- Russian oligarchs appear to have anticipated sanctions months before the Ukraine war started.
- Insider spoke to Shane Riedel, a financial crime expert and CEO of Elucidate.
- He said oligarchs moved money through the informal payment system called Hawala.
Financial crime experts noticed increased movements of money by Russian individuals in the months leading up to the war.
Russian oligarchs have been hit by Western sanctions amid the war in Ukraine, but they appear to have anticipated the measures by moving money through an informal payment system known as Hawala.
In an interview with Insider, Shane Riedel, a financial crime expert and CEO of Elucidate, whose company's work is to look at patterns in money movement, spoke about the payment system. "No one is looking to that combination of entities" — a financial intermediary to both of the proxies, he said.
"No one's looking for a proxy-to-proxy transaction, that's not going to raise any red flags anywhere," Riedel added.
The Hawala payment system is an informal funds transfer system that allows for the transfer of funds from one entity to another without actually moving any money. There is no record as it doesn't require documentation.
In other words, Hawala allows individuals or entities to carry out transactions outside of traditional banking systems. It has been used for centuries but has been made illegal in some countries like India, due to its lack of regulation.
Riedel said that in the months leading up to the attack, from November and especially in December, they noticed an increase in transactions involving Russia.
He said: "We saw money coming from offshore to onshore with some money coming from onshore to offshore, which was disproportionate – more than 10% directed to or from shell companies or entities that we assessed to be shell companies."
"That is way out of line with the market, as your typical transaction flow on any given day would be less than 1% involving shell companies," he added.
Hawala transactions originated in the Middle East and South Asia. The original focus of Hawala networks in financial crime was on "terrorist financing angles, sanctions against them and sanction evasions," Riedel said.
He pointed to the sanctions imposed on international transactions for Russia, banning it from using SWIFT, or the Society for Worldwide Interbank Financial Telecommunication.
SWIFT, is a Belgian communications system that was launched in 1973. It serves as a neutral platform for banks to chat about financial transfers, transactions, and trades.
Riedel said when the sanction was imposed, it was in the hope of making the movement of money harder for Russia, including oligarchs. He said: "The Hawala system can be considered as one of these harder means to process transactions."
According to Riedel's company analysis, there was a concentration of activity in a couple of European jurisdictions, in Switzerland, Cyprus, or Malta … which are all jurisdictions where many corporate service providers are shell companies, Riedel said.
He added: "I use the term shell company fairly broadly in this context, that could also be a trust or some other mechanism like that. But prior to sanctions being implemented, we saw an extreme increase in both inflows and outflows from Russia."
Oligarchs may be using the Hawala payment system to complete transactions, which could explain how they have been able to maintain their luxurious lifestyle and the maintenance of some of their assets such as superyachts.
Riedel concluded: "Nothing is happening now. The datasets that we're looking at are not going to show us traffic any longer, at least between Russia and others, because that's pretty much been stopped."
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