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Illegal Money is Coming to Dela-where? Image courtesy of Chris Potter on Flickr

Illegal Money is Coming to Dela-where?

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These days tourists are not the only thing travelling through the Caribbean, as money laundering, or a financial transaction that conceals the identity, source, and destination of illicitly-obtained money, is becoming an increasingly prevalent problem. Russia is one of the biggest perpetrators of money laundering, with siloviki and other groups sending huge amounts of money abroad for safe-keeping. Money coming from Russia usually goes first to Cyprus, then to the British Virgin Islands, then to the Cayman Islands, and ends at either the US or the UK.

The siloviki are people who work for or used to work for the silovye ministerstva, or the “ministries of force” that operate in the name of the state. There are currently 22 of these agencies in Russia, many of which include members using coercion and violence out of necessity. The best known siloviki is the Federal Security Service, the successor to the KGB. Siloviki receive orders from the Kremlin and are constantly competing against each other for power, influence, and money. In fact, there have been multiple “siloviki wars,” leading them and other similar Russian groups send money abroad to avoid losing everything in case of a conflict.

Most illicitly-obtained money coming to the US arrives in Wilmington, Delaware, one of the biggest money laundering sites in the world. A World Bank study found that the US was the favorite destination of foreign politicians opening anonymous corporations abroad to conceal their illicitly-obtained money, while the Financial Action Task Force has repeatedly criticized the US for failing to disclose beneficial ownership information, a critical standard in the fight against money laundering. These issues are primarily the result of lax state laws, and the problem is concentrated in Delaware, which enacted corporate secrecy laws in an attempt to attract business incorporation fees. Incorporation fees have accounted for up to a quarter of Delaware’s general revenues, prompting officials in Dover and Wilmington to turn a blind eye to criminal activity.

At a recent event hosted by the Atlantic Council’s Eurasia Center, “Putin’s Rule: Siloviki and Kleptocrats”, Dr. Anders Åslund, a leading specialist on economic policy in Russia, Ukraine, and Eastern Europe, laid out the steps the US should take to prevent Russian money laundering in the US. Firstly, the intelligence community should investigate how much illegal money currently exists in the US and Congress should prohibit the creation of anonymous companies in the US. Furthermore, Section 316 of the Patriot Act should be revised due to the fact that real estate is a significant part of money laundering. In addition, law firms should no longer be allowed as an intermediary for money. Lastly, the US Financial Investigation Agency should be given more resources and a limit should be placed on cash payment in the US.

Money laundering has the potential to devastate the US economy, national security, and society. Left unchecked, money laundering could result in criminal organizations crowding out private sector business, the undermining of the integrity of financial markets, and a loss of control over economic policy. It could also cause intense economic distortion and instability, such as the collapse of entire industries, as well as high tax rates due to a loss in government tax revenue, threats to privatization efforts within states, and a tarnished reputation on the world stage.

In order to prevent Russian money laundering in the US, it is important that the US takes the preventative measures outline by Dr. Åslund. Additionally, state laws that protect against money laundering and similar criminal activities should be more strictly enforced. It is imperative that the US protects its economy, national security, and society by putting a stop to Russia’s money laundering schemes within its borders.

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