RUSSIA GOT HIGH RATINGS FOR COMPLIANCE OF ITS AML/CFT SYSTEM WITH FATF INTERNATIONAL STANDARDS

Published: 18.10.2019

During the Plenary Week of the Financial Action Task Force, the Russian delegation headed by the Director of Rosfinmonitoring Yury Chikhanchin demonstrated significant achievements of the national anti-money laundering, counter terrorist financing and counter proliferation financing (AML/CFT/CPF) system. Taking part in the presentation of the mutual evaluation report of Russia were the specialists of the Russian financial intelligence unit and the representatives of Bank of Russia, Presidential Executive Office, General Prosecutor’s Office, Ministry of Foreign Affairs, Ministry of Internal Affairs, Federal Security Service, Investigative Committee and Federal Tax Service of the Russian Federation. 
 
The mutual evaluation report of the Russian Federation was presented by the Director of Rosfinmonitoring Yury Chikhanchin, who pointed out that the preparation of such document was a result of a very hard work.
 
- I would like to express our sincere gratitude to the assessment team and the representatives of the FATF Secretariat headed by Mr. Tom Neylan for their professionalism.
Yury Chikhanchin stated that Russia has always been committed to compliance with the FATF International Standards:
- The fight against money laundering, terrorist financing and proliferation financing is the priority of our country’s national policy at the highest political level, which the assessment team could also witness during the on-site visit. We believe that the experts have acquired deep understanding of the specificities of the Russian AML/CFT system, and the report as a whole contains the impartial analysis and assessment of the existing situation. We greatly appreciate this and have already started to rectify the identified deficiencies.
The discussion also touched upon a number of controversial issues which, however, did not affect the overall results of the assessment. Based on the aggregate ratings, the AML/CFT system of the Russian Federation holds the fifth place in the world in terms of effectiveness. Russia was placed in the regular follow-up process, which implies provision of regular follow-up reports.
The full text of the Mutual Evaluation Report of the Russian Federation will be published by the FATF after the standard quality and consistency review.
The next follow-up report on the effectiveness of the Russian AML/CFT system will be presented in February 2023.
Following the adoption of the mutual evaluation report, Yury Chikhanchin stated:
-When drafting the report, we once again fully realized the importance of independent, professional and non-politicized assessment of the national AML/CFT system, and it is this approach that is provided for by the existing FATF procedures. 
Information note

The FATF Methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems was adopted by the FATF in 2013 and envisages examination of two complementary elements: technical compliance and effectiveness.

Technical compliance means fulfillment of the requirements set out in the FATF 40 Recommendations, while effectiveness means the ability of the AML/CFT stakeholders to achieve the immediate outcomes (IO) in eliminating ML/TF risks.

Mutual Evaluation Report of the Russian Federation summarizes the AML/CFT measures in place in the Russian Federation as at the date of the on-site visit (March 11-29, 2019). It analyzes the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Russia’s AML/CFT system, and provides recommendations on how the system could be strengthened.

     Key Findings

1. Rosfinmonitoring is core to the functioning of Russia’s AML/CFT regime, as it is responsible for leading and coordinating policy and operational activities in the field of AML/CFT. This work is strongly supported, including legislatively, as AML/CFT is afforded the highest priority by the Russian Government. Domestic coordination and cooperation is a major strength of the Russian AML/CFT system.

2. Russian authorities have an in-depth understanding of the country’s ML and TF risks, as outlined in Russia’s 2018 ML and TF NRAs and communicated by authorities to the assessment team. Both ML and TF risks are well identified and understood. Financial institutions have a good understanding of these risks, while understanding of other reporting entities varies.

3. Rosfinmonitoring has a wealth of available data, including a large volume of reporting, and employs sophisticated technologies and high degree of automation, to prioritise, generate, and contribute to investigations pursued by law enforcement authorities. LEAs routinely and effectively access and use this financial intelligence to investigate ML, TF, predicate offenses, and to trace criminal proceeds. Prosecutors further ensure the use of financial intelligence in case development by systemically reviewing investigations to verify that LEAs pursue all financial aspects.

4. Russia is investigating ML partly in line with its risk profile. LEAs routinely conduct financial investigations alongside predicate offences. Most ML investigations involve the acquisition or sale of criminal proceeds, so the majority of cases relate to less serious offences. Self-laundering is frequently investigated, unlike third-party ML, which is detected and investigated to a lesser extent. Some complex ML is pursued, however, opportunities for LEAs to uncover and investigate sophisticated and/or high-value ML may exist, especially in the financial sector and involving proceeds sent abroad, particularly those related broadly to corruption. Sanctions applied against natural persons are moderately effective, and while Russia cannot prosecute legal persons, the use of administrative sanctions against legal persons was not demonstrated. Alternative measures are a notable part of Russia’s toolkit to combat financial and shell-company-related offences potentially related to ML.

5. Russia has a robust legal framework for combatting TF, which is largely in line with the international standards. On average, Russia pursues 52 TF prosecutions per year. Since 2013, Russia has convicted more than 300 individuals of TF, with the majority resulting in sentences of imprisonment ranging from 3-8 years. Russia demonstrates that it deprives terrorists, terrorist organisations and terrorist financiers of assets and instrumentalities through various approaches, such as through terrorist designations, administrative freezes, court orders, and confiscation. While the total amount of assets and instrumentalities deprived is relatively low, this is consistent with Russia’s risk profile.

6. Overall, Russia has an adequate system to implement TF and proliferation financing (PF) targeted financial sanctions, but has gaps and weaknesses in some areas, including TFS implementation without delay and explicit legally enforceable requirements that extend to all natural and legal persons (beyond reporting entities).

7. There is widespread and persistent trend of non-compliance with preventive AML/CFT obligations. Although breaches have been decreasing in recent years, the threshold for suspicious transaction reporting is low and automation in filing leads to a massive number of reports, which, while used in the FIU’s datamining, are not detailed or suited for flagging high-suspicion or urgency. This increase in STRs could be leading to more terminations of business relations and refusals to conduct transactions for ML/TF concerns. Group-wide information sharing among FIs was not possible in Russia until the on-site visit.

8. The Bank of Russia (BoR) has implemented some aspects of risk-based supervision since 2013, and has recently improved the risk-based approach to supervision. Licensing requirements for FIs were strengthened in 2013 and now largely mitigate the risk of criminals being the owners or the controllers of FIs. However, supervision is mostly based on prudential factors and the BoR over-relies on remote monitoring. While number of license revocations has occurred, sanctions are not effective or dissuasive in all cases and monetary penalties imposed are low.

9. Russia has improved its legal framework and operational approach to enhance transparency of legal persons, which makes it more difficult to misuse legal persons established in Russia. Registration requirements have been enhanced and legal persons are constantly being reviewed and removed from the register for inaccurate information or for inactivity. Legal persons maintain information on their beneficial owners and competent authorities effectively supervise the implementation of this requirement. FIs and DNFBPs also collect beneficial ownership information of customers with somewhat limited capacity to verify it.