In the spring issue, we wrote about Viktor Zubkov, chief of the Russian financial intelligence unit, the Federal Service for Financial Monitoring. On September 15, the Russian parliament endorsed his nomination by President Vladimir Putin for the post of prime minister. Apparently, the president made this decision in advance, not because former prime minister Mikhail Fradkov suddenly decided to resign. This can be proved at least by a statement Putin made at a meeting with journalists in August, when he offered a high assessment of Zubkov, saying that he had done a lot to fight money laundering.
At the time, no one saw these words as a hint of the forthcoming changes in the cabinet. Zubkov’s appointment – unpredictable like all of Putin’s staffing decisions – is not void of intrigue and drama.
It upset the applecart of all professional Kremlinologists and political experts and disrupted the plans of all presidential hopefuls. Still, this appointment is wellconsidered and not accidental. To understand why Putin has chosen Zubkov, we need to look at the latter’s career in recent years.
In spring, however, no one could think of such a prospect for Zubkov, including himself.
Let me recall, that on March 21, 2007, the Russian Finance Ministry announced that Zubkov was resigning from his post as head of the Federal Financial Monitoring Service. The main reason cited was his age: Zubkov is 65 years old and, according to the law on state service, should retire. Then it was announced that resignation will be honorary and Zubkov would become member of the Federation Council from the Omsk region in September.
Yet on September 13, President Putin nominated him candidate for the country’s prime minister. This is truly a fantastic rise. So who is Zubkov? What shall we expect of him? I have repeatedly met and talked to Viktor Zubkov. At our latest meeting last spring I was surprised to see him crestfallen. It was a few days before his resignation was announced. Apparently, he had already known about it and hoped that his contribution to the setup of Russia’s financial intelligence would be taken into account and he would be allowed to remain its head despite his retirement age.
It seemed that the year of parliamentary election and the forthcoming replacement of the country’s president in 2008 predetermined Zubkov’s resignation and the choice of his successor. The day before the announcement in March, the Service finally filled in the vacant position of the head’s fifth deputy. The appointee was Oleg Markov, first deputy head of the Russian president’s protocol service, known as “Putin’s man.” Political experts started discussing that, apparently, the president did not want to lose control over the work of this influential body and decided to replace one native of St Petersburg (almost 30 years of Zubkov’s professional activities were connected to St Petersburg: he headed a state-owned farm, then a union of such farms, was first secretary of the Communist Party’s city executive committee in Priozersk, and worked at the St Petersburg city administration) for another.
Yet something went wrong in the announced scenario. Although everyone had already said goodbye to Zubkov as chief of financial intelligence, he continued working in this position and actively participated in his colleagues’ operations to fight money laundering in Russia and abroad. Russia’s financial intelligence remained active under his guidance. He was getting ready to welcome a FATF delegation in September, which would hold a regular inspection in Moscow and Kaliningrad.
The FATF does not just respect Zubkov; it highly appreciates him. These are not empty words. The history of Russia’s financial intelligence began in 2001, when Zubkov became head of the former Federal Service for Currency and Export Control.
Neither the president nor any government official has had any complaints about him in all these years. But he has made quite a number of enemies, especially in sectors where Russian and other “nouveaux riches” were lining their pockets from criminal business. Zubkov managed to reinforce the “currency component” of his service and, more importantly, created a smoothly operating system of financial monitoring. He persecuted “dirty” banks and successfully cooperated with “clean” ones.
In one of our interviews, Zubkov shared the secret of his service’s setup. It is well known that Russia reacts to criticism badly, especially of it comes from the West. In June 2001, after a FATF inspection, Russia was put on the so-called black list of countries that did not cooperate on fight against money laundering and terrorism financing. “Following the sense of shame, came concrete sanctions, which hindered foreign economic activities and incurred substantial losses,” Zubkov told me.
“To tell the truth, Russia of the reform period, busy with global economic and political transformations, had been overlooking certain criminal processes, including money laundering, for ten years,” he said.
And “although the article envisaging punishment for money laundering appeared in the Criminal Code in 1996, it was very far from its enforcement in practice.” However, after the FATF published its black list, the apparatus began working faster. On August 2001, federal law 115-fz “On counteraction to money laundering” was adopted. It outline the main directions for the government’s anti-laundering policy, the bodies and individuals involved in these activities, their functions and ways of interaction. It also detailed issues of international cooperation.
On November 1, 2001, the Russian president signed a decree on the setup of a body authorised to counteract money laundering and coordinate government agencies’ work in this area, the Russian Financial Monitoring Committee. In 2004, it was transformed in the Federal Service for Financial Monitoring.
Viktor Zubkov was appointed its chairman on November 5, 2001.
The approximate sum of money laundered in the world is known. The International Monetary Fund estimates it at 2%-5% of global GDP. This means, that $0.9trn to $2.4trn earned from illegal activities is brought into the global economy every year.
Since February 1, 2002, the financial monitoring watchdog has conducted over 50,000 financial investigations. Zubkov told me that in 2006 alone his service had submitted 4,277 documents to law-enforcement bodies with information on more than 120,000 operations totalling RUR770bn ($30.3bn). As many as 16 people were convicted for money laundering in 2004; in 2006, the figure soared to 502. All of them were linked to stolen government money, revenues from drug trafficking and terrorism financing. Zubkov, however, is positive that something has to be done also about the money from unpaid VAT and use of smuggling schemes that flees the country. “First this money goes to the British Virgin Islands, and then it returns to Russia in form of investment.
And we even welcome it!” he said. Indeed, every second of the Service’s investigations results in materials being sent to law enforcers. The efficiency of its financial investigations is 53%, compared to 10%- 30% in the West.
“No country has a service like ours,” Zubkov told me. “The Service is absolutely independent in its activities, although, of course, it is subordinated to the Russian government. We have a clearly defined status, broad powers and rights. Our functions are clearly determined by law. There is no analogue of the Service in other countries. There, financial intelligence is either part of the finance ministry, playing a supporting role in the bureaucratic hierarchy, or part of the interior ministry, or the police, or the central bank. In other words, they cannot engage in such largescale independent activities as we. There are numerous levels of authority above them. This is they are more advanced and more conservative in their decisions. Ours is an absolutely new structure, which, although created using the experience of other countries, has obvious national features and much broader powers. In five to six years, the Service will be the world’s most powerful financial intelligence, and this is recognized by our foreign counterparts as well.” I have repeatedly been to the Service’s building, seen its work and the truth of Zubkov’s words quoted above. We could say that it is one of the world’s biggest information and analysis centers. It has cutting-edge equipment, which is understandable, as the Service’s work is based on analytical and intelligence activities.
The Service receives up to 25,000 reports on financial operations and transactions daily through its protected communications channels, including from the Egmont Group, an international union of financial intelligence units, of which it is a member.
The Service’s database currently holds over 7mn reports on financial operations and transactions worth over RUR55trn ($2.2trn). As much as 40% out of them accounts for operations that internal control services at lending and non-lending institutions have classified as suspicious (i.e.
having signs of potential connection to money laundering or terrorism financing).
The rest of the information is on operations of the upper limit size, over RUR600,000 ($23,600).
Zubkov’s Service has a division that specializes in finding and shutting down channels of financing for extremist and terrorist organisations. This division develops, updates and distributes among lending and other financial institutions a list of organisations and individuals involved in extremist/ terrorist activities. The 13th version of the list was published in 2006. It consists of two parts, the first one listing international terrorists, including some Chechen gang leaders, in line with resolutions of the UN Security Council (a total of 317 individuals and 112 organisations); the other naming 1,306 individuals charged with criminal activities in Russia and 21 organisations, whose operations in the country were stopped upon court rulings due to their illegal activities.
Zubkov’s main achievement as the chief of Russia’s financial intelligence is the country’s good image in the eyes of those who fight money laundering and terrorism financing on the international scale. Not only has Russia been excluded from the FATF black list, it has joined the organisation.
Zubkov has left a good legacy after himself.
The important thing now is to ensure that his successor makes the most of it… As to Zubkov’s work in his new capacity, his huge experience accumulated on his previous position is invaluable for Russia.
Not only because crime still has a significant hold on the Russian economy. Not only because many fortunes in this country were created with the help of money laundering. Zubkov combines the qualities of a good Soviet-era executive and a modern manager, who has a consistent view of the Russian and global economy and politics in the context of ongoing globalisation.
Practice has helped him to realise the mutual dependence of industrial powers and emerging economies, without which Russia’s future progress is unthinkable.
Zubkov has risen from regional structures, but has learned to see problems in the global context. Russians hope that Zubkov will become one of the best prime ministers in Russia’s history. I do not think that his career will stop there, just as his state service did not stop in March despite all the announcements of his resignation.
At a meeting with journalists ahead of the parliament’s vote on his candidacy, Zubkov did not rule out that he could run for presidency in 2008, although he emphasised that his first priority would be to set right the work of the cabinet, where we can apparently expect huge changes.
