Outflow of capital

During the period of Russia's transition from a centrally planned economy to a market economy, the opportunities to launder money appear to be limitless. Despite what is written in the media and debated in international fora, Russian law enforcement statis­tics do not support the thesis that criminally derived proceeds from abroad are entering Russia and subsequently laundered. This also holds true for foreign proceeds from drug or arms trafficking, and the sale of nuclear materials. Russian officials admit that mecha­nisms to detect and measure money laundering are lacking or could be improved, but the general consensus is that foreign funds are not laun­dered in Russia. The country does, however, remain vulnerable to money laundering, given the current legal and economic conditions.

What is happening is a massive outflow of capital from Russia. These proceeds range from criminally-derived funds from com­monplace offenses to the misappropriation of state assets through embezzlement, theft, and corruption. This money is legalized in Russia and eventually sent abroad, primarily to Western countries for laundering and safekeeping.

Funds leaving Russia to be legalized abroad consist of a combi­nation of assets from the proceeds of predicate offenses stipulated by criminal codes and proceeds that are illegally transferred out of Rus­sia, commonly referred to as «gray money». Examples of this include corporate, private, and official funds sent to foreign accounts to evade hard currency restrictions, taxation, inflation, or detection.

These types of illegal proceeds include more than those gener­ated by organized crime. Instances of embezzlement by individuals in positions allowing access to either private or public funds also occur; these proceeds are likewise sent abroad. The proceeds ulti­mately return to Russia in die form of cash, goods, services, and equipment. Those remaining in Russia are used for operational ex­penses in furtherance of the criminal enterprise.

Russian officials estimate that during the years 1992 and 1993, assets valued at four trillion rubles were stolen from the state. At the nominal exchange rate of $1.00 = R200.00 during this period, the equivalent losses incurred in U.S. dollars were $20 billion. Ac­cording to Russian government estimates, approximately $100 billion of funds attributed to Russian sources lie outside the country in foreign banks. Approximately $30—40 billion of this sum is capital from tax and customs evasion.

Legislation and custom

Russia has yet to enact anti-money laundering legislation. Leg­islation has been drafted by an interagency committee created by the President and is undergoing expert review before being submitted to the State Duma, the lower house of Russia's Federal Assembly or Parliament Although the directives of the Council of Europe and the recommendations of the Financial Action Task Force (FATF) have been taken into consideration, the proposed Russian anti-money laundering legislation was drafted in the con­text of the country's unique law enforcement and judicial systems. This anti-money laundering legislation will place Russia signifi­cantly in compliance with the anti-money laundering provisions of the 1988 Vienna Convention.

There are no currency transactions reporting requirements for banks or NBFIs, for businesses at the time of customer purchases, or for the importation of bulk currency by financial institutions. Upon entry into Russia, travelers passing through Russian customs are required to complete a customs declaration form. This form in­cludes personal information about the traveler such as foil name, citizenship, the country of origin and country of destination. The traveler must list all holdings in ruble denomination to include cash, government bonds, lottery' tickets, and checks. All foreign currency, to include monetary instruments (bank notes, exchequer bills, coins, checks, bills, letters of credit, securities, shares, and bonds) must also be declared by type of foreign currency and amounts of each foreign currency. Additionally, a duplicate of the initial customs declaration form most be retained and surrendered to customs authorities upon leaving Russia, along with an exit dec­laration form requesting the same types of information as the entry declarations form. These declarations forms are retailed by the Russian Customs Service and are available, upon request, to Russian law enforcement authorities.

Although there are no reporting requirements for money orders, exchanging currency, or for the export of currency, all such trans­actions are to be recorded and clients identified. Any amount of foreign currency exported from Russia must be declared; however, amounts over the equivalent of USD500 must be supported by a document proving its legal origin (i. e. bought at a currency ex­change, previously imported into the country, or withdrawn from a foreign currency account).

The draft anti-money laundering law stipulates that a transac­tion report will be completed for all cash and non-cash transactions which exceed 200 times the minimum-wage for individuals and 10,000 times the minimum wage for businesses. A form must also be filled out if several transactions conducted by the same person or their agent totals the above-mentioned amounts over the period of a month. Financial institutions must also inform the tax authorities within 24 hours of any transaction of a suspicious nature. The onus for failure to file these transaction reports will lie with the manag­ers of enterprises, institutions, and organizations. The penalties for breaches of anti-money laundering regulations range from substan­tial fines for administrative violations to criminal liability if the violation is connected to money laundering activities.

Under proposed law, the Russian Tax Inspectorate will serve as the central authority for receiving or collecting the currency trans­action reports, and entering them into a searchable database.