How Big Banks Make Big Bucks From Russian Dark Money

Over the past two decades, American corporations have rightly earned a reputation for capitulating to China — turning a blind eye to human rights atrocities committed by the Chinese government so they can benefit from the Asian superpower’s emerging consumer economy.

For example, Jamie Dimon — the longtime CEO of JPMorgan Chase and the world’s most powerful banker — apologized profusely after making a mild joke about the Chinese Communist Party last year. The reason for the mea culpa was evident. Months earlier, Chinese authorities granted JPMorgan Chase permission to assume full control of a securities business — the first foreign company to be offered such an opportunity.

As Russia continues its invasion of Ukraine, world governments have enacted sanctions meant to cut off Russian financial institutions, restrict debt and equity for Russian corporations, and target certain Russian elites. Although the Russian economy is far less robust than China’s — contributing to the global marketplace largely through energy exports — Russian oligarchs and criminals have often benefited from the American financial system’s lack of discretion.

Dark Money

The American banking industry often finds itself downwind from Russian elites through dark money schemes — moving tainted funds without asking tough questions.

According to the Atlantic Council, an American think tank focused on international affairs, Russia boasts the planet’s largest volume of dark money — $1 trillion — “both in absolute terms and as a percentage of its national GDP.” Roughly one-quarter of the funds are controlled by Russian President Vladimir Putin and his allies, while “the Kremlin appears to be able to persuade dependent oligarchs to assist financially in its foreign policy undertakings.”

“These oligarchs hire the best lawyers, auditors, bankers, and lobbyists in the world to develop legal means to conceal and launder their funds,” the Atlantic Council explains. “They thus often have greater resources than the regulators tasked with maintaining the integrity of national financial systems.”

In turn, the Kremlin can use the funds in such a way that poses a credible national security threat to the United States — engaging in espionage, terrorism, and bribery, as well as pushing disinformation.

In 2014, the Organized Crime and Corruption Reporting Project began covering the so-called “Global Laundromat.” According to the group, “it’s a complex system for laundering more than $20 billion in Russian money stolen from the government by corrupt politicians or earned through organized crime activity.” Elites and criminals were able to move enormous volumes of cash out of Russia using banks in countries like Moldova and Latvia.

Three years later, the OCCRP determined from leaked bank documents that many of the world’s most powerful investment banks had received the laundered money. Citi, for example, processed payments of $37 million. Bank of America, JP Morgan Chase, and Wells Fargo were also implicated. Beyond American financial firms, several Western European banks with operations in the United States — including UBS, HSBC, Barclays, Lloyds, Royal Bank of Scotland, and Deutsche Bank — all received laundered funds. HSBC alone stands accused of processing $543 million in laundered funds.

When pressed by CNN, most of the banks deflected. “We continually take steps to strengthen and enhance our anti-money laundering program,” vowed Citi. “The Bank has systems and processes in place to identify suspicious activity and report it to the appropriate government authorities,” insisted HSBC.

More recently, the “FinCEN Files” — documents from the United States Treasury Department’s Financial Crimes Enforcement Network leaked to BuzzFeed News and the International Consortium of Investigative Journalists — revealed over 200,000 transactions between 1999 and 2017 valued at over $2 trillion. 

As BuzzFeed summarized, the documents “expose the hollowness of banking safeguards, and the ease with which criminals have exploited them.” The banks’ own employees issued warnings; yet, “profits from deadly drug wars, fortunes embezzled from developing countries, and hard-earned savings stolen in a Ponzi scheme” flowed through entities like JPMorgan Chase, HSBC, Standard Chartered, Deutsche Bank, and Bank of New York Mellon.

Among the Russian oligarchs implicated by the documents was Putin ally Oleg Deripaska

With a net worth of $3 billion, Deripaska founded Basic Element — a Russian industrial group with interests in aluminum, energy, construction, and agriculture. Thousands of transfers connected to Deripaska and his firms were flagged as suspicious. In particular, BNY Mellon found 16 shady transactions between 2013 and 2015 that involved Mallow Capital — a subsidiary of Basic Element registered in the British Virgin Islands. According to ICIJ, BNY Mellon “helped facilitate these transactions through a relationship with Moscow-based Bank Soyuz” — and in 2010, Deripaska bought a controlling stake in Bank Soyuz. Deripaska, however, “denies laundering funds or committing financial crimes.”

Boris Rotenberg and his older brother, Arkady, own SMP Bank and share close ties with Putin. 

Worth a combined $4.3 billion, the Rotenbergs were linked to reports of a laundering scheme that was “knowingly and actively facilitated” by traders at Deutsche Bank. Months before details of the Global Laundromat were made public, Deutsche had been hit with hundreds of millions in fines — $425 million in the United States and $204 million in Britain — due to the money laundering scheme, which involved the bank’s branches in New York, Moscow, and London. According to the New York State Department of Financial Services, Deutsche “missed numerous opportunities to detect, investigate and stop the scheme due to extensive compliance failures, allowing the scheme to continue for years.” 

Defeating Oligarchs

Deripaska was sanctioned in 2018 for allegedly threatening the lives of business rivals, among other criminal activities. The Rotenberg brothers were sanctioned by the United States in 2014 after Russia invaded Crimea. And as Russian forces carry out the current invasion of Ukraine, the Biden administration is unveiling another wave of sanctions against influential Russians — including “all of Russia’s largest financial institutions and the ability of state-owned and private entities to raise capital,” the Treasury Department said.

However, there are several credible reforms that can prevent Russian oligarchs from escaping sanctions through dark money schemes.

For one, regulators can impose meaningful fines. According to the Atlantic Council, money laundering fines offered by American regulators “have dwindled to the point that, unlike penalties for sanctions evaders, they no longer serve as a credible threat for money launderers.” Meanwhile, European authorities charged significant fines for money laundering “only in rare circumstances.” 

For another, the Atlantic Council added that “likeminded financial authorities should develop a greater joint understanding of the typologies of illicit financial movements and develop swift and more selective reporting keyed to criteria to uncover corruption.” Such coordination would make financial intelligence units privy to the “speed of commerce” and reduce spam from “irrelevant and minor transactions.”

As economist Paul Krugman recently wrote for The New York Times, laundered money could be Putin’s “Achilles heel” — but only if the West is “willing to take on its own corruption.” Krugman noted that “a number of influential people, both in business and in politics, are deeply financially enmeshed with Russian kleptocrats.”

Unlike China, cutting off the Russian economy would not spell destruction for the American marketplace. But like China, the American ruling class has the most to lose.

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