In the wake of Russia’s new anti-money laundering legislation, and against the backdrop of escalating anti-money laundering enforcement around the globe, Russian authorities made headlines last week by forcing the closure of Master Bank, alleging that the medium-sized Moscow-based bank concealed a significant capital shortfall and repeatedly violated anti-money laundering laws. This closure marks another significant step by Russian authorities to crack down on money laundering, a practice historically viewed as an almost unregulated hallmark of Russian banking and financial sectors.
Master Bank stands as the largest Russian bank to lose its license in recent years, and its closure follows only a few months after President Vladimir Putin, at the urging of the Financial Action Task Force (FATF) and the Organisation for Economic Development and Co-operation (OECD), enacted significant new amendments to the country’s anti-money laundering laws. The new legislation, which was enacted in late-July, includes several components that modernize the enforcement tools available to Russian regulators. For example, the legislation introduces the concept of a “beneficial owner” into Russian law for the first time, requiring certain financial institutions to obtain information about the ownership structure of – and the individuals ultimately behind – transacting entities. Moreover, the new legislation expands criminal liability for the laundering of money obtained through evasion of customs duties or taxes, among other things.
The increased focus on money laundering in Russia only mirrors heightened enforcement efforts by European Union and United States authorities, including efforts to bring criminal prosecutions under the U.S. anti-money laundering statute, 18 U.S.C. § 1956, in connection with money laundering that emanates from abroad but carries some U.S. nexus. Such was the case with respect to HSBC Holdings PLC (HSBC), which earlier this year entered into a deferred prosecution agreement with the U.S. Department of Justice and paid $1.9 billion in forfeitures and penalties to resolve criminal charges alleging that the bank’s lack of oversight allowed Latin American drug cartels to launder billions of dollars through the bank, including $881 million through HSBC’s U.S. operation.
Speaking this week at the American Bankers Association and American Bar Association Money Laundering Enforcement Conference in Washington, D.C., U.S. Deputy Attorney General James Cole underscored the increasing enforcement efforts of U.S. prosecutors, warning that “[r]ight now, compliance within financial institutions is of particular concern to the Department [of Justice], because we have recently seen cases that involved not only criminal conduct by bank customers, but – more concerning – serious criminal conduct by bank employees, including managerial employees.” Cole further instructed that “[w]hen a problem is identified, we expect banks to undertake a thorough search – at every level, across the institution – for misconduct that may have been committed elsewhere …” and that “[banks] must analyze what steps are necessary to reduce the risk of such misconduct occurring. And then they must take those steps.”