Difference between revisions of "Koshelek (Russia)"

''Koshelek'' is a Russian word for a wallet, a small purse, or disposable funds. Due to the association with stored wealth, using ‘''koshelek''’ colloquially to refer to warding another person’s assets is intuitively understandable to Russian language users. The term first appeared in a 1998 article in the daily newspaper ''Zavtra'', which labelled two prominent oligarchs ‘''koshel’ki sem’i''’ or ‘wallets of the Family’, a reference to Yeltsin’s inner circle (Zavtra 1998). Because this is a clandestine practice, the available data are too limited to determine the scale and trends quantitatively. The numerous leaks and exposés of ''koshel’ki'' usage reported in the media indicate that the practice may be more widespread amongst PEPs and the wealthy. ''Koshel’ki'' can be friends, business partners, political allies or children, parents and grandparents.

''Koshelek'' is a Russian word for a wallet, a small purse, or disposable funds. Due to the association with stored wealth, using ‘''koshelek''’ colloquially to refer to warding another person’s assets is intuitively understandable to Russian language users. The term first appeared in a 1998 article in the daily newspaper ''Zavtra'', which labelled two prominent oligarchs ‘''koshel’ki sem’i''’ or ‘wallets of the Family’, a reference to Yeltsin’s inner circle (Zavtra 1998). Because this is a clandestine practice, the available data are too limited to determine the scale and trends quantitatively. The numerous leaks and exposés of ''koshel’ki'' usage reported in the media indicate that the practice may be more widespread amongst PEPs and the wealthy. ''Koshel’ki'' can be friends, business partners, political allies or children, parents and grandparents.

One case that highlights the ambivalence is that of a senior Russian politician, believed to have transferred three expensive apartments to his mistress without either of the two ever directly owning the properties. Instead, the properties were owned by three business owners closely associated with the politician who sold the apartments to the mistress’s grandmother. The business owners were all friends of the politician (sentimental motivations) but were also able to benefit from lucrative state contracts and gaining shares in public companies (instrumental motivations). Moreover, the business owners’ other assets are at less risk of corporate seizure due to their association with the politician.  

One case that highlights the ambivalence is that of a senior Russian politician, believed to have transferred three expensive apartments to his mistress without either of the two ever directly owning the properties. Instead, the properties were owned by three business owners closely associated with the politician who sold the apartments to the mistress’s grandmother. The business owners were all friends of the politician (sentimental motivations) but were also able to benefit from lucrative state contracts and gaining shares in public companies (instrumental motivations). Moreover, the business owners’ other assets are at less risk of corporate seizure due to their association with the politician.  

Some ''koshel’ki'' may be unaware of their role or the assets they are safeguarding. A musician reportedly held over 266 million US dollars worth of assets via a string of offshore shell companies for a senior politician (Anin, Velikovsky and Shmagun 2016). The wealth was linked to the Troika money-laundering scheme. 11.6 million dollars were acquired via falsified contract terminations. Falsified contract termination is a known money-laundering technique whereby a fake contract is agreed upon then cancelled so that one party can claim a seemingly legitimate compensatory sum from the other party, thereby providing an excuse to move funds without the need for goods or services. Some believe that the musician held these assets unknowingly. He very likely lacked the expertise to launder the money and, therefore, may not have known the particulars of the transactions conducted in his name. In a similar case, a nominee director involved in an alleged money laundering ring claimed to know little about his purported companies and had signed hundreds of company filings as a favour to ‘good friends’ (Bradley and Bullough 2018). These ''koshel’ki'' with little or no knowledge of their role appear to be sentimentally motivated.

Some ''koshel’ki'' may be unaware of their role or the assets they are safeguarding. A musician reportedly held over 266 million US dollars worth of assets via a string of offshore shell companies for a senior politician (Anin, Velikovsky and Shmagun 2016). The wealth was linked to the Troika money-laundering scheme. 11.6 million dollars were acquired via falsified contract terminations. Falsified contract termination is a known money-laundering technique whereby a fake contract is agreed upon then cancelled so that one party can claim a seemingly legitimate compensatory sum from the other party, thereby providing an excuse to move funds without the need for goods or services. Some believe that the musician held these assets unknowingly. He very likely lacked the expertise to launder the money and, therefore, may not have known the particulars of the transactions conducted in his name. In a similar case, a nominee director involved in an alleged money laundering ring claimed to know little about his purported companies and had signed hundreds of company filings as a favour to ‘good friends’ (Bradley and Bullough 2018). These ''koshel’ki'' with little or no knowledge of their role appear to be sentimentally motivated.

Using family or friends as ''koshel’ki'' is a particularly ambiguous and deniable way to conceal assets. A university lecturer, who is the stepdaughter of a wealthy Russian state official, reportedly owned 40 million dollars in cash and a 140-million-dollar yacht through offshore shell companies (Dolinina 2021). While it is unlikely that she earned the wealth herself, it is difficult to gauge whether the woman was acting as a ''koshelek'' for her stepfather, or the assets were a gift.  

Using family or friends as ''koshel’ki'' is a particularly ambiguous and deniable way to conceal assets. A university lecturer, who is the stepdaughter of a wealthy Russian state official, reportedly owned 40 million dollars in cash and a 140-million-dollar yacht through offshore shell companies (Dolinina 2021). While it is unlikely that she earned the wealth herself, it is difficult to gauge whether the woman was acting as a ''koshelek'' for her stepfather, or the assets were a gift.  

There are formal and informal practices similar to ''koshel'ki''. Using nominees, proxies, or ‘strawmen’ is a long-established, legal practice, which PEPs and transnational organised crime networks have been known to exploit. These formal practices are becoming more transparent. In some jurisdictions even a legally-appointed nominee shareholder can no longer hide clients’ identities (for example, UK legislation now requires shareholders with significant control to declare themselves), whereas an informal ''koshelek'' can.  

There are formal and informal practices similar to ''koshel'ki''. Using nominees, proxies, or ‘strawmen’ is a long-established, legal practice, which PEPs and transnational organised crime networks have been known to exploit. These formal practices are becoming more transparent. In some jurisdictions even a legally-appointed nominee shareholder can no longer hide clients’ identities (for example, UK legislation now requires shareholders with significant control to declare themselves), whereas an informal ''koshelek'' can.  

Company and trust formation agents (‘CTFA’) often set up nominee directors and several layers of ownership in the form of shell companies with the same goal as signing over assets to a ''koshelek'': to undermine formal institutions by obscuring the real owner. There are several key differences between CTFAs setting up opaque ownership structures and ''koshel'ki''. First, CTFAs are a paid service; whereas ''koshel'ki'' can have various motivations. Second, obfuscating beneficial ownership with shell companies does not invalidate legal requirements for the real owner to be registered somewhere. For example, a UK limited liability partnership (LLP) can have a Cyprus-registered holding company as a member but that company’s owner must still be formally registered in Cyprus, although the registration is not publicly disclosed. A ''koshelek'' removes the need for the client to formally register ownership. These two methods of camouflage are not mutually exclusive and are often employed together. Third, according to Helmke and Letvitsky’s (2004) typology of informal institutions, shell company obfuscation is ‘accommodating’, following the letter of the law whilst diverging from the spirit. By contrast, using ''koshel’ki'' directly flaunts formal requirements to register ownership. With no effective formal procedures to force a client to register their control, ''koshel'ki'' are ‘competing’ with formal institutions. This lack of formal control gives a client no formal recourse if a ''koshelok'' later withholds assets from them. Therefore, for clients, trust, or an informal control method such as [[kompromat]], is essential.

Company and trust formation agents (‘CTFA’) often set up nominee directors and several layers of ownership in the form of shell companies with the same goal as signing over assets to a ''koshelek'': to undermine formal institutions by obscuring the real owner. There are several key differences between CTFAs setting up opaque ownership structures and ''koshel'ki''. First, CTFAs are a paid service; whereas ''koshel'ki'' can have various motivations. Second, obfuscating beneficial ownership with shell companies does not invalidate legal requirements for the real owner to be registered somewhere. For example, a UK limited liability partnership (LLP) can have a Cyprus-registered holding company as a member but that company’s owner must still be formally registered in Cyprus, although the registration is not publicly disclosed. A ''koshelek'' removes the need for the client to formally register ownership. These two methods of camouflage are not mutually exclusive and are often employed together. Third, according to Helmke and Letvitsky’s (2004) typology of informal institutions, shell company obfuscation is ‘accommodating’, following the letter of the law whilst diverging from the spirit. By contrast, using ''koshel’ki'' directly flaunts formal requirements to register ownership. With no effective formal procedures to force a client to register their control, ''koshel'ki'' are ‘competing’ with formal institutions. This lack of formal control gives a client no formal recourse if a ''koshelok'' later withholds assets from them. Therefore, for clients, trust, or an informal control method such as [[kompromat]], is essential.

In Russia, additional elements can lead elites to employ ''koshel’ki''. The first is the precariousness of property rights in Russian business related to ''[[reiderstvo]]'', the practice of seizing corporate assets with the countenance, and often collusion, of state authorities. The adoption of targeted sanctions regimes such as the Global Magnitsky Act and domestic pressures to prevent moving assets abroad have also made foreign assets less secure for Russian elites. This climate of uncertainty prompts the use of ''koshel’ki'' to protect assets which might otherwise be vulnerable in both Russian and foreign jurisdictions. Several legislative efforts at national and supranational levels (such as Russian Federal Law No. 129-FZ and the European Union’s Directive (EU) 2015/849) have been introduced to identify ultimate beneficial ownership and reduce the effectiveness of corporate shell structures. However, these measures don’t affect ''koshel'ki'', who are legally and apparently the beneficial owners of assets. The developments in anti-money laundering regulation, which are more effective at tackling shell companies than ''koshel’ki'', and increased coverage in the media may prompt agile informal actors to use ''koshel’ki'' more in the future. Introducing or increasing penalties for ''koshel’ki'' and clients in breach of disclosure regulations does not address the issue of identifying them in the first place.  In light of this, the practice is likely to continue in the future.  

In Russia, additional elements can lead elites to employ ''koshel’ki''. The first is the precariousness of property rights in Russian business related to ''[[reiderstvo]]'', the practice of seizing corporate assets with the countenance, and often collusion, of state authorities. The adoption of targeted sanctions regimes such as the Global Magnitsky Act and domestic pressures to prevent moving assets abroad have also made foreign assets less secure for Russian elites. This climate of uncertainty prompts the use of ''koshel’ki'' to protect assets which might otherwise be vulnerable in both Russian and foreign jurisdictions. Several legislative efforts at national and supranational levels (such as Russian Federal Law No. 129-FZ and the European Union’s Directive (EU) 2015/849) have been introduced to identify ultimate beneficial ownership and reduce the effectiveness of corporate shell structures. However, these measures don’t affect ''koshel'ki'', who are legally and apparently the beneficial owners of assets. The developments in anti-money laundering regulation, which are more effective at tackling shell companies than ''koshel’ki'', and increased coverage in the media may prompt agile informal actors to use ''koshel’ki'' more in the future. Introducing or increasing penalties for ''koshel’ki'' and clients in breach of disclosure regulations does not address the issue of identifying them in the first place.  In light of this, the practice is likely to continue in the future.  

==References==

==References==