Oligarchs’ Use of Hawala System Is Desperate but Not Illegal: Experts

  • The use of the informal Hawala payment system by oligarchs could be seen as a desperate move.
  • Experts have told Insider that using Hawala does not necessarily suggest illicit transactions.
  • But oligarchs know of this system – based on trust – as this is how Putin operates, one expert says.

Russian oligarchs have managed to get around financial sanctions by moving money through the informal payment system known as Hawala.

It is a move that could be seen as desperate, experts have told Insider.

In the months leading up to Vladimir Putin ordering its military troops to invade Ukraine, the president’s inner circle – oligarchs and silovarchs – appear to have anticipated the sanctions and moved funds through trusts or shell companies.

Shane Riedel, a financial crime expert and CEO of Elucidate, which analyzes patterns in money movement, told Insider that sanctioned individuals using Hawala or a similar payment system can be considered a desperate move. Riedel said: “If somebody is the ultimate beneficial owner of an account, and they are sanctioned then that account – or asset – is sanctioned.”

Therefore, any attempt to move money out of a sanctioned account – sanctions evasion – is considered a criminal offense, per Riedel’s comments. Moreover, facilitating sanctions evasion is also a criminal offense and the US Department of the Treasury recently targeted some facilitators.

David Claridge, CEO of security intelligence firm Dragonfly, specified that moving money through Hawala cannot be done in huge sums but rather up to tens of thousand dollars. Claridge believes that if oligarchs were to use the underground payment system, it would involve hundreds of thousands of smaller transactions rather than a big one.

When using Hawala, “one person is basically operating on the basis of trust,” Claridge said. He added: “That type of arrangement could very well be used by oligarchs,” who already operate on the same basis as Vladimir Putin’s business empire is “entirely based on trust as he does not own anything.”

Is Hawala being used mainly to evade sanctions?

Someone using Hawala does not necessarily mean they are making illegal transactions. Riedel said: “There are people who use Hawala for totally legitimate purposes – it is a lot cheaper.”

“You can’t make assumptions that there is necessarily something illicit going on if you see hawaladars,” he said, referring to hawala dealers. Riedel added that because there is an element of legitimacy, it would be much harder to determine sanctioned individuals who have used the informal payment system.

KleptoCapture, a taskforce brought together by the US Department of Justice amid Russia’s invasion of Ukraine, targets sanctioned individuals and is dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures. One of the mission is to combat unlawful efforts to undermine restrictions, including the prosecution of those who try to “evade know-your-customer and anti-money laundering measures.”

Insider reported in early April that US investigators found evidence of Russian oligarchs attempting to evade sanctions by moving “for example, moveable property in the forms of yachts, airplanes … into jurisdictions where, I think, people have the perception that it would be more difficult to investigate and more difficult to freeze,” Andrew Adams, the head of the taskforce, told Reuters.

However, despite Russian tycoons’ attempt to hide their assets, they still face an “all-time high” level of international cooperation. “Especially in the current context, and the current climate … the level of shared sense of purpose I think is at an all-time high,” Adams added.

Claridge said that the attitude of the authorities in the West, in a post-9/11 world, is that “Hawala banking, or other forms of money transfers should be regulated.” The implication being that “they should be treated as official businesses, which would be subject to sanctions – same as everybody else.”

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