Part С. Law and Money Laundering in Russia

(Stituation Report prepared by an International Bank in 1995)

 

Text 1: Outflow of Capital

Text 2: Methods and Means

Text 3: Bank and Law

Text 4: Legislation and Customs

Text 5: Criminal Proceeds and Cooperation with other Countries

Text 6: Two Levels of Cooperation

Text 7: Agencies and their Personnel

Pre-reading questions:

 

1. Is Russia a country of planned or market economy now?

2. Are drugs and arms trafficking and the illegal sale of nuclear materials widely practiced in Russia at present?

3. Have you heard anything about gray money? What is it?

Skim and scan:

 

Read the text quickly and mark the paragraph which seems most important to you.

Text 1: Outflow of Capital

During the period of Russia's transition from a centrally planned economy to a market economy, the opportunities to launder money appear to be limitless. Despite what is written in the media and debated in international fora, Russian law enforcement statistics do not support the thesis that criminally derived proceeds from abroad are entering Russia and subsequently laundered. This also holds true for foreign proceeds from drug or arms trafficking, and the sale of nuclear materials. Russian officials admit that mechanisms to detect and measure money laundering are lacking or could be improved, but the general consensus is that foreign funds are not laundered in Russia. The country does, however, remain vulnerable to money laundering, given the current legal and economic conditions.

What is happening is a massive outflow of capital from Russia. These proceeds range from criminally-derived funds from commonplace offenses to the misappropriation of state assets through embezzlement, theft, and corruption. This money is legalized in Russia and eventually sent abroad, primarily to Western countries for laundering and safekeeping.

Funds leaving Russia to be legalized abroad consist of a combination of assets from the proceeds of predicate offenses stipulated by criminal codes and proceeds that are illegally transferred out of Russia, commonly referred to as «gray money». Examples of this include corporate, private, and official funds sent to foreign accounts to evade hard currency restrictions, taxation, inflation, or detection.

These types of illegal proceeds include more than those generated by organized crime. Instances of embezzlement by individuals in positions allowing access to either private or public funds also occur; these proceeds are likewise sent abroad. The proceeds ultimately return to Russia in the form of cash, goods, services, and equipment. Those remaining in Russia are used for operational expenses in furtherance of the criminal enterprise.

Russian officials estimate that during the years 1992 and 1993, assets valued at four trillion roubles were stolen from the state. At the nominal exchange rate of $1.00 = R200.00 during this period, the equivalent losses incurred in U.S. dollars were $20 billion. According to Russian government estimates, approximately $100 billion of funds attributed to Russian sources lie outside the country in foreign banks. Approximately $30–40 billion of this sum is capital from tax and customs evasion.

 

§ Vocabulary notes

 

transition		1) переход; 2) переходный период
syn. transition period
forum (pi. foras, foris, fora) (Lat.)		1) площадь; 2) место суда
in international fora		в международных профессиональных кругах
thesis (pi. theses)	['TI:sis, 'TI:si:z]	1) положение, тезис;
		2) тема; 3) диссертация
arms		1) оружие
in arms		вооруженный.
		2) война
nuclear	['nju:klI@]	ядерный
nuclear materials		радиоактивные вещества
vulnerable (to smth)		уязвимый, ранимый, чувствительный
to range from... to...		колебаться от... до...
	misappropriation	[mIs@,pr@uprI'eSn]	незаконное присвоение, растрата
	embezzlement	[Im'bezlm@nt]	хищение, присвоение
	to embezzle		присваивать, растрачивать
	theft		1) воровство, кража; 2) украденные вещи
	eventually		в конечном счете, в конце концов, со временем
	syn. ultimately finally in the end
	gray = grey		серый
	gray money
	corporate	['kо:р@r@t]	корпоративный, принадлежащий или
			относящийся к корпорации
	corporate funds		корпоративные средства,
			средства фирм
	to evade		уклоняться, обходить (закон, вопрос)
	evasion		уклонение
	customs evasion		уклонение от уплаты пошлин
	restriction		ограничение
	to impose restriction		вводить ограничение
	access	['{kses]	доступ
	to allow access to smth		позволять доступ к чему- либо
	furtherance	['f@:D@r@ns]	продвижение, поддержка, помощь
	to incur	[In'k@:]	подвергаться
	to incur losses		нести убытки
	to incur debts		влезть в долги

 

Note: Обозначения валют $, £, R – устаревшие, в соответствии с требованиями Международной организации стандартизации современные обозначения этих валют: USD, GBP и RUR.

 

Words and Grammar

 

a Match the English and Russian equivalents:

 

b Mark the meaning in which the following words are used in the text with a tick:

 

 

с Write out the synonyms of the following words, from the text:

 

support.................................. about.............................................

in spite of smth..................... very big........................................

finally.................................... usual.............................................

mainly.................................... instance.........................................

atomic...................................... limitation......................................

to suffer.................................. to discuss.......................................

 

d Write down the antonyms of the following words:

hard currency......................... proceeds............................................

foreign banks......................... corporate funds................................

inflation................................. a centrally planned economy..........

expenses................................. limited...............................................

estimates................................ inside the country............................

 

e Choose the correct prepositions and write down a sentence with each word combination:

 

to consist of/in smth misappropriation of/off state

to range from/of smth to/with smth assets

to hold true in/to smth at/in the nominal exchange rate

to allow access for/to smth furtherance of/to the criminal

according with/to Russian enterprise

government sources in/at the media

 

f Give the word families of the following words:

to restrict................................ to evade.........................................

to embezzle............................ to estimate....................................

g Group the following words into a few logical groups:

cash, hard currency restrictions, goods, taxation, inflation, services, proceeds, predicate offenses, money laundering, funds, corruption, misappropriation, safekeeping

 

Group

 

h Complete the sentences with the words from the box:

vulnerable, nuclear, illegal, limitless, operational, criminal

 

1 The proceeds remaining in Russia are often used for operational ................ expenses in furtherance of

the..............enterprise.

2 The country is..............to money laundering given the current conditions.

3 The opportunities to launder money appear to be..............................

4 This also holds true for foreign proceeds from drug or arms trafficking, and the sale of..............materials.

5 These types of..............proceeds include the proceeds sent abroad.

 

i Encircle the attributes and write how they are expressed:

 

the losses incurred in US dollars.... Past Participle............................

funds attributed to Russian sources......................................................

offenses stipulated by criminal codes..................................................

proceeds commonly referred to as «gray money»..............................

criminally derived proceeds............................... ,.................................

funds to be legalized abroad................................................................

opportunities to launder money...........................................................

mechanisms to detect and measure money laundering......................

 

j Write down the words which substitute the words in italics:

 

1 These types of illegal proceeds include more than those generated by organized crime...............................

2 These proceeds are sent abroad and those remaining in Russia are used-for operational expenses....................................................................................................................................................................

3 These texts are different from those of the previous Section...........................................................................

 

k Write out the sentences in which the verbs are used in Continuous Tenses and explain the use of these tenses.

 

§ Suggested activities

 

l Write a plan and a title of the text.

m Write a few sentences summing up the text.

n Explain the term «gray money» in English.

 

Pre-reading question:

Do you think that money laundering is in any way related to foreign trade transactions?

Skim and scan:

Read the text quickly and underline the sentence or sentences mentioning foreign organized crime groups operating in Russia.

Text 2: Methods and Means

Common methods used to launder assets are false invoicing schemes, keeping of double books, and contract fraud. A common scenario is a wire transfer of funds in Western currency to a front company abroad for a commercial transaction. A fraudulent purchase contract provided by the front company is presented as proof of the commercial need for wiring the funds. After the funds are wired, the legitimized funds are free to be transferred or converted to cash. This method is also used to embezzle state funds.

Another method used to launder funds involves instances in which suppliers never receive payment for products that are purportedly ordered by the state. Schemes to defraud the state of strategic materials – such as oil, gas, metal, gold, diamonds, and timber – regularly occur in which the resources are shipped abroad with deliberately undervalued invoices and sold at world markets – the profits of which are embezzled by the perpetrators.

In Russia, organized crime is defined as activity of criminal formations of different levels of organization. These criminal formations are groups, gangs, and organizations. At present, there are approximately 6,000 organized crime groups operating in Russia, whose significant numbers constitute criminal organizations. Seven criminal organizations operate in Moscow and ten in Sankt-Peterburg. In 1995, 25 criminal organizations were known to have international ties; 19 among them – in the former Soviet republics. There is no concrete proof of foreign organized crime groups operating in Russia. Organized crime is countered by the main Organized Crime Control Department of the Ministry of Internal Affairs of Russia and its local, offices in the various regions of the country.

The connection between the shipments of massive amounts of bulk US currency to Russia and organized crime is speculative. One purely economic explanation for this currency flow is to satisfy the demand for US dollars by average Russian citizens. As a hedge against inflation, Russians convert their earnings in roubles to dollars, which are reconverted to roubles for routine purchases as needed. Given the size of the Russian economy, the US dollar would be the logical choice because of its relative stability, and the amount of US currency in circulation worldwide. This does not preclude the use of some of this currency by organized crime, but media reports overstate the magnitude.

The theft of nuclear material is recognized as an extremely dangerous undertaking in Russia. It requires specialized professionals to handle radioactive materials, and it is well known that numerous intelligence organizations – both foreign and domestic – monitor the theft of and trade in nuclear materials.

Arms trafficking in Russia is problematic for several reasons. Border controls have not kept pace with the arms trade, there are profits to be made, and weapons are used in the commission of other crimes. Arms trafficking is considered a serious and major concern by Russian law enforcement officials.

 

§ Vocabulary notes

 

to purport	['р@:р@t]	означать, подразумевать
purport		1) смысл, содержание; 2) текст документа
timber		лес, лесоматериалы
to counter		1) противостоять; 2) противоречить
speculative	['spekjuleItIv]	умозрительный, теоретическим, недоказанный
demand for smth		спрос на что-либо
hedge		1) ограда, преграда, препятствие; 2) гарантия
to hedge		страховать себя (от возможных потерь)
to hedge credit risks		страховать кредитные риски
to preclude	[pr@'klu:d]	предотвращать, устранять,
		мешать
to overstate		преувеличивать
magnitude	['m{gnItju:d]	1) размеры; 2) важность, значимость
of the first magnitude		первостепенной важности
to monitor	['monIt@]	контролировать, проверять

 

Suggested activities

 

a Place appropriate number before each title of the paragraph to make a plan of the text:

 

............................. Us currency flow into Russia

............................ Arms trafficking

............................ Theft of nuclear materials

............................ Undervalued invoices

............................ Organized crime groups

............................ Fraudulent purchase contracts

 

b Mark the true sentences as T and false ones as F basing your choice on the text:

 

1 False invoicing schemes, keeping of double books, and contract fraud are very rare methods used to launder money.........................................................................................................................................................

2 A common scenario is a bank transfer of funds abroad for a commercial transaction...................................................................................................................................................................................

3 When the funds for a commercial transaction are wired no special documents are to be presented as a proof of the transaction..............................................................................................................................................

4 The funds wired abroad can be converted to cash............................................................................................

5 There is no way of embezzling state funds......................................................................................................

 

с Complete the sentences with the following words from the box:

to defraud, deliberately, instances, to launder, purportedly, occur, world markets, embezzled

 

1 Another method used................funds involves................in which suppliers never receive payments for products that are................ordered by the state.

2 Schemes................ the state of strategic materials regularly................in which the resources are shipped abroad with................. undervalued invoices and sold at................, the profits of which are................by the perpetrators.

 

d Sum up what the text says about organized crime in Russia covering:

 

• various formations

• the number of groups in Russia

• the number of criminal organizations in Moscow and Sankt-Peterburg

• the number of organizations having international contacts

• foreign organized crime groups operating in Russia

• the Ministry of Internal Affairs of Russia combating organized crime

 

e Write down the answers on the basis of the text:

 

1 Is there any connection between shipments of US dollars to Russia and organized crime?..............................................................................................................................................................................

2 Do average Russian citizens buy massive amounts of dollars?.......................................................................

3 Why do Russians convert their earnings to dollars?........................................................................................

4 Why do they reconvert dollars to roubles later?..............................................................................................

5 Are dollars a relatively stable currency?.........................................................................................................

 

f Write down the questions for the following answers.

g Translate the paragraph speaking about arms trafficking into Russian.

 

§ Words and Grammar

 

h Write out all the words and expressions associated with the following from the text:

 

false commercial business.................................................................

organized crime.................................................................................

dollars circulation in Russia..............................................................

 

i Choose the correct variant:

 

1 Fraudulent purchase contracts (are present/ are presented) as proof of the transaction to have the funds transferred abroad.

2 After the funds (wire/are wired) the legitimized funds can (transfer/be transferred) or (convert/converted) to cash.

3 This method (is also used/is used also) to embezzle state funds.

4 Schemes to defraud the state of strategic materials regularly (occur/are occurring).

5 Organized crime (defines/is defined) as activity of criminal formations of different levels of organizations.

 

In conclusion

 

j Explain the meaning of the following in English:

 

• organized crime	• trade in nuclear materials
• fraudulent business transactions	• arms trafficking

Skim and scan:

Read the text quickly and write down another possible title of it.

 

Text 3: Banks and Law

 

The Bank of Russia has responsibility for bank oversight and regulation of the 1,253 banks that currently operate in the Russian Federation. Non-bank financial institutions (NBFIs) are regulated by a number of agencies along with the Bank of Russia. This oversight and regulation is expressed in large part through the granting and revocation of bank licenses. In addition, the Bank of Russia has and exercises the right to apply the following sanctions to credit institutions: (1) to impose a fine, (2) to appoint temporary administration, (3) to ban certain types of licensed operations, and (4) to require the substitution of officials and the reorganization of the credit institution. The Bank of Russia also grants licenses to non-bank financial institutions for the movement of capital. There are 1,046 commercial banks authorized by the Bank of Russia to perform foreign currency transactions. The current minimum capitalization requirement for operating credit institutions must reach the level of 5 million ECU before January 1, 1999, and for those established since April 1, 1996, a minimum standard of 2 million ECU has been set, which must reach the level of 5 million ECU before July, 1998.

No specific bank secrecy laws exist relating to the confidentiality of the relationship between a bank and its customers and their transactions or the reporting of unlawful activities to law enforcement authorities; however, there is a general article on bank confidentiality as part of the law on banking activities. The only exception to the disclosure of this type of information is through the serving of a court order as part of a criminal investigation. In the event of freezing or confiscation of an account, bank account information is given to the case arbiter and tax authorities. There are no limitations as to the types of account information the bank may give to criminal investigators. This is left up to the discretion of the individual bank. The Bank of Russia does not have supervisory authority over offshore banks operating outside Russia that do business with Russians. Examples of this would be banks registered in Northern Cyprus and the Baltic nations that advertise in Russian newspapers. The Bank of Russia monitors these banks and provides information to law enforcement agencies in the event of questionable activities.

There is no legal division of banks into types, such as commercial, savings, etc. The following financial institutions operate in Russia: banks, currency exchanges, securities companies, stock brokers, insurance companies, credit card companies, casinos, real estate companies, and travel agencies.

 

§ Vocabulary notes

 

to grant		предоставлять, давать, выдавать
to revoke		отменять, аннулировать, отзывать
to revoke a license		отзывать лицензию
to revoke a law		отменять закон
revocation		отмена, аннулирование, отзыв
to ban smth		запрещать что-либо, налагать запрет на что- либо
to substitute	['söbstItju:t]	заменять, замещать
substitution	[,söbstI'tju:Sn]	замена, замещение
with the exception of smth		за исключением чего-либо
ECU (European Currency Unit)		ЭКЮ (единая европейская единица/валюта). В январе 1999 г. заменена на евро (1 ЭКЮ =1 евро) усмотрение, свобода действий
discretion
at the discretion of smb		на усмотрение кого-либо
at one's discretion		по своему усмотрению
to leave smth to smb's discretion		оставить что-либо на чье-либо усмотрение
securities	[s@'kju@rIIz]	ценные бумаги

 

Words and Grammar

 

a Give the word families of the following words:

 

 

 

 

b Encircle the roots of the following words: