Text 2: Methods and Means

Common methods used to launder assets are false invoicing schemes, keeping of double books, and contract fraud. A common scenario is a wire transfer of funds in Western currency to a front company abroad for a commercial transaction. A fraudulent purchase contract provided by the front company is presented as proof of the commercial need for wiring the funds. After the funds are wired, the legitimized funds are free to be transferred or converted to cash. This method is also used to embezzle state funds.

Another method used to launder funds involves instances in which suppliers never receive payment for products that are purportedly ordered by the state. Schemes to defraud the state of strategic materials – such as oil, gas, metal, gold, diamonds, and timber – regularly occur in which the resources are shipped abroad with deliberately undervalued invoices and sold at world markets – the profits of which are embezzled by the perpetrators.

In Russia, organized crime is defined as activity of criminal formations of different levels of organization. These criminal formations are groups, gangs, and organizations. At present, there are approximately 6, 000 organized crime groups operating in Russia, whose significant numbers constitute criminal organizations. Seven criminal organizations operate in Moscow and ten in Sankt-Peterburg. In 1995, 25 criminal organizations were known to have international ties; 19 among them – in the former Soviet republics. There is no concrete proof of foreign organized crime groups operating in Russia. Organized crime is countered by the main Organized Crime Control Department of the Ministry of Internal Affairs of Russia and its local, offices in the various regions of the country.

The connection between the shipments of massive amounts of bulk US currency to Russia and organized crime is speculative. One purely economic explanation for this currency flow is to satisfy the demand for US dollars by average Russian citizens. As a hedge against inflation, Russians convert their earnings in roubles to dollars, which are reconverted to roubles for routine purchases as needed. Given the size of the Russian economy, the US dollar would be the logical choice because of its relative stability, and the amount of US currency in circulation worldwide. This does not preclude the use of some of this currency by organized crime, but media reports overstate the magnitude.

The theft of nuclear material is recognized as an extremely dangerous undertaking in Russia. It requires specialized professionals to handle radioactive materials, and it is well known that numerous intelligence organizations – both foreign and domestic – monitor the theft of and trade in nuclear materials.

Arms trafficking in Russia is problematic for several reasons. Border controls have not kept pace with the arms trade, there are profits to be made, and weapons are used in the commission of other crimes. Arms trafficking is considered a serious and major concern by Russian law enforcement officials.

§ Vocabulary notes