FINANCIAL NO. 22 December 2 0 1 8 SECURITY CONTENTS

5 Welcome Speech by Mr. Yury Chikhanchin, Director of Rosfinmonitoring 5th Anniversary of the International Network AML/CFT Institute 6 4th International Scientific and Practical Conference “The Era of Crypto Economy: New AML/CFT Challenges and Regtech” 8 “Staying at the Forefront of Current Development is the Best Way to Assess Emerging Risks” 10 “It’s Our Job to Make Technological Innovation Serve the Public Interest” 14 “Practical Impact of Our Efforts Must Increase Year After Year” 16 “The Stability of the Budgetary System Directly Depends on the Success of AML/CFT Efforts” 17 “Preserving Regulatory Stability is One of Our Priorities” 19 “The Key Feature of Modern Information Technologies is Its Rapidly Growing R&D Intensity” 21 “I’m Particularly Pleased to See the Younger Generation of Our Institute Contribute to Our Work” 23 “Regtech as an Effective AML/CFT Compliance Tool” 25 AML/CFT Decision-Making Support System 27 AML/CFT Specialists Training 29 Anniversary Meeting of the Board of the International Network AML/CFT Institute 31 Network-Based AML/CFT Training Mode: Development Prospects Digital currency 34 Bitcoin Price Dynamics: Results and Prospects in Russia Compliance 40 Improving Compliance Management In Industrial Enterprises Commonwealth of Independent States 45 Strengthening Cooperation with Relevant CIS Agencies and International Organizations Eurasian Group 48 Mutual Evaluation Report of Tajikistan Tops the Agenda International Block 51 It`s Necessary to Strengthen International Cooperation 54 MONEYVAL’s 57th Plenary Meeting Interagency Working Group 56 New Legislation Affecting the Trade in Precious Stones and Metals Fintech 59 Fintech’s Impact on Anti-Money Laundering and Terrorism Finicing Video Conferencing 63 The Purpose of the VCS Plan is to Strengthen the Capacity of National AML/CFT Systems in Eurasia Sport 67 Departmental Sports: 2018 Highlights News Block 71 A meeting in NWFD to discuss preparations for the 4th round of the FATF mutual evaluations 72 A meeting with the plenipotentiary representative of the Russian President in NWFD

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EDITORIAL BOARD

Chairman Deputy Chairman Editor of Editorial of Editorial in Chief Board Board Irina Ivanova Yury Chikhanchin Vladimir Ovchinnikov

Members of Editorial Board

Yury Korotkiy Galina Bobrysheva Vladimir Glotov Oleg Krylov Alexander Klimenchenok

Evgeny Legostaev Pavel Livadnyy Vladimir Nechaev Alexey Petrenko Andrey Frolov

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DEAR READERS,

ive years ago, in 2013, research centres of the AML/CFT Institute. Close 15 leading universities cooperation, experience sharing, and joint training and research centres of courses, conferences and workshops, form the the Russian Federation basis of a common educational environment and Fand its partner countries an integrated AML/CFT qualification assessment founded the International system of Eurasia. A close scrutiny of the educational Network AML/CFT Institute. processes at national universities by financial When it comes to the early intelligence units ensures that their graduates have stages of formation of this excellent employment opportunities. educational consortium, the support provided to the project by the Ministry of Today the International Network AML/CFT Institute Education and Science and the Federal Agency for is emerging as the world’s key AML/CFT talent Scientific Organizations was crucial, allowing us to set pipeline built around a new modern format of inter- both the immediate and long-term objectives for it. university and scientific partnership, a format that gives rise to innovative AML/CFT ideas and scientific Since then, the geography of the International developments and helps train professionals capable Network AML/CFT Institute participants has expanded of repelling economic attacks and countering considerably and today includes 35 universities and financial and economic risks and threats. Our to- research centres from 7 countries of Eurasia: Belarus, do list includes the updating and development Kazakhstan, China, Kyrgyzstan, Russia, Tajikistan and of new training programmes featuring innovative Uzbekistan. Among the AML/CFT Institute’s partners approaches and technologies, revision and are the UNCTC Global Counter-Terrorism Research augmentation of the existing teaching and learning Network, the Association of BRICS Business Schools, aids, strengthening of the relationship between the CSTO/EAEU Academy, and the scientific institutes training programmes and occupational standards to of the Russian Academy of Sciences. enable the training of in-demand specialists, and a number of other tasks. Each of the universities of the International Network AML/CFT Institute has a faculty, department or research We’ve built considerable educational and scientific centre specializing in AML/CFT training and offering capacity for the development of the AML/CFT degree programmes in this field. The uniqueness system both at the international and regional levels, of the AML/CFT training programme lies in its including for the preparation and undergoing of multidisciplinary scope that encompasses such areas evaluations by the FATF and FATF-style regional of study as computer science, economics, psychology, bodies, particularly the Eurasian Group. The high transnational crime in international relations, etc. quality of the work carried out by our consortium has been recognized for many years by both national Graduates from the universities of the International and international organizations. Annual reports on Network AML/CFT Institute are in demand among the activities of the AML/CFT Institute are presented not only financial intelligence units, but also affiliate to the President of the Russian Federation. All this agencies, corporations and organizations. makes it all the more necessary to continue to move forward, preserving and multiplying both I’d like to thank all stakeholders for their effective the network-based unity and uniqueness of all its work and cooperation between the universities and participants.

Yury Chikhanchin, Director of Rosfinmonitoring

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5th ANNIVERSARY OF THE INTERNATIONAL NETWORK AML/CFT INSTITUTE

4TH INTERNATIONAL SCIENTIFIC AND PRACTICAL CONFERENCES “THE ERA OF CRYPTO ECONOMY: NEW ML/TF CHALLENGES AND REGTECH”

The International Network AML/CFT Institute’s 4th Scientific and Practical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech” was held on 12 - 14 November 2018 in Moscow. The Conference was organized by the Federal Financial Monitoring Service, the International Training and Methodology Centre for Financial Monitoring (ITMCFM), Lebedev Physical Institute (FIAN) and the National Research Nuclear University MEPhI

Konstantin Litvinov, Editor-Observer

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he conference was attended by over 500 representatives of EAG, CIS and BRICS financial intelligence units, universities and scientific organizations, Russian government agencies Tand financial and non-financial institutions. The conference was dedicated to the issues outlined in Presidential Instruction No. 2037 dated October 5, 2017, which urged authorities to work on the development, creation and application of modern IT solutions to the regulation and analysis of financial flows, as well as on the development of innovative financial oversight tools that leverage the potential offered by artificial intelligence and regulatory and blockchain technology, particularly in relation to crypto assets.

On the opening day of the conference, hosted by FIAN, welcoming remarks to the participants came with the Presidential Administration. M. Strikhanov, from Yu. Chikhanchin, Director of Rosfinmonitoring; Rector of MEPhI, and V. Glotov, Deputy director of A. Seryshev, Assistant to the President of the Russian Rosfinmonitoring, delivered opening remarks to the Federation; M. Kotyukov, Minister of Science and participants. Alongside senior officials of federal Higher Education; S. Ryabukhin, Chairman of the agencies and educational and scientific institutions, Council of Federation of the Federal Assembly of the conference was attended by representatives of the Russian Federation Committee for Budget and major state corporations from among the industrial Financial Markets; I. Divinsky, First Deputy Chairman partners of the International Network AML/CFT of the State Duma’s Financial Market Committee; Institute, including Rostec, Rosseti, Russian Railways, G. Mesyats, Academician of the Russian Academy Roskosmos and Aeroflot. Speaking on behalf of the of Sciences and member of the RAS Board; and Presidential Administration, V. Belinsky, Information Vrindaba L. Gohil, First Secretary of the Trade Officer with the Presidential Administration’s Anti- Department of the Embassy of India in Russia. Corruption Department, presented a report on the liability of legal persons for corruption offences. Thematic sections of the conference took place at FIAN and MEPhI, along with the student forum Participants in the second part of the conference, “Digital Economy in the Context of National Security” held in the roundtable format, continued to discuss and sports competitions for students. topical issues of compliance with anti-corruption legislation. Participants attended the scientific-practical workshop “Combating Corruption as a Factor of Stable The conference ended on November 14 at FIAN with Economic Development”, organized in collaboration a summary of its outcomes.

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“STAYING AT THE FOREFRONT OF CURRENT DEVELOPMENT IS THE BEST WAY TO ASSESS EMERGING RISKS”

Welcoming remarks by Presidential Aide A. Seryshev at the International Network AML/CFT Institute’s 4th Scientific and Practical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Dear participants and guests of the international conference!

On behalf of the Administration of the President of the Russian Federation and on my own behalf, I’m happy to welcome you to the conference of the International Network AML/CFT Institute.

I’d like to point out that on the instructions of the Russian President, events like this one have been organized at the country’s leading research institutes and universities for four years now.

It’s become a good tradition for prominent scientists, experts and practitioners to participate each November in discussions of the most pressing issues pertaining to the international AML/CFT system and its role in protecting the security of national economies. And today we are glad to see in attendance today the heads of financial intelligence units and the heads of delegations of the states participating in the EAG Plenary meeting. Anatoly Seryshev

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It was only 10 years ago that the first cryptocurrency made its debut, and today there are more than 1,600 types of digital financial assets and 500 crypto exchanges, with cryptocurrency market capitalization estimated at $370 billion.

Although the term “Regtech”, or regulatory technology supporting the crypto economy, first appeared only three years ago, today these latest information/legal/regulatory instruments have become an integral part of financial companies’ business processes, with central banks and AML/CFT regulators looking at ways to make them part of their oversight toolkit.

Against the backdrop of digital transformations affecting the financial sector, our job lies in leveraging the new technological capabilities to improve data collection and analysis and streamline oversight and management. I’m confident our conference will facilitate a constructive exchange of experiences and advanced At the same time, staying at the forefront of current technology, enabling us to find optimal solutions. developments is the best way to understand and assess emerging risks and find regulatory and I wish all conference participants successful and supervisory solutions to their mitigation. fruitful work!

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“IT’S OUR JOB TO MAKE TECHNOLOGICAL INNOVATION SERVE THE PUBLIC INTEREST”

Welcoming remarks by Rosfinmonitoring Director Yu. Chikhanchin at the International Network AML/CFT Institute’s 4th Scientific and Practical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Good morning, dear conference participants!

Today, the global financial sector is inextricably linked with new technology and innovation, as the pace of development of the latter is so rapid that it can be described as revolutionary. And like any revolutionary process, it elicits mixed reactions. Let’s take countries’ reactions to the crypto evolution, for example. There are those that banned cryptocurrencies outright and those that did the opposite – embrace them.

The development of technologies has ushered in a new era of intense competition in the financial services market, forcing the banking sector to seek out new technological solutions needed to stay ahead of the curve. To this end, the world’s leading banks have been tracking and buying Fintech start- ups and investing in in-house R&D. Yury Chikhanchin

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Mobile banking, biometrics, blockchain and crypto and the business. All these initiatives are being assets are all fruits of the new technological revolution closely monitored by the Presidential Administration. in Fintech. The rapid development of this sector has brought about the emergence of regulatory It’s not a secret that modern technology is used technology, or Regtech, which is predominantly used today to not only promote financial inclusion but for automation and digitization, including of AML/CFT also commit crimes, necessitating the use of this regulations. Regulatory technology helps businesses technology by financial intelligences units to identify offering financial services stay compliant with laws suspicious transactions and track illegal assets. and regulatory standards. This work is carried out in close collaboration with the Russian Academy of Sciences and with support The FATF, the global standard setter for money from the Ministry of Science and Higher Education, laundering and terrorist financing, has also embraced represented by its Minister Mikhail Kotyukov. A good these innovations and begun to explore the example of such collaboration is the implementation, opportunities for improved AML/CFT compliance with the support of the Russian President, of offered by Fintech and Regtech. Crypto is another the “Comprehensive AML/CFT Research Plan” segment to fall under the FATF’s scrutiny. In 2015, programme. The CRP Board is chaired by Viktor the FATF released its first guidance for a risk-based Zubkov, the founder of the Russian financial approach to virtual currencies. Since then, the market intelligence unit, with most of the work being carried for these services has expanded so much as to warrant out by the Lebedev Physical Institute, led by Nikolai calls from representatives of government agencies and Kolachevsky. The involvement in this project of the the private sector for the FATF to clarify the application banking community makes it particularly important. of its Recommendations to the crypto sector. I’d like to take this opportunity to express my deep gratitude to the Chairman of the board of VTB Bank, In October 2018, the FATF revised its Recommendations Andrei Kostin, for his support for the CRP. to address new developments in the global financial market, requiring countries to ensure compliance In line with the government programme for the of virtual asset service providers with international development of science and technologies, the AML/CFT requirements. In particular, they are required Russian Academy of Sciences has approved a to conduct customer due diligence, including ongoing List of priority basic research programmes until monitoring, recording and reporting of suspicious 2020, assigning the responsibility for monitoring transactions, as well as be licensed or registered. its implementation to Gennady Mesyats, RAS Academician, Member of the RAS Board and Chairman It should be noted that these requirements of the of the RAS Board Committee on the Establishment of international community are fully supported by the List of Basic Research Programmes, who is Russian parliament. At the same time, international attending today’s conference jointly with his colleagues: experts continue to show a keen interest in the Taliya Khabriyeva, Director of the RF Government’s developments in this area in Russia, as evidenced by Institute of Comparative Law and Legislation; Fyodor their participation in our international conference. Voytolovsky, RAS Correspondent Member and director of E. Primakov National Research Institute Meanwhile, the Russian Federation is working hard to of World Economy and International Relations, prepare for the upcoming FATF evaluation, scheduled and Albert Bakhtizin, Director of the RAS Central for 2019, including by taking steps to implement the Economics and Mathematics Institute. said initiatives. With the support of the country’s leadership, we are consistently working towards As part of the implementation of the RAS programme the strategic objective of improving the country’s “Fundamental Research on Economic Security”, AML/CFT system. On May 25, 2018 the Russian researchers explored opportunities for bolstering the President signed the National AML/CFT System country’s sovereignty and achieving the objectives Development Concept. Another initiative endorsed set out in the new Presidential Decree dated May 7, by the Russian President – the “Information Society 2018, among which are achieving GDP growth rates 2010” programme – aims to share the benefits of above the global average, thereby making Russia one information and telecommunication technology of the world’s top five economies, and accelerating with society, and to use it to promote efficient and Russia’s technological development through a sharp effective collaboration between the state, citizens increase in the number of high-tech companies.

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While remaining under sanctions, Russia should not only strengthen its sovereignty, but also accelerate its economic growth and development of the high-tech sector. The study analysed the effectiveness of the mechanisms used to solve these problems.

Economic growth, among other things, is tied to foreign direct investment, which, however, poses certain risks to sovereignty and state security, including, among other things, dependence on adopted foreign technologies, the slow pace of its own technological innovation and brain drain.

Modern economic and political realities are Importantly, even in the case of regulated transactions, characterized by a significant increase in the scale and they are carried out through crypto exchange quality of threats and challenges to national security and platforms that, as a rule, are located abroad and are the sustainable development of the Russian Federation. not subject to Russian regulation. The current situation A particular feature of the emerging configuration is highly dangerous, requiring intensive efforts from is, in particular, the dramatically increased role of both academia and the law enforcement community threats and challenges directly or indirectly related to in general and its AML/CFT arm in particular. AML/CFT/PF. In this regard, qualitative requirements placed on forecasting, identifying, analysing and Automation of analytics and investigation processes developing countermeasures in this area also increase requires the creation of reliable mathematical models sharply. capable of describing economic, social, international and other contexts of phenomena relating to the One structural feature of AML/CFT challenges and matter at hand. The creation of such models depends threats is the importance of computer technology. This on a close synergy between science and practice. also applies both to the widespread use of analytics, I’m convinced that this conference will undoubtedly including predictive with the use of big data, and, in help strengthening this synergy. general, to the increased use of computer technology by both criminal entities and law enforcement. A key The rising volumes of cross-border remittances role here is played by the ever more intensive use of and the emergence of new payment options create artificial intelligence. large volumes of data. Big data, however, are not the only challenge facing those tasked with AML/CFT. Digital technology already plays a key role in the Other challenges include the emergence of new life of modern society, and it can be expected ML/TF schemes and the rise in international organized that in the future its importance will increase crime, terrorism and corruption, compounded in exponentially, strengthening the relationship between the latter case by the illicit market for virtual assets. its possession and the country’s sovereignty. In this Criminals use electronic payment systems and regard, the development of breakthrough, home- cryptocurrencies to pay for drugs and to enable grown information technology capable of putting drug-related money laundering. the country at the forefront of the near-term socio- economic reality appears essential. Progress in To mitigate the emerging threats and risks of abuse developing breakthrough AML/CFT technology will of new technologies for ML /TF purposes, one needs not be possible without a multi-disciplinary team of qualified personnel. To this end, five years ago, with professionals with top-level scientific and practical the support of the Russian President, we established expertise and the ability to use existing and promising the International Network AML/CFT Institute, currently technologies to find breakthrough digital solutions. comprising 35 universities and research centres in Russia and its AML/CFT partners around the world. The focus of the international community’s attention Among the institute founders was the incumbent has recently been on cryptocurrencies, which allow Minister of Science and Higher Education, Mikhail their users to carry out transactions, including for Kotyukov, on whose ministry’s support for the project criminal purposes, through unregulated channels. we continue to count.

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In formulating the national strategy for developing supplements to the Recommendations, with which all the crypto economy and new technologies, it’s very of us, including Russia, will have to comply. important to not only keep track of global trends, but also recognize one’s potential as represented by the Today our country is among the world leaders in Russian scientific community. The universities of the Fintech and Regtech development. We have an International Network AML/CFT Institute – MEPhI, agreement with the FATF President to showcase Financial University, Diplomatic Academy, etc. – Russia’s achievements in creating AI-powered contribute to the development of new technologies. AML/CFT firmware solutions. Already today, we have The expert pool built at the AML/CFT Institute consists something to share with the international community. of leading scientists working on ways to make Fintech Among those unable to resist the appeal of new compatible with AML/CFT requirements. To this end, technology are major Russian corporations, the we have maintained fruitful long-term relations with the country’s railway industry and the defence sector. research teams of the universities headed by members Our job, however, is to make technological innovation of the AML/CFT Institute Board, Mikhail Strikhanov, serve Russia’s interests by using it as a reliable barrier Mikhail Eskindarov and Evgeny Bazhanov. to financial and economic crime.

On the other hand, rather than shutting ourselves We have the opportunity to contribute to the formulation off from the world, we should use the available of a global crypto strategy, to be adopted by the FATF opportunities to try to influence the international already next year, a task today’s conference should expert community represented by the FATF. We also help addressing. must safeguard Russia’s interests in this matter, as it will come back in the form of amendments and Thank you!

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“PRACTICAL IMPACT OF OUR EFFORTS MUST INCREASE YEAR AFTER YEAR”

Welcoming remarks by the Minister of Science and Higher Education M. Kotyukov at the International Network AML/CFT Institute’s 4th Scientific and Practical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

On the eve of the first anniversary of the International Network AML/CFT Institute, I’m glad to welcome all of you to the 4th Scientific and Practical Conference, held here at the legendary FIAN.

The urgency of the ML/TF challenges facing us requires the consolidation of efforts at both national and international levels. The fact that the International Network AML/CFT Institute currently unites 35 universities and research centres from around the world is a testament to the powerful intellectual capacity generated by this organization.

The multidimensional nature of the challenges facing us means that only by combining the efforts of professionals working in such diverse fields as IT, international relations, economics, law, social studies, psychology, etc. can we overcome them. In parallel, we should work on the training of AML/CFT personnel, a task to which the efforts of the Mikhail Kotyukov

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AML/CFT Institute as a mobile and highly effective vehicle for systematizing the work in this area are dedicated. Notably, this is the first network- based educational programme implemented by us in Russia, representing an experience that, based on what has been achieved in the past five years, can be described as unqualified success. It would not have been possible for us to implement this project without the hands-on, literally daily, involvement of Rosfinmonitoring’s director. Thank you very much for this. As for me, I supported, support and I will continue to support this project, wherever I’m in life.

I will highlight a few key areas where we need to make significant progress already in the very When it comes to the scientific systematization of near future. I’m obviously referring to IT, studying challenges and threats, the study of international and systematizing the ML/TF challenges and experience is particularly important. We must build threats, and personnel training. In this regard, the a comprehensive knowledge base and ensure its development of advanced hardware and software scientometric support. In this regard, the involvement solutions for collecting, systematizing and analysing of organizations from different countries in the work data required for effective decision-making is one carried out by the Network AML/CFT Institute brings such key area. A special role here will undoubtedly us even closer to finding solutions to the most be played by AI-driven technologies capable of serious challenges. ensuring the maximum possible automation and release of highly qualified human resources for the It’s important to develop contemporary educational analysis of non-trivial problems, of which there are programmes whose scope will encompass disciplines quite a few in this area. crucial for the understanding of modern realities. It’s highly desirable for Russian and foreign organizations Importantly, the range of the AML/CFT Institute to participate in joint educational projects. I’m participants allows us to leverage the know-how confident that the experience accumulated is very and hands-on expertise from many fields to solve considerable, which allows me to hope that this practical problems. A good example of such conference and today’s meeting of the Board of the multidisciplinary engagement is the experience International Network AML/CFT Institute will enable us involving the formulation of the complex research to systematically consider its results and determine agenda entitled “Mathematical and Socioeconomic the necessary points of application of our efforts to Modelling for AML/CFT Purposes”. The results of this ensure that the future achievements are even more complex scientific task – one of the first examples of ambitious, while increasing the practical impact of successful cooperation between RAS institutes and our efforts year after year. universities working in this area – are already being tested today. Good luck with your work and all the best!

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“THE STABILITY OF THE BUDGETARY SYSTEM DIRECTLY DEPENDS ON THE SUCCESS OF AML/CFT EFFORTS”

Welcoming remarks by the Chairman of the Council of Federation of the Federal Assembly of the Russian Federation Committee for Budget and Financial Markets S. Ryabukhin at the International Network AML/CFT Institute’s 4th Scientific andP ractical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Good afternoon!

The significance and role of the International Network AML/CFT Institute’s efforts will directly depend on the stability of the budgetary system and implementation of the national projects outlined in the Russian President’s March address to the Federal Assembly as well as his other decrees. Colossal financial resources running into tens of trillions of rubles will be needed, making the stability of the budgetary system directly dependent on the success of AML/CFT efforts in implementing the country’s socio-economic agenda.

The Federation Council and the relevant committee, which I chair, will be happy to join in these efforts by providing the necessary legislative support. I would like to extend my sincere greetings to all conference participants and wish them excellent results! Sergei Ryabukhin

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“PRESERVING REGULATORY STABILITY IS ONE OF OUR PRIORITIES”

Welcoming remarks by First Deputy Chairman of the State Duma’s Financial Markets Committee I. Divinsky at the International Network AML/CFT Institute’s 4th Scientific and Practical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Dear colleagues!

I’d like to quote the opening address by Rosfinmonitoring Director Yury Chikhanchin from today’s conference policy paper: “In the digital age, those who blaze new trails in finance and economics must be on the same team with those who think about regulation and oversight – otherwise, the risks and threats become unmanageable. In our subject area – combating money laundering and terrorist financing – international standards required countries to take measures to mitigate risks posed by new types of financial services long before the emergence of cryptocurrencies, blockchain or even the term “Fintech” itself.”

I want to draw your attention to the fact that some State Duma deputies working in this area have long since joined the efforts to build a team, are making their own contribution to the national AML/CFT system and stand ready, despite the current difficult conditions, Igor Divinsky to lend their hand as required by the principles of good teamwork.

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However, the team faces a number of new challenges. On the one hand, the increased terrorist threat, the unfavourable international situation and the emergence of new money laundering channels necessitate the strengthening of oversight by all government agencies over cash flows both within the country and outbound streams. On the other hand, the rapid digitalization of financial markets and the formation of new markets for goods and services necessitate a requisite overhall of the AML/CTF/PF risk assessment and management systems both at the state level and by financial market participants.

A serious challenge is also posed by the public’s At the same time, one of the primary objectives increasing involvement in the transformation of the of any legislative work is to ensure the stability of existing digital environment. In the era of increased the regulatory environment and low cost of doing digitalization, expanded use of non-face-to-face business, by estimating the financial consequences payment methods, the growing popularity of non- of your action for economic entities, a task Russian fiat currencies, and emerging new challenges and officials are notoriously bad at. threats related to the use of new technology for ML/TF and tax evasion purposes, one of the most important In view of the foregoing, I suggest we all work very tasks faced by the government lies in assessing the hard today in order to enable our team to achieve the impact of these risks on the economy and taking desired result already next year. timidly regulatory action designed to prevent and mitigate it. Thank you!

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“THE KEY FEATURE OF MODERN INFORMATION TECHNOLOGIES IS ITS RAPIDLY GROWING R&D INTENSITY”

Welcoming remarks by Levedev Physical Institute Director N. Kolachevsky at the International Network AML/CFT Institute’s 4th Scientific andP ractical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

This is already a second time representatives of government agencies, scientific organizations and universities, along with foreign colleagues and undergraduate and postgraduate students, have come to FIAN to find answers to the AML/CFT challenges facing Russia and the international community. As outlined by the Russian President in his assignment to all of us, we must leverage the potential offered by artificial intelligence to regulate and analyse both domestic and cross- border financial flows.

Indeed, the use of information technology is becoming one of the most important factors shaping up the existing socio-economic realities. New challenges associated with the sharp rise in the volumes of both personal and impersonal payments call for the development of reliable risk-mitigation tools, including for AML/CFT. One key feature of modern information technology is its rapidly growing R&D intensity. Nikolai Kolachevsky

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Russia has adopted and is implementing the comprehensive interagency research programme “Mathematical and Socio-Economic Modelling for AML/CFT”. The development of artificial intelligence technologies depends on the creation of highly skilled multidisciplinary teams, a process of which personnel training is an integral part. The cost of breakthrough technologies is very high, requiring a close symbiosis between education, science, theory and practice.

FIAN, which has recently been granted the status of a backbone physical sciences institution in the CIS, has brought together today representatives of the Russian Federation, India, Kazakhstan, China, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. community in the AML/CFT sphere, as well as Participants will discuss a wide range of practical in such areas as economic security, education, and scientific challenges facing the international science impact assessment, etc.

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“I’M PARTICULARLY PLEASED TO SEE THE YOUNGER GENERATION OF OUR INSTITUTE CONTRIBUTE TO OUR WORK”

Welcoming remarks by G. Mesyats, Member of the Presidium of the Russian Academy of Sciences and RAS academician at the International Network AML/CFT Institute’s 4th Scientific andP ractical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Dear colleagues, on behalf of the Presidium of the Russian Academy of Sciences, I’m delighted to welcome you to the Conference, hosted once again by the RAS Physical Institute.

When viewed from the RAS’ perspective, this conference is exceptionally interesting not only because of the objectives it sets, but also as an experiment that shows that certain areas of scientific research, which seemed completely incompatible, suddenly find common problems to solve, common methods to use and so on. The history of modern science, however, is littered with examples of such convergence, where some methods had an enormous impact on developments in other areas. Gennady Mesyats

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When we started this work, the Director of the Institute of Legislation and Comparative Law and RAS academician Taliya Khabrieva suggested that we should consolidate the programme under the title “Fundamental Problems of Financial Control”. To which I replied, “Don’t you think that fundamental control problems are best tackled by prosecution, investigative and other authorities?” And then she explained to me the importance of involving fundamental physics, mathematics, etc. in finding solutions to the problem. It struck me as being rather odd. And now, after seeing the Physical Institute and other research teams from across the country get involved, we view it as a very exciting experiment that can benefit our science. I’m particularly pleased to see the younger generation of our institute contribute to this work. only superficial, but perhaps such a comparison When colleagues from the relevant department has the right to exist. told me about financial controls, I thought that the whole thing was highly reminiscent of the Thank you very much for taking part in this labelled atom methods in physics, where isotopes conference. Separately, I would like to wish you that have been injected into a person’s body are success in implementing financial controls and all tracked as they run through the vessels, with the best! data gathered then being used to draw certain conclusions. I understand that this similarity is Thank you!

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“REGTECH AS AN EFFECTIVE AML/CFT COMPLIANCE TOOL”

Welcoming remarks by Vrindaba L. Gohil, the First Secretary (trade) at the Embassy of India in Russia at the International Network AML/CFT Institute’s 4th Scientific andP ractical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Dear conference participants, good morning!

As words like artificial intelligence, cryptocurrency and blockchain go mainstream, it becomes extremely important for us to start using these technologies to tackle regulatory problems.

Meanwhile, the rapid digitalization of the Indian economy means that we become less and less reliant on cash. Indian firms and companies use technology to bring down the cost of compliance. In addition, the same technology is used to protect investments made by business owners and to counter abuse and fraud.

The markets in India are experiencing rapid growth, with new mergers or acquisitions occurring on a daily basis. Large companies are well aware of the serious penalties for non-compliance with AML/CFT requirements. Companies, no matter their size, are gathering strength and building capacity needed to embrace Regtech or adapt to the use of new technology. Vrindaba L. Gohil

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By 2020, global digital payments are expected to be worth 726 billion dollars. At this volume, detecting fraud becomes an additional challenge.

This is where artificial intelligence comes in. With instant payments already a reality, it takes trading platforms mere seconds to access transaction data, identify fraudulent schemes and take countermeasures. Regtech is an effective tool to counter such crimes and ensure compliance with AML/CFT requirements. When paired with artificial intelligence, Regtech can not only boost the effectiveness of the AML/CFT system, but also strengthen international relations in this field.

As new Fintech products continue to hit the market, the number of money laundering and fraudulent including for improving financial inclusion, bolstering schemes involving digital technology also grows. the financial system and increasing transparency. Today, Indian law enforcement agencies already For this reason, the Indian Government has set up use cutting-edge technology to investigate such an ad hoc working group tasked with regulating crimes, including terrorism. digital currencies, a job that requires an in-depth study of the existing regulatory framework and Since making its debut back in 2009, Bitcoin – possible legal implications. the first cryptocurrency – has attracted a lot of attention, becoming the currency of choice for Russia and India have much to learn from each many traders. Naturally, India has also jumped on other. For example, we can share experiences in this bandwagon. As of September 2017, the total using Fintech, Regtech and blockchain technology. number of blockchain wallets was estimated at 15 On behalf of the Indian Embassy in Moscow, million, of which 1.5 million belonged to users in I would like to thank Rosfinmonitoring and the India. And these numbers keep on growing. Today, Russian Academy of Sciences for organizing this many countries see certain challenges to their conference. I’m confident that by combining the national security, including those emanating from efforts of our financial agencies, including through cryptocurrencies. It’s these challenges that were the organization of such conferences, which are behind the Indian national authorities’ decision to attended by experts from around the world, we will limit the use of cryptocurrencies. be able to strengthen the financial security of our countries and better understand the methods used Although the Indian Central Bank has banned the by today’s criminals. use of cryptocurrencies by reporting entities, we recognize the new technology’s growing potential, Thank you very much!

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AML/CFT DECISION-MAKING SUPPORT SYSTEM

From a statement by A. Leonidov, Head of the Laboratory for Mathematical Modelling of Complex Systems, Lebedev Physical Institute’s Department of Theoretical Physics, at the International Network AML/CFT Institute’s 4th Scientific and Practical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Dear colleagues!

The purpose of the AML/CFT decision-making support system, which is being developed in compliance with the Russian President’s instructions, is to develop AI- driven hardware and software solutions designed to improve the effectiveness of AML/CFT efforts. This work is being carried out in accordance with the comprehensive research programme “Mathematical and Socio-Economic Modelling for AML/CFT Purposes”.

The key objective of the system is to analyse the available data. In this context, the first, and perhaps the most important, task facing us is to create an expandable AML/CFT knowledge base, a task that requires both considerable efforts and responsibility. Andrey Leonidov

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The complexity of the modern information space analytics unit, which includes all high-tech modules, means that any success here depends on our ability including data analysis, automatic replenishment of to make it more compact, with the emphasis not on the knowledge base, etc. the formal listings of ML schemes, but rather on the quality of the process. Once your data have been In reference to the above, I want to empathize made more compact, you can begin automating the that when searching for data in such a complex case search process. As your search intensifies, it landscape, a literal translation does not work. To becomes necessary to enrich the available data, ensure a compact representation of information, by adding additional layers of information, filing one needs to use a universal representation tool additional requests and providing other analytical called a multigraph, an object that can exhibit rich and informational support to this process. dependencies between entities. This representation is particularly appropriate for tackling anti-money As a result, besides facilitating the investigation laundering tasks – and vital to organizing an effective process, you automatically acquire an adjustable search process. AML/CFT risk profile, allowing you to promptly assess the relevant risks and threats. And finally, Another key feature of this process is effective as part of its support for the investigation process, parallelization. Functions and duties within the the system helps analysts monitor compliance with program must be divided between different agents, applicable procedures. meaning that in this case it will be a multi-agent algorithm on many levels, with the first level being As for the system operation specifics, naturally the multi-agency of the search itself. This will enable everything begins with incoming data and, as a first the ranking of the identified cases. step, the need to standardize it. The problem here lies in the inability of traditional methods to cope To date, we have implemented a machine-readable with big data, requiring one to think long a hard ontological description of key ML schemes, a text about how to store it as compactly and logically as normalization procedure for suspicious transaction possible. Today, it’s not possible to pack these data reports sent to Rosfinmonitoring by banks, and in a database without addressing some fundamental a prototype algorithm for analysing the structure issues. The key element of such a system is its associated with cryptocurrency wallets.

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AML/CFT SPECIALISTS TRAINING

Remarks by the Rector of the National Research Nuclear University (MEPhI) M. Strikhanov at the International Network AML/CFT Institute’s 4th Scientific andP ractical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Our cooperation with Rosfinmonitoring goes back more than 12 years, with the focus of the last 5 years being largely on the work carried out by the network AML/CFT Institute. Our partners here have been the universities of the Russian Academy of Sciences and Eurasia. This cooperation allows us to fulfil the key, in my opinion, principle of this network-based educational alliance – multidimensionality.

It’s important to note that all universities making up the MEPhI work in various priority areas of government concern: nuclear and plasma technologies, space, biomedicine, etc. But today, more than anything, I want to tell you about the unit primarily tasked with addressing the issues related to financial and economic security, the development of information technologies and cooperation with Rosfinmonitoring. In our training of AML/CFT personnel, we use educational innovations that allow university graduates to be at the forefront of a branch of science that deals with information technology and AML/CFT. Mikhail Strikhanov

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Importantly, this training programme is popular with MEPhI students. The average USE score of the applicants enrolling for it is higher than the average university score, hence students consciously choose to study the subject related to financial and economic security.

Previous speakers already talked about the main AML/CFT challenges and areas that need to be covered by our training programmes: robotics, all types of cryptography and cryptology, cloud computing, everything having to do with mobile payments and their tracking, etc. I believe these subjects should be present in the AML/CFT Institute’s curriculum. In this area, we work closely with Lebedev Physical Institute, total student population, or 1500 students from by jointly introducing changes to the learning 57 countries. For this reason, all our programmes process. are also available in English.

Notably, MEPhI offers a full spectrum of training In conclusion, I want to say that we conduct regular opportunities, ranging from vocational training surveys among the students of INI universities and and guidance for secondary school students potential employers to identify the key requirements to undergraduate, graduate and postgraduate that must be taken into account when preparing the programmes. At a board meeting of the network curriculum. AML/CFT Institute, we will examine the relationship between these programmes in more detail. I want to emphasize once again that a fundamental approach to teaching is key to the training of subject- I’d like to say a few words about foreign students matter specialists in general and multidisciplinary studying at the MEPhI. Our development strategy AML/CFT experts in particular. And without a doubt, sees their number reach 23 % of the total number we must continue to promote cooperation among the of students by 2020. Notably, the MEPhI had universities of the AML/CFT Institute with a view to been closed to foreign students until 2010, creating a common educational environment across and today they account for about 20 % of the Eurasia.

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ANNIVERSARY MEETING OF THE BOARD OF THE INTERNATIONAL NETWORK AML/CFT INSTITUTE

The anniversary meeting of the Board of the International Network AML/CFT Institute was held on 12 November 2018 as part of the 4th Scientific andP ractical Conference “The Era of Crypto Economy: New ML/TF Challenges and Regtech”

Konstantin Litvinov, Editor-Observer

n his opening remarks to the participants, the Eurasia. Today the International Network AML/CFT Chair of the Board of the International Network Institute is transforming itself into the world’s key AML/CFT Institute, Yury Chikhanchin welcomed AML/CFT talent pipeline built around a new, the Board members and thanked the personnel contemporary format of inter-university and scientific Iof the INI universities and research centres for their partnership.” work and fruitful cooperation: V. Ovchinnikov, the First Deputy Director of the “…Close cooperation, experience sharing, and joint International Training and Methodology Centre for training courses, conferences and workshops form Financial Monitoring and Director of the International the basis of the common educational environment Network AML/CFT Institute, outlined the prospects and AML/CFT qualification assessment system in for the development of a network-based system

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of AML/CFT personnel training. N. Kolachevsky, Rectors of the INI universities shared their experience Director of the Lebedev Physical Institute of the of scientific work and personnel training in the Russian Academy of Sciences, shared insights universities of the International Network AML/CFT on the implementation of the complex research Institute. At the end of the meeting, Yury Chikhanchin agenda entitled “Mathematical and Socioeconomic awarded honorary certificates to the staff members Modelling for AML/CFT Purposes”. of the INI universities.

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NETWORK-BASED AML/CFT TRAINING MODE: DEVELOPMENT PROSPECTS

A speech by V. Ovchinnikov, Director of the International Network AML/CFT Institute at the 10th meeting of the INI Board

mong the national security threats and challenges facing Russia today are terrorism, various types of extremism, corruption and embezzlement of public funds, i.e. Aoffences that are typically accompanied by illegal transactions and, ultimately, money laundering. The purpose of the FATF Recommendations is to combat these crimes, including by requiring countries to ensure compliance of their AML/CFT systems with these standards. The success of these efforts depends largely on the qualifications of AML/CFT personnel, who, in addition, must also contend with a rapidly expanding range of transactions, payment systems and their providers, which makes the task of combating financial crime ever more difficult. A list of priorities facing AML/CFT personnel includes the prompt detection and prevention of financial and economic crimes. Vladimir Ovchinnikov

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The actual number of people currently working in educational centres, faculties and institutes – which AML/CFT – combating not only illegal transactions are currently attended by a total of 2 627 students in Russia but also cross-border crime – in Russia and whose teaching staff have undergone special is more than 120 000. All of them must possess training. appropriate skills to do their job properly. In order to solve this problem once a for all, 5 years Education cannot exist without scientific research. ago Rosfinmonitoring decided to create a Network The Network AML/CFT Institute’s integrated research AML/CFT Institute, which brought together a number program “Mathematical and Socio-Economic of specialized universities from across Russia and Modelling for Anti-Money Laundering and Terrorist Eurasia. Among the AML/CFT Institute’s members Financing”, developed in collaboration with RAS today are 31 universities and 4 research centres universities and endorsed by the Russian President from 7 countries. Vladimir Putin, is currently being implemented by RAS universities. The universities of the Network The format of the network educational consortium AML/CFT Institute use research findings to train allows its members to try out new technology and personnel as part of a common educational formats and methods of teaching, including online. environment encompassing the universities of By combining the efforts of several countries, Russia and its AML/CFT partners from the EAG, CIS, participants can create new formats and types of BRICS. international cooperation and develop common approaches to the training of in-demand AML/CFT As part of scientific and methodological support of personnel, including by taking advantage of greater the educational process, INI participants publish academic mobility of teachers and students. One a large volume of literature, including textbooks, important advantage of the AML/CFT Institute is that monographs, collections of scientific articles, etc., it allows students to apply their newfound knowledge which regularly feature in thematic publications during their internship and subsequent employment of universities and research centres, including with financial intelligence agencies of Russia and its Rosfinmonitoring’s “Financial Security” journal. In AML/CFT partners around the world. addition, the website of the International Training and Methodology Centre for Financial Monitoring The network-based interaction format enables the is home to the electronic library of the Network joint use of intellectual, physical and information AML/CFT Institute, currently consisting of 400 resources, allowing INI participants, crucially, titles. to organize the exchange of functionality and resources, and to build communication between Actually, in the five years of the INI’s existence, we educational and scientific institutions, all with a have successfully complied with all the provisions view to improving the effectiveness and quality of the Federal Law “On Education in the Russian of education. Meanwhile, the voluntary format of Federation” pertaining to the network-based engagement between research and educational education format. Our network model features all the centres of the AML/CFT Institute means they are elements necessary for the training of highly qualified able to maintain their autonomy and a high degree AML/CFT personnel, including a communication of freedom in determining their future priorities, link to RAS universities. We are working to build a which makes them ultimately responsible for the end pool of industrial partners from among major banks results. (VTB and Rosselkhozbank), state corporations (Gazprom, Rosatom, Roscosmos, Rostec, etc.), and Participants in the network assosiation rally joint stock companies (Russian Railways, Aeroflot, around the main strategic goal: the creation of a etc.). As participants in the national AML/CFT single (common) educational environment for the system, our industrial partners are keen to have reproduction of modern AML/CFT personnel based access to both personnel and new approaches to on the integration of science with practice and prevent the embezzlement of their funds. Cooperation academic mobility of students and teachers. with large state corporations and enterprises covered by the AML/CFT law will allow us to create an end- Today, the universities of the Network AML/CFT to-end training cycle for highly qualified personnel Institute have set up and are running specialized focused on solving practical problems in the field of AML/CFT units – departments, research and financial and economic security.

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All this is attainable thanks to the administration Five years is not a long time for a university, particularly system in place at the International Network for a consortium of universities. However, if we look at AML/CFT Institute. At the heart of this system lies our achievements during this period, we can state that Rosfinmonitoring, which actively supports the INI’s we have succeeded in creating within the established activities and whose board is chaired by Director of system of Russian education and science a segment Rosfinmonitoring Yury Сhikhanchin. In its work, the dedicated to AML/CFT training and research. Our next Board cooperates closely with the Russian Ministry of important task lies in enlisting the support of industrial Science and Higher Education. Among the founders partners from among the legal entities covered by of the Rosfinmonitoring/MSHE Interagency Working Federal Law No. 115-FZ “On Combating Money Group, whose establishment coincided with the INI Laundering and Terrorist Financing”, of which there are founding, was Michail Kotyukov, who personally 80 000 in Russia. The involvement of some of these participated in its work as Head of the Federal industrial partners engaged in our activities, including Agency for Scientific Organizations of Russia. We in federal districts and constituent entities of the hope in his current position as Minister of Science Russian Federation, will allow us to organically close the and Higher Education he will continue to support us. AML/CFT training and research loop on a specific industrial partner or government authority. This will A year ago we created the Supervisory Board, enable us, on the one hand, to significantly increase headed by the Chairman of the Board of Directors of the resources channelled into the educational process, Gazprom JSC Viktor Zubkov, who was joined there and on the other, to bring universities – particularly from by the Chairman of the Board of VTB Bank Andrei our segment – in close contact with the practical work Kostin. And this year we are working to establish carried out by an industrial partner or department, which an expert-analytical council on AML/CFT science will undoubtedly improve the quality of personnel training, and education at the Presidential Administration’s enhance the practical utility of research and, given the Interagency Working Group on Countering Illicit specifics of our graduates’ work, ultimately improve Transactions. the economic and financial security of the Russian Federation and its international AML/CFT partners.

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DIGITAL CURRENCY

BITCOIN PRICE DYNAMICS: RESULTS AND PROSPECTS IN RUSSIA

Vladimir Fetisov, Doctor of Economics, Professor at Lobachevsky State University of Nizhny Novgorod (UNN), Department of Finance and Credit

Tatyana Fetisova, Candidate of Economic Sciences, Associate Professor at Lobachevsky State University of Nizhny Novgorod (UNN), Department of Finance and Credit

he computerization of commodity-money offered for a coin on the world market. To date, most relations is an indispensible reality of the of the Bitcoin industry participants have suffered market society at the beginning of the 21st significant losses. What to do next? What should century. Electronic payment instruments, such be the reaction of economic actors to the computer Tas Bitcoin and other cryptocurrencies, began to be payment innovations? The correct solution of these essential to it with immediate effect [1, 2]. Not without actual problems requires a special study of factors, the contribution of the media, IT industry figures, a trends and results of the Bitcoin price dynamics. number of businessmen and high-ranking officials, hundreds of thousands of citizens, organizations Bitcoin is a complex economic system, the financial and officials of Russia have been involved in the environment of which consists of five units: value cryptocurrency system since June 2017. The The assets of actors; financial policy of actors, financial euphoria for Bitcoin reached its apogee on December law of actors, financial management of actors, and 8 - 20, 2017, when 18 - 20 thousand dollars were actual Bitcoin trade.

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On the whole, the factors of the Bitcoin price dynamics savings. Preserving confidentiality becomes are conditioned by the interaction of the entirety of impossible, and shadow assets can be frozen and political, legal and managerial financial decisions of even confiscated. The catalyst for the aggravation leading market actors. of the shadow finance problems was the decision of the United States taken in February 2018 to begin The general system of the Bitcoin price factors is the expropriation of property hidden by Russian presented in Table 1. oligarchs and government officials abroad. Similar measures have been taken by many countries of the The interaction specificity between Bitcoin and European Union. the financial environment lies in the special and sometimes direct impact of major actors on the Bitcoin All this led to the demand for brand new payment market. Legislative initiatives regulating the circulation mechanisms, the main requirements for which and approving Bitcoin as a means of payment, as are anonymity, security, independence from well as major purchases on the market and news on intermediaries, the possibility of tax evasion and the the improvement of Bitcoin technologies can have a use as a speculative financial instrument. positive impact on the price. What may lead to the drop in the price are the defensive measures taken The computer science proposed Bitcoin (BTC) as by regulators. such a mechanism. Modern BTC adherents consider it a new kind of money that performs traditional The main part of wealth of the well-off is in the monetary functions as a means of circulation, a shadow economy. The amount of the offshore means of payment and a means of accumulation. The assets accumulated by wealthy Russians equals real picture of using Bitcoin was very controversial to 3/4 of the country’s gross national income. The and unforeseen [3]: outflow of funds from Russia continues: according to the Central Bank of the Russian Federation, 1) the practice did not confirm the supposed ВТС in January - August 2018, 26,5 billion dollars was merits; withdrawn, or by 2.8 times more than in the same period of 2017. Dozens of shadow billions of dollars 2) modern market society inherently requires the and trillions of rubles are in hand of Russians. The State recognition of any monetary instrument; Russian elite are concerned with the problems of the preservation and enhancement of their property. 3) Bitcoin turned out to be the most vulnerable The situation was dramatically aggravated by the target for criminal and, above all, cybercrime fact that the international institutional community activities; was taking measures to provide the regulatory agencies with any information on assets and bank 4) fourthly, the unknown factors and results of ВТС accounts as well as other data on the people’s action were revealed.

Table 1. The general system of Bitcoin price factors

Impact of factors Type of factors according to the functional use International National Private

Political + (–)* + (–) + (–)

Legal + (–) + (–) + (–)

Management + (–) + (–) + (–)

Trading + (–) + (–) + (–)

* “+” - positive impact, “-” - negative impact

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The creation of cryptocurrencies and their introduction into the commodity-money circulation is an attack on the State monopoly and redistribution of values in favor of their owners. At the same time, the cost of servicing transactions in the form of commission fees also passes from banks to other actors.

The analysis of the Bitcoin functioning practice in 2018 convincingly confirms the above theoretical propositions. All actors in the Bitcoin system are divided into winners and losers. Manufacturers of computer equipment and software, founders and organizers of the payment system, insiders, stock exchange employees, media market players, 4) a significant increase in the duration of hackers, and shadow market leaders; periodically - confirmation of transactions creates serious miners, investors and “ordinary figures” of the difficulties in using Bitcoin in the financial market; shadow market. All other participants lose: mass users, commercial organizations, banks, many 5) the implementation of the basic functions of entrepreneurs and the State as a whole. At the organizations is inhibited. same time, the main part of income is received by foreign actors. Most of the Russian Bitcoin system The danger of Bitcoin to a state is as follows: participants suffer serious losses. ƒƒ the emergence of unofficial money automatically Currently, this category includes: narrows the scope of the current payment system and results in the depreciation of the national 1) а lot of young people, employees of various currency and rising prices; organizations that invested personal and borrowed funds in mining; ƒƒ Bitcoin blockchain base makes the banking payment system unnecessary; 2) entrepreneurs, businessmen, officials, and managers who invested in the purchase of BTC ƒƒ the danger of loss of national property as a result in December 2017 - January 2018; of exchange manipulations in the global financial market increases; 3) criminals who invested in Bitcoin. ƒƒ increased risks of disclosure of state secrets via the The losses of individuals and organizations as a Internet. result of participation in the Bitcoin system can be divided into direct and indirect ones. The direct As a result, the financial system of the modern state losses include: theft of electricity, employee labor downgrades significantly. The effect of the described hours, equipment operation time, various elements factors and the Bitcoin functioning results determined of the Bitcoin system itself [4]. the nature of its price dynamics in 2017 - 2018.

Russian miners enjoy a persistent superiority in this There are three stages in the Bitcoin price dynamics for area [5]. The main indirect losses are due to the the period from January 3, 2017 to September 10, 2018: following: 1) stage of growth from January 3, 2017 to 1) user costs for technical, software, service, December 17, 2017 (table 2); antivirus and other software increase significantly; 2) stage of drop from December 17, 2017 to 2) Bitcoin independence and anonymity are February 6, 2018 (table 3); relative; 3) stage of relative stability from February 6, 2018 3) costs of transactions increase; to September 10, 2018 (table 4).

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Table 2. Bitcoin price and capitalization growth a in 2017*

Figures 03.01.2017 01.06.2017 08.12.2017 17.12.2017

BTC price, $ 1020 1785 18247 20024

BTC capitalization, $B 15 27 306 336

Table 3. Bitcoin price and capitalization drop in 2017-2018*

Figures 17.12.2017 22.12.2017 01.02.2018 06.02.2018

BTC price, $ 20024 12500 9181 5996

BTC capitalization, $B 336 210 156 102

Table 4. Bitcoin price and capitalization stabilization in 2018*

Figures 06.02.2018 01.04.2018 01.06.2018 15.11.2018

BTC price, $ 5996 6805 7270 5670

BTC capitalization, $B 102 115 129 98

*According to RosBusinessConsulting data

At the first stage, the purchase of BTC was carried prevent threats to their national monetary systems, out mainly by consumers who have nonsupervised economies and personal wealth, took special monetary assets. The hype apogee was the start of defensive measures, including: trading in Bitcoin futures at US exchanges on December 11-20, 2017, when Bitcoin broke the 20 000 dollars ƒƒ the establishment by the governments of China, mark. The launch of Bitcoin futures meant the actual India, Korea and a number of other Asian countries legalization of the US cryptocurrency as an informal of tough measures aimed at Bitcoin regulation, up financial instrument for the redistribution of the value to the prohibition of mining and trading coins; resources of the world market society actors. The rapid growth in the Bitcoin price is caused, on the one hand, ƒƒ tightening state control over the crypto market in by an easy possibility of laundering shadow assets, and the United States and several other countries; on the other hand, by the exaggerated interest in the assets of private and institutional investors, who saw in it ƒƒ decisions of the largest banks in the United a rare chance of quick enrichment. States and a number of other countries to ban cryptocurrency trading using credit cards and The analysis of the situation shows that the dynamics to warn customers of high risks of total loss of and state of ВТС price in 2017 is mainly determined by bitcoins; the policy of Russian economic actors. Most of the on- exchange purchases in December 2017 and 2018, in all ƒƒ prohibition of advertising cryptocurrency on likelihood, were made by Russian consumers, including Facebook and Google; businessmen, officials, and criminals. ƒƒ large sales of BTC by individual founders and At the second stage, the disillusionment of the main organizers; market society actors came. Many major regulators, financial companies, coin owners, in order to ƒƒ pervasive cyber security.

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As a result, the bitcoin price fell to 12 500 dollars exchange them for the ruble. Thus, the Internet on December 22, 2017, and on February 6, Ombudsman of the Russian Federation D. Marinichev 2018 to 5 996 dollars. In total, BTC owners lost argues that the regulation of Bitcoin is a hype. The 234 billion dollars as a result of its depreciation over whole world lives on emotions, expectations, human the period from December 18, 2017 through February fears - and they are the prime driver of change in 6, 2018. The citizens of Russia suffered a significant the course of any currency [6]. Some economists, part of these losses. The investors who bought businessmen and officials believe that Bitcoin will get bitcoins at the price of 17 - 20 thousand dollars in its way and continue to grow up to 50 - 100 thousand December are forced to sell them as low as 7 - 8 dollars. As a result, the propaganda and advertising thousand dollars. sponsored by them become aggressive.

Besides this, the house, cottage and garage mining Despite the huge losses, bitcoin holders are doing of the end of 2017 and 2018 were unprofitable for the everything to preserve, launder and increase overwhelming majority of Russians. their assets. Bitcoin millionaires, officials, and organizers of the IT industry are particularly active. At the third stage, the Bitcoin stability was in many A striking, though indirect, confirmation of the wide ways ensured by the financial policy of Russia, participation of domestic officials in the Bitcoin Belarus, Ukraine, Uzbekistan, Kyrgyzstan and some system is the methodological recommendations of other countries aimed at the gradual legalization of the Ministry of Labor and Social Protection of the Bitcoin as a means of payment. The Russian major Russian Federation on the permission for officials regulator decided to take control of emissions, mining not to indicate cryptocurrency in the certificate and circulation of cryptocurrencies. of income, expenditure and property. Similarly, until recently, the judicial system of Russia Developed countries (USA, Japan, China, etc.), exempted cryptocurrencies from being included large financial corporations, banks (Barclays, in the bankruptcy assets in the event of individuals GoldmanSachs, UBS) are introducing various ways of bankruptcy. The Ministry of Economic Development using ВТС as a financial instrument for redistributing of the Russian Federation has developed a bill on the global value flows of the broad masses of the creation of Russian offshore zones in order to uneducated and emotional foreign actors. transfer Russian assets from foreign offshores. The real exception to the total mass of adepts in Russia At the moment, bitcoins are sold much more than is the Central Bank of the Russian Federation, bought, so the price of ВТС is reduced. This may which feeling the frailty of the ruble, hardly resists be due to the launch of an investigation by the US the introduction of Bitcoin into the country’s Department of Justice, which will check whether monetary system. The mega-regulator of Russia traders and investors may manipulate the digital began to realize that using cryptocurrency as an money value. official payment instrument would inevitably lead to crash of the country’s banking system, ruble Moreover, it became known that the authorities of the depreciation, hyperinflation and collapse of the United States and Canada began the fight against state financial system. fraudulent initial cryptocurrency offerings (ICOs) and suspicious cryptocurrencies. Conclusion. From the foregoing it follows that the course of Bitcoin is an indicator of the hidden Bitcoin’s deterrent is offshore entities concern for its struggle of the main actors of a market society. The resources. Some of them find a way to create their official mass use of Bitcoin in Russia will lead to own government cryptocurrency. Thus, the Central negative economic results and undesirable social Bank of the Bahamas will release its digital money, consequences, including: which will be supported by the government. ƒƒ financial losses of many businesses and Currently, many Russian experts of the IT industry in individuals; Russia continue to consider Bitcoin as a promising means of payment and strongly suggest to make ƒƒ growth of capital outflows from the country; it comparable to foreign currency, allowing banks to open accounts in main cryptocurrencies, and ƒƒ additional tax evasion;

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ƒƒ weakening of the Russian ruble and crash of the BIBLIOGRAPHIC LIST: country’s banking system; 1. Popper N. Digital gold. The Incredible story ƒƒ expanding the shadow economy and weakening of Bitcoin, or how idealists and businessmen of the cybersecurity of commodity-money reinvent money. M.: Dialectics, 2017. 368 p. circulation; 2. Vigna P., Casey M. The Age of Cryptocurrency: ƒƒ slowdown in the development and stagnation How Bitcoin and the Blockchain Are Challenging of the country’s economy. the Global Economic Order. M.: Mann, Ivanov and Ferber, 2017. 432 p. In order to ensure economic growth in Russia, it is advisable to implement the following measures: 3. Fetisov V., Fetisova T. The problems of using Bitcoin and the economic security of Russia // ƒƒ prohibit individuals and government organizations National interests: priorities and security. 2018. from using bitcoins; Vol. 14. No. 3. P. 452-464.

ƒƒ prohibit the BTS positive advertising on all social 4. Fetisov V. Theft and finance in the context networks; of market economy globalization // Financial analytics: problems and solutions. 2014. No. 36. ƒƒ at all levels of vocational education, conduct P.18-28. courses on cryptocurrencies with an emphasis on their economic content and cyber risk; 5. Petrova Yu. How employees mine cryptocurrency in the workplace. ƒƒ carry out measures to transfer the existing [Electronic resource]. - Access mode: https:// monetary payment mechanism to a digital address www.vedomosti.ru/management/articles / system, using the principles of the blockchain 2017/12/25/746366-sotrudniki-dobivayut- technology; kriptovalyutu

ƒƒ strengthen the monitoring of the country’s informal 6. [Electronic resource]. - Access mode: finances and especially Bitcoin. http://www.mk.rU/economics/2017/12/11/ nternetombudsmen-obyasnil-pochemu- Implementation of these proposals largely depends regulirovanie-bitkoina-eto-khayp.html on the level of economic literacy of the entire population and the quality of personal and corporate 7. Fetisov V., Fetisov T. Financial management of financial management [7], the improvement of which individuals: a scientific publication. M.: UNITY- is the major direction of economic growth in Russia. DANA, 2009. 167 p.

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COMPLIANCE

IMPROVING COMPLIANCE MANAGEMENT IN INDUSTRIAL ENTERPRISES

Marina Kobysheva, Post-graduate student of Peter the Great St. Petersburg Polytechnic University

Konstantin Kobyshev, Post-graduate student of Peter the Great St. Petersburg Polytechnic University

Maxim Ivanov, Associate professor at Peter the Great St. Petersburg Polytechnic University, PhD

Alexander Fedotov, Professor at Peter the Great St. Petersburg Polytechnic University, PhD

he purpose of this study is to identify the risks and of economic security, including the one that involves threats facing the average enterprise, as well as analysis of threats. to isolate compliance risks and propose methods T for managing compliance in enterprises. In a generalized sense, economic security is the condition of the national economy that ensures the To achieve this goal, we must address the following satisfaction of the country’s vital needs for material challenges: goods, regardless of any socio-political, economic or environmental crises affecting the global or ƒƒ to identify compliance risks; national economy.

ƒƒ to categorize the threats facing the enterprise From a scientific perspective, economic security should these risks materialize; and means “the condition of the economy and the institutions of government which guarantees ƒƒ to propose solutions for setting up compliance the protection of national interests, support for a management systems in enterprises. socially-responsible development of the country as a whole and sufficient defence capabilities, even For our generation, the “economic security” under the most unfavourable internal and external concept is relatively new. There’re many definitions conditions”.

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The enterprise economic security is understood to mean the condition, created by the enterprise management and staff through the implementation of legal, economic, organizational, engineering, technical and socio-psychological measures, whereby the enterprise’s vital interests are protection against internal and external threats. It depends on the enterprise’s ability to manufacture goods, perform works and provide services, just as the wellbeing of the entire country depends on the performance of our enterprises.

International experience shows that economic security is key to the country’s independence, stability and the security ideas to make their way into the country. effective functioning of its society as a whole. Attempts were made to set up committees to study economic security challenges (Committee for the The findings of economic security studies conducted Protection of Russia’s Economic Interests under the in the Soviet Union were kept secret, with all Russian President [1], Working Group on Economic developments being classified and predominantly Security under the Russian Government), but they application-oriented. Economic security was defined came to nothing. as the condition conducive to the preservation and development of the economic systems of the USSR In a developed economy, the state’s role (vis-a- and its satellite states from among the members of the vis private capital) is reduced to the protection of Council for Mutual Economic Assistance. In the Soviet business assets and maintaining an environment times, hardly anything was said about the economic conducive to the functioning of the market system. security of enterprises, regions or organizations, since This paradigm places the problem of corporate it was assumed that their security was guaranteed by fraud in Western countries among the top public the state. governance priorities, particularly given the key role played by private capital in the economic The state’s focus on defence spending and provision development of these countries. of support to countries under communist rule meant that things like the reproduction of the population, The obligation of businesses to implement and particularly measures to foster its prosperity, compliance procedures, including to combat took second place. corporate fraud, is enshrined in the U.S. Foreign Corruption Practices Act [7] and the UK Bribery Act In the end, this policy undermined the state’s [8]) of 2010, which both establish a common for all economic, ideological, political and socio- businesses procedure for countering corruption and psychological security, ultimately leading to the fraud. demise in 1991 of a huge country called the USSR. Under this system, the state offers certain The country’s economy ended up being run by preferences to companies with a compliance people who knew little about economics and whose system designed to not only combat corporate fraud pursuit of the perestroika economic reforms only but also bribery of public officials. The existence exacerbated the situation further. The economic of a robust compliance system, coupled with the openness allowed foreign manufacturers to corner company’s willingness to assist in the prosecution of the market, bringing about a sharp decline in local its corrupt employees, may significantly reduce the production that threatened the country’s national penalty imposed on the company itself. security. Meanwhile, the dramatic drop in incomes and living standards of the population posed a threat A key feature of the UK Bribery Act is that it also to its statehood. criminalizes the failure of companies to prevent corruption, unless the measures taken (compliance Although long ignored by successive governments, system) are deemed sufficient. In this case, compliance the perestroika period allowed some of the economic acts as a kind of “immunity” against liability.

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The need to create a uniform compliance system and ensure its practical implementation is recognized by the international community.

There are no universally recognized and scientifically articulated notions of ‘threat’ and ‘risk’. As per S. Ozhegov`s explanatory dictionary: “A threat is a promise to harm someone or cause evil.” V. Dahl, meanwhile, interpreted a threat as an action or intent to “threaten, frighten or hold someone in fear.”

We will use the following definitions.

A threat is an objective – i.e. external – trend or event beyond the agent’s control which poses, or is believed to pose, the risk of loss, damage or harm. In short, a threat is a possible danger. The possibility of an undesirable event, loss or failure by the agent to achieve the expected results, or deviation therefrom. Although related to threats through uncertainty, it directly characterizes the situation through the prism of the actions (omissions) of the agent itself. economic relations by the state; this also applies to Apprehension is an intuitive measure for assessing issues of economic security. Economic security is key risks. Risk is often associated with a choice – to the stability, sustainability and competitiveness of between an attractive, but less reliable option, and any enterprise, and as such must be protected from a less attractive, but more reliable one – and hence both direct and potential encroachments. The sheer with making a decision based on that choice. number of regulations adopted by our government shows that this problem is being taken very serious. The negative effect of threats depends on the nature of the harm caused: Humans are the weakest link in the security structure. One can create a reliable security system and write ƒƒ the extent of changes in the properties of the very detailed safety instructions, but employees’ object; negligence in handling important information, their gullibility and careless behaviour can always negate ƒƒ the possibility of eliminating the consequences of all these efforts. the threat. Approximately 80 % of economic security challenges There are two main types of threats: faced by businesses stem from sabotage, embezzlement and negligence on the part of their 1. The intention to harm (intent); staff.

2. The possibility of harm – that is, the availability To be confident in their security, enterprises should of resources and capabilities. develop a well-thought-out policy.

One key feature of the first type is uncertainty: there Today, more and more international and Russian is a desire, but will there be a possibility. Meanwhile, companies begin to appreciate the importance of the possibility of harm hinges solely on the actions compliance, one of the key business principles. of those posing the threat, meaning there is a strong causal link between the threat and the danger of As the level of non-financial risks continues to harm. grow, so does the importance of the compliance function for businesses, requiring the company The Russian government’s endorsement of the management to be aware of the emerging and market economy does not preclude the regulation of potential compliance risks.

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One of the functional objectives of compliance is to This list may also include legal risks, for example, if promote the adoption by the company of the following: the company has outstanding liabilities.

ƒƒ compliance policies; The compliance function is closely connected to specific activities of the company’s internal ƒƒ procedures for assessing compliance risks; control, AML/CFT, legal, operational risks and HR departments. ƒƒ regulations on information exchange between company departments to promote effective Compliance is an important part of the company’s management of compliance risks; governance structure.

ƒƒ policies and procedures for ensuring compliance In summary: of the company activities and internal regulations with applicable laws; ƒƒ compliance is part of the company’s internal control and management systems; ƒƒ codes of ethics, etc. ƒƒ compliance is a set of different control Among other goals of compliance is to carry out an integrated into the company’s business on-going monitoring and evaluation of compliance processes through personnel, technology and risks faced by the company. Given the absence of documents to ensure compliance with internal a formal definition of this function in Russian law, its and external requirements; interpretation by the business community varies. Still, few doubt that compliance is an integral part of ƒƒ the level of compliance of any company effective management. is always higher than 0 but lower than 100 percent. The purpose of compliance is to create an additional layer of oversight for the company, including When setting up a compliance system, priority procedures and training programmes designed to should be given to its organic incorporation into prevent and detect violations. Compliance lies at the the company’s existing structure. heart of control procedures of any company, acting as an indispensable element of its management structure, The next golden rule to be adhered to is that the of which internal control are the most important part. costs of compliance management should not exceed the losses from the absence thereof. To Cooperation between compliance units and other define this concept, foreign businesses use the departments helps identify and mitigate compliance term “risk appetite”. Risk appetite is the amount risks to the company’s business reputation, its of risk the company is willing to bear, depending solvency, etc. at an early stage. Among compliance on its financial and operational capabilities. The risks-related losses are: costs of compliance management depend on the extent of the losses the company is prepared to ƒƒ material; incur and from whom. The relationship here is inverse: the higher the risk appetites, the lower the ƒƒ temporary; compliance management costs, and vice versa. The costs of non-compliance have a direct bearing ƒƒ pecuniary; on compliance management costs: the graver the consequences of non-compliance, the more ƒƒ intellectual; justified the compliance management costs are.

ƒƒ information; What’s the difference between a compliance system and an internal control unit to be found ƒƒ labour; in just about every company? Although the two systems may appear similar at first glance, in ƒƒ special types of losses (damage to life and health, reality the functionality of the former should be environment or business reputation). much greater than that of the latter.

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While the key function of internal control is to conduct whose appreciation of compliance as an essential an independent audit of the internal control system, element of the corporate governance system is the key function of compliance management is to growing. It serves as the basis for an improved carry out an on-going monitoring of compliance risk decision-making process and, accordingly, management procedures. contributes to the attainment of the company’s goals. So far, several approaches to setting up a Another very important difference is the temporary compliance management system in enterprises nature of the audited entity and the compliance have been proposed. unit. The role of compliance management as an integral part of a risk management system lies in September 2012 saw leading business associations coordinating the management of compliance risks sign the Anti-Corruption Charter of the Russian in different departments and feeding the results Business Community and approve the procedure into an assessment of the overall risk. Compliance for its implementation. This policy document sets management works in a prevention mode, while out for the first time the common criteria for attaining internal control officers are responsible for the on- high standards in doing business in Russia, going monitoring of activities and compliance with incorporating intolerance of all forms corruption not applicable requirements. only into relationships with the state but also, just as importantly, other businesses. Compliance risks assessment-based compliance management is recommended to foreign companies However, the charter alone will not solve the by government regulators and international economic security challenges facing businesses. organizations. An effective compliance system Instead, its implementation will hinge on the helps businesses manage compliance risks, giving willingness of lawmakers to enshrine the principles them a competitive advantage both at the micro and of good business conduct in law and offer incentives macro levels. to businesses that faithfully abide by them, as well as on the wilful decision of every member of the Each year the value of compliance for businesses business community to follow common standards increases. This is also true for Russian companies, and rules of the game.

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COMMONWEALTH OF INDEPENDENT STATES

STRENGTHENING COOPERATION WITH RELEVANT CIS AGENCIES AND INTERNATIONAL ORGANIZATIONS

The 12th meeting of the CIS Council of Heads of Financial Intelligence Units (CHFIU) was held on 14 November 2018 in the office of the CIS Executive Committee (Minsk, Belarus). In line with the Council regulations, the meeting was chaired by the Director of the Financial Monitoring Department of Belarus Vyacheslav Reut

Pavel Kukushkin, Executive Secretary

he meeting was attended by delegations from Committee and the International Training and the FIUs of Armenia, Belarus, Kazakhstan, Methodology Centre for Financial Monitoring, with Kyrgyzstan, Russia and Tajikistan, as well the Indian FIU director, P. Mishra, attending as an T as representatives of the CIS Executive observer.

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Vyacheslav Reut: Yury Chikhanchin:

“The purpose of cooperation between financial “The emergence of new challenges – such as ISIL intelligent units participating in the Council is to in the Afghanistan-Pakistan region – means that we not only identify and suppress financial crimes, must reassess our capabilities and, above all, build but also search for adequate mechanisms, new cooperation with Central Asian countries at various modes and methods of combating new challenges international venues. We intend to improve the legal and threats, in order to promote regional and framework underpinning the fight against money international stability, security and predictable laundering and terrorist financing. In particular, jointly development.” with the CIS IPA, we’re working to finalize the model AML/CFT law to ensure its compliance with the new During the meeting, FIU directors and experts standards and requirements in this area. Today, our discussed ways to mitigate money laundering key objective is to coordinate the positions of the CIS and terrorist financing risks across the CIS. A new countries and, following the adoption of this instrument, version of the CIS Treaty on Combating Money harmonize our domestic legal frameworks.” Laundering, Terrorist Financing and Proliferation Financing, drafted at the initiative of the Council, Albert Druzhinin, Director of the CIS Executive is currently undergoing the final stages of Committee’s Department of Cooperation in Security intergovernmental approval. Matters and Combating New Challenges and Threats, highlighted the CHFIU’s active participation in the According to the CHFIU Chair and Rosfinmonitoring efforts to identify persons involved in the activities of Director Yury Chikhanchin, the Council terrorist organizations and their financing, combat has established close cooperation with the money laundering and seize criminal proceeds, relevant CIS agencies (Council of Prosecutors undertaken as part of the “Barrier” and “Five Elements” General, Border Troops Commanders and operations. Separately, a representative of the CIS Law Enforcement Agencies) and international Executive Committee read out a greeting message to organizations (CSTO, ATC and CIS Inter- the Council members on behalf of the CIS executive Parliamentary Assembly). secretary Sergey Lebedev.

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Background

The CIS Council of Heads of Financial Intelligence new modes and methods of combating new Units was established on December 5, 2012 to challenges and threats, in order to promote coordinate cooperation in this area. regional and international stability, security and predictable development. A list of the Council members includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, This work promotes effective cooperation Tajikistan, Uzbekistan and Ukraine. between all CIS AML/CFT system participants.

The Council, by its decision dated 11 November Meetings, convened twice a year, constitute the 2015, granted observer status to India’s FIU. core of the Council’s activities. To date, there have been nine CHFIU meetings. The purpose of cooperation between financial intelligent units participating in the Council is to The next Council meeting will be held in May not only identify and suppress financial crimes, 2019 in Moscow. but also search for adequate mechanisms,

Sergey Lebedev: payment systems regulation to prevent their abuse for ML/TF purposes, as well as the conduct of an “The Commonwealth is consistent in its efforts analytical study into the use of cryptocurrencies. to strengthen stability and security and to jointly counter modern challenges and threats. A key role Yury Chikhanchin noted the possible use of in these efforts is reserved for the Council of Heads cryptocurrencies for money laundering and terrorist of Financial Intelligence Units, as no law enforcement financing: “This urgent issue was raised at the FATF. activity is complete without assistance from the Generally speaking, the world does not know how financial intelligence community.” to resolve this issue, with all attempts to regulate it within a single country being so far unsuccessful, a During the meeting, participants discussed the fact that underscores the international nature of this development of common approaches to electronic challenge.”

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EURASIAN GROUP

MUTUAL EVALUATION REPORT OF TAJIKISTAN TOPS THE AGENDA

The Plenary meeting of the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG), chaired by Hao Jinghua (China), was held on November 15 - 16 in Minsk (Belarus). Rosfinmonitoring Director Yury Chikhanchin, representative of of Russia, is the EAG Deputy Chair. The meeting was attended by over 250 representatives from Belarus, India, Kazakhstan, China, Kyrgyzstan, Russia, Tajikistan, Turkmenistan and Uzbekistan, as well as EAG observer countries and organizations such as the FATF, the World Bank, UNCTC and UNODC, the CIS ATC and others

Pavel Kukushkin, Executive Secretary

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he key item on the Plenary meeting agenda Leonid Anfimov, Chairman of the State Control was the defence of the evaluation report of Committee of Belarus, delivered a welcome address Tajikistan in the framework of the EAG 2nd to the Plenary week participants. round of mutual evaluations. T Leonid Anfimov: Hao Jinghua: “We’re highly appreciative of the EAG’s work and “The second round of mutual evaluations is the top support for our efforts to strengthen our AML/CFT priority for all EAG members. This is a difficult job and system. Belarus, as an active participant in the all countries take it very seriously. At the end of the international AML/CFT system, has supported and first round, we aligned the technical aspects of our will continue to support the fight against money AML/CFT systems and laid the foundations for further laundering and terrorist financing.” improvements. Now is the time to demonstrate their effectiveness.” He also read out a greeting message to Plenary participants from the Prime Minister of Belarus, noting The Plenary endorsed the mutual evaluation report that the meeting would contribute to the exchange of and executive summary of Tajikistan, conducted as experiences and best practices. part of the EAG second round of mutual evaluations, with participants highlighting Tajikistan’s significant At the Plenary meeting the Russian delegation progress in improving the AML/CFT system since presented to international experts the findings the previous assessment. The Plenary discussed the of the national ML/TF risk assessment, including key findings and recommended actions related to the changes to the country’s AML/CFT legal framework country’s AML/CFT regime. After the completion of made after it. In May 2018, Russia approved the the FATF quality and consistency review, the MER will national AML/CFT system development strategy, be published on the EAG website. followed by the adoption of its anti-corruption plan 2019 - 2020, which calls for greater control over In accordance with the EAG 2nd Round Mutual public officials’ expenditure and property. The Evaluation Procedures, Tajikistan will present its country also amended the federal law governing follow-up report at the EAG 31st Plenary meeting in the entry into and exit from the Russian Federation, November 2019. potentially denying entry to foreign nationals

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whose funds have been frozen by the Interagency Committee for Combating Terrorist Financing, or whose bank accounts have been suspended or who are involved in terrorist or extremist financing.

Participants were presented with the findings of the typologies report on “Money Laundering through Insurance Companies”, cosponsored by Russia and China, featuring 29 ML case studies made available by the International Association of Insurance Supervisors as well as India and China, alongside 14 ML typologies identified in the insurance sector. Due to the evolving nature of the insurance sector, analysis of the participating countries’ practices indicated a low level of insurance institutions’ vulnerabilities. The report was approved by the Plenary and will appear on the EAG website.

With the focus of the EAG’s attention remaining firmly on the fight against terrorist financing, member countries, as part of the Group`s project for the mutual AML/CFT cooperation, won by Tajikistan. In line with freezing of assets of persons involved in terrorist the established tradition, the winner was presented activities, were instructed to intensify the exchange with a prize from the foundation named after of the lists of persons subject to targeted financial V. Zubkov, the first EAG Chair and the first Head of sanctions. the Russian FIU.

Participation in joint international workshops allows During the EAG Plenary and working group EAG members and observers to discuss the most meetings, the delegation of the International Training relevant issues of the AML/CFT agenda. Plenary and Methodology Centre for Financial Monitoring participants were presented with the outcomes presented to the EAG members and observers the of the EAG/ITMCFM workshop on supervision projects that are being implemented by the Centre and EAG/CIS APG/Interpol/ITMCFM workshop on both within Eurasia and beyond. The goal of the cooperation between law enforcement and financial ITMCFM technical assistance projects is to promote intelligence agencies. In addition, representatives of the compliance of national AML/CFT systems with the EAG Secretariat and ITMCFM briefed the participants FATF standards. ITMCFM, in collaboration with its on the upcoming APG/EAG joint typologies workshop, EAG partners, implements training programmes, to be held in December 2018 in Novosibirsk. Among develops e-courses and manuals, and provides the topics to be discussed at the workshop are the advanced training for the teaching staff of national fight against terrorist financing and human trafficking universities at the International Network AML/CFT and the risks emanating from virtual assets. Institute.

The Plenary meeting ended with the unveiling The EAG 30th anniversary Plenary meeting will take of the results of the contest for the best case of place in May 2019 in the Russian Federation.

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INTERNATIONAL BLOCK

IT`S NECESSARY TO STRENGTHEN INTERNATIONAL COOPERATION

A joint Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG)/Asia-Pacific Group on Combating Money Laundering (APG) Workshop was held in Novosibirsk, Russia on 3 - 5 December 2018

Pavel Kukushkin, Executive Secretary

he Workshop opened with welcoming remarks and transnational crime, we should constantly from Sergey Menyaylo, Plenipotentiary improve international cooperation between financial Representative of the Russian President in the intelligence units, law enforcement, supervisors and Siberian Federal District; Vladimir Nechaev, EAG the private sector.” TExecutive Secretary; and David Becker, Director for typologies at the APG Secretariat. D. Becker:

According to S. Menyaylo, it has been more than “The EAG is one of the Asia-Pacific Group’s closest 10 years since the establishment of the Interagency partners among all FATF-style regional bodies. This Working Group on Combating Illegal Financial is already a second typologies workshop we have Transactions. The implementation by Russia of held jointly with the Eurasian Group, the first was in the FATF Recommendations has led to a 50 % Mongolia in 2013, which was preceded by a joint decline in the number of suspicious transactions assessors’ workshop. The 2018 Workshop was carried out in the district. Only by combing the attended by representatives of more than 20 NPOs efforts of the entire international community can we and organizations from the private sector. From the overcome modern challenges and threats, stressed APG’s view point, partnership with the private sector S. Menyaylo. is key to our success.”

S. Menyaylo: V. Nechaev:

“We all understand that in order to be effective in “We’re here to consider the issues that are key to our combating international terrorism and cross-border efforts to disrupt money laundering or terrorist financing

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schemes used by criminals. Two of these issues – the talked about the use of enforcement measures and use of criminal proceeds to finance terrorists and the confiscations. They also discussed the role of the risks associated with virtual assets – are listed among private sector in identifying and analysing the relevant the FATF’s current priorities. Some time ago, the EAG schemes, including the mechanisms for identifying researched the issue connected with the purchase of unregistered providers of virtual asset services, the tickets for foreign terrorist fighters. I must say that for us possibility of obtaining information on cryptocurrency and the CIS Anti-Terrorist Centre, one of the surprise transactions from the traditional banking sector and outcomes of this work was the interest shown by the the use of specialized hardware. According to a ICAO [International Civil Aviation Organization].” representative from FATF Secretariat, this workshop represents a significant contribution by the EAG and The issues discussed at the forum were structured APG to the current FATF project to draft operational into three thematic sections: the use of criminal guidelines on the identification, investigation, seizure proceeds, including from organized crime, to finance and confiscation of virtual assets. terrorists; human trafficking; and the risks associated with digital financial assets. The anti-trafficking and smuggling section took place with the active participation of representatives from During the first section, participants familiarized civil society and the private sector, who familiarized themselves with the FATF’s assessment of terrorist the participants with the initiatives aimed at identifying financing risks; reviewed countries’ reports on the financial transactions related to these crimes. national assessment of risks in this area; and studied the findings of the APG’s regional risk assessment, The meeting was attended by over 260 representatives the UN’s research into the potential links between of financial intelligence units, law enforcement and terrorist financing and organized crime, and the supervisory agencies and the private sector from relevant UNSC resolutions. The meeting included more than 60 countries and organizations of the presentations of financial investigations into the use Eurasian and Asian-Pacific regions. of criminal proceeds – including from organized crime – to finance terrorists, conducted within the The workshop ended with the presentation of ITMCFM framework of the EAG/APG joint study on the same projects for participants in the international AML/CFT topic, whose findings will be presented in the second system. half of 2019. In his closing remarks, Head of Rosfinmonitoring’s Participants in the section on risks related to virtual Siberian Federal District Inter-Regional Department, assets, meanwhile, reviewed countries’ reports on the A. Dolbnya noted that the discussion of the topics use of virtual assets for money laundering, studied raised at the workshop is particularly important for the the experience of national competent authorities Russian Federation in the context of the upcoming in identifying and investigating such crimes, and FATF mutual evaluation.

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A. Dolbnya: in the sections will find practical application within the national AML/CFT systems, helping mitigate “Many countries participating in the workshop have the risks stemming from the use of digital financial already hosted visiting missions and appreciated assets for criminal purposes and bolstering the high bar set by the FATF for national AML/CFT the fight against terrorist financing and human systems. I’m confident that typologies discussed trafficking.”

Background

The Eurasian Group on Combating Money India, Kazakhstan, China, Kyrgyzstan, Russia, Laundering and Financing of Terrorism (EAG) Tajikistan, Turkmenistan and Uzbekistan. The and the Asia-Pacific Group on Money Laundering EAG is an associate member of the FATF. The (APG) are FATF-style regional bodies that APG, where Russia holds observer status, pursue independent AML/CFT policies based includes 41 countries of the Asia-Pacific region on the FATF Recommendations. The EAG is among its members. a FATF-style regional body uniting Belarus,

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MONEYVAL’S 57TH PLENARY MEETING

The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and Financing of Terrorism of the Council of Europe (MONEYVAL) held its 57th Plenary meeting in Strasbourg on 3 - 7 December 2018

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ne of the main ƒƒ changes in the FATF standards applicable to the formats of the Plenary regulation of virtual assets; meeting was a forum to discuss the fight ƒƒ a strategy to disrupt terrorist financing; Oagainst human trafficking a horizontal analysis of the DNFBP sector and modern slavery-related (supervision and preventive measures) as part money laundering, attended by representatives of of the new round of evaluations; the FATF, the Egmont Group, GRETA and the private sector. The Plenary adopted the regional counter- ƒƒ the work carried out by International Training terrorist financing action plan. and Methodology Centre for Financial Monitoring (Russia); MONEYVAL has completed the evaluations of the Czech Republic and Lithuania, endorsed the FATF/ ƒƒ studying the information collection tools MONEYVAL joint evaluation of Israel and approved and methods for countering corruption and follow-up reports of Azerbaijan, Andorra, Croatia, other financial crime of the Basel Institute on Hungary, Liechtenstein, Montenegro, Romania, Governance. Serbia, Slovenia and the former Yugoslav Republic of Macedonia. MONEYVAL also adopted a report Participants also exchanged views with on a voluntary tax compliance system of the Branislav Bogachik, Chairman of the Conference Republic of Moldova. of the Parties to the Council of Europe Convention on the Laundering, Search, Seizure and Confiscation The Committee heard reports and held discussions of Proceeds from Crime and on Financing of on the following topics: Terrorism.

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INTERAGENCY WORKING GROUP

NEW LEGISLATION AFFECTING THE TRADE IN PRECIOUS STONES AND METALS

The National Festival “Golden Hands of Russia” was held at the Guest House on 14 - 16 December 2018. The festival, organized with support from the Russian Finance Ministry and opened by Deputy Finance Minister A. Moiseev, was attended by Rosfinmonitoring Deputy Director O. Krylov

ertain aspects of the efforts to counter illicit assessment of the ML/TF risks in the precious metals transactions in precious metals and stones and precious stones sector, prepared by the Russian were discussed at the October 10, 2018 Assay Chamber in collaboration with the Ministry of meeting of the Interagency Working Group Finance and concerned federal executive bodies. C(IWG), chaired by A. Vaino. In particular, participants voted to organize a series of cultural and educational This draft assessment was subsequently sent to activities, including exhibitions, designed to kick- Rosfinmonitoring and included in the national risk start a debate on the measures aimed at promoting assessment. consumer interest in the Russian jewellery industry and persuading participants in the precious metals It’s worth noting that from 2009 to 2015, Russia lacked and stones market to abandon the unregulated any regulations governing the manufacture, use and sector. trade in precious metals. Nor were there any rules governing the mining (with regard to sorting, primary The issue of implementation of a risk-based classification and initial valuation), use and trade in approach to counter illicit transactions related to precious stones. To make matters worse, authorities the manufacture, processing and trade in precious were not allowed to conduct scheduled inspections metals and precious stones was first raised at of existing and newly formed small businesses (legal the IWG about a year ago, culminating in the draft persons and individual entrepreneurs).

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The agencies concerned submitted their proposals with the provisions of the Treaty on the Eurasian for improving the relevant legislative framework, Economic Union of May 29, 2014. some of which have already been incorporated into existing regulations. A proposal to expand this List by adding to it the following commodity items: “ores and For example, the Finance Ministry’s initiatives have concentrates”, “waste and scrap of precious metals made their way into the following instruments: or metals clad with precious metals; other waste and scrap containing precious metal or compounds ƒƒ RF Government Resolution No. 798 dated July 7, of precious metals used mainly for the extraction of 2018 “On amendments to the Guidance on the precious metals” has been drafted for the possible Maintenance of the Special Register of Legal introduction and application of non-tariff regulatory Entities and Individual Entrepreneurs Carrying measures to the specified commodity items. Out Transactions with Precious Metals and Precious Stones”, setting out the procedure The Federal Customs Service, at the suggestion and grounds for de-registration of legal entities of the Finance Ministry, has prepared a draft and individual entrepreneurs carrying out EAEU resolution on the separation of the EAEC transactions with precious metals and precious Import/Export Commodity Nomenclature codes stones. for precious stones, which has been approved by the Government Commission on Economic ƒƒ Draft Federal Law “On amendments to Article Development and Integration and sent for approval 1 of the Federal Law ‘On Precious Metals to the EEC. and Precious Stones’”, whose purpose is to protect the Russian precious stones market With a view to expanding the powers of the Assay and combat illicit trafficking in synthetic stones Chamber of Russia: under the guise of precious ones. The bill grants the Russian Government the powers to ƒƒ RF Government Resolution No. 798 dated July 7, regulate the use and trade in artificial materials 2018 “On amendments to the Guidance on the that have the characteristics (properties) of Maintenance of the Special Register of Legal precious stones. Entities and Individual Entrepreneurs Carrying Out Transactions with Precious Metals and ƒƒ The draft Federal Law that lifts the ban on Precious Stones”, setting out the procedure scheduled inspections of existing and newly and grounds for de-registration of legal entities formed small businesses (legal persons and individual entrepreneurs carrying out and individual entrepreneurs) carrying out transactions with precious metals and precious transactions with precious metals and precious stones, has been adopted; stones, as well as allowing such inspections to be conducted more than once every three ƒƒ the draft Federal Law that lifts the ban on years, has been resubmitted for consideration scheduled inspections of existing and newly by the Russian Government. formed small businesses (legal persons and individual entrepreneurs) carrying out ƒƒ As part of the measures to improve the tax code, transactions with precious metals and precious a number of proposals for taxing transactions stones, as well as allowing such inspections in gold, including its sale by banks and natural to be conducted more than once every three persons, have been considered. years, has been drafted.

ƒƒ As part of the measures to improve the customs The Bank of Russia has begun the drafting of a code, the Board of the Eurasian Economic new form for reporting transactions with precious Commission has prepared a draft resolution metals by credit institutions, fixed the date for its “On amendments to the List of goods that are introduction and the frequency of submission, essential for the domestic market of the Eurasian taking into account the needs of the Finance Economic Union and which in exceptional cases Ministry, the Federal Tax Service, Rosfinmonitoring can become the target of a temporary ban or and the Assay Chamber (Bank of Russia Letter No. quantitative export restrictions” in accordance 03-12-6/4825 dated June 28, 2018).

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Rosfinmonitoring has submitted to the Federal With a view to improving the quality of risk- Customs Service legislative proposals concerning the based supervision over the precious metals and trade in precious metals and precious stones, prepared precious stones market and the assessment of the by the Interagency Working Group on Countering ML/TF risks in this sector, Rosfinmonitoring and the Illicit Transactions in the North Caucasian Federal Chamber executed the supplementary agreement District (NCFD IWG). Among others, Rosfinmonitoring dated May 10, 2018 to Cooperation and Information proposes to strengthen the integration of the jewellery Sharing Agreement No. 01-01-17/1094 dated January sector into the AML/CFT system and promote 22, 2016, expanding the scope of information interagency cooperation at the regional level. sharing to include reports to the Assay Chamber on the jewellery industry participants denied service by In addition, the IWG has considered a proposal to set other reporting entities. up an integrated information system for controlling all stages of the trade in precious metals and precious Rosfinmonitoring in collaboration with the Ministry of stones (PMPS IIS). The introduction of the PMPS IIS will Internal Affairs, FSB, the Investigative Committee and enable authorities, among other things, to create an the Federal Tax Service, is taking joint comprehensive end-to-end tracking mechanism for precious metals measures to identify and combat organized criminal and precious stones, from mining to sales to end-users, groups whose members specialize in the illicit regulate the market, create favourable conditions for trafficking of precious metals and precious stones, bona fide industry participants and boost tax collection. as well as carrying out verification activities targeting entities engaged in the trade in precious metals and After the launch of the PMPS IIS pilot, Rosfinmonitoring precious stones. will take part in the testing of this system.

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FINTECH

FINTECH’S IMPACT ON ANTI-MONEY LAUNDERING AND COUNTER TERRORISM FINANCING

Viktor Dostov, Chairman of the Association of the E-Money and Remittances Market Participants, Senior Fellow at St. Petersburg State University, Ph.D.

Pavel Shust, Executive director of the Association of the E-Money and Remittances Market Participants, Senior Fellow at St. Petersburg State University, Ph.D.

Herman Neglyad, Head of Rosfinmonitoring’s Legal Department

he global AML/CFT standards, represented Geographical reach by the FATF Recommendations, contain a separate recommendation dedicated to new As a legal tender, cash is largely limited in its everyday technologies (Recommendation 15). Financial use to a single country or a group of countries, with Tinstitutions are required to assess the ML/TF risks prior payments being either local or tied to a direct or to the launch of new products and business practices, indirect physical contact between the payer and including new mechanisms for the transfer or use of payee. The development of new technologies, new or developing technologies. however, gives rise to the emergence of payment instruments – cards, e-wallets, etc. – that are not tied In 2017, as part of its broader cooperation with the to any particular country, representing the potential private sector, the FATF launched a separate initiative for their cross-border use which is viewed as risky by designed to promote cooperation with Fintech the FATF1. companies. Below is a summary of the key risk factors related to new technologies and their possible In the National Terrorist Financing Risk Assessment 2, implications. the use of the Internet to raise funds for terrorists is

1 Guidance for Risk-Based Approach. Prepaid Cards, Mobile Payments and Internet-Based Payment Services // FATF/OECD. June 2013. 2 National Terrorist Financing Risk Assessment. Public Report // Federal Financial Monitoring Service. 20.06.2018.

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rated as high risk in Russia. This fundraising method is described as highly relevant and widely popular among terrorist groups.

Meanwhile, the cross-border properties of these technologies have clear benefits for consumers: they power e-commerce, make it unnecessary to exchange cash when abroad and improve personal security. The same functionality helps improve transparency; for example, the rise of taxi aggregators such as Yandex. Taxi has forced the unofficial taxi market to adopt cashless payments, thereby rendering it more transparent and taxable. through the use of EPIs registered to individuals who The cross-border movement of funds, goods and are unaware of their full potential, including for use in labour, coupled with the permeability of national fraud-related ML schemes involving EPIs themselves borders, encourages financial intelligence units, law (cyberfraud)4. enforcement and supervisory authorities to seek closer cooperation with each other. In all fairness, the risks related to the use of cash in ML schemes, or to support terrorists, are also rated as high in the above reports.

Fast transfer times

Although instantaneousness used to be the key From transaction analysis to behaviour analysis feature of such niche instruments as e-wallets, today it has become an almost universal standard. For According to statistics, the Bank of Russia payment example, according to the European standards for system was used in 2017 to make more than 1.5 instant interbank payments (SEPA SCT Inst), it should billion (!) payments, more than 900 million personal take no more than 10 seconds for money to be transfers without opening a bank account; and more transferred from one account to another3. Eventually, than 3.3 billion cash withdrawals5. In this array of all payments are likely to become instantaneous, a predominantly legitimate transactions, it’s important convenience which will be appreciated by consumers to identify suspicious ones, and do it promptly. and businesses alike. This analysis of behavioural patterns requires both In terms of AML/CFT, higher transfer speeds means the introduction of new automatic algorithms and new oversight requirements, with banks no longer the application of the risk-based approach. A shift having the luxury of time – several hours or even from the analysis of individual transactions to the days – to match the payer and payee names against analysis of overall customer behaviour will lead in the the sanctions lists, assess the transaction risk, future to the rejection of formal indicators, requiring compare it with other transactions, etc. banks to commit themselves to an on-going study of new typologies. To this end, Rosfinmonitoring, in The risks related to fast transfer times are also cited collaboration with private sector experts, is refining in the aforementioned National Terrorist Financing the profile of a drug trafficker that uses, among Risk Assessment. Such risks are common for terrorist others, remittance systems. Once completed, this financing transactions carried out with or without profile will be used by financial institutions’ internal the use of a bank account, including, for example, control units.

3 SEPA Instant Credit Transfer (SCTinst) scheme Rulebook, (2017) // europeanpaymentscouncil.eu. URL:https://www. europeanpaymentscoundl.eu/ sites/default/files/KB/files/EPC004-16%202017%20SCT%20Instant%20Rulebook%20v1.0.pdf (access date: 30.04.2018). 4 National Money Laundering Risk Assessment 2017-2018. Key findings // Federal Financial Monitoring Service. 2018. 5 The National Payment System: Key Metrics // Central Bank of Russia.

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Lowering the threshold for consumers as a way Russia has also joined this trend, utilizing simplified to promote financial inclusion identification mechanisms that rely on information from government databases. In the summer of 2018, The absence of any contradiction between the it also began testing the use of biometrics to solve effectiveness of the fight against money laundering identification problems. and terrorist financing and greater financial inclusion was noted by the FATF back several years ago6, Although, the underlying reasons for money laundering rendering the efforts to promote financial inclusion – have remained largely unchanged, its methods and or, in a more altruistic jargon, to make a transition to a instruments have certainly evolved, shifting from the cashless society – inseparable from improvements to use of laundry shops and beauty salons to launder AML/CFT. criminal proceeds to more complex schemes.

In this context, the use of cross-border remittances Approaches to mitigating the risks of misuse of virtual is particular relevant for Russia. According to the currencies for ML/TF purposes deserve a separate World Bank, outbound remittances from Russia are assessment. In the National Money Laundering Risk among the cheapest in the world: the average charge Assessment, the risks of misuse of digital currencies is 1.64% vs 5.27% for the rest of the world. The low in money laundering schemes, particularly drug- cost and almost universal availability (through a related, are rated as high8. network of agents) has made official remittances extremely popular among labour migrants working Meanwhile, more profound changes have occurred in in the country. According to the Bank of Russia, the area of terrorist financing. While in the past terrorist outbound remittances from Russia to CIS countries activities used to be carried out by large criminal groups totalled more than 7 billion dollars (almost 17.5 million with access to significant financial resources, today the remittances) in 20177. In the past, this money used to tactics employed by terrorists have changed, shifting be moved across the border in cash – in cars, trains from large-scale terrorist actions to lone wolf, low-cost and planes. Today, however, money flows are both attacks. According to Norwegian studies, 50 percent more transparent and traceable, not least thanks to of European terrorist cells are self-sufficient, with some the accurate remittance data available to us. individuals who had left their country to join terrorists in a war zone continuing to receive state benefits.

Given that new technologies are used for the same Reinterpreting the KYC policy purposes both by law-abiding citizens and criminals alike, separating these consumer groups from Although the Know Your Customer policy, of which one another takes priority, a task that once against identification requirements constitute an integral part, requires a good understanding of typologies and the continue to form the basis of most AML/CFT measures, use of complex analytical solutions. our understanding of this policy is changing.

This trend is reflected in the proliferation of remote identification procedures, alternatively known as non- Conclusion face-to-face identification. The choice of proposed solutions is actually quite diverse. It includes the use Fintech has stopped being a niche trend and become of biometrics (India), matching of data against public mainstream. Although benefiting consumers by (Nigeria, Mexico) and private (UK) databases, video making their life more comfortable, these changes are identification (Spain, Switzerland, Estonia) and many bound to affect the AML/CFT efforts undertaken by other techniques. financial institutions and regulators.

6 FATF Guidance. Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion. With a supplement on Customer Due Diligence // FATF. November 2017. 7 Outbound Cross-border Personal Remittances (to CIS countries) // Central Bank of Russia 8 G Y. Neglyad. Virtual Currencies and the Challenges of Combating Money Laundering and Terrorist Financing // Magazine “Property Relations in the Russian Federation”, 2018. No. 5 pp. 105-107.

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In our opinion, subject to the use of the risk-based approach and a robust assessment of ML/TF risks in Russia, there’s every chance for an effective and safe overhaul of the country’s banking services industry. In the National AML/CFT System Development Strategy, endorsed by the Russian President on May 30, 20189, improvements to legal and regulatory frameworks governing the use of modern technologies are listed among its priorities. Finding solutions to these challenges will allow us to both mitigate the related risks and strike the right balance between greater financial inclusion, effective consumer protection and sustainable economic growth.

9 The National AML/CFT System Development Strategy (endorsed by the Russian President on May 30, 2018).

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VIDEO CONFERENCING

THE PURPOSE OF THE VCS PLAN IS TO STRENGTHEN THE CAPACITY OF NATIONAL AML/CFT SYSTEMS IN EURASIA

Konstantin Sorokin, Special correspondent

he EAG’s video conferencing system The VCS, operated by the International Training and (VCS), created in accordance with the Methodology Centre for Financial Monitoring (ITMCFM), EAG 9th Plenary (16 - 19 December 2008) is currently used by the financial intelligence units of decision on the development of the EAG Armenia, Belarus, Kazakhstan (Astana and Almaty TCommon Information Space concept, facilities hubs), Kyrgyzstan, Russia, Tajikistan and Uzbekistan, closer engagement between national FIUs and with plans to connect the universities of the international other government authorities, allowing them to network AML/CFT Institute (INI) in the near future. organize real-time meetings, experience-sharing The participation of the INI universities, which boast sessions, round tables, trainings and other substantial scientific and academic potential, will open activities. the door to the use of this potential by national FIUs.

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In line with the EAG Regulations on joint video ƒƒ thematic roundtable discussions of specific conferencing activities, approved by the EAG 19th Recommendations and Immediate Outcomes; Plenary, the FIUs of the EAG member and observer countries from among the VCS participants, on ƒƒ workshops on current trends and national an annual basis, select and submit to ITMCFM AML/CFT system development prospects. the most relevant topics for and formats of video conferencing activities, taking into account the The effectiveness of the EAG-wide VCS deployed needs of their national AML/CFT systems. by ITMCFM has been repeatedly praised at the EAG Plenary and Working Group on Technical ITMCFM, as the VCS operator, collates and Assistance (WGTA) meetings. Participants summarizes these proposals, making them part of particularly noted its use as a rapid communication its draft annual activity plan. tool, whose relevance increases further in the run- up to mutual evaluations. This plan also includes activities sponsored by the Secretariat of the CIS Council of Heads of Financial Following the successful use of the VCS at the EAG Intelligence Units (CHFIU). 28th Plenary meeting in Nanjing, China, in May 2018, and 29th Plenary meeting in Minsk, Belarus, In planning and organizing activities, ITMCFM in November 2018, all concerned EAG FIUs, other prioritizes preparations of countries for mutual government agencies, educational and scientific evaluations; studies of best international AML/CFT institutions, and representatives of the private experiences and practices, including with the sector were urged to work with ITMCFM to explore involvement of leading, including international, the possibility of connecting to it. experts; involvement of the maximum number of key national AML/CFT stakeholders; exchanges Among the key outcomes of the use of the VCS for of country-specific thematic experiences; active technical assistance purposes in 2018 were: involvement of the EAG countries in the selection of the event topics; and maximum consideration of ƒƒ expanded systemic capacity of the FIUs and their needs. other AML/CFT system participants from among EAG member and observer countries; Among the predominant formats of training activities held in 2018 were: ƒƒ maximum inclusion of national AML/CFT system participants in the run-up to mutual ƒƒ training courses for the key categories of evaluations; AML/CFT system participants (FIUs, law enforcement, supervisors and the private ƒƒ uninterrupted work by EAG experts in the sector); intersessional period;

Countries’ Armenia participation in video Belarus

conferencing events Kazakhstan More than in 2018 2000 Kyrgyzstan participants Tajikistan

Uzbekistan

Russia

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EAG’s VCS

The video conferencing EAG Secretariat system facilities rapid engagement between Uzbekistan Russia national FIUs and other government authorities, allowing them to organize real-time meetings, round tables, trainings and other activities. Kyrgyzstan Belarus

Armenia Kazakhstan Tajikistan

ƒƒ involvement of government agencies and other topics of interest to FIU analysts. the private sector in the process of initiation Lectures were read by representatives and organization of events, and leveraging of Rosfinmonitoring, international integrator the potential of the scientific and academic companies developing information and community. analytical systems for use by government agencies and the private sector, and The VCS is regularly used by the EAG Secretariat to international experts, with representatives prepare for plenary sessions and expert discussions of the banking sector participating in a number of mutual evaluation reports and draft MERs of EAG of thematic events making up the course. member states. 2. A training course for law enforcement, prosecution Among other regular VCS users is the CIS Council and judicial authorities from among the national of Heads of Financial Intelligence Units, and in AML/CFT system participants. The course, particular its working groups, whose VCS’s based run jointly by ITMCFM and the Investigative regular discussions of the current projects often lead Committee, was organized in support of the to the intensification of the work on these projects in initiative by the FATF President in 2017-2018 the intercessional period. Santiago Otamendi of Argentina to extend the AML/CFT theme to cover investigators, Among the training courses organized via video prosecutors, judges and the criminal justice conferencing in 2018 were: system as a whole.

1. A training course for FIU analysts, which The work to organize the course involved included training workshops on the use of contributions from high-level international experts. typologies, suspicious transaction reports The course allowed its participants to study best (STRs), visual analysis tools, strategic analysis, international experiences and practices related to the information and analytical tools, as well as on search, seizure and repatriation of assets, conduct

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of international financial investigations, and provision relevant supervisory and other government bodies of mutual legal assistance with account for foreign (the Bank of Russia, Roskomnadzor, Interior Ministry, countries’ specifics; familiarize themselves with best the Investigative Committee, etc.) and the private practices and methods of cooperation between sector, including with the help of Rosfinmonitoring’s the FIU and investigative bodies; examine issues Compliance Council. related to the classification, evidence gathering and prosecution of ML/TF offences; and focus on many Among the most popular topics of such events in other relevant issues. 2018 were:

Next year, ITMCFM and the Investigative Committee ƒƒ cross-border payments, including those featuring plan to continue their work in this area. cryptocurrencies and digital currencies, and abuse of new payment methods 3. A course for supervisors and representatives of the private sector on new payment methods and ƒƒ workshops on sectoral supervision of reporting ML/TF risks. The focus of the course was on new entities’ AML/CFT regimes (postal, mobile and challenges and threats; financial, regulatory and fixed-line communication service providers, supervisory technologies; the role of the private the securities market and wire transfer service sector and supervisors in building an effective providers) national AML/CFT system (IOs 3 and 4), including strengthening of cooperation between ƒƒ combating terrorist financing (identification them; as well as on the prospects of transactions with terror-prone areas, of EAEU integration and, hence, the implementation of UNSC CFT and PF resolutions, harmonization of financial markets and the work carried out by the Interagency Committee regulatory regimes. for Combating Terrorist Financing, sharing of terror lists in order to take freezing action). A list of other video conferencing activities popular with AML/CFT system participants includes In 2018, the VCS was used to organize more than workshops and round tables dedicated to the sharing 50 activities, including trainings, workshops, round of practical experiences. tables, meetings, etc. ITMCFM, after summarizing proposals submitted by the EAG FIUs and other Responding to requests from foreign VCS participants, interested VCS users, has prepared a 2019 plan of ITMCFM changed the way it organized the majority video conferencing activities for EAG member and of such events, including by supplementing them observer countries. In preparing such events, ITMCFM with lectures and theoretical content featuring increasingly relies on initiatives and organizational applicable Russian and international experience. support from supervisory and law enforcement Lectures are conducted by leading practitioners agencies, as well as FIUs. The implementation of this from government agencies and the private sector plan will contribute to the further development and and international experts. Meanwhile, activities strengthening of the capacity of national AML/CFT themselves are organized in close collaboration with systems across Eurasia.

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SPORT

DEPARTMENTAL SPORTS: 2018 HIGHLIGHTS

An interview with the Chairman of the Russian Financial and Economic Authorities’ Central Sports Club and Organization “Dynamo № 33” O. Shabunevich

Eugenia Kalikhova, Press Secretary of the Dynamo № 33 Chairman

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Eugenia Kalikhova: It has become a good tradition September. This forum, inspired and organized by for the Russian financial and economic authorities the Federal Financial Monitoring Service and the to look back at their performance at the end of Finance Ministry and overseen by Rosfinmonitoring each year. Mr. Shabunevich, as the Chairman of Deput y Director V I. Glotov, attracted more than 120 the Russian Financial and Economic Authorities’ participants from the Finance Ministry, the Ministry Central Sports Club and organization “Dynamo of Economic Development, the Federal Financial № 33”, could you tell us about the sporting Monitoring Service, the Treasury, the Federal Tax highlights of the past year in the context of your Service, the Federal Customs Service, the Federal club and these agencies’ engagement? Service for Alcohol Market Regulation and the Bank of Russia. Among the main events of the forum Oleg Shabunevich: I’m pleased to confirm that were presentations, simulation exercises, round the appeal of departmental sports in Russia tables, lectures and problem-solving sessions, continues to grow, attracting more and more health with the focus on socially significant projects, skills enthusiast each year. Thanks to the dedicated and upgrading and talent pool building. coordinated work of the people in charge of the country’s financial and economic agencies, our Another highlight of the 2018 event calendar was young employees have access to everything they the International Network AML/CFT Institute’s need for professional and personal development, Scientific and Practical Conference “The Era of including excellent recreation and sports facilities. Crypto Economy: New ML/TF Challenges and Regtech”, held from 12 - 14 November in Moscow. A total of more than 2,500 individuals from 10 The Conference became a forum for discussion ministries and departments of the financial and and analysis of trends and sharing of experiences economic sector took part in various sports events, in combating money laundering and terrorist sports days, forums, field seminars, health days financing. and GTO tests organized in 2018. There’s every reason to rejoice looking at this statistic. I’m convinced that consolidation of the efforts of many higher education, sports and cultural To top it off, the mutually beneficial cooperation institutions is key to the professional development between Dynamo and the relevant ministries and of the next generation of employees and departments continues to strengthen and expand, managers. Social initiatives pursued by the including through the signing in the latter case of country’s financial and economic agencies a cooperation agreement with the Federal Bailiff provide for the organization of educational and Service. sports activities as an additional incentive for the professional development of their staff. They’re Eugenia Kalikhova: Mr. Shabunevich, do you aimed at creating healthy corporate relationships at Dynamo organize any training workshops or and boosting professional competences, the other activities for employees of the financial and objectives that are undoubtedly key both to the economic agencies? strengthening of the country’s state policies and promotion of healthy lifestyles. Oleg Shabunevich: Interdepartmental forums for high-potential employees, mentoring, cultivation Eugenia Kalikhova: 2018 was a special year of moral and patriotic values, social initiatives, for the legendary sports society Dynamo, which international cooperation, student sports and, celebrated its 95th anniversary that year. Has starting this year, participation, jointly with this anniversary had any impact on the nature of Rosfinmonitoring, in the activities of the working Dynamo’s activities organized this year? groups of the Road Maps Coordination Council, all constitute an important and integral part of our Oleg Shabunevich: For us, the 95th anniversary work. of the national sports society Dynamo, which can rightly be described as the pioneer and leader of For example, our federal employees took part the national mass sports and sports movements, in the annual forum to develop professional was one of the biggest highlights of 2018. In fact, competences of the staff of the country’s financial all our sporting events that year were designed to and economic agencies, held in Sochi from 27 - 30 commemorate it, including the Spartakiad of the

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Russian financial and economic authorities. I would by Rosfinmonitoring Director Yury Chikhanchin, like to take this opportunity to briefly announce its held at the Finance Ministry. results and congratulate the winners and runners- up. The 1st prize went to Finance Ministry, the To mark the 95th anniversary of Dynamo and reword 2nd to Deposit Insurance Agency, and the 3rd to the staff of the country’s financial and economic Federal Tax Service. agencies for their hard work in promoting sports and healthy lifestyles, Dynamo Chairman Vladimir Separately, I would like to mention the employees of Strzhalkovskoy signed an order authorizing the the Federal Financial Monitoring Service, who have payment of incentives to more than 55 individuals, a reputation for consistency and high performance, as well as awarding gold medals, honorary badges, which is largely the result of the hard work carried cups and Dynamo certificates to the participants. out in this area by Rosfinmonitoring Director Yu. Chikhanchin, his deputies Yu. Korotky, Eugenia Kalikhova: Mr. Shabunevich, could you P. Livadny, V. Glotov, A. Klimenchenok, let us know about Dynamo’s plans, upcoming G. Bobrysheva and O. Krylov, as well as events and key objectives for 2019? directorate heads A. Stepanov and A. Frolova, who wholeheartedly support sports initiatives Oleg Shabunevich: Looking ahead, there are and endeavours of their employees. Among many important challenges facing Russia, and Rosfinmonitoring’s brightest in-house sports sports provide a powerful impetus for further talents are S. Averin, V. Konicheva, D. Shlyaer, consolidation of joint efforts. Interdepartmental Y. Egorova, M. Savin, N. Chernobrivenko, forums for high-potential employees, mentoring, E. Pisarchik, D. Dudar and V. Tsukanov. cultivation of moral and patriotic values, social initiatives, international cooperation, student Another highlight of 2018 was the meeting of the sports and, last but not least, Dynamo’s Spartakiad Dynamo sports club’s Board of Trustees, chaired movement, will continue into the future.

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Joint achievements of the ministries and and forums. They contribute to the popularization departments in organizing trainings and other of healthy lifestyles among public servants by events, including social and sporting activities, means of physical trainings, strengthening of inter- would not have been possible without the support university relations, promotion of consolidated of the Rosfinmonitoring Director and Chairman of state sports policies, sharing of experiences in the Board of Trustees of the central sports Club and organizing fitness and mass sports events, and Organization “Dynamo № 33” Yury Chikhanchin, preservation and enhancement of Dynamo’s members of the Board of Trustees and heads of traditions. Naturally, you can also expect us to ministries and departments of the Russian financial promote new sporting disciplines. and economic sector. We’re looking forward to the continuation of this initiative not only in 2019 but In addition, the central sports club of the Russian also in the subsequent years. financial and economic authorities will be celebrating its 5th anniversary in 2019. We would I’m convinced that sports are becoming an like to dedicate all our victories in 2018 to the integral component of all scientific conferences celebration of this important anniversary.

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NEWS BLOCK

A meeting in NWFD to discuss preparations for the 4th round of the FATF mutual evaluations

coordination meeting with the region’s law V. Sevrikov: enforcement and regulatory authorities to discuss preparations for the FATF 4th round mutual “The relevance of this issue for the Russian Federation evaluations was held on 19th December 2018 is particularly high. Hence, the placement of the efforts Ain St. Petersburg. The meeting, chaired by P. Livadny, to boost the resilience of the country’s economy State-Secretary – Deputy Director of Rosfinmonitoring, against the risks associated with these offences at the was attended by V. Sevrikov, Deputy Plenipotentiary top of our joint agenda.” Representative of the Russian President in the Northwestern Federal District. According to the plenipotentiary representative of the Russian President, there are five areas in Russia As part of the latest round of the FATF evaluations, responsible for the majority of money laundering assessors are expected to visit the constituent proceeds: corruption, the public sector, drug entities of the Russian Federation. In this regard, trafficking, the financial sector and terrorist financing. on the instructions of the Head of the Presidential Administration A. Vaino, Rosfinmonitoring has been V. Sevrikov: organizing a series of meetings across Russia designed to prepare the regional law enforcement and “With respect to the NWFD, over 47,000 predicate supervisory authorities for the upcoming evaluation. offences for money laundering were detected in the district from 2013 to 2017, but only 510 money In his opening speech, V. Sevrikov reminded the laundering offences. After analysing the situation, the participants that the Russian President on multiple obvious question to ask was, where lies the problem? occasions focused on the danger to the national Could it be in the lack of coordination of joint efforts to security of any country posed by money laundering ensure the simultaneous detection and investigation and other forms of illicit funding. of acquisitive crimes and related money laundering?”

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State-Secretary – Deputy Director of Rosfinmonitoring P. Livadny: P. Livadny informed the participants that the Russian President was closely monitoring the developments “In this regard, a successful assessment – achieving around the upcoming evaluation with regular updates the results that would allow us to state that the Russian from the Director of the Russian financial intelligence AML/CFT system meets international standards – is unit, Yury Chikhanchin. key to the fulfilment of Russia’s political, reputational and economic objectives, including the safeguarding P. Livadny: of Russia’s interests throughout the world.”

“The FATF assessment is extremely important for I. Loskutov, Head of Rosfinmonitoring’s NWFD Russia, since this organization, in addition to having a Inter-Regional Department, said that in the run-up depoliticized agenda, is notable for its professionalism to the FATF evaluation, participants in the NWFD and maximum immersion in the AML/CFT systems of AML/CFT system should focus their efforts on the assessed countries, with assessments conducted making continuous improvements to the system on a regular basis and in respect of all counties without for the identification of ML/TF risks and threats, exception. This time it’s Russia’s turn to undergo it. including those specific to the NWFD. This is a system of international measures that apply to all countries of the world. Importantly, countries that I. Loskutov: fail to meet the assessment criteria become subject to certain internationally recognized (including by “The most important thing is to have actual results the Russian Federation) sanctions, including – in the in areas that are the focus of this round of mutual worst-case scenario – restrictions for the country’s evaluations.” financial sector and all its business contacts.” Participants also highlighted the importance and As noted by the Deputy Director of Rosfinmonitoring: usefulness of the meeting with the region’s supervisors “assessors’ focus today is not so much on the and representatives of the private sector, held on the existence of rights and institutions as on the previous day at the RF Central Bank’s Northwestern effectiveness and specific practical results.” General Directorate office.

A meeting with the Plenipotentiary Representative of the Russian President in NWFD

n 19 December 2018, A. Gutsan, Plenipotentiary evaluations, with a focus on the coordination of the Representative of the Russian President in the NWFD government agencies’ efforts to combat Northwestern Federal District, held a working money laundering. meeting with P. Livadny, State-Secretary – Deputy ODirector of Rosfinmonitoring, and I. Loskutov, Head of The discussion of this issue was continued at Rosfinmonitoring’s NWFD Inter-Regional Department. the coordination meeting with representatives of the NWFD law enforcement and supervisory Participants discussed preparations for the authorities. Financial Action Task Force (FATF) 4th round mutual

72 Editorial Board I. Ivanova – editor-in-chief, I. Lisina – deputy editor-in-chief, A. Petrenko – editor of the English version, P. Kukushkin – executive editor, K. Litvinov – editor-observer, K. Sorokin – special reporter, E. Butkeeva – columnist, A. Bulaeva – reporter.

Publisher Autonomous Non-Profit Organization ITMCFM Staromonetny Lane 31, bld.1, Moscow, Russia, 119017. E-mail: [email protected]. Number of copies: 150.

Opinions and viewpoints expressed by authors do not necessarily reflect opinions and viewpoints of the “Financial Security” journal editorial board Autonomous Non-Profit Organization ITMCFM

2018