Russia's anti‐money laundering regime: law enforcement tool or instrument of domestic control?
| Published date | 08 August 2008 |
| Date | 08 August 2008 |
| DOI | https://doi.org/10.1108/13685200810889371 |
| Pages | 210-233 |
| Author | Alexandra V. Orlova |
| Subject Matter | Accounting & finance |
Russia’s anti-money laundering
regime: law enforcement tool or
instrument of domestic control?
Alexandra V. Orlova
Department of Criminal Justice and Criminology, Ryerson University,
Toronto, Canada
Abstract
Purpose – The purpose of this paper is to cut through the rhetoric that shrouds Russia’s anti-money
laundering regime to uncover the reality that lies beneath.
Design/methodology/approach – This paper relies on both primary and secondary sources in Russian
and English that deal with theproblems o fmoney laundering in the Russian context. Relevant sections of the
Russian Criminal Code as well as Russia’s anti-money laundering regulations have been consulted.
Findings – Overall, the Russian anti-money laundering regime has thus far proved ineffective in
terms of meeting its stated purposes of combating organized crime and terrorism. Its limited success
stems largely from structural weaknesses in the Russian banking system as well as that industry’s
lack of a culture of regulatory compliance. Moreover, Russian authorities have opportunistically seized
on the current anti-money laundering regime as a useful tool in the pursuit of ends unconnected to the
fight against organized crime and terrorism. The Russian authorities have used the regime to attempt
to reform the banking system and to extend their strategic control in the domestic political and
business realms. The ineffectiveness of the anti-money laundering regulations and their usage to
achieve ulterior aims undermine the legitimacy of the regime as a whole.
Originality/value – The paper looks beyond the technical difficulties in applying the anti-money
laundering regulations and examines the misuses of the anti-money laundering regime in the Russian
context. However, the problems raised in the paper are not unique to Russia and have relevance to
other jurisdictions, especially countries that are members of the Financial Action Task Force.
Keywords Russia, Money laundering, Regulation,Banks, Financial management
Paper type Research paper
Introduction
Since 9/11, measures to combat money laundering and terrorist financing have become
increasingly harmonized across jurisdictions. Russia, in particular, has faced enormous
international pressure to bring its anti-money laundering regime into compliance with
the Recommendations issued by the Financial Action Task Force (FATF). In the space of
a few years, the Russian Federation has gone from being on the FATF’s “blacklist” of
non-compliant countries and territories to becoming a full-fledged member of the FATF,
adopting the international rhetoric of struggle against organized crime and terrorism in
regards to its own anti-money laundering regime. However, doubts have been raised in
Russia and elsewhere as to the effectiveness of anti-money laundering measures as tools
to stop the spread of organized crime and terrorism. Moreover, some have questioned
The current issue and full text archive of this journal is available at
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The research for this paper is in part supported by Ryerson University SSHRC Institutional
Grant.
JMLC
11,3
210
Journal of Money Laundering Control
Vol. 11 No. 3, 2008
pp. 210-233
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685200810889371
whether these measures have been used to pursue objectives completely unrelated to
their stated aim of disrupting money laundering and terrorist financing.
This paper looks behind the rhetoric to examine the reality of Russia’s measures
directed against money laundering and terrorist financing. Part I briefly summarizes
the rationales advanced in support of the international anti-money laundering regime.
The focus then shifts to the specifics of the Russian anti-money laundering regime in
Part II. The relevant provisions of the Criminal Code and court practice related to these
provisions are examined as well the key provisions of the Russian anti-money
laundering law, and their effectiveness as reflected in criminal arrests and prosecution s
for money laundering assessed. Part III surveys the Russian banking climate and ba nk
reforms, and highlights the main difficulties that Russian banks encounter in
attempting to comply with the provisions of the anti-money laundering legislation.
Finally, Part IV asks what objectives the Russian anti-money laundering regime is
actually being used to achieve. Is it an essential tool in the legal authorities’ struggle
against organized crime and terrorism, or a convenient instrument in the Kremlin’s
efforts to expand its domestic economic and political control?
Part I: rationales for money laundering
After rather meagre success at eradicating the drug problem by targeting drug
producers, dealers and addicts, the focus of the US “war on drugs” shifted from “the
streets” to financial institutions, where dirty drug money was supposedly laundered[1].
This focus on money laundering and later on terrorist financing has motivated
significant international cooperation (Beare, 2002), both voluntary and in some cases
involuntary, and is in large part an extension and globalization of the US-led “war on
drugs”[2]. The strategies to combat money laundering and terrorist financing have been
increasingly homogenized (Cuellar, 2003, p. 376), as countries adopt “American-style”
anti-money laundering regulations (Bogdanova, 2005, p. 67). Continuing international
cooperation in the fight against money laundering and terrorist financing is ensured by
the US-run FATF, which, in the last two years of Clinton’s administration, commenced
its non-cooperative countries and territories (NCCT) project (Eizenstat, 2001, p. 4). The
NCCT project created so-called “blacklists” of countries that failed to regulate money
laundering[3] on par with the FATF’s standards. The “blacklisting” of a country often
meant the withdrawal of foreign economic aid, capital flight and a general slowdown of
all financial transactions, as other banks treated transactions from the “black-listed”
country as suspicious[4]. Thus, being placed on the NCCT list frequently resulted in the
destabilization of the country’s financial system (Naylor, 2002, p. 133). Intere stingly:
[...] although the basis for the FATF is not a binding international treaty but an agreement, it
had [ironically] provided the basis for an embryonic system to police the behavior of
countries, including both members and non-members (Cuellar, 2003, p. 377).
A vivid example of the success of this type of “policing” is the current absence of any
countries on the NCCT list as of 13 October 2006 (see the FATF’s web site at: www.
fatf-gafi.org/document/4/0,2340,en_32250379_32236992_33916420 _1_1_1_1,00.html,
accessed May 2007). However, concerns have been raised over the rather routine nature
of mutual evaluations of FATF’s members (Sorcher, 2005, p. 408) and the subjecting of
non-members to higher levels of scrutiny, despite their adoption of the FATF’s
recommendations ( Johnson and Lim, 2002, p. 9).
Anti-money
laundering
regime
211
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