Since the United States was a substantial contributor to international financial aid organizations, it provided its own governmental aid, and private American corporations invested in Russia, the looting of Russia's aid packages resulted in white-collar crimes committed in the United States and generated Congressional and criminal investigations. Major American banks, such as Citibank and Bank of New York, were entangled with Russia's capital flight and money laundering problems and, in the process, violated banking and anti-money laundering laws within the United States.
The Russian Federation experienced an increase in crime, capital flight, banking crises, and destabilization of the ruble during the transition into a capitalist economy. In money laundered related capital flight, Russia lost an estimated $133 billion between 1992 and 1997. To help stabilize the region, Russia and other Central and Eastern European countries received diverse aid packages from the international community. The aid included multinational financial aid, such as loans from the World Bank and International Monetary Fund (IMF), bilateral assistance from nongovernmental organizations (NGOs), and financial and technical support from various governmental agencies and corporations. Russia was plagued with corruption and criminals who fleeced the county.
In 1999, a scandal broke involving Russia, misdirected IMF funds, Western banks, and money laundering. The U.S. Congress began investigating the money laundering allegations and misuse of IMF funding. Oligarchs, businessmen, officials, and criminals moved money and IMF funds out of Russia via money laundering techniques, the Central Bank of the Russian Federation, Western banks, and offshore and private investment firms. Russia provided easy entry ports for illegally gained funds, and the banks reaped profits from the accounts. The siphoned funds and capital flight totaled in the billions. The American bank most associated with the laundered funds from Russia was the Bank of New York;however, there were many other American and Western banks involved, including Citibank, a division of Citigroup.
International Monetary Fund (IMF)
The purpose of the IMF loans was to stabilize the Russian ruble, lessen the effects of the economic crisis, enhance infrastructures, and subsidize the government to make up for tax collections shortages. The Central Bank received the aid and then distributed it to the government, Russian banks, and accounts at the Central Bank's offshore firm Fimaco. In 1996, Russia hid part of its currency reserves in Fimaco to mislead the IMF and secure more loans.
The Central Bank issued special licenses to politically connected Russian banks so that the banks and their clients could participate in international banking activities and the distribution of the IMF loans. Many of these banks had substantial ties to organized crime, such as Mikhail Khodorkovsky's Bank Menatep. Three multimillion transfers, marked as a payment for improvements to Russia's automotive industry infrastructure, originated from Bank Menatep and were deposited into American bank accounts. Additionally, Semyon Mogilevich, known as the Godfather of Russian organized crime, used banks in Russia and the northeastern United States to move hundreds of millions of dollars, including funds linked to Russian “quasi-governmental” organizations.
Russia had lax accounting procedures, and IMF loans could not be tracked after the money was transferred to the Central Bank; therefore, conclusively determining whether specific wire transfers from Russian to American banks contained IMF funds is difficult. Additionally, the Yeltsin administration and the Duma were reluctant to pass anti-money laundering laws, thus making the IMF loans vulnerable. As early as 1993, American intelligence believed that the KGB, oligarchs, and corrupt government officials were laundering Western aid and loan money out of Russia as soon as it entered the country by converting it to hard currency and then shipping it to foreign and offshore accounts.
The Central Bank used very little of the financial aid to support the ruble, pay salaries, improve the world's confidence in Russia, or improve infrastructures. Instead, funds were used to help finance President Yeltsin's campaign (linked to corruption and criminals) and were transferred to overseas accounts; at least $2.9 billion of IMF loans may be housed in offshore banks, and a former Russian prosecutor general alleged that $3.9 billion of a 1998 $4.8 billion IMF bailout never reached Russia. Representatives from the IMF and the World Bank could account for 2 to 3 billion rubles that were used to support Russian agriculture. Less than 10 percent of a 1998 $4.4 billion dollar payment was used to support the ruble. The Central Bank transferred the bulk of the $4.4 billion to Russian banks so that the banks could convert short-term loans known as GKOs (for Gosudarstvennoe Kratkosrochnoe Obyazatelstvo, “state treasury bonds”) to hard currency before the government defaulted on the GKO. At one point the GKO market, characterized as a pyramid scheme, had a rate of return of almost 300 percent and was covered by IMF loans.
