Money looking for a route out of Russia and into the European Union appears to have found a crack in the banking system. Tens of billions of dollars have been laundered through mostly Baltic nations, swamping the outposts of Nordic banks.
It’s been an ongoing headache for European authorities and regulators.
Now, a different issue entirely has raised the anxiety levels in European capitals.
Russia plans to move the headquarters of its development bank to Hungary. All told European authorities don’t know the extent of the money-laundering problem. But a picture is emerging.
Around one trillion dollars has been moved out of Russia over the last 25 years by individuals and companies. This is not all illicit money. But that’s money that has not returned to the country. Other sources of the money caught up in alleged money laundering include Moldova and Azerbaijan. The money has been moved via Malta, Cyprus, Estonia, Latvia and Lithuania.
In the biggest alleged money-laundering case, $230bn was transferred through the Danske Bank‘s Estonian branch between 2007 and 2015. Some of this money has been parked Into London’s property market, Britain’s offshore tax havens and villas in the south of France and Spain.
As the investigation has continued, it’s drawn in banks across Europe, including Danske Bank, Swedbank, Nordea Bank, Deutsche Bank, Credit Agricole, Ing Groep, Raiffeisen Bank International, ABN AMRO, Rabobank, Citigroup, and the Royal Bank of Scotland.
Having failed to stem money laundering, Europe faces another dilemma: How does it respond to Viktor Orban’s decision to allow Moscow to move its development bank to Budapest?
While the bank is in its infancy and Hungary has a minority stake, it has no say in the way the bank is run. It would effectively have diplomatic immunity, so regulators would not be able to monitor it.
Julius Horvath, economics professor at the Central European University, says Orban wants this bank in his country because, “it really reflects changes in central European countries’ strategical thinking … Hungary in the last three to four years is emphasising the weakness of Western Europe, of opening towards the East, improving relations with the more dynamic part of the world. So this is one of those, so it’s improving relations with Russia.”
The purpose of this bank is to “have a good relations with Russia, to help Russians ease some of the sanctions … so this type of gesture is political more than economic.”
Central Banks and the rise of populist governments
Neo-liberal economies love to talk up independent central banks. Free of political interference, central banks have been able to raise and lower rates to curb inflation and boost growth.
But a populist trend has emerged that threatens their free hand.
President Donald Trump, who has regularly attacked his pick for chairman of the Federal Reserve, Jerome Powell, said the stock market would be “5,000 to 10,000” points higher if the central bank had done its job properly.
Brexiteers have rubbished the Bank of England and its Canadian governor Mark Carney’s prediction on the economic impact of Britain’s decision to leave the EU.
Turkish President Recep Tayyip Erdogan triggered short-selling of the lira after the central bank started propping up the currency before elections. And while doubts have been cast on India‘s economic data the central bank has lowered interest rates just before elections there. All this at a time when the IMF has lowered projections for growth to 3.3 percent – the lowest growth since 2009.
Akber Khan, senior director, Asset Management at Al Rayan Investment, explains that “it’s very easy for politicians to want to use the resources of the state to help them get re-elected. It would only be natural. Central bankers have spent many decades in trying to extricate themselves in many of the advanced economies from that oversight from politicians so they can actually do what’s best for the longer term of the country, rather than short-term populist measures.”
However, “the politics of a number countries … has meant that you have leaders more focused on these short-term measures and that has put a lot of pressure on central banks in trying to maintain that independence … So, the question is, to what extent can central banks withstand that pressure and continue to do what they’re doing, or, as some central bankers have found … they get fired,” says Khan.
“You could call it ‘populist’, you could also call it them (central bankers) trying to meet the aim, which is to have a certain stable level of growth. You could probably criticise them of not having done enough prior to the crisis … So, they probably allowed too much growth in the preceding years, which led to the problem.”
Qatar‘s economic output is “certainly brightening,” according to Khan. The shock of the two-year economic blockade is “very much behind us. The initial issues had to do with supply chains for the country domestically as to where inputs were coming from – there was never an issue of exports.”
“What has happened is those supply chains have been rejigged rather successfully. Some imports have been substituted for local production. The net result is it’s very much behind us now.”
“The question is about looking to the future, and Qatar’s taking some aggressive steps to announce that it will be actually increasing its LNG output by 40 percent by the end of 2025, which will cement its dominance of the global LNG industry. That is obviously a very significant benefit and boost.”
“There are a few other milestones that’ll be coming through before that – expansion of further petrochemical output and then the Football World Cup 2022, which will clearly have positive impact on the economy … this leaves Qatar now looking at things in a very different light than they were two years ago,” says Khan.
Also on this week’s Counting the Cost:
Venezuela aid: Humanitarian aid and the politics behind it have been at the centre of Venezuela‘s ongoing economic crisis. Now, after years of refusing to accept international aid, the government has given the Red Cross the green light to import and distribute food, medicine and hospital equipment for those most in need, as Lucia Newman reports from Barquisimeto.
Jet Airways: Sixteen-thousand workers at what was India’s second-largest airline are hoping to save their jobs. Jet Airways has grounded all flights because it’s run out of money. Managers saddled with more than a billion dollars of debt are trying to find a way to get back in the air. Does the airline have a future? Faiz Jamil reports from New Delhi.