evidence to link him with money-laundering between russian and UK


Crime and business in the Russian Federation
In the 1990s, there was a significant rise in crime in
the Russian Federation. Economic crime is a major
contributor to the increased gravity of the criminal
situation in the Russian Federation. Legally, the term
“crime in the sphere of economic activities” (in this paper
simply named economic crime) was introduced in 1996
when the new Criminal Code of the Russian Federation
was adopted by the State Duma. The Code contains a
chapter entitled “Crimes in the Sphere of Economic
Activity”, with 31 articles specifying provisions against a
wide range of offences. The offences include legalization
(or laundering) of monetary means or other property
acquired by illegal means, bribes, smuggling, illegal
entrepreneurship, illegal banking, illegal use of trademarks, tax evasion, evasion of customs payments, violation of rules for handing over precious metals, failure to
return monetary means in foreign currency from abroad,
obstruction of legal entrepreneurial activity, intentional
and fictitious bankruptcy and many others.
In 1998, compared to the previous year, the number
of reported economic crimes increased by 15 per cent,
while the increase in crime in general was by 7.7 per cent. 

In 1994, about 60,000 cases of economic crime were
reported; in 1995, almost 100,000; in 1996, about
115,000; and in 1998, over 250,000 cases. Experts believe
that these cases represent only a tiny segment (or from
1 to 3 per cent) of all the crimes committed in the
economic sphere.41 In the banking and finance sector, the
number of crimes increased 45 times during the period
1991-1997. In 1994, the damages from economic crimes
were estimated at $4 billion; if losses of the victims of the
financial pyramids were added to the above, the figure
stood at $30 billion or 5 per cent of GDP. In 1996, the
damages were estimated at 10 billion roubles and, in
1998, at twice that amount—20 billion roubles (new
denomination).42 The damages from the crimes in the
banking and financial sector were equal to three quarters
of all damages caused by crime.
Crime is increasingly committed by criminal
groups, and particularly organized groups. The number of
crimes committed by organized criminal groups has
increased more than fourfold.43 According to the Ministry
of Interior, from 1991 to 1996, the number of identified
criminal groups increased from 952 to 6,743 (sevenfold
increase), while the number of criminal groups with
international links increased two times, and those with
links with corrupt State structures more than six times. In
1997, there were 9,000 organized criminal groups in the
country, controlling 40,000 businesses, including 450
banks. By the end of 1998, organized crime controlled
about a half of commercial banks, 60 per cent of public
and 40 per cent of private businesses.44 According to a
survey of the managers of military enterprises, criminals
controlled around 25 per cent of military enterprises, and
the number was likely to increase according to 43 per
cent of the managers.45
A major activity of crime-controlled businesses is
money-laundering. Over 3,000 organizations seem to be
specialized in money-laundering, as they have created
special structures for that. Many of them started their
operations in 1992 and 1993, when they reportedly
laundered through money exchanges over 50 billion
roubles.46 During the money-laundering process, Russian
criminals habitually invest in seemingly legitimate businesses in other countries. They acquire stakes in or
control of companies to ensure profits and safe deposits.
They often obtain foreign citizenship or the protection of
foreign Governments.47
Russian organized crime appears to play a significant role and exercise considerable power over the
economic and political life of the Russian Federation. It
has significant financial power and legal properties—
information networks as well as well-developed structures for strategic planning and action. The groups are
evolving increasingly into networks of associations. They
imitate and create State structures, such as professional
security and intelligence. They are advised by specialist
lawyers, financial experts and economists

. The most
dangerous trend, however, is the active participation of
Russian capitalism and money-laundering
criminal groups not only in the legal economy, but also in
administrative and political structures.
The phenomenon of a democratically elected mafia
is widely discussed and acknowledged in the Russian
Federation. Hundreds and thousands of criminals who
took advantage of the reform processes have been able
not only to legalize their proceeds but also to enrich
themselves further. These profits are being used to purchase local electorates and governments.

 As a result, the
formal economy is often controlled by criminal groups
that further increase their influence and monopolize the
economy through their political dominance and power
over the State structures.
The use of force remains an option when vast
amounts of money are involved. The famous case of the
Afghanistan War Veterans’ fund is a case in point. After
34 deaths and 62 injured and hundreds of billions of
roubles lost without any trace, the best criminal
investigators, after months of investigation, have come up
only with one case involving 2.5 million roubles and
three offenders, and they could say nothing about the bulk
of the funds stolen—over 267 billion roubles, as some
report. The most critical witnesses of or participants in
the crime have already been murdered, including the
former manager of the fund and his widow, as well as his
successor as a fund manager. Occasional reports emerge
linking the money disappeared with the activities of the
Russian secret services and the election campaign of the
former Russian president.48 Another widely reported case
is the Fund for the Rehabilitation of Chechnya. It was
reported that, of 800 billion roubles appropriated for the
rehabilitation of Chechnya, 600 billion mysteriously disappeared. Fraud, theft and corruption on an outrageous
scale are mentioned in connection with this case.
In general, however, the period of wild capitalism
with its senseless chaos and violence against random
small businesses seems to have ended.49 The markets are
divided between krishas that are powerful and confident
in their controlling abilities. Organized crime groups
increasingly invest their money in the industries and
markets they control, thereby increasing their profits and
legalizing their assets. Occasional use of force appears to
be related to the struggle between large business oligarchs
using armed groups as their settlement tools. However,
even these empires, as they grow larger, become
interested in securing their dominant position through a
stable economic and political environment, strong central
Government, and a police force capable of combating
conventional crime.50 More sophisticated crimes, such as
international financial crime, mostly remain to be
The lack of appropriate legal frameworks in the
Russian Federation (and in other countries, in fact) to
fight sophisticated financial crimes, often makes it impossible to incriminate alleged criminals. An interview with
Semyon Mogilevich (considered to be one of the world’s
top criminals) published in a Russian newspaper reveals
that he is enjoying a quiet family life in the suburbs of
Moscow, while many in the West believe him to be in
hiding and on the run.51 The western media has already
“convicted” Semyon Mogilevich of vast moneylaundering, manipulation and fraud. He is quoted as being
one of the “most dangerous gangsters”, and one American
author has written an account of him in a book named
after the organized crime group (Red Mafia) that he
allegedly ran.52
The company which he set up in suburban
Philadelphia, YBM Magnex, pleaded guilty in a case of
securities fraud in the Federal District Court of
Philadelphia after it had been caught making money by
artificially pumping up its stock price and cheating its
investors. In addition, however, he has been accused of
arms smuggling, drug trafficking, the smuggling of art
treasures and their subsequent sale at auctions, trafficking
in human body parts and murder. Mr. Mogilevich claims
the accusations are groundless because he notes that, in
1997, a French court revoked the ban on his entry to
France by the French authorities; in 1995, 

a British court
decided to return his seized assets; and the Bank of New
York case investigators seemed to lack any evidence to
link him with money-laundering operations. According to
Mr. Mogilevich, in the Bank of New York case, the
grounds for suspicion were based on a confusion by the
media about company names: he has a company called
“Benex-Trade Medical Corporation” while in the files of
the case a company called “Benex Worldwide” is mentioned. Until the Russian and international authorities
come up with better grounds for Semyon Mogilevich’s
arrest, he can continue living “peacefully” in his dacha
near Moscow.

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