or regions. Many groups engage in protection racketeering. Mafia-style groups also tend to be involved in a wide range of other illegal markets, from drug trafficking and distribution, to counterfeiting and modern slavery. Virtually every major illicit market is controlled by mid to high-level members of the security forces, under the tacit supervision and control of higher-level political elites, both at the local and federal level. Many past criminal leaders went into legitimate business or politics in the period following the fall of the Soviet Union, and those who still try to operate independently are typically outgunned by the law enforcement protection racket.”
36 See: https://www.barrons.com/articles/a-dangerous-moment-for-russian-cybercrime-may-get-worse-51644936090
37 See: http://amp.theguardian.com/technology/2021/oct11/Russia-and-nearby-states-are-origin-of-most-ransomware-says-uk-cyberchief
38 See: https://blog.chainalysis.com/reports/2022-crypto-crime-report-preview-russia-ransomware-money-laundering/
39 Illegal Logging: Russia possesses a quarter of the world’s timber reserves, valued in 2013 as much as US$ 28 trillion. By comparison, the country’s oil and gas reserves were valued at US$ 19 trillion and US$ 7 trillion, respectively. Illegal logging is estimated by the former Russian Prime Minister, Dmitry Medvedev, at between 10 – 20% and by the Russian Prosecutor General’s Office (2013) at nearly 50%. In 2021, wood represented 1.06% of Russian exports valued at US$5 billion. Most exports (approx 60%) go to China, (followed by 26% to Finland & 3.5% to each of Sweden & South Korea) for processing and then onward sale generating US$ billions in criminal proceeds. Russian timber exports to China represent 21% of the total timber imports into China (with New Zealand topping the list at 21%, USA at 11% & Papua New Guinea at 7%). The mark up on illegal timber increases as it moves from the illegal logger to the Russian exporter (+14x), to the Chinese Border importer (+43x) to the Chinese exporter (+67x) and finally to the US retailer (+200x), for example selling wooden panel flooring. Between 2010 and 2019 China’s top buyers of timber products by value were the USA with 31% (worth US$13 billion in 2019), EU/EFTA with 18%, Japan with 8% followed by Australia with 4% South Korea and Canada with 3% each.Despite the fact that the US “Lacey Act” requires timber importers to indicate the country of origin for timber, and the EU has rules on source labelling, long supply chains are used to disguise the origin.
40 See: https://blog.chainalysis.com/reports/2022-crypto-crime-report-preview-russia-ransomware-money-laundering/
41 See: https://blog.chainalysis.com/reports/2022-crypto-crime-report-preview-russia-ransomware-money-laundering/
42 See: https://blog.chainalysis.com/reports/2022-crypto-crime-report-preview-russia-ransomware-money-laundering/
43 See: https://gridarendal-website-live.s3.amazonaws.com/production/documents/:s_document/310/original/ RusLog_screen_%281%29.pdf?1488216205=&ref=dtf.ru.
44 See: https://atlas.cid.harvard.edu/countries/186/export-basket
45 Most exports (approx 60%) go to China, followed by 26% to Finland & 3.5% to each of Sweden & South Korea) for processing and then onward sale generating US$ billions in criminal proceeds. Russian timber exports to China represent 21% of the total timber imports into China (with New Zealand topping the list at 21%, USA at 11% & Papua New Guinea at 7%). The mark up on illegal timber increases as it moves from the illegal logger to the Russian exporter (+14x), to the Chinese Border importer (+43x) to the Chinese exporter (+67x) and finally to the US retailer (+200x), for example selling wooden panel flooring. Between 2010 and 2019 China’s top buyers of timber products by value were the USA with 31% (worth US$13 billion in 2019), EU/EFTA with 18%, Japan with 8% followed by Australia with 4% South Korea and Canada with 3% each. This despite the fact that the US “Lacey Act” requires timber importers to indicate the country of origin for timber, and the EU has rules on source labelling, long supply chains are used to disguise the origin.
46 See: https://crsreports.congress.gov/product/pdf/R/R46937
47 See: https://ocindex.net/country/russia
48 Countries continuing to support Russia are most likely to be countries involved in sanctions circumvention attempts. A UN General Assembly Resolution censuring Russia for its invasion of Ukraine on 2 March 2022, had 141 countries voting in favour of the censure, 5 countries voting against (Russia, Belarus, North Korea, Eritrea & Syria) & 35 countries abstaining, including China, India, Pakistan & South Africa.
49 See: https://www.fbi.gov/news/pressrel/press-releases/fbi-state-department-announce-5-million-reward-for-fugitive-semion-mogilevich
50 See: https://www.gcffc.org/fatf-subgroup-working-paper/ From the Global Coalition to Fight Financial Crime making recommendations to FATF to improve its Country Evaluation Process by inter alia paying more attention to significant threats and not overly focusing on responses.
51 See: https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Executive-Summary-Mutual-Evaluation-Russian-Federation-2019.pdf
52 See: https://www.reuters.com/world/us-allies-launch-joint-task-force-tackle-russian-oligarchs-2022-03-16/
53 See: https://www.europol.europa.eu/media-press/newsroom/news/eu-wide-operation-targeting-criminal-assets-in-relation-to-russian-invasion-of-ukraine