The Laundromat: Europe’s biggest money-laundering operation revealed

It’s impossible to put a number on the amount that Russia’s leaders have stolen from their own state since the days of Gorbachev, when the looting began in full force. But I think we can agree it’s a lot.

For the criminals atop the Russian government, the problem is not how to steal the money, which is rather easy to do, but what to do with it all once it’s been stolen. They would be foolish to keep it inside Russia, where it would be at risk of confiscation in the event of a change in power and the banking system isn’t very sound to begin with.

But moving the money out of the country leaves it vulnerable to law-enforcement in countries where police and prosecutors are actually honest and can’t be leaned upon (in contrast to Russia).

That means they have to launder the funds.  Russia’s kleptocrats have watched Scarface, and so they are aware of the need to create the fiction that their criminal proceeds come from legitimate economic activity.

Money laundering requires two elements to work. First, the schemes need to be sufficiently complex as to bewilder investigators (and, indeed, there are very few law-enforcement agents in the world with the expertise needed to trace dirty money). Second, in the unlikely event that investigators do figure out where and how the money flowed, the ultimate beneficiaries need anonymity.

Enter the offshore system. Offshore banks and law firms provide the specialists needed to move money through multiple shell companies using elaborate financial transactions. The complex transactions shepherd the funds into bank accounts with anonymous ownership, thereby shielding the criminals’ identities. To ensure that foreign law-enforcement cannot possibly recover the money or find out who it belongs to, the bank accounts and shell companies are located in offshore tax havens.

When most people think of “offshore tax havens” they have in mind places like Switzerland or the Cayman Islands. But as Nicholas Shaxson shows in his excellent book Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, the “offshore” label is potentially misleading. Shaxson points out that any politically-stable jurisdiction where foreigners can evade the rules that would constrain them elsewhere qualifies as an offshore jurisdiction. By this definition, the world’s biggest offshore tax havens are the United Kingdom, the United States, and the European Union.

The EU’s role as a major stash-house for dirty money from Russia is revealed in a recent investigation by the Organized Crime and Corruption Reporting Project (OCCRP), which produces some of the best investigative reporting on corruption and economic criminality. In The Russian Laundromat, the OCCRP lays out what is perhaps the biggest money-laundering operation in the history of Europe. Between 2010 and early 2014, over $20 billion was moved out of Russia through the tiny former Soviet republic of Moldova and into the safety of bank accounts in Latvia, an EU member and growing tax haven for criminals. According to the OCCRP, the money was stolen from the Russian government by corrupt politicians or obtained through organized crime activity. Nineteen banks in Russia were involved in the scheme, some of which are controlled by wealthy and influential figures including Vladimir Putin’s cousin.

The amount of money involved may seem huge, but at the end of the day it’s merely a snippet of the total that has been siphoned away since communism began to crumble in the late 1980s.  The OCCRP investigation nevertheless provides a crucial window into the mechanics by which corrupt Russian officials have been looting the state all these years.

The system is described in all its gory detail on the OCCRP’s website. Those interested in seeing how money laundering really works are encouraged to check it out. The Russian Laundromat is a case study of how the offshore system serves as a great enabler for corrupt state officials and criminal figures around the globe.

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