The current challenges of money laundering law in Russia
| Date | 02 October 2017 |
| DOI | https://doi.org/10.1108/JMLC-09-2016-0041 |
| Pages | 367-385 |
| Published date | 02 October 2017 |
| Author | Delphine Defossez |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
The current challenges of money
laundering law in Russia
Delphine Defossez
Department of Law, Universidade de Brasilia, Brasilia, Brazil
Abstract
Purpose –The purpose of this paperis to analyse the new Russian law on Money laundering. Globalisation
has turned the internationalfinancial systems into a paradise for money launderers.As much as globalisation
has expanded opportunities. The purpose of this paper is to analyse the new Russian law on money
laundering which brought some changes to the existing system was introduced in Russia in 2002. Even
though it has improved the regulation on money laundering greatly, it has failed to efficiently combat
terrorism. Overall, the Russian anti-money laundering regimehas proved ineffective in terms of meeting its
stated purposes of combatingorganised crime and terrorism. The limited success of the Russiananti-money
launderinglaw stems largely from the fact that Russian bankingsystem is structurally weak.
Design/methodology/approach –This paper analyses the problems through literature review. Also,
the problem will be lookedat from an international law perspective, explaining why Russianefforts will not
be efficientas long as no consensus is reached at international level.
Findings –This paper starts fromthe premise that Russian made great effort to comply withinternational
recommendationsbut that its law fails to efficiently deal with terrorism finance partlydue to the fact that no
consensus existsat international level as to the definition of the terrorism. Furthermore,the doubt persists as
to the realaim pursued by Russian Government while enactingthe money laundering law.
Originality/value –Few papers havebeen published about money laundering in Russia, but noneof them
look at the problem of the lack of definitionof terrorism at international level to explain thedeficiencies of the
system in place.
Keywords Money laundering, International terrorism, Russia
Paper type Research paper
1. Introduction
Globalisation has turned the international financial systems into a paradise for money
launderers. Indeed, globalisation enhances the international integration of capital,
technology and information in a manner resulting in a single global market (Friedman,
1999). As much as globalisation has expanded opportunities as never before, but, this
expansion of opportunities has also resulted in new risks. Globalisation has facilitated the
move of billions of dollars a year by money launderers. This unexpected consequence of
globalisation presentsserious challenges for legislators.
The new law on combating money laundering which brought some changes to the
existing system was introduced in Russia in 2002. Even though it has improved the
regulation on money laundering greatly, it has failed to efficiently combat terrorism.
Overall, the Russian anti-money laundering regime has proved ineffective in terms of
meeting its stated purposes of combating organised crime and terrorism. The limited
success of the Russian anti-money launderinglaw stems largely from the fact that Russian
banking system is structurally weak. The other main reason is the lack of regulatory
compliance culturewithin the industry, weakening the effect of the law itself.
Russian authorities have been criticised for opportunistically having used the anti-
money laundering regime as a tool to reform the banking system,which is an unconnected
Challenges of
money
laundering law
367
Journalof Money Laundering
Control
Vol.20 No. 4, 2017
pp. 367-385
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-09-2016-0041
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
end to the fight against terrorism and organised crimes (Orlova, 2008). As a result, the
effectiveness of the money laundering regulations is undermined. Moreover, by using the
regulation to achieve differentaims, the legitimacy of the whole system is put at stake.
This paper starts from the premise that Russian made great effort to comply with
international recommendations. The country has enacted laws to regulate money
laundering at national level. But has failed to enact laws that are dealing with terrorism
finance. The doubt persists as to the real aim pursued by Russian Government while
enacting the money laundering law. This paper will examine the current challenges that
Russian law is facing. Part one will briefly summarise the problem that money laundering
possesses worldwide. The rational for regulating money laundering will be given. Within
part two that is dedicated to Russia, first a brief summary of money laundering in Russia
will be given. Then, the focus will shift to the specific Russian laws on money laundering,
especially the money launderinglaw of 2001 which will be discussed in length. Finally, with
regard to Russia, the current challenges will be examined, with an emphasis on terrorism,
the banking system andlack of compliance culture.
2. Money laundering a worldwide problem with worldwide solutions
Money laundering started to be seen as a serious problem during the US war on drugs.
Indeed, as Raymond Kelly, Commissionerof the US Customs Service, stated:
[...] we will not win the war on drugs by following the tons of cocaine and heroin and marijuana
that move through our streets. We will win it by following the billions of drug dollars that move
through our financial system. (Beare, 2002;Gilligan, 1990;Naylor, 2003)
With the US war on drugs, the international community started to realise that some of the
greatest problems of our century should be combatted at the root of the problem to have a
long-term effect. This focus on money laundering and later on terrorist financing has
motivated significant international cooperation, sometimes even involuntary cooperation.
Many countries have adopted an American style of anti-money laundering regulations,
rendering the combat increasingly homogenised (Cuellar, 2003;Orlova, 2008, p. 211). This
American influence is best exemplified by the fact that the international cooperation in the
fight against money launderingand terrorist financing is ensured by the US-run FATF. The
non-cooperative countriesand territories project which created “blacklists”of countries that
failed to regulate money laundering set by FATF, was commenced by FATF (Eizenstat,
2001). Interestingly:
[...] although the basis for the FATF is not a binding international treaty but an agreement, it
had provided the basis for an embryonic system to police the behavior of countries, including
both members and non-members (Cuellar, 2003, p. 377).
Indeed, these blacklists have serious repercussions, as often foreign economic aid and
foreign capitals are withdrawnfrom that country. This, in turn, leads to a general slowdown
of all financial transactions and destabilisation of the country’sfinancial system, as foreign
banks treated transactionscoming from a country on the blacklist as suspicious (Levi, 2003;
Naylor, 2002).
As Cuellar has noted:
[...] the fight against money laundering is designed not just to punish a few people who happen
to get caught with money after committing a crime, but to punish instead the larger infrastructure
that allows domestic and global criminal networks to profit from and finance crime. (Cuellar,
2003, p. 324)
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