Weighing the Money Laundering Implications of FATF Suspending Russia’s Membership

The Financial Action Task Force (FATF) – an intergovernmental organization created to develop policies to combat money laundering on the global scale – recently announced that it has officially suspended Russia’s membership. In what is an unprecedented move for the coalition (as since its establishment in 1989, no other member has ever faced suspension), the FATF notes that Moscow’s ongoing, unprovoked military invasion of Ukraine violated the organization’s primary principles which aim to promote security, safety and the gross integrity of the international financial system. The suspension bars representatives from the country from attending the group’s meetings and restricts their access to FATF intel – though the Federation is expected to continue adhering to the FATF’s anti-money laundering standards, a practice that has remained to be seen on many fronts since the war began. The move comes exactly one year to the day of Russia’s invasion of Ukraine in 2022.  

               Ukraine, also a member of the FATF, has been pressuring the group to take action against Russia for their transgressions for several months. In fact, Ukraine was not pushing for suspension but rather full expulsion from the coalition and the addition of Russia to its blacklist for high-risk countries. While the Ukraine ultimately welcomed the FATF’s ultimate decision in this regard, they rather predictably added that the retaliatory measure was insufficient in their eyes. In their statement released on the Russian Federation, the FATF notes that they acknowledge “the United Nations General Assembly Resolution ES-11/1 which demands that the Russian Federation immediately, completely and unconditionally withdraw all of its military forces from the territory of Ukraine within its internationally recognized borders”¹ but at this time will not be completely revoking the transcontinental country’s membership.

               Russia’s ambassador to the United States, Anatoly Antonov, was understandably displeased with the decision and claimed that it was a potentially “dangerous step” that could contribute to the erosion of global architecture to combat money laundering, terror financing, and the proliferation of weapons of mass destruction.² “We believe that the decision runs counter to the FATF’s goals of protecting financial systems and the economy as a whole from the threats of money laundering, terrorist financing and the proliferation of weapons of mass destruction, as well as the technical nature of the group,” the statement said. “At the same time, this FATF decision does not entail any obligations and restrictions for financial institutions in Russia and abroad. The Russian anti-money laundering system will continue to function in accordance with the current legislation.”³ Russia’s Federal Financial Monitoring Service, or Rosfinmonitoring, echoed Antonov’s sentiments in a statement Friday when they stated the “decision is unfounded, does not follow the established procedures and goes beyond the mandate of the organization.”³

               Since the invasion, the FATF has preached to all member jurisdictions to remain on the lookout for potential threats posed by the military conflict and remain aware of the sanctions imposition on various Russian entities by numerous countries (including the United States) with respect to money laundering to fund the war efforts. However, clearly there was no real sense of urgency with respect to risk management given that the FATF ultimately chose to wait for the one-year anniversary of the invasion before suspending the Kremlin’s membership. Unfortunately, many believe that there may be even more risk now that the Russians have been alienated from the group. The fluid and progressive nature of the Russia-Ukraine military conflict has already created significant challenges for financial service providers across the globe with respect to maintaining compliance with new sanctions levied against Russian oligarchs and enterprises. The United States Treasury Department has also previously warned financial institutions and cryptocurrency firms to remain vigilant as attempts are made to circumvent Russian sanctions via less conventional outlets, including the crypto and real estate markets, respectively. These developments have also led several financial institutions to weigh their options with respect to exiting Russia completely if not significantly reducing their business operations and relationships in the region. It has also led world powers such as the European Union (EU) and U.S. government to progress their sanctions evasion crackdown. Time will tell however if the FATF and President Raja Kumar’s decision to win a battle of political points for nothing more than a slap on the wrist for Russia will be worth the tradeoff of a potential uptick in money laundering and sanctions evasion activity abroad.

Citations

1. “FATF Decision on Russia Will Cause Problems in Combating Financing of Terrorism – Diplomat.” TASS, 24 Feb. 2023, 2. 
2. “FATF Statement on the Russian Federation.” The Financial Action Task Force, 24 Feb. 2023. 
3. Sun, Mengqi. “Global Financial Watchdog Suspends Russia’s Membership.” The Wall Street Journal, Dow Jones & Company, 24 Feb. 2023.