Georgian Exchange owner accused of running $660M money laundering scheme

exchange georgia money laundering Kakha Kotorashvili financial crime

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The detention of currency exchange owner Kakha Kotorashvili in Georgia marks one of the most significant anti-money laundering operations in the country’s history. Prosecutors allege that between 2022 and 2024, Kotorashvili orchestrated the laundering of approximately $660 million through his firm Fin. Authorities claim that the funds originated from Azerbaijan, smuggled in large volumes across the border and concealed in hidden compartments within vehicles. Once inside Georgia, the money was funneled through a currency exchange hub and later integrated into the banking system, disguised as legitimate proceeds of foreign exchange transactions. This case demonstrates how cross-border smuggling, combined with weak oversight of exchange houses, can enable criminal networks to inject illicit wealth into formal economies.

Money laundering probe in Georgia

Investigators identified the laundering as the largest in Georgia’s history, involving 59 billion Russian rubles that were allegedly smuggled into the country and then converted into dollars and euros. The Georgian Prosecutor’s Office, together with the State Security Service, built its case by monitoring deposits made at banks, scrutinizing real estate purchases, and analyzing the flow of cash through Kotorashvili’s exchange operation. The court ordered Kotorashvili to remain in pre-trial detention, reflecting the seriousness of the accusations and the risk of evidence tampering. If convicted, he faces up to 12 years in prison, making this a landmark test of Georgia’s ability to enforce anti-money laundering laws.

The role of the currency exchange at the center of the scheme is particularly troubling. Prosecutors claim that undocumented foreign cash was consistently delivered to the exchange point in Tbilisi, where it was logged as legitimate earnings from currency transactions. Banks then accepted the deposits based on this false narrative, allowing the funds to enter Georgia’s financial system with a veneer of legitimacy. From there, the cash was routed into property acquisitions and other investments, completing the cycle of placement, layering, and integration that defines sophisticated laundering.

Methods used in the laundering scheme

The allegations against Kotorashvili highlight a variety of laundering techniques. First, the use of physical smuggling remains a cornerstone of illicit finance in regions with porous borders. By physically moving Russian rubles and other currencies into Georgia without declaration, criminals avoided detection at the initial stage. Reports suggest that hidden compartments in vehicles were used to cross borders repeatedly, pointing to organized logistical support behind the scheme. The scale of the operation, with hundreds of millions allegedly transferred over two years, indicates more than opportunistic smuggling. It reflects a coordinated network with reliable cross-border movement, supply of currency, and connections to downstream financial channels.

Once inside Georgia, currency exchanges provided an ideal vehicle for placement. These institutions typically handle large volumes of cash, making it difficult for regulators to distinguish between legitimate and illegitimate funds without detailed scrutiny. Prosecutors argue that false invoices and fabricated records were then provided to banks to legitimize deposits. This method exploits weaknesses in know-your-customer obligations and the verification of source-of-funds documentation. By presenting records that matched the expected profile of a busy exchange operation, the network was able to bypass suspicion and continue operations for nearly two years.

After deposits were accepted, the funds were layered through multiple channels. Transfers within Georgia, foreign remittances, and property purchases allowed the network to create distance between the illicit origin of the money and its final form. Real estate acquisitions were a key tool in this layering and integration process. Properties in Tbilisi and other cities provided a way to convert cash into long-term assets while giving the appearance of ordinary business investments. Investigators believe that proceeds were also funneled into legitimate companies, blending clean and dirty money to further obscure the trail.

Regulatory and systemic shortcomings

The scale of this case points to systemic issues within Georgia’s anti-money laundering infrastructure. Currency exchange houses, although regulated, often operate with limited scrutiny compared to banks. Their role in moving significant volumes of cash should make them high-risk entities requiring enhanced supervision, yet enforcement appears to have been inconsistent. The reliance of banks on customer-provided documents without independent verification highlights deficiencies in applying enhanced due diligence, particularly when dealing with entities that handle cross-border cash flows.

Customs controls were another critical weakness. Smuggling operations of this scale could not occur without persistent failures at border checks. The fact that vehicles carrying large sums in hidden compartments crossed into Georgia repeatedly suggests gaps in inspection protocols and possibly collusion by insiders. These shortcomings in customs oversight facilitated the placement of illicit funds and enabled the scheme to continue undetected for an extended period.

International standards such as those set by the Financial Action Task Force (FATF) emphasize risk-based approaches, enhanced due diligence for high-risk customers, and monitoring of unusual transaction patterns. The Georgian case shows a failure to fully align with these expectations. Currency exchange houses should have been identified as high-risk institutions, requiring close inspection of their activities. Banks should have escalated unusual patterns of deposits, particularly when they involved large sums in foreign currency with weak supporting documentation. The layering of funds through real estate further illustrates the need for enhanced monitoring of high-value transactions and beneficial ownership transparency.

The case has also raised questions about whether systemic flaws, rather than purely individual misconduct, enabled the laundering. Defense arguments suggest that responsibility lies not only with the exchange owner but also with the institutions that failed to identify suspicious activity. Whether or not this holds weight in court, it underscores the interconnected nature of financial crime prevention. When one institution fails, others must compensate, otherwise laundering networks find space to thrive.

Lessons and impact on the financial sector

The detention of Kotorashvili raises broader questions about the role of financial intermediaries and the responsibility of both private and public institutions in combating illicit finance. Financial institutions must strengthen their monitoring of exchange houses and apply enhanced scrutiny when large volumes of foreign cash are presented for deposit. Transaction monitoring systems should be configured to detect repeated patterns of structured deposits, while real estate registries should implement mechanisms to flag high-value purchases by individuals or entities with unclear sources of wealth.

For Georgia, this case represents both a challenge and an opportunity. On one hand, it exposes vulnerabilities in its AML framework, particularly in relation to exchange houses, customs enforcement, and property markets. On the other, it provides a catalyst for reforms that could strengthen oversight and align more closely with international standards. Enhanced supervision of non-bank financial institutions, mandatory reporting of large cash transactions, and stricter verification of documentation could all reduce the risk of recurrence.

The international implications are also significant. Cross-border laundering networks often target countries where oversight is uneven and enforcement inconsistent. The involvement of funds from Azerbaijan illustrates how regional financial flows can be exploited to launder money across jurisdictions. Georgian authorities may face increased scrutiny from international partners, and the case could influence upcoming evaluations by MONEYVAL or FATF. For financial institutions across the region, the scandal is a warning that laundering risks are not confined to major banks but extend to smaller, cash-intensive businesses that interact with the formal financial system.

Ultimately, preventing future cases of this magnitude requires collaboration across borders, sectors, and institutions. The private sector must adopt stronger compliance practices, while regulators and law enforcement must address systemic weaknesses. This case demonstrates that even in countries with improving AML frameworks, vulnerabilities in cash management, real estate, and non-bank intermediaries remain powerful entry points for illicit finance.

Source: OCCPR

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Georgian Exchange owner accused of running $660M money laundering scheme