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Illicit funds are placed in shell companies to make them extremely difficult to trace.
For decades, russian oligarchs transferred billions of dollars of illicit money abroad, putting it in shell companies to make it extremely difficult to trace.
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How much Russian ‘dirty money’ is there around the world?
According to the American think tank Atlantic Council, the Russians own about $1 trillion of what they classify as “dirty money” hidden abroad.
In its 2020 report, the group estimated that a quarter of that amount is controlled by Russian President Vladimir Putin and his close associates – wealthy Russians known as “oligarchs”.
“This money can be exploited and used by the Kremlin for espionage, terrorism, industrial espionage, bribery, political manipulation, disinformation and many other nefarious purposes,” the report says.
Where does this money come from?
Another US think tank, the National Endowment for Democracy, claims that Putin encourages his close allies to “steal from the state budget, extort money from private companies and even orchestrate the total seizure of profitable companies”.
According to the institution, this is how they built personal fortunes in the tens of billions of dollars.
Russian opposition leaders Boris Nemtsov and Vladimir Milov claim that between 2004 and 2007, $60 billion was transferred from the funds of the oil giant Gazprom to Putin’s cronies.
The Pandora Papers, financial documents released in 2021 by the International Consortium of Investigative Journalists that exposed the secret heritage and businesses of world leaders, politicians and billionaires, note that people close to Putin have become very rich — and may be helping the Russian president to move your own wealth.
Where is the money kept?
Historically, much of that money went to Cyprus – lured by favorable taxes. For some, the island became known as the “Moscow in the Mediterranean”.
According to the Atlantic Council, $36 billion in Russian money was sent to the country in 2013 alone. Much of that came through shell companies, which are used to hide the real owners.
In 2013, the International Monetary Fund (IMF) persuaded Cyprus to close tens of thousands of bank accounts held by shell companies.
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The British Virgin Islands are a common destination for Russian illicit money
Some British Overseas Territories, such as the British Virgin Islands and the Cayman Islands, are also among the Russians’ favorite destinations for that money.
According to a report by the human rights organization Global Witness, in 2018 Russian oligarchs had around US$45.5 billion in these tax havens.
Part of this money reaches financial capitals such as New York and London, where it can be invested and generate returns.
The anti-corruption organization Transparency International says at least $2 billion in UK property is in the hands of Russians accused of financial crimes or with links to the Kremlin.
The extent of Russian money laundering was further exposed in a 2014 report by the Organized Crime and Corruption Reporting Project (OCCRP) on the scheme dubbed the ‘Russian Laundromat’.
According to the document, between 2011 and 2014, 19 Russian banks laundered US$20.8 billion to 5,140 companies in 96 countries.
How is money hidden?
The most used way by Russian oligarchs to hide their “dirty money” abroad is through shell companies.
“These oligarchs hire the best lawyers, auditors, bankers and lobbyists in the world to develop legal means of hiding and laundering their funds,” says the Atlantic Council.
“A serious oligarch has layers of anonymous shell companies in multiple offshore jurisdictions, and their funds move at lightning speed between them.”
In 2016, the International Consortium of Investigative Journalists published the Panama Papers, which showed that just one company had created 2,071 shell companies for wealthy Russians.
What steps are being taken to track the oligarchs’ money?
After the invasion of Ukraine, several countries announced a series of measures to track Russian money.
The US is assembling a new task force called “KleptoCapture” to clamp down on the finances of Russia’s oligarchs.
It will be administered by the Department of Justice and is intended to seize property obtained through wrongful conduct.
The UK government has taken steps to increase the use of so-called ‘Unexplained Wealth Orders (UWOs)’, a type of court order that requires people to provide details on where they obtained the funds used to purchase assets in the UK.
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Cyprus is such a common destination for Russian money that the island has become known as the “Moscow of the Mediterranean”
So-called Account Freezing Orders (AFOs), another type of court order used in cases like these, allow British courts to freeze funds in banks or partnerships if they suspect money linked to criminal activities.
The government even passed the Economic Crimes Law, with a registry of beneficial owners of properties owned by foreign entities.
The UK also abandoned its “golden visa” scheme, which gave residency rights to wealthy foreigners who invested large amounts of money in the country.
Malta, another favorite tax haven for Russian oligarchs, has also scrapped its own “golden passport” scheme, which allowed billionaires to buy citizenship.
Cyprus and Bulgaria scrapped their golden passport schemes in 2020.
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