Russia’s full-scale invasion of Ukraine is redefining our understanding of how modern wars are fought. While the dominance of drones above the battlefield has attracted the lion’s share of international headlines, Russia is employing a diverse suite of tools far beyond the front lines that also require urgent attention. This includes the threat posed by illicit finance.
The topic of dirty money in Ukraine is most commonly associated with domestic corruption scandals. This emphasis is understandable given the corrosive effects corruption scandals can have on Ukrainian government legitimacy, public trust, and international confidence in the country. Nevertheless, it is crucial not to overlook the role of illicit finance in Russia’s invasion.
Russia’s official defense doctrine treats finance as both part of its non-kinetic toolkit and a stand-alone national security domain. This is manifested in Ukraine through areas including illicit payments to saboteurs, the exploitation of money mules (people used to move money from one party to another), and the illegal exchange houses used to move money from Russia.
Ukraine is already acting against this threat. The country’s 2022 risk assessment on money laundering placed the issue within the context of Russia’s military aggression. This recognition is reflected in operational realities including the arrest of numerous Ukrainian citizens accused of collaborating with Russia, along with efforts to tackle the underlying financial infrastructure used to fund anti-Ukrainian activities. As Russia continues its multi-vector assault on Ukraine, Kyiv and its partners need to explore additional steps to counter the Kremlin on the illicit finance front.
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In terms of legislation, Ukraine still relies on powers designed to prevent physical forgeries, even as the country seeks to combat the twenty-first century threat of crypto currencies, which underpins so much of Russia’s sabotage efforts. A draft law is currently under consideration that aims to provide a legal and tax framework around virtual assets and crypto currencies in Ukraine. In addition to raising tax revenue and aligning with EU standards, this bill would provide the necessary foundation for addressing Russia’s weaponisation of crypto markets in Ukraine.
Ukraine’s operational response has much in common with other European countries, with steps to address Russia’s use of illicit finance at risk of falling between the cracks of respective Ukrainian agencies. Since 2014, Ukraine has established a framework of effective anti-corruption agencies including the National Anti-Corruption Bureau of Ukraine (NABU) and Specialised Anti-Corruption Prosecutor’s Office (SAPO). However, the focus remains firmly on domestic corruption rather than addressing the role of illicit finance in Russia’s invasion.
Ukraine’s SBU state security service has a potentially important role to play in line with its responsibility for counter-intelligence work. While the SBU has repeatedly demonstrated its effectiveness during the full-scale invasion, it does not currently have the institutional toolkit to address financial crimes in the same way as other Ukrainian agencies. Greater inter-agency cooperation and the establishment of a unified national strategy could help Ukraine’s agencies act as more than the sum of their parts.
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Ukraine’s international partners have tended to focus their efforts on creating the country’s anti-corruption architecture rather than building a more systemic response to Russian financial threats. This is potentially fertile ground, with greater cooperation offering the promise of mutual benefits for Ukraine and the country’s allies, who face similar threats from Russian illicit finance. This would strengthen Ukraine’s defenses and provide partners with invaluable insights on Russia’s illicit finance techniques, tactics, and procedures.
In common with every other aspect of Ukraine’s national security posture, Kyiv can aim to strike a more offensive stance on illicit finance that goes beyond defending itself against incoming Russian financial flows. This can include looking at options to degrade the nodes of the Russian financial system upstream.
Ukraine’s state institutions have certainly not been idle and are already aware of the threat. What is under discussion is the degree to which Ukraine and its international partners see illicit finance as a national security threat, rather than as a domestic anti-corruption issue or something to manage as part of ongoing EU accession talks.
For more than four years, Ukraine has impressed global audiences with the country’s ability to defend itself against Russia on land, at sea, and in the air. Illicit finance is another important front in the fight against Russian aggression.
Matthew McGlynn is an associate fellow of the Centre for Finance and Security at RUSI and a consultant specialising in illicit finance as a national security threat.
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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.
The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values, and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia, and Central Asia in the East.