Money laundering in Ukraine. Tax evasion, embezzlement, illicit international flows and state capture

Date06 July 2015
Pages382-394
DOIhttps://doi.org/10.1108/JMLC-05-2014-0013
Published date06 July 2015
AuthorGraham Stack
Subject MatterAccounting & Finance,Financial risk/company failure,Financial compliance/regulation
Money laundering in Ukraine
Tax evasion, embezzlement, illicit
international ows and state capture
Graham Stack
Business New Europe, Moscow, Russia and
Business New Europe, Kyiv, Ukraine
Abstract
Purpose – This paper aims to examine the role in tax evasion and corruption played in Ukraine by
money-laundering organisations called “conversion centres”: networks of sham rms and banks
implementing “black cash” schemes that facilitate tax evasion by the private sector and embezzlement
by the state sector. The paper describes their embedding both in a post-Soviet state as well as in the
international political economy.
Design/methodology/approach – It draws on scholarship, journalist investigations, court records,
government agency reports and other open source data and interviews with market participants. It rst
describes “conversion centres” as an ideal type and then presents three case studies, focusing on
international nancial ows and the domestic political setting.
Findings Ukraine’s conversion centres generate signicant international ows of dirty money
handled by specialised foreign banks mostly in the Baltic states. Domestically, conversion centres
thrive through state capture, resulting from their facilitation of embezzlement by state actors.
Research limitations/implications – Open source data and investigative methods make it possible
to conduct empirical research in crime and corruption in the post-Soviet context. As open sources
expand, the scope for such enquiry will increase.
Originality/value This is the rst empirical description of “black cash” money-laundering
platforms in terms of embedding in a post-Soviet state and in the international nancial system.
Keywords Corruption, Ukraine, Shadow economy, Organised crime, Money laundering,
State capture
Paper type Research paper
Introduction
A key institution of the post-Soviet shadow economy are money-laundering and tax
evasion platforms, consisting of networks of sham rms hosted by specialised banks. In
Ukraine, these platforms have become known as “conversion centres”, denoting the
“conversion” of a company’s or individual’s bank funds to off-the-books “black cash”.
This paper argues that Ukraine’s conversion centres generate large international ows
of dirty money and enjoy top-level political protection in Ukraine, pointing to state
capture by internationally embedded money launderers.
Black cash and conversion centres
“Black cash” tax evasion schemes – “the replacement of high-taxed elements of total
revenue such as salary or prot with low-taxed elements such as material expenditures”
have existed ever since the collapse of the Soviet Union in 1991 and the subsequent
introduction of value-added tax and prot taxes across the successor states (Yakovlev,
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
JMLC
18,3
382
Journalof Money Laundering
Control
Vol.18 No. 3, 2015
pp.382-394
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2014-0013

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