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Russia: Some Experts Question IMF Fight On Money Laundering

Washington, 1 May 2001 (RFE/RL) -- Some experts wonder whether the International Monetary Fund (IMF) and the World Bank can effectively fight the kind of money laundering that has been helping to undermine Russia's economy.

The annual spring meetings of the Fund and the Bank in Washington, which ended Monday (30 April), focused on reform. But almost unnoticed was the money-laundering program, formally approved by the Fund's policymaking committee, known as the International Monetary and Finance Committee.

On Sunday (29 April), Gordon Brown -- Britain's chancellor of the exchequer and chairman of the IMF panel -- told reporters that the Fund and the Bank will be working closely with countries that receive their financial aid to help banks identify and fight money laundering.

Money laundering is the transfer of illicit funds through numerous accounts until the money is indistinguishable from that used in legitimate commerce.

Brown said the Fund and the Bank are taking the issue seriously. But specialists interviewed by RFE/RL said they were not sure whether even the most earnest effort by the IMF and the World Bank could be much help to Russia.

Perhaps the most serious threat to Russia's economy is capital flight. And much of the capital that leaves Russia is being laundered. But these problems are not recent phenomena. They have been going on for decades, according to Keith Bush, the director of the Russia and Eurasia Program at the Center for Strategic and International Studies, a private Washington policy institute.

Even before the collapse of communism, Bush says, Moscow was sending out cash, then laundering it abroad. One purpose, he told RFE/RL, was for the benefit of leading figures in the Soviet Union. And they also used the money to support Marxist movements elsewhere in the world.

Since the breakup of the Soviet Union, many Russians who are otherwise law-abiding have been sending their money out of the country, Bush says.

"People are going to put their money where they think it's going to be safe, or where it's going to earn a good rate of return. Neither of those conditions apply in Russia at this time."

Bush says an estimated $28 billion left Russia during 2000 alone.

The laundering continues, too. Now, however, it is not the Communist Party hiding the source of the funds, but Russian criminals.

Celeste Wallander is a Washington-based specialist in Russian security and corruption issues at the Council on Foreign Relations, a New York think tank. She says she is not sure whether the IMF and World Bank initiative can have much of an effect on Russian banks laundering money.

First, she notes that Russia historically has had few projects with the World Bank, and it now has no aid programs with the IMF. Indeed, in March, Moscow decided against a stand-by credit agreement with the Fund because it believed that the financial benefits did not warrant the conditions the IMF wanted to impose.

Wallander says the World Trade Organization (WTO) might be more effective at influencing Russian banks. Russian President Vladimir Putin has repeatedly said he wants membership in the WTO. And Wallander says the organization's strict rules on virtually all aspects of commerce would quickly lead to banking reform in Russia.

But Wallander told RFE/RL that banks in Russia are not the primary launderers of Russian currency. She says Russian criminals trying to hide the source of their income do their laundering abroad.

"They're not worrying about what's going on in the Russian banks, they're trying to get that money out into the international banking system."

Wallander says the effort by the IMF and the World Bank to fight money laundering may be earnest, but it may not work. She notes that money laundering is a prosperous practice for banks -- and for the countries where the banks do business. As a result, Wallander says, these countries often do not need the aid of the two financial institutions. Therefore, she says, the Fund and the Bank will have little influence on how their banks conduct business.