ROSFINMONITORING

ROSFINMONITORING

ACTIVITY REPORT 2014

Moscow, 2015

INTRODUCTION

In the context of the international direct executor (or co-executor) and a political and economic environment coordinator of the country’s AML/CFT existing in 2014, the risks and threats faced activities. by the national anti-money laundering The main attention was dedicated to the system remained consistently high, both consistent implementation of a risk-based at the international and domestic levels. approach, updating Rosfinmonitoring’s The efforts of Rosfinmonitoring’s goals and objectives and performance structural units and its regional offices assessment. last year were dedicated to addressing Looking back at the achievements the priority tasks identified by the of the Russian AML/CFT system in 2014 President of the Russian Federation and in general and of Rosfinmonitoring in ensuring compliance with international particular, we can say with certainty that regulations. In addressing the above we have succeeded in addressing many of challenges, the Russian Financial the challenges related to the fight against Intelligence Unit acted both as a money laundering and terrorist financing.

Rosfinmonitoring’s Performance Highlights 2014

Returned to the budget 285 bn RUR

Seized assets 10 bn RUR

Assessed additional taxes 6.5 bn RUR

Illegal encashment centers whose 90 bn RUR activities were terminated

Illegal encashment centers whose 68 bn RUR activities were suspended

ROSFINMONITORING Activity Report 2014 3 I. RISK-BASED APPROACH

The revised FATF Recommendations, threats, their identification, as well released in February 2012, identified risk as the development of appropriate assessment and a risk-based approach as countermeasures. Concentration of essential elements of the fight against efforts on the key «areas of special money laundering and terrorist financing. attention» enables countries and AML/ This resulted in a significant tightening of CFT system participants to allocate criteria for assessing national anti-money their resources more effectively and laundering systems and effectiveness of efficiently. the AML/CFT efforts. The key requirement Rosfinmonitoring’s key task for 2014 of the international regulations now is to was to ensure the use of a risk-based show practical results. approach in all areas of its activity. A risk-based approach provides for the ranking and forecasting of

CHALLENGES & THREATS

The AML/CFT system in general and the should deal with such manifestations Financial Intelligence Unit in particular will face in 2015 new challenges, which in the same way we deal with terrorist will define our work priorities. It is the financing. In this context, I instruct the work aimed at eliminating these threats Ministry of Defense, Rosfinmonitoring through coordinated interagency work and other concerned agencies to develop that should be at the heart of our joint action plan both at the federal and a system of tough operational control regional level. over the use of resources from state • Combating the misuse of public defense orders. This system should funds and development of mechanisms operate along the entire supply chain. to improve the effectiveness of budget Additionally, tougher penalties should spending, including during the be imposed on those in charge of federal implementation of investment projects defense contracts implementation for and programs. The urgency of addressing these misspending every budget ruble». challenges was highlighted by Russian • Control over defense procurement. President V. Putin in his annual address to • Ensuring transparency of the financial the Federal Assembly in December 2014. system and curbing foreign currency V. Putin: «Inappropriate use or speculations. embezzlement of budget allocations for • Implementation of measures aimed at implementing the tax amnesty state defense orders should be considered and deoffshorization. Introduction of a direct blow to national security. We amendments to the Russian law that would

4 ROSFINMONITORING Activity Report 2014 allow voluntary disclosure of assets owned currency speculations. by individuals. The work in this area should • Countering the black market and illegal be carried out in such a way as to avoid the outflow of capital abroad. risk of international sanctions. • Sectoral and regional risks. • Ensuring transparency of the financial system and curbing foreign

II. NATIONAL ANTI-MONEY LAUNDERING SYSTEM

The joint efforts of all national AML • Regulation system participants allowed us to • Prevention achieve significant results in 2014. • Suppression Among the 3 key factors contriduting to this success were:

Key Elements of Russia’s Anti-Money Laundering System

Regulation Prevention Suppression

• 115-FZ • Timely notification of • Closed over 15 • 134-FZ the CB and government encashment centers • 110-FZ authorities with operations worth • 173-FZ • Consideration over 90bn RUR of issues by IWG, IC, • Frozen accounts and • 376-FZ committees and expert assets of over 1,500 • 403-FZ groups of the federal persons linked terrorism • 213-FZ, etc. and national levels

Reduction in the volume of dubious transactions – by 100%

Reduction in the volume of illegal encashment transactions – by 50%

Reduction in the volume of fund transfers to overseas jurisdictions – by 70%

ROSFINMONITORING Activity Report 2014 5 STATUTORY REGULATION

The most obvious result of is the adoption regulations and draft Rosfinmonitoring’s standard-settingregulations designed to establish legal activity aimed at mitigating money framework for ML/FT risk mitigation. laundering and terrorist financing risks

Key Risk Sectors

INTERNATIONAL LEGAL RISKS

FINANCIAL INSTITUTION-RELATED RISKS

BUDGET RISKS

ECONOMIC SECTOR/INDUSTRY-RELATED RISKS

REGIONAL RISKS

TERRORIST AND EXTREMIST FINANCING RISKS

REGULATION IN THE INTERNATIONAL LEGAL SECTOR

Federal Law No. 173-FZ of June Under FATCA, «foreign financial 28, 2014 «Concerning the specifics institutions» are required to report to the of conducting financial transactions U.S. tax authority information about U.S. with foreign nationals and legal accounts, including accounts of certain entities, amendments to the Russian foreign entities with substantial U.S. Code of Administrative Offences and ownership. invalidation of certain provisions of Russian financial institutions failing Russian legislative acts» to register until May 5, 2014 on the U.S. In 2010 the U.S. adopted the Foreign Internal Revenue Service website for the Account Tax Compliance Act (FATCA), purpose of entering into an agreement whose purpose is to improve tax with the IRS will, starting July 1, 2014, collection and tighten financial sector face a 30% withholding on payments controls not only in the territory of the of U.S. income made to their accounts, U.S. but also abroad. or the closure of their accounts in U.S.

6 ROSFINMONITORING Activity Report 2014 financial institutions as well as in financial out transactions and terminate the contract institutions of other countries complying with him unilaterally. The customer’s with FATCA. consent to the transfer of information to a According to Federal Law No. foreign tax authority also constitutes his 173-FZ, Russian financial institutions consent to the transfer of information to the may transfer information to a foreign tax competent authorities (Rosfinmonitoring, authority only with the consent of the non- the Bank of Russia and the Russian Federal resident customer. However, in the case of Tax Service). non-cooperation, they can refuse to carry

REGULATION CONCERNING ACTIVITIES OF FINANCIAL INSTITUTIONS

Federal Law No. 461-FZ of December Federal Law No. 484-FZ of December 29, 2014 «Concerning the introduction of 29, 2014 «Concerning the introduction amendments to certain legislative acts of amendments to certain legislative of the Russian Federation» expanded the acts of the Russian Federation» made list of entities covered by Federal Law No. it mandatory for persons providing 115-FZ of August 7, 2001 «On combating services related to organized trading money laundering and terrorist financing» in commodity and (or) financial (hereinafter «Federal Law No. 115-FZ») markets, as well as persons entitled to to include communications service provide clearing services, to submit providers occupying a senior position in to Rosfinmonitoring upon request a public communication network who information on traders and their are entitled to independently provide customers. data communication services and who provide services under contracts with individual subscribers.

REGULATION IN THE PUBLIC SECTOR AND INDUSTRY-SPECIFIC SEGMENTS OF THE ECONOMY

Federal Law No. 213-FZ of July 21, certain legislative acts of the Russian 2014 «Concerning the opening of bank Federation» assigned transactions accounts and letters of credit and the relating to adding/withdrawing funds conclusion of bank deposit agreements to accounts/letters credit of business by business companies which are of entities of strategic importance for strategic significance for the defense the defense industry complex and the security of the Russian Federation, as industry complex and the security of well as companies under their direct or the Russian Federation and concerning indirect control, to transactions subject the introduction of amendments to

ROSFINMONITORING Activity Report 2014 7 to mandatory control. notify Rosfinmonitoring of any opening, Federal Law No. 213-FZ also amended closing, changing the details of accounts the Administrative Offenses Code of and covered (deposited) letter of credit; the Russian Federation to include a conclusion, modification and termination new article (Art. 15.39), which imposes of contracts of bank account and bank liability on both non-special purpose deposit; and acquisition and disposal credit institutions for carrying out of securities by companies of strategic controlled transactions with strategic importance for the security of the Russian companies (except for the acquisition of Federation. In addition, it granted securities issued by credit institutions) Rosfinmonitoring the right to request and on strategic companies for carrying such information from companies of out controlled transactions with strategic importance for the security unauthorized credit institutions. of the Russian Federation; and to apply Federal Law No. 484-FZ of December against credit institutions guilty of 29, 2014 «Concerning the introduction violation of Federal Law No. 115-FZ of amendments to certain legislative sanctions provided by Federal Law No. acts of the Russian Federation» made 86-FZ of July 10, 2002 «On the Central it mandatory for credit institutions to Bank of the Russian Federation.»

REGULATION IN SUPPORT OF PUBLIC SAFETY SECTOR

In 2014, Russia adopted a series of it transactions involving the expenditure regulations aimed at improving the of funds and (or) other property belonging national system for combating the to the said non-profit organization. financing of terrorism and extremism. Federal Law No. 130-FZ of May 5, Federal Law No. 110-FZ of May 5, 2014 «Concerning the introduction 2014 «Concerning the introduction of of amendments to certain legislative amendments to certain legislative acts acts of the Russian Federation» and the of the Russian Federation» introduced Federal Law No. 505-FZ of December 31, a simplified customer identification 2014 «Concerning the introduction of procedure. amendments to certain legislative acts Also, the above regulation reduced by of the Russian Federation» expanded a factor of 2 (down to 100,000 rubles or its the list of grounds for including and foreign currency equivalent) the threshold amount of transactions involving the removing of persons to/from the list of receipt by a non-profit organization organizations and individuals known of funds and (or) other property from to be involved in extremist or terrorist foreign states, international and foreign activities (hereinafter «the List»). organizations, as well as foreign citizens and stateless persons, that are subject to mandatory control, as well as expanded the list of such transactions by including in

8 ROSFINMONITORING Activity Report 2014 REGIONAL REGULATION

Federal Law No. 37-FZ of 2 April 2014 Rosfinmonitoring during the transitional «Concerning special considerations period starting from 16 March 2014. relating to the functioning of the financial Federal Law No. 513-FZ of December system of the Republic of Crimea and the 31, 2014 «Concerning the introduction of city of federal significance Sevastopol in amendments to Federal Law ‘Concerning the transitional period» and Federal Law special considerations relating to the No. 257-FZ of July 21, 2014 «Concerning functioning of the financial system of the introduction of amendments the Republic of Crimea and the city of to Federal Law ‘Concerning special federal significance Sevastopol in the considerations relating to the functioning transitional period’ and Article 22 of of the financial system of the Republic of Federal Law ‘Concerning the development Crimea and the city of federal significance of the Crimean Federal District and the Sevastopol in the transitional period’» free economic zone in the Republic of made it mandatory for lawyers, notaries Crimea and the city of federal significance and persons conducting entrepreneurial Sevastopol» regarding scheduled checks activity involving the provision of legal to monitor compliance with the AML/ or accountancy services to report to CFT Law.

IMPROVING INTERAGENCY COOPERATION AND COORDINATION BETWEEN ALL ELEMENTS OF THE NATIONAL AML/CFT SYSTEM

• In accordance with the FATF One of the key goals for 2014 was Recommendations, each country should to raise the effectiveness of interagency establish an effective interaction and cooperation, coordination and measures coordination mechanism for concerned taken by all participants in the national government bodies operating in this area. AML/CFT system.

ROSFINMONITORING Activity Report 2014 9 The Structure of the National System for Combating Illegal Financial Transactions

IC IWG RG under GPO

Expert Group

RIWG of RIWG of FEFD RIWG of UFD SibFD

RIWG of VFD RIWG of SFD RIWG of NCFD

RIWG of CaFD RIWG of NWFD RWIG of CFD

In particular, Rosfinmonitoringareas, socially significant and strategic provided informational and analytical industries, and to the issue of the Russian support to these efforts in the framework economy deoffshorization. The IWG of the Interdepartmental Working prepared proposals for the draft National Group on Combating Illegal Financial Anti-Corruption Plan. Transactions (IWG) and regional IWGs. Its conclusions regarding the possible embezzlement of funds received under state contracts and their illegal transfer • The Interdepartmental Working abroad by affiliated companies are Group on Combating Illegal Financial confirmed by audits carried out by Transactions (IWG) was established by prosecutorial and law enforcement the order of the President of the Russian authorities. Federation dated July 31, 2012.

A total of 7 IWG meetings were held • Thanks to a series of preventive in 2014. They were dedicated, among measures initiated by the IWG at the federal others, to combating illegal activity and regional levels, law enforcement in the credit, financial and budgetary officials were able to identify and expose at

10 ROSFINMONITORING Activity Report 2014 an early stage several criminal schemes the establishment of 14 shell companies aimed at the embezzlement of public specializing in illegal encashment funds, including one scheme involving transactions. It’s estimated that during the misuse of state funds awarded under several years of its operations this criminal government contracts by officials of one group illegally converted and transferred state-owned company totaling over 5 abroad a total of over 200 billion rubles. billion rubles. While the timely renewal of long-term With the aim of boosting the contracts with the suppliers of another effectiveness of joint efforts, regional state-owned company allowed us to interagency working groups tasked with prevent a possible theft and laundering of the integration of regional risks into the aprx. 9 billion rubles. overall national system of risk assessment, as well as monitoring, managing and For a more in-depth study of existing combating the most significant risks tasks, Rosfinmonitoring set up a in the regions, were set up and are not permanent IWG Expert Group comprising operating in all federal districts. representatives of public authorities, the Bank of Russia as well as scientific and professional communities. In 2014, it • While working in conjunction with held 13 meetings. the Bank of Russia and law enforcement authorities and utilizing the methods and techniques that were used to expose the • The Investigation Department of the illegal financial schemes and encashment Interior Ministry completed in 2014 the centers in the Samara region and the investigation of one of the most high- Master-Bank in 2013, Rosfinmonitoring profile criminal cases in recent years: terminated in 2014 the activities of 15 an illegal scheme for conversion of funds encashment centers in several regions into cash (hereinafter «encashment») responsible for laundering about 90 operated by businessman Sergei Magin, billion rubles. which was busted by the Main Directorate for Economic Safety and Counteracting Corruption of the Ministry of Interior at The IWG refers all its anti-money IWG’s initiative. laundering initiatives for consideration Sergey Magin and his accomplices were by the Interagency Commission on AML/ charged under Art. 210 of the Criminal CFT (IC). Code («Creation of a criminal association and participation therein»), Art. 172 In 2014, the IC reviewed proposals («Engaging in illegal banking activities») concerning: and a rather rarely used in Russian law • making amendments to the criminal Art. 173.1 («Illegal establishment of a legal and criminal procedural legislation entity»). At the heart of the investigation aimed combating the creation and use were the defendants’ activities linked to of shell companies

ROSFINMONITORING Activity Report 2014 11 • making improvements to the out financial transactions in the non- Russian currency legislation to facilitate banking sector the repatriation of foreign exchange The IC and its structures – the Advisory earnings and combating dubious foreign Council and working groups – enable trade transactions AML/CFT-related cooperation not only • making improvements to the with public authorities but also with other Russian legislation aimed at reducing national anti-money laundering system the anonymity of individuals and the use participants, including the business of invalid or forged passports to carry community.

Interagency Coordination Bodies

Russia’s Security Council

IWG NAC

Advisory Board SAC under GPO

2014, the Rosfinmonitoring played the Russian Federation and the Federal an active role in the activities of the Financial Monitoring Service on the topic State Anti-Drug Committee, the National titled «Concerning practice of information Anti-Terrorist Committee and the exchange between the Investigative Interdepartmental Commission of the Committee of the Russian Federation and Security Council of the Russian Federation Rosfinmonitoring in investigating crimes on Public Safety. of corruption in public procurement, In September 2014 took place a joint housing and road building and health panel of the Investigative Committee of care sectors.»

12 ROSFINMONITORING Activity Report 2014 III. ACTIVITIES OF FINANCIAL INSTITUTIONS

According to Presidential Decree regulatory and supervisory work carried No. 808 dated June 13, 2012, which out by this agency is intended to reduce defines the objectives and powers of the risks of the country’s financial system the country’s Financial Intelligence being used for money laundering and Unit, Rosfinmonitoring has 3 oversight terrorist financing purposes. functions: One of the main tasks of • Monitoring the implementation by Rosfinmonitoring’s supervisory unit legal and private persons of Russia’s in 2014 was to facilitate involvement anti-money laundering legislation and and promote transparency of financial prosecution of violations in this field. institutions, which involved efforts aimed • Coordination of activities of federal at improving oversight and interaction executive authorities mechanisms. • Maintaining cooperation with the Among the key risk areas that AML/CFT RF Central Bank supervisors to be mindful of are: Today, however, in addition to the • non-compliance with anti-money above powers, Rosfinmonitoring’slaundering legislation oversight responsibilities also include: • engaging in dubious transactions • Initial monitoring and detection • illegal conversion of non-cash of money laundering and terrorist resources into cash financing risks • siphoning out of funds abroad • Responding to identified threats (particularly to offshore areas) • misuse of public funds or state As of 1 January 2015, the Russian AML/ property CFT system comprised approximately 140,000 entities carrying out customers’ In order to mitigate the above risks, instructions relating to the execution of Rosfinmonitoring’s Risk Assessment transactions with money or other assets, Centre launched in 2014 a remote or about 20,000 more than in 2013, of monitoring system designed to assess which over 15,000 entities are registered with the help of certain «law-abiding» directly with Rosfinmonitoring. criteria reporting entities’ compliance The risks existing in the financial sector with Federal Law No. 115-FZ. are regarded among the Russian Financial Intelligence Agency’s top priorities. The

ROSFINMONITORING Activity Report 2014 13 DUBIOUS TRANSACTIONS

Suspicious transaction reports (STRs) be deemed suspicious based on requests submitted to Rosfinmonitoring constitute from other agencies, foreign FIUs or its the main AML/CFT tool used by financial own analysis. Once a transaction has institutions. been found to contain any elements of The grounds for recording the details an offence, it becomes the subject of an of financial transactions are set out in investigation. Federal Law No. 115-FZ. They include STRs not only provide material for a confusing or unusual nature of a potential financial investigations or transaction that has no obvious economic act as evidence of possible economic sense; a mismatch between the nature crimes, but they also help investigators of the transaction and the statutory to understand the structure of criminal activities of the company carrying it networks involved in these crimes, for out; transactions carried out through example, drugs or weapons trafficking. bearer or third party accounts/deposits, That said, the fact alone that a transaction or through accounts of companies from has been deemed suspicious does not countries included in the FATF or other necessary mean it is illegal. Instead, it international organizations’ black lists. should be interpreted as a signal to take Some of these indicators of suspicious a closer look. transactions are specified by the Bank of The Russian Financial Intelligence Unit Russia. Rosfinmonitoring has published received over 11 million STRs in 2014 with its own suspicious transaction criteria- an estimated value of 160 trillion rubles related recommendations for used by its (59% more than in the previous period). supervised entities (approved by Order No. 103 of May 8, 2002). Among others, STRs were received By analyzing unusual transactions, from: the Financial Intelligence Agency is able credit institutions – to identify cash flows possibly linked to over 11 million; money laundering, terrorist financing or a non-credit institutions – predicate offense. A transaction may also over one million.

STRs submitted by institutions that report to Rosfinmonitoring Продажи

0,5% ЛизинговыеLeasing компанииcompanies 15% Real estate agents 2% Риэлторы Real estate agents among self-employed persons ИП риэлторы Payment processors 50,5% ОператорыFactoring по companiesприему 32% платежей Факторинговые организации

14 ROSFINMONITORING Activity Report 2014 Incoming and outgoing transaction flows

According to Rosfinmonitoring’s Risk returning back to Russia represent a zone Assessment Center, the number of reports of particular risk. The measures adopted pertaining to international transactions by Rosfinmonitoring jointly with the increased by 80% compared to 2013, Bank of Russia and law enforcement and while their estimated value reached 12 other concerned agencies helped reduce trillion rubles. such dubious money flows almost by half. Cash flows traveling abroad and There was also an almost two-fold decrease in the number of suspicious transactions.

According to the RF Central Bank, and Rosfinmonitoring and the launch of the involvement of banks in dubious a mechanism for ensuring compliance transactions was one of the main with Federal Law No. 134-FZ of June 28, reasons behind revocation of licenses in 2013 «Concerning the introduction of the reporting period. Last year saw the amendments to certain legislative acts Megaregulator take steps to tighten the of the Russian Federation with regard to criteria for judging the level of banks’ countering illicit financial transactions» involvement in carrying out suspicious transactions by reducing the quarterly (hereinafter «Federal Law No. 134-FZ»), threshold for suspicious transactions from which is aimed at reducing the role played 5 bln to 3 bln rubles and the proportion by illicit schemes, shell companies, etc. of suspicious cash transactions from 5% in the activities of financial institutions to 4% of the debit turnover on customer through the use of such measures as accounts. suspension of transactions, closure of Thanks to the introduction of a number accounts, etc., the Russian economy was of legislative initiatives, dynamic actions spared an estimated loss of more than of the Central Bank, law enforcement 285 billion rubles.

ROSFINMONITORING Activity Report 2014 15 The actions taken allowed us to Thus, Rosfinmonitoring was instrumental eliminate and terminate the process in eliminating more than 15 illegal of creation of large-scale illicit money encashment centers in different regions conversation and siphoning, not only with a total turnover of over 90 billion at the national but also regional levels. rubles.

STRs submitted by non-banking institutions Suspicious transaction reports also in the number of suspicious transactions help authorities understand the direction recorded in the non-banking sector of of illicit cash flows, for example, toward a the Southern Federal District alone can higher risk non-banking sector, as a growth attest. Non-banking sector most at risk

MFOs

Consumer credit co-operatives

Russian Post

Insurance companies

Pension funds

The number of suspicious transactions Southern Federal District alone. in this sector increased by 300% in the

Securities market Jewellery sector

Securities market professional Total volume of transactions participants - 570 increaseed by over 35% in 2014

Total value of transactions - over Total volume of encashment 2.4 trln RUR transactions increased by 300%

Suspicious transactions – 50%

16 ROSFINMONITORING Activity Report 2014 2014 saw an increase in the volume meantime, the total value of transactions of transactions with precious metals with precious stones grew by more and stones. Here, offences involving tax than 35%, while the number of illegal evasion, or non-payment of VAT, are encashment transactions almost tripled. particularly common. The total value of Russia’s Assay Chamber terminated transactions with precious metals carried the activities of 530 companies and self- out last year is estimated at about 60 employed persons that involved carrying billion rubles, more than 50% of which out suspicious transactions. can be considered as suspicious. In the

COOPERATION WITH SUPERVISORY AUTHORITIES Rosfinmonitoring’s joint work in 2014 The number of suspicious transactions with the Megaregulator, State Assay reports submitted by non-credit Chamber, Roskomnadzor, FTS generated institutions increased by 43%, of which significant results: to the Central Bank by 54% and to Assay The number of cooperating entities, Chamber by 44%. including those engaged through 86 banks had their licenses revoked, internal control mechanisms, increased including 35 banks for violations of the by 21%. anti-money laundering law. The number of companies and The number of insurance companies individual entrepreneurs reporting to that lost their licenses is 46. Rosfinmonitoring increased from 2013 by The bill granting the Assay Chamber 34%, of which to the Central Bank by 25% the necessary supervisory powers passed and Assay Chamber by 50%. its first reading in 2014.

COOPERATION WITH SUPERVISED INSTITUTIONS

Organizations registered with Rosfinmonitoring Продажи Approximately 3000 companies were put 1% on Rosfinmonitoring’s register in 2014.

Риэлторы 13% Real estate Payment processors agents Factoring companies LeasingЛизинговые компании 14% companies Self-employedИП 52% persons Операторы по приему Inплатежей addition, as part of the registry 20% updatingФакторинговые procedures, Rosfinmonitoring carriedкомпании out deregistration of all defunct business entities.

ROSFINMONITORING Activity Report 2014 17 COOPERATION WITH CREDIT INSTITUTIONS

In 2014, Rosfinmonitoring worked to acquire the experience of implementing • Over 1,000 bank account (57 in 2013) new AML/CFT elements and began the were terminated enforcement of Federal Law No. 134- • 42,000 requests to enter into FZ, whose purpose is to increase the agreement (aprx. 5000 in 2013) were transparency of the financial system, denied reduce risks and counter illicit financial transactions, including by allowing • 30,000 requests to carry out transactions credit institutions to exercise their totaling aprx. 137 billion rubles (aprx. 4,000 right to take action against high-risk requests worth 18.2 billion rubles in 2013). customers. Among the results generated by this As a result of the above enforcing work was a 50% decline in the volume of measures undertaken in 2014 : illegal encashment transactions.

Rosfinmonitoring-credit institutions engagement statistics 2012 2013 2014 2012 2013 2014

околоaprx. 4.64,6 mlnмлн.

околоaprx. 6.96,9 mlnмлн. околоaprx. 5.9 5,9 mln млн.

околоaprx. 3.73,7 mlnмлн. околоaprx. 66 mlnмлн. околоaprx. 3.43,4 mlnмлн.

КоличествоNumber of reports сообщений as part of в КоличествоNumber of сообщенийreports as part ofв internal рамкахmandatory обязательного procedure рамкахcontrols внутреннего контроля контроля

While working hand in hand involving credit institutions’ right to with its regional representatives, refuse to enter into, as well as terminate, Rosfinmonitoring conducted in 2014 a contract of bank account (deposit). a review of law enforcement practice

18 ROSFINMONITORING Activity Report 2014 Customer service refusals in 2014 Продажи

to enterот заключенияinto a contract договора of bank банковского счета (вклада) over account (deposit) более 3030,000 тысяч болееover regardingо расторжении termination of договора a contractбанковского of bank account счета (вклада) 4040,000 тысяч (deposit)

to carryв выполнении out customer’s instructionраспоряжения to execute a клиента о transactionсовершении операции

околоaprx. 1 тысячи 1,000

FATCA

A new direction of Rosfinmonitoring’s Russian Code of Administrative Offences supervisory work was set by Federal Law and invalidation of certain provisions of No. 173-FZ of June 28, 2014 «Concerning Russian legislative acts»: in particular, the the specifics of conducting financial establishment of a register of financial transactions with foreign nationals companies subject to FATCA. and legal entities, amendments to the

IV. FINANCIAL INVESTIGATIONS Rosfinmonitoring’s financialprocurement and activities of state- investigations in 2014 were focused on owned enterprises. Particular attention such priority risk areas and economic is paid to the credit and financial sectors as housing and utilities, fuel and sector, combating terrorist financing, energy, defense, agriculture, logging, corruption and drug money laundering. fishery, aquatic resources, public

ROSFINMONITORING Activity Report 2014 19 Rosfinmonitoring’s financial investigations statistics

Requests received – over 40,000

Including from law enforcement – over 35,000

Financial investigations conducted – aprx. 36,000

Including self-initiated – 3,200

Criminal charges filed using Rosfinmonitoring’s materials – over 1,200

Criminal charges supported – 7,400

Court referrals – 346

Convictions based on Rosfinmonitoring’s materials – 164

including under Arts. 174, 174.1 - 57

Last year saw Rosfinmonitoring and by 62.7% in respect of drug trafficking continue to intensify its efforts in priority offenses. areas aimed at combating the misuse of The number of criminal cases imitated public funds: on the basis of evidence provided by • Public procurement – the number Rosfinmonitoring increased sharply, of financial investigations increased by from 500 in 2013 to 1500 in 2014. Among 27% the main targets of investigations were: • State-owned enterprises – by • 24% – public procurement 87.5% • 17% – financial sector • Housing and utilities – by 10% The number of financial investigations • 13% – corruption. in the financial sector increased 4.6-fold,

COMBATING MISUSE OF PUBLIC FUNDS

In his December 2014 Address to the control over state assets and public funds. Federal Assembly, the Russian President In order to mitigate them effectively, the highlighted the problem of public country needs not only new approaches funds abuse. Public procurement, state but also changes in legislation. contracts and special-purpose state The work in this area carried out programs represent some of the most last year by Rosfinmonitoring jointly vulnerable sectors of economic activity. with other concerned agencies helped The main risks and threats affecting find ways to solving some of these the public sector are related to loss of problems, solutions that were reflected

20 ROSFINMONITORING Activity Report 2014 in the Presidential Assignments tied A close scrutiny of government by the common theme of increasing contracts worth over 500 billion transparency of the real economy. rubles revealed that about a third of Extra emphasis was placed on control their recipients had links to offshore over: companies with foreign ownership. At • government contracts valued at over the moment, Rosfinmonitoring, the 1 bln rubles Prosecutor General’s Office and the • strategic facilities Investigative Committee are taking a close look at these contracts and their • backbone enterprises recipients. • defense contracts

Financial investigations Defense sector conducted – over 600 Criminal charges filed – over 200

Financial investigations Fuel & energy sector conducted – over 1,000 Criminal charges filed – over 50

Financial investigations Housing & utilities conducted – over 1,500 Criminal charges filed – aprx. 100

Financial investigations Agricultural sector conducted – aprx. 600 Criminal charges filed – aprx. 50

State procurement was identified as the and services involving entities registered in main focus of efforts aimed at identifying offshore jurisdictions. and combating the risks and threats This work helped expose numerous existing in the public sector and the recipients of government contracts budget system. totaling over 275 bln rubles that had signs of foreign ownership. • While working in close contact with Some of the largest of these contracts Bank of Russia, Prosecutor General’s Office, were in the road sector, construction of Accounts Chamber, Ministry of Finance, public buildings and land improvements. Ministry of Economic Development, The audit findings were then referred to the Interior Ministry, FSC, FAS and FAS, the Prosecutor General’s Office, Accounts Rosfinmonitoring conducted an audit of Chamber, Ministry of Transport and the procurement contracts for goods, works Mayor of Moscow.

ROSFINMONITORING Activity Report 2014 21 One noteworthy feature of embezzlement of public funds allocated transactions involving payments under a government R&D contract totaling for goods and services is the use of more than 500 mln rubles. Some of the multiple transit accounts belonging to stolen funds – more than 150 mln rubles – various companies, including recently was transferred to the accounts of an U.S. established ones, which leads to a company. As a result of joint activities, 130 lengthening of the supply chain and, ultimately, to the artificial inflation of the mln rubles of the embezzled funds was value of contracts. returned to the state budget.

• As part of the work aimed at fulfilling Among other high risk sectors are: the assignments of the President and the • Road construction Government of the Russian Federation • Housing and utilities relating to the prevention of misused of • Fuel and energy public funds in one of the leading sectors • Logging and fishery of the Russian economy, Rosfinmonitoring, • Defense jointly with the Bank of Russia, Accounts As regards the defense industry, Chamber and law enforcement agencies, its biggest threat emanates from the conducted an audit of the currency flows inefficient use, or misuse, of funds through the state corporation and its allocated under state defense contracts. enterprises, whose findings were then To address the above risks, Russia submitted to the Government of the adopted Federal Law No. 213-FZ, which Russian Federation in the form of concrete introduces mandatory monitoring of proposals and brought to the attention of transactions valued at over 50 mln the President. Following their review, the rubles carried out by business entities state corporation transferred its funds to of strategic importance for the defense credit institutions with high reliability industry and the security of the Russian ratings. Federation. • Rosfinmonitoring, acting jointly with law enforcement officials, uncovered the

COMBATING TERRORIST FINANCING

Risks of social unrest, which primarily (hereinafter «the List») included 4139 related to the suppression of terrorist legal and natural persons. Of them: and extremist financing, make up • 3,610 private and 61 legal persons another group of risks. were on the Russian list. The 2014 List of companies and individuals known to be involved • 380 private and 88 legal persons on in extremist and terrorist activities the international list.

22 ROSFINMONITORING Activity Report 2014 In 2014, Rosfinmonitoring conducted and legal entities. over 6,000 anti-terrorist/extremist A review of credit and non-credit financial investigations, resulting in institutions’ information reports on the filing of62 criminal charges, 32 court application of Federal Law No. 115-FZ as referrals and 15 convictions. regards the blocking (freezing) of cash As part of its efforts aimed at blocking and other assets of persons included in terrorist and extremist financing the List revealed that during 2014 credit channels, Rosfinmonitoring continued institutions blocked approximately the application of a legal mechanism for 3,500 accounts belonging to 1,527 listed the judicial suspension of transactions persons with a total value of 33 mln carried out through the accounts of rubles. persons linked to the listed individuals

A List of persons linked to terrorist and extremist financing

Frozen/blocked 3,479 accounts

Listed persons 1,527 persons

Total amount in bank accounts 33mln RUR

In 2014, Rosfinmonitoring’s database received funding totaling 71.4 billion contained a total of 4,124 NPOs that rubles.

TRACKING DRUG MONEY

To meet the challenges related linked to the Afghan drug production to fight against drug trafficking, and trafficking. The efforts undertaken Rosfinmonitoring successfully used in in the framework of the Russian FATF 2014 the opportunities of international Presidency this area were approved at a cooperation, working closely with the meeting of the UN Security Council. FATF, technical group of the Paris Pact The focus of Rosfinmonitoring’s efforts and EAG. The FATF, for one, praised the in the fight against drug trafficking Russia-initiated study of financial flows in 2014 was the fight against illegal

ROSFINMONITORING Activity Report 2014 23 activities of individuals and entities that • the internal routes of drug money use the Internet and electronic payment flows that support drug shipment instruments (hereinafter «EPI») to channels redistribute and launder drug money. • the routes of financial flows used for While working jointly with the smuggling drug money outside Russia Russian Federal Drug Control Service, • a change in the drug distribution Rosfinmonitoring began work in 2014 pattern toward the use of contactless on the identification of drug-related offences by monitoring e-payments methods whereby the activities and developing a financial transaction of various drug trafficking groups, analysis system capable of determining including those related to money the intensity of drug-related financial laundering and drug money smuggling, flows, the level of generated revenue, are coordinated remotely with the help the volume of drugs trafficked and the of Internet-based based technologies by approximate number of channels for special controllers smuggling drug revenue abroad. • the main drug money accumulation This work allowed Rosfinmonitoring and laundering regions to identify: • the drug money laundering hot spots

Drug money laundering hot spots

St. Petersburg

Moscow Ivanovo Region Krasnoyarsk Territory

Sverdlovsk Region Samara Region Chelyabinsk Region Stavropol Khabarovsk Territory Territory Novosibirsk Region Kemerovo Region

Primorsky Territory Altai Territory

24 ROSFINMONITORING Activity Report 2014 • Rosfinmonitoring, jointly with the criminal group. Moscow office of the Federal Drug Control Evidence provided by Rosfinmonitoring Service, conducted in 2014 a financial to the Moscow office of the Federal Drug investigation into illicit trafficking in potent Control Service was used to bring criminal substance and laundering of 32.1 mln charges under Part 3 of Article 234 and Part. rubles of e-money. The investigation helped 4 of Article 174.1 of the Criminal Code. expose an integrated multiregional scheme The court found the defendants guilty for illegal distribution of potent substances and sentenced them to 6 years in prison in Moscow, Rostov, Novosibirsk, Kaliningrad with confiscation of property worth a total regions and Primorsky Territory, which was of $30,000 and 6.1 mln rubles. operated in 2012-2013 by an international

Drug money flows

Synthetic drugs

Heroin Synthetic drugs

Online controller

NATIONAL RISK ASSESSMENT CENTER

While fulfilling its function as the prepare risk mitigating mechanisms. National Center for the Assessment of In March 2014 Russian President V. Risks and Threats to National Security Putin visited the Center and chaired a arising from money laundering, terrorist meeting dedicated to combating illegal financing and the proliferation of weapons financial transactions. Rosfinmonitoring of mass destruction, Rosfinmonitoring Director Yu. Chikhanchin spoke to Mr. conducted in 2014 monitoring of risks and Putin about the work carried out by the referred its findings to law enforcement Center and its first outcomes. and other public authorities to help

ROSFINMONITORING Activity Report 2014 25 V. Putin: There can be no doubt that this center opens up additional opportunities for identifying threats to national security in the banking and financial sectors. It is important to make maximum use of its strong operational and intelligence capability to combat illegal financial transactions more effectively.

Mitigation of Risks

Risk Risk Elimi- Assessment Risk identifi- assess- nation of measures analysis cation ment measures taken

The information resources available to on various sectors and industries of the the Center allow it function in real time. Russian economy that serve as short-term Among its tools are regular Risk Reports forecasts of threats to national security.

Key risks in need of mitigation in 2015

Risks of reduced financial/banking system stability and currency market volatility

Risks of financial institutions involvement in illegal financial transactions and their criminalization

Risks of reduced financial/banking system stability and currency market volatility

Risks of tax amnesty and capital repatriation program failure

26 ROSFINMONITORING Activity Report 2014 V. REGIONAL RISKS

2014 saw Rosfinmonitoring channel which is tasked with coordinating IRD some of its resources to focus on regional operations: each IRD should have its own risk, an area of work that was separated analytical unit for monitoring regional from the rest due to the potential of risks and threats and a functioning some local risks to influence the situation interregional engagement mechanism in a region while leaving the country risk for their elimination. rating affected. Among the most effective instruments The move allowed Rosfinmonitoring of such engagement are regional to increase the role played by its inter- interagency working group for combating regional departments (IRDs) in decision- illegal financial transactions, which making pertaining to AML/CFT issues are similar to the Interagency Working arising at the federal level. A major role Groups (IWGs) under the Presidential in this was played by the National Center Administration of the Russian Federation for the Assessment of Risks and Threats , (see pg. 10).

Regional IWG performance highlights

SibFD terminated the activities of the largest payment processing operator with annual encashment transactions totaling 6bn RUR

NCFD mitigated risk of misuse of public funds allocated by the Pension Fund in support of multiple-child families

NWFD blocked claims for illegal VAT refunds totaling over 2.2bn RUR and seized assets worth 1bn RUR

SFD number of customer service refusals issued by banks under Federal Law No. 134-FZ increased by 200%; reports provided by credit institutions by 50%

ROSFINMONITORING Activity Report 2014 27 IRD of the Central Federal District (CFD) • The CFD Directorate, acting in conjunction with law enforcement authorities, conducted a financial investigation into the alleged CFD embezzlement of public funds by a legal entity that had been awarded government contracts for the design, construction and commissioning of sports facilities in a Moscow district. The price of the The CFD IRD’s efforts helped close an said contracts was not fixed, while the illegal encashment center in the region accompanying design and estimate operated through the Auerbank with a documentation lacked the endorsement of total turnover of about 20 billion rubles. the government expert review panel, which In addition, audits conducted in 2014 allowed the contractor to increase the cost resulted in the revocation of licenses held of the works by almost half. The ensuing by several local banks, including Priroda, investigation helped expose the misuse Monolith, Russian Land Bank, First of public funds totaling more than 360 Republican Bank, Stroycredit, Ascania mln rubles. In addition, Rosfinmonitoring Trust, MBK and Moscow Lights. uncovered instances of public funds misuse Among the grounds for license linked to construction projects in other revocation were: failure to fulfill the federal districts with a total value of aprx. requirements of Russian legislation 3 bln rubles. and Bank of Russia regulations, non- compliance with anti-money laundering Overall in 2014, the evidence provided legislation. by the CFD IRD resulted in the filling of Some credit institutions were involved 37 criminal charges, of which 11 were in carrying out large-value suspicious under Arts. 174 and 174.1 of the Criminal transactions, including with non- Code, residents. 22 court referrals and 6 convictions.

IRD of the Northwestern Federal District (NWFD) The information gathered by Rosfinmonitoring’s NFD Directorate officials specializing in the fight against illegal banking activities was used as NWFD evidence in numerous high profile investigations in the region, resulting in the freezing of bank accounts in St. Petersburg, Novgorod Region and the Komi Republic, with the amount of

28 ROSFINMONITORING Activity Report 2014 laundered funds estimated at aprx. 4.2 to June 2014 illegal VAT refunds totaling bln rubles. over 2 bln rubles. The investigation, conducted in close • The NFD Directorate uncovered an cooperation with law enforcement, illegal scheme used to convert in cash and resulted in the filing of criminal charges transfer abroad more than 3.5 bln rubles. under Part. 4 of Art. 174.1 of the Criminal The investigation resulted in large-scale Code. The total amount of legalized funds was about 239 mln rubles. The searches of the premises occupied by St. investigation also lead to the seizure Petersburg branches of Novikombank and of numerous items of movable and Aldanzolotobank and detention of alleged immovable property worth more than 1 members of the criminal group, as well as bln rubles. in the freezing of nominee accounts held in As a result, the total amount of VAT SIAB, Rosenergobank and PSCB banks. refunds claimed by the companies rated as high risk declined by 18 billion year- In 2014, customers of local credit over-year. institutions, citing various dubious Overall in 2014, the evidence provided reasons, transferred abroad a total of by the NWD Directorate resulted in the 125.4 bln rubles (312.8 bln in 2013) and filling of 133 criminal charges, of which converted into cash 32.4 bln rubles (54 9 were under Arts. 174 and 174.1 of the bln in 2013). Criminal Code («Laundering of money or Only as part of a single financial other property acquired by other persons investigation, members of one criminal through crime»). In 2013 there were 26 group were found to have illegally and 7, respectively. obtained in the period from January 2008

IRD of the Southern Federal District (SFD) The financial investigations conducted in the regions in 2014 contributed to the arrest of two criminal groups engaged in illegal encashment transactions totaling 5 bln rubles. SFD • The case materials provided to law enforcement authorities by Rosfinmonitoring’s SFD Directorate The macro-analytical research carried contributed to the conviction under out in 2014 helped identify several SFD Part 4 of Art. 201 and par. «b» of Part 2 banks involved in the transfer of more of Art. 174.1 of the RF Criminal Code of than 10 bln rubles to the accounts held the director of VolgoSpetsMontazh Ltd. by Cypriot and Russian residents in for the embezzlement of public funds banks of Singapore, Latvia, Switzerland totaling aprx. 280 mln rubles earmarked and other countries. for the redevelopment of the international

ROSFINMONITORING Activity Report 2014 29 airports in Kazan and Anapa, as well as to affiliated to him companies that became the seizure of property worth aprx. 150 owners of this property. Subsequently, mln rubles. the court declared transactions for the alienation of the property null and void Overall, the evidence provided to and returned the property complex to the the investigative authorities by the SFD plant. Directorate was instrumental in adopting a provision measure in the form of a Rosfinmonitoring carried out work freeze on the property belonging to the to mitigate the risks faced by the suspected (accused) individuals worth defense industry complex (misuse 446 mln rubles. or embezzlement of public funds allocated under government contracts). • A joint investigation carried out Preventive measures undertaken by the with the Volgograd Region Investigative SFD Directorate in cooperation with Committed revealed an illegal encashment the Rostov Region branch of the FSB scheme, confirmed the fact of illegal of Russia helped prevent the misuse alienation by a State Duma deputy of the of funds totaling 1 bln rubles allocated Volgograd Engine Plant property complex under defense contracts in 2014-2015. worth 514 mln rubles, and identified 4

IRD of the Volga Federal District (VFD) issued by one of Russia’s largest energy companies.

• The ensuing investigation revealed that in the period from 2006 to 2009 the VFD suspects used deception to acquire the right to securities, which they placed in the securities depository of one Tatar banks, and later transferred them to the depository of one Moscow credit At the 21st EAG Plenary meeting, held institution. With the goal of disposing in November 2014 in Dushanbe, Tajikistan, the securities, Mr. C entered into service VFD Directorate’s material, together with agreements with three brokerage firms. the Chinese entry, was voted winner of The generated revenue in the amount of the best financial investigation contest. aprx. 700 mln rubles was subsequently The main reason for the Directorate’s used by Mr. C and his accomplices to investigation into this case was a request purchase land and motor vehicles. from the Interior Ministry of the Republic of Tatarstan regarding a criminal case Materials provided by the VFD against Mr. C and several related to him Directorate was used to open 3 criminal persons suspected of committing fraud case. The Vakhitovsky District Court of and theft from individuals of securities

30 ROSFINMONITORING Activity Report 2014 the city of Kazan found Mr. C guilty of A total of three banks – 1st Deposit committing crimes falling under Arts. Bank, Volga-Credit Bank and PK-Bank – 159, 174.1 and 210 of the Criminal Code operating in the VFD lost their licenses and sentenced him to 8 years in prison. last year. His accomplices were sentenced to 6 and 4 years in prison. • The evidence gathered by the VFD Directorate helped institute a criminal The VFD Directorate’s participation or investigation under Art. 159 (fraud materials provided to law enforcement committed on a large scale) into the authorities in 2014 resulted in the filing embezzlement of funds held by depositors in of 80 criminal charges, 14 court referrals the Volga-Credit Bank. . The police received a and 9 convictions. total of 1500 complaints from the defrauded In order to facilitate recovery of depositors. The provisional administration damages caused by criminal acts appointed to oversee the Volga-Credit Bank’s investigated with the help of the affairs uncovered discrepancies between Directorate’s materials and information, the actual account balances and the bank aprx. 3 bln rubles worth of defendants’ accounting records totaling aprx. 1.5 bln assets, including cash, were seized. rubles. Financial investigation is ongoing.

IRD of the Ural Federal District (UFD) The scheme operators enticed investors by offering them very high returns. The total amount of stolen investors’ funds totaled over 1 bln rubles. In order to ensure appropriate redress, property UFD worth 12 mln rubles was frozen, while the perpetrators of the crime were sentenced to lengthy prison terms. • Another case involved an investigation, conducted jointly with local Evidence provided by the UFD law enforced authorities, into the use of Directorate was used to file 229 criminal forged documents to obtain loans. The charges, including 22 under Art. 174.1), stolen funds, totaling 2 bln rubles, were 74 court referrals and 27 convictions, used to purchase promissory notes for resulting in the seizure of aprx. 12 mln subsequent depositing with controlled rubles, freezing of over 27.5 mln rubles entities. Members of the gang did their and recovery of over 25 mln rubles worth best to make their the stolen funds appear of monetary assets and property. legitimate by distorting the information about their primary source. Real estate • The UFD Directorate, acting jointly property with a total value of 1 bln rubles with law enforcement authorities of the was frozen in connection with this case. Ural Federal District, uncovered a Ponzi The criminal case is currently pending in scheme operating in the UFD and other court. Russian regions over an extended period. ROSFINMONITORING Activity Report 2014 31 IRD of the Siberian Federal District (SibFD) branches of the Federal Tax Service, Rosfinmonitoring’s SFD Directorate and the Bank of Russia is the identification of the major operators of the black encashment market specializing in the use of payment terminals. SibFD • A total of 8,500 violations of the regulations governing the use of special The SFD Directorate conducted over bank accounts were identified, most of 4500 financial investigations in 2014. which occurred in the Novosibirsk Region, The SFD Directorate’s involvement and Altai Territory and the Irkutsk Region. materials gathered were instrumental in The Bank of Russia issued warnings to 4 the filing of over 200 criminal charges, 40 Novosibirsk credit institutions and sent court referrals and 15 convictions. newsletters to the branches of foreign Last year saw Rosfinmonitoring’s SFD Directorate conduct regular assessments banks. The license of one non-bank credit of risks, paying extra attention to dubious institution which acted as a private bank financial transactions involving transfers for Siberia’s largest payment processing of funds abroad and illegal money operator was revoked in September 2014. conversation. Investigations into the activities of other participants of these encashment schemes • The SBD Directorate identified 21 are ongoing. incidents involving transfers of large amounts of money abroad from the One important example of successful accounts businesses located in the interagency cooperation is the Republic of Buryatia, the Republic operation to close Siberia’s largest illegal of Khakassia, Altai Territory, Irkutsk, encashment center, carried out by the Kemerovo, Novosibirsk, Omsk and Tomsk local law enforcement agencies, the Main regions. Department of the Bank of Russia in the Kemerovo region and Rosfinmonitoring’s Information about each such incident SFD Directorate. In 2014, the Bank of is submitted to the General Prosecutor’s Russian revoked the licenses of two credit Office, which, in turn, conducts a checkup. institutions of the Kemerovo region. The For example, following such a check- ensuring criminal investigation resulted up by prosecutorial authority of the Omsk region, one suspicious transaction in criminal charges being brought against was invalidated and 420 mln rubles one of these credit institution directors reimbursed. and the seizure of aprx. 3 bln rubles worth A good example of successful IWG- of assets. based cooperation between the regional

32 ROSFINMONITORING Activity Report 2014 IRD of the Far Eastern Federal District (FEFD)

of Chinese nationals. In each such case, relevant information provided to law enforcement, customs and tax authorities withiheir area of competence. FEFD In particular, information concerning suspicious transactions carried out by one of the largest air carriers in the Far In 2014, Rosfinmonitoring’s FEFD East was used by the Far Eastern Customs Directorate conducted over 3000 financial Administration in its operational work. audits and investigations. The FEFD Following an audit, a decision was taken Directorate’s involvement and materials to adjust the customs value of goods and gathered were instrumental in the filing of charge the carrier an additional 376.8 mln 237 criminal cases, 147 court referrals and rubles in unpaid customs duties. The total 54 convictions. amount of penalties paid in connection One of the main areas of the FEFD with 26 administrative violations was Directorate’s activity last year was the over 1 mln rubles. fight against illegal financial transactions Rosfinmonitoring uncovered a number related to the siphoning of money into of criminogenic risk factors involving the offshore tax havens and encashment. use of cash in the priority sectors of the The work carried out jointly with local economy of the Far East, i.e., forestry, law enforcement authorities and branches fishing and gold/dimond mining, with of the Central Bank resulted in a 22 bln the former two being among the largest ruble decline in the value of suspicious in the country in terms of the sheer transactions related to the siphoning of amounts of funds involved. funds into offshore jurisdictions through Among the region’s specifics are a Primorsky Teritory-based credit heavy industrialization, extensive capital institution, an amount which constitutes flows and the presence of high value a significant proportion of the offshore- and laundering potential commodities, related business in the region. such as diamonds and raw materials, not to mention the risk associated with • Only in the second half of 2014 alone, gold mining. Legalized gold mining by competent authorities identified 21individual entrepreneurs in areas not instances of transfer of large amounts of deemed commercially viable has been a cash abroad from the accounts of legal major risk area in terms of illicit trafficking and natural persons in the Khabarovsk, in precious metals for a while now. Kamchatka and Primorsky Territories, Amur region, the Republic of Sakha (Yakutia), as well as from the accounts

ROSFINMONITORING Activity Report 2014 33 IRD of the North Caucasian Federal District (NCFD) charges under Art. 174.1 have been brought against 16 individuals, whereas 12 persons have been placed in custody. A total of 100 offenses related to drug distribution were merged into one prosecution. The total amount of laundered by the gang funds NCFD amounted to more than 50 mln rubles.

Rosfinmonitoring, working in close In 2014, Rosfinmonitoring’s NCFD contact with law enforcement authorities, Directorate conducted over 3700 prevented the use by the business elite financial audits and investigations. of one of the North Caucasian republics, Evidence gathered by Rosfinmonitoring which acted through controlled entities, was used by law enforcing to initial 61 of a fraudulent scheme designed to criminal cases. cause deliberate bankruptcy. Significant efforts in the region were The work aimed at decriminalizing devoted to the fight against public funds the energy industry of the NCFD is misuse. being carried out on an ongoing basis. The NCFD Directorate, acting jointly The information gathered by NCFD with law enforcement officials, illicit Directorate was used as evidence in scheme for large scale appropriation of many high profile cased in the region. public funds in the education sector of A good example of successful the Republic of Dagestan. cooperation with law enforcement A financial investigation conducted authorities was the work to suppress the in cooperation with the Economic activities of a group linked to the theft Security and Anti-Corruption Directorate and illegal use of housing certificates of the Ministry of Interior of the issued to residents of the Republic of Republic of Dagestan uncovered the Dagestan and Chechnya. Following an misappropriation by municipal official of investigation, 12 fraud charges have securities issued by the state corporation been filed so far. RusHydro. As a result of the measures One of the outcomes of the activates taken, a total of more than 10 million aimed at decriminalizing the banking securities were recovered and returned sector carried out jointly with law to the state. enforcement and regulatory authorities was the termination under Art. 7 of • While working in close contact with the Federal Law No.-115 FZ of bank account Stavropol Territory branch of the Federal contracts with 17 legal entities. Drug Control Service, the NCFD Directorate put an end to the activities of a criminal • An audit of the activities of group specialized in the large-scale customers of several Ingush commercial trafficking of synthetic drugs («spices») banks, i.e., Sunzha, Ringkombank in the Stavropol Territory, Karachaevo- and Spetssetstroybank, revealed the Cherkessia, North Ossetia-Alania. So far, use of illicit financial schemes for the encashment of embezzled public funds

34 ROSFINMONITORING Activity Report 2014 totaling 8.8 bln rubles. The investigation Among the outcomes of the NCFD findings were passed on to the Office of Directorate’s work in 2014 was a 3.7-fold the Plenipotentiary Representative of RF decline (aprx. 6.4 bln rubles) in the volume President in the North Caucasian Federal of funds leaving the NCFD and ending up District, the Office of Federal Security abroad. Service of the Republic of Ingushetia, and The NCFD Directorate also worked the Prosecutor’s Office of the Republic in tandem with local law enforcement of Ingushetia. On 24 February 2014, the authorities to mitigate the risk posed Central Bank revoked the licenses of these to the region’s security by individuals credit institutions, thereby disrupting the joining militant groups fighting in Syria. functioning of the illegal encashment center.

IRD of the Crimean Federal District (CFD) carried out.

The CFD Directorate’s work in the main areas of activity is being carried out with due account for the identified money CFD laundering and terrorist financing risks. The newly established in Crimea Russian banks, i.e., CHBRR and Sevastopol Morskoy Bank, as well as branches and subdivisions of the existing Russian banks (RNCB, GENBANK, etc.) contribute to the Rosfinmonitoring’s CFD Directorate bulk of Rosfinmonitoring’s transaction was established on March 31, 2014. database in the region. Its activities were carried out during Among the most relevant risks the term of a transition period, which faced by the CFD Directorate today are ended on 1 January 2015, provided for organizational and legal. This is due to in Article 6 of Federal Constitutional Act the process of transition to the Russian of 21 March 2014 No. 6-FKZ «Concerning legal environment and the heightened the admission of the Republic of Crimea risk of involvement of newly established into the Russian Federation and the Crimean entities in illegal activities. creation of the new constituent entities In this situation, the task of creating of the Republic of Crimea and the federal a transparent and loyal financial system city of Sevastopol within the Russian capable of adequately responding to the Federation». During this time, the work to new challenges and threats becomes integrate the new constitution territories particularly relevant. into the country’s economic, financial, credit, legal and statutory systems was

ROSFINMONITORING Activity Report 2014 35 VI. INTERNATIONAL COOPERATION One of the main areas of international organizations and Rosfinmonitoring’s activity in the field institutions as well as other countries. of international cooperation is the Along with the preparations for participation in the international anti- the upcoming round of evaluations, money laundering, terrorist financing Rosfinmonitoring was directly involved in and the proliferation of weapons of the process of bringing the national AML/ mass destruction system. 2014 saw CFT system into line with international the intensification of efforts aimed at standards. expanding cooperation with profile

FATF

The Russian FATF Presidency ended global network of unrecognized entities on July 1, 2014. Despite the politically and territories, and the completion of motivated decision to move the venue the third round of mutual evaluations, of the last FATF plenary meeting (22- resulting, among others, in the removal 27 June 2014) from Moscow to Paris, of Russia from a follow-up process and the constructive relations established the exiting by a significant number of by our country with its foreign partners countries of the FATF black and grey lists. prevented a boycott of the final stage The threat of further escalation of of the Presidency. While the success terrorist activities in the world and the of the Russian FATF Presidency helped fight against the emergence of increasing considerably enhance the credibility of sophisticated methods to finance them the Russian Federation not only in this added urgency to the international AML/ but also other partner organizations. CFT community’s task of coordinating Among others, the Russian FATF efforts in the fight against the financing of Presidency will be remembered for the Islamic State (ISIL) and organizations a successful study of financial flows in one way or another connected with associated with the production and it. The Russian Federation joined the trafficking of drugs from Afghan, which project to study ISIL’s funding sources was initiated by Russia, approval of the and channels, whose findings will be strategy for the involvement in the FATF presented in 2015.

MONEYVAL As part of priority efforts aimed Laundering Measures adn the Financing at ensuring compliance with the of Terrorism (MONEYVAL), thereby international AML/CFT standards, Russian confirming the accuracy of the FATF successfully defended in 2014 its third Plenary`s on Russia`s conclusions follow- follow-up report at the Committee of up report in October 2013. Experts on the Evaluation of Anti-Money

36 ROSFINMONITORING Activity Report 2014 The success enjoyed by Russia at the in combating the financing of weapons Council of Europe’s AML/CFT task force of mass destruction. Rosfinmonitoring’s meant the Russia was removed from presentation of its efforts in this new area the follow-up process till its next mutual work was hailed by the AML/CFT expert evaluation in 2018. community as an excellent example One of the outcomes of the MONEYVAL of the proper implementation of the December 2014 plenary session was updated FATF requirements. Russia’s presentation of its best practices

EAG

Established 10 years ago at Russia’s evaluations, the organization elected on initiative and remaining under its direct 1 January 2015 the former FATF President leadership until 2013, the EAG, a FATF- V. Nechaev (2013-14) to the position of style regional body, continues to play the Group Executive Secretary. the role of an important AML/CFT tool in Russia’s role was instrumental in Central Asia. assisting Kyrgyzstan and Tajikistan in While pursuing the goal of further exiting the FATF grey list, which made the strengthening the EAG’s capacity in the EAG the only FATF-style regional body run-up to the new round of FATF mutual with not a single grey-listed member.

THE COUNCIL OF HEADS OF FINANCIAL INTELLIGENCE UNITS OF THE CIS

The task of effectively mitigating generated by drug trade, and search for the ML/FT/PWMD risk was among and recover criminal assets in the CIS the priority of the Council of Heads of region, particularly those originating in Financial Intelligence Units of the CIS Afghanistan. (CHFIU), which is supported by Russia via At its meeting in November 2014, Rosfinmonitoring. In 2014, the Council the CHFIU approved the Action Plan to began its work on the implementation implement a set of measures aimed at of specific projects aimed at facilitating combating the financing of terrorism in FIU-based information sharing and the CIS for 2015-2016. The goal of the conducting joint operations to combat plan is to prevent the use of the CIS’s the financing of terrorism and extremism, credit and financial sector for terrorist identify and block the financial flows and extremist financing purposes.

BRICS

The level of AML/CFT-based meeting of the Heads of the delegations cooperation between BRICS member of Brazil, Russia, India, China and South countries expanded significantly in Africa was held in Paris on the sidelines of 2014. On October 21, 2014, the first joint the FATF plenary meeting. The meeting

ROSFINMONITORING Activity Report 2014 37 was initiated and chaired by Russia. sharing and assistance in preparing for a Meeting participants agreed on common new round of FATF mutual evaluations, approaches to a number of fundamental participating in the creation of the BRICS issues of the FATF agenda, discussed Development Bank and conducting the possibilities for implementing joint AML/CFT trainings for personnel. projects, in particular on experience

COOPERATION WITH FOREIGN FIUs Another important aspect of countries was continued. international engagement is the The number overseas requests cooperation with foreign financial received by Rosfinmonitoring in 2014 intelligence units, including in the remained roughly the same as in 2013. A framework of the Egmont Group. review of submitted requests shows that Considerable progress was achieved in foreign FIUs are particularly interested in the field of joint international financial Russia’s credit and financial sector. investigations. The information provided The information received by to Rosfinmonitoring by foreign FIUs Rosfinmonitoring from foreign FIUs contributed to the success of multiple allowed it to conduct hundreds of investigations, as well resulting in the financial investigations, as well as detention of suspects and initiation of providing evidence in criminal cases criminal proceedings. involving the acquisition of real estate The focus of bilateral cooperation was property abroad. on the consolidation of legal relations with Pursuant to the FATF Recommenda- partner FIUs. This work resulted, among tions and decisions of the Interagency others, in the signing in 2014 of several Working Group on Combating Illegal bilateral interdepartmental agreements Financial Transactions, Rosfinmonitoring, and protocols thereto, which paid due jointly with the Russian Interior Ministry, regard to the amendments made to Russian AML/CFT legislation by Federal took steps to terminate the activities of an Law No. 134-FZ. international criminal gang specializing in illegal encashment services and transfers • 2014 saw the signing of 9 bilateral of funds abroad. interagency agreements with the FIUs of Belgium, the Netherlands, Anguilla, Andorra, the Cayman Islands, the • The operation, conducted jointly Seychelles, Malaysia, Latvia and Myanmar, with the FIU of one European country, as well as 2 protocols on amendments to culminated in the first ever coordinated the existing agreements with the FIUs of detention of the gang members in Russia Brazil and China. and the freezing of bank accounts of non- resident companies controlled by the gang, The work to conclude bilateral along with the account of the gang leader agreements with the FIU of more than 50 in a foreign bank.

38 ROSFINMONITORING Activity Report 2014 The 7 detained suspects were charged The details of the investigation were with crimes falling under Art. 210 reported to the country’s leadership and (organizing a criminal group), Art. 172 published in the federal mass media. (engaging in illegal banking activities) and Art. 174.1 of the Criminal Code.

VII. OUR RESOURCES

TALENT POOL

The issue of providing financial To ensure that our public service intelligence units, law enforcement and vacancies go to the very best and supervisory authorities, and financial brightest talents, Rosfinmonitoring institutions with qualified personnel has established close cooperation capable of implementing tasks with the country’s leading universities related to the detection, suppression specializing in the relevant field. and prevention of ML/FT crimes has A total of 118 students underwent not lost its relevance. Therefore, apprenticeship training in the structural issues of selection and placement of subdivisions of the central office. personnel took priority in the relevant Rosfinmonitoring’s internal control subdivision’s activities, which included system, designed to identify problems holding holding competitions to fill that may potentially lead to the improper available vacancies and building a performance by staff of their work talent pool through the use of remote responsibilities, allows the agency to testing methods (e-testing) available on develop risk-mitigating solutions to such Rosfinmonitoring’s official website. problems on an ongoing basis.

TRAINING Improving professional skills of Training and Methodology Center for the FIU employees is a key priority Financial Monitoring (ITMCFM) or Rosfinmonitoring’s personnel • in the framework of workshops on management work. In 2014, training innovations and amendments to AML/ was provided: CFT legislation • with a focus on public procurement • online. • at the facilities of the International

ITMCFM ITMCFM’s work in 2014 was conducted and threats in the following areas: • Organizing international AML/ • Personnel training for the Russian CFT workshops, providing technical AML/CFT system, development of human assistance to partner countries in the resources in the light of new challenges development of national AML/CFT ROSFINMONITORING Activity Report 2014 39 systems Service, as well as the FIUs of Belarus, • Development of a Network AML/ Kazakhstan, Tajikistan and Uzbekistan. CFT Institute. A total of 1,200 Russian nationals attended ITMCFM courses in 2014, of The ITMCFM was instrumental in whom aprx. 600 represented supervisory raising awareness and ensuring practical authorities, aprx. 400 law enforcement, application by participants and AML/ and over 150 the private sector. CFT systems of Russia, EAG and the In order to promote international cooperation and collaboration in solving CIS of the FATF Recommendations, practical problems, as well as in view of introducing amendments to national the Russian FATF Presidency, the ITMCFM legal frameworks, promoting the use organized 5 international training events of new approaches to risk assessment, attended by more than 350 government and raising the level of interagency specialists from EAG and CIS countries cooperation. along with renowned international AML/ The ITMCFM actively participated in CFT experts. the training workshops on the use of The organized international workshop financial investigations findings in the helped strengthen the capacity of the work of law enforcement authorities, national AML/CFT systems of the ex- organized for law enforcement officials by Soviet area and beyond, as well as Rosfinmonitoring in 2014 and attended consolidated Russia’s leading position in by the employees of the Federal Drug the international anti-money laundering Control Service, Interior Ministry, Federal system. Security Service, Federal Customs

INSTITUTE OF FINANCIAL AND ECONOMIC SECURITY (IFES)

The IFES has provided trainings IFEB training courses were also since 2006 in the fields of «Integrated attended in 2014 by 35 students information security of automated from Armenia, Belarus, Kazakhstan, systems» («Information and analytical Kyrgyzstan, China, Moldova, Tajikistan security systems»), «Security of and Ukraine. information technology in law The Institute of Financial and Economic enforcement « and «Economic security.» Security MEPhI is a leading AML/CFT About 100 students undergo on-the- university in the structure of the Network job training at Rosfinmonitoring each Institute. year, where they also come to work after graduation.

40 ROSFINMONITORING Activity Report 2014 NETWORK INSTITUTE

Established with the support of the Specializing in Combating Money Federal Financial Monitoring Service, Laundering and Terrorist Financing (AML/ Ministry of Education and Science CFT)» . and the Federal Agency for Scientific The educational institutions Organizations, a Network AML/CFT participating in the Network Institute Institute continued its work in 2014 on the have set up their own field-specific base creation of an effective personnel training units specializing in AML/CFT training system for use by the national anti-money and research. laundering systems of the CIS and the Given the need experienced by the EAG, as well as on the advancement of EAG/CIS/BRICS for the training of highly scientific research in this field. qualified AML/CFT experts, the Institute In the spring of 2014, the ITMCFM held is working to expand its operations by the first meeting of the Board of a Network enlisting new members. AML/CFT Institute, which was attended One of the Network Institute’s priorities by over 20 representatives of the Institute of international cooperation lies in participants from 15 leading educational strengthening ties with BRICS countries and scientific institutions of Russia, in order to form a unified position on Kazakhstan and Kyrgyzstan. During the various important aspects of the global meeting, participants prepared a work AML/CFT system. To this end, the plan and identified the main objectives Network Institute has been expanding for the upcoming period. its cooperation with the Association of With a view to facilitating personnel Business Schools of the BRICS countries training, development educational designed to help promote Russia’s standards and programs for future engagement on the international stage AML/CFT experts, the Network Institute and expand cooperation with these developed the occupational standard countries. of a «Financial Monitoring Specialist

INFORMATION TECHNOLOGY

One of Rosfinmonitoring’s priorities expansion of interagency cooperation. in the field of information technology The key objective of Rosfinmonitoring’s was the development of the Unified work in the area of UIS development in Information System, which is needed 2015 is to ensure reliable functioning to automate the processes of risk of the system in providing information identification and evaluation. technology support to addressing the Among other activities carried out in following priority tasks: this field was the work to expand the • Performing the functions of a national functionality of various subsystems and risk assessment center components and develop a new stage • Monitoring the use of funds allocated of the Unified Information System, under defense contracts which provides for the use of advanced software and hardware solutions and

ROSFINMONITORING Activity Report 2014 41 • Implementation of the pilot project resources of public authorities to for the integration of information combat illegal financial transactions.

SECURITY

The key areas of Rosfinmonitoring’s • Implementation and development work related to internal security in 2014 of secure communication technologies were as follows: • Carrying out educational and • Taking steps to boost the preventive work engineering component of the data • Prevention of possible offenses. security system

42 ROSFINMONITORING Activity Report 2014

Moscow, 2015

44 ROSFINMONITORING Activity Report 2014