Large western banks one by one close correspondent accounts of Russian banks
Even though Russia has been following the international instructions as concerning fighting money laundering for several years already, it may still take decades before the Russian bank sector regains credibility among foreign financial institutions. And this is the sad reality.
Today, cooperation of Russian bankers with foreign colleagues is really complicated. The old scandal with laundering money coming from Russia in the Bank of New York and other shady stories still have their effect on bank contacts between Russian and foreign bankers. Some of Russian oligarchs were involved into the scandals, and the US Congress vainly summoned them for explanations as concerning the money-laundering scandals.
Large western banks one by one close correspondent accounts of Russian banks and the latter have to conduct transactions only through national Russian banks located abroad.
The correspondent accounts of about 300 Russian banks have been closed within the past year in the US. And now, European financial structures have taken the same line. Deutsche Bank's branch in the US closed correspondent accounts of several Russian banks at the end of August. At that, foreign bankers give no comments as concerning the action and just explain they needed to monitor payments in order to fight money laundering. After FATF put Russia down into the black list in 2000, American banks began to control all of Russia’s operations of over $5,000.
Russia has done a lot to fight money laundering since that time. When the Russian Federal Service for Financial Monitoring was set up in 2002, part of the sanctions was lifted. In 2003, Russia was removed from the FATF black list. Russian bankers still enjoy little trust in the western bank sphere even though no suspicions of Russia's money laundering were proved since 1999. And this is mostly because Russian bankers used to involve offshore companies for money laundering.
The other day, head of the Russian Banks Association Garegin Tosunyan told journalists that in Russia the offshore and cash turnover is too big as compared with the legal money transferred through the bank system. Compare with the West where the share of offshore and cash turnover makes 5-6 per cent.
At the same time, head of the Russian Federal Service for Financial Monitoring Viktor Zubkov is sure that today the Russian bank system agrees with the world standards. This is confirmed by international monitoring institutions including FATF, the World Bank and the International Monetary Fund. Why do western banks still witch-hunt Russian banks?
Garegin Tosunyan believes the negative image of the Russian bank system is formed by the reports of Russian banks about suspicious transactions flooding the Russian Federal Service for Financial Monitoring.
Garegin Tosunyan explains the anxiety of Deutsche Bank with the fact that the Service for Financial Monitoring in Russia gets two million reports about suspicious bank transactions a year, while one bank in Europe sends just several reports of this type a year. According to the European legislation, banks should report a bank transaction is suspicious only when it has grounds to call it suspicious.
The head of the Federal Service for Financial Monitoring thinks the great number of reports about suspicious transactions arises from imperfect legislation. Bankers have to be overcautious and report bank transactions are suspicious even when sometimes their suspicions are absolutely ungrounded.
First Deputy Chairman of the Duma Committee for Credit Organizations and Financial Markets Pavel Medvedev explains the legislation is tough because FATF command as concerning money laundering in Russia is much stricter than in other countries.
Viktor Zubkov adds that FATF authority in the Russian bank system is great enough, and this is the reason why Russia prefers strict financial monitoring of American type. The Russian Federal Service for Financial Monitoring controls every transaction to the sum of over $10,000. This explains why the Service gets so many reports about suspicious transactions from banks. At that, Zubkov says that about 5 million of reports about suspicious transactions come to monitoring institutions in the US which is 2.5 times more than in Russia. In Europe, banks follow softer instructions as concerning reports about suspicious transactions.
Russia has found itself in a really problematic situation. On the one hand, it needs to follow FATF instructions to regain its trust, but on the other hand, too many reports about shady transactions seriously mar the statistics and make western banks nervous.
Russian lawmakers say there is yet no way-out of the situation. Pavel Medvedev from the Duma Committee for Credit Organizations and Financial Markets says that FATF demands Russia must make control over money laundering even tougher. And it may take Russian banks decades to regain their reputation in the foreign bank sphere.