Records obtained by the Organised Crime and Corruption Project (OCCR) reflect that the UK’s biggest banks were among 17 financial institutions that unwittingly participated in an elaborate money laundering network. The scheme, dubbed the ‘Russian Laundromat’, involved between USD 20 billion and USD 80 billion in suspicious funds transferred from Russia through Moldova and Latvia from 2010 to 2014. According to the disclosed documents, having been “cleaned”, more than USD 700 million was later deposited in UK bank accounts, with investigators having traced much of the cash to individuals close to senior figures in the Russian and Moldovan governments.
- It appears that the UK’s corporate and financial infrastructure was crucial to the success of the money laundering scheme. In this regard, most of the shell companies used to funnel the money were registered at Companies House in London, with the identities of their ultimate beneficial owners obscured through off-shore structures. Despite having nominal incomes as low as USD 1, several of these companies are noted to have processed billions of dollars’ worth of transactions.
- Available information suggests that major banks failed to detect the suspicious origins of the funds that were deposited into their accounts. That much of the money is noted to have been transferred from Latvia, an EU country, and came through UK-registered companies, may have blunted the vigilance of banks’ compliance departments.
- It would seem as if this scheme is patterned on a similar one just last year, wherein several UK banks were revealed to have received millions of dollars from Moldova, though on that occasion the funds were transferred through Lithuania, another EU jurisdiction. In that case, the funds represented proceeds from an embezzlement ring linked to corrupt Russian government officials. Sergey Magnitsky, a lawyer who discovered the transfers, died in police custody. His death led the US to sanction several Russian officials.
- Despite sanctions regimes and increased anti-corruption efforts, the Russian Laundromat case shows that Western banking systems remain vulnerable to money laundering from Eastern Europe. It also signals the case for more widespread enhanced due diligence.
- Financial institutions should be particularly vigilant to transactions originating in Baltic countries such as Latvia and Lithuania, which, despite their EU status, remain popular conduits for transferring questionable funds from Russia. Most importantly, greater attention needs to be paid to establishing the source of wealth and ultimate beneficial ownership of UK companies making large deposits.
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