U.S. Anti-Money Laundering Vulnerabilities Counter its Efforts to Aid Ukraine, Experts Say

Published: 27 March 2023

Capitol Hill WashingtonSwiss cheese-like holes in the U.S.’s anti-money laundering laws hinder its efforts to properly support Ukraine in its defense against Russia, experts argue. (Photo: Wally Gobetz, Flickr, License)

By Henry Pope

The U.S. is a magnet for the world’s dirty money, financial crime experts say, as they weigh in on how vulnerabilities in America’s anti-money laundering laws counter the country’s efforts to aid Ukraine in its defense against the Russian invasion.

Illicit proceeds equal an estimated two percent of U.S. gross domestic product, according to findings in the Treasury’s 2022 Strategic Action Plan. Russian oligarchs, experts note, contribute to this problem by funneling their ill-gotten gains through industries that are exempt from rigorous anti-money laundering checks.

And that’s a lot of money.

The combined illicit wealth of just three Russian oligarchs equals roughly one-third of the humanitarian aid that the U.S. has sent Ukraine as of March 2023, claims Erica Hanichak, Government Affairs Director of the FACT Coalition, a U.S.-based non-governmental organization dedicated to combating illicit financial activity.

“While the U.S. has a strong anti-money laundering framework, it has Swiss cheese-style holes in critical sectors that allow these illicit funds to flow in,” Hanichak said.

Indeed, Secretary of the Treasury Janet L. Yellen debunked the belief that “the money laundering capitals of the world are small countries with histories of loose and secretive financial laws” as nothing but “popular imagination.”

“There’s a good argument that, right now, the best place to hide and launder ill-gotten gains is actually the United States,” she said.

Dictators, criminals, and the corrupt circumvent the U.S.’s anti-money laundering laws by siphoning their finances through various economic sectors which are not required to perform the same due diligence measures expected of the country’s banking industry.

Lawyers, trust funds, and real estate transactions are but a few money laundering enablers that do not receive the same degree of scrutiny from the country’s financial authorities.

Russian oligarchs are aware of these loopholes as well, and have used them to launder their money in the U.S. even after the Treasury sanctioned them in the wake of Russia’s annexation of Crimea and later its invasion of Ukraine.

Suleiman Kerimov, for instance, managed to anonymously hide over US$1 billion in a Delaware trust and in turn used those funds to invest in other U.S. markets. Although he was sanctioned in 2018, it wasn’t until 2022 that his identity in the scheme was uncovered and his finances were frozen by the Treasury.

Oleg Deripaska, another Russian oligarch, managed to invest over $200 million in a Kentucky aluminum rolling mill company, despite already being sanctioned by the Treasury in 2018.

And in 2022, it was discovered that he had employed shell companies in 2019 to administer the sale of his California studio and expatriate the proceeds.

“The U.S. is behind its allies in holding accountable the enablers of corruption,” such as lawyers who “act as a gateway to the U.S. financial system for the world’s criminal and corrupt,” Hanichak told OCCRP. Indeed, legal professionals have proven themselves to be extremely effective in helping oligarchs channel their finances in and out of the United States.

Such was the case with sanctioned Russian oligarch Viktor Vekselberg, whose purchase of his New York and Florida apartments—worth approximately $75 million—was facilitated by a New York-based attorney.

Their professional relationship continued even after Vekselberg was blacklisted. American authorities uncovered in February earlier this year that the attorney had processed millions of the sanctioned oligarch’s money, sent from the shell company “Smile Holding Ltd.”.

Put into a larger context, across only 125 known cases, more than $2.3 billion was laundered through the U.S. real estate market from 2015 to 2020, according to a report by Global Financial Integrity, a Washington-based think tank.

By comparison, in the same timeframe, reported cases from the U.K. and Canadian real estate markets showed only $1.1 billion and $626 million laundered, respectively.

What makes legal professionals so effective here? “Lawyers are the handmaidens of transnational kleptocracy,” Nate Sibley of the Hudson Institute think tank previously told OCCRP. “They can resist law enforcement inquiries by claiming attorney-client privilege,” whereas U.S. financial institutions cannot.

As revealed by the Pandora Papers, bankers, lawyers, accountants, and registration agents move hundreds of billions of dollars around the world every year, all from ehind a desk. These illicit financial flows connect corrupt figures and authoritarian regimes from tax havens in the Caribbean to commercial hubs like London.

Put simply, money laundering can’t function without them.

“The world cannot sustain two separate financial systems – one for hardworking people who follow the law and pay the taxes, the other for the global rich and political elites who use offshore financial secrecy to evade taxes and accountability for crimes,” said Ian Gary, executive director of the FACT Coalition.

“We just need to have the same system for banks and other financial institutions apply to these gatekeepers,” said Scott Greytak, Advocacy Director for Transparency International US, at the 2022 International Anti-Corruption Conference.

When applied within the context of the war in Ukraine, Hanichak noted that the combined sum of Kerimov, Deripaska, and Vekselberg’s illicit wealth amounts to approximately one-third of the humanitarian aid that the U.S. has sent Ukraine, as of early March 2023.

“How much more effective could the United States be in its Ukraine policy,” she said, “if it weren’t simultaneously harboring Russia’s dirty cash?”

Despite these Swiss cheese-style holes in America’s anti-money laundering laws, the government has not turned a blind eye to them.

A proposed, bipartisan bill known as the ENABLERS Act would impose the same due diligence standards that the country’s banking industry must follow across all businesses which conduct or facilitate large transactions.

If passed, it would mean that any transaction, regardless of its origin, would be flagged by American financial authorities if it was linked to the account of a sanctioned individual.

Although the bill encountered a roadblock in the Senate last December, national security experts and Members of Congress on both sides of the aisle still ardently support its passage.

One voice against the bill is Deborah Enix-Ross, president of the American Bar Association. She advocated to the Senate that it would label lawyers as ‘financial institutions’ under the Bank Secrecy Act and subject them to the same standards in submitting suspicious activity reports when providing financial-related legal services to clients.

However, Greytak is concerned that “if you create a carve-out for ‘attorneys only’ from these obligations, you are giving corrupt actors a clear roadmap for how to better hide and move their money.”

Meanwhile, already in place is the Corporate Transparency Act (CTA), which requires that all companies that do business in the States disclose the personal information of their beneficial owners to the Treasury's Financial Crimes Enforcement Network, or FinCEN.

Such beneficial owners could include, for instance, sanctioned Russian oligarchs who would otherwise wish to conduct illicit business dealings anonymously.

Still, Hanichak argues that there is a glaring red flag in how the CTA hopes to deter future money laundering activity: a draft form that she says “could effectively render the entire mandatory regime optional.”

On the form the Treasury has set out for companies to list their beneficial owners, Hanichak pointed out that one can simply state they are ‘unable’ to obtain any information about them.

“I can’t imagine any other scenario in which you can simply shrug your shoulders and tell the U.S. government ‘I don’t know,’” she told OCCRP. “Can you imagine being able to tell the IRS that you’re ‘unable to obtain’ information about your income?”

The success of the U.S.’s anti-money laundering efforts “and of the president’s landmark strategy on countering corruption,” Hanichak said, hinges on the government’s “ability to close loopholes around real estate, private investment, and enabler professions.”

“Ukrainian civilians shouldn’t pay the price while U.S. ‘enablers’ reap the profit,” she said.