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Tackling Russian TNOC

Tackling Russian Trans National Organised Crime – not an easy task

(an article written for Open Democracy by Euan Grant)

We hear a lot about the Russian Mafia and its links with the Russian State. Remember how the US State Department’s Wikileaks transcript described Russia as a Mafia State? What we don’t hear so much about is how it operates and what is being done about tackling it. Is enough being done, and if not, why not?

Russian TNOC – what is it?

Russian Transnational Organised Crime (TNOC) has many similarities with the late 20th century model of the US Sicilian Mafia (Cosa Nostra) and the Italian Mafias. The similarities are that, like the Italian groups and to some extent the US groups, have combined street level visible crime such as human trafficking and drugs smuggling with less visible white collar crimes such as counterfeiting of goods, particularly cigarettes, and tax evasion on an industrial scale. While the boundaries between these classes of crime are fluid, the fact that criminal groups operate both presents great challenges for international law enforcement agencies. Russian groups migrated in a few years to business structures of organised crime. It took the US Sicilian Mafia decades.

The differences are even more important for a preoper understanding of the challenges Western governments, companies and law enforcement agencies face in dealing with Russian TNOC. Unlike the USA in recent decades, but not entirely unlike Italy even now, Russian TNOC enjoys significant levels of protection from the state. The US diplomatic cable was right on that. In Russia and other ex Soviet States, it is not just the case that organised crime is big business. Big business is organised crime there. And, given that no domestic big businesses operate in Russia without government tolerance (just ask the numerous exiles who left Russia in 2003 after the arrest of Mikhail Khodorkovsky) it follows that the state and organised crime are inextricably linked.

Where does it operate, and what does it do?

Unfortunately, just about everywhere, but outside the ex Soviet States particularly in the rest of Europe, North America , the Middle East and, less publicised, in Africa and the Indian Ocean, South America, and increasingly in cooperation with China. There are differences between the street level crime areas of operations and the white collar ones. They are not always seen together, but any effective countermeasures stategy needs to take account of the fact that the presence of one level often means the presence of the other. Look for what you are looking for, and you well find it, and something else.

Examples of where the different levels of activity occur simultaneously include the United Kingdom itself and Western Europe in general. Street level crimes such as human trafficking (prostitution) occur in the UK alongside street level cigarette smuggling and high level money laundering of the proceeds of crime elsewhere, through corporate bank accounts. In Germany Russian involvement in prostitution is seen alongside car thefts for transport outside the EU, often in concert with EU groups such as Bulgarians. In Spain and Portugal, street level robbery and credit card theft is seen alongside high level money laundering through property purchases and operations of bars and night clubs, and the organisation of cocaine trafficking. The common features of these very different crimes and criminals are that the persons behind them will typically socialise together, even if they don’t actually work together.

This is also partly true for the links between street level and high level crime. The UK example of street level cigarette smuggling is known to be linked with human trafficking at a social level. It is also linked, in a way that cash crimes such as human trafficking are not, with cigarette smuggling which occurs at several levels and often involves the use of complex bank transactions at the higher end where the smuggling involves collusion with corrupt companies and the staff of major producers.

So it operates just about everywhere, and at several levels. That’s what makes it different.

Why is it so difficult to confront?

Russian TNOC has several other aspects which are not all that familiar to western law enforcement agencies which operate in law based states.

It is connected. There are close, almost seamless, links with “the deep state” kleptocracy of government, parliament, civil service, law enforcement and business at all levels, and with the military and, above all, the security services. As a result, international cooperation from Russian law enforcement agencies is very limited indeed. Where they deal with matters themselves, they only look at the visibly obvious offences. Therefore, major criminals typically receive only token punishments. The obvious example of the involvement of state institutions in major crimes inside Russia is the tragic case of Segi Magnitskiy. The forthcoming inquest into the death of Alexander Litvinenko will doubtless produce more evidence of state protection for criminal agents of the state carrying out serious crimes outside Russia.

When dealing with Rusian TNOC, the old maxim “follow the money” can be extended to “and follow the former soldiers and their kit”. The importance of identifying connections between military camaraderie groups is stressed by Misha Glenny, the dean of journalistic studies of Russian organised crime.

Russian TNOC does not just operate multinationally. It is multinational, and that isn’t always obvious. It makes maximum use of the dual or multiple nationality status many persons are entitled to as a result of the breakup of the Soviet Union. There are well over a million former Soviet citizens living in Israel with citizenship there, with entitlement to visa free travel to the EU and North America. This right is heavily exploited, to the extent that here are over a million former Soviet state citizens in Israel. The favour is reciprocated and Israelis have visa free access to Russia. They also cooperate extensively with ethnic Russians holding EU passports (especially from Germany and the Baltic States) and with ethnically Baltic criminals. They equally make use of multi citizenship within the ex USSR and exploit transliteration differences so that names in passports are often spelt differently. All this complicates the responses of law enforcement cement agencies in western countries, which are prone to confusing ethnicity and nationality. Odessa and Riga are, from the criminals; point of view, Russian cities- and it is no coincidence that they were, and in the case of Odessa still are, favoured retirement locations for former military personnel. .

Russian and Israeli organised crime groups are very closely linked. Any evaluation of Russian and former Soviet States TNOC must take into account the Israeli connections, especially at high levels. For geopolitical and national security reasons, Israel provides a safe haven for organised criminals from the ex Soviet States. An obvious recent example is Michael Cherney, who has given evidence from Israel via videolink in his English court case against Oleg Deripaska regarding shareholdings in the aluminium producer Rusal. Michael Cherney is the subject of a European arrest Warrant issued by Spain in relation to “money laundering” allegations, a scenario which highlights the common locations of alleged corporate criminality with street level crime ( the Vienna “OstMafia” case of March 2010 related in part to burgarlies and credit card theft, with many of those arrested being based in Spain). Many of these persons had military experience from Soviet times and as such are a major boost to Israeli military manpower as well as providing links between arms producers and suppliers in both countries and in associated states. Those links give a high level of protection from the attentions of law enforcers in their own countries and further afield. The connections persist persist despite the political window dressing of wanted persons fleeing to Israel where they are free of the possibility of extradition to Russia.

Russian TNOC has a lot of skills to offer. These go beyond those many organised crime groups. They do not have to buy in as much experise and therefore their security is tighter. This access at all levels reflects the availability of physical force operatives from the ranks of former police and military groups, cyber criminals and counterfeiters through links with academia, and financial experise from the business community, including banks themselves. Counter detection skills are available from the links with law enforcers and the the security services. Plenty of other groups have some of these links, such as Albanian human traffickers and Latin American and Turkish drugs gangs, but few have so many. Any meaningful deterrence, detection and investigation strategies need to take account of these multiple capabilities, and ensure that anyone who needs to know about them does not. .

Russian TNOC is able to deal in a lot of products simultaneously. It is able to play a key part in traditional street level crime such as drugs trafficking and prostitution due to its links with heoin trafficking from Afghanistan, where veterans of the 1980s Afghan War play a prominent part and through arranging the supply of sex industry workers to western and southern Europe. Its almost indivisible links with the military / industrial/ security services complex mean that at street level it has access to arms, and at boardroom level it has the ability to supply them, including by clan makes Russian TNOC a national security as well as public safety threat. It also gives it enormous bargaining power through barter, such as by the supply of arms and ammunition to the FARC guerrillas and drugs traffickers in Colombia, in return for shares in cocaine trafficking to Europe, with precious metals and diamonds used as barter mediums outside the banking system. These movements have taken place with the full knowledge of FSU law enforcement. Mexican authorities at the highest level are now increasingly concerned at recent Russian presences in Mexico, the other front in cocaine trafficking routing. Where the weapons and military equipment flow, the technicians follow, and that provides legitimate cover for illegitimate traffic.

This access to both military equipment and to precious metals on a wide scale makes Russian TNOC very distinctive. The UK is a key player in identifying these roles as it is a very well informed centre for the operations of private military companies. These companies will be aware of the operations of Russian and other FSU personnel in their areas of work, and of the much lower corporate governance standards which apply. The UK is also one of the main bases of international minining operations and this provides opportunities for obtaining information about abuses in this sector, such as illegal or untaxed extraction from mines and the paying of bribes to politicians in source countries.

Russian TNOC is able to operate at several levels and throughout supply chains. These capabilities increase its bargaining power with potential partners or rivals and provide greater security from law enforcement measure, as due to their presence across the social spectrum they do not need to rely on outsiders. At the street level they have a large supply of multinational enforcers. At mid-level they have bank staff, accountants and lawyers who are in effect on their payrioll, and at the highest levels they are able to deal as equals with business chiefs, civil servants and politicians without seeing incongruous. It is the latter capability in the international business field that differentiates Russian TNOC from other groups such as the Mexican drugs cartels, although the newly established and growing links with the Mexicans suggest that the latter will soon expand their operations into the field of big business.

What should be done about it?

The measures which need to be taken to combat Russian TNOC are essentially the same as those required against other transnational criminal groups, but they need to be carried out in a much more extensive manner.

Actions need to be coordinated. Subject to the need for operational security in a significant number of operational cases, there should be be maximum cooperation and exchanges of information between law enforcement agencies on a national basis simultaneously with the same on an international basis.

Banks and other financial institutions need to increase and improve liaison on an ongoing basis with their reguilators and with government, particularly HMRC, regarding improving the quality of reporting and, crucially, the analysis of financial transaction reporting by the banks including identifying the implications of trends identified, as opposed to the simple reporting of specific transactions.

Profiling information needs to be developed for identification of particular risks identified with particular banks or with particular countries or industries. This latter point is especially important as the transactions themselves will often not be considered especially suspicious as they will tend not to involve large sums of cash and will be part of a long chain of transactions. Russian TNOC is especially adept at disguising movements in this way, and UK finanicial institutions are disadvantaged due to the sheer scale and geographical spread of transactions conducted, to, from or through London, and by the protection that such volumes offer to unscrupulous intermediaries. The key role such intermediaries provide, and the level of unethical behaviour they demonstrate, is well explained in the upcoming book “Global Shell Games: Testing Money Launderers and Terrorist Financiers;’ Access to Shell Companies” (Findley, Nielson and Sharman, 2012 forthcoming) which was recently highlighted in The Economist. The non tax secrecy jusridictions were found to be very significantly less compliant in knowing the customer in comparison with the traditional tax havens which usually attract more suspicion, probably because the former are more used to be dealing also with legitimate companies.

There needs to be a significant increase in the awareness of financial institutions, law enforcement agencies regarding the complexities of nationalities within Russian TNOC structures, and how this is exploited to maximise the use of EU residency status (such as used by Russian citizens in Estonia through the purchase of businesses in the country with resulting residency rights and visa free travel in the EU) and with EU citizens. Foreign ansd security affairs think tanks and good governance lobbyists have a key role to play in cascading such knowledge. The initimate links of Russian TNOC with their surrogates in the Baltic Statyes, Bulgaria, Greece and Cyprus and in Turkey, as well as in the FSU as a whole and in less western influenced tax secrecy jurisdictions such as the UAE, Seytchelles, Mauritius, Singapore and Hong Kong need to be highlighted. These think tanks and NGOs can supply the strategic context which will maximise the value of the operational cases for the benefit of policymakers.

How should that be done?

With a lot of cooperative effort over a considerable time. Moscow will not be laid bare in a day. The key challenges are to improve the currently patchy awareness of the major proactive and reactive risk indicators of the presence of Russian TNOC, how it operates and what the impacts are. Long experience with other criminal groups and types of crime suggests that once improvements start, they can progress quickly. But greater efforts will be needed in the Russian case, because of the equally greater skills, resources and protection they enjoy.

1. Everything is connected. That should be the guiding prionciple for everyone facing Russian TNOC. Don’t assume that other interested parties will know what you know or have just found. Make sure they do know.

2. Share knowledge at all levels, tactical (case, person or group specific), operational (crime sector, such as corporate frauds, revenue fraud, counterfeiting, human trafficking, cigarette smuggling) and strategic (political, corporate finance, banking) and assume that just about everyone needs to know, regardless of the specific crimes or reckless behaviour identified or suspected. It is the person or organisation which is important, rather than the specific risk.

3. Share information in ways which are tailored to fill the gaps in the approaches of the recipient. Academia and government (foreign and defence ministries, and intelligence services understand the complexities of multi nationality and its significance for criminal networks. They have many of the big dots. Law enforcement agencies have many of the little dots (key OC personnel) and some of the joining up, such as financial movements and telecoms data. Banks can add to those dots and links. Academia is able to analyse the near term and short term trends, acting as law enfocements cold case officers and developing a more holistic forward looking appreciation of opportunities and challenges in tackling the threats posed by such groups. Together, they can each learn some new tricks. Journalism has a huge part to play in mobilising public and political attention to the key findings and warnings, which will feed back into the work of policy makers and law enforcers, creating a virtuous circle of improved understanding and enforcement capabilities.

4. To be effective, such cooperation needs to be continuous and at all levels. Clearly, many aspects of enforcement work must be restricted to law enforcement and other governmental personnel, but other areas could and should be open to external contributors. NGOs operating in the areas of victim support (human trafficking including forced labour migration, and drug trafficking and addiction) should be invited to contribute to law enforcement agencies and regulators annual performance reports and forward looking mission statements. Such NGOs often provide generic evidence of risks which can be developed into precise evidence by law enforcers.

5. Anti-corruption and poverty relief NGOs’ methodologies and data sources in relation to issues such as capital flight and bribery in relation to exploitation of natural resources in transitional economies and developing countries should be reviewed pre publication by law enforcers. These reviews should be empowered to suggest ways of identifying specific measures for enforcement procedures against criminal activities, and to enhance the identification of risk indicators, and particularly how they connect different types of crime. The involvement of financial regulators and the tax authorities is highly desirable, as their powers to enforce civil penalties is a valuable additional tool, and is less resource intensive than criminal proceedings.

6. Academia has a key role to play, alongside journalism, in stressing the complex nature of nationalities in the former Soviet Union, and political links with business operations. Military think tanks and independent retired military personnel would also have a role to play in adding early value to understandings of Russian TNOC activities given their knowledge of the way of thinking of such military influenced groups, and particularly of groups with service in the former KGB ( now FSB domestically and SVR outside Russia) and its military counterpart, the GRU, particularly in relation to the setting up of complex financial chains (FSB / SVR) and logistical structures in relation to drugs trafficking and other smuggling (GRU).

All European and North American countries are subjected to varying degrees to all levels of Russian TNOC, from street prostitution and cloning of credit cards at the “lower end” to financial fraud at the “higher end”. They therefore have common interests in tackling these challenges and have broadly similar capabilities to do so, provided the political will and subject awareness are properly used. The incidences of particular crimes and other risks to society do however differ between states, and the natural tendency of nation states’ law enforcement and regulatory agencies to concentrate on “their” challenges is a real deterrent to more effective cooperation. Again, academia, NGOs and the media, all working seamlessly together to present coordinated holistic views to officialdom, have a key role to play in encouraging law enforcers to share intelligence across borders by raising the political profile of such cooperation and thereby assisting in ensuring that assistance to other agencies and other countries on their high priorities gets due credit in this country, even when the issue at stake is not a particularly high priority for the UK.

The following real world cases provide some examples of links between various types and levels of crimes involving Russian TNOC, and highlight the direct and indirect role of the UK:

· The identification of cigarette smugglers into Central Scotland socialising in East London with human traffickers (for sexual purposes) into the London area – two “different” types of crime into two different areas but identification of one group is likely to improve the early identification of other groups and the presence of Russian prostitutes is a strong indicator of criminal presences across the board as recently stressed in Mexico where their appearance alongside credit card thieves and cloners is causing concern in the coastal tourist resorts as a precursor to closer links with the drugs cartels

· The arrest of a Former Soviet State pupil at a prominent girls’ private school for alleged money laundering offences ( the depositing and transfer of high five figure cash sums) – the link here is between the presence of elites in the UK which are justified through the use of the UK education system – this reason for the large business and political elite presence in the UK is regularly cited by prominent criminologists specialising in Russian TNOC, such as Dr. Mark Galeotti of Warwick University and now New York University

· The widespread use of UK “based” shell companies and their associated bank accounts for the purposes of large scale tax evasion in the ex-Soviet countries, typically in relation to industrial scale smuggling of agricultural products into those states from South America or electronic goods from the Far East this is an “all levels” crime structure and the UK’s role typically goes undetected or unactioned as the UK is “only” used to provide respectability - as it is seen, misleadingly, as a clean country – and there is no real presence in this country yet the use of the shell company gives the impression that it is UK based and is therefore clean and the underlying irregularities and criminal offences are not in the UK and therefore criminal, as opposed to civil, action, is largely confined to use of anti - money laundering legislation which requires considerable resources to enforce

· The use in a similar manner of UK shell companies for the legitimisation of corporate structures in relation to arms trafficking which takes place outside the UK with actual hands on activity in the UK being minimal, thereby attracting little attention from UK regulatory, tax and law enforcement bodies (this was graphically highlighted in a BBC Radio 4 File on Four programme of July 2010)

· The use of UK corporate organisation agencies in the setting up of companies in both well established and newly emerging tax secrecy jurisdictions with the UK middlemen again being used to provide a cover of respectability to disguise the true beneficial owner – a recent case has occurred in Mauritius where Russians have been identified as the true controllers; this is especially significant in relation to Russian involvement in the closely interlinked natural resources sector and Private Military Company (PMC) operations as Mauritius has been identified by African revenue authorities as the location of companies receiving large financial transfers from Politically Exposed Persons (PEPs) in those countries and who are positioned to benefit from public procurement contracts associated with natural resource exploitation

· The presence of Russian and Russian Israeli PMC personnel as bodyguards for politicians in resource rich African countries such as DR Congo and Equatorial Guinea with enquiries into related financial transactions being largely off limits to western regulatory authorities: the links here are that all the necessary facilitating factors are present in Russian and Israeli capabilities, namely influence in the markets for the resources, arms and ammunition supply capabilities, transport capabilities in relation to both arms and high value resource cargo, relative impunity from financial investigations and easier international travel through use of Israeli passports ( some of the key personnel in both the African resources sector and the PMC sector have strong and longstanding personal contacts at very high levels in all Israeli governments)- the UK obviously has a role in identifying crimes, irregularities and other unethical behaviour in relation to PMCs given its key position as a base for mining companies and PMCs

The common features of these examples is that they illustrate the ranges of factors which must be understood unilaterally, bilaterally and multilaterally in order to begin to seriously tackle the challenges posed by Russian TNOC.

Who should do it?

Just about everybody – law enforcement agencies, including regulators, banks and other financial institutions, and NGOs, all working seamlessly with academia and the media as the last but not least players.

If “they” are all in it together, as they certainly are, then their adversaries must be too. Nobody said it would be easy.

Euan Grant

8th October 2012