Russia International Narcotics Control Strategy Report
Published by the State Department's Bureau for International Narcotics and Law Enforcement Affairs (INL), March 2005
Volume I: Drug and Chemical Control
I. Summary
In 2004, the Government of Russia (GOR) intensified its counternarcotics efforts. President Vladimir Putin and other leaders frequently highlight the drug trade as a threat to Russia's national security in their public remarks. The State Committee for the Control of Narcotic and Psychotropic Substances (GKPN), which had been created in 2003, was reorganized and renamed the Federal Drug Control Service (FSKN). On multiple occasions, FSKN Director General Viktor Cherkesov has emphasized the need for international cooperation in order to confront drug traffickers, who operate without regard for borders. The FSKN has recently announced plans to station liaison officers in other countries. In 2004, Russia signed bi-lateral agreements on counternarcotics cooperation with China, Kyrgyz Republic, and Nicaragua. Heroin trafficking and abuse continue to be major problems facing Russian law enforcement and public health agencies. Opium cultivation and heroin production in Afghanistan have risen dramatically. With Russia's large and porous borders with Central Asia, Afghan opium/heroin transiting Russia to Europe has become a major problem for the GOR. This rise in heroin trafficking is reflected in the increase of drug-related crime and the number of HIV/AIDS and Hepatitis C cases, both related to increased intravenous drug use.
Russian forces have been guarding the border between Tajikistan and Afghanistan since 1992. Initially placed there to prevent incursions by Islamic extremists, narcotics interdiction has become one of their primary functions. In October, however, President Putin and Tajik President Emomali Rahmonov signed an agreement that provides for a phased withdrawal of Russian forces by 2006. Licit pharmaceuticals and precursor chemicals are frequently diverted to the illicit market in Russia. Perhaps the greatest concern in this area has been the diversion of Acetic Anhydride (AA), a precursor chemical essential for the production of heroin. AA produced in Russia is used in the manufacture of heroin in Turkey and Afghanistan. The GOR has recognized the extent of the drug trafficking and health problems within the country and is taking steps to address both the law enforcement and public health issues. Health education programs in schools are beginning to incorporate messages about the harmful effects of drug use and the links between injecting drugs and the transmission of HIV/AIDS. Russia is party to the 1988 UN Drug Convention, the 1961 Single Convention of Psychotropic Substances and its 1972 Protocol, and the 1971 UN Convention on Psychotropic Substances.
II. Status of Country
Russia is both a transshipment point and a market for heroin and opium. Opiates transiting Russia originate almost exclusively in Afghanistan and are typically destined for Europe. The Russian border with Kazakhstan is roughly twice the length of the U.S.-Mexican border and is poorly monitored. Considering the resource constraints facing local law enforcement agencies, Russian authorities are unlikely to prevent a significant portion of the heroin entering their country.
The average price for a gram of heroin in 2004 remained steady in the thirty-dollar range. Per gram prices as low as ten dollars and as high as fifty dollars have been reported.
Synthetic drugs produced in Russia typically take the form of amphetamine-type stimulants (ATS) and heroin analogues like methadone. Ecstasy labs have also begun to appear in Russia, which are typically located in the Northwest of the country close to St. Petersburg and the Baltic States. In the early summer of 2004 a group of chemistry students at Moscow State University was arrested for selling MDMA they had produced in one of the school's labs.
Although the MDMA tablets produced in Russia are of poor quality, the low prices (as little as $5) are attractive to Russian youth, compared to the $20 typically charged per pill for MDMA tablets manufactured in the Netherlands.
In addition to AA, used in refining heroin, other precursors such as ergotamine (LSD), red phosphorous (methamphetamine), and acetone (several substances) are also produced in Russia. As of yet, there have been no reports of large-scale diversion of these other chemicals for illicit uses.
Cocaine trafficking is not widespread in Russia. Cocaine prices in Russia remain very high, though the drug is easily obtained by those who can afford it. Cocaine is frequently brought into Russia through the port of St. Petersburg. Sailors aboard fruit carriers and other vessels operating between Russian and Latin America provide a convenient pool of potential couriers. Cocaine also enters Russia smuggled in containerized cargo. Couriers traveling on commercial flights also smuggle cocaine into Russia, often operating through third countries, including the United States. The third largest cocaine seizure in Russian history is reported to have taken place in May 2004 in St. Petersburg when members of the Federal Customs Service and the FSKN seized a total of 29 kilograms. The cocaine had been brought to St. Petersburg by sailors aboard two freighters operating between Ecuador and Russia. Part of this cocaine was intended for distribution in Russia; the rest was destined for Germany where authorities recently made several arrests in a related case.
At a press conference in June 2004, FSKN Director Viktor Cherkesov cited Ministry of Health figures that placed the number of officially registered addicts in Russia at 390,000�up 14.7 percent from 340,000 as reported in 2003. Director Cherkesov further stated that FSKN estimates that four to five million Russians use illegal drugs on a regular basis.
According to the Ministry of Health, as of November 2004, there were 300,000 officially registered HIV/AIDS cases in Russia. This is a 10 percent increase from last year. The United Nations AIDS program and the GOR's Federal AIDS Surveillance Unit estimate the number of actual cases was at roughly one million at the end of 2003. Intravenous drug users made up about seventy percent of new HIV cases registered in 2001-2002. Eighty percent of those intravenous drug users who tested positive for HIV/AIDS also tested positive for Hepatitis C.
At the wholesale level, the heroin trade in Russia is dominated by Central Asians. Tajiks, Uzbeks, and others with ethnic and family ties to Central Asia transport Afghan heroin across the southern border with Kazakhstan and into European Russia and western Siberia. Retail distribution of heroin and other drugs is carried out by a variety of criminal groups. Again, these organizations are typically organized along ethnic lines with Central Asian, Caucasian, Russian/Slavic, and Roma groups all active in drug trafficking.
III. Country Actions Against Drugs in 2004
Policy Initiatives. The FSKN was originally established in 2003 as the State Committee for the Control of Traffic in Narcotic and Psychotropic Substances (GKPN). Russian President Vladimir Putin issued an edict in July 2004 calling for the restructuring of the agency, which is now known as the Federal Drug Control Service (FSKN). Since FSKN's creation, Director Cherkesov has stressed the importance of attacking money laundering and other financial aspects of the drug trade. The FSKN has also continued its efforts to implement effective monitoring of the chemical industry. Prior to the creation of FSKN, precursor chemicals and pharmaceuticals were governed by a patchwork of regulations enforced by different agencies. For example, the Ministry of Health was responsible for pharmaceuticals, while the Ministry of Economic Development regulated import and export of chemicals. Pending legislation will make FSKN the sole regulator for controlled substances. Production, transportation, distribution, and import/export of controlled substances will all require licensing from FSKN. The GOR has signed bilateral agreements on counternarcotics cooperation with the governments of China, Kyrgyz Republic, and Nicaragua.
Accomplishments. Russia now has a legislative and financial monitoring scheme that facilitates the tracking, seizure, and forfeiture of all criminal proceeds. Russian legislation provides for a variety of investigative techniques, such as search, seizure and the compulsion of document production. On February 1, 2002, Russia's financial intelligence unit, the Financial Monitoring Committee (FMC), became operational. (The FMC has since been renamed the Federal Service for Financial Monitoring or FSFM.) The FSFM has responsibility for coordinating all of Russia's anti-money laundering and counterterrorist financing efforts. Legislation passed in 2001 requires that financial institutions report suspicious transactions to the FSFM. According to sources in the FSKN, approximately 120 drug money-laundering cases had been initiated as of November 2004.
In 2004, Russia also passed new witness protection legislation. Russian law previously provided some protection for testifying witnesses, but the provisions were weak and ineffective. Police statistics indicate that six witnesses in criminal cases were murdered in Russia in 2003 and each year approximately one fifth of all witnesses are pressured to change their testimony. The new legislation, entitled "On Protection of Victims, Witnesses and Other Participants in Criminal Proceedings" expands protection to all parties involved in a criminal trial. Prosecutors or investigators may recommend that a judge implement witness protection measures if they learn of a threat to the life or property of a participant in a trial. Steps taken to protect a program participant could include personal and property protection, change of appearance, change of identity, relocation, and transfer to a new job.
Law Enforcement Efforts. Despite some initial growing pains, FSKN's investigative efforts are gaining momentum. For the first nine months of 2004, FSKN reports having seized more than 107 tons of controlled substances, including over a ton of heroin, and 162 tons of chemical precursors.
Corruption. Since its inception, controlling corruption has been a stated priority for the Putin administration. Implementing this policy, however, has been a constant challenge. Inadequate budgets, low salaries, and lack of technical resources hamper performance, sap morale, and encourage corruption throughout the ranks of law enforcement. This has led some observers to question the commitment and vigor of the Putin administration in fighting corruption within its government.
In 2004, there were several reports of corruption among low to mid-level law enforcement officers. Speaking in November, FSKN Director Cherkesov stated that roughly 100 law enforcement officers had come under suspicion of having ties to drug trafficking. In November, a joint FSKN/MVD investigation resulted in the arrest of an MVD Lieutenant Colonel, who stands accused of leading a gang of seven former police officers caught dealing heroin in Naro-Fomisk and Odintsovo (Moscow Region). There were no reported cases of high-level narcotics-related corruption.
Agreements and Treaties. Russia is party to the 1988 UN Drug Convention, the 1961 Single Convention on Psychotropic Substances and its 1972 Protocol, and the 1971 UN Convention on Psychotropic Substances. Russia also is a party to the UN Convention Against Transnational Organized Crime and its protocols against migrant smuggling and trafficking in women and children. Russia is also a signatory to the UN Convention Against Corruption.
Under the U.S.-Russia Mutual Legal Assistance Treaty (MLAT), which entered into force on January 31, 2002, the requested country is obligated to provide assistance if there is dual criminality and the other pertinent requirements of the treaty are met. If there is no dual criminality, assistance is discretionary. As a result of the treaty's requirement for designating a central authority and point of contact, a separate office responsible for implementing international assistance requests has been formed within the Russian General Procuracy. Under the MLAT, Russia has provided assistance to the U.S. in two narcotics related cases.
Cultivation / Production. There are no official statistics on the extent of opium cultivation in Russia, and the USG has no evidence to suggest that more than 1,000 hectares of opium are cultivated. In Russia, there are small, illicit opium poppy fields of about one to two hectares. Typically the opium fields are small, backyard plots or are located in the countryside concealed by other crops. In Siberia, in the Central Asian border region, and in the Omsk-Novosibirsk-Tomsk region along the border with Kazakhstan, opium poppies are widely cultivated.
Cannabis grows wild throughout Russia and is also cultivated in quantities ranging from a few plants to plots of several hectares. As part of the annual "Operation Poppy" eradication effort, Russian authorities identified and eradicated a total of 1,066 individual incidents of illicit cannabis and poppy cultivation.
Drug Flow/Transit. Opiates (and hashish to a lesser degree) from Afghanistan are trafficked across the Central Asian borders into Russia. Contraband is typically carried in vehicles along the region's highway system. The Russian cities of Yekaterinburg, Samara, Omsk, and Novorossisk have emerged as hubs of trafficking activity. Passenger trains are also frequently utilized by couriers. Air couriers on flights from Central Asia are widely known to carry drugs internally on what are known by Russian police as "drug flights."
Cocaine destined both for Russia and redirection to Europe enters the country through the port of St. Petersburg. Synthetic drugs manufactured in Russia and Europe flow in both directions across Russia's western borders. Again, much of this smuggling activity appears to be concentrated in the Northwest region around St. Petersburg. In 2004, there were multiple seizures of large quantities of ephedrine tablets that had originated in Turkey. These seizures were not associated with any evidence of large-scale methamphetamine production. Ephedrine tablets are often sold in Russia in their original form as a low-cost stimulant.
Russian forces have been stationed in Tajikistan since the dissolution of the Soviet Union and took responsibility for sealing the border with Afghanistan when civil war broke out in 1992. At that time, Russia's stated goal was to prevent incursions by Islamic extremists. The stationing of Russian Border Guards in Tajikistan was formalized in a 10-year agreement signed in 1993. Since that time, narcotics interdiction has become one of Russian Border Guards' primary functions. In 2003, Russian forces on the Tajik-Afghan border seized 4,501 kilogram of heroin and opium. This is more than half the total seized in all of Tajikistan in 2003 (7,924 kilogram). In the first nine months of 2004, the total quantity of heroin and opium seized by Russian Border Guards operating in Tajikistan stood at approximately 3,100 kilogram.
In May 2003, an agreement governing the presence of Russian forces on the Tajik-Afghan border was set to expire, and rumors of their imminent withdrawal began to circulate. After a summer of mixed signals from both sides President Putin and Tajik president Emomali Rahmonov signed a final accord in October 2004. The accord provides for a phased withdrawal of Russian forces to be completed by 2006. The Russians will leave behind facilities and equipment that will be taken over by the Tajik border guard service.
Demand Reduction. Russian authorities are attempting to implement a comprehensive counternarcotics strategy that would combine education, health and law enforcement. FSKN is tasked with demand reduction among its other responsibilities and has recently begun a large-scale public awareness campaign. Russian law enforcement authorities also believe that demand reduction should complement law enforcement efforts to reduce supply. With support from USAID's "Healthy Russia 2020" project, demand reduction messages are being incorporated into a Ministry of Education sanctioned health education curriculum for high school students.
IV. U.S. Policy Initiatives and Programs
Policy Initiatives. The principal U.S. goals in Russia are to help strengthen Russia's counternarcotics law enforcement capacity to meet the challenges of international drug trafficking into and across Russia and to strengthen and develop Russian law enforcement personnel, making them effective partners with U.S. law enforcement.
Bilateral Cooperation. In 2002, the U.S. Department of State, Bureau of International Narcotics and Law Enforcement Affairs (INL), negotiated a Letter of Agreement (LOA) with the GOR allowing direct assistance to the GOR in the area of counternarcotics and law enforcement. In 2004, DEA's International Training teams provided State Department-funded instruction to its Russian counterparts in basic drug enforcement, airport interdiction, and vehicle interdiction. Progress continued on the Southern Border Project, a joint INL/DEA effort that will lead to the establishment of three mobile drug interdiction task forces based in Orenburg, Chelyabinsk, and Omsk along the Russian-Kazakh border. Also, the U.S. and Russia worked together to provide canine training to counternarcotics law enforcement officials from four Central Asian countries. The U.S. also provided technical assistance in support of institutional change in the areas of criminal justice reform, mutual legal assistance, anticorruption and money laundering.
The Road Ahead. The GOR places high priority on counternarcotics efforts and has indicated a desire to deepen and strengthen its cooperation with the United States and other countries. The USG will continue to encourage and assist Russia to implement its comprehensive, long-term national strategy against drugs with multidisciplinary sustainable law enforcement assistance projects that combine equipment, technical assistance and expert advisors. In 2005, DEA is scheduled to provide State Department-funded counternarcotics training to over 100 trainees, drawn from the FSKN, the MVD, and the Federal Customs Service.
Volume II: Money Laundering and Financial Crimes
Russia has enjoyed rapid economic growth in recent years, mainly driven by high world oil prices and the pursuit of sound fiscal policies. Yet, Russia has been slow to complete structural reforms of the banking sector, and overall public confidence in Russian banks remains low. Consequently, Russia's financial system is unattractive to both legal and illegal depositors, and therefore Russia is not considered an important regional financial center. Over the past three years, however, Russia has committed significant resources to improve its ability to combat the laundering of criminal financial proceeds domestically and internationally. Through aggressive enactment and implementation of comprehensive money laundering and counterterrorism financing legislation, Russia now has well-established legal and enforcement frameworks to deal with money laundering and terrorism financing.
Despite notable progress and demonstrated political will to combat these phenomena aggressively, Russia remains vulnerable to criminal financial activity because of a number of contributing factors, namely: vast natural resource wealth, pervasiveness of organized crime, and a high level of corruption. Other factors include porous borders, Russia's role as a geographic gateway to Europe and Asia, a weak banking system, and under-funding of regulatory and law enforcement agencies. Criminal elements from Russia and neighboring countries continue to use Russia's financial system to launder money, because of familiarity with the language, culture, and economic system. The majority of the funds do not appear to be from activities related to narcotics production or trafficking, although these activities likely occur. Experts believe that most of the dirty money flowing through Russia derives from domestic criminal or quasi-criminal activity, including evasion of tax and customs duties and smuggling operations.
Net flows of money out of the country have slowed noticeably since the 1998 financial crisis. Although net capital outflows for the first three quarters of 2004 totaled $10.9 billion, compared with $3.8 billion in 2003, the long-term trend in outflows continues to drift downward. This year's anomalous increase was largely attributed to instability in the banking sector and uncertainties in the investment climate. The majority of these outflows involve legitimate movement of money to more secure and profitable destinations abroad, but at least a portion of this money undoubtedly involves the proceeds of criminal activity.
Russia has the legislative and regulatory framework in place to pursue and prosecute financial crimes, including money laundering and terrorism finance. The Russian Federation's (RF's) Federal Law No. 115-FZ "On Combating Legalization (Laundering) of Criminally Gained Income and Financing of Terrorism" became effective on February 1, 2002, with subsequent amendments to the laws on banking, the securities markets, and the criminal code taking effect in October 2002, January 2003, and December 2003. RF 115-FZ obligates banking and non-banking financial institutions to monitor and report certain types of transactions, keep records, and identify their customers. Article 8 of Law 115-FZ provides for the establishment of Russia's financial intelligence unit as an independent executive agency administratively subordinated to the Ministry of Finance. In March 2004, President Putin issued a decree to upgrade the unit, formerly called the Financial Monitoring Committee, to a service, now called the Federal Service for Financial Monitoring (FSFM). All financial institutions with an obligation to report certain transactions must send this information to the FSFM. The FSFM is also responsible for coordinating all of Russia's anti-money laundering and counterterrorism financing efforts, but has no law enforcement investigative powers.
Consistent with Financial Action Task Force (FATF) recommendations, the criminal code was amended in December 2003 to remove a specific monetary threshold for crimes connected with money laundering, thus paving the way for prosecution of criminal offenses regardless of the sum involved.
According to the original language of RF 115-FZ, those institutions legally required to report included: banks, credit organizations, securities market professionals, insurance and leasing companies, federal postal service, jewelry and precious metals merchants, betting shops, and companies managing investment and non-state pension funds. Amendments to the law that came into force on August 31, 2004, extend the reporting duty to real estate agents, lawyers and notaries, and persons rendering legal/accountancy services that involve certain transactions (e.g., preparing/executing transactions with immovables; managing money, securities, or other property; managing bank accounts or securities accounts; attracting or managing money for organizations; or incorporating, managing, and buying/selling organizations).
Various regulatory bodies ensure compliance with Russia's anti-money laundering and counterterrorism finance laws. The FSFM is specifically responsible for regulating leasing companies, pawnshops, and gambling services. The CBR supervises credit institutions; the Ministry of Finance oversees insurance companies, entities managing non-government pension and investment funds, and entities buying and selling precious metals or stones; the Federal Service for Financial Markets supervises professional participants in the securities sector.
The CBR has issued guidelines regarding anti-money laundering practices within credit institutions, including "know your customer" (KYC) and bank due diligence programs. Banks are required to obtain and retain for five years information regarding individuals and legal entities and beneficial owners of corporate entities. Further, banks must adopt internal compliance rules and procedures and appoint compliance officers. In July 2004, Russia amended Law 115-FZ to require banks to identify the original source of funds and to report to the FSFM all suspicious transactions, as opposed to only transactions containing certain features, as previously mandated. Institutions that fail to meet mandatory reporting requirements face revocation of their licenses to carry out relevant activity, limits on certain banking operations, and possible criminal or administrative penalties. An administrative fine of up to $16,700 can be levied against an institution, with a fine of up to $700 on an officer of an institution. The maximum criminal penalty is 10 years in prison with applicable fines.
The CBR instituted a number of regulatory measures in 1999 to scrutinize offshore financial transactions. In the six months following the implementation of these regulations, wire transfers from Russian banks to offshore financial centers dropped significantly. At the same time the CBR curtailed establishing correspondent relations with offshore banks by raising the standards for "eligible" offshore financial institutions, thereby reducing their number. In August 2003 the CBR issued Order 1317-U, which regulates the relations of Russian financial institutions with their counterparts in offshore zones. In addition to requiring Russian financial institutions to report all related transactions, offshore banks are in some cases subject to enhanced due diligence and maintenance of additional mandatory reserves to offset potential risks undertaken by the Russian institution for specific transactions.
Foreign financial entities, including those from known offshore havens, are not permitted to operate directly in Russia: they must do so solely through subsidiaries incorporated in Russia, which are subject to domestic supervisory authorities. During the process of incorporating and licensing these subsidiaries, Russian authorities must identify and investigate each director of the Russian unit; therefore nominee or anonymous directors are, as a practical matter, not permitted under Russian law and regulation. As the CBR completes its review of banks' applications for admission into the newly created Deposit Insurance System, the CBR will verify that banks are carrying out these identification procedures before approving the application.
Russian businesses must obtain government permission before opening operations abroad, including in offshore zones. A department within the Ministry of Economic Development and Trade (MEDT) reviews such requests from Russian firms, and once MEDT approves, the CBR must then approve the overseas currency transfer. In either case, the regulatory body responsible for the offshore activity is the same as for domestic activity, i.e., the Federal Service for Financial Markets regulates brokerage and securities firms, while the CBR regulates banking activity.
All obligated financial institutions must monitor and report to the government: 1) any transaction that equals or exceeds 600,000 rubles (approximately $20,000) and involves or relates to: cash payments, individuals or legal entities domiciled in states that do not participate in the international fight against money laundering, bank deposits, precious stones and metals, payments under life insurance policies, and/or gambling; 2) all transactions of extremist organizations or individuals included on Russia's domestic list; and 3) suspicious transactions.
Each of the FSFM's seven territorial offices corresponds with one of the federal districts that comprise the Russian Federation. The Central Federal District office is headquartered in Moscow; the remaining six are located in the major financial/industrial regions throughout Russia. The primary functions of the territorial offices are to establish cooperation with regional law enforcement and other authorities to enhance information that comes into the FSFM, and to supervise anti-money laundering and counterterrorism financing legislation compliance by institutions under FSFM supervision. Additionally, the satellite offices must identify and register at the regional level all of the pawnshops, leasing, and gaming entities under their jurisdiction. They also are charged with coordinating efforts between the Central Bank of Russia (CBR) and other supervisory agencies with respect to implementation of anti-money laundering and counterterrorist financing regimes.
Russia's anti-money laundering law, as amended, provides the FSFM with the appropriate authority to gather information regarding the activities of investment foundations, non-state pension funds, gambling businesses, real estate agents, lawyers and notaries, persons rendering legal/accountancy services, and sales of precious metals and jewelry. Virtually all financial institutions submit reports to the FSFM via encrypted software provided by the FSFM. To date, Russia's national database contains approximately three million reports. The FSFM receives six to seven thousand transaction reports daily. Of these daily reports, approximately 75 percent result from mandatory (currency) transaction reports, and the remaining 25 percent relate to suspicious transactions. Among these, 130 to 150 typically merit further investigation, with 20 to 30 of these cases potentially involving terrorism financing. The FSFM has received approximately 400 reports potentially related to terrorism financing since its inception. Depending on the nature of the activity, the FSFM provides information to the appropriate law enforcement authorities for further investigation, i.e., the Ministry of Internal Affairs (MVD) for criminal matters, the Federal Drug Control Service (FSKN) for narcotics-related activity, or the Federal State Security Service (FSB) for terrorism-related cases.
As part of President Putin's recent administrative reforms, the FSKN now has a full division committed to money laundering, staffed by agents with experience in counternarcotics and economic crimes. This division cooperates closely with the FSFM in pursuing narcotics-related money laundering cases. Over the past year, the FSKN has initiated over 50 such investigations.
With its legislative and enforcement mechanisms in place, Russia has begun to prosecute a number of high-level money laundering cases. As of mid-December 2004, the CBR had revoked the licenses of 28 banks for failure to observe banking regulations. Of these 28, two banks were specifically charged with money laundering�Sodbiznesbank and Novocherkassk City Bank. When the CBR announced on May 13, 2004, that it was revoking the license of Sodbiznesbank because of money laundering charges�the first public announcement of such allegations�it touched off a minor crisis of confidence in the banking system and triggered a depositor run. In October 2004 a series of unconfirmed press articles reported that a Moscow bank was under investigation for financing terrorist acts, including the seizure of the Moscow Theater in 2002. Based on these examples and statistics, Russia has demonstrated a broad-based commitment to enforcing its anti-money laundering and counterterrorism financing legislation and is beginning to see an improvement in compliance levels as a result of its actions.
Russia has a legislative and financial monitoring scheme that facilitates the tracking and seizure of all criminal proceeds. None of this legislation, however, is specifically tied to narcotics proceeds. Russia's laws criminalizing money laundering and terrorist financing also provide for the forfeiture of criminal proceeds. Russian legislation provides for a variety of investigative techniques such as search, seizure, and compelling the production of documents, as well as the identification, freezing, seizing, and confiscation of funds/assets. Where sufficient grounds exist to suppose that property was obtained as the result of a crime, investigators and prosecutors can apply to the court to have the property frozen or seized. Law enforcement agencies have the power to identify and trace property that is, or may become, subject to confiscation or is suspected of being the proceeds of crime or terrorist financing. Moreover, the law allows the FSFM, in concert with banks, to freeze possible terrorist-related financial transactions up to one week. Banks may freeze transactions for two days and the FSFM may follow up with an additional five days.
In accordance with its international agreements, Russia recognizes rulings of foreign courts relating to the confiscation of proceeds from crime within its territory and can fully or partially transfer confiscated proceeds of crime to the foreign state whose court issued the confiscation order. However, Russian law still does not provide for the seizure of instruments of crime. Businesses can be seized only if it can be shown that they were acquired with criminal proceeds. Legitimate businesses cannot be seized solely on the basis that they were used as "instruments" to facilitate the commission of a crime. While Russian law enforcement has adequate police powers to trace and seize assets, most Russian law enforcement personnel lack experience and expertise in these areas.
The Russian Federation has enacted new legislation and executive orders to strengthen its ability to fight terrorism. On January 11, 2002, President Putin signed a decree entitled "On Measures to Implement the UN Security Council Resolution (UNSCR) No. 1373 of September 28, 2001." Noteworthy among this decree's provisions are the introduction of criminal liability for intentionally providing or collecting assets for terrorist use, and the instructions to relevant agencies to seize assets of terrorist groups. This latter clause, however, conflicted with existing domestic legislation. Accordingly, on September 24, 2002, the Duma approved an amendment to the anti-money laundering law, resolving the conflict, and allowing banks to freeze assets immediately, pursuant to UNSCR 1373. This law came into force on January 2, 2003. Further, Article 205.1 of the criminal code, which was enacted in October 2002, criminalizes terrorist financing. On October 31, 2002, the Federation Council, Russia's upper house, approved a supplemental article to the 2003 federal budget, allocating from surplus government revenues an additional 3 billion rubles ($100 million) in support of federal counterterrorism programs and improvement of national security.
In February 2003, at the request of the General Procuracy, the Russian Supreme Court issued an official list of 15 terrorist organizations. According to press reports, the financial assets of these organizations were immediately frozen. In addition, Russia has assisted the United States in investigation of terrorist financing, providing vital financial documentation and other evidence establishing the criminal activities of the Benevolence International Foundation (BIF). Russian authorities have also provided U.S. federal law enforcement authorities with valuable evidence relating to terrorist fundraising activities of an individual currently being prosecuted in the U.S. for possession of counterfeit currency.
Following an aggressive campaign to reform Russia's anti-money laundering regime, Russia became a full FATF member in June 2003. During its first plenary as a full-fledged FATF member, Russia announced its intention to create a Central Asian FATF-style Regional Body (FSRB). In October 2004, Russia successfully kicked off the FSRB, the Eurasian Group on Combating Legalization of Proceeds from Crime and Terrorist Financing (EAG), which includes Belarus, China, Kazakhstan, Kyrgyzstan, Tajikistan and Russia as members, and several other nations and multilateral organizations as observers to the group, including the United States. Concurrent with the first plenary meeting of the EAG, Russia also hosted the annual FATF Typologies meeting in Moscow in early December 2004.
The United States and Russia signed a Mutual Legal Assistance Treaty in 1999, which entered into force on January 31, 2002. To date, the FSFM has signed cooperation agreements with the Financial Intelligence Units (FIUs) of the United States, Poland, Britain, the Czech Republic, Belgium, Italy, Panama, France, Estonia, Ukraine, Colombia, Cyprus, Finland, Latvia, Luxembourg, Switzerland, and the United Kingdom. Additionally, the FSFM is an active member of the Egmont Group, having taken on sponsorship of several candidate countries for 2004. U.S. law enforcement agencies exchange operational information with their Russian counterparts on a regular basis.
In addition to membership in the FATF, Russia holds membership in the Council of Europe�s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL). Russia ratified the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime in January 2001. Russia is a party to the 1988 UN Drug Convention and on May 26, 2004, became a party to the UN Convention against Transnational Organized Crime. In November 2002, Russia ratified the UN International Convention for the Suppression of the Financing of Terrorism. Russia also became a signatory to the UN Convention against Corruption.
Russia has developed a solid legislative and regulatory foundation for combating money laundering and terrorism financing. Given its role in spearheading the creation of the EAG, Russia has demonstrated both the political will and a capability to play a more proactive role in improving the region�s capacity for countering money laundering and terrorism financing. Nevertheless, vulnerabilities continue. Russia has committed to improving CBR oversight of shell companies as well as closer scrutiny of banks that do not carry out traditional banking activities. Further, the Government of Russia has drafted a national money laundering strategy, which is currently under review and will likely be enacted in 2005. Finally, endemic and high-level corruption continues to undermine Russia�s best efforts. Persistent and significant deficiencies in Russia�s overall business operating environment pose formidable challenges to Russia�s efforts to establish a well functioning and comprehensive anti-money laundering/counterterrorism financing regime.
The Government of Russia should strive to contain official corruption and increase transparency in the corporate environment. Russia should commit adequate resources to its regulatory and law enforcement entities to enable them to fulfill their responsibilities. Russia should also enact legislation that would provide for the seizure of instruments, as opposed to merely the proceeds, of criminal activity. Finally, Russia should continue to play a leadership role in the region with regard to anti-money laundering and counterterrorist finance regime implementation.