Problems in Using Crime Norms for Money Laundering Legalization in Russia

1. Problems and particularities of using crime norms on legalizationof criminalproceeds (money laundering) inthe RussianFederation

2. Presentation structure 1. Essence and social danger of money laundering; 2. Components for successful fighting; 3. Appearance of money laundering phenomena and anti money laundering legislation in Russia; 4. Official statistic figures and analyses of practical using crime norms against money laundering in Russia;

3. As defined by Russia’s Federal Law (2001): Legalization of proceeds illegally obtained (money laundering)- validation oflegitimate status forpossession, usageordisposition ofmoney orotherassetsobtainedas a result ofcommission of a crimes As defined by the US’ General Accounting Office: Money laundering is the act of converting money gained from illegal activity, such as drug smuggling, into money that appears legitimateand in which the source cannot be traced to the illegal activity. Legal business Politics Illegal activity Money resources, shares, real estate, jewelsand other assets Money resources, shares, real estate, jewelsand other assets Money laundering

4. Legalization (money laundering) What is money laundering? Income fromprostitutionandhuman traffic Income fromcheating, stealage, and otherserious dangerous crimes Income fromillegaltrade in arms Income fromdrugs trade Investment inlegalprofitablebusiness, oil, gas, diamonds Acquisition of real property andluxury goods Financing ofelectionsandcontrolling political situation Training andco-operation with specialists, well-knownpoliticians andscientists

5. What is laundered and who interestedinoperationsrelated tomoney laundering? Legalization Monetary funds Organizedcriminal groups: transnationaland national Other assets: real estate objects, vehicles, produce, diamonds, jewels Terroristorganizations Corruptedgovernment officials Non-propertyrights: shares, stock, bills of credit,andothersecurities

6. Relationbetween legalization andthe mostdangerouscriminaloccurrences Corruption Terrorism Organized crime Laundering ofcriminal asset Preparation and payment forterrorist acts Investments in legal business Legalization offunds obtained

7. How much money is laundered worldwide Without a measure of how muchmoney is laundered, the most obvious and direct outcomemeasure for anantimoney laundering regime—reductions in the targeted activity—is notavailable. Microeconomic approach Macroeconomic approach produce a rough upper bound of how much money is laundered provides a rough lower bound ondemand formoney-laundering services According to FATF,from 500 billionto 1,5 trilliondollars annually are in the money laundering process worldwide.

8. Requiredcomponents forsuccessfulcounteraction – world experience World experience shows thatas a result ofdevelopment of IT and banking systems, as well asglobalization ofworld economy,criminalsenteralmost every newfield ofsocial relations, knowinglyconcealingevidencesof crime commitment, and using knowledgeof professionalsfrom different sectorsduring crime commitment. • Legislation andliability for legalization (ML); • Specialstate structuresauthorized to performcontrolmeasures (financialintelligence unite); • Speciallytrainedsubdivisions oflaw reinforcements bodies; • Worldwide anti-money laundering network andon-linedata exchange; • Day-to-day analysis and research of crime phenomena and international counteraction practice;

9. Money laundering situation in Russian Federation 1990-2002 Current legislation shortcomings Privatization MONEY LAUNDERING AREA Lack of experience and qualification Default of 1998 Free and chaotic economy Marketof gold, oil, and diamonds Transnationalcriminal community

10. ML in Russian Federation before and after 2002 Before 2002 After 2002 April 2001,the Americanspecializedjournal «Money Laundering Alert»: «Ifthere existed a countrywithnational economy andfinancial sectoralmost completelypenetrated withorganized crime andoffencesrelated tomoney laundering,it is Russia. There is no sector in its economythatcould avoid this label. According to theinformation published inAssessment of International CriminalThreat,a uniquedocumentpreparedin co-operation withrepresentatives oflaw enforcement bodies andintelligence services of the USA, the Russian criminal groupslaunderabroad about 3 billiondollarsannually.» Adoption andcoming into effectof Federal Law № 115-FZ “Counteractionto Legalizationof Proceeds (Money Laundering) Obtainedby Criminal MeansandFinancing of Terrorism» Decisionby FATFofJune, 2003 to include the Russian Federation as full a member ofFATF

11. Russian money laundering legislation since 2001 Regulatory laws Criminal law Federal Law «Counteraction to money laundering…» , Administrative code of Russia, Central Bank’ normative acts Cl.174, Cl.174.1 Criminal Code of Russia

12. Liabilityforlegalizationorassistanceincrime commitment Law enforcement (Ministry of Internal Affairs ofRF) • Criminal liability ofphysical bodies Criminal Code,Art. 174 and 174.1 Group of persons Official person Organized group Imposition of penaltyfrom 100,000 to 1,000,000 RUR; Imprisonmentfor a term from 1 to 10 years

13. Liabilityforviolation of legalization law Central Bank of Russia Financial Monitoring Committee • Liabilityof banksandcredit organizations • Administrative liability oflegalentities • Administrative liability ofstate and company officials Federal Law «Counteraction to Legalization…» Federal Law «On Banks and Banking activity» Administrative Code ofRussia Revocation of license Penaltyup of to 1 %of the paid-upauthorized capitalof a creditorganization Prohibition oneffectingspecificoperationsfor a periodof up to 6 months Other sanctions Imposition ofadministrativepenaltyuponofficialsat a rate offrom100to200of the minimumsalaries; forlegal entities - upon500to5,000of the minimum salaries.

14. Russian money laundering legislation since 2001 Criminal law Regulatory laws Uncertainty of the crime norm Requires implementation and practical using Short period of development of counteractions measures Requires further development Complexity of terminology Shortage of professionals and absence of methodology Lack of national practice

15. Crime statisticsin Russia Money laundering in Russia statistic figures

16. Practical analysis of 92 crime cases of money laundering in Russia

17. Problems in Russia related to money laundering counteraction and also confirmed by crime casesanalyzed above • The number of cases on Article 174.1 (laundering of own criminal incomes) is many times as big as the number of cases on Article 174. (laundering). In accordance with 92 sentences examined on definite criminal cases which sentences were passed by courts of the Russian Federation in 2004, 2005 and 2006, 90 ones fell at Article 174.1 of the Russian Federation’s Criminal Code. • The criminal norm is not applied by its direct purpose as a facility of counteracting to organized criminality. Out of 92 criminal cases there are 2 crimes connected with turnover of drugs and none are connected with turnover of arms. Quite a lot of sentences are connected with legalization of scanty amounts of EUR 100 – 300. • Courts of the Russian Federation do not consider legitimation of an object of laundering an obligatory sign of the crime stipulated by Article 174.1 (laundering of own criminal incomes), and this makes substantially easier criminal prosecution for legalization and enables applying the norm in respect of a wide circle of persons.

18. Brief summary 1. Provisions of criminal and legal norms on liability for legalization established by the criminal legislation of the Russian Federation (Art. 174, Art. 174.1 of the RF’s Criminal Code) are formulated indefinably and inexactly. 2. Along with such factors as corruption, low schooling level of law-enforcement bodies officials this leads in practice to numerous mistakes, an insignificant number of cases on legalization in respect of organized criminal groups as well as mass institution of criminal proceedings in respect of legalization for unimportant acts not being legalization. 3. This results in that shortcomings of the legislation on counteraction to legalization give wide opportunities of arbitrary interpretation and selective application of the criminal law in the course of investigation on criminal cases connected with legalization (laundering) of criminal incomes in the Russian Federation.