- It appears that the Russian oligarchs anticipated the sanctions months before the Ukraine war broke out.
- Insider spoke to Shane Riedel, financial crime expert and CEO of Elucidet.
- He said the elites carried money through an informal payment system called hawala.
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Financial crime experts noted increased movement of funds by Russian individuals in the months before the war.
Russian oligarchs have been affected 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 Elucidet, whose company’s job is to look at the patterns of money movement, talked about the payment system. “No one is looking at that combination of entities” – a financial intermediary behind both proxies, he said.
“Nobody is looking for proxy-to-proxy transactions, which would not raise any red flags anywhere,” Riedel said.
Hawala payment system is an informal money transfer system that allows transfer of funds from one entity to another without actually transferring any funds. There is no record as it does not require documentation.
Information on personal transactions in the Hawala payment system for approved persons inspired by Marcus Taube. Sam Devastation/Insider
In other words, hawala allows individuals or entities to transact outside 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 following the attack, from November and especially in December, he saw an increase in transactions involving Russia.
He said: “We saw that money was coming from offshore to offshore, some money was coming from offshore to offshore, which was disproportionate – more than 10% or so was directed from shell companies or entities that we had called shell companies. was rated as
“This is not in line with the market, as your typical transaction flow on any given day would be less than 1%, which would include shell companies,” he said.
Hawala transactions originated in the Middle East and South Asia. Riedel said the Hawala network’s original focus in financial crime was on the “terrorist financing angle, sanctions against them, and sanction theft”.
This graphic shows how the hawala payment system will work if only one of the two entities is approved. Sam Devastation/Insider
He pointed to the restrictions imposed on international transactions for Russia, banning it from the use of SWIFT, or Society for Worldwide Interbank Financial Telecommunication.
SWIFT is a Belgian communication system that was launched in 1973. It acts as a neutral platform for banks to interact about financial transfers, transactions and trades.
Riedel said that when the embargo was imposed, it was in hopes of making the movement of money difficult for Russia, including the oligarchs. He added: “The Hawala system can be considered as one of these difficult tools to process transactions.”
According to Riedel’s company analysis, there was a concentration of activity in some European jurisdictions in Switzerland, Cyprus, or Malta … which are all jurisdictions where many corporate service providers are shell companies, Riedel said.
He continued: “I use the term shell company broadly in this context, be it a trust or any other mechanism. But before the sanctions were implemented, we saw a tremendous increase in both inflows and outflows from Russia. Saw it.”
The elites can use the hawala payment system to complete transactions, which could explain how they are able to maintain their luxurious lifestyles and maintain some of their properties, such as superyachts.
Riedel concluded: “Nothing is happening now. The datasets we’re looking at won’t show us traffic, at least between Russia and others, because it’s largely stopped.”
