Compliance
BOOK REVIEW: "Putin's People" Casts Western Financial Firms In Harsh Light
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Reading this book will be a painful experience for some bankers and financial service figures in the West, as it describes how Russian leaders have laundered huge sums and built a war-chest of resources.
When this news service and others reported on the anti-money
laundering control lapses of banks down the years, sometimes the
role of funds linked to the former Soviet Union, and contemporary
Russia, are mentioned. The scandals that hit banks
in Denmark,
such as Danske Bank, for example, are a case in point.
Centres such as Switzerland have had more than their
fair share of murky money down the years.
As the world now knows – and people have no excuses any more to
plead ignorance – the regime of Russian president Vladimir Putin
is at odds with the West as it fights against Ukraine. (See this
firm’s interview with a Ukrainian-born banker and venture
capitalist in the country.)
To reach his position of power, Putin has been skilful at
building resources for himself and his entourage of former KGB
operatives and current security force colleagues. One way he has
done that is by using offshore financial hubs, such as
Switzerland, where those associated with his regime were able to
siphon off tens of billions dollars' worth of resources from
Russian sectors, using “friendly” Western businesses to make the
process work.
Much of this is common knowledge, and anyone working in AML today
and know-your-client functions probably realises how extensive
the penetration of such money has been. There's now pushback, if
perhaps a bit late. For example, the UK earlier this year halted
its Tier 1 Investor Visa regime for high net worth individuals
seeking residency in the UK. (Russians have been keen applicants
for these "golden visas". It seems unfair on people from other
regions, however, that this path has been
blocked.) Countries of all kinds have imposed sanctions on
Russia (with some notable exceptions, however, such as
India). Remarkably, perhaps, one of the countries to act was
Switzerland, highlighting how far the Alpine state has come since
effectively giving up international bank secrecy almost a decade
ago.
Your reviewer is struck by how large the illicit flows were when
reading the paperback version of Catherine Belton’s masterful
Putin’s People: How the KGB Took Back Russia and Then Took On
the West. Running to 624 pages, this book, taking
comments from a huge number of interviews, gives a compelling
account of Putin’s rise, his time in office, and was published
shortly before Russia launched its attack on Ukraine.
At the core of much of the action are the sophisticated ways in
which Putin and his allies created various “slush funds” to
channel money seized/extorted from Russian business sectors,
often arbitraging differences between prices paid for Russian
produce – such as oil and gas – and what they earned selling it
on global markets. Belton is a special correspondent for
Reuters (your reviewer’s former firm) and a former
long-serving correspondent for the Financial Times.
Her skill in blending high politics with eye-catching
colourful details are firmly on display. Readers in the
wealth management and private banking industry might recognise
the names of a few banks and people who have been doing the
rounds over the years, and wryly observe how so many of the
compliance failings – and reforms – of recent years have their
origins in the demise of the Soviet Union and what came
afterwards.
At the core of what propels Putin and those around him is an
ultimately incoherent mix of supposed idealism and hard cynicism.
It mixes a yearning for a revived, “imperial” Russia and
resentment of those who have belittled and damaged it, combined
with a thirst for wealth. These people are not communists, but
quasi-capitalists with a big Statist layer on top.
Putin, let's remember, did not come out of a vacuum, and to
understand how the West must handle what his regime represents,
one has to try and grasp what makes such leaders tick. It is easy
to forget that when he took office two decades ago, his arrival
was welcomed in some quarters after the chaos and rampant
cronyism of the Boris Yeltsin era. Alas, too few spotted that
Putin may have left the KGB, but he hadn't given up the KGB
mindset. And here we are.
Putin's People is published by William Collins.