Emerging Europe
Nov 22 2017


The Azerbaijani Laundromat: Why It Matters


About Audrey L Altstadt

Audrey L. Altstadt is Professor of History at the University of
Massachusetts Amherst. She is the author of several dozen articles
published in the US, Europe, Turkey, and Azerbaijan, and of three
books, most recently The Politics of Culture in Soviet Azerbaijan,
1920-1940 (Routledge, 2016) and Frustrated Democracy in Post-Soviet
Azerbaijan (Woodrow Wilson Centre Press and Columbia University Press,
2017.) She has been a consultant with the US Foreign Service
Institute, the Department of Justice, the US Institute of Peace,
Freedom House. She has been a fellow at Harvard’s Davis Russian
Research Centre, the Kennan Institute, and the Woodrow Wilson
International Centre for Scholars. She was also awarded an Honorary
Doctorate in 2000 by Khazar University in Baku.

Money laundering may not be theft, but it is a product of theft.
Sources of laundered money may include illegal activities such as
trafficking in drugs or humans, or it may be diverted income from
natural resources, inflated costs, bribes, fake loans, or other
financial manipulation. The money might be stolen from the state, in
the form of unpaid taxes or other charges, or from the people of a
country – as with stolen revenues from the sale of natural resources
from oil to diamonds. Money laundering thus reflects economic and
moral damage to individuals and institutions and thereby threatens the
stability and security of states, societies, and regions.

In September, the Organized Crime and Corruption Reporting Project
(OCCRP), in partnership with more than a dozen European and US news
organisations, broke the story of an Azerbaijani laundromat which
“cleaned” 2.5 billion euros (almost 3 billion US dollars) in a
two-year period using UK-registered shell companies and a European
bank.

The news was hardly surprising to those who follow Azerbaijan. In
2012, the OCCRP named Azerbaijani President Ilham Aliyev its Person of
the Year. At that time the OCCRP cited not only the deep corruption in
the country, but the thorough documentation of various types of
corruption by the ruling family and associated oligarchs. As
subsequent revelations affirm, Aliyev fully deserved the 2012 OCCRP
title.

The recent “Azerbaijani Laundromat” report traces the routing of
payments from 2012 to 2014 in bundles of tens to hundreds of thousands
of euros. The origin of these millions is murky. Some came from
Azerbaijani ministries, some from the Russian arms exporter
Rosoboronexport and other actual companies. The largest single source
(about 1.4 billion US dollars) came from the International Bank of
Azerbaijan (IBA), from accounts linked to “mystery” companies whose
business activities, or even websites or physical locations, cannot be
located.

Turning a Blind Eye

Some of the money was used to purchase luxury goods. Large sums were
apparently spent to influence businessmen and influential political
figures particularly in the Council of Europe. Most of the money went
to other shell companies registered in the UK as well as entities in
the UAE and Turkey, showing that this report, though extensive and
complex, probably does not cover the full scope of the money flow.
Payments went through the Estonian branch of the Danske Bank where
bank officials, says the report, turned a “blind eye” to the large
transactions.

Aligning money transfers with specific actions of influential European
recipients, OCCRP and its partners make a strong case for Azerbaijan
buying influence. From a human rights vantage point, the most
distressing series of payments was to deputies in the Parliamentary
Assembly of the Council of Europe (PACE), Italy’s Luca Volonté and
German’s Eduard Lintner. At present, Volonté is being prosecuted in
Italy for corruption and prosecutors say he worked to quash a PACE
report on political prisoners in Azerbaijan. Ilham Aliyev used the
failure of PACE to adopt its own commission’s report to claim there
were no political prisoners in Azerbaijan.  Volonté received nearly 2
million euros from the Azerbaijani laundromat.

Lintner, a German parliamentarian and later PACE deputy, received
large payments from the laundromat during his service as an election
monitor. He got one payment just after his claim that Azerbaijan’s
2013 presidential elections – denounced as not free or fair by
domestic, US, and OSCE monitors – were up to German standards. He got
another when a domestic critic of those elections was arrested.
Lintner ultimately received a total of 820,000 euros (just over 1
million US dollars) between 2012 and 2014.

The story is reminiscent of the Russian laundromat, reported by OCCRP
in 2014 which involved much more money – 30 billion US dollars –
reflecting no doubt the greater size and complexity of the Russian
economy and the greater number of oligarchs. More important, both
operations involved 33 of the same companies, illustrating another
aspect of strong post-Soviet bonds between the two energy-producing
and corrupt former Soviet republics.

Naming & Shaming

The scope of this international activity makes observers wonder what
might be done to curtail the money laundering on which bribery and
theft depend. The damage of criminal behavior is significant and it is
both material and moral.  Money is diverted from stated business
purposes, which in the case of oil revenues is stolen from the people
of the country who may be considered its owners and the rightful
beneficiaries of its sale.[1] Money of uncertain origin goes into the
pockets of influential European political figures.  When such
subversion of judgment affects the Council of Europe, it casts doubt
on the Council’s own integrity and plays into the hands of
authoritarian propagandists who argue that Western institutions are
corrupt, so they are no worse. The propagandists can blur the lines
between institutions that strive to uphold the law and those that
flout it while claiming they represent a legitimate variation on the
ideal.

Watchdog groups and human rights organisations, if they are unable to
bring legal action to bear or if it fails, have tried “naming and
shaming.” Sceptics doubt the efficacy of this tactic noting that
perpetrators of high-level crime such as international money
laundering, might be named but hardly shamed. The case of Azerbaijan
over the last decade, highlighted by the laundromat report, suggests
we revisit the strategy and arguments against it. Although the
perpetrators themselves seem shameless, not all their partners are
immune to the shame of publicity and public criticism.

Despite rampant global corruption, there are still laws and ethical
standards and there are still entities that strive to conform to them.
There are still international organisations that want, or can be
compelled, to uphold their own stated norms and ideals. Sponsors can
withdraw advertising and other support if their business partners
complain or shame them. Thus corruption can be made more difficult and
more costly.

The 2012 report Caviar Diplomacy, produced by European Stability
Initiative (ESI), documented Azerbaijani gifts and payments to CoE
members. After five years, the report was used to force the
resignation this past October of PACE President Pedro Agramunt,
considered a supporter of the Aliyev regime who quashed criticism of
Azerbaijan’s human rights record and mismanaged corruption charges
against CoE deputies.

International financial institutions (IFIs) that articulate
transparency and ethical standards among their basic principles have
not always followed those as a guide to their investments especially
in countries that produce oil, gas or need vast and lucrative
infrastructure investments. The World Bank has had a troubled history
in this regard.[2] In recent months the NGO Crude Accountability has
called on IFIs to link their investments more closely to transparency
and honesty/ legality.  A present director of the European Bank for
Research and Development is identified in the Azerbaijani laundromat
as a recipient of more than 800,000 Euros.

Finally, naming and shaming deprives collaborators of an important
tool – claiming they did not know of illegality and abuses. Moreover,
naming and shaming – and documenting – gives ammunition to people and
organizations that fight for transparency, legality, and responsible
management of resources, and against erosion of the rule of law.

Creating a safe haven for one batch of money launderers puts out the
welcome mat for other crooks. Money laundering and other forms of
corruption are already infecting the international financial system
and aiding the drift of wealth to the top 1 per cent.  Transparency
efforts can be used to stop it or international actors can be
complicit. There is no middle ground.

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[1] This is the position of the Extractive Industries Transparency
Initiative (EITI).

[2] For this and similar cases in Azerbaijan, see Audrey L. Altstadt,
Frustrated Democracy in Post-Soviet Azerbaijan, (Woodrow Wilson Center
Press and Columbia University Press, 2017), Chapter 4.

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The views expressed in this opinion editorial are the author’s own and
do not necessarily reflect Emerging Europe’s editorial policy.