Financial Transparency Coalition

Following traces of money flowing through the criminal underworld has long been an important strategy for law enforcement. German investigators were trying to do just that, following US$150 million in corrupt money back from Germany to a number of Russian officials. However, the investigators were forced to give up their search after the trail brought them to an anonymous corporation, and uncooperative Russian officials. From Corruption Currents:

Under the settlement, all five people maintained their innocence. Four defendants will pay between EUR5,00o to EUR40,000 ($6,500 to $52,000) in exchange for dropping the charges, the Journal report said, citing a court spokesman. Charges against the fifth defendant, a banker still employed by Commerzbank, were dropped because the statute of limitations had expired, the spokesman said.

The spokesman said, according to the Journal, that because the statute of limitations loomed on the others, the court told prosecutors to give up and settle.

Observers said the settlement shows how challenging cross-border corruption cases can be to prosecute. “This settlement shows how corporate secrecy makes it difficult for law enforcement to follow the money, and successfully prosecute individuals for laundering the proceeds of crime, especially when it crosses borders,” said Stefanie Osfeld, a policy adviser for Global Witness, which advocates for beneficial owners to be required to reveal themselves.

“It is entirely too common for these investigations to hit a dead-end when they reach an anonymous corporation,” she said.

Reiman, the central figure of the case, was a senior executive at a state-owned phone company based in St. Petersburg in the 1990s. He was Russia’s telecommunications minister from 1999 to 2008. Prosecutors had accused Reiman of transferring ownership stakes in the company he managed to offshore trusts, later selling some of them with the help of bankers at Commerzbank.

Global Financial Integrity estimates that Russia lost US$504 billion in illicit financial outflows from 2000-2009, the second-highest amount in the world. Corruption is a very real problem in Russia. Often we see developing country governments who are making real good-faith efforts to combat corruption and decrease their illicit outflows. In this case, Russia is directly impeding actions by investigators to follow up on crime. For a nation so terribly held down by corruption, Russia has no excuse for not cooperating.

Even if they were being cooperative, the problem of shell corporations still stands in the way of investigators. Ms. Osfeld is correct to say that this problem is particularly acute when prospectors have to track large amounts of money across a border. Instead of prosecutors finding US$150 million, they instead had to give up and settle for (relatively) tiny sums of cash from the defendants.