In railways transactions, red flags and open questions

Fri May 23, 2014 8:59am EDT

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(This accompanies a Special Report, Comrade Capitalism. See here)

By Stephen Grey and Douglas Busvine

May 23 (Reuters) - Patterns of bank transactions relating to Russian Railways described in a Reuters investigation show signs of so-called suspicious banking activity, according to Russian and U.S. financial investigators and consultants. But some cautioned that the unusual activities, while meriting further attention, don't necessarily constitute illegal behaviour.

Courtney Linn, a former U.S. federal prosecutor, said the payments to Russian Railways contractors and complex subsequent transactions - described in a Reuters Special Report - contain signals of possible money laundering which, if they occurred in the United States, would likely trigger an investigation.

"If, as it appears here, the money is moving in a gigantic swirl, the purpose of the transactions is unclear and the beneficiaries are not obvious, and behind this is government money: These would together push all the buttons," Linn said. "It would make for a really high priority for law enforcement."

Sergei Lesnichiy, of Moscow's state-backed Centre for Financial Investigation, said the contract bidding identified by Reuters was unusual - but not necessarily illegal in Russia. "It isn't a crime in Russia for two related companies to compete against each other in a tender," he said. "It isn't a crime for them to have nominee owners. Nor is the lack of a real business a crime in itself - although it may be an indication of a crime."

He added: "If the cost of work is inflated to a level not justified under market conditions it would be an abuse of office by the railway officials involved. If those officials and those who benefited were affiliated, then it would meet the Russian legal definition of fraud."

Adam Kaufman, former chief of investigations for the Manhattan district attorney and now a partner with the law firm Lewis Baach, cautioned that there was a large gap between identifying suspicious transactions and proving any illegality.

"I am wary of any allegation of money laundering based solely on bank records. With some countries, including Russia, you can never get the evidence you need, unless there is a political will to provide it," Kaufman said. (Editing By Richard Woods and Simon Robinson)

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