ERCESOQR - Volume 2 - Problems of investigation of crime...

Problems of investigation of crimes relating to money laundering in Russian Federation

By Vasily Davydov, Legal and Tax Consulting Department, JSC «MCD», St-Petersburg, Russia, Post-graduate student of General prosecutors institute in St-Petersburg

During the last years money and other assets of criminal origin were increasingly involved in both economic activities of criminal organizations, and in terrorism, corruption, hired killing, kidnapping, drug trafficking and other dangerous crimes committed mainly by organized crime groups. Thus the fight against and the investigation of money-laundering crimes has rapidly come to the fore of the criminal justice debate I Russia and at the world level.

In Russia, money laundering ( i. e. accordingly to Russian Crime Code terminology “legalization of money and crime assets”) started with the transition to the free market economy in the 1990’s and reached its culminating point within the period 1999-2000. At that time criminal money has been penetrating the financial system of Russia. The accelerating factors of legalization are: monstrous size of machinations in privatization of state property, corruption, explosions in Moscow, new phase of military operations in Chechnya, banking crisis and total lack of legal regulations of this problem. By year 2000 Russia has been included in the international black-list of countries failing to fight against such type of criminal activity, and developed countries did not recommend maintaining bank operations with Russia and recommended monitoring cash flows from banks, Russian residents. The American magazine «Money Laundering Alert», in its alert for April 2001 addressed the importance of the problem: «if there is a country where national economy and finance are almost completely impregnated with organized crime and money laundering, it is Russia...».

Thereby, perhaps, by the end of 2001 the Russian Government paid attention to this problem, and passed the law on legalization (Federal law of 07.08.2001 № 115-FZ «Counteraction against money laundering and financing of terrorism»), established special department to control financial operations. It is reasonable to argue that it is impossible to establish immediately a perfect institution that would be able to counteract money laundering in the most efficacious way.. This observation applies to any other economic crime. However, it got things moving – following the Law on legalization, some amendments were made to other federal laws, the Central Bank of Russia and other federal authorities issued their directions. These measures were appreciated at the international level. Two crucial points are worth being mentioned in the history of Russia: (i) the FATF (special authorized international organization fighting against money laundering) decision to withdraw Russia from blacklist, and (ii) the FATF decision of t June 2003 to affiliate Russia as full FATF member. These two major events must be thought as of substantial steps in the fight against money laundering, and in many regards things worked better than in 2000.

Given the actual state of the Russian criminal law money laundering is inseparably associated with organized crime. Besides at the international level scientists, experts and practitioners are likely to link together money laundering with financing of terrorist organizations.

Thus the fundamental danger that causes money-laundering to society results from its connection to and involvement in organized crime and terrorism.

Together with some other legal dispositions aimed at the regulation of money laundering article 174 and 174.1 (actual version) of the Criminal Code of Russia form the legal basis for the fight against organized crime; these dispositions are particularly important wit regards to the investigation and destruction of the financial basis and networks that are involve in organized crime. As for money laundering, the Criminal Code of the Russian Federation (at present time) provides for a whole gamut of sanctions including fine (that might range from 0 to 1 000 000 RUR (about 35 000 $) and imprisonment and until 2003 – confiscation as an additional sanction. In much the same way as provisions of foreign laws, the Law on legalization assumes responsibility of legal entities.

Official statistics relate to the application of articles 174, 174-1[1] in Russia is rather poor:

1998

1999

2000

2001

2002

2003

2004*

Art. of the CC

Reg. crimes/persons

Sen.

Reg. crimes/persons

Sen.

Reg. crimes/persons

Sen.

Reg. crimes/persons

Sen.

Reg. crimes/persons

Sen.

Reg. crimes/persons

Sen.

Reg. crimes/persons

Sen.

174

1003/86

965/105

1784/146

1439/176

1129/89

488/32

1977

174.1

80/2

* Incomplete data

The analysis shows that during the application of the Criminal Code 1996 the number of registered crimes, sometimes, was more than 50 times higher than the number of convicts. Since two new articles on legalization were introduced instead of one, the number of people convicted by virtue of art. 174 of the Criminal Code has reached a third of the initial level, and only one person was convicted by virtue of art. 174.1 of the Criminal Code in 2001. In 2003 11 persons only were convicted by virtue of art. 174 Criminal Code.

This increase results from the circumstances that investigation bodies are likely to range other acts, e. g. sale of stolen property or purchases at expense of criminal proceeds without any intention of money laundering.under the general heading of money laundering and to apply the legal dispositions that are relevant for money laundering to such acts.

Inquiries by the Research institute of the Ministry for Internal Affairs (VNII MVD RF) about the employees of law-enforcement authorities revealed misunderstanding of money laundering process and weakness of provisions of the Criminal Code. Ten percent of respondents thought that buying of theater cinema and sport events tickets bought from criminal proceeds is an inherent part of money laundering. Somewhat less respondents (7.4%) added payment for prostitute’s services to this list. Seventeen percent of respondents assumed that tourism and gifts to relatives should be classified as money laundering. Less than a quarter of respondents qualified purchase of securities as a possible sign of money laundering, and 46% did not classify acquisition of real estate as a part of money laundering. It should be noted that the results of the inquiry realized in 2000 were almost undistinguishable from those of the inquiry made in 1998. This situation is a piece of evidence for the inefficiency in raising awareness of crimes relating to money laundering. [2]

Noted Russian scientist, Doctor of Laws, Ms. Natalia A. Lopashenko provides for some data relating to money laundering as compared to other crimes in her survey «Economic and corruption crimes: regional position and peculiarities of criminal and criminological policies».

Year

2000

2001

2002

Art. 174, 174-1 of the CC (money laundering)

1784

1,1%

0,06%

1439

0,9%

0,05%

1129

0,8%

0,04%

Column 1 shows absolute quantity of these crimes committed in Russia for a year; column 2 shows weight of these crimes in total economic crimes (chapter 22 of the Criminal Code); column 3 shows weight of these crimes in total crimes committed in Russia for a year.

The table shows rather low weight of money laundering crimes in total crimes committed. Moreover, the table shows decrease in these crimes during the period 2000-2002 as distinct from expert’s opinion both in Russia and abroad, indicating increase in such crimes both in Russia and world-wide.

The key problems that are related to counteracting legalization in Russia are follows:

1. short period of preparation of legal system counteracting money laundering;

2. lack of national practice;

3. poor training of investigation specialists and at first lack of methodology of investigation of such crimes;

4. complexity of treatment of legal provisions;

Nevertheless one might argue that the legal money laundering counteracting system, in Russia, is established since the year of 2001. In this area the Russian law-maker gives international experience a careful consideration.

One of the most important weaknesses of existing Russian criminal legislation is the lack of such punishment as execution of forfeiture[3]. Renouncement of execution of forfeiture as a criminal penalty in 2003 is not justifiable, and it is necessary to restore provisions on execution of forfeiture to the Criminal Code of the Russian Federation.

One should understand that legalization is an international crime, and it is not possible to fight legalization successfully without international information interchange, interaction and participation of credit institutions. The fight includes both criminal liability and complex legal steps, in particular other legal liability for money laundering and their application.

In practice only high-qualified professionals with special experience in international banking, insurance, logistics, peculiarities of foreign-economic activities and information from competent authorities or unions and professional associations are able to counteract criminals and organized crime. It is necessary to extend the list of activities liable to control for legalization of criminal proceeds. Control shall be extended to auditing companies, advocacy, business consultants, law firms engaged in registration of organization both in Russia, and abroad.

Following the international community Russia should recognize relations between organized crime, drug traffic, terrorism and money-laundering, and develop an integrated and unified strategy of fight against dangerous crimes in cooperation with other countries. To suppress terrorism, but also to eliminate the international community’s anxiety and to prevent insecurity, it is necessary to provide for opportunity of criminal liability for persons guilty of legalization of unlawful (but not only criminal) proceeds, in the case of use of laundered money in the interest of terrorist organizations.