While new US economic sanctions freezing the sanctions Russian leaders didn’t strike fear into the heart of financial markets, they did raise a question: Would the US even know if someone like, say, Russian President Vladimir Putin was keeping some money in its backyard?
US presidential spokesperson Jay Carney was asked this question today. He declined to answer. But the fact of the matter is that American laws support all kinds of secretive financial structures that corrupt foreign officials have long taken advantage of. (After all, Iran owned and operated a skyscraper in downtown Manhattan until last year. )
Typically, corruption is only caught after sanctions are put in place. But illicit financial flows do surface periodically, especially when they’re so glaring even bankers can’t find manage to look the other way—for instance, if an “unemployed student” keeps $1 million in shrink-wrapped $100 bills in her safe-deposit box.
That’s what Yamilee Bongo-Astier, daughter of Gabon’s President Omar Bongo, was doing a few years back. (She told her bank that her father had brought the cash to the US using his diplomatic immunity.) The anecdote comes from one of my favorite US senate reports [pdf], a 2010 look at how powerful political figures smuggle millions into the US banking system, using shell companies and escrow accounts to sidestep lax screening procedures at American banks.
As for Putin, there’s a lot we don’t know about his personal wealth. While he has publicly disclosed assets including two apartments and bank accounts worth perhaps $500,000, it is said that personal stakes in state-run oil firms Gazprom, oil supplier Surgutneftegas, and a Swiss oil dealer, Gunvor, have delivered Putin a fortune worth as much as $70 billion, which would make him the richest man in the world. (Update, 3/19: A Gunvor spokesperson denies that Putin has any connection with the firm; here is a Financial Times story (paywall) detailing the founder’s disputed relationship with the Russian leader.)
These investments are reportedly held through opaque corporate structures and shell companies. Just as interesting, however, are investigations dating back to Putin’s service in the St. Petersburg city government in the early 1990s, when he was alleged to have participated in two different contracting kick-back schemes—one concerning a mineral export deal, another a construction company with opaque ownership—that siphoned money from the government budget, and may have resulted in Putin receiving a villa in Spain.
These are similar tactics that the US Senate report and the World Bank say lead to most corruption-related illicit flows, particularly through shell companies and trusts that don’t reveal who actually owns them. But little has been done in recent years to tighten secrecy rules within the United States, even as the US has pushed other countries reveal US tax evaders through broader information sharing.
So for the US to know if Vladimir Putin—or any other powerful autocrat—is keeping money in the country, it will need to do a better job requiring banks and corporations to ensure they are dealing with legitimate businesses. Of course that would mean extra work, and perhaps fewer deposits for financial institutions, and more scrutiny for major US companies who use subsidiaries to shift money around the world. And that’s why it doesn’t look especially likely any time soon.