Following Only Some of the Money in Russia

Abstract

In the last ten years, Russia has not developed an effective anti-money laundering (AML) system. Although the country has the legal framework and institutions for combating money laundering, Russia continues to experience a high level of capital flight. Although it is not possible to estimate with precision the amount of funds that have circumvented Russia's currency control system, it probably exceeds the equivalent of billions of dollars. What explains Russia's lack of success in creating an anti-money laundering (AML) system? The Russian economy largely depends on the overseas experts of natural resources (oil, natural gas, metals, etc.). This Russian natural resource sector is dominated by enterprises owned in large party by the state - in effect they are controlled by the country's political elite and their allies. It may be easier to launder money out of Russia than many other countries. Its banking sector is not well-developed; many Russian banks exist simply to service the large enterprises that own them. At the same time, the country's regulators lack sufficient personnel, material assets, and political support to limit high levels of illegal capital flight. Russian enterprises through complex related-party transactions and the circumvention of transfer pricing rules are contributing factors.Furthermore, pervasive governmental corruption, highly sophisticated organized crime groups (OCGs), economic instability, and a limited commitment on the part of law enforcement to uniformly apply AML rules have resulted in a high level of capital flight of illicit funds out of Russia in the past decade. This situation is unlikely to change in the foreseeable future and given the large sums of moneys involved, Russians engaged in money laundering are assured of foreign individuals and organizations eager to profit from the process.