## _cr0922 ## Source details **Canonical URL:** [_cr0922](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0922.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0922.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0922.pdf.json) --- ### Introduction — Scope, Purpose, and Key Findings - Prepared by the Financial Action Task Force (FATF) on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering and 9 Special Recommendations Combating the Financing of Terrorism. - Summarises AML/CFT measures in place in Russian Federation as of the on-site visits (25 September – 2 October 2007 and 12 – 23 November 2007) and shortly thereafter. - Provides the level of compliance with the FATF 40+9 Recommendations and recommendations to strengthen the AML/CFT system. - Views agreed by the FATF; do not necessarily reflect the views of the Boards of the IMF and World Bank. - Key operational statistics and trends: - ML investigations: from 618 in 2003 to 7 957 in 2006. - Money laundering cases sent to court: from 465 in 2003 to 6 880 in 2006. - Convictions for ML: from 14 in 2003 to 532 in 2006. - Common ML/TF schemes and vulnerabilities: - Misuse of (foreign) legal entities and financial institutions. - Laundered money invested in real estate or security instruments, or used to buy luxury consumer goods. - Use of alternative remittance networks by foreign and North Caucasian terrorist groups for TF. - Corruption: - High level of corruption in public and private sectors impedes AML/CFT efforts. - No indications the FIU is affected by corruption; some law enforcement bodies and private sector businesses are impacted. - Eliminating corruption is a government priority. ### Legal System and Related Institutional Measures - Criminalisation of ML: - Articles 174 CC (money laundering), 174.1 CC (self-laundering), 175 CC (acquisition or sale of property obtained by crime). - Article 174 CC defines ML as acts involving carrying out financial operations and other transactions with monetary funds or property knowingly acquired by other people by criminal means to impart legitimacy and conceal origin. - Article 175 CC criminalises acquisition or sale of property knowingly obtained in a criminal manner. - Scope of predicate offences: - Money laundering offence extends to any property and monetary funds. - Conviction of predicate offence not required to prove proceeds of crime. - All crimes are predicate offences for ML except 6 financial crimes. - For FATF-required predicate offences, 19 of the 20 are covered; insider trading and stock market manipulation are not distinct criminal offences (elements may exist in other laws). - Liability of legal persons: - Only natural persons are subject to criminal responsibility. - Corporate and administrative liability exist for legal persons; legal person found to have engaged in money laundering can have license revoked and be subject to liquidation through civil court proceedings. - Sanctions for natural persons: - Fines from RUB 120 000 to RUB 1 million. - Imprisonment from four to 15 years. - Fines adjustable on basis of offender’s income (from 0.5 to 5 times the annual income). - Confiscation and asset recovery: - Dual procedure: Code of Criminal Procedure (CCP) Article 81 and Criminal Code Article 104.1 authorise confiscation of proceeds and instruments. - Bona fide third party rights protected by Article 123 CCP; Article 169 Civil Code voids transactions contrary to fundamentals of law and order or morality. - Value of confiscation for ML offences: over RUB 385 million in 2006. - Confiscations for all crimes: over RUB 75 billion from 2003 to 2006. - CC Article 104.1 effective since 1 January 2007 (effectiveness difficult to evaluate). - Terrorist financing (TF): - Criminalised in Article 205.1 CC; targets any support or contribution to terrorist activity; financing explicitly mentioned. - Covers provision and collection (“raising”) of funds; connected to ten crimes of a terrorist nature. - Does not extend to theft of nuclear material (required under UN Convention for the Suppression of the Financing of Terrorism). - Intent required; prosecution need not prove funds intended for a specific terrorist act. - TF committed once funds are collected, regardless of use. - Possible sentence: four to eight years imprisonment; seven to 15 years if committed through abuse of office; judge may add a fine up to RUB 1 million or five years annual income. - TF convictions: 24 persons convicted for the period 2004 – 2006; average prison sentence about eight years. - Low number of cases and convictions suggests TF provision could be used more effectively. - Freezing terrorist assets and UNSCRs: - System established to comply with UNSCR 1267(1999), UNSCR 1373(2001) and successor resolutions. - Designated list has international part (UNSCR 1267) and domestic part (UNSCR 1373). - Assets of UNSCR 1267 listed terrorists frozen without time limitation or until UN de-listing; no funds frozen so far. - Domestic list freezing regime: temporary suspension of financial operations for initial two working days (verification), extendable five working days; thereafter criminal seizure/confiscation regime applies. - Concerns about reliance on criminal justice system for SR.III implementation; need mechanisms to give effect to freezing actions initiated under other jurisdictions. - Rosfinmonitoring (FIU): - Central policy coordinating body designated for collecting, processing, analysing and disseminating STRs. - Empowered to request information from reporting and government entities, maintain national AML database, act as international AML/CFT point of contact and represent Russia in FATF, MONEYVAL, EAG and Egmont Group. - Regional offices in all Federal Districts; headquarters IT infrastructure supports regional analysis and submission of cases. - Staff vacancies about 15% of maximum staff levels, especially in analytical and supervisory departments; authorities encouraged to fill vacancies. - Performs traditional FIU tasks effectively and provides international co-operation and training via “ANO Training Centre”. - Law enforcement bodies: - Main bodies: Ministry of Internal Affairs (MIA), Federal Security Service (FSB), Federal Service for the Control of Narcotics Circulation (FSKN) and the Prosecution Authority. - All cooperate with the FIU; cooperation among them is not always clear. - Prosecution Authority designated to delineate responsibilities when more than one body involved, but lack of awareness and co-operation noted. - Corruption within law enforcement acknowledged and negatively impacts effectiveness. - Special Recommendation IX (currency control): - AML/CFT requirements added to existing currency control system, producing a confusing legal framework interpreted differently by Customs authorities across regions. - In practice focuses almost exclusively on cash, not implemented as foreseen by law, with enforcement, legal and implementation gaps. - Few sanctions levied for non-compliance with declaration requirements; statistics lacking; Customs lack clear awareness of AML/CFT measures. - Recommendation: full review and integration of currency control system into AML/CFT Law; physical movement of cash in/out of Russia is an important component of ML schemes. ### Preventive Measures — Financial Institutions (coverage, CDD, monitoring and controls) - Legal framework and coverage: - CDD legal framework set out in a variety of legal documents; except for detailed provisions of the AML/CFT Law, these constitute other enforceable means. - All financial institutions (as defined by the FATF Recommendations) are covered by the AML/CFT law. - Accounts and identification: - Credit Institutions explicitly prohibited from opening anonymous accounts. - No specific provision prohibiting banks from maintaining existing accounts under fictitious names (authorities believe procedures effectively preclude this). - All customers must be identified, with exemptions for certain specifically defined occasional transactions below RUB 30 000, even if there is suspicion of ML/TF. - Foreign exchange transactions below RUB 15 000 are exempted from CDD, but only if there is no ML/TF suspicion; FIs prohibited from performing CDD in these cases. - Beneficial ownership and ongoing CDD: - CDD framework includes authorised persons, representatives and beneficiaries, but does not fully address beneficial ownership concept. - Ongoing CDD defined as update of CDD information, usually must take place annually; may not be sufficient but addresses gaps for existing customers. - FIs required to assess if risks necessitate enhanced CDD; no rules for simplified CDD. - Politically Exposed Persons (PEPs): - Measures against PEPs are very recent; effectiveness could not be assessed. - Legal framework incomplete and should be addressed urgently. - Russia should consider including domestic PEPs as a tool for fighting corruption. - Correspondent banking and secrecy: - All relevant correspondent banking criteria should be implemented, including understanding respondent bank’s business and ascertaining adequacy and effectiveness of respondent’s AML/CFT system. - Requirement to document respective AML/CFT responsibilities of banks should be covered. - No practical problem observed with financial secrecy provisions. - Record keeping: - Requirements generally comprehensive, but some gaps in law and regulation recommended to be addressed. - Assessment team did not receive indications of problems obtaining required information on a timely basis; rating for this Recommendation raised on basis of effectiveness. - Wire transfers and SR.VII: - New system governing wire transfers is a welcome step; gaps remain, particularly regarding definition of originator information in certain limited cases. - Recommendation: amend AML/CFT regime to address remaining gaps and ensure all rules can be implemented in practice. - Legal framework for SR.VII only implemented recently; measurement of implementation and effectiveness not possible. - Unusual transactions and reporting: - No overall requirement to examine background and purpose of all unusual transactions and to record/maintain such information for competent authorities. - Many FIs confused about distinction between mandatory threshold reporting (> RUB 600 000) and examining background of unusual transactions; authorities maintain many mandatory reporting criteria are actually unusual transactions. - Despite legal gaps, in practice most FIs pay attention to unusual transactions to report STRs. - Suspicious transaction reporting (Recommendation 13): - AML/CFT Law requires reporting of suspicious transactions in ML and TF cases, except attempted transactions by occasional customers. - Banking sector files most STRs; other sectors show increase in number of STRs. - Shortcomings for Recommendation 13 are mostly technical. - Internal controls, training, and employee screening: - General requirements for FIs to establish and maintain internal control procedures, policies, and controls to prevent ML and FT are laid out in the AML/CFT Law. - Training programmes focus heavily on the legal requirements and do not incorporate typologies. - TF requirements do not extend beyond the lists of designated terrorist entities. - Employee screening procedures need to be broadened to cover all staff, including a criminal records check. - Russia Post: Implementation of AML/CFT-related internal controls within Russia Post is lacking. - Summary: Internal control procedures governing terrorism financing lack comprehensive treatment of CFT and focus almost exclusively on a “list-based” approach; training and screening programmes inadequate. ### Supervisory coverage, frequency, powers and sanctions - Supervisory effectiveness and frequency: - BoR supervision: detailed, in-depth and effective. - FSFM and FISS: each securities market participant inspected once every nine to 12 years on average; each insurance company inspected once every five to six years on average. - ROSCOM: inspects each Russia Post branch only once every six years. - Leasing companies: inspected once every eight to thirteen years by Rosfinmonitoring. - Supervisory legal powers: - Powers of supervisors found in law; BoR Law limits number of on-site inspections over a certain period. - Powers to compel production of records are sound in practice, with some technical legal shortcomings. - Sanctioning powers and effectiveness: - Sanctioning powers and sanctions are generally completely inadequate. - BoR is the only supervisor with some sanctioning powers and indicates their powers are too limited to correct compliance shortcomings. - FSFM and FISS have no (direct) sanctioning powers. - System for sanctioning non-CI financial institutions does not work effectively, especially for FISS and ROSCOM. - Criminal ownership of financial institutions: - Some banks believed to be owned and controlled by (suspected) criminals and their front men. - Legislative changes have not yet addressed this weakness. - All supervisors need more legal powers to prevent criminals from controlling financial institutions. ### Money or Value Transfer (MVT) and alternative remittance systems - Current system ensures fairly effective oversight of legal MVT service providers. - System does not effectively address illegal ARS operating in Russia. - Recommendation: law enforcement should prioritise investigating existence of alternative remittance systems to better assess ML/TF threat. ### Non-Financial Businesses and Professions (DNFBPs) - Two regimes under the AML/CFT Law: - First regime focuses on financial institutions and includes the gaming industry, real estate sector, and dealers in precious metals and stones. - Second regime applies to lawyers, notaries and accountants; less strict and reporting requirements apply only under conditions: - i) if, during the course of business, the professional has any ground to assume that the aim of the operation or financial transaction is to launder money or finance terrorism and - ii) if the information or service provided is not covered by professional secrecy provisions in relation to a limited set of activities that does not fully match the activities listed by the FATF. - Implementation and effectiveness: - Requirements for lawyers, notaries and accountants generally incomplete or not effectively implemented. - Casinos, real estate sector, and dealers in precious metals and stones raise specific concerns regarding effectiveness. - STR figures: low numbers from lawyers and notaries; concerns over STR levels for real estate agents, casinos and dealers in precious metals and stones. - Supervision of DNFBPs: - All DNFBPs are supervised, but not always clearly for AML/CFT purposes. - Casinos not licensed by a competent authority involved with AML/CFT matters. - Rosfinmonitoring supervises casinos and real estate dealers. - Assay Chamber lacks effective supervision powers and resources to focus on AML/CFT matters for dealers in precious metals and stones. - Positive identification: - Russia identified pawnshops, operational leasing companies and non-casino gambling enterprises as designated entities under the AML/CFT Law. - Russia may want to consider ML risk posed by high value and luxury goods providers. ### Legal persons, beneficial ownership, and “one-day” firms - No bearer shares, trusts or similar legal arrangements in Russia. - Registration requirements: - All legal entities and individual businesses required to register or update registration at establishment, reorganisation and liquidation and when changes to constituent documents are introduced. - Registry maintained by tax authorities; information publicly available except certain types only available to state authorities. - Information gaps: - Information on beneficial ownership and control of legal persons as required by the FATF Recommendations is not registered or readily available to any state authorities. - “One-day” firms: - Overwhelming majority of ML schemes associated with “one-day” firms—commercial organisations registered under names of non-existent persons without intention to perform real commercial activity. - Evaluators believe lack of beneficial ownership information is root cause and that procedures to gather and maintain such information would largely resolve the problem. ### Non-Profit Organisations (NPOs) - Authorities undertook a superficial review of NPO sector for TF vulnerability. - System perceived as “quite tough,” but most provisions involve basic registration requirements applicable to all legal entities. - Limited outreach to NPO sector; recommendation to set up a more comprehensive, efficient system focusing on real vulnerabilities and share information to target abuse. ### National and international co-operation, MLA and extradition - Mechanisms in place to review effectiveness of AML/CFT system; new policy and legislative proposals developed and implemented ongoingly. - Findings of National AML/CFT Strategy Paper and Rosfinmonitoring typologies have limited effect outside Rosfinmonitoring’s control. - Recommendation: Rosfinmonitoring should be given necessary powers to ensure improved implementation. - Conventions and UNSCRs: - Russia implemented the Vienna and Palermo Conventions and almost fully implemented the Terrorist Financing convention. - Gaps in implementing UNSCRs 1267, 1373 and successor resolutions. - Mutual Legal Assistance (MLA) and extradition: - Russia can provide various forms of MLA based on the CCP and the AML/CFT Law; generally sound. - Recommendations 37 and 38 fully implemented. - Improvements warranted in responding more expeditiously to MLA requests. - Stark difference in extradition practice in relation to non-CIS countries; numbers seem unnecessarily low. - Russia has a high number of requests to and from CIS countries. ### Resources and statistics - Not all authorities keep quality statistics. - While authorities generally seem to have sufficient staff (based on numbers provided), the number of staff specifically devoted to AML/CFT is generally too low. - Specific vacancy: Rosfinmonitoring staff vacancies about 15% of maximum staff levels. ### TF-related STRs, reporting effectiveness and internal controls (focused findings) - Given the absence of any TF STR guidance: - Transfers of small amounts from regions with supposed TF activities or withdrawals of small amounts from an ATM in such a region often trigger an STR without any “real” TF suspicion. - Neither the authorities nor the private sector could indicate the characteristics of a TF related STR. - Lack of guidance and clarity impacts effectiveness in assessing Special Recommendation IV. - Shortcoming in criminalisation for terrorist financing limits the reporting obligation. ### Ratings summary — Recommendations and Special Recommendations (select highlights) - R.26 The FIU: C (Compliant). - R.27 Law enforcement authorities: LC (Largely Compliant) with effectiveness issues. - R.29 Supervisors: PC (Partially Compliant) — limitations on on-site inspections, sanction powers inadequate. - R.33 Legal persons – beneficial owners: PC (Partially Compliant) — inadequate transparency on beneficial ownership. - SR.II Criminalise terrorist financing: LC — TF offence does not extend to theft of nuclear material; no criminal liability for legal persons. - SR.III Freeze and confiscate terrorist assets: PC — reliance on criminal justice system problematic; absence of national mechanism to give effect to freezing actions of other countries. - SR.IV Suspicious transaction reporting: PC — no STR requirement for attempted transactions by occasional customers; TF STR system lacks effectiveness. - SR.VI AML requirements for MVT services: NC (Not Compliant) — system lacks effectiveness; insufficient attention to illegal ARS. - SR.VII Wire transfer rules: PC — full originator information not required in certain limited cases; several implementation gaps. - SR.VIII NPOs: PC — lack of comprehensive review and outreach; no single formally designated competent authority. - SR.IX Cross Border Declaration & Disclosure: NC — multiple gaps in detection, restraint, data collection, forms and staff awareness. ### Table 2 — Selected High-Priority Recommended Action Plan (extract) - Criminalisation and related measures: - Russia should establish offences of insider trading and stock market manipulation. - Russian authorities should reconsider their position concerning the criminal liability of legal persons. - Criminalisation of Terrorist Financing (SR.II): - Russia should establish the offence of theft of nuclear material and expand the TF offence to include this new offence. - Reconsider criminal liability of legal persons. - Confiscation, freezing and seizing of proceeds (R.3): - Consider expanding confiscation provisions in Criminal Code article 104.1 to include at least the money laundering offence. - Freezing of funds used for terrorist financing (SR.III): - Implement elements of SR.III beyond UNSCR requirements. - Rely less on the criminal justice system to implement SR.III effectively. - Implement a national mechanism to examine and give effect to actions initiated under freezing mechanisms of other jurisdictions. - Establish an effective and publicly known procedure for de-listing requests and requests to unfreeze funds or other assets inadvertently affected. - The Financial Intelligence Unit and its functions (R.26): - All Rosfinmonitoring personnel vacancies should be filled as a priority. - Law enforcement, prosecution and other competent authorities (R.27 & 28): - Initiate a general discussion to define competences of law enforcement agencies and specialised units in ML/TF cases. - Prosecution Authority should implement more rigorous supervision of cases pursued by law enforcement bodies. - Continue and deepen efforts to eliminate corruption. - Strengthen inter-agency AML/CFT training and enhance international training, especially for law enforcement staff in border regions. - Address low number of ML convictions compared with detected ML crimes; consider greater specialisation within the Prosecution Authority and judiciary, including specialised units and specialised courts for ML and FT. - Cross Border declaration or disclosure (SR.IX): - Implement all elements of an effective system to deter illegal cross border movements of currency. - Increase staffing levels of the FCS to keep up with growing workload. - Encourage FCS to continue fighting corruption. - Commence an awareness raising campaign for all levels of staff in all regions. - Ensure customs and law enforcement cooperate in all regions and are aware of each others’ cases, especially relating to alternative remittance systems. - Simplify legal framework for reporting cash and bearer negotiable instruments in one law and align reporting forms with the law. - Ensure sending cash or bearer negotiable instruments through containerised cargo is covered in law and practice. - FCS should have legal authority to restrain currency in case of suspicions of ML if the money is declared; consider using currency declaration reports to identify and target money launderers and terrorists. - Raise administrative penalties for false or non-declarations considerably. *Source: _cr0922* ### Introduction ### Introduction ### Report scope and purpose - Prepared by the Financial Action Task Force (FATF) on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering and 9 Special Recommendations Combating the Financing of Terrorism. - Summarises AML/CFT measures in place in Russian Federation as of the on-site visits (25 September – 2 October 2007 and 12 – 23 November 2007) and shortly thereafter. - Provides the level of compliance with the FATF 40+9 Recommendations and recommendations to strengthen the AML/CFT system. - Views agreed by the FATF; do not necessarily reflect the views of the Boards of the IMF and World Bank. ### Key Findings - Authorities aware of ML and TF schemes used in Russia; common elements: - Misuse of (foreign) legal entities and financial institutions. - Laundered money invested in real estate or security instruments, or used to buy luxury consumer goods. - Use of alternative remittance networks by foreign and North Caucasian terrorist groups for TF. - Corruption is a general impediment to fighting ML/TF: - High level of corruption in public and private sectors. - No indications that the FIU is affected by corruption, but some law enforcement bodies and private sector businesses are impacted. - Eliminating corruption is a government priority. ### Statistical and operational highlights - ML investigations: from 618 in 2003 to 7 957 in 2006. - Money laundering cases sent to court: from 465 in 2003 to 6 880 in 2006. - Convictions for ML: from 14 in 2003 to 532 in 2006. --- ### Legal System and Related Institutional Measures - Criminalisation of ML: - Articles 174 CC (money laundering), 174.1 CC (self-laundering), 175 CC (acquisition or sale of property obtained by crime). - Article 174 CC defines ML as acts involving carrying out financial operations and other transactions with monetary funds or property knowingly acquired by other people by criminal means to impart legitimacy and conceal origin. - Article 175 CC criminalises acquisition or sale of property knowingly obtained in a criminal manner. - Scope of predicate offences: - Money laundering offence extends to any property and monetary funds. - Conviction of predicate offence not required to prove proceeds of crime. - All crimes are predicate offences for ML except 6 financial crimes. - For FATF-required predicate offences, 19 of the 20 are covered; insider trading and stock market manipulation are not distinct criminal offences (elements may exist in other laws). - Liability of legal persons: - Only natural persons are subject to criminal responsibility. - Corporate and administrative liability exist for legal persons; legal person found to have engaged in money laundering can have license revoked and be subject to liquidation through civil court proceedings. - Sanctions for natural persons: - Fines from RUB 120 000 to RUB 1 million. - Imprisonment from four to 15 years. - Fines adjustable on basis of offender’s income (from 0.5 to 5 times the annual income). - Confiscation and asset recovery: - Dual procedure: Code of Criminal Procedure (CCP) Article 81 and Criminal Code Article 104.1 authorise confiscation of proceeds and instruments. - Bona fide third party rights protected by Article 123 CCP; Article 169 Civil Code voids transactions contrary to fundamentals of law and order or morality. - Value of confiscation for ML offences: over RUB 385 million in 2006. - Confiscations for all crimes: over RUB 75 billion from 2003 to 2006. - CC Article 104.1 effective since 1 January 2007 (effectiveness difficult to evaluate). - Terrorist financing: - Criminalised in Article 205.1 CC; targets any support or contribution to terrorist activity; financing explicitly mentioned. - Covers provision and collection (“raising”) of funds; connected to ten crimes of a terrorist nature. - Does not extend to theft of nuclear material (required under UN Convention for the Suppression of the Financing of Terrorism). - Intent required; prosecution need not prove funds intended for a specific terrorist act. - TF committed once funds are collected, regardless of use. - Possible sentence: four to eight years imprisonment; seven to 15 years if committed through abuse of office; judge may add a fine up to RUB 1 million or five years annual income. - TF convictions: 24 persons convicted for the period 2004 – 2006; average prison sentence about eight years. - Low number of cases and convictions suggests TF provision could be used more effectively. - Freezing terrorist assets and UNSCRs: - System established to comply with UNSCR 1267(1999), UNSCR 1373(2001) and successor resolutions. - Designated list has international part (UNSCR 1267) and domestic part (UNSCR 1373). - Assets of UNSCR 1267 listed terrorists frozen without time limitation or until UN de-listing; no funds frozen so far. - Domestic list freezing regime: temporary suspension of financial operations for initial two working days (verification), extendable five working days; thereafter criminal seizure/confiscation regime applies. - Concerns about reliance on criminal justice system for SR.III implementation; need mechanisms to give effect to freezing actions initiated under other jurisdictions. - Rosfinmonitoring (FIU): - Central policy coordinating body designated for collecting, processing, analysing and disseminating STRs. - Empowered to request information from reporting and government entities, maintain national AML database, act as international AML/CFT point of contact and represent Russia in FATF, MONEYVAL, EAG and Egmont Group. - Inspired establishment of EAG in 2004. - Regional offices in all Federal Districts; headquarters IT infrastructure supports regional analysis and submission of cases. - Staff vacancies about 15% of maximum staff levels, especially in analytical and supervisory departments; authorities encouraged to fill vacancies. - Performs traditional FIU tasks effectively and provides international co-operation and training via “ANO Training Centre”. - Law enforcement bodies: - Main bodies: Ministry of Internal Affairs (MIA), Federal Security Service (FSB), Federal Service for the Control of Narcotics Circulation (FSKN) and the Prosecution Authority. - All cooperate with the FIU; cooperation among them is not always clear. - Prosecution Authority designated to delineate responsibilities when more than one body involved, but lack of awareness and co-operation noted. - Corruption within law enforcement acknowledged and negatively impacts effectiveness. - Special Recommendation IX (currency control): - AML/CFT requirements added to existing currency control system, producing a confusing legal framework interpreted differently by Customs authorities across regions. - In practice focuses almost exclusively on cash, not implemented as foreseen by law, with enforcement, legal and implementation gaps. - Few sanctions levied for non-compliance with declaration requirements; statistics lacking; Customs lack clear awareness of AML/CFT measures. - Recommendation: full review and integration of currency control system into AML/CFT Law; physical movement of cash in/out of Russia is an important component of ML schemes. --- ### Preventive measures - Financial Institutions (FIs) - Legal framework and coverage: - CDD legal framework set out in a variety of legal documents; except for detailed provisions of the AML/CFT Law, these constitute other enforceable means. - All financial institutions (as defined by the FATF Recommendations) are covered by the AML/CFT law. - Accounts and identification: - Credit Institutions explicitly prohibited from opening anonymous accounts. - No specific provision prohibiting banks from maintaining existing accounts under fictitious names (authorities believe procedures effectively preclude this). - All customers must be identified, with exemptions for certain specifically defined occasional transactions below RUB 30 000, even if there is suspicion of ML/TF. - Foreign exchange transactions below RUB 15 000 are exempted from CDD, but only if there is no ML/TF suspicion; FIs prohibited from performing CDD in these cases. - Beneficial ownership and ongoing CDD: - CDD framework includes authorised persons, representatives and beneficiaries, but does not fully address beneficial ownership concept. - Ongoing CDD defined as update of CDD information, usually must take place annually; may not be sufficient but addresses gaps for existing customers. - FIs required to assess if risks necessitate enhanced CDD; no rules for simplified CDD. - Politically Exposed Persons (PEPs): - Measures against PEPs are very recent; effectiveness could not be assessed. - Legal framework incomplete and should be addressed urgently. - Russia should consider including domestic PEPs as a tool for fighting corruption. - Correspondent banking and secrecy: - All relevant correspondent banking criteria should be implemented, including understanding respondent bank’s business and ascertaining adequacy and effectiveness of respondent’s AML/CFT system. - Requirement to document respective AML/CFT responsibilities of banks should be covered. - No practical problem observed with financial secrecy provisions. - Record keeping: - Requirements generally comprehensive, but some gaps in law and regulation recommended to be addressed. - Assessment team did not receive indications of problems obtaining required information on a timely basis; rating for this Recommendation raised on basis of effectiveness. - Wire transfers and Special Recommendation VII: - New system governing wire transfers is a welcome step; gaps remain, particularly regarding definition of originator information in certain limited cases. - Recommendation: amend AML/CFT regime to address remaining gaps and ensure all rules can be implemented in practice. - Legal framework for SR.VII only implemented recently; measurement of implementation and effectiveness not possible. - Unusual transactions and reporting: - No overall requirement to examine background and purpose of all unusual transactions and to record/maintain such information for competent authorities. - Many FIs confused about distinction between mandatory threshold reporting (> RUB 600 000) and examining background of unusual transactions; authorities maintain many mandatory reporting criteria are actually unusual transactions. - Despite legal gaps, in practice most FIs pay attention to unusual transactions to report STRs. - Non-cooperative jurisdictions (Recommendation 21): - Russia bases implementation on FATF list of Non Co-operative Countries or Territories, which is insufficient by itself. - Law on Special Economic Measures enables Russia to apply countermeasures in accordance with Recommendation 21, including when FATF decides to apply countermeasures. - Suspicious transaction reporting (Recommendation 13): - AML/CFT Law requires reporting of suspicious transactions in ML and TF cases, except attempted transactions by occasional customers. - Banking sector files most STRs; other sectors show increase in number of STRs. - Shortcomings for Recommendation 13 are mostly technical. *Source: _cr0922 - Introduction* ### 29. Given the absence of any TF STR guidance, the authorities explained that, in practice, often a ### _cr0922 - 29. Given the absence of any TF STR guidance, the authorities explained that, in practice, often a ### TF-related STRs and reporting effectiveness - Given the absence of any TF STR guidance, transfers of small amounts from regions with supposed TF activities or withdrawals of small amounts from an ATM in such a region often trigger an STR without any “real” TF suspicion. - Neither the authorities nor the private sector could indicate the characteristics of a TF related STR. - This lack of guidance and clarity impacts effectiveness in assessing Special Recommendation IV. - Shortcoming in the criminalisation for terrorist financing limits the reporting obligation (see Recommendation 13 summary). ### Internal controls, training, and employee screening - General requirements for financial institutions to establish and maintain internal control procedures, policies, and controls to prevent ML and FT are laid out in the AML/CFT Law. - Training programmes: - Focus heavily on the legal requirements. - Do not incorporate typologies, so employees are not adequately prepared to detect signs of ML and FT when they occur. - TF requirements: - Do not extend beyond the lists of designated terrorist entities. - Employee screening procedures: - Need to be broadened to cover all staff, including a criminal records check. - Russia Post: - Implementation of AML/CFT-related internal controls within Russia Post is lacking. - Summary from Recommendation 15: - Internal control procedures governing terrorism financing lack comprehensive treatment of CFT and focus almost exclusively on a “list-based” approach. - Training programmes of FIs focus too heavily on legal requirements under the AML/CFT Law rather than practical case studies. - Screening programmes are not broad enough, do not cover all personnel and do not focus on country specific risks. - Russia Post could not demonstrate effective implementation of internal control programmes at all branches. ### Supervisory coverage, frequency, and powers - Supervisory effectiveness: - Supervision carried out by the BoR is detailed, in-depth and effective. - For the FSFM and FISS: - Each securities market participant is inspected once every nine to 12 years on average. - Each insurance company is inspected once every five to six years on average. - Sample reports obtained from FSFM and FISS do not appear sufficiently detailed. - ROSCOM: - Inspects each Russia Post branch only once every six years. - Reports appear superficial with regard to AML/CFT matters. - Leasing companies: - Inspected once every eight to thirteen years by Rosfinmonitoring. - Supervisory legal powers: - Powers of supervisors are found in the law. - BoR Law limits the BoR in the number of on-site inspections it may carry out over a certain period. - Powers to compel production of records are sound in practice, although there are some technical legal shortcomings. - Sanctioning powers and effectiveness: - Sanctioning powers and sanctions are in general completely inadequate. - BoR is the only supervisor with some sanctioning powers and indicated their powers are too limited to effectively correct compliance shortcomings. - FSFM and FISS have no (direct) sanctioning powers. - The system for sanctioning non-CI financial institutions does not work effectively, especially with respect to the FISS and ROSCOM. ### Criminal ownership of financial institutions - Russia has been criticised in past mutual AML/CFT evaluations for vulnerability to criminal ownership of financial institutions. - Some banks are still believed to be owned and controlled by (suspected) criminals and their front men. - Authorities have a longstanding desire to obtain necessary supervisory instruments to deal with this issue. - Legislative changes have not yet addressed this weakness. - All supervisors need more legal powers with respect to preventing criminals from controlling financial institutions. ### Money or Value Transfer (MVT) and alternative remittance systems (ARS) - Current system ensures fairly effective oversight of legal MVT service providers. - System does not effectively address existence of illegal ARS operating in Russia. - Recommendation: - Russian law enforcement bodies should place a higher priority on investigating the existence of alternative remittance systems to better assess the size and nature of ML/TF threat posed by illegal MVT occurring within and through Russia. ### DNFBPs (Designated Non-Financial Businesses and Professions) - Two regimes under the AML/CFT Law: - First regime focuses on financial institutions and includes the gaming industry, real estate sector, and dealers in precious metals and stones. - Second regime applies to lawyers, notaries and accountants; it is a less strict version and specific reporting requirements only apply under conditions: - i) if, during the course of business, the professional has any ground to assume that the aim of the operation or financial transaction is to launder money or finance terrorism and - ii) if the information or service provided is not covered by professional secrecy provisions in relation to a limited set of activities that does not fully match the activities listed by the FATF. - Recommendation: - Russia should review the AML/CFT regime as it applies to DNFBPs and ensure all relevant elements are addressed. - Implementation and effectiveness: - Requirements for lawyers, notaries and accountants are generally incomplete or not effectively implemented. - DNFBPs met by the evaluation team had implemented requirements differently and not always in line with the law. - Specific concerns relating to the effectiveness of the regime for casinos and the real estate sector. - STR figures for real estate agents, casinos and dealers in precious metals and stones raise concerns over effectiveness. - Numbers of STRs filed by lawyers and notaries appear to be very low. - Supervision of DNFBPs: - All DNFBPs are supervised, but it is not always clear if supervision is specifically for AML/CFT purposes. - Casinos are not licensed by a competent authority involved with AML/CFT matters, which is a cause for concern. - Rosfinmonitoring is responsible for supervising casinos and real estate dealers. - Absence of specific information on sanctions imposed creates doubts as to effectiveness. - The Assay Chamber lacks effective supervision powers and resources to focus on AML/CFT matters for dealers in precious metals and stones. - Supervision of lawyers, notaries and accountants concentrates on professional practice and observance of federal legislation, including in theory, AML/CFT. - Positive identification: - Russia is commended for identifying pawnshops, operational leasing companies and non-casino gambling enterprises as designated entities under the AML/CFT Law. - Russia may want to consider the ML risk posed by the proliferation of high value and luxury goods providers. ### Legal persons, beneficial ownership, and “one-day” firms - No bearer shares, trusts or similar legal arrangements in Russia. - Registration requirements: - All legal entities and individual businesses are required to register or update their registration at establishment, reorganisation and liquidation and when changes to constituent documents are introduced. - Registry maintained by tax authorities; information publicly available except certain types only available to state authorities. - Information gaps: - Information on beneficial ownership and control of legal persons as required by the FATF Recommendations is not registered or readily available to any state authorities. - “One-day” firms: - Overwhelming majority of money laundering schemes are associated to a certain extent with “one-day” firms—commercial organisations registered under names of non-existent persons without intention to perform real commercial activity. - Evaluators believe lack of information on beneficial ownership and control is the root cause. - Evaluators believe effective procedures to gather and maintain such information would largely resolve the “one-day” firms problem. ### Non-Profit Organisations (NPOs) - Authorities undertook a superficial review of the NPO sector to determine vulnerability to terrorist financing. - System perceived by authorities as “quite tough,” but most provisions involve basic registration requirements that apply to all legal entities. - Limited outreach to the NPO sector to provide guidance. - Recommendation: - Authorities should set up a more comprehensive and efficient system focusing on real potential vulnerabilities and share information to target abuse. ### National and international co-operation - Mechanisms appear in place to review effectiveness of Russia’s AML/CFT system; new policy and legislative proposals are developed and implemented on an ongoing basis. - Findings of the National AML/CFT Strategy Paper and typologies reports by Rosfinmonitoring have had limited effect in areas outside Rosfinmonitoring’s control (e.g., compliance with Recommendation 33 and Special Recommendations III and IX). - Recommendation: - Rosfinmonitoring should be given necessary powers to ensure improved implementation. - International conventions and UNSCRs: - Russia has implemented the Vienna and Palermo Conventions and almost fully implemented the Terrorist Financing convention. - There are gaps in implementing UNSCRs 1267, 1373 and successor resolutions. - Mutual Legal Assistance (MLA) and extradition: - Russia can provide various forms of MLA based on the CCP and the AML/CFT Law. - MLA is provided on the basis of international agreements or on a reciprocal basis and is generally sound. - Russia is party to a large number of bilateral and multilateral MLA treaties. - Recommendations 37 and 38 are fully implemented. - Improvements warranted in responding more expeditiously to MLA requests. - Stark difference in extradition practice in relation to non-CIS countries; numbers seem unnecessarily low. - Russia has a high number of requests to and from CIS countries. - No issues in relation to other forms of international co-operation. ### Resources and statistics - Not all authorities keep quality statistics. - While Russian authorities generally seem to have sufficient staff (based on numbers provided), the number of staff specifically devoted to AML/CFT is generally too low. *Source: _cr0922 - 29. Given the absence of any TF STR guidance, the authorities explained that, in practice, often a* ### 16. DNFBP – R.13-15 & 21 PC Applying R.13 ### 16. DNFBP – R.13-15 & 21 PC Applying R.13 ### Key findings on DNFBPs and Recommendation 13 - Similar technical concerns to those recorded under Recommendation 13. - Casinos: Inconsistent levels of reporting lead to some doubts about effectiveness. - Real estate agents: Historically, relatively few STRs submitted. - Dealers in precious metals and stones: Large sector with relatively few STRs; lack of clarity as to how many STRs relate to the sector covered by the FATF definition. - Lawyers/notaries: Few STRs in this sector give rise to concerns over effectiveness. - Accountants – No specific information received. ### Applying R.14 - Similar technical concerns to those recorded under Recommendation 14. ### Applying R.15 - Casinos/real estate agents/dealers in precious metals and stones – similar technical concerns to those recorded under Recommendation 15, and overall doubts about effectiveness. - Lawyers/notaries/accountants – Doubts about effectiveness given the lack of AML/CFT supervision of lawyers and accountants and lack of information about supervision of notaries. ### Applying R.21 - No relevant requirements. - All Recommendations: TCSPs are not covered. - Accountants – no information on effectiveness. --- ### 17–25: Sanctions, Reporting, DNFBP Supervision and Guidance ### 17. Sanctions (PC) - Maximum fines that can be imposed by the BoR are too low. - Article 15.27 Code of Administrative Offences is not sufficiently broad. - Maximum fines against officials of financial institutions are too low. - No powers for supervisors (other than the BoR) to replace directors / senior management. - No powers for the BoR, the FSFM, the FISS and ROSCOM to withdraw a license when the owners are convicted of a relevant criminal or economic offence. - System to sanction financial institutions other than credit institutions is not effective. ### 18–20: Specific Recommendations - 18. Shell banks (C): This Recommendation is fully observed. - 19. Other forms of reporting (C): This Recommendation is fully observed. - 20. Other NFBP & secure transaction techniques (C): This Recommendation is fully observed. ### 21. Special attention for higher risk countries (PC) - No requirement for financial institutions to give special attention to business relationships and transactions with persons from or in countries which do not or insufficiently apply the FATF Recommendations. - No requirement to examine as far as possible the background and purpose of such business relationships and transactions, to set forth the findings of such examinations in writing and to keep such findings available for competent authorities and auditors for at least five years. ### 22. Foreign branches & subsidiaries (NC) - The legal and regulatory framework does not consistently apply the requirement to abide by Russian AML/CFT Laws and regulations to both foreign branches and subsidiaries. - Existing guidance on foreign operations of CIs applies only to prudential risks, not to AML/CFT requirements. - There is no requirement for increased vigilance over foreign operations in jurisdictions that do not or insufficiently apply FATF recommendations. - There is no specific requirement to inform the Russian regulator when a foreign branch, subsidiary or representative office is unable to observe appropriate AML/CFT measures. - Foreign operations of non-credit FIs are not covered by the existing regulatory regime, thus effectiveness of the current legal framework cannot be assessed. ### 23. Regulation, supervision and monitoring (PC) - No provisions to prevent criminals from becoming major shareholders in a non-banking financial institution. - Inadequate threshold with respect to major shareholders of credit institutions. - Inadequate provision regarding persons having a controlling interest with respect to a credit institution. - No fit and proper requirement regarding leasing companies and the members of the board of a life insurance company or an insurance broker. - No fit and proper test and general lack of effectiveness regarding the system to register and supervise organisations providing MVT services according to article 13.1 Banking Law. - Lack of effectiveness with respect to the supervision of the FSFM, the FISS and ROSCOM. ### 24. DNFBP - regulation, supervision and monitoring (PC) - No current AML/CFT licensing regime by an AML/CFT competent authority for casinos. - No measures to prevent criminals holding an interest in a casino. - Limited number of focused supervisory visits to real estate agents. - As reported on-site, supervisory activity for casinos does not appear to be proportionate to the perceived risks identified by the supervisor. - Monitoring of lawyers is remote and not specific to AML/CFT. - No details of specific AML/CFT monitoring of notaries. - Assay Chamber does not consider itself to have adequate powers. - Assay Chamber has relatively few AML/CFT specialists to supervise 25 000 firms. - General lack of specific information to assess effectiveness of the sanctions regime relating to DNFBPs. - TCSPs not covered. ### 25. Guidelines & Feedback (PC) - Insufficient and ineffective guidance to FIs, beyond an explanation of the law. - No case-by-case feedback beyond the acknowledgement of the receipt of the STR. - Limited feedback given to the dealers in precious metals and stones, lawyers and notaries. - No information about feedback given to accountants. --- ### 26–34: Institutional Measures, Supervisors, Resources and Transparency ### 26. The FIU (C) - This Recommendation is fully observed. ### 27. Law enforcement authorities (LC) - The discretionary powers of the Prosecution Authority to transfer a case from one law enforcement to another may lead to a lack of clear distribution of money laundering cases among law enforcement bodies (effectiveness issue). - Corruption has an impact on the effectiveness of the system. - Some designated law enforcement bodies do not appear to have sufficient knowledge of the ML provisions. ### 28. Powers of competent authorities (C) - This Recommendation is fully observed. ### 29. Supervisors (PC) - Limitation on the BoR for conducting on-site AML/CFT inspections. - FISS not able to compel and obtain access to information protected by banking secrecy. - Maximum fines against credit institutions are too low. - No power for the BoR to fine directors or senior management. - No powers for the FSFM, the FISS and ROSCOM to impose fines on financial institutions and directors / senior management and to replace directors / senior management. - No powers for the BoR, the FSFM, the FISS, ROSCOM and Rosfinmonitoring to withdraw a license when the owners are convicted of a relevant criminal or economic offence. - System to sanction financial institutions other than credit institutions is not effective. - Lack of clarity with respect to ROSCOM’s competence to carry out on-site inspections related to the full set of AML/CFT requirements and to compel production of records. ### 30. Resources, integrity and training (PC) - For a majority of regional offices and for a majority of law enforcement and supervisory agencies, the number of staff specifically devoted to AML/CFT issues is low, or was difficult to assess. ### 31. National co-operation (LC) - Law enforcement agencies and supervisors do not adequately co-operate on the operational-level with respect to potential systemic vulnerabilities such as illegal money and value transfer services. ### 32. Statistics (LC) - Not all authorities keep quality statistics on matters relevant to the effectiveness and efficiency of the system. ### 33. Legal persons – beneficial owners (PC) - None of the existing systems achieve adequate transparency regarding the beneficial ownership and control of legal persons. ### 34. Legal arrangements – beneficial owners (N/A) - This recommendation is not applicable. --- ### 35–40: International Co-operation and Effectiveness ### 35. Conventions (LC) - TF Convention: article 2(1)(a) – theft of nuclear material is not covered. ### 36. Mutual legal assistance (MLA) (LC) - No reliable statistics provided to show effectiveness of the system. - Feedback from other FATF and FATF-style Regional Bodies shows delay in answering MLA requests. ### 37. Dual criminality (C) - This Recommendation is fully observed. ### 38. MLA on confiscation and freezing (C) - This Recommendation is fully observed. ### 39. Extradition (LC) - Deficiencies noted in relation to the criminalisation of ML and TF may prove to be an obstacle in executing extradition requests. - The effectiveness of the extradition system to and from non-CIS countries should be enhanced. ### 40. Other forms of co-operation (C) - This Recommendation is fully observed. --- ### Special Recommendations (SR) Summary of Ratings and Underlying Factors - SR.I Implement UN instruments (LC): TF Convention Article 2(1)(a) – theft of nuclear material is not covered; UNSCRs 1267, 1373 and successor resolutions have been implemented insufficiently. - SR.II Criminalise terrorist financing (LC): TF offence does not extend to theft of nuclear material; Russia has not established criminal liability for legal persons. - SR.III Freeze and confiscate terrorist assets (PC): Reliance on criminal justice system risks problems with UNSCR 1373 implementation; no national mechanism to give effect to freezing actions of other countries; no effective/publicly-known mechanism for de-listing or unfreezing inadvertently affected funds. - SR.IV Suspicious transaction reporting (PC): No STR requirement for attempted transactions by occasional customers; shortcoming in criminalisation for TF limits reporting obligation; lack of effectiveness relating to TF STR system. - SR.V International co-operation (LC): Deficiencies in Recommendations 36 and 39 negatively affect rating. - SR.VI AML requirements for money/value transfer services (NC): System lacks effectiveness; insufficient attention to illegal alternative remittance systems; payment acceptance service providers not covered by supervisory regime until November 2007; ROSCOM lacks effective sanctioning powers; implementation of multiple Recommendations in MVT sector suffers same deficiencies as banks. - SR.VII Wire transfer rules (PC): Full originator information not required in certain limited cases; no requirements for beneficiary FIs to adopt risk-based procedure; incoming transfers not covered; requirement to refuse transactions without full originator information cannot be implemented; batch transfers not specifically mentioned; shortcomings under Recommendation 17 and 23 apply; effectiveness of new system cannot be measured. - SR.VIII Non-profit organisations (PC): Lack of comprehensive review of the system; some rules insufficiently enforced; inconsistent outreach; no formalised system focusing on potential vulnerabilities or information sharing; no single formally designated competent authority for NPOs. - SR.IX Cross Border Declaration & Disclosure (NC): No clear power to stop or restrain declared cash or bearer negotiable instruments in case of suspicion of ML; customs declaration forms not in line with law; customs do not keep all required ML/TF data; inadequate coordination among competent authorities on cross border cash movement; administrative fines for false/non-declarations not dissuasive; customs staff unaware system can be used for AML/CFT purposes; insufficient dedicated AML/CFT staff at borders; corruption affects effectiveness; failures under SR.III have negative impact; sending cash through containerised cargo not covered; authorities could not demonstrate effectiveness of the system. --- ### Table 2: Selected Recommended Action Plan (high-priority items) ### Criminalisation and related measures - Russia should establish offences of insider trading and stock market manipulation. - Russian authorities should reconsider their position concerning the criminal liability of legal persons. ### Criminalisation of Terrorist Financing (SR.II) - Russia should establish the offence of theft of nuclear material and expand the TF offence to include this new offence. - Russian authorities should reconsider their position concerning the criminal liability of legal persons. ### Confiscation, freezing and seizing of proceeds (R.3) - Russia should consider expanding the confiscation provisions in its Criminal Code article 104.1 to include at the very least the money laundering offence. ### Freezing of funds used for terrorist financing (SR.III) - Russia should implement the elements of SR.III that go beyond the requirements of the UNSCRs. - Russia should rely less on the criminal justice system to be able to effectively implement SR.III. - Russia needs to implement a national mechanism to examine and give effect to actions initiated under the freezing mechanisms of other jurisdictions. - Russia should establish an effective and publicly known procedure for dealing with de-listing requests and requests to unfreeze funds or other assets of entities inadvertently affected by a freezing action. ### The Financial Intelligence Unit and its functions (R.26) - The number of personnel vacancies at Rosfinmonitoring is somewhat high and all vacancies should be filled as a priority matter. ### Law enforcement, prosecution and other competent authorities (R.27 & 28) - Initiate a general discussion on how to define and determine the competences of law enforcement agencies and their specialised units in ML/TF cases. - The Prosecution Authority should implement more rigorous supervision to be aware of all cases pursued by law enforcement bodies. - Continue and deepen efforts to eliminate corruption. - Strengthen inter-agency AML/CFT training programmes to develop specialised financial investigators and experts. - Enhance international training programmes on ML and FT issues, especially for law enforcement staff in border regions. - Address the low number of ML convictions compared with detected ML crimes; consider greater specialisation within the Prosecution Authority and judiciary, including specialised units and specialised courts for ML and FT. ### Cross Border declaration or disclosure (SR.IX) - Russia should implement all elements of an effective system to deter illegal cross border movements of currency. - Staffing levels of the FCS should be increased to keep up with the growing workload. - The FCS should be encouraged to continue fighting corruption. - Authorities should commence an awareness raising campaign for all levels of staff in all regions. - Ensure customs and law enforcement cooperate in all regions and are aware of each others’ cases, especially relating to alternative remittance systems. - Simplify the legal framework for reporting cash and bearer negotiable instruments in one law, and bring reporting forms in line with the law in all languages. - Russia should ensure that sending cash or bearer negotiable instruments through containerised cargo is covered in law and practice. - The FCS should have the legal authority to restrain currency in case of suspicions of ML if the money is declared; consider using currency declaration reports to identify and target money launderers and terrorists. - Administrative penalties for false or non-declarations should be raised considerably. *Source: _cr0922 - 16. DNFBP – R.13-15 & 21 PC Applying R.13 (IMF country report content provided).* ### 3. Preventive Measures – Financial Institutions ### 3. Preventive Measures – Financial Institutions ### Risk of money laundering or terrorist financing - No recommendations. ### Customer due diligence, including enhanced or reduced measures (R.5 to 8) - Recommendation 5 - Russia should ensure that the following issues are covered by law or regulation: (i) a specific prohibition on maintaining existing accounts under fictitious names, (ii) a requirement to carry out CDD where there is a suspicion of money laundering, regardless of any exemptions, (iii) performance of CDD where there are doubts about the veracity of previously obtained customer identification data, (iv) a requirement to identify beneficial owners and in particular to establish the ultimate natural owner/controller and (v) requirements for conducting ongoing due diligence. - The following matters should be set out in law, regulation or other enforceable means: (i) requirement for non-CIs to understand the ownership or control structure of a legal person, (ii) requirement to ascertain the purpose and intended nature of the business relationship, (iii) requirements for the timing of verification of identification, and (iv) consequences of a failure to conduct CDD. - Requirements relating to enhanced and simplified due diligence should be clarified, in particular the exemptions from conducting CDD in situations relating to occasional transactions. Further guidance to FIs on dealing with legal arrangements from overseas would be helpful. - A stronger link in the AML/CFT Law should be established between the need to ascertain whether a customer is acting on behalf of another person and the requirement to collect identification data. Further clarification in the AML/CFT Law on the meaning of the term “beneficiary” and the measures which financial institutions should take to comply with the measures would be helpful. - Further guidance to FIs should be developed to ensure that legal arrangements are appropriately identified as the financial sector grows and becomes more international. - Recommendation 6 - Further guidance should be given as to the requirements for dealing with existing customers who are found to be foreign public persons, establishing the source of wealth and conducting enhanced ongoing due diligence. Also, the measures should extend to beneficial owners. Russia should also consider extending the provisions to include domestic PEPs. - Recommendation 7 - All of the relevant criteria should be set out in law, regulation or other enforceable means, particularly the need to understand the nature of the respondent bank’s business and to ascertain whether the respondent’s AML/CFT system is adequate and effective. The requirement to document the respective AML/CFT responsibilities of banks should also be covered, and Russia should consider formalising its requirements in relation to payable-through accounts. - Recommendation 8 - Russia should review the existing limited requirements (which relate largely to remote banking) and to provide appropriate measures on the basis of that review. ### Third parties and introduced business (R.9) - Russia should amend the AML/CFT Law to state clearly that financial institutions are not permitted to rely on third party verification of identity. ### Financial institution secrecy or confidentiality (R.4) - Russia should address the uncertainty regarding the definition of “authorised body” in the AML/CFT Law to ensure that all supervisors are covered. ### Record keeping and wire transfer rules (R.10 & SR.VII) - Recommendation 10 - Russia should address the gaps in the legal regime for record keeping. - Russia should update the AML/CFT Law to include all necessary record keeping requirements, even if this duplicates requirements set out in other laws. - Special Recommendation VII - Russia should amend the current AML/CFT regime to address the following deficiencies: - i) the definition of originator information may well be sufficient in the context of the Russian payment system framework, but it does not fully cover all requirements set by the FATF, - ii) incoming cross-border wire transfers are not covered by a requirement to adopt effective risk based procedures for incomplete originator information, and this vulnerability is not mitigated by the argument (as provided by the authorities) that most incoming cross-border wire transfers originate in countries that are largely compliant with FATF recommendations, - iii) the BoR should provide specific guidance to credit institutions regarding the application of wire transfer regulations to batch transfers, - iv) Russia should develop rules requiring financial institutions to apply a risk-based procedure for wire transfers that lack full originator information, and - v) as a matter of effective implementation, if Russia amends the current law to include incoming cross-border wire transfers, Russian authorities will need to reconsider the current blanket requirement to simply refuse all transactions without full originator information as this could theoretically result in a complete halt to all incoming cross-border wire transactions. ### Monitoring of transactions and relationships (R.11 & 21) - Recommendation 11 - Russia should require FIs to examine as far as possible the background and purpose of all unusual transactions and to set forth the findings of such examinations in writing and to keep such findings available for competent authorities and auditors for at least five years. Russia should additionally make sure that FIs are no longer confused about the distinction between mandatory threshold reporting (> RUB 600 000) and examining the background of unusual transactions. Also, Russia should provide more guidance to the FIs, especially to make clear that the types of unusual transactions listed in laws and regulations are neither exhaustive nor closed. - Recommendation 21 - Russia should require FIs to give special attention to business relationships and transactions with persons from or in countries which do not or insufficiently apply the FATF Recommendations. FIs should also examine as far as possible the background and purpose of business relationships and transactions with persons from or in those countries, to set forth the findings of such examinations in writing and to keep these findings available for competent authorities and auditors for at least five years. - Since Russia indicates it has the legal framework through the new Law on Special Economic Measures, it should use this framework to apply countermeasures, as envisaged by Recommendation 21. - As a matter of urgency, Russia should establish a set of countermeasures that it can require the FIs to take in case a country continues to disregard the FATF Recommendations. ### Suspicious transaction reports and other reporting (R.13-14, 19, 25 & SR.IV) - Recommendation 13 and Special Recommendation IV - Russia should criminalise insider trading and market manipulation, so as to enable FIs to report STRs based on the suspicion that a transaction might involve funds generated by the required range of criminal offences. - Russia should finally introduce a reporting obligation for attempted transactions by occasional customers. - Russia should issue TF guidance to enhance the effectiveness of the system for filing TF STRs. - Russia should raise the awareness in the non-CI FIs, at a minimum through an enhanced training programme. The training should not only focus on the legal obligations, but also include the reasons for establishing an AML/CFT system, as well as examples, typologies and cases. - Recommendation 14 - Russia should extend the safe harbour provision and the tipping off prohibition to the FIs and their directors. - Recommendation 25 - Russia should extend the case by case feedback beyond the acknowledgement of the receipt of the STR. It should also urgently consider other examples of case-by-case feedback, as those examples listed in the FATF Best Practice Paper for feedback by FIUs. ### Internal controls, compliance, audit and foreign branches (R.15 & 22) - Recommendation 15 - The Russian authorities should ensure that all FIs establish and maintain internal procedures, policies and controls to manage both AML/CFT and prudential risks, and to ensure that these policies and procedures are comprehensively communicated to all relevant employees. Financial institutions and supervisory bodies should also ensure that training programmes incorporate case studies and other practical demonstrations of both money laundering and terrorism financing so employees are better able to detect signs of ML and FT when they occur. With respect to terrorism financing, FIs and supervisory bodies should amend internal control programme requirements to incorporate a more comprehensive approach to CFT beyond the current practice of simply checking the list of designated entities. - The Russian authorities should enhance existing provisions regarding employee screening procedures to ensure that all employees of FIs can be sufficiently screened. Screening procedures should take criminal records into account, but should also assess the vulnerability to corruption of each employee or group of employees. - ROSCOM and Russia Post should take proactive and comprehensive steps to ensure that all employees at all branches of Russia Post across the country have a good understanding of the Post’s internal control programmes with respect to AML/CFT requirements of the ICP, and that compliance units are sufficiently trained and fully implementing all legal and regulatory requirements related to AML/CFT. The Russian authorities should work closely with Russia Post to ensure that the independent audit programme is being carried out effectively and comprehensively at all branches to verify compliance with internal control requirements across the country. - Recommendation 22 - The Russian authorities should consider harmonising the existing legal and regulatory framework to ensure that all foreign operations – both branches and subsidiaries – of Russian FIs observe Russian AML/CFT requirements. Existing guidance for credit institutions on managing the risk associated with foreign operations should be expanded to address ML and TF risks as well as prudential risks. Russian regulators should consider issuing specific guidance to Russian credit institutions regarding the need for increased vigilance over foreign operations in jurisdictions that do not (or insufficiently) apply the FATF recommendations. FIs should be required to inform its Russian supervisor when a foreign operation is unable to observe appropriate AML/CFT measures because of local conditions. ### Shell banks (R.18) - No recommendations. ### The supervisory and oversight system - competent authorities and SROs. Role, functions, duties and powers (including sanctions) (R.23, 29, 17 & 25) - Recommendation 23 / banking sector - Russia should – as a matter of urgency – strengthen the regime to prevent criminals from becoming major shareholders in a CI by amending the Banking Law to lower the threshold from 20% to 10%, by ensuring that every person who, directly or indirectly, holds more than 10% of the shares or the votes of a credit institution, is checked as a major shareholder and by ensuring that the BoR can refuse an acquisition if the concerned person was convicted for having committed a financial crime. - Recommendation 23 / other sectors - Russia should as a matter of urgency – and as already recommended in the Second Round Evaluation Report by MONEYVAL – i) implement provisions to prevent criminals from becoming major shareholders in a non-CI FI, ii) raise the awareness of the staff of the FSFM, the FISS and ROSCOM and increase their number of staff substantially to ensure that every FI undergoes at least one on-site inspection every three years and that – on a risk basis - more targeted in-depth thematic reviews are carried out, and iii) consolidate and strengthen the system to register and supervise organisations providing MVT services according to article 13.1 Banking Law, including the implementation of fit and proper tests. - Russia should implement fit and proper tests for leasing companies and amend the Insurance Law to ensure that members of the board of a life insurance company or an insurance broker are fit and proper. - Russia should amend the Law on Communications to ensure that all conceivable money and value transfer service providers are licensed or registered and supervised. - Recommendation 29 / banking sector - Russia should amend the BoR Law to elevate the maximum amount for fines against credit institutions substantively and to ensure that the BoR has the competence to impose adequate fines on directors and senior management of banks for violation of AML/CFT requirements. - Russia should amend the BoR Law to ensure that a license of a CI can be revoked when the owners are convicted off a relevant criminal or economic offences and to ensure that a license of a CI can also be revoked for not filing STRs with the FIU. Russia should also ensure that the license of a CI can be revoked not only if repeated violations occur during one year and thus, amend the BoR Law accordingly. - Russia should abolish the limitation of the BoR to conduct on-site inspections in article 73 item 5 BoR Law, as already recommended in the MONEYVAL Second Round Report. - Recommendation 29 / other sectors - Russia should – as a matter of urgency (i) amend the relevant laws to ensure that the FSFM, the FISS and ROSCOM have the power to impose fines on their FIs and on directors and senior management of their FIs for violation of AML/CFT requirements and to replace directors and senior management of their FIs for violation of AML/CFT requirements, (ii) abolish the limitation of the FISS to compel and obtain access to banking secrecy information and (iii) increase the staff for the FSFM, the FISS and ROSCOM to ensure that the system for sanctioning financial institutions works effectively. - Russia should stipulate explicitly ROSCOM’s competence to carry out on-site inspections with respect to the full set of AML/CFT requirements and to compel production of records. - Russia should in addition amend the relevant laws to ensure that a license can be revoked for violation of AML/CFT requirements also in the non-banking and non-securities sectors, and when the owners are convicted of a relevant criminal or economic offences (concerns the FSFM, the FISS, ROSCOM and Rosfinmonitoring). - Russia should amend the Law on the Securities Market to ensure that a license of a corresponding FI can also be revoked for not filing STRs with the FIU and abolish the precondition of repeated violations during one year to revoke a license. - Recommendation 17 - Russia should amend article 15.27 Code of Administrative Offences to ensure that the main violations of the AML/CFT Law are covered, especially regarding non compliance with the requirement to identify the customer and the beneficial owner and to elevate the maximum amount for fines against officials of financial institutions. - Recommendation 25 - Russia should implement the requirement to issue guidance to FIs, beyond the explanation of the law. ### Money value transfer services (SR.VI) - Russia should consider implementing laws and regulations to ensure that postal operations are better aware of and in compliance with the AML/CFT requirements. Suggested improvements would include: - (1) increased technical interface between postal branches to better detect suspicious transactions, - (2) rules governing the volume and frequency of remittances permitted and - (3) improved training of postal operators on AML/CFT. - Given the size of the postal sector, Russia should also consider either increasing the capacity and quality of ROSCOM’s compliance function or transferring supervisory and regulatory powers to another federal authority that is better equipped and trained to assess AML/CFT compliance. - Russia should find ways to ensure that ROSCOM has sufficient powers to correct deficiencies found in Russia Post’s AML/CFT compliance. - Russian law enforcement bodies should place a higher priority on investigating the existence of alternative remittance systems to better assess the size and the nature of ML/TF threat posed by illegal MVT occurring within and through Russia. *Source: _cr0922 - 3. Preventive Measures – Financial Institutions* ### 5. Legal Persons and Arrangements & Non-Profit Organisations ### 5. Legal Persons and Arrangements & Non-Profit Organisations ### Legal Persons – Access to beneficial ownership and control information (R.33) - The Russian authorities should implement a system that requires adequate transparency regarding the beneficial ownership and control of legal persons. ### Legal Arrangements – Access to beneficial ownership and control information (R.34) - No recommendations. ### Non-profit organisations (SR.VIII) - Russia should undertake a comprehensive review of the NPO system, as foreseen by Special Recommendation VIII. - Russia should reach out to and engage with the NPO sector, to learn from the sector, to promote values and the like. - The Russian authorities should set up a more formalised and efficient system that focuses on potential vulnerabilities and to share information to target abuse. - Existing rules should be fully implemented. ### 6. National and International Co-operation ### National co-operation and coordination (R.31) - Russia should ensure that the outcome of policy reviews are implemented, especially in areas that are not the responsibility of Rosfinmonitoring. - Russia should make an extra effort to enhance operational-level co-operation among law enforcement agencies, and between law enforcement and supervisory authorities to sharpen Russia’s focus on the possible existence of illegal alternative remittance systems within Russia. This effort should aim to develop a sense of the threat as well as a prescription for addressing the problem. ### The Conventions and UN Special Resolutions (R.35 & SR.I) - Russia should correct the deficiencies noted in relation to the implementation of the relevant international conventions and UNSCRs as soon as possible. - Russia should also institute criminal liability for legal persons. - Russia should implement the provisions of UNSCRs 1267, 1373 and successor resolutions. ### Mutual Legal Assistance (R.36-38, SR.V) - Russian authorities should continue to institute a pro-active approach to monitoring progress on execution of requests and better ensuring a timely and effective response. - The General Prosecutor’s Office should ensure that clear lines of communication exist with established points of contact between itself and the law enforcement officer responsible for execution of the request, as well as between itself and the requesting country. - The authorities should maintain statistics on the more detailed aspects of MLA including details on the nature and results of MLA requests. - The Russian authorities are encouraged to continue their monitoring of the process of providing MLA among special MLA working groups established with a number of countries. ### Extradition (R.39, 37, SR.V) - Russia should further enhance the existing system of reviews in relation to extradition according to Instruction No. 32/35 and maintain comprehensive statistics in relation to ML/TF covering all details of the extradition process. - Russia should also raise the effectiveness of its extradition practice in relation to non-CIS countries and make the figures for CIS and non-CIS countries better comparable. Russia is however to be commended for the high number of requests to and from CIS countries. - Russia should address the missing elements of its ML and TF offences to ensure that dual criminality requirements do not represent an obstacle for extradition in such matters (see also sections 2.1 and 2.2 for discussion of the missing elements of the ML and TF offences). ### Other Forms of Co-operation (R.40, SR.V) - No recommendations. ### 7. Resources and Statistics ### 7.1 Resources and statistics (R.30 & 32) - See recommendations relating to other recommendations. ### 7.2 Other relevant AML/CFT measures or issues - No recommendations. ### 7.3 General framework – structural issues - No recommendations. *Source: _cr0922 - 5. Legal Persons and Arrangements & Non-Profit Organisations* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0922.pdf_