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OCCRP details nearly $9 billion Russian money laundering scheme allegedly involving U.S., EU banks

Thursday, March 7, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
March 6, 2019

A consortium of investigative journalists have uncovered what they are calling the “Troika Laundromat,” a massive $9 billion money-laundering operation with links to powerful politicians and oligarchs and fueled by Russia's largest private investment bank, along with some of the largest U.S. and European Union financial institutions.

The Organized Crime and Corruption Reporting Project – the group behind the historic “Panama Papers” and “Paradise Papers” leaks – detailed the findings of the latest analysis Monday of how the secretive, elite and corrupt attempt to cleanse illicit gains, an effort that included partnering with the Lithuanian news site 15min.lt and The Guardian.

The Laundromat gave free reign to a cabal of “Russian oligarchs and politicians to secretly acquire shares in state-owned companies, to buy real estate both in Russia and abroad, to purchase luxury yachts, to hire music superstars for private parties, to pay medical bills, and much more,” the consortium stated on its website.

“To protect themselves, the wealthy people behind this system used the identities of poor people as unwitting signatories in the secretive offshore companies that ran the system,” according to the group, noting that the system had tendrils snaking to the upper echelons of Russian government, including President Vladimir Putin’s close friends and business associates.

The scheme was discovered in a “large set of banking transactions and other documents obtained by OCCRP and the Lithuanian news site 15min.lt,” according to the group. “The data, which was compiled from multiple sources, represents one of the largest releases of banking information ever, involving more than $470 billion sent in 1.3 million leaked transactions from 233,000 companies.”

The project also comes with anti-money laundering (AML) tethers as it also snares and squarely puts some of the blame on several Western household name banks, including Austria-based Raiffeisen, Germany-based Deutsche Bank and U.S.-based Citigroup – operations that have previously been hit by U.S. and home country regulators for compliance and sanctions failings.  


What banks are reportedly tied to the ‘Troika Laundromat’ Russian money laundering scheme?

Here is a list of the banks with alleged links to the Troika Laundromat, any many have had a run with foreign or domestic regulators or been publicly named as tied to the scandal, according to media reports:

·       Danske Bank: Denmark’s biggest bank admitted in September that much of about $230 billion that flowed through its tiny Estonian unit between 2007 and 2015 was probably suspicious in origin. The lender is being investigated by the U.S. Department of Justice and the Securities and Exchange Commission, as well as by authorities in Denmark, Estonia, the U.K. and France.

·       Swedbank: Swedish broadcaster SVT alleged that almost $6 billion in suspicious transactions flowed between Danske Bank and Swedbank in 2007-2015, linking the Swedish bank to Danske’s $230 billion money-laundering scandal. The bank is being investigated by the financial supervisory authorities of Sweden and Estonia. It’s also being probed by Sweden’s Economic Crime Authority for allegedly breaching insider information rules.

·       Nordea Bank: The biggest Nordic bank allegedly handled about 700 million euros in potentially dirty money, with funds arriving from failed Lithuanian bank Ukio Bankas and heading to shell companies in countries such as the British Virgin Islands and Panama, according to Finnish broadcaster YLE. Investor Bill Browder filed complaints with Nordic authorities in October alleging $405 million of suspicious funds flowed via the bank. Sweden decided not to investigate but Finland has yet to say if it will.

·       ING Groep: The Dutch bank was aware of the potential involvement in money laundering of one of its clients at its Moscow branch, newspaper Trouw reported, with the fresh allegations coming out just months after the lender paid a $875 million fine related to the crime. Hundreds of millions of euros passed through the bank’s Moscow branch as part of a money laundering scheme constructed by Troika Dialog, the newspaper said, citing OCCRP. The company in focus is Cypriot Popat Holdings, which had an account at ING’s Moscow branch from 2006 until at least 2013, Trouw says.

·       Credit Agricole: Between 2005 to 2012 more than 500 transfers of funds from the so-called Troika Laundromat amounting to about $150m were sent to accounts at Credit Agricole in Geneva, newspaper Tages-Anzeiger, a part of the OCCRP, reported. The newspaper said the accounts were registered under five letter box companies, always with the same executives. Credit Agricole said its Indosuez Wealth Management unit respects rules relating to the fight against money laundering, without specifically addressing the details in the report. 

·       Deutsche Bank: More than $889 million went from accounts at Deutsche Bank to those of the so-called “Troika Laundromat” between 2003 and 2017, according to German daily Süddeutsche Zeitung—part of the OCCRP journalist group. The report comes on top of regulatory scrutiny of Deutsche Bank’s role as a correspondent bank in Danske Bank’s money-laundering scandal and a probe by German prosecutors of its involvement in a tax-evasion scheme unmasked by the Panama Papers in 2016.

·       KBC Group: Lithuanian bank Ukio Bankas passed 10 billion euros between 2006-2009 through so-called correspondent accounts at ING Belgium, KBC, and BNP Paribas Fortis, Belgian magazine Knack reported. Belgium’s KBC said it ended the correspondent banking relationship with Ukio in July 2010. It said confidentiality accords prevent it from sharing details about individual customers, and that as a correspondent bank, it’s not supposed to know customers of its respondent banks and may rely on the knowledge of the clients’ activities and the anti-money laundering procedures at that relation bank, while carrying out a risk-based monitoring.

·       Raiffeisen Bank International AG: The Austrian bank that’s among the biggest foreign lenders in Russia is the main target of a filing by the Hermitage Fund, detailing $634 million allegedly transferred to it from Lithuania’s Ukio Bankas and from the Estonian unit of Danske Bank. Hermitage said the bank ignored signs that should have triggered money-laundering prevention measures. Raiffeisen has launched an internal probe, yet also points out that Hermitage has filed similar allegations before and that they were dismissed by Austrian authorities.

·       ABN Amro: The Troika Laundromat moved about 190 million euros through a unit of the Dutch bank that became part of Royal Bank of Scotland, Dutch newspaper Trouw and magazine De Groene Amsterdammer reported. All assets, data and clients of the unit became the legal responsibility of RBS in February 2008, ABN said. RBS is looking into the allegations of money laundering at ABN Amro entity it acquired during the financial crisis, Chairman Howard Davies said in an interview on Bloomberg Television.

·       Rabobank: About 43 million euros were paid to the Rabobank account of Dutch yacht builder Heesen for construction of two boats for Russian senator Valentin Zavadnikov, according to newspaper Trouw and magazine De Groene Amsterdammer. The money came from the Troika Laundromat scheme, the media outlets said.

·       Turkiye Garanti Bankasi A.S.: The Dutch unit of the Turkish bank processed 200 million euros in transactions that came from two Lithuanian banks that were at the center of the Troika Laundromat, the Dutch media outlets reported. 

Courtesy: Bloomberg


Wellspring of AML data

This is another blockbuster story by the OCCRP that could provide a wellspring of data for AML professionals.

The investigative project has been using leaks, breaches, partnerships, creativity, curiosity, and good old-fashioned elbow grease to crack open many of the world’s largest financial shells – and link back to the secretive and shadowy worlds of law firms, company formation agencies, professional services firms and now banks making it all happen.

That information can add critical context to color risk for existing bank relationships, or yield invaluable details on the potential illicit ties behind an uncrackable ownership structure – preventing a criminal relationship from even occurring in the first place.

Not surprisingly, media reports have noted that some of the stocks of the banks involved have fallen in the wake of the report, in one case as much as 14 percent.

That will no doubt be just the tip of the iceberg in terms of compliance and remediation costs the institutions involved will pay to shore up controls and buoy investor confidence.

Some have already paid hefty penalties. In the case of Deutsche Bank, it paid U.S. and U.K. regulators more than $630 million related to the $10 billion Russian mirror trades scandal.

The likely regulatory and investigative next steps?

Expect more pressure on these institutions to detail any control failings tied to allegations and issues uncovered by the OCCRP and, if any issues are found, expect these institutions to have enhanced regulatory oversight until examiners feel these institutions won’t be again named and shamed for being linked to a massive multi-billion dollar money laundering network.

Evil Russian mastermind?

However, this isn’t the first time the investigative group have put certain corporates in the hot seat.

The OCCRP has previously exposed three such schemes: The Proxy Platform, the Russian Laundromat, and the Azerbaijani Laundromat.

This time, however, the group reveals a “unique new Laundromat, created by a prestigious financial institution,” according to the OCCRP. “This time, the work shows not only its beneficiaries but also exposes its mastermind and operator — Troika Dialog, once Russia’s largest private investment bank.”

The laundromat “shuffled billions of dollars through offshore companies on behalf of the bank’s clients, many of whom were members of Russia’s elite,” according to the group, adding that the system “enabled people to channel money out of Russia, sidestep restrictions in place at the time, hide their assets abroad, and launder money.”

The details of the scheme also have direct import to bank AML teams and global investigative agencies.

“It also supplied cash to Russian President Vladimir Putin’s friends and powerful oligarchs, and enabled criminals to mask the illicit origins of their cash,” through classic tactics, such as anonymous shell companies and working through foreign correspondents and nested accounts that effectively hid the details of the underlying risky entities.

For example, in the global interconnected world of international finance, a U.S. bank, for instance, with a correspondent relationship with a foreign bank wouldn’t necessarily be able to view the foreign bank’s customers, but would be responsible for at least understanding the operation's AML controls, where it operates and overall compliance risks and controls around customers.

That can lead to situations where the U.S. bank unwittingly moves funds tied to questionable and even illicit entities because it doesn’t have a clear, direct view down to the foreign bank’s customers – just details on batched transactions from the foreign bank.

Not surprisingly, U.S. federal and state regulators in recent exam cycles have made how domestic and foreign banks oversee their correspondent networks a top priority, with many enforcement actions and penalties citing failures in this hot button AML compliance area.

In the case of the Troika Laundromat, the OCCRP stated that there were at least 75 shell companies and related financial institutions, forming a complex financial web, which functioned from 2006 to early 2013.

Over that period, Troika “enabled the flow of $4.6 billion into the system and directed the flow of $4.8 billion out,” according to the report, according that one of the shell companies involved even sent funds earmarked as charitable contributions for a fundraising vehicle tied to Prince Charles.

“Among the counterparties on these transactions were major Western banks such as Citigroup Inc., Raiffeisen, and Deutsche Bank,” according to the group. “The dozens of companies in the system also generated $8.8 billion of internal transactions to obscure the origin of the cash.”


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