Kepuladze on $624m, €35m scheme: ‘this money may not have been laundered only through exchange booth’

The large-scale money-laundering case - reportedly involving some $624 million and €35 million - is unprecedented for Georgia. The case raises many questions about the effectiveness of financial oversight and law-enforcement. Economist Dr. Giorgi Kepuladze, chair of the board of the non-governmental organisation Society and Banks, spoke with Front News about how such huge flows could go unnoticed for three years, whether high-level officials may be connected to the scheme, how realistic it is that a single exchange booth could convert ₾1.7 million ($0.63m) per day, and what impact this has on the country’s economy and reputation.

Q. In your opinion, how could transactions of this volume remain unnoticed for three years by the National Bank, the Financial Monitoring Service, and law-enforcement?

A. That is one of the main questions: how did nobody notice laundering of this scale over that time? The fact is the scheme apparently had protectors - likely high officials from the ruling Georgian Dream party or people close to them. It appears those people no longer enjoy the privileges they once did. Ultimately the case reached investigation and only one person was detained. Even a child would understand that one person could not have laundered such an amount. First, smuggling and the inflow itself would be of an unimaginable scale; then the conversion at a single exchange booth, then moving and spending the money… one person could not have planned and executed such a scheme. So the prosecutor’s statement raises more questions than it answers. The amount is about two percent of our gross domestic product.

Q. You already said one person could not have run such a scheme. The prosecution’s claim implies that, on average, one kiosk converted ₾1.7 million per day. How realistic is that from a market-logic perspective? Should other exchange booths be inspected, and what cracks does this expose in the oversight system?

A. There are many regulators and supervisors in this field. First, customs allowed undeclared funds to be brought in. Then there is the National Bank, which has a specialised anti-money-laundering department that monitors such things. Then the Financial Monitoring Service, security services, the prosecutor’s office, etc. There are many institutions that should have prevented this crime. The National Bank fines exchange booths even for small violations; yet this kiosk was not fined in the last three years.

That indicates two possibilities: either there is a serious problem in regulation - a major systemic failure - or the person had protectors who turned a blind eye. I also do not rule out other exchange booths. Since 2022, billions of funds have come from Russia legally and, in addition, undeclared “black money.” So I do not exclude the possibility that other schemes exist and that this money was not laundered only at an exchange kiosk.

There are many laundering methods. Money-washing techniques date back to the 1920s and have become especially sophisticated. Worldwide, this is considered one of the most serious crimes; the EU and the US spent big efforts to build relevant bodies in Georgia and equip them technically. This case hits the Government and damages the country’s reputation. Imagine: almost $700 million laundered by the owner of one kiosk? That is unimaginable.

Q. What can we say about the origin of this money? Could it have come from Russia and been laundered into real estate? There have been questions recently about who is buying apartments and why prices are so high. Do you rule out that the scheme included real-estate laundering?

A. Certainly, that is why real estate in the capital city of Tbilisi is so expensive. A lot of “black money” has circulated in recent years, and real-estate business is one of the ways to pay large sums in cash without questions about origin. Real-estate is one of the best ways to launder money. Money needs laundering when it was obtained by criminal rather than honest means. Money from legitimate business does not need laundering. This money often comes from arms, drugs, prostitution, and corrupt schemes.

Q. What effect could money of this size have on Georgia’s economy? Could the recent uptick in economic figures partly reflect the movement of illicit funds?

A. I have not seen a country become richer because of “black money.” If that were true, Colombia would be the richest country. Black money enriches criminals and narrow groups. Ordinary citizens do not benefit. You see some people driving Ferraris and Lamborghinis, while many citizens look into empty refrigerators. That is characteristic of criminal or mafia-style governance. We do not want a state where some influential actors launder huge amounts and face no accountability. Perhaps a single person was sacrificed and will take responsibility.

Q. The prosecutor’s statement said an Azerbaijani national was involved and that some funds came from Azerbaijan. Should Georgian authorities request an investigation or cooperation from Azerbaijan? And was Georgia used merely as a transit country - where did the money ultimately go?

A. Imagine such amounts brought in via car compartments - what does that say about drug smuggling? The Azerbaijan angle is certainly important and should be a focus of investigative bodies. I have traveled to Azerbaijan and had even a small suitcase thoroughly searched, so it is clear someone was protecting these flows and that we are dealing with a very large scheme. If these were Russian rubles, the money likely first was brought into Azerbaijan and then - unfortunately - smuggled across the Georgian border. For a long time we believed our country would not be a conduit for such schemes. We have long faced such challenges and at times the border and customs were at a high level of readiness. Two weeks ago an opposition figure was stopped at the border over $20,000 and had to declare it - they can check thoroughly when they want.

Q. The opposition suspects the Government knew about the scheme for a year and that the arrested person had cooperated with investigators. They see the public announcement and the arrest as part of intra-governmental conflict - a signal in a fight between factions. What do you think?

A. Stories about internal conflict have been circulating for a long time. People talk about what is happening at ruling party Founder Bidzina Ivanishvili’s doorstep and about factional rivalry. We have seen arrests of friends and close associates of former Prime Minister Irakli Garibashvili. I do not rule out that a powerful figure once protected this scheme and is no longer influential. Maybe this is a signal to those people: “We have serious cases on you, so be quiet and act smart. If you do not follow orders, we will arrest you”.