The Troika Laundromat investigation, launched this week by the Organized Crime and Corruption Project (OCCRP) and 20 media partners, shines a spotlight on a cast of new and familiar characters in the ongoing saga surrounding flows of dirty money through the world’s financial system. This time, European banks not previously connected to such schemes appear as supporting characters, with flashbacks to previously revealed fraud and money laundering scandals.
The findings draw on a massive – possibly the largest ever – leak of bank records, emails and contracts. Investigative journalists sifted through 1.3 million bank transactions between 233,000 companies and individuals, with a total value over US$470 billion, dated between 2006 and 2012.
How it worked
At the centre of the investigation is Troika Dialog, a private Russian investment bank set up in the 1990s that was acquired by state-owned Sberbank in 2012. Troika’s stated objective was to attract foreign investors to Russia. But, as the leaked bank records reveal, it did more than just that.
Troika Dialog created at least 75 companies registered in tax haven jurisdictions like the British Virgin Islands. The companies were further incorporated within shell companies in other tax haven jurisdictions. When opening bank accounts, the real owners hid behind unknowing proxies such as Armenian seasonal workers in Moscow. These shell companies issued, cancelled and paid for contracts, invoices, and loans – all with fake paperwork.
The Troika Laundromat Explained
The total amount of money estimated to have been laundered by Troika companies is US$4.6 billion. Eventually, this money flowed out of the Laundromat and entered the world financial system as clean cash.
The role of European financial institutions
Just like other known cross-border corruption and money laundering scandals, the Troika Laundromat would not have been possible if the shell companies could not use European banks.
“We see time and again how easy it is to launder and hide the proceeds of corruption, tax evasion or other criminal activities in Europe. All that is needed is an anonymous offshore company and one or more unscrupulous banks willing to turn a blind eye.”
At least 35 of the Troika shell companies – such as Quantus Division Ltd. registered in British Virgin Islands, incorporated by a Panamanian shell company – held accounts in a now-defunct Lithuanian bank, Ukio bankas.
Troika is not the first public scandal for Ukio. Its affairs were previously investigated by Lithuanian authorities as its former boss allegedly embezzled the bank’s money and escaped to Moscow. Data seen by the journalists shows that the bank abused national and European anti-money laundering rules and serviced Troika’s shell companies for a decade.
While employees occasionally expressed suspicions about the nature of the payments, billions of Euros kept flowing in and out of Ukio’s accounts.
OCCRP reveals one instance when compliance officers did raise questions about suspicious deals, but their concerns were shrugged off by Troika and the transaction went ahead. In this case, it was the sixteenth consecutive cancellation of a contract between the same parties, leading to a "cancellation fee" of hundreds of thousands of dollars.
Elsewhere in Europe, banks including Raiffeisen in Austria and Commerzbank in Germany seem to have overlooked their anti-money laundering obligations when handling Troika money as correspondent banks. Further, Finnish national broadcaster Yle revealed that over €200 million of Troika money ended up in accounts at Finnish bank Nordea. Nordea also gave out loans of €420 million to the shell companies in the Troika network.
Organised crime and blood money
OCCRP and its media partners were able to connect Troika data with previously known fraud and theft scandals.
At least US$96 million of the Troika Laundromat money had been laundered through the bank accounts of late Austrian laywer Erich Rebasso. He transferred money from his Raiffeisen bank account to offshore companies with accounts at Ūkio. When making these transfers to Troika accounts, he provided fake invoices.
As OCCRP explains, at least some of that money was of illegal origin, including proceeds from the Sheremetyevo airport fuel fraud scheme, which saw the Russian state lose more than US$40 million in taxes and led to a spike in air travel costs for the public.
In 2008, Rebasso reported himself to the Austrian authorities, but the investigations were dropped in 2010. In 2012, he was abducted and killed by two Russians whose motive is still unknown.
Troika bank records also show that six companies known to be involved in the tax fraud scheme exposed by late Russian lawyer Sergei Magnitsky moved more than US$130 million through the Troika Laundromat.
In 2009, Sergei Magnitsky was arrested and died in jail after reporting the crime to the authorities.
Not only have people lost their lives, but organised crime in Russia has led to inequality and massive monetary losses to the public. The figures that emerge in laundromat scandals such as Troika are only indicative. In 2017, the US research group National Bureau of Economic Research estimated that the offshore wealth owned by Russians was likely equal to the country’s entire household wealth. The working paper, co-authored by the celebrated economist Thomas Piketty, argues that this has contributed to the rapid rise of inequality in Russia since the 1990s.
What needs to happen next?
In Russia, a comprehensive investigation will be needed to determine which institutions failed the public.
International bodies such as the Financial Action Task Force (FATF) and Council of Europe’s Group of States Against Corruption (GRECO) should take the investigative journalists’ reports into consideration when assessing Russia’s implementation of international anti-corruption and anti-money laundering commitments.
But the list of authorities and organisations who should be held accountable goes beyond Russia.
In countries that the money passed through, national money laundering supervisory authorities need to ask tough questions about what went wrong. They also need to be better equipped, and be better at working together to stop glaring abuses of the system. This latest episode makes a clear case for supervisory powers over these national bodies at the EU level.
The G20 countries need to actually implement the Group High-Level Principle on Beneficial Ownership Transparency adopted in 2014. We need to see more leadership on the entire system of anonymous company ownership in offshore tax havens. Sadly, a motion that could lead to steps in that direction in the UK parliament, for example, was pulled on the very same day the Troika Laundromat revelations were published.
Finally, there need to be better mechanisms to protect individuals who report failings at banks to the authorities. The EU Directive on Whistleblower Protection currently being negotiated must allow whistleblowers to report directly to competent authorities and strengthen confidentiality obligations.
The Global Anti-Corruption Consortium
Since 2016, OCCRP and Transparency International have been working together to ensure that the corruption uncovered in investigations are followed up on, the corrupt are held to account and loopholes in regulations that enable corruption are closed.
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