Leak of Banking Records Reveals Depth of Problem with Illicit Money Flows

Fortune magazine reported that global bank stocks fell on Monday (September 21) following the release of an ICIJ (International Consortium of Investigative Journalists) report that a number of global banks, as well as regulatory authorities, failed for years to follow up on Suspicious Activity Reports (SARs) about suspected money laundering.  Bank stocks plummeted on the fear the report will trigger another round of substantial fines.  Deutsche Bank, which had been badly tarnished by money laundering revelations in recent years, was down nearly 10% in morning trading.  The price of poor governance--the G in ESG investing--is high.

The Financial Times (paywall) provides additional details about some of the largest banks mentioned, including Deutsche Bank, HSBC, and Barclay's.  FT reports that, not only was Deutsche Bank fined $630m for laundering Russian money between 2012 and 2015, Bank of America was so worried about Deutsche Bank's poor due diligence that it filed a SAR against Deutsche Bank and raised their concerns directly with Deutsche Bank's CEO, Paul Achleitner.  And, it is not just hot Russian money.  HSBC was caught laundering money from Mexico and Hong Kong.

To make matters worse, it is not just about financial fraud.  In a separate opinion piece in FT (paywall), "The Rise of the Foreign Funds That Distort Western Politics", Josh Rudolph with the Alliance for Securing Democracy at the US-German Marshall Fund, writes that the FinCEN files reveal "the husband of a big UK Conservative party donor" was funded by a Russian oligarch close to Russian President Putin.  Rudolph enumerates occasions when foreign authoritarian leaders attempted to influence Western democratic processes through illicit money flows.  He writes, "Covert Foreign money transforms the civic infrastructure of open societies into an asymmetric weapon, converting freedoms into methods of attack."

The FinCEN files should raise urgent alarms in the West.  They provide abundant evidence of money laundering for the sake of money laundering that creates widespread corruption in the recipient countries not just in the countries of origin.  The files also provide ample evidence, as Rudolph writes, of attempts to influence political processes in the US and Europe.

The ICIJ reports, "Years after concerns first emerged, banks continued to mover money for fraudsters, drug dealers and allegedly corrupt officials, leading to cases of real harm."  Jodi Vittorie of the Transparency International's Defense and Security Program and a fellow at the Carnegie Endowment for International Peace describes the impact of money laundering this way, "People may not be aware of problems like money laundering and offshore businesses, but they feel the effects every day because these are what make large scale crimes pay, from opioids to arms trafficking and theft of Covid-19-related unemployment benefits" (INFOBAE via Marcelo Octavio de Jesus).

Although German authorities were quick to respond that the files did not reveal anything new, at least about Deutsche Bank, not enough has changed.  The EU did pass in 2018 the 5th Anti-Money Laundering Directive that requires EU members to establish public registries of all companies and their beneficial owners.  It also requires cooperation between banks and regulators among the EU countries in order to improve communication between law enforcement in different countries.  But the files make clear that in the EU and the US the resources to combat money laundering are inadequate, as is frequently the political will.  The US is a major destination of hot money because it has a deep financial market and is considered a safe haven, but more importantly, it has some of the most lenient corporate transparency laws, including no requirement to register beneficiary owners of corporations or for public disclosure of beneficiary ownership.  The US has yet to pass legislation on transparency as the EU has done.

This needn't be the case.  There are good examples of long-standing corporate transparency.  Anders Aslund, well-known Swedish economist and a Senior Fellow at the Atlantic Council, makes the point "that not only tax returns but all property registries etc, have been public in Sweden and Finland since 1766, when Sweden adopted the first Freedom of Information Act in the world to expose the bribery of Russia and France to some top aristocrats.  Denmark, then with Norway, followed in 1771.  None of these four countries have ever gone back.  Even when Finland was part of the Russian Empire (1809-1918), it maintained the Swedish freedom of information act.  This is why these four countries are generally among the top half dozen least corrupt countries in the world.  in Norway, all tax returns are available on the web."

While the EU has taken the right step in promoting transparency, the US needs to do so also.  And, both the EU and US need the oversight and enforcement resources necessary to ensure adequate oversight and control of the vast illicit international financial flows that threaten to undermine Western democracy and the rule of law.

ICIJ is publishing a series of stories on the FinCEN files, which can be found here.

All that is Wrong With Defending Russia

http://euromaidanpress.com/2020/09/18/all-that-is-wrong-with-defending-russia/

Dimitri Trenin of the Carnegie Institute Moscow is as polished as ever in his most recent article on Russia’s failing relationship with the West, specifically Germany (Russo-German Relations: Back to the Future).  But he doesn’t get to the point about what brought us to this moment.

In fact, his introductory caption illusttrates precisely what is wrong with the article.  It provides a highly Moscow-centric version of why relations with the West have fallen off the cliff, and that version is wrong because it is a highly distorted reality.

Trenin writes that

“Berlin is ending the era launched by Gorbachev of a trusting and friendly relationship with Moscow.”

The sentence implies that the break in relations is a German initiative, rather than a response to a pattern of aggression and corrupt actions by Russia that forced Germany’s Chancellor Merkel to make an unprecedented official statement that Russian opposition figure Aleksei Navalny, who is being treated in a hospital in Germany, had been poisoned and by implication the Russian government was responsible. Subsequently, the poison was identified as Novichok, which strongly suggests a Russian state-sponsored killing, as with numerous murders in Russia and abroad before it.

The same tone continues throughout the article.  The first paragraph again places the responsibility on Germany for the poor relations with Russia.  Trenin writes,

“Berlin will not try to understand the other side’s motivation or strive for mutual understanding and at least basic cooperation”, without mention of Russia’s behavior.  Trenin also writes in the first paragraph about Navalny’s poisoning that “details of the incident are still largely unclear”, disingenuously failing to mention what makes the poisoning relevant, that the use of Novichok implicates the Russian government.

In Trenin’s writing, it is quite mysterious how Germany came to its “unflinching opposition…to Kremlin foreign and domestic policy” and its “harsh criticism of specific steps taken by Moscow.”  Nowhere in the article is there parallel language about Russia’s conduct or attitude to what is said about Germany.

It is extraordinary that Trenin imagines that Putin viewed Merkel’s statement as a “stab in the back,” even though yet another high profile killing where Moscow is the obvious primary suspect might be reasonably considered by Merkel as yet another stab in the back.  It is intellectually offensive that when Trenin argues “despite scandals and obstacles” the interests of both Europe and Russia require cooperation and coordination, he can only mention supposed scandals in Europe and nothing in Russia.

Instead, the article is riddled with absurdities, such as that all politicians in the West who were sympathetic to Russia were eliminated in a strategic “purge of enemy influence”, rather than Russia having lost its support in the West through its own misconduct.

When Trenin arrives finally at what Russia must do to improve relations, specifically regarding the Navalny poisoning, his admonition is not that Russia establishes the truth but that it gets its story straight in order to be more persuasive, unlike with the Litvinenko and Skripal poisonings or the shooting down of MH17 where Russia was all over the place with its stories.

Trenin simply glides over what brought us to this point is not German russophobia but that Putin’s Russia is a revisionist and criminal state lead by a predatory elite that is a threat to its people and to a stable international system. Germany is merely conceding—at last--the obvious that there is no basis for normal relations based on mutual respect until Moscow’s behavior changes.

It is not only that Trenin avoids the obvious for why Russia’s relations with the West are so bad. His article is riddled with the hallmarks of Russian disinformation.  He omits essential facts about Russia’s conduct that provide context; he misrepresents the attitude of Germany that has bent over backward to overlook Russia’s behavior in order to maintain the illusion of mutually respectful relations; and, he suggests solutions that require Germany and the West to accept Russia’s current state as the basis for understanding, thereby placing the onus on Germany and the West to adjust. This is not the approach of an objective commentator. It is the approach of an apologist for Russian misconduct.

The reason this is wrong is that, with Russia, Germany and the West are not dealing with normal statecraft within the bounds of internationally acceptable behavior: Moscow’s murder of opponents is beyond the pale; invading other counties and occupying their territories is beyond the pale, as are gross violations of humanitarian principles; disrupting the democratic process in other countries is beyond the pale; sowing division in other countries for the sole sake of promoting conflict is beyond the pale; and the corruption of Western elites through influence operations (for example, thru illegal political donations) is beyond the pale—that Western elites too often have proven corruptible is a failing of the West but is beside the point.

Trenin’s writing is a tour de force of misrepresentation, distortion, and evasion. It presents the Carnegie Endowment for International Peace, a Washington-based think tank, of which the Carnegie Moscow Center is an affiliate (Trenin is its Director), with a dilemma.

To be credible, Carnegie needs genuine Russia experts who can write with authority about Russia’s perspective in the world, but some experts are products of the environment that Carnegie wants to cover.

It is not Carnegie alone that has this dilemma. For example,  Edward Lozansky, of the US-Russia.org and founder of American University in Moscow, frequently writes opinion pieces in the Washington Times that display the same misrepresentation, distortion, and evasion while excusing Putin’s crimes [the original article contained a factual error. Instead of referring correctly to articles in the Washington Times written by Edward Lozansky, it incorrectly referred to Dimitri Simes of the National Interest as the author]

If Washington think tanks want to be credible, they have to distinguish between genuine differences in perspective and outright falsehoods. As we have come to learn in the US, lies are not alternative facts. They are lies. 

In Belarus Social Media Can Change the Balance of Power in Favor of the People

Protestors in Minsk Face Off Against Government Security Forces

Political developments in Belarus remain deadlocked if not outright chaotic as massive protests against the self-anointed president Lukashenko continue.

Today, Lukashenko is in Sochi looking for support from President Putin of Russia to prop up his government because Lukashenko refuses to concede electoral defeat to Svetlana Tikhanovskaya, who likely won the August 9 vote for president as an upstart candidate when her husband, who was one of several declared candidates, was throw in jail.

But the point of today's blog is not politics.

The point today is that when a government loses legitimacy and tries to retain power by force, as is occurring in Belarus daily, the government has an overwhelming advantage because it has the levers of government at its disposal, including command of the police and the military.  The government can also control the traditional media.

However, social media has given the extraordinary courage of Belarusian people a powerful weapon against the violent suppression of the Lukashenko government.

There are many ways in which social media help.  Foremost is exposing the brutal tactics of the government for all Belarusians and the world to see.

Social media can also serve more specific purposes.  It can expose the methods the government uses and the crimes it commits.  It can expose the individual actors and the roles they play.

Among the security forces, are men dressed in green uniforms and masks without any identifying insignia.  Their anonymity enables them to commit crimes without fear of consequences.  However, protestors have begun to rip the masks off the "green men".  Social media then makes it possible to identify the individuals, shame them, and hold them responsible for their crimes.  Many believe the "green men" are actually Russian security forces brought to Belarus to help Lukashenko suppress the protests.

Also in the street, and closely associated with the "green men", are men dressed as civilians who act with the security forces to suppress the protests.  These men seem to have considerable authority.  They move about freely with the other security forces and sometimes give orders to the "green men".  They haven't gotten as much attention, but exposing who they are will expose a lot about the government's methods.  I already drew attention to these actors in my Twitter feed and I am reproducing it below to draw attention to the need to identify who these actors are.

Social media can change the balance of power in favor of the legitimate power of the people.  The courageous people of Belarus have shown they deserve nothing less.