Oligarchs’ Use Of The Hawala System Is Desperate But Not Illegal: Experts

  • The use of the informal Hawala payment system by oligarchs can be seen as a desperate move.
  • Experts have told Insider that using Hawala does not necessarily indicate illegal transactions.
  • But oligarchs know this system – based on trust – because that’s how Putin works, says an expert.

Russian oligarchs managed to evade financial sanctions by transferring money through the informal payment system known as Hawala

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

In the months before Vladimir Putin ordered his military forces to invade Ukraine, the president’s inner circle – oligarchs and silo arches – appear to have anticipated the sanctions and transferred money through trusts or shell companies.

Shane Riedel, Financial Crime Expert and CEO of elucidate, which analyzes patterns in money movements, told Insider that sanctioned individuals using Hawala or a similar payment system could be considered a desperate move. Riedel said, “If someone is the beneficial owner of an account, and they are sanctioned, then that account – or asset – is sanctioned.”

Therefore, any attempt to withdraw money from a sanctioned account — evasion of sanctions — is considered a criminal offense, according to Riedel’s comments. In addition, facilitating the evasion of sanctions is also a criminal offense and the US Treasury Department recently attacked some of them escorts

David Claridge, CEO of security intelligence firm Dragonfly, indicated that moving money through Hawala cannot be done in huge amounts, but rather up to tens of thousands of dollars. Claridge believes that if oligarchs used the underground payment system, it would involve hundreds of thousands of smaller transactions instead of one large one.

When using Hawala, “one person is basically working on the basis of trust,” Claridge said. He added: “That kind 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 owns nothing.”

Is Hawala mainly used to evade sanctions?

Someone who uses Hawala does not necessarily mean that they are carrying out illegal transactions. Riedel said, “There are people who use Hawala for completely legitimate purposes — it’s a lot cheaper.”

“You can’t assume something illegal is going on when you see hawaladars,” he said, referring to hawala dealers. Riedel added that because there is an element of legitimacy, it would be much more difficult to identify sanctioned individuals who have used the informal payment system.

KleptoCapture, a task force assembled by the US Department of Justice amid the Russian invasion of Ukraine, it targets sanctioned individuals and is committed to enforcing the sweeping sanctions, export restrictions and economic countermeasures. One of its missions is to fight illegal attempts to undermine restrictions, including the prosecution of those who try to circumvent “know-your-customer” and anti-money laundering measures.

Insider reported in early April that: American researchers have found evidence of Russian oligarchs trying to evade sanctions by “e.g. movable property in the form of yachts, airplanes…” Andrew Adams, the head of the task force, told Reuters

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

Claridge said the attitude of 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 is that “they should be treated as official companies, which would be subject to sanctions – just like everyone else.”

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