In a draft report that all but promises to elicit sharp criticism from bankers, anti-graft advocates and governments alike, a group that promulgates global anti-money laundering standards has found that Russia’s controls against financial crime rank among the best in the world.
The 323-page report, which the Financial Action Task Force, or FATF, plans to publish next month, criticizes the generally subpar AML programs of Russian lenders, the quality of supervision by Russia’s central bank, and the government’s failure to prosecute individuals suspected of involvement in complex schemes to launder illicit funds abroad.
But the report praises Russia’s efforts to prosecute terrorist financiers, seize their assets and cooperate with authorities in other countries, as well as the quality with which Rosfinmonitoring, the country’s financial intelligence unit, or FIU, analyzes suspicious transactions and shares potential leads with law enforcement.
“AML/CFT [combating the financing of terrorism] is afforded the highest priority by the Russian government,” FATF concluded in an advanced copy of the report obtained by ACAMS moneylaundering.com. “Domestic coordination and cooperation is a major strength of the Russian system.”
The report, which FATF approved last month after a two-week onsite evaluation of Russia, separately rates the country fully “compliant” or “largely compliant” with 35 of the group’s 40 technical recommendations for combating financial crime, and the second lowest possible score of “partially compliant” with the remaining five.
FATF for the first time also assessed how Russia’s laws and regulations against financial crime work in practice under a grading system of 11 “immediate outcomes” adopted in 2013.
Russia is set to receive two “high” scores for its efforts to combat terrorist financing and use financial intelligence, four “substantial” scores, and five “moderate” scores, including in the areas of financial supervision and the financial sector’s implementation of compliance standards.
Bank mergers and license revocations, including in response to AML violations, have halved the number of Russian lenders from more than 900 in 2013 to fewer than 470 as of May 2019, according to FATF, but more stringent operating rules introduced last year have reduced the risk of banks falling under the control of organized crime.
Despite those new controls and the overall efficacy of Russia’s AML regime, a “widespread and persistent trend of noncompliance” still marks the country’s financial sector, FATF found.
Suspicious transaction reports are filed at too low a threshold and on a largely automated basis, threatening to inundate Rosfinmonitoring with a deluge of low-quality submissions, according to the group.
Russia’s central bank focuses mostly on prudential supervision, too frequently relies on offsite inspections, does not sufficiently prioritize AML examinations of high-risk financial institutions over lower-risk firms, and, despite having withdrawn licenses from noncompliant banks in prior years, does not calculate fines at a value likely to dissuade future violations.
The country did not rate “low” in any of FATF’s 11 immediate outcome of effectiveness or “noncompliant” with any of its 40 technical recommendations.
Those results, if published without revision, would unofficially place the former Soviet nation sixth among the roughly 90 countries assessed thus far under FATF’s 2013 methodology, ahead of Switzerland and behind only Italy, Spain, Israel, the U.S. and the U.K., which last year, after a successful lobbying campaign, managed to dilute earlier criticism and secure the highest scores of any nation to date. FATF itself does not produce rankings.
“They’ve got a pretty authoritarian operation and so the fact that Rosfinmonitoring is very good is not a surprise—when it’s looking at the people the government really wants to know about,” said Richard Gordon, director of the Financial Integrity Institute at Case Western University. “It feels wrong, but, as you start to go through the methodology, it makes more sense.”
High praise and a soft rebuke
FATF’s overwhelmingly positive assessment of Russia, a country that reportedly exhibits high levels of corruption and poses a significant money-laundering threat to Europe and elsewhere, will almost certainly prove controversial and raise questions around the group’s procedures for reviewing and grading nations.
“I’ve been involved in around 16 [money-laundering] cases, and in every case it has been shown that Russia doesn’t cooperate,” said Bill Browder, a hedge fund manager and anti-graft campaigner who was briefly held in Spain last year pursuant to an Interpol warrant requested by Russia. “There’s absolutely no real-life data that supports that idea.”
Multibillion dollar money-laundering scandals that have engulfed Denmark’s Danske Bank, Sweden’s Swedbank, Latvia’s ABLV Bank and numerous other major lenders in recent years reportedly began in Russia.
The most recently uncovered scheme, the “Troika Laundromat,” centered around Troika Dialog, a private investment bank in Moscow that created offshore firms to help oligarchs, officials and crime syndicates funnel as much as $4.6 billion out of Russia from 2006 to 2013, according to an investigation by the Organized Crime and Corruption Reporting Project, or OCCRP.
Suspicious funds tied to Troika Dialog allegedly flowed through Germany’s Deutsche Bank, Austria’s Raiffeisen Bank, U.S. lender Citigroup, several Nordic lenders, the Swiss affiliate of France’s Credit Agricole and the three largest financial institutions in the Netherlands.
OCCRP previously mapped out the “Russian Laundromat,” a network of hundreds of shell companies and bank accounts that oligarchs, politicians and criminals used to move almost $21 billion from embezzlement and other crimes out of Russia and into the licit global economy.
“Most banks in Russia are focused on money laundering, not banking,” said Browder, who has lobbied the U.S. and other nations to impose sanctions on Russia and penalize banks suspected of illicit finance. “To come up with any kind of positive view of AML in Russia is absurd, and probably will do more to harm FATF than it will to help Russia.”
Russian authorities concluded in a national risk assessment last year that their country’s primary money-laundering threats stem from embezzlement, corruption, abuse of power, bank fraud and drug trafficking, and that Russian financial institutions are highly vulnerable to criminal abuse.
FATF acknowledged in the draft report that Russia represents a major source of illicit proceeds and that Russian banks largely disregard AML rules.
While authorities have launched investigations into “notorious, multinational laundromats,” they have not sufficiently targeted bankers who facilitate money laundering, according to FATF.
But the country’s high scores suggest that FATF views those particular weaknesses as “somehow mitigated” by adequate risk assessments, data collection and Rosfinmonitoring’s use of sophisticated technology to review transactions, Matthew Redhead, an analyst with the Royal United Services Institute in London, told moneylaundering.com.
“Basically, they are saying that Russia is doing a very good job at sitting on top of a massive problem, and they are actually patting Russian authorities on the back,” Redhead said. “It’s almost like FATF is applying the tick-box approach themselves here, and it’s the perfect illustration of what can go wrong with an evaluation.”
A FATF spokesperson told moneylaundering.com in an email that the draft report follows a “long, rigorous, evidence-based process” and is under review to ensure quality and consistency.
Correction: Amends the 13th paragraph to reflect that as a result of FATF’s latest findings, the quality of Russia’s controls against financial crime unofficially rank sixth, not eighth, among those of the approximately 90 nations evaluated thus far under the 2013 revised methodology.
Contact Koos Couvée at firstname.lastname@example.org
|Topics :||Anti-money laundering , Counterterrorist Financing , Corruption/Bribery|
|Source:||Russia , FATF|
|Document Date:||November 19, 2019|