Countering money-laundering
The development of effective anti-moneylaundering legislation has been slow. Several versions of
the Federal Law on Countering Money Laundering have
been prepared since 1994. In June 1999, the Russian
Parliament even adopted the legislation, but the Russian
President later vetoed it. Several other laws aimed at
combating the spread of economic crime (such as
corruption) have been discussed (but never passed) by the
State Duma, the Lower House of the Russian Parliament.
The deputies debated and objected not only specific
aspects of the laws, but also their scope and practical
applicability.
The most heated debate on the draft anti-moneylaundering legislation has revolved around the
interpretation of the word “nezakonny” (illegal) income.
The opponents of the word “nezakonny” argue, inter alia,
that it contradicts the provisions of the European
Convention on Laundering, Search, Seizure and
Confiscation of the Proceeds from Crime, which for its
purposes defines “proceeds” as economic advantage from
criminal offences. Lately, however, many in the Russian
Federation argue that it is only a matter of translation of
the word “nezakonny”, which can be translated into
English as criminal.
This debate is not simply about the
proper legal term. It signifies the profound dilemma
which has arisen as a result of the recent reforms in the
Russian Federation. When the broadest interpretation of
the type of proceeds and activities involved is used, the
law could affect too many in the Russian Federation. This
would affect minor offenders cheating on taxes for just a
few hundred roubles. But it could be used, if consistently
and retroactively applied, against many others, including
those in the political elite, who manipulated and benefited
from the economic reforms, particularly privatization.
It is also argued that the legislation would violate
human rights and provisions of the Constitution of the
Russian Federation, which safeguard privacy of personal
data and freedom of economic activities. Provisions of the
draft law require reporting and monitoring of the financial
transactions (both legal and illegal) and disclosure of
certain personal data, the disclosure of which without the
consent of the concerned individual is prohibited by the
Constitution. Moreover, under the draft legislation, the
parties to the business transactions are obliged to monitor
and evaluate the validity of operations in order, for
example, to determine the validity of transactions and
report about those having elements of void transactions.
Therefore, it is argued, these parties would be acting as
branches of the law enforcement system, which again
contradicts the Constitution. Although this type of
argument is more typical of an earlier period of transition,
in a refined fashion it continues to be used by the
opponents of the anti-money-laundering legislation.
These arguments echo the sentiments of democratic
change of the early 1990s when massive legislative
changes were undertaken to guarantee human rights and
democratic principles.
A recent version of the anti-money-laundering law
prepared by the Office of the President has already been
widely criticized and it is now more likely that the
version adopted by the Parliament in 1999 will form the
basis of a new draft to be discussed by Parliament. In
response to the new initiatives towards strengthening of
the law enforcement functions of the State and control of
the central Government, many in the Russian Federation
are optimistic about the passage of the corresponding
laws. In line with this trend, a number of key politicians,
including Alexander Gurov, Chairman of the Security
Committee of Parliament (the Committee developing the
draft), believed that the draft would be discussed and
adopted in 2000.61 However, since anti-moneylaundering legislation was not considered to be a priority
(compared to others, such as taxation) these predictions
turned out to be overoptimistic.
Meanwhile, the offence of money-laundering
already exists in the Russian Federation. The Criminal
Code of the Russian Federation approved in 1997
includes a chapter on economic crimes (chapter 22), with
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Russian capitalism and money-laundering
31 articles describing penalties for a broad range of
offences. Article 174 of chapter 22, on legalization
(laundering) of monetary means and other property
acquired by illegal means, specifies a punishment of up to
four years in prison for financial operations with
monetary means and other property known to have been
acquired by illegal means. The article does not
specifically state that the money and property should be
the proceeds of crime, only that these could be any assets
illegally obtained. If an offence is committed by a group
of people or repeatedly, it is considered to be a serious
offence and harsher punishments are expected.
The use of this article of the Criminal Code has not
only been minimal, but also inconsistent. This reflects not
only the present economic and political realities, but also
a number of uncertainties and debates with regard to the
application of the provision. The debates among
practitioners revolve around the possibility of convicting
the offender if no conviction was obtained in connection
with the primary offence as a result of which assets had
been acquired. So far, those already convicted of the
predicate offence have been convicted of moneylaundering. Contrary to the above argument, others
suggest that the same person cannot be convicted for both
type of offences—for the predicate offence and for the
secondary offence (money-laundering). And again there
is no agreement on the word “nezakonny” (illegal)
income. While some Russian experts are convinced that
the provision applies only to criminal proceeds, others
apply it to proceeds from a broad range of offences
covered under administrative and civil codes.62
Interviews conducted by the Research Institute of
the Ministry of Internal Affairs of the Russian Federation
(VNII MVD) with law enforcement officers unveil both
their lack of understanding of the money-laundering
process and the ambiguity of the provisions of the
Criminal Code to begin with.63 Ten per cent of
respondents included visits to theatres, movies and
athletic events using the money gained by illegal means
as part of the money-laundering process. A slightly lower
proportion of the respondents (7.4 per cent) included in
the process payments to prostitutes. Seventeen per cent of
respondents believed that tourist trips and gifts to
relatives should be classified as money-laundering
activity. However, less than one quarter of the
respondents classified the purchase of securities as
potentially signifying a money-laundering operation, and
46 per cent did not think that the purchase of real estate
could constitute money-laundering. It is significant to
note that the responses given by the respondents in 2000
did not differ much from those given in 1998, suggesting
that the training in this area has not been effective in
increasing awareness of money-laundering offences.
In general, the effectiveness of the justice system, at
least with regard to economic crime, seems to be
deteriorating rather than improving. For example, the
conviction rate for corruption fell during the 1990s:
1,072 offenders were convicted for corruption in 1995,
but only 345 were convicted in 1998, of whom only one
third were sentenced to prison terms.64 In 1997, under
article 174 of the Criminal Code, only 241 cases were
registered and only 166 cases were completed.65 In 1998,
1,003 cases (as experts believe, only 0.3 per cent of all
the economic crime cases) were reported, and, in 1999,
965 cases were reported, of which 105 were completed
and only 33 offenders convicted. Variations in the
interpretation of the provisions of the Criminal Code on
Countering Money Laundering (mainly on the sources of
proceeds) partially explain the minimal application of
these provisions.66 But inconsistencies in practices
concern not only variations in defining “illegally acquired
monetary means and property”, but also variations in
defining offenders. For example, a case was reported
where the offender was not charged with committing a
crime under the article on money-laundering because the
same offender had already been charged with committing
a crime to acquire the assets (which were later
laundered).67
The gap between the realities of the Russian
Federation and the outcomes of the law enforcement
measures is acutely reflected in the composition of
offenders and nature of offences. In 1999,
only
105 persons were charged with money-laundering, 12 of
whom were workers, 19 civil servants, 40 businessmen
and 24 unemployed. On closer inspection, one can
conclude that their offences were mostly minor and could
hardly be classified as money-laundering. Most analysts
believe that the real situation in the Russian Federation is
different, and involves a different type of people
operating on a large scale. Russian experts on moneylaundering (from the law enforcement agencies) observe
that casinos and discos (56 per cent of the respondents),
commercial banks (46 per cent of the respondents),
restaurants and bars (33 per cent of the respondents) and
shops (31 per cent) are the prime locations of moneylaundering operations.68 Commenting on the use of the
proceeds, they mentioned future criminal projects (56 per
cent of respondents), real estate purchases, or purchase of
arms and financing of specific criminal actions (35.4 per
cent).
The need to deal with the complex problem of
money-laundering, which is becoming a national problem
of great magnitude, prompted the Government of Russia
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Russian capitalism and money-laundering
to establish in 1999 the Interministerial Centre for
Countering the Legalization of Illicit Proceeds. It was set
up under the Ministry of Interior by the decision of nine
ministries and agencies, including the Ministry of Interior,
Ministry of Finance, Ministry of Taxation, State Customs
Committee, Federal Security Service, Federal Tax Police,
Foreign Exchange Commission,
Ministry of Economy
and Ministry of Justice, and in coordination with the
Central Bank and the General Procuracy of the Russian
Federation.69 Composed of the staff members delegated
from all the relevant ministries and agencies, the Centre is
expected to collect information on illegal or economically
imprudent transactions with monetary means and
property, provide analytical support to the detection and
halt of money-laundering measures, coordinate antimoney-laundering actions of the federal agencies and
cooperate with foreign units with similar functions. The
Centre became fully functional only in 2000 and has
contributed to the operational work related to the
detection and investigation of cases, particularly those
requiring the cooperation of several government agencies.
The Centre’s political significance and policy
development role has been gaining momentum as it is
charged with the preparation of a number of policy
documents and proposals.
In general, the grave criminal situation has
prompted the Russian Government to undertake a number
of actions to curb crime. For example, in January 2000,
the Russian authorities approved two anti-crime
programmes for over 3.3 billion roubles. The first
includes actions against conventional criminals, such as
car thieves, robbers, terrorists, mobsters etc. The second
programme is directed against corruption and any abuse
of their position by officials for personal benefit.
However, the pessimism about any effective actions by
the Government to curb corruption and crime is so
widespread that many in the Russian Federation
think that the anti-corruption, anti-crime drive of
President Vladimir Putin might become a fight between
oligarchs trying to destroy their competitors.
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