Russia tries to leave FATF NCCT list

The Russian Federation has a problem. It is named on the Financial Action Task Force list of so called "non-co-operative countries and territories" (NCCTs") and it wants off. Fast. Finance Minister (and Deputy Chairman of the Government of the Russian Federation) Alexei Kudrin has repeatedly said that he expects Russia to be removed from the list. He was at the IMF Governors' meeting on the 28th September and no doubt pressed Russia's case there. But Russia has to recognise that its inclusion on the NCCT list was not just a result of the criminal activity in the country, including the widespread ownership by criminal gangs of banks and other businesses, nor even the allegedly massive laundering going on through Cyprus and Nauru (both of which deny the claims). It has to recognise that it was also a consequence of the disappearance of a huge amount of money lent by the IMF to support it through a financial crisis in the late 1990s.

That the money went AWOL is not in dispute, and the current IMF/World Bank counter-money laundering initiative is, in large measure due to the questions that were raised after that money was lost. So, Russian's inclusion on the list is as much political as it is based on the existence of laws and their effectiveness.

It is the effectiveness of the laws that provides more cause for concern. Having the laws in place may satisfy the tick-box mentality of the FATF but it will not make it any less risky for foreign banks to deal with those in Russia.

Russia passed a raft of new law in 2001 but the FATF was not satisfied. It demanded that the range of business affected by the laws be enlarged. Hypocritically, it demanded that the list be enlarged to wider than that applicable in many FATF member countries.

The laws originally applied to banks, securities traders, insurance companies and leasing companies. The new law widens this to include casinos, private pension funds, lottery firms, bookmakers, investment funds, jewellers and precious metals traders.

Affected businesses may freeze a transaction for two days and must report the action to the Finance Monitoring Committee (Russia's FIU). The Committee can order a further three days' freezing. The law relates to money laundering and suspicions of funding terrorism.

But things have moved on since the original demands. Now the FATF is fighting for its life. It's NCCT programme is dead in the water and the IMF/World Bank is assuming control of the global fight against money laundering. The FATF has agreed with the IMF that it will not add any names to the NCCT list - but has said that it will not simply abandon the initiative. So Russia, along with all other countries on the list, is put in the position of being a political pawn in the FATF's battle for survival.

If the list is reduced there are two consequences:

- the FATF will be able to point to it and say that it is being successful therefore it still has a role to play.

- the importance of the list per se may diminish.

For this reason, the countries that are hoping to get off the list have an uncertain position: all the countries, including Russia, are peeing in the wind. The FATF does not say precisely what it wants: it leaves countries to guess and this leads to an escalation of measures which may or may not satisfy the FATF. Kudrin may be right - Russia may be slated to come off the list. But he should not bank on it.

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