The period of transition from socialism to
capitalism in the Russian Federation has appeared to
present limitless opportunities for international moneylaundering. Financial markets are being liberalized and
the economy is becoming privatized and deregulated in
the absence of corresponding legal frameworks and
institutional capacities to oversee developments. As a
result, the country offers an easy entry point
(“placement”) for illicit cash into the financial system
from where it can easily move within the international
financial system.1 In the last few years, the media and
both national and international official sources have
increasingly reported about the Russian Federationrelated money-laundering as a threat to international
financial security. Indeed, the alleged amounts laundered
(10 billion United States dollars ($) in the Bank of
New York case alone)2
and the type of institutions
involved illustrate the vulnerability of the international
financial system and the power of criminals to manipulate
and infiltrate it.
No accurate figures exist to indicate the overall
level of money-laundering in the Russian Federation
because it involves activities which are hard to observe or
detect. However, the amount of capital flight from the
Russian Federation which is likely to be related to
money-laundering is estimated at $133 billion during the
period 1992-1997.3 This estimate is a symptom of
significant underlying factors. Two inherent features of
contemporary capitalism in the Russian Federation—
crime and the “shadow” economy—
could be linked to the
bulk of illicit proceeds which require laundering for
safekeeping or further investment. It is usually agreed that
opportunities for international money-laundering—for
international illicit wealth to be laundered through the
Russian Federation—exist in the country. They were
particularly abundant during the early phases of
privatization in the Russian Federation, when State
properties were sold for bearer securities. However, there
are few reports of this inflow of criminal proceeds.4 This
might be partly explained by the criminal (hence, welldisguised) nature of these operations or their relatively
low significance in today’s Russian Federation. Reports
are numerous, however, of the profits of crime, particularly of economic crime in the Russian Federation
which possibly need laundering. The Russian Federation
law enforcement agencies estimated that by the end of
1998, organized crime controlled about half of
commercial banks, 60 per cent of public and 40 per cent
of private businesses.5
The Russian Federation represents
a golden opportunity for those seeking to acquire huge
assets rapidly by criminal actions while remaining
undetected or under arrangements the criminality of
which is hard or even impossible to prove. Therefore, the
Russian Federation is likely to be a centre of moneylaundering operations not only because of the easy
placement opportunity it affords, but also because of the
availability of illicit proceeds generated in the country
that require laundering.
This paper examines aspects of the economic
reforms and development trends in the Russian
Federation that can reasonably be said to have fostered
money-laundering. Problems and difficulties associated
with the far-reaching reforms of the transition period
make the country vulnerable to money-laundering. These
changes include fast-moving privatization, banking and
finance sector reforms, as well as political and
administrative transformations. The efforts to counter it
through various means (legislation, regulation, investigation, prosecution and others) are themselves subject to
and closely interconnected with the overall process of
political and economic transformation. As such, they need
to be undertaken in conjunction with the broader
measures designed to streamline economic reforms and
develop functioning markets, create an appropriate legal
framework, improve public institutions and promote good
governance.