Moldovan and Latvian banks accused of working in Russian laundromat

By bne IntelliNews August 25, 2014

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Around $20bn in Russian funds has been laundered over the last four years through a scheme that involves sending huge sums from the UK through Latvian and Moldovan banks, a new report claims.

"Between 2010 and early 2014, organized criminals and corrupt politicians in Russia moved $20bn in dirty funds through this laundromat's complex cleanse-and-spin cycle made up of dozens of offshore companies, banks, fake loans, and proxy agents," according to the report from the Organized Crime and Corruption Reporting Project (OCCRP). "The process was then certified as clean by judges in the tiny Republic of Moldova. The newly cleaned funds were then spread across Europe."

The use of dodgy bank transfers in the scheme came to light following the financial crisis in Cyprus. The problem is that banks making a transfer are supposed to report the identity of the beneficial owner to the receiving bank, but transfers made from Moldova – widely seen as fronting for Russians – rarely give full information. Once the money is in a Cypriot bank it's inside the EU system, and has effectively been "washed".

"The key to the system was the involvement of Moldova, a country caught between its aspirations to join the European Union and its history of close ties to Russia. The scheme used Moldova to both provide legal protection against regulators through the country’s judicial system and a means to inject the illegal money into the European Union's financial systems," the report adds. 

However, with Central and Eastern European states plugging ever deeper into the EU, more scrutiny is being paid to the cash flowing through their financial systems. Latvia, for instance, was warned several times about the high volume of Russian money in its banking system as it joined the Eurozone at the start of the year. An investigation into the laundromat scheme has now been launched in Moldova. 


The report lays out how the scam works: "A typical transaction began with two companies, often based in the United Kingdom and with their true ownership obscured in the offshore mists of a tax haven. The companies sign a bogus contract in which one agrees to lend the other large sums, although no money ever actually changes hands. It is likely that both companies are owned by the same owner but that ownership is hidden behind “proxy” figures.

"The tax haven of choice in this operation was Belize, and the sums involved in each transaction were huge, ranging from US$ 100-800m. The contracts in each case stipulated that the debt was guaranteed by companies in the Russian Federation, almost always run by a Moldovan citizen. This Moldovan gave the operation access to the courts in Moldova, which would ultimately permit the movement of the dirty money into the legitimate banking system.

"The next step was for the 'borrowing' company to refuse to repay the debt to the 'loaning' company, thereby shifting the debt to the Russian companies who had guaranteed the loan. The 'loaning' company then would take the matter to court in Moldova where a judge would issue an order 'certifying' the debt as real and ordering the Russian company to pay.

"Then the Russian company would transfer dirty money into an account set up by the “loaning” company. For every case, the money was sent to an intermediary bank called Moldindconbank—an institution connected to one of the country’s most powerful businessmen. Finally the money was wired to the 'loaning' company’s account, which was always at the Latvian-based Trasta Komercbanka."

"And once it is in Latvia, voila! It is in the European Union, backed by a court order and clean and ready to use. The OCCRP investigation found that 19 Russian banks, some already being investigated for money laundering, used The Laundromat."

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