Last year’s Panama Paper leaks were something of an embarrassment for Hong Kong and Beijing, showing as it did a large number of requests for offshore shell registrations from China and it seems 2017 brings further embarrassment. Of all the revelations published by the anti-corruption campaigners behind the Global Laundromat leaks released last week one jurisdiction was ahead of the list by far, namely Hong Kong. It is worth noting that of the $20.8 billion apparently spirited out of Russia, just under $30 million ended up in Britain, compared with $1.8 billion directed towards Hong Kong and mainland China.
Of the $545 million of dirty money apparently funnelled through HSBC, by far the larger part was handled by Bank of China and its branches in the Chinese territory INCLUDING US$717 million that wwas passed through Hong Kong, Macau and mainland China.
Other banks and numbers named include
- US$29 million passed through Standard Chartered in Hong Kong and
- US$51 million was processed by Hang Seng Bank in Hong Kong and mainland China,
- Full list click here = https://www.occrp.org/assets/laundromat/BarChartBank-big.png
As many commentators are only too aware, the special economic zone has become a magnet for questionable Russian money and other nefarious funds.
American sanctions on Moscow have had several effects, but one of the more interesting has been the de-dollarisation of the Russian economy and given the greenback’s dominance, simply switching ill-gotten roubles into another currency is not much use, which is where Hong Kong comes in. The territory’s dollar peg, (where the local authorities’ promise to buy and sell dollars in a fixed range) means that the Hong Kong dollar is about as good a proxy as you are going to get for the real thing.
For Russians keen to move their money outside their struggling economy that is a pretty good deal. Not only this, but the territory’s corporate secrecy rules provide ideal vehicles for those who would have the provenance of their wealth face as little scrutiny as possible.
For those of you that have rushed down to Hong Kong I hope this highlights the risks
BACKGROUND
Between 2010 and 2014, at least $20.8 billion was laundered out of Russia, funnelled into banks in Moldova and Latvia, and spread from there into 96 countries across the world.
The Organized Crime and Corruption Reporting Project (OCCRP), which unearthed the scheme in 2014, dubbed it “the Russian Laundromat.” Its main beneficiaries have not been named (though former Moldovan MP Vyacheslav Platon has been arrested for allegedly orchestrating it).
However, now The Guardian and other outlets are reporting that a lot—an awful lot—of international banks ended up as hosts for the money, despite their anti-money-laundering controls. The data, the Guardian says, come from evidence collected in a police investigation and provided by the OCCRP.
Under the scheme, 21 shell companies with hidden owners were set up in the UK, Cyprus and New Zealand.
One company would then create a fake “loan” to another company, and a Russian firm would guarantee the loan. The shell companies would then default on the fake “loan,” and a corrupt Moldovan judge would “authenticate” the fake debt, ordering the Russian debtor to make the repayment into a Moldovan court bank account. The Russian debtor could then get the money out of the country and launder it through a host of banks throughout the world—usually going first via Trasta Komercbanka in Latvia.
There’s a nice graphic explaining this from OCCRP
- https://www.occrp.org/assets/laundromat/laundromat-infographic.png
- https://www.occrp.org/assets/laundromat/BarChartBank-big.png
OTHER SOURCES
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