The largest military conflict and refugee crisis in Europe since World War II has now been entered into the history books. On February 24, 2022, Russia invaded Ukraine causing over three million Ukrainians to flee their homes and many innocent Ukrainian lives have been lost. This unprovoked attack by Russia has been met with extreme disapproval by many countries, including the United States.
The Ukraine-Russian conflict can be traced back to the end of the Cold War. After the break-up of the Soviet Union on December 31, 1991, the former Soviet Union was broken up into 15 Independent countries. Two of which were Russia and Ukraine. Ukraine had become its own sovereign democratic nation, free of Russian control. Starting in 1992, there has been discussion of Ukraine possibly becoming a part of NATO, a military alliance established in the aftermath of World War II, which includes many of Europe’s strongest nations.
Russia is not part of this alliance. Since Ukraine borders Russia, it is the prevalent opinion that Putin started the war in order to prevent NATO from being on his doorstep. It is believed he also wants to use this war as a method to establish Russia as a world superpower and restore it to its former strength.
A new multi-agency initiative known as the Task Force KleptoCapture has been created in response to Russia’s unprovoked invasion of Ukraine. Sweeping sanctions, export restrictions and economic countermeasures are being enforced by the United States and its allies and partners in order to isolate Russia from global markets. The goal is to impose serious costs by targeting the crimes of Russian officials, government elites, and those who aid or conceal their unlawful conduct. Deputy Attorney General Lisa O. Monaco said in a recent press release that “Oligarchs be warned: we will use every tool to freeze and seize your criminal proceeds.” The wealth of Russian Oligarchs has been brought into the spotlight, including their use of money laundering to hide their assets.
Russian Oligarchs are business oligarchs who became extremely wealthy after the dissolution of the Soviet Union. When the Soviet Union fell, ownership of state assets were not secure, so the oligarchs completed informal deals with former USSR officials to lay claim to the property. Their extreme wealth also makes them politically connected. Many Russian oligarchs are heavily involved in and benefit from Vladimir Putin’s regime. Some even serve in political positions. There can be lines of succession for oligarchs in politics, where their children can secure political positions.
Russian oligarchs and political leaders surrounding Putin have long been important clients of the secretive offshore financial industry. It is estimated that close to 20% of Russia’s wealth is stashed in offshore jurisdictions like Cyprus, the Seychelles, the British Virgin Islands and even the United States.
Their wealth, often stolen public assets, is funneled out of Russia into Western bank accounts, financial instruments such as trusts, real estate, yachts, art, and other luxury assets. Large banks and a global industry of professionals who specialize in setting up shell companies (whose sole purpose is to hide the identity of the true owner of the wealth), trusts and other secretive vehicles unfortunately make this possible. Wealth cannot move and hide itself.
Countries are not staying silent, though, when it comes to the illegal laundering of stolen Russian wealth. The U.K. government, for example, recently announced a new economic crime bill to combat money laundering by foreign oligarchs. The bill would create a new register of foreign owners of U.K. property, which would stop the practice of oligarchs buying and holding real estate through shell companies registered in other secrecy jurisdictions. Offshore property owners would have to identify themselves or face penalties, including imprisonment. This is just one example of a country taking an extra step to combat Russian money laundering, in response to the Ukraine-Russian conflict.
The United States already has anti-money laundering measures in place. On March 7, 2022, the Financial Crimes Enforcement Network (FinCEN) has alerted all financial institutions in the United States to be “vigilant against efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented in connection with the Russian Federation’s further invasion of Ukraine.”
First State Trust Company thoroughly vets business to ensure money laundering does not occur. No business is accepted without performing due diligence to identify the true owners of the wealth. FSTC stands with FinCEN by enforcing due diligence to prevent potential money laundering from Russian oligarchs and any nefarious party.
Stacie Wolff, CTFA
Assistant Vice President / Compliance Officer
The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only. FSTC does not offer tax, legal, or investment advice, professional counsel should be sought for tax or legal advice.