Organized crime connections with banks also complicate matters. The August crisis
left banks in dire straits and badly in need of capital. The Russian Central Bank estimated that
by the end of 1994, 160 of 2436 banks were affiliated with organized crime. 64 Tax Police Major
General Viktor Khvorostyan, head of the Federal Tax Police Service’s Operations Department,
claimed that by 1998 over 3,000 organized gangs in Russia specialized in legalizing revenues
from illegal activities with half of them establishing their own businesses to launder money.65
The money is often invested in wines, spirits, gambling, show business, high yield securities and
companies with large cash balances.66 The ruble crash in August of 1998 left banks undercapitalized
and willing to ignore what few laws were being enforced.67 The most difficult scenario to
trace is the stereotypical man with a suitcase of cash who shows up to make a deposit —
leaving no paper trail, nor any explanation of the funds’ origin. The banks, desperate for
capital, welcomed the capital and asked few questions about the origins of the funds.68 The
timing of the fund transfers after the August crash made it difficult to differentiate money from
fraudulent or illegal activities from those transactions in which Russians understandably wished
to move their savings in to more stable currencies.69
These business practices often combine with corrupt government officials in the
banking sector.70 One such practice is Russian “bank lending” to the government through prearranged
deals in which the government would fail to repay the loans and then hand over
substantially undervalued enterprises as collateral, or to related companies within so-called
financial industrial groups whose “investments” were in either inflated Russian debt market or
convenient offshore accounts.71 Another bank scheme involved using bogus investment companies
offering 100 percent interest for one month’s worth of investments, with the sole purpose of
laundering money. The bogus investment company could afford to pay such high rates because
of the vast sums contributed for money laundering.72 Of course, the August crisis ended the
lucrative trading in short term government bonds when it defaulted on them.73 .html. |
