What is behind Russia's threats to FATF members and why it fears its sanctions
Ahead of the next meeting of the Financial Action Task Force (FATF), an international body combating money laundering and terrorism financing, Russia has undertaken extraordinary measures to avoid being blacklisted or even placed on the FATF's grey list of countries deemed non-compliant.
The lengths to which the aggressor state has gone demonstrate how concerned Moscow is about the potential impacts of such a blacklisting or greylisting.
What is FATF and how does it work?
The Financial Action Task Force (FATF) was founded in 1989 and is based in Paris.
This global organization combats money laundering, terrorist financing and the proliferation of weapons of mass destruction. The FATF sets international standards to be implemented in countries to counteract this. It also assesses national anti-money laundering systems.
The group focuses on effectively prosecuting funds related to drug trafficking, illegal weapons, cyber fraud, and other serious crimes in these areas.
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If a country repeatedly fails to comply with FATF standards, it may be recognized as a "jurisdiction under increased monitoring" or "high risk jurisdiction". These are also referred to as "grey" and "black lists".
Even inclusion in the "grey list" significantly complicates international financial settlements (payments) of such a state. Being on the black list paralyzes them altogether and leads to significant losses for the economy, which are calculated in percent of gross domestic product.
Currently, this list includes the DPRK, Iran, and, since not so long ago, Myanmar.
Countries and jurisdictions are assessed with the help of nine FATF associate member organizations and other global partners, such as the IMF and the World Bank.
They conduct expert reviews on an ongoing basis to assess how effective anti-money laundering and counter-terrorist financing measures are in practice.
Associate member organizations of the FATF:
1. Asia/Pacific Group on Money Laundering (APG);
2. Caribbean Financial Action Task Force (CFATF);
3. Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL);
4. Eurasian group on combating money laundering and financing of terrorism (EAG);
5. Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG);
6. Financial Action Task Force of Latin America (GAFILAT);
7. Inter-Governmental Action Group against Money Laundering in West Africa (GIABA);
8. Middle East and North Africa Financial Action Task Force (MENAFATF);
9. Group on Action against Money Laundering in Central Africa (GABAC).
Decisions are made collectively at the FATF plenary meetings, which take place three times a year.
Currently, 36 countries are permanent members of the FATF, including the United States, Germany, and China, as well as two other international organizations – the European Commission and the Gulf Cooperation Council.
More than 200 countries and jurisdictions have already committed to implementing the Group's Standards.
FATF and Russia
Until February 24, 2023, the Russian Federation was a full member of the FATF. However, the FATF suspended its membership on the anniversary of the beginning of Russia's full-scale war against Ukraine, having made a decision to do so at a plenary session.
In fact, it boils down to limiting the participation of Russians in plenary sessions and access to the organization's documents. However, this does not deprive them of the opportunity to influence the policy of this body.
Moreover, despite the decision to suspend their membership altogether, the FATF allowed the aggressor state to participate in one of the associate member organizations.
Namely the Eurasian Group (EAG), which is a regional body and an associate member of the FATF. It is this group that is involved in assessing how a country in the region is implementing the recommendations.
It was established on October 6, 2004, in Moscow, by the decision of the Constituent Conference and on the initiative of the Russian Federation, supported by a number of other countries, the IMF, the World Bank and the FATF itself.
In addition to the Russian Federation, the following countries are members of this group:
- Belarus
- China
- India
- Kazakhstan
- Kyrgyzstan
- Tajikistan
- Turkmenistan
- Uzbekistan
Ukraine is an observer, along with 14 other countries, including: Iran, Afghanistan, and Armenia. France, Germany, Italy, Poland, and the United States are also among them.
"The Russian Federation must continue to meet its financial obligations. The Russian Federation will remain a member of the Global Network as an active member of the Eurasian Group on Combating Money Laundering (EAG) and retain its rights as an EAG member," the statement on the suspension of Russia reads.
The last report on the situation in Russia regarding its compliance with the FATF principles was released in 2019. And it was the EAG and the Council of Europe's Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) that conducted this assessment.
The report on the results of the inspection states that despite the existing problems with money laundering, in particular those related to corruption, drug trafficking, and terrorist financing, the Russians have some "positive dynamics" in this direction.
"Since its last assessment in 2008, Russia has strengthened its understanding of the money laundering and terrorist financing risks it faces and has developed a robust legal framework to address them," reads the annotation to the report, which the FATF adopted at its plenary meeting in October 2019.
That is, these conclusions were made after the annexation of Crimea and the start of Russian funding of the so-called "people's republics" of Luhansk and Donetsk.
At the same time, the EAG does not plan to conduct a new review of Russia's implementation of the recommendations in 2023.
Struggle for "blacklisting" and Russia's opposition to it
Ukraine began actively petitioning for Russia to be stripped of its FATF membership and blacklisted as a terrorist state immediately following Russia's full-scale invasion and launch of war against Ukraine.
The Verkhovna Rada, the State Financial Monitoring Service of Ukraine, the Minister of Finance, and the National Bank of Ukraine repeatedly appealed to the organization in this regard.
The international working group of independent experts on sanctions against Russia (the Yermak-McFaul sanctions group) also recommended that Russia be expelled from the FATF.
The Ministry of Finance of Ukraine alone, as the agency told LIGA.net, prepared and sent more than 200 substantiated appeals to FATF member states and various international organizations, and held dozens of meetings.
On February 24, 2023, the FATF plenary suspended the membership of the Russian Federation.
The next step, as the Ukrainian authorities insisted, was to put the Russian Federation on the "black" or at least "grey" list at the next FATF meeting, on June 19-23.
"All the legal arguments and evidence confirming Russia's involvement in terrorist financing are set out in Ukraine's extremely professionally formulated statement to the FATF. In addition, all the good reasons why Russia should be blacklisted by the FATF, have been repeatedly highlighted by many reputable experts, think tanks and investigators," National Bank Governor Andriy Pyshnyy said in his column on LIGA.net on the eve of the organization's meeting.
However, Russia, without the opportunity to directly participate, also preemptively prepared for the meeting and took advance steps to prevent such restrictions, in some cases resorting to outright blackmail.
In particular, according to Bloomberg, the Russian Federation has, in one way or another, approached more than a dozen countries, warning of "negative consequences for trade relations" if the FATF imposes additional restrictions in June.
Among others, these were appeals to India, Saudi Arabia, Turkey, the United Arab Emirates, and even Mexico and Malaysia.
Among the risks used by the Russians to blackmail their partners were threats to suspend projects in the nuclear industry, energy sector, chemical industry, and metallurgy.
In particular, Moscow warned the UAE that if Russia were to be included in the FATF list, there would be no gains in bilateral trade in the energy sector, related investments, or trade in other goods.
Turkey was told that it would lose revenue from Russian tourists and that large projects such as the Akkuyu Nuclear Power Plant or the TurkStream gas pipeline would be at risk. Moscow also reminded Ankara that their country imports several key goods from Russia, including coal, metals, petroleum products, natural gas, and wheat.
Russia has warned Saudi Arabia that the project to build a nuclear power plant with Rosatom in the country could be in jeopardy, as well as investments in Russian energy companies Gazprom, Lukoil, and Rosneft by billionaire Prince Alwaleed bin Talal's Kingdom Holding Co.
The Russian Federation reminded Malaysia that it imports significant volumes of petroleum products and aluminum, helicopters and fertilizers, and has projects that Malaysian companies are implementing in Russia, including related to oils, synthetic rubber and rubber compounds, and fiberboard.
The Mexicans have been told by the Russians about "serious difficulties" in joint development projects involving Lukoil, the supply of fertilizers, steel products, aluminum, and synthetic rubber to Mexico.
Russia warned India that in case of additional restrictions on the part of the FATF, the following projects would be at threat:
- cooperation between the oil giant Rosneft and Nayara Energy Limited;
- exports of Russian arms and military equipment to India, as well as technical cooperation in the defense sector;
- Russian proposals for new joint aviation projects presented at Aero India 2023 in February;
- technological and energy cooperation at the Indian nuclear power plant Kudankulam;
- an agreement between Russian Railways Logistics and Container Corporation of India to provide cargo transportation services related to the development of the North-South trade corridor.
And this is only what the media have learned about.
"The intensity of the Kremlin's efforts underscores the risks President Vladimir Putin's government would face if any of these measures are passed and provides insight into how Russia deals with some of its commercial partners," Bloomberg stated.
Against the backdrop of such unprecedented pressure from the Russians, the FATF in June avoided addressing the issue of the lists, but reminded that: "All jurisdictions should be vigilant to the ongoing and emerging risks of circumventing measures taken against the Russian Federation to protect the international financial system."
In other words, as Andriy Pyshnyy, the Head of the National Bank of Ukraine, noted in his comment on the results of the Group's meeting, the following:
- The FATF recognized that the Russian Federation's war against Ukraine continues to contradict the principles of this organization to protect the international financial system;
- the suspension of Russia's membership in the FATF is still in effect;
- emphasized the risks posed by the Russians to the global financial system and the need for all jurisdictions to respond.
This, in his opinion, allows Kyiv to continue working to limit Russia's capabilities.
"The FATF's decision is made by consensus, which has not happened today, and this means that we all need to increase pressure and collect even more evidence and even more arguments. Systematically and with a cool head. The ‘blacklist’ is exactly where this killer country deserves to be... We have to do our part," Andriy Pyshnyy wrote on Facebook.
The Ministry of Finance also pointed this out and added that the actions of the Russian Federation already fully deserve to be included in the "black list".
"Russia is violating the most important FATF recommendations, putting global financial security at serious risk. Russia is creating obstacles to international cooperation in preventing money laundering and combating financial crimes. It cooperates with Iran and North Korea, which are under UN sanctions and blacklisted by the FATF. Russia supports terrorist organizations around the world and resorts to nuclear terrorism, and is unable to counter money laundering, organized crime and corruption. Putting Russia on the ‘blacklist’ of the FATF will make it possible to more effectively counteract the risks posed by Russia to the global financial system," the Ministry of Finance said.
Arguments for this need are already being prepared for the next meeting of the Group.
"The Ministry of Finance together with the State Financial Monitoring Service will continue to collect evidence for the inclusion of Russia in the blacklist. In particular, by the next FATF plenary meeting (October 2023), a relevant document will be prepared and sent to FATF members, which will contain specific facts of violations by the Russian Federation and relevant arguments," the Ministry said in response to a request from LIGA.net.
Ahead of the next meeting of the Financial Action Task Force (FATF), an international body combating money laundering and terrorism financing, Russia has undertaken extraordinary measures to avoid being blacklisted or even placed on the FATF's grey list of countries deemed non-compliant.
The lengths to which the aggressor state has gone demonstrate how concerned Moscow is about the potential impacts of such a blacklisting or greylisting.
What is FATF and how does it work?
The Financial Action Task Force (FATF) was founded in 1989 and is based in Paris.
This global organization combats money laundering, terrorist financing and the proliferation of weapons of mass destruction. The FATF sets international standards to be implemented in countries to counteract this. It also assesses national anti-money laundering systems.
The group focuses on effectively prosecuting funds related to drug trafficking, illegal weapons, cyber fraud, and other serious crimes in these areas.
If a country repeatedly fails to comply with FATF standards, it may be recognized as a "jurisdiction under increased monitoring" or "high risk jurisdiction". These are also referred to as "grey" and "black lists".
Even inclusion in the "grey list" significantly complicates international financial settlements (payments) of such a state. Being on the black list paralyzes them altogether and leads to significant losses for the economy, which are calculated in percent of gross domestic product.
Currently, this list includes the DPRK, Iran, and, since not so long ago, Myanmar.
Countries and jurisdictions are assessed with the help of nine FATF associate member organizations and other global partners, such as the IMF and the World Bank.
They conduct expert reviews on an ongoing basis to assess how effective anti-money laundering and counter-terrorist financing measures are in practice.
Associate member organizations of the FATF:
1. Asia/Pacific Group on Money Laundering (APG);
2. Caribbean Financial Action Task Force (CFATF);
3. Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL);
4. Eurasian group on combating money laundering and financing of terrorism (EAG);
5. Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG);
6. Financial Action Task Force of Latin America (GAFILAT);
7. Inter-Governmental Action Group against Money Laundering in West Africa (GIABA);
8. Middle East and North Africa Financial Action Task Force (MENAFATF);
9. Group on Action against Money Laundering in Central Africa (GABAC).
Decisions are made collectively at the FATF plenary meetings, which take place three times a year.
Currently, 36 countries are permanent members of the FATF, including the United States, Germany, and China, as well as two other international organizations – the European Commission and the Gulf Cooperation Council.
More than 200 countries and jurisdictions have already committed to implementing the Group's Standards.
FATF and Russia
Until February 24, 2023, the Russian Federation was a full member of the FATF. However, the FATF suspended its membership on the anniversary of the beginning of Russia's full-scale war against Ukraine, having made a decision to do so at a plenary session.
In fact, it boils down to limiting the participation of Russians in plenary sessions and access to the organization's documents. However, this does not deprive them of the opportunity to influence the policy of this body.
Moreover, despite the decision to suspend their membership altogether, the FATF allowed the aggressor state to participate in one of the associate member organizations.
Namely the Eurasian Group (EAG), which is a regional body and an associate member of the FATF. It is this group that is involved in assessing how a country in the region is implementing the recommendations.
It was established on October 6, 2004, in Moscow, by the decision of the Constituent Conference and on the initiative of the Russian Federation, supported by a number of other countries, the IMF, the World Bank and the FATF itself.
In addition to the Russian Federation, the following countries are members of this group:
Belarus
China
India
Kazakhstan
Kyrgyzstan
Tajikistan
Turkmenistan
Uzbekistan
Ukraine is an observer, along with 14 other countries, including: Iran, Afghanistan, and Armenia. France, Germany, Italy, Poland, and the United States are also among them.
"The Russian Federation must continue to meet its financial obligations. The Russian Federation will remain a member of the Global Network as an active member of the Eurasian Group on Combating Money Laundering (EAG) and retain its rights as an EAG member," the statement on the suspension of Russia reads.
The last report on the situation in Russia regarding its compliance with the FATF principles was released in 2019. And it was the EAG and the Council of Europe's Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) that conducted this assessment.
The report on the results of the inspection states that despite the existing problems with money laundering, in particular those related to corruption, drug trafficking, and terrorist financing, the Russians have some "positive dynamics" in this direction.
"Since its last assessment in 2008, Russia has strengthened its understanding of the money laundering and terrorist financing risks it faces and has developed a robust legal framework to address them," reads the annotation to the report, which the FATF adopted at its plenary meeting in October 2019.
That is, these conclusions were made after the annexation of Crimea and the start of Russian funding of the so-called "people's republics" of Luhansk and Donetsk.
At the same time, the EAG does not plan to conduct a new review of Russia's implementation of the recommendations in 2023.
Struggle for "blacklisting" and Russia's opposition to it
Ukraine began actively petitioning for Russia to be stripped of its FATF membership and blacklisted as a terrorist state immediately following Russia's full-scale invasion and launch of war against Ukraine.
The Verkhovna Rada, the State Financial Monitoring Service of Ukraine, the Minister of Finance, and the National Bank of Ukraine repeatedly appealed to the organization in this regard.
The international working group of independent experts on sanctions against Russia (the Yermak-McFaul sanctions group) also recommended that Russia be expelled from the FATF.
The Ministry of Finance of Ukraine alone, as the agency told LIGA.net, prepared and sent more than 200 substantiated appeals to FATF member states and various international organizations, and held dozens of meetings.
On February 24, 2023, the FATF plenary suspended the membership of the Russian Federation.
The next step, as the Ukrainian authorities insisted, was to put the Russian Federation on the "black" or at least "grey" list at the next FATF meeting, on June 19-23.
"All the legal arguments and evidence confirming Russia's involvement in terrorist financing are set out in Ukraine's extremely professionally formulated statement to the FATF. In addition, all the good reasons why Russia should be blacklisted by the FATF, have been repeatedly highlighted by many reputable experts, think tanks and investigators," National Bank Governor Andriy Pyshnyy said in his column on LIGA.net on the eve of the organization's meeting.
However, Russia, without the opportunity to directly participate, also preemptively prepared for the meeting and took advance steps to prevent such restrictions, in some cases resorting to outright blackmail.
In particular, according to Bloomberg, the Russian Federation has, in one way or another, approached more than a dozen countries, warning of "negative consequences for trade relations" if the FATF imposes additional restrictions in June.
Among others, these were appeals to India, Saudi Arabia, Turkey, the United Arab Emirates, and even Mexico and Malaysia.
Among the risks used by the Russians to blackmail their partners were threats to suspend projects in the nuclear industry, energy sector, chemical industry, and metallurgy.
In particular, Moscow warned the UAE that if Russia were to be included in the FATF list, there would be no gains in bilateral trade in the energy sector, related investments, or trade in other goods.
Turkey was told that it would lose revenue from Russian tourists and that large projects such as the Akkuyu Nuclear Power Plant or the TurkStream gas pipeline would be at risk. Moscow also reminded Ankara that their country imports several key goods from Russia, including coal, metals, petroleum products, natural gas, and wheat.
Russia has warned Saudi Arabia that the project to build a nuclear power plant with Rosatom in the country could be in jeopardy, as well as investments in Russian energy companies Gazprom, Lukoil, and Rosneft by billionaire Prince Alwaleed bin Talal's Kingdom Holding Co.
The Russian Federation reminded Malaysia that it imports significant volumes of petroleum products and aluminum, helicopters and fertilizers, and has projects that Malaysian companies are implementing in Russia, including related to oils, synthetic rubber and rubber compounds, and fiberboard.
The Mexicans have been told by the Russians about "serious difficulties" in joint development projects involving Lukoil, the supply of fertilizers, steel products, aluminum, and synthetic rubber to Mexico.
Russia warned India that in case of additional restrictions on the part of the FATF, the following projects would be at threat:
cooperation between the oil giant Rosneft and Nayara Energy Limited;
exports of Russian arms and military equipment to India, as well as technical cooperation in the defense sector;
Russian proposals for new joint aviation projects presented at Aero India 2023 in February;
technological and energy cooperation at the Indian nuclear power plant Kudankulam;
an agreement between Russian Railways Logistics and Container Corporation of India to provide cargo transportation services related to the development of the North-South trade corridor.
And this is only what the media have learned about.
"The intensity of the Kremlin's efforts underscores the risks President Vladimir Putin's government would face if any of these measures are passed and provides insight into how Russia deals with some of its commercial partners," Bloomberg stated.
Against the backdrop of such unprecedented pressure from the Russians, the FATF in June avoided addressing the issue of the lists, but reminded that: "All jurisdictions should be vigilant to the ongoing and emerging risks of circumventing measures taken against the Russian Federation to protect the international financial system."
In other words, as Andriy Pyshnyy, the Head of the National Bank of Ukraine, noted in his comment on the results of the Group's meeting, the following:
"The FATF recognized that the Russian Federation's war against Ukraine continues to contradict the principles of this organization to protect the international financial system;
the suspension of Russia's membership in the FATF is still in effect;
emphasized the risks posed by the Russians to the global financial system and the need for all jurisdictions to respond.
This, in his opinion, allows Kyiv to continue working to limit Russia's capabilities.
"The FATF's decision is made by consensus, which has not happened today, and this means that we all need to increase pressure and collect even more evidence and even more arguments. Systematically and with a cool head. The ‘blacklist’ is exactly where this killer country deserves to be... We have to do our part," Andriy Pyshnyy wrote on Facebook.
The Ministry of Finance also pointed this out and added that the actions of the Russian Federation already fully deserve to be included in the "black list".
"Russia is violating the most important FATF recommendations, putting global financial security at serious risk. Russia is creating obstacles to international cooperation in preventing money laundering and combating financial crimes. It cooperates with Iran and North Korea, which are under UN sanctions and blacklisted by the FATF. Russia supports terrorist organizations around the world and resorts to nuclear terrorism, and is unable to counter money laundering, organized crime and corruption. Putting Russia on the ‘blacklist’ of the FATF will make it possible to more effectively counteract the risks posed by Russia to the global financial system," the Ministry of Finance said.
Arguments for this need are already being prepared for the next meeting of the Group.
"The Ministry of Finance together with the State Financial Monitoring Service will continue to collect evidence for the inclusion of Russia in the blacklist. In particular, by the next FATF plenary meeting (October 2023), a relevant document will be prepared and sent to FATF members, which will contain specific facts of violations by the Russian Federation and relevant arguments," the Ministry said in response to a request from LIGA.net.