{"text":[[{"start":6.52,"text":"Before its full-scale invasion of Ukraine in 2022, Russia was so worried about the economic toll of being cut off by western partners from the Swift interbank messaging system that it warned it would consider this an “act of war”. Four years after Russia’s major banks were cut off, an FT investigation has exposed how a vast document forgery operation nonetheless enabled a Kremlin-backed fintech company to funnel more than $6.9bn through the global banking system in about nine months — some of it used to buy sensitive military supplies. It is bad news that Russia has managed to evade sanctions by using old-school money laundering techniques. The good news is that it has been unable to create any viable alternative to the traditional cross-border payments system."}],[{"start":52.04,"text":"One big lesson is that despite years of tightening controls on money laundering, the correspondent banking system is only as strong as its weakest links. It relies on assumptions that each bank is doing proper due diligence on its own clients. But when those banks are in jurisdictions with weak sanctions enforcement or poor know-your-customer controls, the whole system is vulnerable. By using front companies to funnel payments through jurisdictions such as Kyrgyzstan, Russia’s A7 fintech in effect created a back door into big clearing banks such as Standard Chartered, Citigroup and JPMorgan Chase."}],[{"start":86,"text":"When western correspondent banks raised suspicions about money flows through banks in Kyrgyzstan, where the authorities are pro-Moscow, A7 routed more payments through the United Arab Emirates, where it beat the banks’ controls. Trying to track such shifts leaves banks and regulators playing whack-a-mole."}],[{"start":103.08,"text":"Anti-money laundering controls also still rely heavily on verifying documents such as invoices. The A7 case shows how an industrial-scale forgery operation — using thousands of fake stamps and software to strip out Cyrillic lettering — was able to spoof the system. The fintech also created a shadow foreign exchange swap network. Foreign-currency export earnings from the state-controlled oil company Rosneft and others were deposited into front-company accounts abroad and used to settle payments; oil traders in Russia received payments in roubles."}],[{"start":135.8,"text":"Clampdowns on money laundering over the past 10 years have increased frictions and inconvenience for law-abiding countries, banks and customers. So banks and regulators must be wary of using blunt-edged tools to curb Russian sanctions busting that could have further side effects. But banks ought to be able to do more to track and question suspicious patterns in documents and payments."}],[{"start":158.24,"text":"Most effective in tightening up sanctions would be to find ways to pressure Russian allies and laxer jurisdictions to enforce them properly, including by using secondary sanctions. The US has the biggest stick here, but has been more reluctant to wield it in Donald Trump’s second term. The EU is wary of using broader secondary sanctions but could expand its use of entity-specific listings of companies that facilitate sanctions evasion."}],[{"start":184.52,"text":"Yet the fact that Russia has found ways to skirt around sanctions does not mean they are pointless. Indeed, the fact businesses are being forced into expensive workarounds is a sign they are working as intended: to throw sand in the gears of Vladimir Putin’s war economy. Despite China’s cross-border interbank payment system (Cips) launched in 2015, Russia’s efforts to create something similar and the rise of cryptocurrency, Rosneft CEO Igor Sechin has blamed the lack of a viable alternative for a “manyfold increase in total payment and conversion costs”. The response to the A7 revelations should not be despair over sanctions’ shortcomings but a redoubling of efforts to close the loopholes."}],[{"start":230.32,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790307318_7275.mp3"}