THE DIRECTOR OF ROSFINMONITORING MET WITH THE PRESIDENT OF THE RUSSIAN FEDERATION

Published: 18.07.2020

On June 18, the President of the Russian Federation had a meeting with the Director of Rosfinmonitoring in Kremlin

V. Putin: Good afternoon! Mr. Chikhanchin, I would like to hear from you today about the results of monitoring the government spending and the use of funds allocated for national projects. How is it all going?

Yu. Chikhanchin: Mr. President, as per your instruction, we have built the system to monitor and oversee the spending of budget funds in coordination with other concerned agencies – primarily with the Treasury, Tax Service, General Prosecutor’s Office and Federal Security Service. We have established the coordination and oversight mechanisms, i.e. we have worked out the unified risk assessment criteria, established effective monitoring system and are currently developing a set of risk mitigation measures. We submit all new proposals to the Government and are now working well with Mr. Mishustin (the Prime Minister) in this area.

What have we achieved in building this mechanism? I would like to say a few words about the coronavirus, because at present the biggest spending is being channeled in this direction. We monitor about 7 thousand state funded contracts and around 4.5 thousand contractors, and we can see that the financial flow is really very high. The dynamics is presented on this cash flow chart.

But at the same time, at the initial stage, some of the new contractors presented a high risk, and we had to examine some of the cases and disseminate about 160 files to the General Prosecutor’s Office, the Federal Security Service and the Ministry of Interior. As a result, some of the contracts were terminated, and the criminal proceedings were initiated. But after that, the dynamics began to change for the better. Indeed, the contract discipline of those who are directly involved in coronavirus-related projects has definitely improved. These graphs here demonstrate the downward trends in the number of suspicious transactions, in the use of shell companies, and in the use of bank accounts for carrying out suspicious transactions. The similar situation is recorded with the procurement of lung ventilators and other medical equipment. Here we can also see positive results and good work in general.

The second group of issues, which are also related to the coronavirus, is the provision of assistance to the systemically important companies. Today, there are over 1000 such companies, and we have looked at them from different angles. First of all, some of them deliberately conceal their actual financial standing. Secondly, some of them may transfer funds, primarily taxable funds, abroad to offshore zones. We have examined shadowy platforms, deposition of funds and issued interest-free loans. We have also paid attention to involvement of non-residents in the operation and management of these companies.

Unfortunately, we have to admit that all this happens. Indeed, some companies illegally move funds abroad and there are non-residents working in over 100 companies. We have compiled all these findings and submitted them to the Government. They will be taken into account in the process of elaboration of approaches to the work with the systemically important companies.

Now, let me say a few words about the national projects. This is how the situation has developed. As of today, the total amount of the allocated funds exceeds RUR 2 trillion, and the recipients have actually received approximately the same amount.
However, there is a minor problem related to cash disbursement. Not all the funds that have been received are being contracted. Some national projects will obviously be revised in the current situation, but procrastination must be avoided to prevent the past year’s situation when both funds and not very scrupulous contractors appeared at the end of the year.

If we look at another slide, we can see that today about a third of the contactors involved in implementation of the national projects present risk. What risks do we see today? This includes a considerable number of suspicious transactions carried out by some contractors that have been identified by banks. Some of the contractors are fictitious companies that have only one or two employees. Others have only existed for a relatively short period of time – up to six months.

V. Putin: They are not shell companies, but yet they were not set up for real business.

Yu. Chikhanchin: Yes, they have just appeared, but are already looking for contracts worth billions. We are reviewing their activities in cooperation with the relevant agencies.

If we look directly at each national project, we will see that the picture is about the same in all of them. Maybe the national project related to small and medium-sized businesses has some particular features – it has a much better interest rate. This also applies to the national projects related to education and the comprehensive plan for upgrading and expanding the trunk infrastructure. Now, we are working directly with the Government to address all these issues. Mr. Mishustin assigned the Vice Prime Minister specifically for this purpose, and we are now working with him on these issues.

If we look at how the funds allocated for the national projects are being spent in the federal districts, the Southern and the Far Eastern District raise the biggest number of questions. We are now closely working with the offices of their plenipotentiary envoys and are trying to warn them in advance about the risk we see, and we are jointly looking for ways to mitigate these risks.

As for the constituent regions of the Russian Federation, risks really do exist in a number of regions, namely; in the Stavropol Territory, the Penza Region and the Khabarovsk Territory. But in case of the regions, we engage directly with their governors. We are testing the pilot project in the Novgorod and Tula regions. In cooperation with them we have identified all risky contractors. They simply placed them under monitoring and gave the relevant instructions to their supervisory and oversight authorities. The Novgorod Region Governor has taken such contractors under his personal control and often conducts on-site inspections. This option that had been offered to the Novgorod and Tula regions was analyzed at the Government meeting by the Government Commission and recommended to all other regions. They have been advised to work in accordance with the same principles. In our opinion, this will give us opportunity to reduce the risks in the course of implementation of the national projects.

At the same time, we are not just monitoring the problems, but also taking actions that are more efficient. In cooperation with the Federal Antimonopoly Service and the Federal Security Service, we have already revealed the cartel agreements worth RUR 700 million this year and cancelled them. Budget funds worth RUR 3.8 billion have been saved by ousting unscrupulous contractors. In fact, almost RUR 3 billion has been recovered – this is when the earlier unpaid taxes were paid voluntarily. About 50 criminal proceedings were instituted, and about 2 billion rubles were seized.

V. Putin: It is necessary to bring these cases to courts, not let them get lost.

Yu. Chikhanchin: We will do our best.

I can give two examples. The first national project is related to environmental protection in the Volga River area. The funds were allocated, but unscrupulous contractors transferred part of these funds to the affiliated structures and even to the accounts of subcontractors.
The second example concerns the company that worked in the oncological center in Kaliningrad and some facilities in Crimea. The situation was similar. The criminal proceedings were initiated with our participation and based on our findings.
I would like to highlight the problems we are facing today in the process of monitoring of the budget funds spending. We still would like to “color” the federal budget funds, so that banks are able to see that these funds actually come from the federal budget and are allocated for the national projects, like we once did with the defence procurement contracts. This will make the performance of banks more effective, and they will not permit to carry out dubious and suspicious transactions.

Secondly, we need to develop the unified classifiers for all ministries and agencies, so that they understand the actual meaning of a risk. This is not only the risk for Rosfinmonitoring or for the Federal Security Service or the Treasury, it is the risk for all of us.
And, of course, a decision making center is critically important. We are working on this issue now together with the Government, as every risk cannot be mitigated by one agency only. Let’s say that a bank has its license revoked; its customers need to know what they should do in this situation. There are many examples like this.

Let me say a few words about the defence procurement. It should be noted that the groundwork laid in this area back in 2016 has yielded good results. We have largely reduced the number of dubious transactions by about 35-37 percent. Certain areas have seen a threefold reduction, with no shell companies involved anymore. There are no instances when banks refuse to carry out transactions for the defence procurement contractors. The situation has stabilized in this area, and we just have to keep it at this level.

V. Putin: I know that the recently introduced system is working efficiently.

Yu. Chikhanchin: Yes, it is

Another important thing is that it was the right decision to make Promsvyazbank the lead bank in resolving this matter. I can say that currently 58 percent of the defence procurement contractors have become Promsvyazbank customers. Together with the bank, we are developing common approaches, and the bank has a good control system. They are in cooperation with us, with the Treasury and the Federal Tax Service as well as with the law enforcement agencies. All this allows us to keep these financial resources safe.

I should also add that the extensive work we have implemented along with the Central Bank and LEAs, particularly with the Federal Security Service, the Ministry of Interior and the General Prosecutor’s Office, has allowed us to “clean up” the banking sector by squeezing unscrupulous banks out of the sector. If 18 months ago we had several dozens of shadowy platforms in the country, today we can say that there are only about a dozen. We know them and we are taking measures to gradually eliminate them all.

Yet, the demand for “grey” money is still there, and unscrupulous businessmen choose to act through foreign platforms. For instance, we are jointly working now with our Kyrgyz colleagues on the so-called “Kyrgyz scheme” case to find out where the money has gone. About ten more countries are providing assistance to us in this regard. A total of 2 billion rubles have been seized so far. I think that we will complete this work. We have already reduced the outflow of funds to Kyrgyzstan sevenfold thanks to the assistance from our colleagues there.

Along with the issues in the banking sector, another set of problems is also seen in the insurance sector. Here, the principle is simple: a twin company is set up – that is, an insurance company and an insurance agent, and the funds that an individual or a company are to bring for insurance go to the insurance agent, and then these funds are distributed for the benefit of the owner, leaving the insurance company out. We understand how to handle this; we are working on this and are building the system to address these issues. I think that it will give us an opportunity to keep the allocated financial resources safe.