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ROSFINMONITORING ACTIVITY REPORT

Rosfi nmonitoring Activity Report 2017 3

Contents

Foreword ...... 4 Russia's Preparation for the 4th Round of Mutual Evaluations of the Financial 1 Action Task Force on Money Laundering (FATF) ...... 5 National Risk Assessment ...... 7 2 State Policy and Legal Regulation ...... 9 3 International Cooperation ...... 11 FATF ...... 13 EAG ...... 14 CHFIU ...... 16 Egmont Group ...... 16 Cooperation with foreign FIUs ...... 16 4 Key Risks ...... 22 4.1. Financial Sector-Related Money Laundering Risks ...... 23 Banking sector ...... 24 Non-bank fi nancial institutions ...... 25 Improving the quality of information ...... 28 Prohibitive measures ...... 28 Preventive measures ...... 28 4.2. Corruption-Related Money Laundering ...... 30 New system for inter-agency supervision over public spending ...... 32 4.3. Drug-Related Money Laundering Risks ...... 37 4.4. Combating Terrorist and Proliferation Financing ...... 41 4.5. Inter-Agency Prevention and Disruption Tools ...... 42

Personnel and Training ...... 45 5 International Training and Methodology Centre for Financial Monitoring ...... 46 International Network AML/CFT Institute ...... 46 4 Rosfi nmonitoring Activity Report 2017

Foreword

Dear readers,

In 2017, Rosfi nmonitoring The last evaluation of the Russian Federation was work was aimed at strength- held in 2008. Back then, the shortcomings identi- ening productivity and effi ed by assessors were eliminated. It allowed our fectiveness of its ML/TF risk country to defend successfully its follow-up report mitigation measures. The at the FATF Plenary in 2013 and exit the regular eﬀ orts of its structural divi- follow-up process. In 2014, Russia consolidated its sions were focused on the success at the Council of Europe’s AML/CFT moni- identifi cation of high-risk toring body, MONEYVAL. areas and prompt response to emerging challenges and We are moving forward with focus on improve- threats. ment of the Russian AML/CFT system. To this end, we must further strengthen our cooperation: from We have less than a year before the next evaluation fi nancial institutions – which are a source of in- of Russia’s AML/CFT system by the Financial Action formation on suspicious transactions for us – to Task Force (FATF). Its fi ndings will impact the con- courts – which issue verdicts based on the fi ndings clusion about the extent of its compliance with in- of investigations into illegal fi nancial activities. ternational anti-money laundering and countering the fi nancing of terrorism (AML/CFT) standards.

Yu. Chikhanchin Rosfi nmonitoring Activity Report 2017 5 1

Russia’s Preparation for the 4th Round of Mutual Evaluations of the Financial Action Task Force on Money Laundering (FATF)

Goal The active phase of Russia’s AML/CFT system evaluation by the FATF starts in 2018 and continues until November 2019. To safeguard Russia’s national interests in the AML/CFT interna- In 2017, Russia put in place an eff ective institutional cooperation tional scene framework of AML/CFT participants from government agencies Objective and the private sector. To improve the eff ectiveness of the country’s AML/CFT system in terms of 11 Immediate Outcomes1, Compliance of the Russian Rosfi nmonitoring has been working closely and systematically with AML/CFT system with the FATF other agencies. Therefore, in line with the FATF Methodology, the Standards Russian National Security Program was amended in 2017 to include such tasks as improving technical compliance with the FATF standards and the eff ectiveness of the national AML/CFT eff orts in terms of each Immediate Outcome.

The fi nal ratings will be issued after the review of the Russian AML/ CFT mutual evaluation report by the FATF Plenary in 2019.

1 The FATF largely assesses the eﬀ ectiveness of a country’s AML/CFT system against 11 Immediate Outcomes. Each of them represents one of the key goals that an eﬀ ective AML/CFT system should achieve. 6 Rosfi nmonitoring Activity Report 2017

Reference

IO 1 IO 6 Money laundering and terrorist fi nancing risks are Financial intelligence and all other relevant in- understood and, where appropriate, actions coor- formation are appropriately used by competent dinated domestically to combat money laundering authorities for money laundering and terrorist fi - and the fi nancing of terrorism and proliferation. nancing investigations.

IO 2 IO 7 International cooperation delivers appropriate in- Money laundering off ences and activities are information, fi nancial intelligence, and evidence, and vestigated and off enders are prosecuted and facilitates action against criminals and their assets. subject to eff ective, proportionate and dissuasive sanctions.

IO 3 Supervisors appropriately supervise, monitor and IO 8 regulate fi nancial institutions and DNFBPs for com- Proceeds and instrumentalities of crime are confi s- pliance with AML/CFT requirements commensu- cated. rate with their risks.

IO 9 IO 4 Terrorist fi nancing oﬀ ences and activities are in- Financial institutions and DNFBPs adequately ap- vestigated and persons who fi nance terrorism are ply AML/CFT preventive measures commensurate prosecuted and subject to eﬀ ective, proportionate with their risks, and report suspicious transac- and dissuasive sanctions. tions.

IO 10 IO 5 Terrorists, terrorist organisations and terrorist fi n- Legal persons and arrangements are prevented anciers are prevented from raising, moving and us- from misuse for money laundering or terrorist fi - ing funds, and from abusing the NPO sector. nancing, and information on their benefi cial ownership is available to competent authorities with- out impediments. IO 11 Persons and entities involved in the proliferation of weapons of mass destruction are prevented from raising, moving and using funds, consistent with the relevant UNSCRs. Rosfi nmonitoring Activity Report 2017 7

National Risk Assessment

Amendments to the Rosfi nmonitoring Regulations, In 2016, Presidential Decree No. 31-rp of March 2 introduced by Presidential Decree No. 103 of March established the Inter-Agency Committee for the 8, 2016, enshrined in law Ros nmonitoring’s Preparation of Russia for the 4th Round of FATF powers to conduct a national risk assessment Mutual Evaluations, comprising representatives (NRA) with the involvement of federal government of law enforcement and supervisory bodies of the bodies, the Bank of Russia and representatives of Russian Federation. the private sector. The same Decree expanded Ros nmonitoring’s authority over AML/CFT and NRA coordination.

AML/CFT system participants

SUPERVISORS

BANK OF RUSSIA ASSAY CHAMBER ROSCOMNADZOR FINANCE MINISTRY FEDERAL TAX SERVICE JUSTICE MINISTRY LAW GENERAL PROSECUTOR'S OFFICE ENFORCEMENT INTERIOR MINISTRY FEDERAL FEDERAL SECURITY SERVICE EXECUTIVE INVESTIGATIVE COMMITTEE AUTHORITIES

PRIVATE FEDERAL SECTOR JUDICIARY FINANCIAL MONITORING SERVICE 8 Rosfi nmonitoring Activity Report 2017

Reference As a national risk assessment centre, Rosfi nmonitoring, in collaboration with the members of the Inter-Agency Committee and the pri- National Money Laundering vate sector, acting through the Advisory Board and the Compliance and Terrorist Financing Risk Council, undertakes regular actions to identify, analyse and as- Assessment (National Risk sess ML/TF risks. The outcomes of these activities, in the form of a Assessment) summary of national security threats posed by ML/TF transactions, comprises the activities carried are then communicated to the President of the Russian Federation, out by the national centre for as- the Security Council of the Russian Federation, law enforcement sessing national security threats and other public authorities and the private sector in order to de- posed by money laundering, ter- velop and adopt mitigation measures. rorist fi nancing and the fi nancing of proliferation of weapons The eﬀ orts to minimize ML/TF risk and threats facing the Russian of mass destruction, other state AML/CFT system are focused, fi rst and foremost, on the adoption authorities, state bodies and of preventive measures and the introduction of crime preven- organizations, with the partici- tion technologies at the earliest possible opportunity. pation of entities carrying out transactions with funds or other property, aimed at identifying and (or) preventing threats and vulnerabilities, developing measures to combat them, as well as at preventing or minimizing their harmful eﬀ ects. Rosfi nmonitoring Activity Report 2017 9 2

State Policy and Legal Regulation

7 federal laws, 3 Government resolutions and 1 Presidential decree affecting Rosfinmonitoring’s powers were adopted in 2017.

Federal Law No. 183-FZ of July The Council of Europe Convention on Laundering, Search, Seizure 26, 2017 “On rati cation of the and Confi scation of the Proceeds from Crime and on the Financing Council of Europe Convention of Terrorism (Convention) was opened for signature on May 16, on Laundering, Search, 2005. Seizure and Con scation of the Proceeds from Crime and Russian participation in the Convention will improve the eﬀ ective- on the Financing of Terrorism” ness of the country’s cooperation with its foreign partners in combating money laundering and terrorist fi nancing, create additional opportunities for the development of international cooperation between competent authorities in identifying, seizing and confi s- cating criminal proceeds, strengthen legal safeguards for mutual cooperation and collaboration, and serve as yet another confi rma- tion of Russia’s commitment to fi ght against these crimes. 10 Rosfi nmonitoring Activity Report 2017

Federal Law No. 267-FZ of July Provides for the establishment of the procedure for opening ac- 29, 2017 “On Amendments to counts, entering into bank account agreements, and purchasing Certain Legislative Acts of the securities from Russian banking institutions and foreign banks by Russian Federation” federal unitary enterprises that are of strategic importance for the security and defence industry of the Russian Federation, state cor- porations, state companies and by legal entities under public law.

Federal Law No. 281-FZ of July Provides for the establishment of requirements for the founders 29, 2017 “On Amendments to (shareholders), management bodies and oﬃ cials, including those Certain Legislative Acts of the responsible for implementing internal AML/CFT regulations in Russian Federation Concerning banking and non-bank institutions. Improvements to Mandatory Requirements for the Founders (Shareholders), Management Bodies and O cials of Financial Institutions”

Federal Law No. 387-FZ Aimed at improving the legal regulation of compulsory enforce- of December 5, 2017 “On ment of the verdict or decision of the court of a foreign state con- Amendments to the Criminal cerning the confi scation of proceeds of crime located in the Russian Procedure Code of the Russian Federation. Federation”

Federal Law No. 454-FZ of The draft law codifi es the obligation of Vnesheconombank to com- December 29, 2017 “On ply with Federal Law No. 115-FZ of August 7, 2001 “On Combating Amendments to the Federal Money Laundering and Terrorist Financing”. Law “On the Development Bank”

Federal Law No. 470-FZ of Aimed at establishing a mechanism for the rehabilitation of cus- December 29, 2017 “On tomers of banks and other fi nancial institutions previously denied Amendments to Certain to carry out a transaction or enter into a bank account agreement, Legislative Acts of the Russian or whose bank account agreement was terminated. Federation” Rosfi nmonitoring Activity Report 2017 11 3

International Cooperation

Goal The focus of Rosfi nmonitoring’s international activities in 2017 was To safeguard Russia’s national in- mainly on the following key priorities necessitated by the existing terests at the AML/CFT interna- international AML realities: tional scene • preparation of Russia for the mutual evaluation;

Objective • further intensifi cation of Russia’s participation in international AML/CFT eﬀ orts; To ensure Russia’s active participation in the work of such • higher eﬀ ectiveness of international AML/CFT institutions. international organizations as the FATF, the Egmont Group (a network of national fi nancial intelligence units), the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG), and the CIS, in order to pursue the initiatives aimed at strengthening global fi nancial and economic security.

Objective To strengthen and expand bilateral cooperation with account for Russia’s national interests and the specifi cs of fi nancial and The promotion and implementation by the Russian fi nancial intel- economic ties linking Russia and ligence unit of a number of projects at various international sector- Russian citizens to the countries specifi c organizations in 2017 underscores the relevance of Russia’s of the near and far abroad. know-how and best practices to the international AML/CFT community. 12 Rosfi nmonitoring Activity Report 2017

Support for Russian initiatives

More than 100 countries support Russian initiatives and CFT projects in the CFT Association FATF Global Network and Egmont Group

More than 100 countries in the FATF Global Network and UN support Anti-Drug Association Russian initiatives and projects for cutting oﬀ funding for drug traﬃ ckers

Association for Identifying Professional More than 30 countries participate in the Russian project to combat profes- AML networks sional money laundering networks (“Milky Way” operation)

FATF Technical Assistance More than 30 countries participate in the Russian initiative to coordinate Coordination the provision of technical assistance in the FATF Global Network Association

An information sharing agreement between 4 countries (Iraq, Iran, Syria Anti-ISIL Association and Russia) is under approval, practical work has begun Rosfi nmonitoring Activity Report 2017 13

Implementation of international projects

Research into ISIL recruitment 26 countries, international 2 organizations

System analysis of cross-border financial flows 13 countries, international 2 organizations

Coordination of technical assistance Рarticipants within the FATF/FSRB Global Network 25 countries

Mutual freezing of terrorist assets (jointly with EAG countries) 9 countries

FATF

In 2017, Russia initiated a series of Within the FATF Forum of Financial Intelligence major studies into the most relevant Units (FIUs) of Member States, the Russian delega- aspects of AML/CFT. tion launched in 2017 a system analysis of cross- border fi nancial fl ows aimed at detecting the in- One of them was an FATF-sponsored frastructure created by professional intermediaries study, undertaken by Russia with ac- for the purpose of redistributing, laundering and tive participation of Spain, into ter- managing their clients’ funds, including organ- rorist recruitment, particularly by ized criminal groups and terrorist organizations. ISIL. A total of 26 countries and 2 Co-headed by the United States, the project was international organizations (UNODC and UNCTC) also joined by colleagues from Australia, Belgium, took part in this project. The study exposed ter- the UK, Germany, Israel, Spain, Italy, Canada, China, rorists’ recruitment techniques, underlying costs, the Netherlands, Singapore and Ukraine, as well as funding sources and areas of expenditure, and pro- representatives from Europol and the UN Security vided guidance on inter-agency and international Council Monitoring Group on Al-Qaeda and the cooperation in this area, as well as on the involve- Taliban. ment of the private sector in this work. 14 Rosfi nmonitoring Activity Report 2017

EAG

In 2017, Rosfi nmonitoring achieved the international community’s eff orts to combat concrete results in enhancing ML/TF and the country’s comprehensive involve- Russia’s involvement in the work of ment in the work to build a highly eff ective global major international organizations and strength- AML/CFT framework. ening professional ties between the EAG member states. Traditionally, particular attention was paid Rosfi nmonitoring was behind the initiative to de- to combating terrorist fi nancing and improving fi - velop a common fi nancial profi le of a foreign terror- nancial literacy across the EAG. ist fi ghter (FTF) for the EAG countries. It grants EAG fi nancial institutions, law enforcement and fi nan- In April 2017, under the Russian presidency of the cial intelligence unites additional opportunities for EAG Moscow hosted a joint FATF experts’ meeting identifying persons involved in terrorist activities. and an AML/CFT risk assessment experience sharing workshop. The event was attended by approx. The Russian Federation won the competition 150 experts from more than 50 countries and in- for the best EAG nancial investigation. The ternational organizations. After the meeting, FATF case study detailing the corrupt practices of a President J. M. Vega-Serrano was invited to the high-ranking offi cial was presented to the Plenary Kremlin to meet Russian President Vladimir Putin. by representatives of Ros nmonitoring’s Far The meeting underscored Russia’s commitment to Eastern Federal District o ce.

 Case A good example of successful cooperation between Rosfi nmonitoring and LEAs is the investigation into the embezzlement of more than 6 billion rubles allocated for the construction of the rst Russian large capacity shipyard. Following the investigation, defendants were charged with oﬀ ences under art. 174.1 of the Criminal Code while their assets were frozen. This fi nancial investigation won the rst prize of the EAG 26th Plenary contest “The Best Example of Cooperation between Government Bodies in Combating Public Funds Embezzlement-related Money Laundering”. Rosfi nmonitoring Activity Report 2017 15

kremlin.ru April 26, 2017

Vladimir Putin met at the Kremlin with President our power to facilitate the fulfi lment of the goals of the Financial Action Task Force (FATF) Juan you have set. Manuel Vega-Serrano. The meeting was also attended by Ros nmonitoring Director Yury J. M. Vega-Serrano: Good afternoon, Mr President. Chikhanchin. Thank you very much for your invitation. It is a great pleasure to be here in the Russian Federation. V. Putin: I am pleased to see that under your presi- Thank you for our meeting today. I think it is the dency, the FATF is strongly committed to the fi ght evidence of Russia’s leadership’s commitment against global terrorism. Its importance is hard to to the ght against money laundering and ter- overestimate. Defi nitely we will do everything in rorist nancing, which is of importance.

Photo: Russian President press oﬃ ce 16 Rosfi nmonitoring Activity Report 2017

CIS Council of Heads of Financial Intelligence Units (CHFIU)

To analyse cross-border fi nan- “Milky Way” project. The initiative was approved cial fl ows and detect the infra- by all participants of the CIS Council of Heads of structure used by professional Financial Intelligence Units. It led to the endorse- intermediaries to redistribute, ment of the operation concept. launder and manage the funds of their clients, which may in- In addition, CHFIU continued its participation in clude both organized criminal groups and terror- the Russia-initiated anti-terrorist funding opera- ist organizations, in 2017 Russia launched the tion “Barrier”.

Egmont Group

At the Egmont Group 24th In continuation of the FATF-sponsored argument Plenary meeting in Macau (July on professional money laundering networks, the 2-7, 2017) Ros nmonitoring’s Russian project on providers of money launder- nancial investigation won ing services and cross-border fi nancial fl ows (the the Best Egmont Case Award “Milky Way”) was promoted at the Working Group (BECA) in the “Anti-Money Laundering” catego- on Information Exchange. The project secured ry. support from 30 countries. The head of the project from Russia was elected to the management board Rosfi nmonitoring representatives showcased best of this working group, which is the Egmont’s major practices in combating terrorist fi nancing and held one. a training session on combating terrorist recruitment. Rosfi nmonitoring representatives also became members of the Egmont Group Committee and Secretariat.

Cooperation with foreign nancial intelligence units

In 2017, bilateral cooperation evolved with ac- 101 countries. In 2017, 7 AML/CFT coopera- count for Russia’s priorities and the need to miti- tion agreements (with the State Bank of Vietnam gate country-specifi c ML/TF risks. and the FIUs of Vanuatu, Panama, Peru, Slovenia, Ecuador and South Africa) and 1 Memorandum AML/CFT cooperation agreements and memo- (with the Hong Kong FIU) were concluded. randa have been signed so far with a total of Rosfi nmonitoring Activity Report 2017 17

RBC January 23, 2018

Former Moscow region Chief Financier’s Wife Sentenced in Absentia to 11 Years

Zhanna Bulakh, the wife of the former Finance a view to embezzling public funds. In 2005-2008, Minister of the Moscow region (MR) Alexei the defendants stole MR municipal entities-owned Kuznetsov, was sentenced in absentia to 11 rights to demand arrears from utility compa- years in prison for embezzling 11 billion rubles nies, as well as the property of the MR Mortgage of public funds. The verdict was shared with the Corporation and MR Investment Trust Company. RBC by the Moscow Basmanny Court spokesper- According to the case materials sent to the court, son, Yunona Tsareva. Mrs. Bulakh was convicted of the money was deposited into the accounts of for- large-scale fraud (par. 4, art. 159 CC) and money eign companies and used to purchase real estate laundering (par. 3, art.174 CC). and luxury goods abroad.

The court also confi scated part of the woman’s Kuznetsov oversaw the Moscow region fi nances property, TASS reported. “Some of the money re- from 2000 to 2008, before dismissal by the then- covered through the sale of the seized property – governor of the Moscow region, Boris Gromov... which includes two apartments in Switzerland, an After that, Kuznetsov left the country and moved apartment in Paris, a villa in Saint-Tropez, 10 cars, a to France. In 2013, he was detained at the request hotel in Courchevel, as well as numerous antiques of the Russian authorities, but released in April of cultural and historical value, including paint- 2017 by the Lyon Court of Appeals pending the ings and sculptures – will be used to compensate outcome of the hearing of the Russian govern- the victims and the state,” the agency quoted the ment’s extradition request for him. judge’s verdict. In July, the French prosecutor’s oﬃ ce seized the The woman was charged with creating a criminal property belonging to Mr.Kuznetsov and Mrs. group, which included Kuznetsov and other em- Bulakh valued at 120 million euros. ployees of the Moscow region government, with 18 Rosfi nmonitoring Activity Report 2017

Rosfi nmonitoring’s fi nancial investigation fl owchart

Predicate o ence

Created fictitious indebtedness totalling RUR3.5bn owned by MR district Utility companies administrations assigned the right to utility companies backed of claim to ctitious with MR Finance indebtedness V. Telepnyov Ministry-issued 16 utility to aliated entities V. Nosov state guarantees companies A. Kuznetsov Yu. Kuznetsova

Loan Promissory note

Bank A Company P Company N Company V

Public funds paid: RUR 3.5bn

Payment for assigned rights

Government Issued a secured guarantee loan used to pay signed by for assigned rights Bank B MR district A. Kuznetsov MR Finance A. Kuznetsov, administrations Ministry MR Finance Minister

Article 159, paragraph 4, of the Russian Criminal Code (Large-scale fraud committed by an organized group)

A “risky” predicate CC article for money laundering Rosfi nmonitoring Activity Report 2017 19

Money laundering

Transfers funds Use of a liated under contract foreign rms for purchase to purchase of promissory notes French real estate Entity 1 Entity 2 Virgin Islands

Purchase of shares 1 2 3 by company N

USA Zh. Bullakh, beneciary

Company N

France Transit transactions through a liated companies Cash withdrawals Internet providers

Company 1 Company 2 Courchevel hotels

Assets purchased with laundered funds

USA Switzerland 20 Rosfi nmonitoring Activity Report 2017

Ros nmonitoring’s coordinating role in money laundering e orts

Preparation of requests to foreign FIUs

Preparation of intelligence for submission under art. 8 Investigative Committee of Federal Law No. 115-FZ

Initiation of criminal proceedings into a predicate offence

Initiation of criminal proceeding Transfer into money laundering of evidence

Information letter requesting adoption of appropriate prosecutorial measures Rosfinmonitoring General Prosecutor's office

Due to the inter-regional and international nature Preparing of the criminal activities, response the case was referred to request to the central authority Rosfinmonitoring's' MR Chief Economic Security for further investigative action regional office and Anti-Corruption Directorate Rosfi nmonitoring Activity Report 2017 21

Komsomolskaya Pravda April 19, 2018

New Jerusalem Museum in Moscow Region Welcomes Artworks from Former Regional Deputy Minister Valery Nosov’s Collection

The New Jerusalem museum in Moscow region of about 17 billion rubles of public funds, which he took possession of the artworks – including paint- used to purchase original works of art. ings by Ivan Aivazovsky, Konstantin Korovin and Philipp Malyavin – from the collection of the “The collection arriving in our museum today convicted former Deputy Finance Minister of the consists of the art pieces seized at Nosov’s apart- Moscow region Valery Nosov. ment. For a long time, the collection was stored at the Tretyakov Gallery. We had to wait for the fi nal During the criminal investigation into the former verdict’s entry into force. Then we were arranging offi cial’s off ence, the entire collection– 86 pieces – for it to be delivered to our museum,” said Andrei was stored at the Tretyakov Gallery. Experts have Averkiev, Minister for Property Relations of the yet to fi nd out how such valuable paintings end- Moscow region. ed up in the hands of the former regional Deputy Minister. Soon these works of art will be available to the public. According to Oksana Kosareva, Minister of Mr.Nosov was convicted of large-scale fraud and Culture of the Moscow region, the museum plans extortion. Now he is in prison. The prosecution pro- to hold a dedication exhibition of these works. vided evidence of the ex-offi cial’s embezzlement 22 Rosfi nmonitoring Activity Report 2017 4

Key Risks

National Risk Assessment Goals Risk Assessment Outcomes

To identify the most common money launder- To be communicated to all AML/CFT partici- ing schemes. pants for further use both in the implementation of the risk-based approach and as contex- tual information in subsequent national risk To detect gaps in the national AML/CFT sys- assessments. tem.

To be communicated to the Russian To promote a common understanding of ML/TF President pursuant to paragraph 9 of the risks among all AML/CFT system participants. Rosfi nmonitoring Regulations approved by Presidential Decree No. 808 of June 13, 2012. Rosfi nmonitoring delivers annual reports to To formulate precise measures and allocate the Russian President on the threats to nation- resources needed to mitigate the identifi ed al security posed by transactions with funds or risks. other property.

Used to develop the national AML/CFT poli- cies. Rosfi nmonitoring Activity Report 2017 23

4.1.

Financial Sector-Related Money Laundering Risks

Goal Rosfi nmonitoring’s work to improve the coverage and involvement of fi nancial institutions in the AML/CFT system in 2017 re- To improve the eﬀ ectiveness of sulted in: fi nancial institutions with reporting obligations • a higher level of cooperation (the number of entities registering their personal profi le on Rosfi nmonitoring website increased 1.4-fold); Objective • a 1.5-fold growth in the reporting entities coverage; To improve compliance through the use of remote monitoring • compliance went up by 5% (from 72% to 77%). tools In 2017, Rosfi nmonitoring carried out a comprehensive assessment of ML and TF risks in the supervised sectors, a process that necessi- Objective tates active involvement of professional and other associations and major market participants. To improve the quality of reports sent to Rosfi nmonitoring Analysis of the outcomes of Ros nmonitoring’s preventive ef- forts showed their eﬀ ectiveness against the backdrop of declining on-site inspection numbers. The fi nancial institutions’ involve- Goal ment in the AML/CFT system and the quality of their work are con- To mitigate the risk of the fi nan- stantly improving. It is evidenced by a steady rise in the level of re- cial sector abuse porting entities’ compliance.

Objective To cooperate with the Bank of Russia and other supervisors in reducing the involvement of fi - nancial institutions in illegal and suspicious fi nancial transactions 24 Rosfi nmonitoring Activity Report 2017

Banking sector

Rosfi nmonitoring, in close collaboration with the rily due to the eﬀ ectiveness of the KYC procedures Bank of Russia and representatives of the key fi - and experience gained in building the profi les of nancial market players in 2017 continued to focus unscrupulous customers and their detection at on the quality of submitted reports used for further an early stage – there was a marked decline in the analysis and suppression of illegal activities. The volume of dubious encashment transactions and active involvement of leading experts and heads overseas money transfers. of compliance services in the Compliance Council helped draw fi nancial institutions’ attention to the In general, the positive trend in the decline of the content of suspicious transaction reports not only banking sector’s involvement in dubious transac- at the federal but also regional level. tions continued throughout 2017.

The implementation of internal control procedures Licenses revoked: in the banking sector shows that most ML-risky activities include cash transactions, fi ctitious foreign • 51 for violation of banking legislation and Bank economic activity, use of foreign legal entities and of Russia regulations. arrangements (trusts), registered mostly in the countries with preferential taxation rates, as well as Of which: the involvement of nominal resident legal entities • 17 for carrying out dubious transactions; (shell companies) in the chains of fi nancial transactions. • 24 for non-compliance with Federal Law 115- FZ. At the same time, analysts note that in 2017, as a result of the application of systemic risk manage- In more than 80% of license revocations ment measures by fi nancial institutions – prima- Rosfi nmonitoring’s intelligence was used.

 Case Operations of 22 money laundering centres (vs. 12 in 2016) were disrupted in 2017, with total amount of identifi ed illicit funds estimated at over 80 billion rubles. Rosfi nmonitoring’s intelligence was used by the country’s LEAs to launch more than 60 criminal investigations into illegal banking (art. 172, CC) and other oﬀ ences.

Misappropriation of assets is another area of investigation and suppression of these crimes was concern for the fi nancial sector. The identifi cation, a priority for Rosfi nmonitoring in 2017. Rosfi nmonitoring Activity Report 2017 25

According to preliminary data, over 300 billion The application of preventive measures by credit rubles had been embezzled from banks whose institutions in 2017 helped prevent the laundering licenses were revoked in 2017 (not counting the of 230 billion rubles of doubtful origin. large banks bailed out by the Russian Central Bank).

 Case Rosfi nmonitoring, in collaboration with the General Prosecutor’s Oﬃ ce, law enforcement agencies, the Bank of Russia and the Deposit Insurance Agency, audited 114 credit institutions suspected of embezzlement. By engaging its colleagues from 20 foreign FIUs, Rosfi nmonitoring tracked stolen assets valued at more than $200 million.

 Case Rosfi nmonitoring’s investigation into the embezzlement of funds of one Russian bank led to the disclosure of accounts opened by the defendants with banks located in three foreign countries. According to Rosfi nmonitoring, fundshave been frozen. Russian investigative authorities are interacting with the foreign LEAs in order to arrest funds of the defendant totalling $116 million.

Non-bank nancial institutions

Micro nance companies and consumer credit were identifi ed. It was evidenced that sometimes cooperatives they were used to create pyramid schemes aimed at stealing funds from the public In 2017, Rosfi nmonitoring continued to closely monitor the activities of consumer credit coop- The Bank of Russia took active steps to mitigate the eratives and microcredit and microfi nance com- risks in this area by revoking licenses and tighten- panies. Some cases of such organizations’ involve- ing mandatory standards and requirements. ment in “shadow” fi nancial encashment schemes 26 Rosfi nmonitoring Activity Report 2017

 Case In 2017, the Russian MIA, using the intelligence provided by Rosfi nmonitoring, disrupted the activities of an interregional criminal group accused of defrauding 25,000 depositors of more than 6 billion rubles. The group, comprising more than 20 consumer credit cooperatives with the central offi ce in the Khabarovsk territory, was active in 2014-2017, operating in 17 constituent territories of the Russian Federation. In total, as part of the coordination eff orts undertaken by the competent authorities, investigators prepared and sent to the prosecution, law enforcement and tax authorities, as well as to the offi ces of the Bank of Russia in 7 constituent entities of the Russian Federation, 30 analytical ndings. It led to the seizure of more than 200 shell rms seals, detention of 8 members of the criminal gang and launch of criminal proceedings under arts. 210 and 172.2 (par. 2) of the Criminal Code.

Insurance companies risks posed by transactions with precious metals and precious stones helped draw the country’s The stabilization of the situation in the insurance top leadership’s attention to the problems sector continued in 2017. After a large wave of li- facing the sector. It was refl ected in the Russian cense revocations in 2016 (104 insurance compa- President’s instructions to improve industry regu- nies and brokers), in 2017 this measure was used lation, strengthen oversight and put in place an in- against 61 entities. tegrated information and analytical infrastructure.

Rosfi nmonitoring detected insurance companies’ These measures helped expand the coverage involvement in dubious reinsurance transactions of the sector’s participants. A key role in helping aimed at funnelling funds overseas. However the companies remotely eliminate shortcomings in most common insurance products are not vulner- internal controls and raise the level of their com- able to ML/TF risks. pliance with AML/CFT requirements was played by the personal profi le function on Rosfi nmonitoring Postal service operators website. The personal profi le contributed to a36% increase in the participants sign-up rate in 2016 Following the adoption by Rosfi nmonitoring, alone. Roskomnadzor, the Bank of Russia and law enforcement agencies of the relevant measures, the The overall increase in the precious metals and risk of misuse of the Russian Post’s services to carry stones market participants’ compliance helped out reverse money laundering transactions was drive down the level of their involvement in dubi- greatly diminished. ous schemes, with the number of dubious transactions in the segment, according to supervisory The precious metals and precious stones sector bodies, falling by 20%.

Rosfi nmonitoring’s cooperation with the Finance Ministry and Assay Chamber in mitigating ML/TF Rosfi nmonitoring Activity Report 2017 27

Designated non- nancial businesses and pro- work in 2017 to facilitate the involvement of law- fessions (DNFBPs) yers in AML/CFT eff orts. The measures taken allowed Rosfi nmonitoring to increase the number In order to boost notaries’ involvement in AML/ of lawyers participating in the AML/CFT system by CFT eff orts and the quality of their internal control 4,000 and share some important information with systems, Rosfi nmonitoring adopted a whole set them. of measures designed to provide information and methodological support and sustainable feedback At the same time, the abuse by some unscrupulous to the sector on the existing risks. These measures market participants of notarial powers to disguise helped ensure the almost complete participation as legitimate transactions the withdrawal of funds of notaries in the AML/CFT system and improve from the banking sector into unsupervised cash, the quantity and quality of their suspicious trans- continues to pose a major challenge. action reports. Despite the overall decline in the number of such Close cooperation was established with the Russian transactions, Rosfi nmonitoring, jointly with law Finance Ministry, the Federal Treasury and self-reg- enforcement agencies, is working to identify cus- ulatory bodies on the involvement of auditors in tomers and unscrupulous notaries who abuse le- AML/CFT eff orts. The adopted measures allowed gal instruments. to continue the systemic inclusion of auditors in the fi ght against money laundering. The work to improve DNFBPs’ inclusion is to be continued in 2018. Rosfi nmonitoring, jointly with the Federal Lawyers’ Chamber and Justice Ministry, carried out gradual

 Case Rosfi nmonitoring, in collaboration with the Bank of Russia, the Ministry of Justice and the Federal Tax Service, succeeded in preventing the spread of a scheme with dubious transactions such as cash out with use of notaries’ deposit accounts. It was evidenced by the sharp (more than 7-fold) decrease in the volume of suspicious transaction reports (STRs). 28 Rosfi nmonitoring Activity Report 2017

Improving the quality of information Measures aimed at targeted interaction with fi nan- suspicious transaction reports. The number of re- cial institutions and providing feedback on sub- ports sent through the personal profi le increased mitted STRs allowed Rosfi nmonitoring to improve by 20%, underscoring the growth of engagement the quality and information content of submitted of REs covered by Law 115-FZ.

Prohibitive measures

A positive eﬀ ect was obtained from the introduc- through the notifi cation of all fi nancial institutions tion of an improved mechanism for denial of serv- of the measures taken against high-risk customers ice to high-risk customers, involving the notifi ca- previously. tion of other banking sector participants about all instances of application of such measures. In order to improve the quality and objectivity of decisions on the use of prohibitive measures, New opportunities enabled fi nancial institutions, amendments were made to the country’s AML/CFT fi rst and foremost, to more comprehensively as- regulations (Federal Law No. 470-FZ of December sess customer risks and improve decision-making 29, 2017 “On Amendments to Certain Legislative process associated with the classifi cation of suspi- Acts of the Russian Federation”), aimed at estab- cious transactions. lishing a review mechanism for such decisions (rehabilitation). Market participants also note a certain deterrent eﬀ ect against the spread of illicit schemes achieved

Preventive measures

Compliance Council As part of its activities, the Compliance Council also evaluated various risk management solutions The Compliance Council and 9 regional councils, for FinTech/RegTech projects. comprising representatives of more than 70 credit Among the Compliance Council’s priorities for 2018 institutions, 5 supervisory bodies and representa- are: ensuring fi nancial institutions’ involvement in tives of the private sector from all federal districts, the national risk assessment, improving the qual- held more than 30 meetings. ity of STRs with a focus on specifi c ML/TF risks, and The newly emerging illicit schemes discussed at further monitoring of prohibitive measures and the Council meetings helped focus the attention the customer rehabilitation mechanism. of LEAs, prosecutors and the Bank of Russia on the identifi ed typologies. Rosfi nmonitoring Activity Report 2017 29

Remote supervision In the reporting period improvements were made also to the automatic remote monitoring system The introduction of the Personal Pro le function (ARMS), which is an automated workplace for a su- on Rosfi nmonitoring website opened new oppor- pervisor. tunities for contactless engagement with reporting entities. First of all, this is due to the expanding The ability to use information from credit institu- role played by preventive measures and the chance tions and other sources to update a reporting en- for organizations to eliminate their shortcomings tity’s risk profi le allows, on the one hand, to choose before the actual inspection. The Personal Profi le the most optimal supervisory response measures, interface allows reporting entities to monitor the and on the other, to quickly evaluate their impact. level of their compliance in real time and instantly rectify their defi ciencies. The 2018 plans are to expand the scope of the Personal Profi le functionality to other supervisors The new functionality also allows entrepreneurs to in order to enable a rapid exchange of information undergo training and testing, update their person- on risks in the supervised sectors. al details and report suspicious transactions. 30 Rosfi nmonitoring Activity Report 2017

4.2.

Corruption-Related Money Laundering Risks

Goal Corruption risks are the conditions and circumstances in the state and municipal management system that create the opportunity for To provide safe and targeted use the actions (inactions) of oﬃ cials and ordinary employees of public of public funds authorities to illegally acquire material and other benefi ts in dis- charging their oﬃ cial duties.

Objective An overview of fi nancial transactions posing corruption-related To build a new system for in- money laundering risks in the country’s regions shows that the ma- ter-agency oversight of public jority of the identifi ed dubious transactions are related to the abuse spending by offi cials of public offi ce in concluding government contracts with affi liated entities and the lobbying of the interests of various commercial enterprises, including those registered to persons with Objective friendly and kinship ties to these offi cials. To improve transparency of pub- Another traditional corruption risk is associated with the ownership lic expenditure by offi cials of undeclared accounts, real estate and other assets.

In its anti-corruption eff orts, Rosfi nmonitoring acts in accordance Objective with FATF principles and standards by: To combat off ences related to the misuse and embezzlement • contributing to the creation of a state expenditure oversight of public funds (including cor- system; ruption crimes), and ensure the • promoting the transparency of businesses and fi nancial institu- prosecution of off enders tions.

Total number of corruption-related requests: • more than 4,000 from LEAs; • more than 40 from foreign FIUs; • more than 80 from private persons.

Total number of anti-corruption investigations – more than 3,000, including 155 into the activities of public oﬃ cials. Rosfi nmonitoring Activity Report 2017 31

Criminal investigations: Besides criminal law measures, preventive measures provided by Federal Law No. 182-FZ of June • into corruption - approx. 450; 23, 2016 “On the Basis of the System of Crime • into money laundering - approx. 30. Prevention in the Russian Federation” are important in the fi ght against corruption. They include Convictions: improvements to the system of state management and control over the activities at risk of corrup- • related to corruption - approx. 90; tion. • related to money laundering - approx. 4.

 Case A fi nancial investigation againstA. Khoroshavin, the former governor of the Sakhalin region accused of committing oﬀ ences falling under art. 290, par. 6, and art. 291, par. 4, of the Criminal Code, is a good example of anti-corruption investigations. Rosfi nmonitoring’s intelligence was used to initiate criminal proceedings under art. 174.1, pp. “a” and “b” of par. 4, of the Criminal Code, into laundering of 77 million rubles. In addition, acting in response to a statement of claim lodged by the Prosecutor General’s Oﬃ ce, the court decided to confi scate A. Khoroshavin’s property, including registered to members of his family, totalling over 2 billion rubles.

 Case Intelligence gathered in the course of an investigation into the illegal alienation of ownership rights to municipal and regional property, undertaken by Ros nmonitoring’s Southern Federal District Interregional Department, led to the invalidation of the contract for the alienation of 213 hectares of land with a cadastral value of more than 2.4 billion rubles. The ownership of the land was subsequently returned to the city authorities.

 Case The court order to recover 86.3 million rubles in damages caused by the former minister of one of the Russian regions and his deputy went into eﬀ ect. The defendants were convicted of oﬀ ences falling under art. 285, par. 3, of the Criminal Code (dereliction of duty) and paid dam- age awards in full.

 Case Rosfi nmonitoring’s fi nancial intelligence was used to initiate criminal proceedings under art. 159, par. 4, of the Criminal Code (embezzlement of 200 million rubles of public funds) against the deputy of one of the Russian governors in charge of the construction of a medical facility. The oﬃ cial was removed from oﬃ ce. 32 Rosfi nmonitoring Activity Report 2017

 Case The fi ndings of a nancial investigation conducted by Ros nmonitoring’s Far Eastern Federal District Interregional Department were used to initiate criminal proceedings into the abuse of public oﬃ ce and possible embezzlement of public funds for the aﬀ ordable housing program 2014-2020, against a city mayor.

 Case The fi ndings of a fi nancial investigation into the activities of one federally funded institution,conducted by Ros nmonitoring’s North Caucasus Federal District Interregional Department, were used to initiate criminal proceedings under art. 159, par. 4, and art. 174.1, pp. “b” of par. 4, of the Russian Criminal Code, against the directors of contracting entities. The total amount of laundered funds amounted to 210 million rubles.

A new system for inter-agency supervision over public spending

In 2017, Rosfi nmonitoring launcheda new system the oversight system participants to legal entities for inter-agency supervision over public spend- and individual entrepreneurs. ing (budget monitoring). Rosfi nmonitoring’s tasks in this area are: As part of a gradual transition to the treasury oversight of public expenditure, Rosfi nmonitoring, • to defi ne the key profi les of budget risks; jointly with the Federal Treasury and the Federal • to ensure the implementation of a risk-based Tax Service, carries out budget monitoring of approach to the budget monitoring and treas- facilities designed to contribute to the develop- ury oversight of expenditure. ment of transport infrastructure, healthcare, space industry, the social and economic sectors of the As part of the security arrangements related to Republic of Crimea, and the agriculture industry. the preparation and holding of the FIFA World Cup 2018 and the FIFA Confederations Cup 2017, The work in this area is carried out in accordance Rosfi nmonitoring monitors transactions carried with the cooperation agreement signed by the out by foreign and Russian businesses contracted parties. It sets out the requirements for information to supply materials and equipment and build infra- sharing and defi nes the risk levels (high, medium structure facilities for these events. or low) based on the relevant criteria assigned by Rosfi nmonitoring Activity Report 2017 33

Budget monitoring outcomes

Contractors inspected – over 2500 Prevented from embezzlement – over RUR 4 billion

Referrals to supervisory and law enforcement authorities - Recovered – approx. over 300 RUR 130 million

Criminal proceedings into defence spending irregularities - Penalties assessed - 155 approx. RUR 600 million

In 2017, the Federal Tax Service, using Rosfi nmonitoring’s in- VAT collected - over telligence on natural and legal persons, including foreign RUR 3.2 billion companies, collected evidence of tax violations and fi led tax claims against the key individuals behind a tax avoidance scheme worth approx. 14 billion rubles

Rosfi nmonitoring’s intelligence on suspected em- Resolution No. 1820-rs of August 23, 2017, bezzlement of public funds was used by law en- Rosfi nmonitoring’s Siberian Federal District forcement and supervisory authorities during in- Interregional Department monitors transactions spections as well as in the course of initiation and carried out by the event contractors. investigation of criminal cases. Rosfi nmonitoring carries out an ongoing monitor- In addition, as part of the implementation of ing of public expenditure earmarked for the im- the Inter-Agency Comprehensive Security Plan plementation of the government program “Socio- for the XXIX World Winter Universiade 2019 in Economic Development of the Russian Arctic until Krasnoyarsk, approved by Russian Government 2020” (federal target program “Arctic”).

 Case In 2017, the Russian Federal Tax Service, using Rosfi nmonitoring’s intelligence on natural and legal persons, including foreign companies, involved in illegal sales of household appliances, collected evidence of tax violations and fi led tax claims against the key individuals behind a tax avoidance scheme worth over 10 billion rubles. The measures undertaken helped improve transparency of the home appliances market and increase tax revenue. Taxpayers (household appliance manufacturers) voluntarily paid 2 billion rubles in VAT. 34 Rosfi nmonitoring Activity Report 2017

There have been improvements in the level of state- group fi nancing as part of the implementation of owned companies’ compliance. It resulted, among the uniform treasury policy and centralized alloca- others, in reduced risks of intra-corporate fraud tion of funds for deposits of various terms amount- committed by unscrupulous members of the ed, from November 2016 to November 2017, to management and, hence, lower fi nancial losses. more than 20.7 billion rubles. Meanwhile, improvements in the control mechanism governing the allocation and expenditure of Rosfi nmonitoring, jointly with the Federal Anti- public funds helped reduce companies’ overheads, Monopoly Service, carries out extensive work strengthen control over expenditure, minimize the to identify and combat the use of anti-compet- default risk of counterparty banks and improve the itive agreements. In late 2016 the FAS and its re- effi ciency of business processes. gional offi ces were examining more than 50 Ros nmonitoring les. The overall economic eff ect from the use of intra-

 Case A list of cases includes an investigation into the activities of a price-fi xing cartel that controlled prices at 465 online auctions for the supply of medicines for the needs of medical institutions of the Russian Federation for a total of more than 420 million rubles. The perpetrators were charged with administrative oﬀ ences and fi ned more than 90 million rubles, with the materials of the case referred to the Interior Ministry’s Chief Anti-Corruption and Economic Security Directorate to determine whether to initiate criminal proceedings.

 Case Evidence made available to the FAS by Rosfi nmonitoring pointed to the violation of the anti-trust law by several companies. The perpetrators, through their participation in 8 public auctions, concluded anti-competitive agreements for the provision of sanitary, technical and comprehensive services related to the maintenance of barracks and housing stock of military towns, facilities of higher education institutions and other institutions subordinated to the Russian Defence Ministry, for a total exceeding 1.79 billion rubles.

Decriminalization of the housing and utility volved in the management of housing stock and sector collection of utility payments with a high volume of overdue accounts payable (more than 10% Rosfi nmonitoring, with a view to identifying dubi- higher than the value of accounts receivable), as ous transactions, carries out ongoing monitoring well as by state and municipal enterprises with a of the Construction Ministry’s data on transactions high amount of debt for supplied energy and mu- carried out by companies and organizations in- nicipal services. Rosfi nmonitoring Activity Report 2017 35

About 2000 entities from 67 constituent territo- The audits helped identify transactions related to ries of the Russian Federation with total over- the transfer of funds to fi ctitious individuals and le- due debt in excess of 170 billion rubles were gal entities believed to be involved in illegal trans- audited by Rosfi nmonitoring from January 2016 fers and conversion of funds, their placement in to January 2017. deposit accounts and purchase of securities.

 Case A comprehensive audit of regional operators responsible for the refurbishment of common property in apartment buildings in the Northwestern Federal District exposed transactions, carried out by utility companies. The transactions are likely to be linked to the embezzlement of funds constituting payments for housing and public utility services. The audit fi ndings were used to open 8 criminal investigations (including those announced in 2017) against the ex- ecutives of several utility companies and one under art. 174.1, par. 4, of the Criminal Code, and freeze property valued at 4 million rubles.

With a view to decriminalize the housing and pub- nals). The steps taken helped mitigate risks in the lic utilities sector, Rosfi nmonitoring carried out an sector, primarily through the use of anti-corrup- ongoing monitoring in 2017 of 88 cold water sup- tion measures. ply and water disposal service providers (water ca-

 Case According to preliminary estimates in 2015-2017, the total of funds misappropriated from the accounts of 47 water utilities amounted to approx. 11.5 billion rubles. In order to ensure the proper documentation and disruption of the identifi ed oﬀ ences and its fi scal surveillance, the gathered evidence was referred to the country’s federal security, law enforcement, investigative and tax authorities.

Decriminalization of the timber industry for subsequent conversion into cash. The identifi ed risks included illegal wood harvesting, money In 2017, Rosfi nmonitoring conducted fi nancial laundering, encashment to pay bribes (kickbacks), investigations against 12 forestry enterprises purchase illegally harvested wood, pay wages and whose accounts were used to transfer funds to a to cover other expenses – concealment of income group of individuals, including individual entrepre- and, consequently, tax evasion. neurs (both directly and through shell companies), 36 Rosfi nmonitoring Activity Report 2017

 Case Ros nmonitoring’s Northwestern Federal District Interregional Department conducted an audit of over 500 timber entities, recipients of government subsidies, contracts and priorities investment projects; licensed exporters of certain types of timber; major forest land lease holders, timber processors and timber exporters; as well as entities owning debt for leased forest land. Investigators uncovered evidence of money laundering valued at over 350 million rubles committed by a total of 42 audited entities, triggering the opening of two criminal investigations under arts. 193-1 and 199 of the Criminal Code. Rosfi nmonitoring Activity Report 2017 37

4.3.

Drug-Related Money Laundering Risk

In 2017, Rosfi nmonitoring conducted more than • to pass 54 sentences, including 33 under arts. 500 nancial investigations into drug traﬃ cking. 174 and 174.1.

Rosfi nmonitoring’s fi nancing intelligence was The total amount of funds laundering from used: January to September 2017 was 174.4 million rubles. • to open 76 criminal investigations, including 46 under arts. 174 and 174.1;

Drug-related money laundering risks

Through Through remittance cryptocurrencies systems

Through Through foreign credit bank cards institutions registered to figureheads Through electronic payment systems 38 Rosfi nmonitoring Activity Report 2017

The problem of money laundering becomes par- Recent years have seen a spike in the use of crypto- ticularly acute in contactless drug sales carried out currencies by drug dealers – particularly Bitcoin with the help of such modern information tech- – to pay drug traﬃ ckers and to launder money. nologies (the Internet, messengers, electronic pay- Examples of such oﬀ ences have been registered ment systems and electronic exchanges, including in the last 3 years almost in all Russian federal dis- cryptocurrency trading platforms). tricts.

 Case Anti-drug nancial investigations carried out by Ros nmonitoring’s Siberian Federal District Interregional Department jointly with law enforcement helped identify more than 2000 e-wallets used to store drug proceeds totalling 1.2 billion rubles. Financial transactions suspected of money laundering and worth approx. 1 billion rubles were disclosed. For example, the Interior Ministry’s Chief Directorate for the Krasnoyarsk Territory alone was instru- mental in uncovering a major drug traﬃ cking scheme worth about 500 million rubles, run by a criminal group consisting of representatives of diﬀ erent Russian regions. After analysing 1500 e-wallets, fi nancial investigators estimated the total amount of laundered funds at 320 million rubles. In total, fi nancial investigations led to the opening of 18 criminal cases under art. 174.1 of the Criminal Code and 9 convictions, with the total amount of laundered drug proceeds exceeding 41 million rubles.

 Case In order to improve the eff ectiveness of anti-drug eff orts, Rosfi nmonitoring, jointly with its Urals and Central Federal District Interregional Departments, worked to develop the fi nancial profi le of a drug traffi cker. The eff ectiveness of the fi nancial profi le was tested in cooperation with one payment service provider, followed by the establishment of the criteria for identifying e-wallets used in drug transactions. The generated data are subsequently verifi ed in collaboration with law enforcement. Rosfi nmonitoring Activity Report 2017 39

Money laundering scheme

Criminal group’s money fl ows

Purchase Drug baron Heroin of real estate sale revenues (cash)

Purchase Drug baron's Depositing funds of vehicles relatives to companies' accounts and real estate

Financier Drug baron's Gang Regional relatives members coordinator 40 Rosfi nmonitoring Activity Report 2017

Rosfi nmonitoring jointly with LEAs works to un- involved in the traﬃ cking and sale of synthetic, dermine the economic foundations of organ- semisynthetic and botanical drugs. ized criminal groups and criminal networks

 Case Rosfi nmonitoring jointly with the Interior Ministry’s Chief Drug Control Directorate is investigat- ing a criminal network specializing in supplies of large quantities of heroin along the “Northern Route”. This criminal group operated across Russia, Tajikistan, Afghanistan, the UAE and other countries. Transactions carried out by the criminals extended to a wide range of Central Asian countries, Europe, the Arab world and the United States. The identifi cation of the cartel’s drug money fl ows contributed to the disruption of its activities. The total amount of laundered funds is estimated at about 1 billion rubles. The cartel organizers became the subject of criminal proceedings, while the work to trace the defendants’ assets is still ongoing.

 Case Rosfi nmonitoring jointly with the Interior Ministry’s Chief Drug Control Directorate is conducting a joint investigation into the activities of a criminal group involved in the traﬃ cking of cocaine from Latin America to Russia and other countries. Investigators have successfully unravelled the fi nancial dealings of the group. The work on this case is carried out in collaboration with the fi nancial intelligence units of 20 countries.

 Case Rosfi nmonitoring continues to work with the Interior Ministry’s Chief Drug Control Directorate to track fi nancial and other assets of an international drug cartel involved in the hashish traffi cking from one of the African countries. Cooperation is conducted with the FIUs of Belarus, Germany, Morocco, the Netherlands, Spain, Italy, France and other states. More than 10 real estate properties in the EU countries have been identifi ed so far. Rosfi nmonitoring Activity Report 2017 41

4.4.

Combating Terrorist and Proliferation Financing

Goal Outcomes of CFT eﬀ orts: To mitigate terrorist and prolif- • By decisions of the Inter-Agency Committee for Combating eration fi nancing risks Terrorist Financing the assets of more than 550 individuals worth over 6 million rubles were frozen;

Objective • 2052 persons were put on the list of individuals and entities known for their involvement in terrorist or extremist activities To boost the capabilities of the in 2017, with the value of frozen assets estimated at about 13.8 national counter-terrorist fi nanc- million rubles. ing system In 2017, Rosfi nmonitoring, in conjunction with law enforcement and supervisory authorities as well as representatives of the private Objective sector, conducted a national assessment of terrorist nancing To strengthen eﬀ orts aimed at risks. The exercise allowed the supervisors involved to thoroughly combating the fi nancing of the analyse the current situation with combating terrorist fi nancing in international terrorist organiza- Russia, identify the key risks and vulnerabilities, and assess the op- tion ISIL and other international portunities for their mitigation. terror groups At the Rosfi nmonitoring initiative Government Resolution No. 144 of 8 February 2017 was adopted. The document grant- ed Rosfi nmonitoring the powers to deny entry to the Russian Federation of foreign nationals and stateless persons. 42 Rosfi nmonitoring Activity Report 2017

4.5.

Inter-Agency Prevention and Disruption Tools

Signifi cant results were achieved in 2017 by the 2017 saw a trend towards the involvement of Inter-Agency Working Group for Combating civil-law relations participants in carrying out du- Illegal Financial Transactions (IWG) and the bious transactions. The purpose of such actions is Inter-Agency Committee for Combating Money to avoid the imposition of enforcement measures Laundering and Terrorist Financing (IAC). by credit institutions while staying within the law.

According to the agencies involved, To secure legal grounds for the transfer of funds Rosfi nmonitoring’s intelligence was used to iden- abroad and their encashment, criminals used deci- tify and freeze defendants’ assets worth about sions issued by courts of diff erent levels. 10 billion rubles. In order to prevent and disrupt such activities, Consolidated eff orts to combat illegal fi nancial Ros nmonitoring initiated a review of this issue transactions helped mitigate the risks: by the IWG and strengthened cooperation and information sharing with representatives of the judi- • associated with the trade in precious metals ciary, Federal Bailiff Service and law enforcement and precious stones; agencies. • of abuse of the judicial system; There was a signifi cant spike in 2017 in the popu- • of loss of assets of strategically important en- larity among criminals of alternative cash conver- terprises; sion techniques, including the transformation of the scheme reliant on the use of court decisions • associated with defence procurement and the and the involvement in criminal machinations of implementation of special economic zones notaries. The relevant information was passed on projects of and construction of large infrastruc- to law enforcement and prosecution authorities. ture facilities. Rosfi nmonitoring Activity Report 2017 43

 Case Rosfi nmonitoring’s Siberian Federal District Interregional Department fi led a complaint against the decision of the Altai Republic court to grant a writ of execution for a total of 24 billion rubles to a foreign counter party, which was satisfi ed. In total, LEAs used the fi ndings of fi nancial investigations into capital transfer abroad by court decisions in 3 criminal cases under art. 193.1 of the Criminal Code.

Inter-agency formats

IWG Strategy IC Interagency Law coordination drafting Effectiveness assessment

IWG Regional IWGs Expert Group in FDs Preliminary assessment Regional risks Practices overview Targeted transactions Cooperation with professional and scientific communities Regional coordination 44 Rosfi nmonitoring Activity Report 2017

TASS April 10, 2018

Russian Judges Block over 50 Billion Rubles in Illegal Capital Out ows in 2017

In 2017, Russian judges blocked attempts to use nisms to carry out illegal fi nancial transactions court rulings to channel 50 billion rubles overseas, aimed at money laundering and evading compli- said Viktor Momotov, Chairman of the Russian ance with currency, tax and fi scal regulations,” said Council of Judges, at a meeting of the regional Viktor Momotov. councils of judges. Last year saw the emergence of a new capital withdrawal scheme. Foreign plaintiff s In July 2017, the Presidium of the Council of Judges fi le lawsuits alleging unpaid debt under a contract. adopted the relevant resolution, while the regional Since the defendant does not object, the court sat- councils of judges received a written instruction to isfi es the claim and orders bailiff s to transfer the disrupt such schemes. required amount. “It has been quite e cient. According to According to Viktor Momotov, last year the Russian Ros nmonitoring, the judicial community’s re- Council of Judges and its regional colleagues took sponse measures to such violations taken in an active part in the eff orts of inter-agency work- 2017 helped prevent the withdrawal from Russia ing groups for combating illegal fi nancial transac- and subsequent laundering of more than 50 bil- tions. “At a meeting of the Inter-Agency Working lion rubles,” said the Head of the Russian Council of Group on March 29, 2017, participants highlighted Judges. the increased use of court enforcement mecha- Rosfi nmonitoring Activity Report 2017 45 5

Personnel and Training

Given the new tasks assigned to Rosfi nmonitoring were the contests to fi ll vacant posts, a talent pool in 2017, the issue of recruiting qualifi ed personnel building, redeployment of staﬀ and use of incen- capable of dealing with modern challenges in an tives. eﬃ cient way remained highly relevant. A total of 80 students took internships and pre- Among the mechanisms used to achieve this goal graduation trainings in 2017.

Internship

Defence Career of graduation days thesis

Occupational guidance activities 46 Rosfi nmonitoring Activity Report 2017

International Training and Methodology Centre for Financial Monitoring

Throughout 2017, ITMCFM focused on Russia’s A total of over 15 000 students, including 3 000 preparation for the mutual evaluation. foreigners, attended ITMCFM trainings. International cooperation and AML/CFT personnel training were among the Centre’s priori- In order to address the task of building a talent ties. pool for national AML/CFT systems in Eurasia, ITMCFM utilizes various industry forums to pro- Qualifi ed personnel are key to an eﬀ ective AML/ mote a system of international assessment of CFT system. In this regard, ITMCFM pays special AML/CFT personnel’ qualifi cations and coordi- attention to the advanced training of AML/CFT nates the activities of the international network system participants. AML/CFT Institute.

International Network AML/CFT Institute

The International Network AML/CFT Institute, a Russia, Tajikistan and Uzbekistan) and 34 organi- sectoral association of educational and scientifi c zations. institutions, has emerged as Eurasia’s leading training institution for AML/CFT personnel. INI universi- A total of 2 527 Russian and 309 for- ties work to develop advanced training practices eign students are currently undergoing and adopt innovative teaching techniques and AML/CFT training at Russian universities. tools, digital formats and methods, in order to ensure high standards of knowledge, skills and quali- In 2017, the INI membership was expanded. Now fi cations of AML/CFT personnel. it includes Fudan University (China) as well as a number of leading universities of Uzbekistan and The INI community currently comprises 7 coun- Tajikistan. tries (Belarus, Kazakhstan, China, Kyrgyzstan,