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Former U.S.S.R.: Eastern Criminal Mafias Invest In Land, Hotels, Tourism

London, 2 December 1996 (RFE/RL) -- A new report says criminal gangs in the former Soviet Union and Central and Eastern Europe are making extensive investments in real estate, hotels and restaurants in Western Europe, causing acute problems for law enforcement officials.

The report by the Paris-based Organization for Economic Cooperation and Development says the mafia gangs are investing in legitimate businesses in order to launder "dirty" money -- that is, to disguise the origin of cash that was acquired illegally.

The OECD report, published yesterday, says the money, known as Red Gold, comes from drugs, prostitution, fraud, extortion and protection rackets. Other cash comes from trade in stolen vehicles, tax fraud schemes, and theft of assets from companies or state enterprises.

The report examines efforts by an inter-governmental Financial Action Task Force, set up by the G-7 Economic Summit in 1989, to combat money-laundering. The FATF comprises 26 governments. It liaisons with organizations such as Interpol, the Council of Europe, the International Monetary Fund, and World Customs Organization.

The OECD report says Russian criminal gangs are extremely well-managed with a network of international contacts extending to other international criminal organizations and to emigre groups.

No one knows how much money is being spirited abroad, but the sum for drugs alone has been put at $500,000 million -- as much as the gross domestic product of a medium-sized industrial country.

The report says the Russian and East European gangs are now as skilled at money laundering as other criminal conspiracies such as the Italian Mafia, Japanese yakuza, and Columbian drug cartels. A common ploy is to purchase hotels, art works or invest in the tourism business.

The Russian and East European gangs frequently maintain extensive holdings in legitimate businesses which, says the report, "can be manipulated both to cloak and invest illegally generated funds."

One increasingly important route for laundering illegal money is the bureaux de change, or money changing kiosks, found in airports, railway stations and street corners of major Western cities.

The problem of smuggling cash across borders is an increasing problem. Criminals buy businesses engaged in the shipment of goods and hide dirty money inside products. Or, they use illegal money to purchase goods that are then shipped out of the country for re-sale.

Individuals often open accounts at Western financial institutions and deposit large amounts of cash tied to Russian and East European interests. The funds are then transferred out of the country. Often these schemes involve the help of a corrupt lawyer or accountant.

Although most criminal money is flowing east to west, there is evidence that money from crimes committed by Russian gangs in the West is being moved back to Russia. In the past 18 months, $100 million in cash has been shipped from the United States to Russia every day, mainly through two U.S. banks, in response to orders from Russian banks. It is feared the cash will be used to supply organized crime.

The report says Western law enforcement officials are still plagued by the problem of establishing the source of criminal funds. This is partly because of lack of cooperation from their Eastern counterparts.

The OECD report says the problem of money laundering from the former Soviet Union and East and Central European countries is "increasingly acute" with growing evidence that organized gangs are seeking access to the financial systems of the leading world economies.