Regionalisation of International Initiatives: Case Study of the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG)

Abstract

The Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG), as a Financial Action Task Force (FATF)–style regional body (FSRB), synchronises national legislations across Central Asia to combat money laundering and financing terrorism through FATF mechanisms, aiming to eliminate external stresses on large economies. However, the hardening of FATF’s soft law approach through establishing power relationships with international organisations and several states, as well as mutual evaluation practices has been questioned given the imposition of minority interests on the majority through involvement in FATF activities. But, the role of individual states in FSRB activities, which directly coordinates the anti-money laundering and combating the financing of terrorism (AML/CFT) regime in the region, has received scant scholarly attention. Thus, using open-source data from the official EAG website and its mutual evaluation reports, I evaluated the level of participation of member-states in its activities. My analysis revealed the dominance of one state (the Russian Federation) in EAG activities, despite the presence of other economically strong member-states (China and India). This chapter shows that flexible FATF governance practices, aimed at synchronising national AML/CFT legislation, can enable dominant economies to influence regional territories aligned with their geopolitical interests.

Introduction

Globalisation has been replaced by an era of regionalisation with all its virtues and inherent flaws.

—Kassym-Jomart Tokayev, President of Kazakhstan

19 June 2022, St. Petersburg International Economic Forum

Following the formation of the United Nations (UN), international peace and security were maintained through legally binding commitments such as customary laws, self-executing treaties, and binding international agreements, also known as hard law (Vienna Convention on the Law of Treaties, 1969). However, hard law has proven ineffective in the twenty-first century (Shaffer & Pollack, 2009). Globalisation, digitalisation, and the anonymity of the internet have led to an increase in transnational financial crimes (German, 2015) and their diversification into more complex subgroups (Jung, 2017). These crimes, especially money laundering and the financing of terrorism, pose external stressors to economies that rely on transparency and integration into the global financial system (Alexander et al., 2005; Schinasi, 2005). In addition, money laundering and terrorism financing pose long-term systemic risks to the global financial system, and it is imperative for the international community to take the necessary measures to protect against these crimes and to maintain stability (FATF, 2010).

The existing rules-based system for ensuring security at the international level does not mitigate all risks, particularly given the shifting threat scenarios that may fall outside predetermined scenarios (Bester et al., 2008; FATF, 2014). To address this, the Financial Action Task Force (FATF) has proposed a risk-based approach, which involves a flexible and adaptable anti-money laundering and combating the financing of terrorism (AML/CFT) regulatory framework that can offer multiple responses to evolving scenarios (FATF, 2013b, 2017). This framework employs a soft regulatory approach to adapt to jurisdictional characteristics, allowing it to spread unimpeded at the international level through the identification and assessment of countries’ AML/CFT risks and the application of commensurate measures to address those risks whilst also having a hardening impact on the law (FATF, 2012).

However, some scholars have criticised the practice of organising FATF activities for imposing the interests of the minority on the majority and not considering the interests and needs of other members in the global community (Ghoshray, 2014). To address this, the compliance assessment of individual national AML/CFT systems within the FATF regulatory framework has been delegated to various international, regional, and supranational bodies which follow the FATF principle (FATF, 2009, 2013a). However, the practice of implementing a soft regulatory approach to the activities of regional organisations at the regional level, to which part of the FATF functions is delegated, remains unexamined.

There are currently nine FATF-style regional bodies (FSRBs), covering over 200 jurisdictions worldwide and disseminating the FATF’s AML/CFT regulatory framework across all regions.¹ The Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) is one such group in the Central Asian region, of which the Russian Federation (or, simply, Russia) is an active member. Following a mutual evaluation in 2019, FATF recognised the Russian Federation’s AML/CFT system as one of the world’s leading systems (FATF, 2019). However, following the full Russian invasion of Ukraine in 2022 and the United Nations General Assembly Resolution ES-11/1, Russia’s membership in the FATF was suspended in 2023 (FATF, 2023). Notwithstanding these developments, the FATF’s decision emphasises the need for Russia to continue fulfilling its obligations in order to ensure financial security, leaving it an active EAG member. Therefore, there is a need to study Russia’s role in the EAG and assess its influence on the organisation’s activities.

In this context, this chapter aims to examine the implementation of the FATF’s soft regulatory approach to EAG’s activities and assess any imposition of the interests from strong economies in the region. Specifically, I attempt to determine how the Russian Federation exerts and maintains its geopolitical influence on Central Asia by capitalising on its dominance in EAG activities. Exploring these processes allows me to generate insights into how and to what extent the Russian Federation impacts EAG activities and thereby shape the business and investment climate in Central Asia.

According to Ofoeda et al. (2022), the level of foreign direct investment (FDI) is directly correlated with the efficiency of the AML/CFT regime. The inclusion of Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan in FATF’s scrutiny and their subsequent listing as non-cooperative and/or high-risk jurisdictions have directly impacted their investment potential. Furthermore, membership in the FATF or similar regional groups is considered a criterion for exclusion from such lists.² The existing FATF mechanism motivates states to join these groups. Therefore, joining EAG, as one of the regional groups similar to FATF, was a logical step for Central Asian countries seeking to avoid FATF sanctions.

EAG, acting as an intermediary between FATF and its member-states, aims to harmonise the national AML/CFT systems across the region and align them with international standards. To enhance the effectiveness of this process, an agreement has been signed between EAG and the Commonwealth of Independent States’ (CIS) Anti-Terrorism Centre, which includes ‘the interaction of states in the development of projects and model legislative acts and the exchange of comprehensive information’ (EAG, 2010). This implies that countries participating in these organisations must engage in consultations with EAG when preparing proposals and recommendations intended for consideration by their respective parliaments and other higher authorities.

In turn, the Russian Federation, as a country with one of the leading AML/CFT systems and actively serving as a mediator between EAG member-states and the FATF to prevent FATF sanctions, positions itself as a leader within EAG and views the collective potential of EAG as an opportunity to promote Russian interests in relevant FATF activities (Muradyan, 2011). Consequently, EAG serves as a mechanism to influence the process of shaping the national legislations of participating countries.

For this more detailed analysis of the role of member-states in EAG, this chapter is organised as follows. The next section provides a brief overview of the existing scientific literature on the organisation of FATF’s activities, established management practices, and how the existing soft law approach hardens through various mechanisms of relationship building, mutual assessments, and listing of countries as ‘black’ or ‘grey’. Then, I apply a theoretical lens to the study, employing a classical understanding of hegemony—that is, the Gramscian approach. Next, I discuss the methodological considerations for analysing the presence of dominant representation by any of the member-states in EAG’s activities, utilising a ‘critical realist’ analytical approach. Subsequently, the fifth and sixth sections present information on EAG’s structure and the results from the analysis of information and statistical data obtained from the organisation’s official website and other open sources of data, focusing on its legal and organisational activities. In the final section, I discuss the implications of this research within existing debates, and emphasise important conclusions we may draw from this analysis.

Background and Literature Review

Dr. Marcus Pleyer, President of FATF, emphasised that eliminating the harm caused by criminal activity, such as money laundering and financing terrorism, is a priority for all governments worldwide (Pleyer, 2020). The primary focus on combating such threats lies in targeting their sources of activity by disrupting financial flows and preventing the early-stage commissioning of crimes (Takeuchi, 2020). Responding to and combating these transnational crimes requires all states synchronise their efforts. Thus, FATF attempts to synchronise national legislation related to transnational legislation through soft law, enabling it to influence domestic legislation (Ghoshray, 2014).

FATF was established in July 1989 during the Paris G7 Meeting with the objective of developing an international framework for AML/CFT, evaluating national systems’ compliance with these standards, examining trends in money laundering and terrorism financing (ML/TF), and drafting recommendations.³ Despite operating for over 30 years, limited attention has been given to analysing the FATF’s activities and even less to those of individual FSRBs. The primary discourse on the organisation of FATF’s activities in forming an international AML/CFT framework revolves around defining FATF’s legal status and the peculiarities of organising international financial regulations to harmonise national legislations. Therefore, this literature review aims to analyse existing research on (a) defining FATF’s legal status and (b) organising international financial regulations.

The Legal Status of FATF

The legal status of FATF is the subject of much discussion. Murrar and Barakat (2020, p. 77) consider FATF ‘the first intergovernmental organisation that operates at an international level to sanction and promote the effective implementation of standards related to AML/CFT’. Similarly, Yurieva (2018) categorises FATF as an intergovernmental organisational, considering its history, composition, and relationships with other organisations. However, despite being regarded as a universal organisation, FATF is not formally recognised as an organisation under contract law, given its limited membership and permanent staff. As a result, discourse suggests that FATF is the ‘standard-setter’ in the fight against money laundering and terrorism financing (Ghoshray, 2014, p. 526; Koker, 2022, p. 265), an expert network, or a ‘forum for major powers to shape global governance’ (Jakobi, 2018, p. 174). Although such claims are common, it is important to consider the formal legal status of FATF according to international legal norms, which suggests that it should be regarded as a transnational network. Nicholas W. Turner (2014) supports this idea, drawing upon the inclusive theory of international law and the work of Anne-Marie Slaughter (2004) to demonstrate that the FATF’s structural core and rule-making practices align more closely with a transnational network. It ultimately boils down to the fact that, formally, FATF is classified as a transgovernmental network (Takeuchi, 2020). The absence of an internal constitution or constituent charter is precisely what renders its recommendations non-binding to its member jurisdictions (Gathii, 2010). Yet, such a status liberates FATF from the bureaucratic shackles of international relations, enabling it to function unrestrictedly ‘both between high-level officials directly responsive to the national political process — the ministerial level — as well as between lower level national regulators’, making it ‘spontaneous — informal, flexible’ (Slaughter, 2004, p. 19).

Consequently, recommendations and proposals offered by FATF are directly discussed with lower-level national regulators, and the corresponding legislative changes in countries are initiated by these national subjects, then presented to the legislative body as an initiative from lower level national subjects. Thus, FATF recommendations are integrated into the national legislation of countries without adhering to the formal process of ratifying international acts, and FATF successfully implements its provisions by evading national ratification systems, rendering it an invisible rule-maker (Takeuchi, 2020).

Given this particular characteristic, I next examine the practice of organising international financial regulation under FATF.

International Financial Regulation Under FATF

The legal status of FATF, the nature of its recommendations, and the way such recommendations are imposed have all been subject to significant debate. Some scholars have questioned the legitimacy of the current regime in shaping FATF standards (Rider, 2015). Others have emphasised the importance of the organisation's freedom from bureaucratic processes in forming non-binding norms combined with its ability to exert real economic pressure on countries as the keys to FATF’s success. This approach is considered a replacement to the outdated hard law approach to global governance (Ghoshray, 2014; Takeuchi, 2020). However, given the limited evidence regarding any positive impact from the current framework on controlling ML/TF, FATF’s practice is likely to continue evolving (Koker, 2022). As such, it is necessary to undertake a critical analysis of the existing regime in regulating the international financial system.

On the one hand, FATF develops non-binding standards as a transnational network (Takeuchi, 2020). On the other hand, its influence in the global arena is expanding. Existing literature describes this phenomenon as the ‘hardening of soft law’, resulting from two specific causes.

First, FATF’s informal status allows it to establish cooperation with any organisation or state without the bureaucratic procedures typical of international organisations. For instance, unlike most international organisations with a constituent charter, FATF cannot issue legally binding rules. However, ‘its mandate to combat money laundering is tied to several very powerful international financial institutions’ and ‘it has the backing of powerful governments and international organizations’ (Gathii, 2010, pp. 2–3). It could be argued that FATF recommendations duplicate provisions from existing international conventions in the field of AML/CFT and do not require additional legal consolidation in a separate act. Nevertheless, FATF recommendations also expand their scope (Takeuchi, 2020). Therefore, FATF can broaden its influence by interacting with several rather powerful international organisations. For instance, UN Security Council Resolution No. 1617 of 2005 called for the recognition of the recommendations developed by FATF, which helped to eliminate the limitations to FATF, affecting its legitimacy and ability to develop and implement policies (Cogan et al., 2016).

Second, the mere existence of established cooperation is insufficient. Thus in the literature, the publication of a list of states that do not comply with FATF standards, also known as the ‘naming and shaming’ ritual, is considered another aspect facilitating the widening of FATF’s influence and the mechanism of using established connections (Clunan, 2006). Publishing a list of non-compliant states is considered a mechanism for implementing soft law in FATF’s activities (Ghoshray, 2014). As such, Ghoshray identified four ways to implement this mechanism: (1) a variety of interpretive notes for member-states, (2) an evaluative and feedback-oriented assessment process, (3) surveillance of potential destabilising triggers on the global financial system by FATF, and (4) categorising jurisdictions by measuring their proscribed actions with prescribed benchmarks and periodically publishing blacklists of non-compliant jurisdictions. This mechanism received criticism for imposing the interests of the minority on the majority due to the power dynamics of major actors. Such criticism stems from a reflection of the priorities and interests of Western market economies in the formulation of FATF standards and their coercive imposition through FATF mechanisms. The fact that the ‘overwhelming presence of Western market-oriented economies’ exists amongst the 35 members of the organisation serves as an indicator of Western countries’ influence (Gathii, 2010). Furthermore, the majority of recommendations have been developed by only a few Western countries (CUBE Global, 2021). The lack of participation from majority jurisdictions during the rule-making process means that the standards fail to reflect the individual nuances and norms of developing countries. This is often seen as the internationalisation of the internal orders of minority countries within the FATF regime (Ghoshray, 2014). Whilst FSRBs are designed to accommodate regional peculiarities by delegating the functions of conducting mutual evaluations and addressing compliance differentials to them, the existing literature has been limited to examining the AML/CFT systems of specific regions for their compliance with FATF recommendations (Murrar & Barakat, 2020; Yurieva, 2018).

Accordingly, an analysis of the activities of FSRBs in order to identify the presence of a democratic deficit in governance, which may lead to the imposition of the interests of dominant economies in shaping the legislation of developing states, remains unexplored. From this perspective, this chapter aims to address this lacuna by evaluating the role of individual countries in the activities of the organisation. More specifically, I conduct a quantitative study of the role played by an individual state (the Russian Federation) in moulding the activities of FSRBs, specifically focusing on EAG.

The Theoretical Framework

In analysing the processes described above, we need to draw from theories dealing with the issue of hegemony in international relations. However, given that Gramsci did not systematise a clear vision of this theory, there are currently multiple views on understanding it (Bates, 1975). I will not discuss all of these existing views on understanding Gramsci's theory, but instead simply note that there are four approaches to explaining the manifestation of hegemony in international relations (Antoniades, 2008; Robinson, 2005).

The conventional approach to hegemony can be viewed as state-centric, where the dominant country imposes its interests on the world. In this capitalist system, various characteristics reflecting the superiority of the hegemon are used, such as geography, natural resources, industry, finances, economic characteristics, its military capacity, the population, and technological innovation amongst others.

The neoliberal approach shifts the focus of study from the subject of hegemony, the hegemon, to the conditions and mechanisms of hegemonic formation. This approach argues that the established international order can outlast the hegemon. Thus, the conditions and mechanisms of hegemonic formation are more important in establishing the hegemony than the subject, the hegemon. Therefore, the object of study in this approach is the source of power.

The radical approach assumes that the establishment of hegemony is part of a specific historical project. Therefore, the object of study within this approach is not the state or a group of states or any specific state factors, but rather leadership within the historical block that contributes to the establishment of hegemony.

The Gramscian approach is a classic approach to understanding hegemony. According to this approach, the ruling class exerts control over society indirectly through the introduction of their dominant ideology, which is perceived as ‘common sense’ by society (Antoniades, 2008).

Gramsci contends that governance can be carried out indirectly without needing direct violence by propagating its ideology. The dominant ideology can be disseminated through two spheres (Bates, 1975): (1) political society (public institutions) and (2) civil society (private organisations such as schools, churches, clubs, journals, and parties). Both spheres serve as a means of domination for the ruling class, although they employ different methods. The first sphere is a mechanism of direct domination, associated with the term ‘state’. The second sphere encompasses the intellectual layer, which acts as a conduit for the ruling class’s vision of the governed. If the second sphere functions effectively, the primary objective of political society is to suppress those who express dissent from the worldview of the ruling class.

This prism provides insight into how FATF promotes its vision of harmonising national legislations in the field of AML/CFT through the use of soft law, since it lacks direct mechanisms via which to influence states. FATF operates through two dimensions: within the political society of FATF, it establishes collaboration with politically influential organisations and encourages the establishment of FATF-style regional bodies (FSRBs) to coordinate the process of legislative harmonisation at the regional level. In this dimension, organisations and countries cooperating with FATF have the capacity to exert economic and political influence on other countries through the imposition of sanctions. Moreover, membership in a regional body, such as EAG, entails obligations for states under the framework of the concluded agreement. Failure to fulfil these obligations may lead to the imposition of sanctions by the other member-states in the regional body. Concurrently, the monitoring of progress and the facilitation of the harmonisation of national legislations with established international standards occurs within FATF’s second dimension (civil society)—that is, through expert assessment. The expert assessment of national legislations takes place through mutual evaluations of states by experts selected during FATF or regional body meetings. From the perspective of hegemonic theory, experts assume the role of civil society, representing the intellectual layer responsible for evaluating the current situation, which guides states in implementing FATF standards and provides FATF with the results of an assessment (compliance or non-compliance with established standards) during mutual evaluations of national legislations. If the results from an assessment of national legislations fail to meet experts’ expectations, the political society is informed in order to initiate appropriate measures. Thus, the process of indirectly imposing the FATF vision occurs within the majority.

The presence of hegemony by a specific country or group of countries in the management of activities within the political or social dimensions of FATF and/or regional bodies depends upon their level of engagement in these organisations’ activities. Therefore, to understand the presence of hegemony in the activities of FATF or regional bodies, a structural analysis of the political and social dimensions must be conducted using a ‘critical realist’ analytical approach (Antoniades, 2008).

Methodology

This chapter provides an analysis of the superstructure of the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) to identify the presence of a dominant representation by any of the member-states.

To analyse the classical understanding of hegemony in the activities of FATF as a mechanism of imposing a world order to ensure international financial security, I adopt a ‘critical realist’ analytical approach (Antoniades, 2008) to conduct a structural analysis of the management practices of FSRBs. This analysis can be conducted from the perspective of three domains of reality: the empirical, the actual, and the real. Here, I conduct an analysis of the empirical domain, completing a structural analysis of the object under study.

This study employs a quantitative analysis of the level of member-states’ participation in FATF’s activities and a qualitative (legal doctrinal) analysis of EAG’s regulatory framework and decision-making process. I aim to identify the patterns of dominant representation by any member-states and provide insights into the influence of economically powerful countries within EAG.

Methodologically, this research is based on the information and statistical data obtained from the official website of EAG and other open sources of data regarding the organisation’s legal and organisational activities. These data include founding documents and memoranda concluded on behalf of EAG, as well as secondary data on member-states’ economic potential, management personnel, experts, and mutual evaluation reports.

To create an economic profile of EAG member-states, I also used secondary data from open sources regarding their economic condition. A doctrinal analysis of the regulatory framework was conducted to identify, analyse, and synthesise the content of EAG’s regulatory acts, as well as to understand the organisation’s practices, hierarchy, and the role of each representative in decision-making. This analysis enabled the compilation of a list of positions that directly shape the organisation’s policies, including the chair, vice-chair, and executive secretary.

Derived data were developed using information published on the EAG website regarding representatives of states elected to these positions and experts who participated in mutual evaluations of member-states. Specifically, I created the political influence index of individual states and the civil influence index in EAG’s activities based on the data on the aforementioned representatives and experts.

To calculate the political influence index of EAG member-states involves determining the proportion of each state’s involvement in the management activities of EAG throughout its entire operational period. This is calculated based on the indicators provided, as described by the following equations:

$$ \% {\text{Quan}}\left( {{\text{Ch}}} \right) = \frac{{{\text{ANCh}}}}{{{\text{TNCh}}}}*100\% , $$

(5.1)

$$ \% {\text{Term}}\left( {{\text{Ch}}} \right) = \frac{{{\text{ATCh}}}}{{{\text{TTCh}}}}*100\% , $$

(5.2)

$$ \Delta {\text{Index}}\left( {{\text{Ch}}} \right) = {\text{Average}}\left[ {\% {\text{Quan}}\left( {{\text{Ch}}} \right) + \% {\text{Term}}\left( {{\text{Ch}}} \right)} \right] $$

(5.3)

The share of chairs from the studied state [%Quan(Ch)] was calculated in a Eq. (5.1) based on the actual number of chairs from that state (ANCh) and the total number of chairs in the organisation's history (TNCh). Equation (5.2) was then used to determine the share of the chairmanship of the studied state during a specific time period [%Term(Ch)] by taking into account the actual term of office of one state’s chair (ATCh) and the total possible term of office of chairs in the organisation's history (TTCh).

The index of one state's chairmanship in the organisation’s activities [∆Index(Ch)] was calculated by averaging the share of chairs from one state [%Quan(Ch)] and the share of chairmanship in the organisation’s activities [%Term(Ch)].

$$ \% {\text{Quan}}\left( {\text{D}} \right) = \frac{{{\text{AND}}}}{{{\text{TND}}}}*100\% , $$

(5.4)

$$ \% {\text{Term}}\left( {\text{D}} \right) = \frac{{{\text{ATD}}}}{{{\text{TTD}}}}*100\% , $$

(5.5)

$$ \Delta {\text{Index}}\left( {\text{D}} \right){\text{ = Average}}\left[ {\% {\text{Quan}}\left( {\text{D}} \right) + \% {\text{Term}}\left( {\text{D}} \right)} \right]. $$

(5.6)

In a similar manner, the index of one state’s deputy chairmanship in the organisation’s activities was calculated by determining the share of the number of deputy chairs from the state studied [%Quan(D)] in Eq. (5.4), and the share of chairmanship in the organisation’s activities [%Term(D)] in Eq. (5.5). The index of one state’s deputy chairmanship in the organisation’s activities [∆Index(D)] was then calculated using the averaged values of the indicators [%Quan(D)] and [%Term(D)].

$$ \% {\text{Quan}}\left( {\text{S}} \right) = \frac{{{\text{ANS}}}}{{{\text{TNS}}}}*100\% , $$

(5.7)

$$ \% {\text{Term}}\left( {\text{S}} \right) = \frac{{{\text{ATS}}}}{{{\text{TTS}}}}*100\% , $$

(5.8)

$$ \Delta {\text{Index}}\left( {\text{S}} \right) = {\text{Average}}\left[ {\% {\text{Quan}}\left( {\text{S}} \right) + \% {\text{Term}}\left( {\text{S}} \right)} \right]. $$

(5.9)

The index of one state’s secretariat [∆Index(S)] was calculated in Eqs. (5.7), (5.8), and (5.9) based on the number of executive secretaries and their terms of office in the organisation.

$$ \Delta {\text{Index}}\left( {\text{I}} \right) = {\text{Average}}\left[ {\Delta {\text{Index}}\left( {{\text{Ch}}} \right) + \Delta {\text{Index}}\left( {\text{D}} \right) + \Delta {\text{Index}}\left( {\text{S}} \right)} \right]. $$

(5.10)

The influence index [∆Index(I)] of the state studied in the organisation’s activities was derived by averaging the chairmanship index [∆Index(Ch)], the deputy chairmanship index [∆Index(D)], and the secretariat index [∆Index(S)]. Analysing this indicator allows us to assess the extent of each state’s contribution and influence on the activities of international organisations. This understanding will help us predict the political course and developmental prospects of the organisation.

To calculate the index of civil influence of EAG member-states, I determined the share of each state’s participation in EAG’s expert activities throughout its history using the indicators provided. This indicator was calculated based on the actual number of experts representing the state and the total number of experts participating in the mutual evaluations of the EAG.

The Eurasian Group

The Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) is a regional FATF-type group established in 2004. As an associate member of FATF, EAG comprises nine states—namely, Belarus, China, India, Kazakhstan, Kyrgyzstan, the Russian Federation, Tajikistan, Turkmenistan, and Uzbekistan.

EAG includes three member-states with a significant share in the total global gross domestic product (GDP). However, despite one-third of the EAG member-states being economically developed, their average globalisation index (59.6) is lower than the world average (61.59) according to the KOF Globalisation Index⁴ (Table 5.1). Although no index can account for all possible factors of globalisation, this index has been positively assessed based on comparisons with other indices and can be used for academic purposes to assess the state of globalisation worldwide, in individual regions, and even in specific countries (Potrafke, 2015).

Table 5.1 The economic potential of EAG the member-states

EAG was established to serve those countries in the Eurasian region which are not part of existing FATF-type regional groups. Its mission is to play a critical role in reducing the threat of international terrorism and ensuring the transparency, reliability, and security of states’ financial systems, as well as their integration into the international infrastructure for combating ML/TF.

The Russian Federation first proposed the idea of creating EAG at the FATF plenary meeting in October 2003. In February 2004, the issue was again discussed at an international meeting on cooperation amongst CIS member-states in combating ML/TF, which involved the CIS countries, China, and several international organisations.

An analysis of the schedule of mutual assessments within EAG (Table 5.2) reveals that the procedure for evaluating national AML/CFT systems in economically strong member-states (China, India, and the Russian Federation; see Table 5.1) relies not only on EAG experts, but also FATF and other FATF-type regional groups. This suggests that these states have a certain influence on EAG policy, although this is primarily due to their membership in multiple AML/CFT organisations, including EAG alongside 39 other FATF member-states.

Table 5.2 Schedule of mutual assessments of EAG

Structure

The structure of EAG was designed to achieve the organisation’s objectives. It consists of the Plenary Meeting, the Working Group on Mutual Evaluations and Legal Issues (WGMELI), the Working Group on Typologies and Countering the Financing of Terrorism and Crime (WGTCFTC), and the Technical Assistance Working Group (TAWG). Additionally, the positions of chairperson, deputy chairperson(s), and executive secretary of EAG were created.

The Plenary Meeting is the highest body of EAG and is composed of authorised member-states. Its primary function focuses on addressing fundamental issues related to the common interests of EAG member-states, determining strategies, setting directions, and providing advisory decisions aimed at achieving the goals and objectives of the organisation. The Plenary Meeting also decides upon the formation procedures and powers of the EAG working groups. Consensus amongst EAG member-states is necessary in order to take decisions during the Plenary Meeting (Agreement on the Eurasian Group on Combating Money Laundering and Financing of Terrorism, 2011).

The chairperson of the Plenary Meeting serves as the leader and is responsible for the meeting’s overall direction. The chairperson is appointed to a two-year term based on nominations from the member-state delegations, and their appointment is approved at the EAG Plenary Meeting (Agreement on the Eurasian Group on Combating Money Laundering and Financing of Terrorism, 2011).

The EAG secretariat is responsible for carrying out administrative and technical functions aimed at implementing the decisions taken by the EAG Plenary Meeting and the chairperson. This includes performing administrative and technical functions, supporting the EAG Plenary Meeting and EAG working groups, organising events held within the framework of EAG, and ensuring interaction with EAG member-states, observers, other countries, and international organisations (Agreement on the Eurasian Group on Combating Money Laundering and Financing of Terrorism, 2011).

In addition, the secretariat coordinates the preparation of the EAG’s annual report and sends it to the chairperson for submission to the EAG Plenary Meeting. The secretariat also prepares the draft budget of EAG and overseas execution of that budget. In accordance with the decisions of the EAG Plenary Session and the instructions of the chairperson, the secretariat participates and represents the interests of EAG during Plenary Meetings, working group meetings, and other events held within the framework of FATF, FSRBs, as well as with other international organisations and groups.

Additionally, the secretariat interacts with the media on covering the activities of EAG. The management of the secretariat, including personnel, financial, and economic activities, is carried out by the executive secretary, who is appointed by decision from the EAG Plenary Meeting.

The EAG secretariat comprises senior administrators as well as administrative and technical staff. The staffing table and structure of the secretariat are approved by the EAG Plenary Meeting on the recommendation of the executive secretary. Administrative and technical personnel are selected through an open competitive process from amongst citizens of the Russian Federation, the host country of the secretariat. However, there is no requirement that Russian citizens are elected or appointed to other positions within the organisation.

The Working Group on Mutual Evaluations and Legal Issues (WGMELI) oversees the mutual evaluations and subsequent monitoring of EAG. This working group coordinates with other organisations, such as FATF, FSRBs, the International Monetary Fund (IMF), and the World Bank, on matters related to mutual evaluations.⁵ WGMELI prioritises and prepares recommendations on reports related to mutual evaluations and the progress of EAG member-states. WGMELI also reviews best practices related to risk assessment and ensures the quality and compliance of mutual evaluation reports. Additionally, the working group examines legal issues related to the organisation's operations, including the voluntary compliance programmes of tax legislation in EAG member-states.

The Working Group on Typologies and Countering the Financing of Terrorism and Crime (WGTCFTC) focuses on combating money laundering and the financing of terrorism.⁶ In undertaking this task, the working group (a) studies and summarises the practices for combating money laundering, (b) analyses risks in the Eurasian region, (c) develops recommendations for improving counteraction mechanisms, (d) coordinates with international organisations, and (e) conducts research and seminars.

The Technical Assistance Working Group (TAWG) coordinates technical assistance to the EAG member-states and assesses their needs.⁷ TAWG works with other EAG working groups and international organisations to develop training programmes based on the needs assessments and coordinates technical assistance. The group also analyses the annual reports from EAG observers, exchanges best practices with member-states and private sector organisations to improve awareness and understanding of AML/CFT measures, and reviews the EAG budget and documents related to its financial management.

Considering the functions and tasks of the aforementioned components of the EAG structure, we can divide it into the following tiers through the prism of Gramsci’s superstructure. The first tier encompasses the parts that determine the development strategy, hold a managerial function, and apply appropriate sanctions in the case of any deviation from their development course. This tier should include the Plenary Meeting, as well as the positions of the chairperson, deputy chairperson, and the executive secretary of EAG. The second tier takes on the responsibility of disseminating the vision of the first tier through education, control, and monitoring functions. The working groups and expert groups of EAG fall within this tier. Next, I consider the EAG member-states’ level of participation in each of these tiers.

Governance Structure (Political Society in EAG)

Based on an analysis of the indicators of state participation in the management activities of EAG presented in Fig. 5.1, we see that one country plays a significantly dominant role in the organisation's management activities—the Russian Federation. This raises concerns about the potential influence of this state on the decision-making processes and activities of the organisation.

Fig. 5.1

Share of participation of member-state representatives in the management activities of the EAG1 (Data extracted from https://eurasiangroup.org/ru/mr-yury-chikhanchin-russia)

The results indicate that only representatives of India, China, and the Russian Federation have been appointed as chairpersons of the organisation, with the latter having a significant advantage in both the number of appointed representatives and the duration of their governance. Additionally, the position of the executive secretary has been only held by one state—namely, the Russian Federation—despite no requirement stipulating that only citizens of the host country should be elected as executive secretary. Moreover, the role of the executive secretary in the EAG’s activities is crucial to ensuring the organisation's functioning, since this person manages the process of providing informational, legal, organisational, and logistical support, as well as interacts with member-states, observers, other countries, and international organisations. In other words, the executive secretary formally manages the entire process within the organisation.

The practice of appointing representatives from only one state to individual bodies of an organisation emerges in other FATF-type groups as well. For instance, the Asia–Pacific Group on Money Laundering (APG; an FATF-style regional body for the Asia–Pacific region) states that since the secretariat is located in Australia, one of the permanent co-heads (co-chairpersons) of the organisation must be a citizen of Australia.⁸ However, a joint management style (co-chairpersons) is practiced within APG, where both managers hold the same authority. In contrast in the EAG case, rotation between member-states only occurs for the position of deputy chairperson, which is mandatory in accordance with an Agreement on the Eurasian Group on Combating Money Laundering and Financing of Terrorism (2011). Nevertheless, the deputy chairperson is appointed only to replace the chairperson during their absence or to perform other duties assigned by the chairperson. Therefore, in contrast to APG’s practice, in EAG’s case, there is a subordinate relationship between the chairperson and the deputy chairperson of EAG. This could lead to the assumption of influence by a separate state on the organisation’s activities due to the permanent appointment of representatives from the same state to the positions of chairperson and executive secretary of the organisation.

Naturally, it is reasonable that the organisation can be represented primarily by citizens of one state in order to ensure the organisation’s continued activity. However, in such a situation, the principle of checks and balances is not ensured. Instead, the continued appointment of a chairperson and executive secretary from the same state (i.e., the Russian Federation) may have a pernicious effect on power relations within EAG, contributing to the dominance and imposition of the interests of one state over other member-states. Ensuring the principle of checks and balances is particularly important given Russia’s ever-increasing zeal to increase its geopolitical influence on post-Soviet states.

To address the possible influence of individual states on the activities of EAG, in addition to the documented requirements (Article 6), observers also operate within the organisation (Agreement, 2011). Any state or organisation that wishes to become an observer to EAG can act as one. Observers have the right to participate in the meetings of the working groups and the Plenary Session of EAG, to distribute written statements on issues of interest to them within the framework of EAG activities, as well as to receive as necessary public documents and decisions taken by EAG. However, the entire role of observers in the work of EAG is limited to their participation in meetings of the organisation, as well as any other actions (e.g., submitting an application to obtain or renounce observer status, intending to participate in the meetings of the organisation, distributing statements to the members of the organisation, providing assistance to member-states in the field of capacity building, exchanging experiences and specialists, and providing technical assistance on issues covered via EAG mandate) are carried out by notifying the EAG secretariat. This reality once again confirms the key role of the EAG secretariat within the framework of EAG activities.

In order to prevent the possible influence of the executive secretary of EAG on its activities, it is stipulated in Article 6 of an EAG agreement dated 16 June 2011, whereby states must refrain from exerting influence on the staff of the EAG secretariat. However, ensuring the implementation of such immunity requires additional qualitative analysis.

It is important to note that, when checking EAG’s regulatory framework, the organisation operates transparently and in accordance with all statutory documents. Legally, representation from all EAG member-states in senior positions is possible; but, in practice, the lack of the proper implementation, such as the rotation of senior positions across representatives from different states, raises questions. Possible reasons for this may result from (a) influence from the economic or political authorities of a single country on the organisation's activities or (b) the lack of a desire for or the necessary funds from other member-states to actively participate in the activities and maintain the organisation's operation at a proper level.

Civil Society (Civil Society in EAG)

Unlike the governance structure, civil society’s task within EAG lies in monitoring the AML/CFT systems of participating states and to provide advisory services to improve their systems. This structure consists of experts specifically hired for these purposes, without imposing any direct sanctions on participating states. Its primary role is to disseminate information and educate others on the organisation’s vision for securing national financial systems.

An analysis of mutual evaluation reports of EAG member-states reveals that representatives from all member-states were involved as legal, financial, and/or law enforcement experts in evaluating national AML/CFT systems. However, the frequency of participation in each monitoring activity by individual member-states varies. Figure 5.2 provides the proportion of representatives from member-states involved in EAG’s expert activities. Here, we see that the average participation rate of the Russian Federation in the expert activities of EAG exceeds 40%. This indicates that nearly every other expert engaged in the monitoring activities of EAG represents the Russian Federation.

Fig. 5.2

Share of participation by representatives of member-states in EAG expert activities

The data indicate that some states (i.e., Russian Federation) are more active in the organisation, likely due to factors such as the intellectual capacity or individual group members’ membership in FATF. Nevertheless, equal representation of all members in the organisation’s activities fosters participation and discourages the politicisation of decision-making. In fact, this analysis reveals a lack of democratic mechanisms in EAG’s operations, leading to an overrepresentation of the Russian Federation in the organisation’s expert activities.

Notably, no consistency exists in establishing the number of legal, financial, and law enforcement experts involved in each individual mutual evaluation. During mutual evaluations of the Russian Federation and China, political analysts from FATF are involved, and their role should be clarified in future qualitative studies of this issue.

Despite the presence of three major economies amongst EAG’s member-states, the participation of one state—the Russian Federation, considered a leading economy—prevails in both dimensions of the EAG superstructure. It is important to note that the FATF’s soft law approach allows experts to interact directly with national government agencies and directly provide recommendations for improving legislation, bypassing established procedures for implementing international acts. This suggests an attempt to impose Russia's interests in the region within this organisation.

Discussion and Conclusions

In the literature, researchers have found that the Financial Action Task Force (FATF) reflects the interests of economically strong states, especially those in Eastern Europe and the United States, given the lack of democratic management mechanisms (Ghoshray, 2014). However, unlike FATF, regional agencies such as the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) are organised in such a way that does not result in the hegemony of Eastern European states and the US in their management. Nevertheless, criticism regarding the lack of proper democratic management methods in the activities of FATF is also applicable to EAG, a regional group similar to FATF. The harmonisation of regional legislation through EAG, with Russia’s predominant participation, appears to further promote Russia's interests, leveraging the collective potential of EAG (Muradyan, 2011).

The primary difference between FATF and EAG lies in the definition of hegemony. The existing understanding of hegemony in FATF is not ‘statism’, referring to a ‘form of social domination exercised not by states, but by social groups and classes operating through states and other institutions’ (Robinson, 2005, p. 561). By contrast, in EAG, one country's hegemony is apparent, with representatives from the Russian Federation serving as the predominant participants in the organisation's activities. Thus, despite its formal democratic management mechanisms, the reality is that hegemony of an economically strong state exists within EAG’s activities.

In the Central Asian region, the FATF's global initiative is distributed through EAG, where we observe the hegemony of an economically strong state in the region—namely, the Russian Federation. The literature suggests that Russia’s initiative, aimed at dictating regional education and the presence of an effective AML/CFT system in the region, supports this hegemony.

According to an analysis of statements made by FATF officials and experts, an effective AML/CFT system can be used to finance illegal activities. For instance, in March 2021, the Egmont Group criticised existing jurisdictions for misusing their financial intelligence units, established in compliance with FATF requirements, and for acting against civil society and government opponents by violating their operational autonomy and independence (Vedrenne, 2021). However, that statement did not specify the countries involved in such activities. Two months later, Marshall Billingslea, the former FATF president from 2017 to 2019, accused Russia of utilising the powers of the Federal Financial Monitoring Service (Rosfinmonitoring) to organise state-protected money laundering schemes to fund illegal activities related to the acquisition of weapons, establish and maintain relationships with other authoritarian regimes, and eliminate political opposition (Couvée, 2021). The disclosure of such accusations highlights that the opportunities afforded by organisations established in compliance with FATF requirements may be misused by states.

Following Russia’s full invasion of Ukraine in 2022, its membership in FATF was suspended. Importantly and notably, that decision does not impact Russia’s status in EAG, where it holds a dominant position in both management and expert activities. Nonetheless, a question arises regarding how this suspension will influence the future of other FSRBs.

In regions with below-average levels of globalisation, global initiatives may risk becoming regionalised. As Kazakh President Tokayev stated during his address to the Economic Forum in Russia, ‘Globalisation has given way to an era of regionalisation with all its benefits and shortcomings’, resulting in rapid transformations to the global economic order (Satubaldina, 2022). In order to safeguard the global economy and financial system, this transformation is pursued through international organisations like FATF and EAG, which are tasked with harmonising national legislations. The presence of Russia’s hegemony in the activities of EAG indicates that legislation in Central Asian countries should be moulded considering the interests of the dominant country. Consequently, this influence can potentially impact their investment conditions and potential from other regions.