Crimea: Money Launderers Welcome

09.25.15

Crimea: Money Launderers Welcome

09.25.15
RIA NovostiRIA Novosti

By Luke Rodeheffer for Global Risk Insights

In recent weeks, the Department of the Treasury’s Office of Foreign Assets Control has expanded its list of sanctions targeting Russian operations in Crimea, and international firms and financial institutions operating outside of Eastern Europe should take note.

Subsidiaries of the Russian state oil company Rosneft, as well as Vneshekonombank, a major state corporation involved in financial services and pension fund management, were targeted alongside state companies in Crimea.

The sanctions are multinational in scope: firms in Belarus, Finland, Hong Kong, and Cyprus, the latter being long favored as an offshore tax haven for post-Soviet oligarchs, are all listed. Also included are a number of individuals from Ukraine and Russia, some of whom possess dual citizenship, including Roman Rotenberg, Vladimir Putin’s judo partner and co-owner of Stroigazmontazh, the country’s largest gas pipeline company.

Since annexation, Crimea has become a center for money laundering and illicit finance, as Russian banks with a reputation for such activities have established operations there to replace the nearly 1,000 banks that were hastily closed. The Russian Central Bank removed the licenses from multiple banks in Crimea due to money laundering concerns, including Adelantbank and MAST-Bank.

The licensing removal remains a major concern, however, due to Genbank, the second largest banking operation in Crimea with 90 franchises across the peninsula. Genbank had only two branches operating in Russia before the annexation.

Natalia Poklonskaya, Crimea's Prosecutor General. (RIA Novosti)

Natalia Poklonskaya, Crimea’s Prosecutor General. (RIA Novosti)

Investigative reporters revealed that Evgenii Dvoskin, who controls Genbank via his wife, who is chairwoman of the board of directors, faced charges of money laundering in both Russia and the United States in 2006. Dvoskin faced similar charges in 2012, but was protected by Russia’s state security services. Crimean banks are also suspected to have been involved in the suspicious transfers of $20 billion out of Russia and into Moldova earlier in 2015.

Concerns about operating in Crimea as a result of sanctions risk have existed among Russian financial institutions since the annexation and have only grown in recent months. Many major Russian banks, such as Sberbank, have refused to open offices in Crimea. Others, such as Kuban Kredit, attempted to open franchises but concluded it was too risky or have attempted to establish separate banking chains to hide their ownership.

One major bank in Crimea, Russian National Commercial Bank, is registered to an unknown company and is suspected to actually belong to the major Russian bank VTB, a suspicion confirmed by correspondence between top officials in the Crimea-based bank and Moscow Bank that was leaked by hackers in April 2015.

As a result of sanctions risk, Crimea’s banking system remains poorly developed, with exorbitant interest rates and extreme difficulty in transferring money abroad. This is harming the development of the local enterprises that are being reregistered under Russian jurisdiction.

The danger of Crimea turning into a haven for organized criminal activity as a result of economic isolation and increasing sanctions, a fate of shared by territories with disputed legal status around the world, grows ever greater.

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