FILE – In this Monday, Oct. 30, 2017, file photo, Paul Manafort walks from Federal District Court in Washington. The three nations named in the indictment of former Trump Campaign Chairman Paul Manafort have been known by financial crime experts in the past as locations for money laundering or at risk of being used for money laundering. (Alex Brandon, File/Associated Press)
By Ken Sweet | AP By Ken Sweet | AP October 31 at 4:16 PM
NEW YORK — The three countries named in the indictment of former Trump Campaign Chairman Paul Manafort span three separate continents but all have something in common: They’re island nations with a legacy of relatively lax oversight of offshore entities and a known history of being a conduit for suspicious money.
Special counsel Robert Mueller has accused Manafort and his business partner Rick Gates of using shell corporations located in the three countries — Cyprus, the Seychelles, and Saint Vincent and the Grenadines — as a way to hide badets and keep from paying taxes.
“They don’t ask questions about what their banks know about their customers, which is a basic requirement to stop money laundering,” said Ted Truman, a fellow at the Peterson Institution for International Economics and an expert on money laundering.
The Mediterranean island country of Cyprus plays an outsized role in Manafort’s indictment. The country is listed as the domicile for a dozen of Manafort’s shell corporations and the alleged source of millions of dollars in wire transfers in and out of the country.
Cyprus has been a focus for anti-money laundering officials going back to the 1990s, but is probably best known for its alleged ties to money flowing in and out of Russia. The country had been accused in the past of providing lax oversight to potential money laundering, as well as providing ways for Russian and Ukrainian officials to hide badets abroad.
“Russia has become the primary source for investors in Cyprus, usually through banks or companies set up as trusts. Most of the money that goes into Cyprus is then invested back in Russia,” said James S. Henry, an economist and former journalist with the Tax Justice Network, which studies offshore tax havens.
Cyprus and Russia have a favorable tax treaty, which has resulted in Cyprus having a cottage industry of bankers and lawyers on the island who primarily exist to set up shell corporations and trusts to help money move in and out of Russia, Henry and other experts said.
Its role has drawn scrutiny from other members of the European Union as well, particularly after Cyprus joined the bloc in 2004. When Cyprus suffered its own financial crisis in 2012 and 2013 and requested a bailout, German intelligence reportedly estimated that Russians had roughly $26 billion in deposits in Cypriot banks. EU authorities, worried that any bailout package would ultimately be going to help out Russian multimillionaires, insisted Cyprus place even tough anti-money laundering laws and regulations as part of any rescue deal. Cyprus banking officials have in recent years started taking tought action and asking uncomfortable questions to suspicious clients, desperate to rebuild confidence in the banking system.”.
“Since its entry into the European Union in 2004 and especially after the 2013 banking collapse, Cyprus has done much to clean up its act,” said Sofronis Clerides, professor and chair of the economics department at the University of Cyprus. “Unfortunately, it takes a long time for the stigma to wash off.”
Federal prosecutors became interested in Manafort’s activities in Cyprus years ago as part of a broad investigation to recover stolen Ukrainian badets after the ouster of pro-Russian President Viktor Yanukovych there in early 2014. No U.S. criminal charges were filed in that case.
It’s worth noting that setting up foreign companies and bank accounts is not illegal, however using them to evade taxes or hide proceeds from ill-gotten gains is. Manafort and his business partner pleaded not guilty in district court Monday.
The other two countries in the Manafort indictment play decidedly smaller roles in both Manafort’s alleged operations and international money laundering overall.
Located at least a thousand miles from any major continent in the middle of the Indian Ocean, the Seychelles is primarily used by French and African investors as a place to discreetly park money. The country was repeatedly named as a domicile for offshore tax havens in last year’s Panama Papers investigation.
While not historically an offshore tax haven like the Bahamas or the British Virgin Islands, the Caribbean island nation Saint Vincent and the Grenadines recently has been considered an at-risk place for money laundering. In the indictment, Manafort allegedly had at least two offshore corporations based in the Grenadines.
The Financial Action Task Force, an international watchdog organization for money laundering, placed Saint Vincent and the Grenadines on its so-called “black list” back in 2000 for its lack of money laundering controls, but it was taken off that list a few years later. The Tax Justice League listed Saint Vincent as one of the more secretive places to park money.
There’s a fourth country worth noting that gets listed repeatedly in the Manafort indictment: the United States, particularly the State of Delaware. Investors and companies have long used Delaware as a place to set up shell corporations to take advantage of Delaware’s loose corporate regulations. Manafort himself allegedly had at least nine corporate entities set up in Delaware.
AP Reporter Melenaos Hadjicostis contributed to this report from Cyprus.
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