FIRST MUTUAL EVALUATION OF THE RUSSIAN FEDERATION
Second follow-up report
on the Implementation of Recommendations of the EAG Mutual Evaluation
I. INTRODUCTION
1. The purpose of this document is to present to the EAG Plenary Meeting the second follow-up report, which describes the measures taken by the Russian Federation to remedy the deficiencies revealed in the course of the mutual evaluation. The EAG Plenary approved the first follow-up report in December 2009 and requested Russia to present the second follow-up report by December 2010.
2. In relation to the FATF Core and Key Recommendations, the Russian Federation was rated “Partially Compliant” for Recommendation 5 (Customer Due Diligence), Recommendation 23 (Regulation, Supervision & Monitoring), Recommendation SR.III (Freeze and Confiscate Terrorist Assets), Recommendation SR.IV (Suspicious Transaction Reporting). As a result of these ratings and in accordance with the item 41 of the EAG Mutual Evaluations Procedures (EAG/PLEN (2007) 4 rev.4) the Russian Federation fell under the procedure of regular monitoring. Russia was rated as ‘partially compliant’ and ‘non-compliant’ for 24 Recommendations as follows.
Partially compliant (PC) / Non-compliant (NC)R.5 Customer Due Diligence
R.6 Politically Exposed Persons
R.7 Correspondent Banking
R. 8 New Technologies & Non Face-to-Face Business
R. 11 Unusual Transactions
R. 12 DNFBP – R.5, 6, 8–11
R. 14 Protection & No Tipping-off
R. 15. Internal Controls, Compliance & Audit
R. 16. DNFBP – R.13–15 & 21
R. 17. Sanctions
R. 21. Special Attention for Higher Risk Countries
R. 23. Regulation, Supervision & Monitoring
R. 24. DNFBP – Regulation, Supervision & Monitoring
R. 25. Guidelines & Feedback
R. 29. Supervisors
R. 30. Resources, Integrity & Training
R. 33. Legal Persons – Beneficial Owners
SR.III Freeze and Confiscate Terrorist Assets
SR.IV Suspicious Transaction Reporting
SR.VII Wire Transfer Rules
SR.VIII Non-Profit Organisations / R.22. Foreign Branches & Subsidiaries
SR.VI AML Requirements for Money/Value Transfer Services
SR.IX Cross-Border Declaration & Disclosure
3. The first follow-up report of the Russian Federation was considered and at the 11th EAG Plenary. The discussion of the follow-up report of Russia in December 2009 revealed certain progress in compliance with the financial Recommendations (R5, R6, R12, R15, R.25, R.29). It was also noted that particular progress was achieved in regulation, in particular draft laws were developed that affect the following FATF Recommendations: 5, 7, 12, 17, 21, 22, 23.
II. OVERVIEW OF PROGRESS MADE BY THE RUSSIAN FEDERATION SINCE DECEMBER 2009
4. This section highlights the most significant steps that were taken by the Russian Federation since December 2009 in order to correct the deficiencies revealed in the course of the mutual evaluation. These measures are set out in more detail in Annex 2.
General Context
5. During the reporting period (since December 2009), the Russian Federation has amended the AML/CFT legislation, in particular:
§ Federal Law No. 115-FZ On Combating Legalisation (Laundering) of Proceeds from Crime and Financing of Terrorism (AML/CFT Law);
§ Law of the Russian Federation No. 4015-1 “On Organization of Insurance Business in the Russian Federation”;
§ Federal Banking Law No.395-1;
§ Federal Law No.244-FZ “On State Regulation of Activities Related to Organization and Carrying Out Gambling, and Regarding Introduction of Amendments to Some Legislative Acts of the Russian Federation”;
§ Russian Federation Code on Administrative Offences
§ Criminal Code of the Russian Federation
§ Customs Code of the Russian Federation
6. These laws are generally aimed at further harmonization of the Russian legislation and bringing it into line with the AML/CFT international standards. In particular, in accordance with these amendments the new definitions of the terms “beneficial owner” and “identification” were introduced. Moreover, according to the amendments to the Russian Federation Code on Administrative Offences the supervisory bodies are now empowered to apply new sanctions for the AML/CFT Law violations. Changes that have been made into these laws have increased the level of Russia’s compliance with criteria of R.5, 12, 15, 17, 21, 22, 23, 25 and SR.II.
Core Recommendations (R. 5, SR. II)
Recommendation 5 (Customer Due Diligence)
7. In order to further improve the efficiency of the identification procedures the Federal Law No.176-FZ “On Amendments to the Federal Law on Combating Legalization (Laundering) of Proceeds from Crime and Financing of Terrorism and to the Russian Federation Code on Administrative Offences” dated July 23, 2010 was adopted which introduced the following new definitions:
“beneficial owner” refers to the proxy giver, grantor, principal, trustor or other person for and (or) on behalf of, and (or) at the expense of whom the customer (customer’s representative) carries out transactions with funds or other assets;
“identification” is a set of measures for obtaining information on customers, their representatives, and beneficial owners required by the Federal (AML/CFT) Law, verification of such information using original documents and (or) duly certified copies thereof, and establishing that such documents (or duly certified copies thereof) legitimately belong to the persons who presented them.
8. In addition, according to the mentioned Law the date of birth of a customer is added to the list of information to be ascertained for the identification purposes, which allows to avoid confusion in case of similar names.
9. The requirement on the identification of beneficial owners has been expanded. Decree of the RF Government No.967-r requires that in the course of identification of legal entities to pay special attention on the following issues:
a) the list of the legal entity’s founders (shareholders);
b) the structure of the legal entity’s management bodies and their powers;
c) the size of registered and paid-up authorized (share) capital or the size of authorized fund and the value of assets of a legal entity.
10. In accordance with the given Law amendments have been made to item 5 of Article 7 of the AML/CFT Law that prohibit financial institutions from entering into a bank account (deposit) agreement with a client and/or a client’s representative in case there is a lack of necessary documents for their identification as specified by the AML/CFT Law.
11. In general, it is worth mentioning the significant measures taken by the Russian Federation on implementing R.5.
Special Recommendation II (Criminalization for terrorist financing)
12. Shortcomings in the criminalization of terrorist financing specified in the MER of the Russian Federation are eliminated by a newly adopted Federal Law No.197-FZ. This Federal Law envisages that terrorist financing includes financing of offences related to illegal actions with nuclear materials (Articles 220 and 221 of the Criminal Code).
Other Recommendations (R. 12, 15, 17, 21, 22, 23, 25)
Recommendation 12 (DNFBPs – R.5, 6, 8-11)
13. Article 5 of the Federal Law No. 244-FZ (as amended on April 22, 2010) directly prohibits organization and operation of gambling business via informational and communicational networks, including the Internet, as well as via communication facilities, including mobile communication facilities. Thus the ban on internet-casinos’ activity has been introduced.
Recommendation 15 (Internal control, compliance and audit)
14. Rosfinmonitoring issued an Order No. 203 dated 03.18.2010, which established the requirements for AML/CFT training and education of the personnel in financial institutions. According to this Order the training programs are supplemented by the following requirement:
- study of the typologies, specific AML/CFT schemes and methods, as well as criteria and indicators of unusual transactions.
Recommendation 17 (Sanctions)
15. Federal Law No.176-FZ strengthens the administrative liability of institutions carrying out transactions with funds or other assets for failure to comply with the AML/CFT legislation, which involves either a warning or imposition of an administrative penalty on the officials in the amount from twenty thousand to fifty thousand RUB, or disqualification for a period of up to three years; on legal entities – from fifty thousand to one million RUB, or administrative suspension of activity for a period of up to sixty days. Thus, administrative liability of the officials is enhanced both through increasing the amount of penalty and introduction of disqualification.
Recommendation 21 (Special attention to higher risk countries)
16. Amendments introduced by the Federal Law No.176-FZ dated July 23, 2010 to subparagraph 2 of item 1 of Article 6 (of the AML/CFT Law) specify that subject to mandatory control are transactions with funds or other assets if they essentially constitute a crediting or transfer of funds to an account, provision or receipt of credit (loan), or transactions in securities, where at least one of the parties is a natural or legal person registered, residing or located in a country (on a territory) that does not apply or insufficiently applies the FATF recommendations, or where the mentioned transactions are carried out via an account with a bank registered in the mentioned country (on the mentioned territory). The list of such countries (territories) is compiled in accordance with the procedure set out by the Russian Government, taking into account documents issued by the FATF.
Recommendation 22 (Foreign branches & subsidiaries)
17. Under the Federal Law No.176-FZ subsidiaries and affiliates of the institutions outside the territory of the Russian Federation are obliged to comply with the AML/CFT requirements, unless such compliance contradicts legislation of the respective foreign state.
18. Besides that, this Law obliges financial institutions to inform the relevant competent as well as supervisory authority that their branches and subsidiaries located in a foreign country (or on a territory) are partially or totally unable to comply with the AML/CFT legislation or its certain provisions.
Recommendation 23 (Regulation, supervision and monitoring)
19. Federal Law No.176-FZ empowers all supervisory authorities to examine the cases on administrative offences envisaged Article 15.27 of the Code on Administrative Offences and apply the relevant sanctions.
Recommendation 25 (Guidelines and feedback)
20. The Bank of Russia issued letter No. 129-T of 16.09.2010“On Strengthening of the Control over Particular Transactions of Legal Entities” that aims to strengthen the control over the transactions carried out by the residents in favor of counterparts (residents and non-residents) through accounts held in banks outside the Russian Federation in order to implement the obligations under the agency, factoring and sale contracts, with delivery on the territory of the Russian Federation.
21. However, it is unclear whether this letter is mandatory for financial institutions supervised by the Russian Central Bank.
22. The Russian Federation has taken steps to enhance feedback in respect of accountants (auditors). Thus, in early 2010 the Ministry of Finance provided auditing organizations and auditors with the annual recommendations, which emphasized the need of, and procedure for, the evaluation of compliance by audited persons with the requirements of the AML/CFT Law.
Effectiveness and Statistics
23. The provided statistics indicated that the activities of the Russian FIU are effective in carrying out financial investigations related money laundering and terrorist financing. It is worth noting that there is close co-operation between the FIU and law enforcement agencies with regard to investigations and convictions with the use of FIU’s materials.
24. In the supervision there is effectiveness in supervisory practice and sanctions, in particular, in organizations supervised by the Central Bank and FSFM (professional securities market participants). Under the statistics provided the practice of supervision and sanctions applied to the supervised institutions also demonstrates high effectiveness.
III. CONCLUSION
25. During the period from December 2009 Russia has demonstrated progress on implementing the following FATF Recommendations: 5, 12, 15, 17, 21, 22, 23, 25. Some results were achieved in developing legislation, however, a number of laws are also planned for adoption in 2011. In particular, they will remedy other deficiencies in relation to the following FATF Recommendations: 5, 12, 15, 16, 17, 29.
23. In this regard, it seems appropriate to request Russia to provide next follow-up report to the 15th EAG Plenary Meeting, which will be held in December 2011.
EAG Secretariat
November 30, 2010
ЕАG-VI / / EAG/FR (2010) 6 Annex 1FEDERAL FINANCIAL MONITORING SERVICE of the Russian Federation
1. General OVERVIEW of the current situation and latest development since the last AML / CFT EVALUATION
Following the Third Round Evaluation of the Russian AML/CFT system completed in July 2008, FATF/MONEYVAL/EAG experts offered a number of recommendations to improve the existing laws and enforcement measures. Under the FATF and FSRBs Regulations, the Russian Federation must take certain measures to ensure further development of the system and present report regularly at the FATF and FSRBs Plenary meetings. Russia's progress reports on the national AML / CFT system were considered and approved at the plenary sessions of the MONEYVAL in September 2009, the EAG, in December 2009, and the FATF, in June 2010.
The Russian Federation expects the new measures to enable the country to achieve the highest possible level of conformity of its national anti-money laundering and terrorist financing system (AML / CFT) with the FATF 40+9 Recommendations. This involves ongoing efforts that take into account the system operation, the needs for improvement detected in the course of enforcement practice, as well as comments and recommendations made by FATF, MONEYVAL and EAG experts.
Immediately following the Third Round Evaluation, in July 2008 Rosfinmonitoring and other competent Russian authorities started working out a draft Action Plan to improve the Russian AML/CFT system taking into account recommendations contained in the FATF Report on the Russian Federation.
The coordination of the prepared Plan with the Council of Europe experts took place in the form of consultations held as part of the meeting of the Interagency Commission on Combating Money Laundering and Terrorism Financing (St. Petersburg, September 4-5, 2008). The final version of the Plan was approved by the Prime Minister of the Russian Federation.The Russian Government took the implementation of the Action Plan under its special control.
The Action Plan spanned six months - from 1 January 2009 to 30 June 2009. The measures were implemented with the participation of all Russian authorities involved in the AML/CFT system, including the Federal Financial Monitoring Service (Rosfinmonitoring), Bank of Russia (BoR), Prosecutor General 's Office (PGO), Ministry of Internal Affaires (MIA), Federal Security Service (FSS), Ministry of Finance (MoF), Ministry of Justice (MoJ), Federal Customs Service (FCS), Federal Service for Financial Markets (FSFM), and others. Representatives of financial institutions (FIs), professional communities, non-financial professions, and research institutions were engaged in the implementation of the Action Plan.