Krasnogorsk, June 1, 2018
The outcomes of the work carried out by the inter-agency system for defence procurement oversight, of which Rosfinmonitoring is a member, point to the system's compliance with both the Russian AML/CFT legislation and the generally recognized international standards in this area, primarily the FATF's (Financial Action Task Force on Money Laundering).
Rosfinmonitoring employees, within their mandate, carry out risk assessments aimed at detecting the misuse and embezzlement of public funds in defence procurement, including through the use of illicit and criminal schemes, as well as adopting measures to prevent them.
This work has allowed us to cut down the number of intermediaries involved in defence procurement and mitigate the risks of misuse of credit funds and their provision to affiliated persons, which, in turn, helped reduce adverse economic effects and the level of corruption risks in the industry.
Meanwhile, the risk of loss of funds in cases of bankruptcies of authorized credit institutions has been almost completely eliminated.
The database created by the members of the state fiscal oversight system enables us to assess risks at all stages of the deference procurement process, from contract negotiation to performance, by scrutinizing:
This approach allows us to identify the risks associated with both the initial (maximum) contract price overstatement and possible collusion between the bidders.
Rosfinmonitoring, jointly with the Defence Ministry, the Federal Antimonopoly Service, the Federal Tax Service and the Federal Treasury, as well as such traditional users of Rosfinmonitoring's intelligence as the Prosecutor General's Office and the Federal Security Service, has established information sharing mechanisms that take into account the specifics of each agency's operations.
For example, cooperation with the FAS is aimed at detecting violations of the anti-trust law, particularly the overstating of the initial (maximum) contract price and collusion risks. The existing cooperation experience currently extends over the entire sphere of public procurement.
As a result of information sharing conducted between Rosfinmonitoring and the FAS, the country's anti-trust authorities are currently pursuing approx. 50 investigations.
Rosfinmonitoring's engagement with the General Prosecutor's Office and the FTS is aimed at blocking access to defence procurement for the so-called "technical" companies, which are often involved in illicit and criminal schemes.
Joint oversight is exercised over more than 1000 economic entities. In addition, the findings of prosecutorial checks are being used by pre-trial investigation authorities in more than 300 preliminary inquiries.
Rosfinmonitoring's cooperation with the Interior Ministry and the FSS has resulted in the launch of concrete defence procurement-related criminal proceedings and asset freezes.
It is now clear that the existing inter-agency defence procurement oversight system has formed the basis for a common system of financial monitoring and financial control over the use of public funds, put together by Rosfinmonitoring and the Treasury.
This was reflected in the decision of the inter-agency working group for combating illegal financial transactions (established pursuant to the Presidential decree), which met in December 2017. The meeting participants proposed improvements to the state financial oversight system aimed primarily at mitigating the existing risks in public procurement and improving the effectiveness of inter-agency cooperation.
I would also like to emphasize that one of the key features of the fiscal oversight system that is being put in place is its focus on ensuring maximum transparency of both financial transactions and beneficial ownership.
According to international experience, the lack of transparency and economic logic in both transactions and economic activities, coupled with attempts to conceal the ownership structure, are among the key indicators of the criminal origin of funds.
To counter these threats, financial institutions, particularly banks, apply against their customers the following sanctions:
In addition, Russian businesses and associated financial flows tend to attract attention of foreign security and law enforcement agencies when, in settlement transactions with their foreign counterparts, Russian companies use the services of dubious off-shore companies, foreign intermediaries whose reputation has been compromised, or designated banks and jurisdictions, even if the transactions themselves are perfectly legal and justified.
It is also possible that some foreign companies may well use the existing situation to gain an unfair competitive advantage and squeeze Russian companies out of the international market, including for purely political reasons.
Importantly, these restrictions may also affect Russian businesses beyond the defence procurement sphere, including those competing for government contracts in the civilian sector.
Therefore, the biggest risk in defence procurement-related financial relations stems from the lack of transparency between the parties involved and the treat of being perceived as suspicious.
I would particularly like to mention that this year Russia is working on a report on the effectiveness of its AML/CFT system, and in 2019 we expect a visit from an international mission that will examine the situation in this area on the ground. All this places an additional focus on
That is why I urge you to protect your reputation.