- The use of the informal Hawala payment system by the oligarchs can be seen as a desperate move.
- Experts told Insider that using Hawala does not necessarily imply illegal transactions.
- But the oligarchs know about this system – based on trust – because that’s how Putin works, says one expert.
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Russian oligarchs have managed to circumvent financial sanctions by moving money through an informal payment system known as Hawala.
This is a move that can be seen as desperate, experts told Insider.
In the months before Vladimir Putin ordered his troops to invade Ukraine, the president’s inner circle – the oligarchs and the security forces – seemed to anticipate sanctions and move funds through trusts or bogus companies.
Shane Riedel, a financial crime expert and CEO of Elucidate who analyzes money circulation patterns, told Insider that sanctioned people using Hawala or a similar payment system could be considered a desperate move. Riedel said: “If someone is the ultimate beneficial owner of an account and he is sanctioned, then that account – or asset – is sanctioned.
Therefore, any attempt to move money from a sanctioned account – avoiding sanctions – is considered a crime, according to Riedel’s comments. In addition, facilitating the avoidance of sanctions is also a crime, and the US Treasury Department has recently targeted some facilitators.
David Claridge, CEO of security intelligence company Dragonfly, said the transfer of money through Hawala could not be done in huge sums, but rather tens of thousands of dollars. Claridge believes that if the oligarchs use the underground payment system, it will involve hundreds of thousands of smaller transactions, not large ones.
When you use Hawala, “one person works mostly on trust,” Claridge said. He added: “This type of agreement can very well be used by the oligarchs, who are already working on the same footing as Vladimir Putin’s business empire. It is based entirely on trust, as he owns nothing.”
Is Hawala used primarily to avoid sanctions?
Someone who uses Hawala does not necessarily mean that he is making illegal transactions. Riedel said: “There are people who use Hawala for perfectly legal purposes – it’s much cheaper.”
“You can’t assume that something illegal is necessarily happening if you see havaladars,” he said, referring to hawala traders. Riedel added that because there is an element of legitimacy, it would be much more difficult to identify sanctioned individuals who have used the informal payment system.
KleptoCapture, a working group convened by the US Department of Justice in the wake of Russia’s invasion of Ukraine, targets sanctioned individuals and focuses on the application of broad sanctions, export restrictions and economic countermeasures. One of its missions is to combat illegal efforts to undermine restrictions, including prosecuting those who try to “avoid measures to know the customer and to combat money laundering.”
Insider reported in early April that U.S. investigators had found evidence of Russian oligarchs trying to evade sanctions by moving “for example, movable property in the form of yachts, planes … to jurisdictions where I think people feel it will be harder to investigate and harder to freeze, “Andrew Adams, head of the task force, told Reuters.
However, despite attempts by Russian tycoons to hide their assets, they still face the “high level of all time” of international cooperation. “Especially in the current context and the current climate … the level of shared sense of purpose, in my opinion, is at the highest level of all time,” Adams added.
Claridge said that the attitude of the authorities in the West, in the world after 9/11, is that “the banking of Hawala or other forms of remittances must be regulated.” The conclusion is that “they should be treated as official companies that would be subject to sanctions – the same as everyone else.”
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