Consider Designating Russia as a Jurisdiction of Primary Money Laundering Concern

Senator Steve Daines (R-MT) last week called on the Treasury Department to designate a Russian bank and two related entities as institutions of “primary money laundering concern” (PMLC) under Section 311 of the USA PATRIOT Act. While these three targets merit examination, Treasury should consider evidence that the entirety of Russia is rapidly emerging as a PMLC.

Daines urged Treasury to impose a Section 311 designation against Bank Rossiya, the personal bank of Vladimir Putin and a number of his key associates. Treasury imposed sanctions blocking the property of Bank Rossiya in 2014. Daines also called for similar designations against two Cyprus- and Netherlands-based firms controlled by Bank Rossiya that “appear to act as funnels for Russia’s money laundering and investment activities.”

The Russian illicit-finance threat extends far beyond these three targets, however. Over the past several years, investigations have unearthed a slew of major money laundering schemes originating from or otherwise involving Russia.

Section 311 empowers Treasury to label a type of transaction, a foreign financial institution, or an entire jurisdiction as a PMLC. There is precedent for designating entire countries as PMLCs, as Treasury did to Iran and North Korea. Following a designation, Treasury can apply measures to counter the money laundering threat, such as requiring U.S. banks to apply enhanced due diligence or to halt or restrict their financial transactions with the designated institution or jurisdiction.

PMLC designations also discourage non-U.S. banks from doing business with the designated jurisdiction. Because most major banks worldwide depend on the U.S. financial system, they will often voluntarily eschew business in designated jurisdictions out of an abundance of caution. A PMLC designation is thus an important building block in any comprehensive sanctions program, which is precisely where the Russia program is heading.

While Russia’s central bank deserves some credit for shuttering hundreds of suspicious banks as part of a campaign to clean up Russia’s banking sector, Russian authorities still allow well-connected figures to launder stolen funds with impunity. Russia received good marks in its latest review by the Financial Action Task Force (FATF), a 39-member intergovernmental body that establishes international standards for combating illicit finance. However, FATF focuses more on whether countries have proper anti-money laundering statutes on the books than whether the government enforces those laws.

Facing unprecedented economic pressure following its invasion of Ukraine, Russia will likely expand efforts to evade Western sanctions, thereby reinforcing the argument for treating the entire country as a PMLC. The Russians have long been adept at laundering money abroad, whether to evade financial sanctions and export controls, stash dirty money offshore, or facilitate meddling in foreign countries. Already, Moscow and Russian oligarchs, banks, and companies are working to circumvent existing or potential sanctions, such as shifting assets to networks of opaque shell companies.

Meanwhile, following Moscow’s March departure from the FATF-style regional watchdog MONEYVAL, Russia will face less international scrutiny regarding illicit finance. FATF itself “is reviewing Russia’s role” in the body, per a March 4 statement, and has faced international calls to expel Moscow.

Treasury has already begun laying the groundwork for a 311 designation of Russia as a whole. In a March 7 advisory, Treasury’s Financial Crimes Enforcement Network warned “all financial institutions to be vigilant against [Russian] efforts to evade” U.S. sanctions, outlining various schemes Russian actors may use to obscure their money’s ultimate owner and source. While that particular advisory did not directly accuse Moscow of fostering illicit financial activity, it underscores the heightened illicit-finance risks Russia poses.

A 311 designation against the Russian Federation can further U.S. efforts to combat Russian sanctions evasion and fight corruption worldwide. To maximize effectiveness, Washington should layer this designation with other sanctions to compel financial institutions to cut ties or curtail operations with Russian banks.

Matthew Zweig is a senior fellow at the Foundation for Defense of Democracies (FDD), where John Hardie is research manager and a senior research analyst. They both contribute to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from the authors and CEFP, please subscribe HERE. Follow Matthew on Twitter @MatthewZweig1. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research center focused on national security and foreign policy.