Connect with us

Features

RIDICULOUS SUMS OF MONEY: Why the War on Drugs has Failed

Published

on

The drug war
Download PDFPrint Article

Nairobi, Kenya – CONSUMERS IN FINAL MARKET COUNTRIES HAVE NEVER HAD IT SO GOOD

The war on drugs has failed. It has failed to stop, or even slow, the production, trafficking and consumption of drugs. The specific aim to destroy and inhibit the international drug trade — making drugs scarcer and costlier, and thus unaffordable, has only been partially achieved.

Most experts agree that the drug war has prevented some drug abuse by making forbidden substances less readily accessible. It has made drugs like heroin and cocaine vastly more expensive than similar agricultural-based psychoactive products such as coffee or tea. One study shows that the increase in price per gram as cocaine moves down its distribution chain is up to 100,000% that of coffee. Also, the fact that illegal drugs are not readily available at your local chemist or supermarket has undoubtedly meant fewer users are able to access them.

However, this is only part of the story. In fact, consumers in final market countries have never had it so good. Overall, the price of most illegal drugs has actually plummeted while the drugs have become even more potent.

A study published in the British Medical Journal’s BMJ Open found that in the nearly two decades between 1990 and 2007, the purity of cocaine available in the United States increased by 11% while its price collapsed by 80%; the purity of heroin shot up by 60% while its price fell by a precipitous 81%; marijuana saw more than a tripling in purity accompanied by a similar drop in price to that of heroin and cocaine. The trends were similar across the Atlantic. In 18 European countries, the street price of cocaine halved over the same period. At the same time, in the decade between 2003 and 2013, the value of the global drug trade grew by over 35% from $320 billion to $435 billion, and, according to the UN, the drug business continues to be the third biggest in the world after oil and arms.

The war on drugs amounts to a transfer of the economic, political, social and environmental costs of prohibition from rich consumer countries to poorer producer and transit countries in return for a few dollars in aid

The number of people using drugs appears largely unaffected by the war on drugs. It is true that increased seizure and crop eradication, coupled with alternative development aimed at reducing the incentives for illicit cultivation, have reduced the amount of cocaine on offer.

TRAFFICKERS ARE FINDING NEW MARKETS AROUND THE WORLD

Still, although the 2016 UN World Drugs Report cautiously concluded that ‘the global cocaine market has indeed been shrinking,’ this is attributable both to declining production as well as changing consumption patterns across the globe, not to a reduction in the total numbers of drug users. Essentially, traffickers are finding new markets around the world even as consumption in the US and Europe stagnates, even declines. ‘The drug trade is becoming truly more global,’ Vanda Felbab-Brown, senior fellow at the Brookings Institute, told CNBC in 2013. However, while in mature markets a small proportion of users buy the bulk of the product, their new customers tend to take less cocaine less often. Similarly, the huge fluctuations in the availability of opium – whether due to increased enforcement or not – have not led to dramatic changes in the number of opiate users though for different reasons.

The rub of it is that rather than reduce the number of people on drugs, the drug war has instead funnelled massive amounts of money into the pockets of drug barons and cartels. The global cocaine trade, though utilising a fraction of the land and labor resources required by the coffee industry, rakes in an estimated $85 billion annually from supplying under 20 million consumers with about half a million kilos of the drug. Compare that with the roughly $100 billion the coffee industry shares from providing about 9 billion kilos to the hundreds of millions of coffee lovers. At its peak, the Medellín Cartel in Columbia supplied 80% of the worldwide cocaine market and is estimated to have been generating at least $60 million a day in revenue. In fact, illicit proceeds from the drugs trade now account for half of all income from international organised crime.

In Latin America, drug interdiction efforts are associated with increasing murder rates, not just in the countries where the interdiction is carried out but, when it is successful, in the countries to which the traffickers are displaced

Such ridiculous sums of money make drug dealers immensely powerful and menacing figures. In fact, the war on drugs amounts to a transfer of the economic, political, social and environmental costs of prohibition from rich consumer countries to poorer producer and transit countries in return for a few dollars in aid. These costs include violence, corruption and the loss of legitimacy of state institutions, population displacements and environmental degradation.

In Latin America, drug interdiction efforts are associated with increasing murder rates, not just in the countries where the interdiction is carried out but, when it is successful, in the countries to which the traffickers are displaced. For example, in Colombia, the war against the Medellin cartel in the late 1980s and early 90s saw the homicide rate nearly double between 1985 and 1991. Some 16 years later, a fresh wave of interdiction in Colombia displaced the cartels and associated violence to northern Mexico which, combined with the effect of local policies, saw the homicide rate there triple between 2006 and 2010.

Narco-traffickers are able to corrupt governments and law-enforcement agencies and purchase political influence and even political power. Pablo Escobar, head of the Medellin cartel, created a Robin Hood image for himself in the 80s by building houses and public facilities for the poor. He even got himself elected to the Colombian House of Representatives in 1982. In the Kenyan Parliament, in December 2010, five legislators, Harun Mwau, William Kabogo, Hassan Joho, Simon Mbugua and Mike Mbuvi, were named in connection with the trafficking of narcotics. Two of those have since gone on to become county Governors and one a county Senator. In Guinea-Bissau, which the UN branded Afrca’s first narco-state, the value of the drugs trade is greater than the national income. ‘You walk in, buy the services you need from the government, army and people, and take over,’ was the way one senior official at the US’s Drug Enforcement Agency put it.

Further, drug money distorts the economies it washes through, creating huge inequalities and devastating local living standards. According to a 2009 report by the Financial Transactions and Reports Analysis Centre of Canada, drug traffickers have laundered approximately $100 million per year through the Kenyan financial system. ‘The proceeds of drug trafficking move through the [Kenyan] banking system,’ John Githongo, the veteran anti-corruption campaigner, told Investigative Reporting Project Italy in 2015. ‘In terms of movement of drug money, Kenya now rates higher even than Nigeria due to the rise of narcotics moving in and through the country, but also because of the country’s sophisticated financial system.’ The effects of such flows are not hard to discern.

The drug money is a significant part of the illicit money entering Kenya from fraudulent trade invoicing, crime, corruption and shady business activities, which by 2013 roughly equalled 8% of Kenya’s economy. Much of this money ends up in the country’s real estate, where it has inflated prices and made decent and safe housing unaffordable for the vast majority of the urban population.

The drug money is a significant part of the illicit money entering Kenya from fraudulent trade invoicing, crime, corruption and shady business activities, which by 2013 roughly equalled 8% of Kenya’s economy

Neither has the war on drugs spared populations in the West where it has contributed to mass incarcerations, and the virtual criminalisation of large segments of the citizenry. In the US, the war on drugs mostly targets minorities, particularly African Americans who, though not more likely than others to use or sell drugs, are much more likely to be arrested and incarcerated for drug offenses.

Further it has led to the increased militarization of police forces and new police powers such as asset seizures – meant to turn drug dealers’ ill-gotten gains against them – have in many cases undermined civil liberties. As detailed in The Economist, in the wake of a sharp rise in drug-related violence in the US, in 1990 Congress ‘allowed the Defence Department to transfer military gear and weapons to local police departments if they were deemed suitable for use in counter-drug activities.’

A WAR DOOMED FROM THE START

The war on drugs was perhaps doomed from the start as it was built on dubious philosophical, moralistic and even racist foundations and made assumptions that those bearing the most costs would continue to be happy to do so.

In 1875, it was racist hysteria over accounts of Chinese immigrants luring white women into opium dens that led to California passing the first anti-opium law

International drug control efforts can be traced back to the 1912 Hague Opium Convention that entered into force in 1919 and targeted opium, morphine, cocaine and heroin. Over the next half century, a series of international agreements would expand the scope of the anti-drugs effort to include restrictions on cannabis (1925), synthetic narcotics (1948) and psychotropic substances (1971). Drug trafficking was made an international crime in 1936.

The treaties negotiated prior to 1945, while imposing some restrictions on exports, did not actually criminalise drug use or cultivation or, indeed, the substances themselves. Rather, despite fierce debate, they were predominantly concerned with regulating the licit trade and ensuring the availability of a range of drugs for medical purposes. (Heroin was created by chemists working for the German company Bayer, and marketed alongside aspirin as a remedy for coughs, colds and ‘irritation’ in children. Cocaine, was first isolated in 1859 by German chemist Albert Niemann, made its debut in toothache drops marketed to children and was famously an ingredient in Coca-Cola.)

While the US increasingly pushed the issue of recreational and traditional use of drugs, it was primarily dealt with through attempts to prevent the leakage of licit drugs into illicit channels. In 1925, the two most ‘prohibitionist’ countries at the time, US and China, withdrew from negotiations on the International Opium Convention, because they considered it insufficiently restrictive.

The US, then in the throes of domestic alcohol prohibition, had hoped to entice the rest of the world into quitting, not just drugs, but booze for good. In fact, the aim of the US was to extend its prohibitive domestic laws across the globe. It was the US that had convened the 1909 Shanghai Opium Commission – which laid the groundwork for the 1912 convention, just 15 days after Congress had passed the Act to Prohibit the Importation and Use Of Opium for Other Than Medicinal Purposes, the first in a long line of prohibitive drug legislation. However, it was opposed by France, Great Britain, Portugal and the Netherlands, whose colonies were then turning a handsome profit from legal as well as illicit sales of opiates to Europe and the US.

According to the report America’s Habit: Drug Abuse, Drug Trafficking, & Organized Crime, issued by the President’s Commission on Organised Crime in 1986, most of the opium reaching the US in the 1920s and 30s was coming from France, Asia and the Mideast.

US efforts to interdict the supply of cocaine – which the US had outlawed in 1914 – and to a limited extent, opium, also included trying to entice its southern neighbours to adopt similar policies. However, few were interested. As detailed by Maria Celia Toro in her book, Mexico’s ‘War’ On Drugs: Causes and Consequences, ‘Those early attempts to enlist the co-operation of Latin American governments in suppressing the drug market were for the most part unsuccessful.’ Some were happy to sign agreements but balked at actually implementing anti-drug policies.

A LUCRATIVE, ANCIENT AND LEGAL COCA LEAF MARKET

Further, Peru and Bolivia, then the largest producers of coca leaf and whose participation Washington prized most, ‘had little interest in curtailing a lucrative, ancient and legal coca leaf market.’ Only Mexico accepted. But not because it particularly agreed with the policy. According to Toro, ‘Rather than trying to appease the US or reduce drug consumption at home, Mexico was trying to influence US conduct regarding antidrug law enforcement.’

In 1916, the Mexican Revolution was still raging. The country had just emerged from a year-long civil war and was still battling an insurgent guerrilla group. The last thing it needed was conflict along its border. And border conflict is exactly what the US bans on cocaine and opium (and later alcohol) created. ‘What at the beginning of the century constituted legal exports of minimal value soon became a significant smuggling activity,’ writes Toro. Citing historian F. Arturo Rosales, Curtis Marez in his book Drug Wars: The Political Economy of Narcotics, describes it thus: ‘In the 1910s and 1920s, liquor and drug wars involving competing smugglers and US police … rivalled the border battles fought by political factions during the revolution. These contraband wars left numerous smugglers and border agents dead.’

But by joining the American prohibition bandwagon beginning with a ban on opium imports in 1916, Mexico created the very conditions for the violence and instability it was trying to avoid. Toro writes that smuggling ‘later turned into a black market problem after different Mexican administrations outlawed trade and production of opium and other drugs.’

John Ehrlichman: We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalising both heavily, we could disrupt those communities

Further, a distinctly racist attitude and fears of economic competition by minority groups informed US approaches to the regulation of drugs. In 1875, it was racist hysteria over accounts of Chinese immigrants luring white women into opium dens that led to California passing the first anti-opium law. Cocaine was similarly criminalised for its association with black communities. The white community’s economic fears of freed slaves gaining a foothold in the economy following the US civil war provided fertile ground for racist rumours of a drug that had the capacity to incite them to violence. With the New York Times running headlines warning ‘Negro Cocaine Fiends are a New Southern Menace,’ New Orleans became the first city to enact laws against cocaine in the early 1900s and the trend quickly spread. The banning of marijuana was a reaction to the influx of low-wage Mexican immigrants in the 1920s, sparked in part by the Mexican revolution. With the Great Depression creating massive unemployment, the ‘evil weed’ was the subject of lurid national campaigns that linked it to violence, crime and other socially deviant behaviours. By 1931, some 29 states had outlawed marijuana.

HOW PROHIBITION INCENTIVISED VIOLENCE AND DRUG SUPPLY

There are a number of things to note here. First, the US has been the primary driving force behind global prohibition efforts and has essentially sought to use international conventions to impose its drug puritanism on the globe and to export the problems drugs caused at home. Second, there was little appetite in the West, at least in Europe, for criminalising drugs when they were the countries that were benefiting from their illegal trafficking. Third, other countries initially resisted US-style prohibition and when Mexico caved in, it was for reasons other than the utility of prohibition in fighting drugs. Fourth, the effect of prohibition on drug prices immediately incentivised both violence and increased drug supply. In fact, the President’s Commission on Organised Crime acknowledged, ‘Heroin trafficking in this country first became big business in the 1920’s.’ And finally, the prohibition of drugs is fuelled at least as much by economic fears and cultural prejudice as by concerns over health effects and the social harm they cause.

All these trends have come to define the international drugs war in the decades after World War II. The US emerged from that conflict as the most powerful country in the world and the global prohibition of drugs was embedded into the DNA of the post-war order it crafted. However, unlike 20 years prior, it could now apply the necessary pressure to impose it on other countries via the United Nations system.

In 1961, the US initiated the United Nations Single Convention on Narcotic Drugs, which sought to consolidate the various international agreements into one regime governing the global drugs trade. But more than that, it included provisions that were not in previous treaties including controls over the cultivation of plants from which narcotics are derived, which placed a heavy burden on producer countries in the developing world where the cultivation and widespread traditional use of opium poppy, coca leaf and cannabis were concentrated at the time. The Single Convention institutionalised prohibition and targets for abolishing traditional and quasi-medical uses of opium, coca and cannabis within 25 years. The Convention was also notable, for it was the first time that penal provisions were included in a widely accepted international drug control treaty. Further it required countries to regulate not just production, manufacture and export, but also possession of drugs.

A decade after the Single Convention was signed, a parallel process started to emerge with the signing of the1971 Convention on Psychotropic Substances. Replicating the trends witnessed during the pre-war treaties, Western countries attempted, according to the President of the International Association of Penal Law, Cherif Bassiouni, ‘to impose strong controls over the cultivation, production and traffic of natural drugs originating in the developing countries, [but] were unwilling to impose the same types of control over their own chemical and pharmaceutical industries.

THE TARGET: ANTI-WAR HIPPIES AND BLACKS

That same year, President Richard Nixon famously declared what came to known as the ‘war on drugs’ in an address to Congress. Drug abuse, he said, was America’s ‘public enemy number one,’ despite the fact that consumption was not any worse than at any other time in history. What Nixon and his henchmen didn’t tell the public was that the ‘war’ was little more than a cynical ploy to fire up their political base using the tried and tested methods of the 1930s, and to curtail domestic dissent. John Ehrlichman, Nixon’s domestic policy chief who served time for his role in the Watergate scandal, made this stunning admission to journalist Dan Baum in 1994: ‘The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: The anti-war left and black people. You understand what I’m saying? We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalising both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.’

Seeing its political effectiveness, subsequent US presidents prosecuted the fake war, culminating in Ronald Reagan, who launched a period of mass hysteria over crack cocaine in the 1980s. As in the 1930s, the media painted crack users as violent, poor urban and most significantly, black. Crack and powder cocaine are the same drug. Crack is basically powder cocaine mixed with water and baking soda and the person who has the crack actually has less pure cocaine overall. For this reason, it is cheaper and preferred by low-income users. However, Congress, driven by the racist hysteria, concluded that crack was indeed the more dangerous drug and deliberately imposed much harsher penalties. The ‘Negro Cocaine Fiends’ of half a century before had become ‘crack-fiends,’ and mothers of ‘crack-babies.’ In three decades, the country quadrupled its prison population — all with no change in the rates of crime or drug use.

JUST LEGALISE IT, FOR GOD’S SAKE

Still, as discussed earlier, it has been producer and transit nations that have paid the highest price for the war of drugs. But many have begun balking at this and are openly questioning whether prohibition has been worth the cost. In 2009, three former presidents, Ernesto Zedillo of Mexico, César Gaviria of Colombia and Fernando Henrique Cardoso of Brazil declared that prohibition was simply not worth it. ‘Prohibitionist policies based on eradication, interdiction and criminalisation of consumption simply haven’t worked,’ they said. ‘The revision of US-inspired drug policies is urgent in the light of the rising levels of violence and corruption associated with narcotics.’

It is not surprising; Latin America, the region that perhaps more than any other, has suffered the consequences of prohibition. To understand how they feel, consider this thought experiment related by Daniel Mejia and Pascual Restrepo in their essay, Why Is Strict Prohibition Collapsing? ‘Suppose for a moment that all cocaine consumption in the US disappears and goes to Canada. Would the US authorities be willing to confront drug trafficking networks at the cost of seeing the homicide rate in cities such as Seattle go up from its current level of about five homicides per 100,000 individuals to a level close to 150 in order to prevent cocaine shipments from reaching Vancouver? If your answer to this question is ‘perhaps not,’ well… this is exactly what Colombia, Mexico and other Latin American countries have been doing over the past 20 years.’

Across the continent, many are rethinking their approach to drugs and rolling back prohibition. In 2010, Argentina’s Supreme Court ruled it unconstitutional to punish people for personal use of marijuana. Mexico has legalised limited amounts of all drugs for personal use. But it is probably in Europe that the greatest challenges to the prohibition orthodoxy have emerged.

The Dutch famously decriminalised cannabis in the early 70s and it has been available for recreational use in certain ‘coffee shops’ since 1976. Though technically illegal, possession of up to 5 grams for personal use is decriminalised. Italy too has decriminalised possession of less than half a gram of most illegal substances. Switzerland, Germany, and the Netherlands have successfully made heroin legally available to addicts through networks of government-run dispensaries.

However Portugal provides the most extensive, and most successful, example of decriminalisation. In July 2001, the country decriminalised all drugs, including cocaine and heroin. As is the case in several other European jurisdictions, purchase and possession for personal use and drug usage itself are still legally prohibited, but are dealt with as administrative, not criminal violations. Drug trafficking, however, is still a serious criminal offense.

No other country has gone so far, and Portugal is still the only country in the EU with a law explicitly declaring drugs to be ‘decriminalised.’ The results have been jaw-dropping. The expected tsunami of drug tourists never arrived. In a white paper for the libertarian think tank Cato Institute, constitutional lawyer and journalist Glenn Greenwald cites empirical data indicating that ‘decriminalisation has had no adverse effect on drug usage rates in Portugal, which, in numerous categories, are now among the lowest in the EU, particularly when compared with states with stringent criminalisation regimes.’

Dan Baum writes that ‘the lifetime prevalence of adult drug use in Portugal rose slightly, but problem drug use — that is, habitual use of hard drugs — declined after Portugal decriminalised, from 7.6 to 6.8 per 1,000 people. Compare that with nearby Italy, which didn’t decriminalise, where the rates rose from 6.0 to 8.6 per 1,000 people over the same time span. Because addicts can now legally obtain sterile syringes in Portugal, decriminalisation seems to have cut radically the number of addicts infected with HIV, from 907 in 2000 to 267 in 2008, while cases of full-blown Aids among addicts fell from 506 to 108 during the same period.’

Prohibition, and its misbegotten offspring, the war on drugs, have failed to bring about the promised drug-free world and have instead visited misery upon millions of the poorest people on the planet

Prohibition is under attack even in the US itself, though to a much lesser extent. Several states, including the District of Columbia, have allowed a legal trade in marijuana though at the federal level it remains prohibited. ‘We’re confronted now with the fact that the US cannot enforce domestically what it promotes elsewhere,’ a member of the UN’s International Narcotics Control Board, which monitors international compliance with the conference’s directives, told Baum.

GOOD RIDDANCE TO BAD LAWS

It is clear that prohibition, and its misbegotten offspring, the war on drugs, have failed to bring about the promised drug-free world. That they have instead visited misery upon millions of the poorest people on the planet is a fact that is only now starting to dawn on global policy makers. However, there is no consensus on how to move forward and in places like China and various Muslim nations where drug offences still attract draconian sanctions including the death penalty, there is little to suggest a changing mindset.

Still, the growing recognition of the failure has opened up the policy space and given reformers the room to imagine different approaches to dealing with drugs. No country is yet willing to experiment with full legalisation, but a broad spectrum of policy choices now exists under the banners of decriminalisation and de-penalisation (which eliminates jail terms for drug offences). One thing we can say for sure – the days of a simplistic, moralistic, one-size-fits-all solution to the challenge posed by the availability of drugs are very much over. Good riddance!

Comments
Avatar
Read all articles by

Mr. Gathara is a social and political commentator and cartoonist based in Nairobi.

Continue Reading

Features

Black Votes Don’t Matter: The Shrinking Civic Space of African Immigrants in the US

It is a difficult time to be an immigrant in the US. For those of African descent, theirs is a rare combination of challenges, not only in becoming part of a new nation but also in carrying the baggage that comes with being black in America.

Published

on

Black Votes Don’t Matter: The Shrinking Civic Space of African Immigrants in the US
Download PDFPrint Article

The United States of America has excelled in projecting an extraordinary image of itself as a free nation with a thriving democracy, where anyone can come and work their way towards a better life through civic participation. However, what the past few years in particular have peeled away betrays a somewhat different truth: that voting in the United States is hard and getting steadily more so. And there’s one group of people who face a particular set of difficulties when seeking to cast their ballot: African immigrants.

Some historic context is needed regarding voting issues within the US. First and foremost, there is a historic precedent of voter suppression in the US that is unequaled within the modern Western world. Much of the targeting of such efforts has directly affected African Americans and people of colour. After slavery was abolished, states would go to incredible lengths to suppress the black vote, including implementing taxes on voting, forcing black people to produce extraneous forms of personal and family identification and making would-be black voters pass vaguely worded and lengthy “literacy tests” in order to cast their ballot. These systems, a part of the infamous Jim Crow laws, were struck down as illegal in 1965 when the country passed the Voting Rights Act.

In the years that followed, those who sought to seek the vote sought out ways to circumvent the law and keep the voter turnout low. Since the latter half of the 20th century, high voter turnout translated to a more liberal result. Take, for example, that a Republican presidential candidate has won the popular vote once since 1988 (George W. Bush in 2004). In the cases of the victories of Donald J. Trump in 2016 and George W. Bush, they skated to victory through the electoral college; a system that traces its roots to suppress the popular vote.

When looking at US politics, it isn’t as much a matter of high voter turnout as it is who comprise the voters that are showing up to vote. The most telling demographic, the group with the highest disparity of aligning with Democrats over Republicans, is African Americans. Hillary Clinton carried the black vote by an 80 point margin – 88 per cent to 8 per cent over Trump in the 2016 election. This margin, coupled with the United States becoming more, not less, diverse has left those seeking to suppress the vote scrambling for answers.

In 2013, efforts to suppress voters gained a major boost when the US Supreme Court overturned section 4(b) of the Voting Rights Act, which outlined that states and districts that had previously been involved in voting discrimination needed pre-clearance of the validity of their electoral processes. The conservative judges ruled this as unconstitutional, that the section “punished” states for past mistakes, not for possible future successes. Justice Ruth Bader Ginsberg dissented strongly, stating that “throwing out preclearance when it has worked and is continuing to work to stop discriminatory changes is like throwing away your umbrella in a rainstorm because you are not getting wet.”

The Voting Rights Act had been brought before court in the wake of a series of issues across the US, primarily having to do with controversial voting ID laws, reports of voter suppression and other forms of disenfranchisement. In a theme that runs across America’s election process, the black community was disproportionately affected.

This brings the issue to focus on African immigrants in the United States. The issue of immigration in the United States has currently brought the federal government to a shutdown for over a month. There is constant rhetoric from the Trump administration targeting illegal immigrants as a major obstacle to the security and economic future of the United States. The issues of building a border wall with Mexico and continuing to provide guaranteed safeties (such as the Deferred Action for Childhood Arrivals programme, which offers protections to the children of illegal immigrants into the US) are being used as bargaining chips at the government level.

A difficult time

It is a difficult time to be an immigrant in the US. For those of African descent, theirs is a rare combination of challenges, not only in becoming part of a new nation, but also in carrying the baggage that comes with being black in America.

African immigrants in the US are a small but rapidly rising group. The increase has been marked since 1970, especially amongst sub-Saharan Africans. According to the Pew Research Center, the number of African-born individuals heading to the US increased nearly 250 per cent between 2000 and 2015, from 881,000 up to 2,060,000. Africans are also the fastest growing demographic among black immigrants, increasing by 137 per cent between 2000 and 2013.

It is a difficult time to be an immigrant in the US. For those of African descent, theirs is a rare combination of challenges, not only in becoming part of a new nation, but also in carrying the baggage that comes with being black in America.

In the US, a major aspect of any voting rights issue is where in the US you’re living. Different states hold different standards, different regulations and varying requirements. When examining how voting standards impacts African immigrants, there needs to be a brief examination of where African immigrants live.

The five states with the highest African immigrant population are California, New York, Texas, Maryland and Virginia. Cities such as Atlanta, Georgia and Minneapolis also have high numbers of such migrants. This is where context becomes even more important; California and New York are known as more immigrant-friendly destinations, and their major metropolitan areas are regarded as “sanctuary cities” for illegal immigrants. New York and Minnesota don’t require a photo ID whereas California may require one for a first-time voter (newly-naturalised US citizens are always first-time voters). Maryland holds a similar policy.

Texas, Virginia and Georgia, on the other hand, are a different matter entirely. Virginia requires a valid photo ID in order for an individual to vote in person. Texas and Georgia are both mired in controversy over the stringent regulations put in place regarding the standards for voter IDs. The state of Texas is currently mired in litigation over the voter ID laws, with opponents arguing that it disproportionately impacts minorities.

In Georgia, where over 70,000 African immigrants reside in the Atlanta metropolitan area, the man who was presiding as the Secretary of State (the office which controls the conducting of elections, a possible conflict of interest) won narrowly and controversially over Stacey Abrams, who would have been the first black woman elected to be a state governor in the US. Abrams repeatedly made claims that there was voter interference, particularly amongst black precincts, where electronic voting was in disarray and reports of voter suppression were rampant. These claims had much of their basis in and around Atlanta, Georgia.

Why does voter ID matter and how does it affect Africans living in America? For starters, the path to US citizenship (which is needed to vote in America) is extremely arduous, long and difficult. The paperwork hoops to jump through are staggering. On average, it takes an immigrant a minimum of five years of continuous residency to become a naturalised US citizen. In cases that need further legal counsel, it can take even longer as the legal side of American immigration courts have become steadily more choked and congested in the new millennium.

Why does voter ID matter and how does it affect Africans living in America? For starters, the path to US citizenship (which is needed to vote in America) is extremely arduous, long and difficult.

For immigrants, the issues surrounding voter ID can often be much murkier. For instance, immigrants can gain driver’s licenses within the United States, which is one of the key forms of identification needed in states with more stringent regulations. This doesn’t mean that immigrants have the appropriate information explained to them regarding the IDs being obtained. The African Advocacy Network of California notes that although driver’s licenses are applied for successfully by immigrants who aren’t naturalised, the fact that they are still unable to vote due to their status isn’t explained to them. This can lead to immigrants attempting to vote, unknowingly engaging in an illegal act of fraud. The penalties for such fraud in the US are harsh. Both illegal and legal immigrants can face deportation if found to be involved in fraudulent voting. Cases of actual voter fraud involving illegal immigrants are incredibly rare, but that doesn’t stop Trump from repeatedly claiming that Hillary Clinton won the popular vote because of millions of “illegals” somehow managing to cast ballots.

Illegal immigrants in Trump’s America

The Obama administration was noted for its strict approach to illegal immigration, deporting hundreds of thousands between 2009 and 2017. That same administration, however, did focus on expanding a programme called the H1-B visa, which encouraged workers from outside of the United States to enter the country to work. Many prominent corporations, including Amazon, Google and Microsoft, heavily leaned on the programme as it eased the transition for professionals to gain a foothold in the US workforce. In addition, the H1-B programme made the path to a Green Card visa (an initial step towards US citizenship) markedly smoother, encouraging immigrants to engage in the process of becoming a citizen.

The Trump administration, on the other hand, has taken a significantly different approach. The current White House passed an executive order titled “Buy American, Hire American” that directly encourages American companies to hire only the most skilled workers from outside of the United States. This will have a long-term impact on the number of H-1B applicants who can head down the path of gaining citizenship.

The Obama administration had an unfortunate track record of harshness regarding immigration, including reopening and examining case files of naturalised citizens (immigrants who gained their citizenship in the US). The Trump White House has, of course, seized on this idea and expanded it. Under this administration, the U.S. Citizenship and Immigration Service (U.S.C.I.S.) has created a new task force to look into cases and possibly “denaturalise” citizens for often muddied reasons, such as making a clerical mistake on a form. In essence, this leaves millions of naturalised United States citizens’ status at the discretion of officials appointed under the Trump administration, one noted for its blatantly anti-immigrant rhetoric.

A prominent path to Green Card visas for African immigrants is the Diversity Lottery programme, which grants visas to citizens from all over the world. Given the administration’s track record, it comes as little surprise that the White House has looked repeatedly into cutting the programme entirely. As egregious as this is, perhaps the repeated ransom holding of the so-called “dreamers” (children of illegal immigrants born in the United States and granted legal protections) is even more insidious. Trump has made a repeated talking point of ending protections for the dreamers, even going so far as to offer continued protection as a bargaining chip for $5.7 billion of funding for a border wall in January of this year.

The Obama administration had an unfortunate track record of harshness regarding immigration, including reopening and examining case files of naturalised citizens (immigrants who gained their citizenship in the US). The Trump White House has, of course, seized on this idea and expanded it.

So how does this apply to African immigrants, specifically? The numbers indicate that immigrants from sub-Saharan Africa are the fastest growing group, and that the vast majority of this immigration has occurred after 1960. This translates into African immigrants having less of an established civic network than other immigrant groups in the US.

Less civic engagement

Less network means less community engagement and less protection for Africans now calling the US their home. This, in turn, translates into issues surrounding social integration facing Africans in America. Those in questionable status are likely to eschew anything to do with getting on the record, including engaging in civic discourse. One example saw the city of San Francisco engaging with members of the African immigrant community to get involved with the local school board elections, despite many holding illegal immigrant status. Illegal immigrants worry about what will happen to their information and whether it will end up in the hands of Immigration and Customs Enforcement (ICE).

This is compounded by the constant shifting and swirling of regulations surrounding immigration within the US. Frankly put, in America, thing currently seem extremely uncertain. Those who would have gained the path to citizenship by being granted immigration visas are suddenly on the outside looking in. Immigrants from Libya, Sudan and Somalia (the three African nations affected under the Trump administration’s travel ban targeting Muslim-majority nations) are suddenly unsure of their status.

Noticeably, despite all of his talk of walls and increased military presence, Trump has not issued a travel ban to a Latin American country. The current administration is seemingly preoccupied with all things immigration, how to stop it, how to grandstand from it, how to flex political muscle by stopping it. In fact, in 2017, despite overall numbers of deportations falling, ICE deported a record number of African immigrants, more than double of the total from 2016. There were reported instances of poor treatment and abuse of deportees by ICE agents. While the numbers are comparatively small, increases in deportation can push African immigrant communities even farther outside of the democratic process. What was the number one country for African immigrant deportations from the US? Somalia.

Less network means less community engagement and less protection for Africans now calling the US their home. This, in turn, translates into issues surrounding social integration facing Africans in America. Those in questionable status are likely to eschew anything to do with getting on the record, including engaging in civic discourse.

Ilhan Omar, herself a Somali immigrant to the US, is now a first-term Congresswoman from Minneapolis, Minnesota. Her election is an indication of a potential future of US politics: that African immigrants can find a voice in politics, in part due to the rallying of their communities. She’s become an outspoken advocate for the Somali community in Minnesota while continually deriding the Trump administration’s anti-immigration policies.

Since her election, Omar has been a frequent target of scathing criticism from the conservative media and the Republican Party, who have even claimed that some of her pro-Palestine comments are blatantly anti-Semitic. While her election to the US Congress is historically significant (she’s the first African-born refugee in the history of the United States Congress), Omar is still just one member of Congress, one voice for an ever-growing population that seems ever-more targeted by executive orders of the Trump administration. Think of it this way: Omar wouldn’t be able to enter the US under the travel ban of Muslim majority countries passed down by Trump.

In essence, this message to newcomers to the US is: DON’T BOTHER GETTING ENGAGED BECAUSE THE CONSEQUENCES COULD OUTWEIGH YOUR EFFORTS. To those emigrating to the US from Africa, this messaging can appear even more insidious, as Adoubou Traore (who himself emigrated from the Ivory Coast), the director of the African Advocacy Network in San Francisco outlines: “Many Africans have inherent doubts about the legitimacy of elections, they’re a headache, their experience makes them not believe that their voices matter. When there is no guarantee that their information won’t be subject to being exploited, from their view: what’s the point?” There isn’t much that would prevent them from holding such views in America. It becomes a community question of why organise if doing so can only lead to more headache?

With issues surrounding racism against black people in America being dissected and moved further towards prominence in national dialogue, it would, at least on the surface, seem as though the communities of African Americans would provide a steady ally for Africans adjusting to life in America. Unfortunately, this is often not the case. There is a noted divide between Africans and black Americans, one that many coming to the US find difficult to bridge. Some of this gap is historically entrenched, some of it is due to the truly lacking breadth of coverage in the US education system regarding African history and culture. The awkward truth is: Africa as a topic in the US is regarded as a monolithic punch line to a bad joke, and is hardly rendered an after-thought in terms of democratic engagement.

In terms of vulnerability to less-than-democratic interests, there are myriad of groups in the United States that could use additional legal and outreach protections. Practically anywhere in America that can’t be categorised as white and suburban finds itself victim to voter suppression efforts. In the US context, the black community is systematically targeted the most.

Laws are seemingly rolled out in force yearly in dozens of states, implementing further restrictions and using scare tactics, lies and intimidation to influence local and national elections with a conservative slant.

The unavoidable truth is that Africans in the US find themselves at an ugly modern crossroads: the centuries of subversive efforts to reduce the so-called “urban” vote at a crossroads with the modern iteration of all-American xenophobic fervour. Though growing fast in population, the democratic influence has not kept stride.

Continue Reading

Features

Death in Vienna: The Death of Erich Rebasso

In the last days of 2008, Erich Rebasso, an Austrian lawyer, sent a letter to the main Vienna headquarters of the Federal Criminal Police, the country’s top law enforcement agency. Its purpose was unusual — the father of four young children was blowing the whistle on himself.

Published

on

Death in Vienna: The death of Erich Rebasso
Download PDFPrint Article

In the last days of 2008, Erich Rebasso, an Austrian lawyer, sent a letter to the main Vienna headquarters of the Federal Criminal Police, the country’s top law enforcement agency.

Its purpose was unusual — the father of four young children was blowing the whistle on himself.

“I deeply regret having been used for criminal purposes and I am willing to submit the matter to the required criminal review,” Rebasso’s five-page confession concluded.

But it had all come apart. Rebasso admitted he had been used to launder tens of millions of dollars. He explained that, for over a year, he had been accepting payments from Russian criminals and had sent the funds to other bank accounts at their instruction. Then 45, Rebasso specialized in advising Russian clients on how to do business in the West. He had an excellent reputation as a fast, reliable, and discreet partner, and he spoke Russian fluently.

As it turns out, those criminals were using companies that were part of the Troika Laundromat. The massive financial scheme revealed in OCCRP’s latest Laundromat investigation had been put together by Troika Dialog, then Russia’s largest private investment bank. Some of the accounts Rebasso wired to belonged to two of the system’s core offshore companies: Industrial Trade Corp. and Nixford Capital Corp.

Between December 2006 and February 2008, Rebasso used 150 individual transactions to send almost US$ 96 million to laundromat accounts at Ukio Bankas, a Lithuanian bank.

Many of the reasons specified for the transfers made little sense for a law firm. Along with trades involving “fruits and vegetables,” “consumer goods,” and “electronic goods,” Rebasso is even listed as buying “frozen herring” from companies with Ukio bank accounts. More likely, the description was a red herring aimed at Ukio’s compliance department.

Rebasso’s own Austrian bank accounts were held at Raiffeisenlandesbank Niederösterreich-Wien (RLB). Though the bank investigated his large transfers, it appeared to take no further action for two years — at which point it finally pressed him to stop.

The massive financial scheme revealed in OCCRP’s latest Laundromat investigation had been put together by Troika Dialog, then Russia’s largest private investment bank

Rebasso’s confessional letter had little effect. While police looked into the matter, it was two years later when they informed him that they had stopped the proceedings because they believed any potential crime had happened outside their jurisdiction and been committed by foreigners.

Two years after that, Rebasso was dead.

The Sheremetyevo Fraud

According to his statement, Rebasso’s involvement in the money laundering scheme began on a visit to Moscow in November 2006 where he was introduced to Viatcheslav Dremin, a Russian businessman. Dremin told him that he provided financial services to Russians who needed to transfer funds abroad. But the official system for sending money across borders was very bureaucratic, he said, and he needed to speed up the process. He wanted Rebasso to act as his trustee in Vienna to help him move the money faster.

The lawyer accepted. Soon, two Vienna bank accounts belonging to his Austrian company, Schulhof Investigation (later renamed Sostegno), began receiving large sums from companies Dremin represented, along with instructions on where to send them. In every instance, he received his directions via an anonymized email address.

Rebasso worked on behalf of three insurance companies registered in Dagestan, a troubled North Caucasus republic within the Russian Federation.

At least some of the money appeared to be of criminal origin.

One of the companies Dremin represented, National Insurance, was directed by Russian businessman Maxim Vedenin. In 2011, Vedenin would be sentenced to 19 years in prison for robbery and the murders of two prostitutes.

Prior to that, Vedenin’s company had received money from a widely-known fraudulent scheme involving fuel at Moscow’s Sheremetyevo airport that OCCRP uncovered in 2012.

Between 2003 and 2008, Moscow’s busiest airport bought fuel through a long chain of intermediaries that grossly inflated its cost. According to court documents, phantom companies earned at least $200 million in unnecessary markups in 2006 and 2007 alone. The Russian government lost more than 1 billion rubles ($40 million) in tax revenue from the scheme. The higher fuel costs also meant higher airplane ticket prices for the travelling public.

A portion of the money generated by the scheme was laundered through the Troika Laundromat. Vedenin’s company, National Insurance, received some of the proceeds, and then sent them on to Rebasso’s company.

The Austrian lawyer then sent the funds into the Troika Laundromat, using it as a money laundering system. Over the same period, between December 2006 and March 2007, he sent $19.4 million to the accounts of Nixford and Industrial Trade Corp. To justify the transfers to the bank, he provided false invoices indicating he had bought “consumer goods” from the Troika Laundromat companies, or was simply paying “for bills.”

All but one of Dremin’s companies have been dissolved, and he couldn’t be reached for comment.

Raiffeisen Looks In

Despite Rebasso’s efforts to mask his money transfers as legitimate trade deals, his own bank began to investigate the financial activity in the spring of 2007.

On March 15, Rebasso’s office received a letter from his bank’s legal department inquiring about a “sharp increase in transaction amounts” on one of his accounts. The bank wanted to know on whose behalf Rebasso was acting.

A few days later, Rebasso responded in a letter, explaining that he was handling “foreign payments” for three Russian insurance companies. He also provided their names, their information from the Russian commercial register, and evidence of his business relationship with them.

The bank appears to have been satisfied with Rebasso’s explanation, because afterward, his transfers continued.

(A representative of RLB said the bank could not comment on its clients and that it had complied with all anti-money-laundering obligations.)

A Last Client

In mid-2007, Rebasso’s statement to police says, Alfis Mirgunov, one of the Russian partners in his arrangement with Dremin, got in touch. Mirgunov planned to start his own financial enterprise and wanted Rebasso to open bank accounts in Austria on his behalf. Once again, the lawyer agreed.

He opened three new RLB accounts for his company, Schulhof, to handle the anticipated load. The accounts were denominated in U.S. dollars, euros, and Russian rubles and soon, more money started to pour in. Once again, Rebasso received his instructions from an anonymous e-mail address, this time identified only by a sequence of digits.

In mid-2007, Rebasso’s statement to police says, Alfis Mirgunov, one of the Russian partners in his arrangement with Dremin, got in touch. Mirgunov planned to start his own financial enterprise and wanted Rebasso to open bank accounts in Austria on his behalf. Once again, the lawyer agreed.

Over two months near the beginning of 2008, Rebasso wired $68.3 million in 106 individual transfers to a bank account owned by Vantrel Invest Ltd., a New Zealand–registered shelf company.

Vantrel doesn’t appear to be a Troika Laundromat company; rather it is an intermediary that sent millions on to the Laundromat. (Vantrel’s bank account was held at Ukio Bankas, where many Laundromat companies held their accounts.) Documents related to the transactions said they were to buy mobile phones, though this explanation is almost certainly another fiction.

In his confessional letter, Rebasso told the Austrian police that he stopped working for the Russians in 2008. It isn’t known how much money he took for his services.

“I ended this activity at the end of February,” he wrote. “Among other reasons, primarily because the scope overwhelmed my control options.”

His hesitation appeared to be only part of the truth.

In fact, that month, Rebasso’s Austrian bank, RLB, had had enough. His transactions had apparently triggered another serious review, and senior executives told Rebasso he would need his own banking license to continue such large transfers.

The Finlist Fraud

Though he had stopped working with his Russian partners, Rebasso’s troubles were just beginning. He appeared to have become an unwitting facilitator of a fraudulent investment scheme.

According to his letter, in June 2008, Rebasso started receiving emailed complaints from ordinary Russians who said their savings had been stolen.

Rebasso described the correspondents as “rather simple-minded, not very wealthy people who were baited with internet ads.”

Apparently, the victims of the scheme had been offered what appeared to be lucrative investment opportunities through a platform called Finlist Forex Found. Then, without Rebasso’s knowledge, they were instructed to send their money to the accounts of his Austrian company, Sostegno.

Rebasso said the Russian fraudsters provided the investors with fake documents bearing his forged signature (some of these were shared with him by the angry correspondents). When the money arrived in his accounts, Rebasso sent it on without being aware of its origins.

Now the victims were furious, demanding repayment of money he had already sent on to the Laundromat.

Rebasso said the Russian fraudsters provided the investors with fake documents bearing his forged signature (some of these were shared with him by the angry correspondents). When the money arrived in his accounts, Rebasso sent it on without being aware of its origins

Rebasso got in touch with Mirgunov and asked what was happening. The Russian told him he would fix the problem and reimburse anyone who had lost money. But he never did, and by the end of the year, Rebasso sent his letter to the Federal Criminal police.

The Beginning of the End

The police forwarded the case to the public prosecutor’s office in Vienna. Nothing appeared to happen. On Dec. 3, 2010, two years after his complaint, Rebasso was notified that police had ended their case. It had been dismissed because the public prosecutor decided the case was outside Austrian jurisdiction. “Foreign acts of foreigners,” the statement read.

Rebasso’s own story was nearing its end.

In late July 2012, as he walked from his office to his Mercedes SUV in an underground parking lot, he was ambushed by two men. His car was later found empty in a different location, and shortly after his disappearance, his family received a demand: The kidnappers wanted a 435,000–euro ransom. After no deal was reached, Rebasso’s body was found three weeks later in a forest near Vienna. Austrian authorities concluded that he had been suffocated, probably while he was taken into a headlock.

Soon afterward, two former Moscow police officers were arrested and charged in connection with the ransom demand — but not for Rebasso’s kidnapping and murder. They were sentenced to eight and nine years in prison, respectively.

It’s still unclear who ordered Rebasso’s murder and why, though media and police speculated that victims of the investment fraud had hired the officers to recover the money.

More than six years later, the exact circumstances of Rebasso’s death are still unclear.

Continue Reading

Features

The Troika Laundromat: How Vast Offshore Network Moved Billions With Help From Major Russian Bank

The Laundromat wasn’t just a money laundering system. It was also a hidden investment vehicle, a slush fund, a tax evasion scheme, and much more.

Published

on

The Troika Laundromat: How Vast Offshore Network Moved Billions With Help From Major Russian Bank
Download PDFPrint Article

At first blush, Ruben Vardanyan and Armen Ustyan have nothing in common beyond their Armenian roots.

Vardanyan is a wealthy Russian banker who once led Troika Dialog, the country’s largest private investment bank. He’s spoken at the World Economic Forum in Davos and spent tens of millions of dollars on philanthropic projects in his native Armenia. Ustyan is a seasonal construction worker who shares a chilly apartment with his wife and parents in northern Armenia when he isn’t renovating flats in Moscow.

Ustyan’s name and a copy of his passport appear in the bank documents for an offshore shell company that played a role in Troika’s system. The company was one of at least 75 that formed the complex financial web, which functioned from 2006 to early 2013. Over that period, Troika enabled the flow of US$ 4.6 billion into the system and directed the flow of $4.8 billion out. Among the counterparties on these transactions were major Western banks such as Citigroup Inc., Raiffeisen, and Deutsche Bank. The dozens of companies in the system also generated $8.8 billion of internal transactions to obscure the origin of the cash.But Ustyan’s signatures on documents he says he’s never seen draw a direct line to Troika — and to a financial Laundromat that shuffled billions of dollars through offshore companies on behalf of the bank’s clients, many of whom were members of Russia’s elite. The system enabled people to channel money out of Russia, sidestep restrictions in place at the time, hide their assets abroad, and launder money. It also supplied cash to Russian President Vladimir Putin’s friends and powerful oligarchs, and enabled criminals to mask the illicit origins of their cash.

(Citigroup didn’t respond to a request for comment on this story; Raiffeisen declined to comment, citing client confidentiality; and Deutsche Bank said it had “limited access” to information about Troika client transactions and couldn’t comment on specific businesses for legal reasons.)

At the time, Vardanyan was Troika’s president, chief executive officer, and principal partner. He enjoyed a reputation as a Western-friendly representative of Russian capitalism, known for working to improve the country’s business environment and for co-founding the Moscow School of Management Skolko

As with the previous Laundromats, many of the large transactions were made on the back of fictitious trade deals. The bogus deals were invoiced variously as “goods,” “food goods,” “metal goods,” “bills,” and “auto parts.” All the invoices included in the leak were signed by proxies and sent from Troika.ru email addresses. Meanwhile, employees at Troika were setting up the opaque financial system — dubbed here the Troika Laundromat because of its resemblance to previous money laundering schemes uncovered by OCCRP.

This portrait of the operation emerges from a trove of leaked banking transactions and other documents obtained by OCCRP and the Lithuanian news site 15min.lt, and shared with 21 media partners.

As a whole, the data set includes over 1.3 million banking transactions from 238,000 companies and people, as well as thousands of emails, contracts, and company registration forms. This analysis of Troika’s network is based on a subset of the data.

In an interview, Vardanyan said his bank did nothing wrong and that it acted as other investment banks did at the time. He stressed that he couldn’t have known about every deal his enormous bank facilitated for its clients. Reporters found no evidence that he was ever investigated or accused of any wrongdoing by authorities. His signature was found on only one document in the entire scheme, in which he gives a loan to a Troika Laundromat company.

Vardanyan described the system as a private wealth management service.

Referring to the constellation of offshore companies that comprised the Laundromat, he said: “Those are technical service companies of Troika Dialog clients, among them, mine.”

“It could be called a ‘multi-family office,’” he said. “A similar practice still exists at foreign banks. Most of their clients work through international companies. I repeat: We always acted according to the rules of the world financial market of that time … Obviously, rules change, but measuring a market in the past by today’s laws is like applying modern compliance standards to the time of the Great Depression. You’ll agree that this distorts the true situation.”

Asked about the fictitious trade deals, Vardanyan said Troika Dialog’s revenue topped 2 trillion rubles from 2006–2010 ($63–85 billion, depending on currency fluctuations) and that he “couldn’t possibly know about all the deals in a company of this size.”

Though such practices were considered business as usual in Russia at the time, specialists note that systems like the Troika Laundromat can have serious repercussions.

The schemes stunt national economic development, undermine human security, and diminish the quality of life for people left behind, said Louise Shelley, director and founder of George Mason University’s Terrorism, Transnational Crime, and Corruption Center and author of the book “Dark Commerce.”

“Money laundering countries, particularly in the developing world, are losing enormous amounts of capital that are needed for infrastructure development, education, health, [and] the development of new businesses, of entrepreneurship,” Shelley said. “With this much money lying overseas, you can do all sorts of malicious things. You can interfere in electoral processes. You can help pay for fake news.”

Criminal Services

The Laundromat wasn’t just a money laundering system. It was also a hidden investment vehicle, a slush fund, a tax evasion scheme, and much more.

Troika’s clients also used it to buy properties in Great Britain, Spain, and Montenegro; to acquire luxury yachts and artwork; to pay for medical services and World Cup tickets; to cover tuition at prestigious Western schools for their children, and even to make donations to churches.

In addition, the Troika Laundromat enabled organized criminal groups and fraudsters to launder the proceeds of their crimes. OCCRP and partners have identified several high-level frauds perpetrated in Russia that used Laundromat companies to hide the origins of their money.

Troika’s clients also used it to buy properties in Great Britain, Spain, and Montenegro; to acquire luxury yachts and artwork; to pay for medical services and World Cup tickets; to cover tuition at prestigious Western schools for their children, and even to make donations to churches.

One of these schemes, known as the Sheremetyevo Airport fuel fraud, took place from 2003 to 2008 and artificially inflated aviation fuel prices while depriving the Russian state of more than $40 million in tax revenue. The scheme led to a hike in plane ticket prices. More than $27 million was sent by companies involved in the fraud to Troika Laundromat accounts. Vardanyan has not been implicated in the scheme and said he had no knowledge of it. In 2010, two years after the fraud ended, Troika Dialog began consulting for the airport along with Credit Suisse.

A second significant criminal inquiry tied to the Laundromat, from which $17 million ended up in the system, involves a tax avoidance scheme allegedly perpetrated by several Russian insurance companies. A man named Sergei Tikhomirov was accused of concluding false service contracts with the insurers as a pretext for having them send him large sums of money, which his accusers say he cycled through several accounts before depositing it abroad or cashing in. A portion of the money ended up in the Laundromat. (Tikhomirov did not respond to phone calls seeking comment.)

Roldugin didn’t respond to an email requesting comment, and Vardanyan said that he knew of the cellist, but was not aware that he had any business dealings with Troika.In a third case, at least $69 million went to companies associated with Sergei Roldugin, a Russian cellist and one of Putin’s best friends, who became famous after his vast unexplained wealth was revealed by OCCRP, the International Consortium of Investigative Journalists, and other media partners in the Panama Papers project. Some of the money that Roldugin’s companies received from the Laundromat originated in a massive Russian tax fraud exposed by Sergei Magnitsky, a Russian lawyer who died in jail after revealing it.

The Troika Laundromat enabled organized criminal groups and fraudsters to launder the proceeds of their crimes. OCCRP and partners have identified several high-level frauds perpetrated in Russia that used Laundromat companies to hide the origins of their money.

Companies involved in the fraud exposed by Magnitsky moved more than $130 million through the Troika Laundromat. In fact, hundreds of millions of dollars went into and out of the Laundromat for unknown purposes.

Vardanyan said he was not aware of any of these transactions.

“Understand, I’m no angel,” he said. “In Russia, you have three paths: Be a revolutionary, leave the country, or be a conformist. So I’m a conformist. But I have my own internal restraints: I never participated in loans-for-shares schemes, I never worked with criminals, I’m not a member of any political party. That’s why, even in the ’90s, I went around with no security guards. … I’m trying to preserve myself and my principles.”

Vardanyan and his family were among those who received money from the Laundromat. More than $3.2 million was used to pay for his American Express card, went to accounts belonging to his wife and family, and paid school fees for his three children in Great Britain.

Asked about these sums, Vardanyan said the offshore companies Troika created serviced his own companies in addition to the bank’s clients.

Troika as Capstone

The Troika Laundromat is unique among the Laundromats that have been uncovered in recent years in that it was created by a prestigious financial institution.

Like all investment banks, Troika handled stock and bond issuance, initial public offerings, and acted as an underwriting agent. It also had a strong relationship with the local office of Citibank Inc., with up to 20 percent of Troika’s new investors coming via the American behemoth. That made New York-based Citibank Troika’s biggest “external agent,” according to a 2006 interview with Troika co-founder Pavel Teplukhin. (Citibank didn’t respond to requests for comment.)Established in the early 1990s, Troika Dialog became Russia’s largest private investment bank. It operated under Vardanyan’s leadership until 2012, when it was purchased by Sberbank, the nation’s largest state-owned lender.

The Troika Laundromat is unique among the Laundromats that have been uncovered in recent years in that it was created by a prestigious financial institution.

Other major international banks, including Credit Suisse and Standard Bank Group, did significant business with Troika as well.

Starting in 2006, Troika employees began putting together the pieces of the Troika Laundromat.

Four essential elements are needed to build a functioning Laundromat: a bank with low anti-money laundering compliance standards; a maze of secretive offshore companies to hold accounts at the bank; proxy directors and shareholders for both the companies and the accounts; and the so-called formation agents that can quickly create, maintain, and dissolve the offshore companies as needed.

The bank orchestrated all of these components of the Troika Laundromat, in addition to directing the money flows and fake trade deals that made up its operations.

The pivotal mechanism was based on trade: Shell companies created bogus invoices for non-existent goods and services to be purchased by other companies in the system. The practice provides a fig leaf of legitimate economic activity that makes the transactions appear less suspicious to regulators.

Al-Qaida founder Osama bin Laden used a similar system to move money around the Middle East, she said.“You’re disguising an illegal payment by pretending that it is linked to a shipment of goods,” said Shelley, the George Mason corruption expert. “The trade-based system is one of the most central parts of money laundering in the world today.”

If Troika was the capstone of the Laundromat, its cornerstones were three British Virgin Islands-based shell companies: Brightwell Capital Inc., Gotland Industrial Inc., and Quantus Division Ltd. Brightwell’s first known transaction was on April 12, 2005. Gotland was established on Feb. 17, 2006, and Quantus followed six months later on Aug. 23.

An analysis of these companies’ banking records reveals how they put the Laundromat together: Starting in 2006, they made numerous small payments to a formation agent called IOS Group Inc. to create the dozens of companies that comprised the complete Laundromat. IOS didn’t respond to requests for comment.

The three cornerstone companies then continued making payments to IOS ranging from 40 to almost 5,000 euros over almost six years to keep the entire network operating. Over that span, the total reached over 143,000 euros.

Quantus, for example, paid formation and maintenance fees for the British Virgin Islands-based Kentway SA. This company was later used, among many others, to send millions of dollars to Sandalwood Continental Ltd., a company connected to Sergei Roldugin, the cellist, and one of Vladimir Putin’s oldest friends.

Quantus’ involvement with Kentway demonstrates the many ways in which the Laundromat companies were interconnected. In this case, after first helping establish Kentway, Quantus then funded it with money that Kentway forwarded to Roldugin’s company.

The Bank

To direct the flow of funds through the Laundromat, Troika needed a commercial bank to host accounts for the companies involved. And it needed that bank to avoid looking too closely at the contracts and trades Laundromat businesses used to justify moving money from one offshore company to another.

Troika chose Lithuania’s Ukio Bankas for the job. (The Lithuanian lender would later be seized by the country’s National Bank in 2013 for engaging in risky deals and failing to follow regulators’ orders.) Ukio is known to have set up accounts for 35 companies used in the Troika Laundromat, and likely more.

Because Lithuania wasn’t yet using the euro, Ukio needed correspondent accounts at European banks, such as the Austrian Raiffeisen or the German Commerzbank AG, to handle euro-denominated transactions. Those two lenders and many other large European and U.S. financial institutions accepted Laundromat money, though they did sporadically inquire about the nature of some transactions. After prodding by one of the correspondent banks, for example, some Ukio compliance officers made inquiries about Laundromat payments that didn’t make commercial sense.

“What is the essence of this transaction? We have a contract (attached), but to be honest, I don’t really get what’s happening,” one officer wrote, adding an unhappy face, in relation to a payment that went to a company associated with Roldugin.

By this point, the money had already left Ukio’s accounts.

Asked why Ukio was chosen as the banker for the offshore companies Troika created, Vardanyan said it was just one of about 20 banks Troika used around the world.

The Armenian Proxies

A central figure in many of the transactions involving the Laundromat companies was Armen Ustyan. Far from being an investment banker, Ustyan, 34, works seasonally as a construction worker in Moscow.

Ustyan said he had never heard of Dino Capital SA, the Panama-based Laundromat company whose Ukio bank account was registered using his signature. A copy of his passport was attached, but Ustyan insisted he had no idea how it got there. Ustyan’s signature can be found on contracts and banking paperwork in the Troika Laundromat along with those of a few other Armenians. Wearing an old military jacket and hat, he sat down with reporters this January in his cold living room to answer questions about high finance.

At his mother’s request, he wrote his signature on a piece of paper and concluded that the one associated with Dino Capital had probably been forged.

The Armenian said he knew none of this, though he did recall a slim connection to Troika Dialog: While in Moscow looking for work, Ustyan stayed with a Russian Armenian whose brother he said worked for the investment bank and helped him find employment. In addition to having his signature associated with Dino Capital’s bank account, Ustyan is also listed as an attorney authorized to sign contracts on the company’s behalf, and his signature appears on at least $70 million worth of financial agreements.

The Moscow address is indeed that of Nerses Vagradyan, a Russian citizen of Armenian descent. Nerses’ brother, Samvel Vagradyan, is a director of a Russian company that received millions of dollars from Brightwell, a core Laundromat company. A Samvel Vagradyan is also mentioned on Vardanyan’s website as a donor to the banker’s charitable causes. It’s unknown whether Samvel really worked for Troika.

Neither of the Vagradyan brothers could be reached for comment. Ustyan said he doesn’t believe they used his identity.

Another Armenian front man in the Laundromat appears to be Edik Yeritsyan. His identity was used to register an account at Ukio for the Cyprus-based Popat Holdings Ltd. This company was involved in Laundromat transactions worth millions of dollars.

Yeritsyan told OCCRP that he lost his memory three years ago after a car accident and doesn’t remember some parts of his life. However, Ustyan said that he and Yeritsyan lived together in the same flat they were renovating in Moscow.

This article was first published by The Organized Crime and Corruption Reporting Project (OCCRP) a global network of investigative journalists.

Continue Reading

Trending