President of Russia Vladimir Putin: Mr Chikhanchin, I would like to begin our meeting with matters pertaining to the organisation of monitoring and control of budgetary funds flow. I understand that there will be many more subjects to discuss, but I suggest that we begin with this particular one.
Head of the Federal Service for Financial Monitoring Yury Chikhanchin: If I may ask you, please take a look at these slides.
Mr President, first of all, I would like to say that we have already launched, by and large, a mechanism for monitoring and controlling the flow of budgetary funds. Treasury and anti-monopoly support, monetary support at the customs and tax service, banking support and our monitoring mechanism have already been introduced. Together with the ministries and departments I have already mentioned, we are also working actively with the Government, in particular, with its Analytical Centre to create a system of assessing contract execution risks, regarding both contractors and customers, and mechanisms to reduce such risks.
We are operating closely with the interdepartmental working group on countering illegal financial transactions, the one you have established, to coordinate joint measures for the cases at hand. As of today, we are monitoring the flow of some 2.5 trillion rubles, some 36,500 contracts and about 20,000 contractors and customers.
What have we achieved in 2020 in terms of preventive measures? Working together with the Federal Antimonopoly Service, we have identified some 270 cartel agreements, terminated contracts with mala fide contractors worth some 29 billion rubles, and prohibited some 100 contractors from working on contracts because they failed our inspections.
The focus of our attention in terms of national projects remains on roads, education and demography where, in our opinion, the risks are high today.
Regarding roads, we are currently working with the Transport Ministry and are jointly assessing specific risks and ways of minimising them. I believe that we will eventually work with other ministries on this project.
In an effort to directly thwart criminal activity, we have helped open about 1,000 criminal cases; we have located, impounded and frozen about 125 billion rubles. Violators have voluntarily handed in 5.5 billion rubles, and more than 20 billion rubles has been returned to the budget.
While assessing the overall mechanism, I would like to note what we have accomplished. In the past two years, the number of fly-by-night companies has plunged about five-fold, due to our joint efforts. Cashing in of money is down 35 percent, and capital export has decreased three times over.
We intend to work at both the federal and regional levels. We are working very closely with a number of regions, in particular the Novgorod and Tula regions. For example, we have exposed kindergarten construction contracts in the Republic of Khakassia where prices were overstated two-fold. With the Prosecutor General’s Office, we are now investigating the contracts and those who ordered them.
Vladimir Putin: Khakassia?
Yury Chikhanchin: Yes,Khakassia.
I would like to say a few words about several national projects.
We are working to prevent and thwart violations in healthcare.
In terms of preventing violations, we have achieved specific results on some criminal cases. We have persuaded authorities in Bashkortostan to cancel a contract for building a surgical facility, and its dishonest executor is now listed among other mala fide executors. A similar situation has shaped up in the Stavropol Territory where we have cancelled a contract worth 1.5 billion rubles. Unfortunately, we have also opened criminal cases regarding a tuberculosis hospital for children in Vladikavkaz and some medical centres in Novosibirsk.
We are now focusing particularly on the funds allocated to counter the COVID-19 pandemic. In conjunction with the Central Bank, we have developed a number of criteria and introduced a special code number, which the banks use to inform us about suspicious transactions involving these funds. This allowed us to identify a crime in the Irkutsk Region. The regional healthcare minister was arrested, and 30 million rubles in stolen funds has been seized as well. Much the same kind of work is underway in St Petersburg. I am referring to the construction and retrofitting of medical centres. A certain affiliation was spotted there, and we are looking into it in conjunction with the Prosecutor General’s Office.
I would also like to discuss several demography-related issues. In particular, we are now working, in conjunction with the FSB, the Interior Ministry and the Investigative Committee, on a case – trade in infants under the guise of surrogacy maternity services. I believe this is bad for our demography.
Second, we have exposed criminal groups involved in prostitution and human trafficking. On the second issue, in addition to our colleagues from Russia’s law enforcement agencies, we are also working with Turkey and the UAE to track down the beneficiaries and participants of these dealings.
There is a similar situation regarding the environment. I would like to cite the following example: in conjunction with the FSB, the Interior Ministry and the Federal Agency for State Property Management, we are now working to stop the misappropriation of state property, in particular, mineral water wells in the North Caucasus. I think they will return to the state soon.
Vladimir Putin: Good.
Yury Chikhanchin: With regard to the social sphere, I would like to draw your attention to the following: after people started receiving pandemic-related benefits, certain ‘law firms’ began to make money out of it. Now, in conjunction with the Interior Ministry, the Prosecutor General's Office and the Investigative Committee, as well as the Moscow Government and the Moscow Region Government, we have exposed several such companies, and they have been closed. The Prosecutor General's Office is currently checking about 30 companies.
We continue to keep track of property transactions, especially the ones involving easy-term mortgages.
I would like to say a few words about the state defence order. In general, we have seen proof of the wisdom of your decision to create a system of monitoring the state defence order. Working together with the Defence Ministry and law enforcement agencies since the law came into effect, we have reduced the number of fly-by-night companies in the sphere of state defence orders by 37 percent and the number of shady transactions by some 40 percent. Overall, the number of suspicious transactions has been reduced to one-third. Of great assistance in this respect are the banks that have been assigned to work with the state defence order, first of all Promsvyazbank. It should be pointed out that the number of the bank’s transactions involving state defence orders has increased by approximately eight times and the number of clients has more than tripled.
Regrettably, crimes have been committed in the sphere of state defence orders. Based on our information, over 120 criminal cases have been instituted, damages worth 9 billion rubles exposed, 2.4 billion rubles seized, and 1.5 billion rubles paid back voluntarily. We are now working with the Federal Security Service (FSB) on several schemes involving the state defence order.
Vladimir Putin: As far as I am aware, one of them involves splitting up contracts, followed by asset stripping.
Yury Chikhanchin: Yes, we see that large contracts are being split up into smaller ones, which makes them more difficult to monitor. We are working closely together with the FSB on this scheme.
I would like to say a few words about individual sectors, in particular, forestry.
The situation has been gradually changing during the past two years, and the law enforcement agencies have become more active in this sphere. We are working together with the FSB, the Interior Ministry, prosecution offices and the Investigative Committee, and much more energetically after the State Council meeting devoted to forestry.
Vladimir Putin: So, it was not in vain?
Yury Chikhanchin: Work is ongoing especially actively in Siberia, in particular in the Krasnoyarsk Territory, under the guidance of the plenipotentiary envoy. Criminal cases have been opened in the Tomsk and Irkutsk regions, including corruption-related ones. The proceedings launched in the Far East and the Urals have to do with the smuggling of timber. Efforts in the Northwestern Federal District are designed to identify foreign beneficiaries involved in these shady schemes.We continue working in the fisheries sector, where over 30 criminal cases have been opened with our assistance. I would like to say a few words about the ‘crab case’, the high-profile one. We continue working on it; over 20 proceedings have been initiated, and we are now investigating foreign involvement together with our financial intelligence colleagues in Japan, South Korea, Europe and the United States. I believe we will find the money and hand it to the state.
Vladimir Putin: You mean customs duties and tax arrears?
Yury Chikhanchin: Yes, tax and other arrears.
I would like to spend a moment discussing the energy industry. Here too, work is underway in conjunction with the FSB, the Interior Ministry, the Prosecutor General's Office, the customs and the Ministry of Energy, focusing primarily on the companies that abuse trust, raise tariffs and send money abroad. About 100 criminal cases were initiated in 2020, damages amounted to 11 billion rubles, and 9.5 billion rubles were seized. Most importantly, the Ministry of Energy believes that these efforts made it possible to limit increases in tariffs. This, of course, will relieve some social tensions.
I would like to say a few words about combating corruption. Again, in conjunction with law enforcement agencies, primarily, the Prosecutor General’s Office, we identified the most important corruption-prone areas which include federal and municipal procurement, state property and budgetary funds. Corrupt officials can be found wherever there are affiliations, preferences and conflict of interest.
What is our work based on? Primarily, it includes suppression and preventive measures. Here, in conjunction with the Presidential Executive Office, anti-corruption commissions at the ministries and a panel of judges, we checked over 75,000 civil servants who are currently employed or seeking employment. Several hundred applicants for public posts have been denied employment based on our materials.
In terms of suppression, we have conducted over 5,000 financial investigations and opened about 500 criminal cases in which we are involved. We have exposed assets worth 35 billion and have already recovered assets worth 38.5 billion in corruption cases.
I would like to say a few words about combating drug trafficking. Here, we are working on the financial component with the State Anti-Drug Committee, in conjunction with the Interior Ministry, the FSB and the prosecution service, as well as our colleagues from other countries. Usually, drugs come from abroad and money goes abroad as well. We are now working with over 30 financial intelligence services as part of just one case. Criminal cases have been initiated with our participation in a number of countries, in particular, Belarus, Moldova and Spain.
We are facing the following risks. Drug traffickers use electronic payment systems and cryptocurrencies. In conjunction with law enforcement agencies and the Academy of Sciences, we have first of all developed a digital service that allows us to analyse crypto transactions. This enables us to track cryptocurrency transactions and, most importantly, we are now working on attributes and criteria which could allow us to single out crimes amid the flow of transactions. Criminal cases have been opened. We are working closely with our colleagues from other countries, such as Finland (financial intelligence), Luxembourg, Liechtenstein, Belarus, Malta and others. This project is monitored by the Government, and the Ministry of Digital Development is helping us see it to completion this year.
I would like to say a few words about working with financial institutions. They are the main providers of information for us, and the situation is as follows. We have drafted 13 bills with the Central Bank, which were adopted into laws and enacted. The operation of eight shadow platforms has been curbed. The share of high-risk banks decreased by about 60 percent; some had their licenses revoked, others were punished in other ways. Banks have applied the criteria they had helped develop to prevent the misuse of about 190 billion – from being either channelled into suspicious transactions or withdrawn from the legal economy. The volume of suspicious transactions has been reduced by more than half over the past two years.
But the underworld is casting about for new mechanisms. We have ousted them from banks, so because they have no chance with banks, they are using notary services – have notaries sign various transactions. A new law has been enacted, allowing notaries, from 2021, to refuse to notarise transactions they find suspicious. Last year, they identified such transactions worth about 25 billion.
Fraudsters also continue using the judicial system for illegal purposes, such as attempts at false bankruptcy.
Vladimir Putin: To secure court decisions, right?
Yury Chikhanchin: Yes. Promissory notes, bankruptcies, things like that.
We have taken part in more than 5,000 court hearings as a third party with total claims exceeding 600 billion. And I must say that this work is yielding results: about every tenth case, the court rules against the applicant, and this again means we have prevented the misuse of about 70 billion through the courts.
Because people’s incomes have dropped somewhat, various firms have emerged that offer ways to make quick money. In particular, we have worked together with the Bank of Russia, the Prosecutor General's Office, the Interior Ministry and the FSB to terminate the activities of a foreign company, Antares Limited, which offered investment in cryptocurrency.
We are working with our colleagues from nine countries to identify the beneficiaries; the suspicious website has been blocked. We are now figuring out how much money has been withdrawn, how, who, and how many. This happened in the Siberian Federal District and in the Far East.
In the European part of Russia, we have encountered a slightly different approach. Some pseudo-brokers were selling various financial services. We joined forced with the Prosecutor General's Office, also with the Bank of Russia and our colleagues from abroad (from about a dozen countries, in particular Cyprus, Estonia, and Finland helped us), and we identified about 350 foreign websites, and Roskomnadzor (the Federal Service for Supervision of Communications, Information Technology and Mass Media) blocked them.
Vladimir Putin: Are foreign online platforms also used here?
Yury Chikhanchin: Yes. They are doing the same thing. In both the first and second case, the people are based abroad, and they cannot even be traced.
I would like to mention our efforts against the financing of terrorism. We are working in this sphere primarily under the guidance of the National Anti-Terrorist Committee. Working together with lending institutions based on the methods we have developed with the FSB and the Interior Ministry, we have exposed over 2,300 private individuals and over 1,000 legal entities suspected of being involved in terrorism-related financial activity. We have frozen the assets of over 1,200 individuals and 1,600 legal assets in non-judicial procedures within the framework of the interagency commission that has been set up at your instructions. Twenty foreigners have been denied entry into Russia and over 250 terrorism cases have been opened, including 150 that are related to financing of terrorism. Working together with our colleagues in Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, we have identified some 1,200 persons involved in terrorism and have frozen their assets as well.
We are working together on concrete cases involving the local cells of international terrorist organisations. I would like to say that together with the Interior Ministry, the FSB and our Turkish colleagues, we have picked up the financial trail and the persons who were involved in the terrorist attack in Istanbul in 2017. A criminal case has been opened in Turkey and in Russia with our assistance.
In addition to what I have already said, I would like to draw your attention to the following risks. We are working hard to minimise the risk of sanctions that may be imposed by foreign countries and international organisations against private individuals and legal entities. There are two possible ways.
First of all, we are working with other members of the anti-money laundering system to prevent criminal and suspicious funds from being transferred to foreign countries where they can be used as a reason for investigation by financial intelligence and other security services and, subsequently, for sanctions.
And second, if we fail, we try to join forces with our foreign colleagues to settle each particular case without any delays. If we find elements of a crime, we transfer the relevant materials to our law enforcement agencies for launching criminal proceedings. If not, we try to prove that this is ordinary business activity and that no legal action needs to be taken against our private individuals or legal entities. As a rule, we find common ground with our foreign colleagues, who accept our opinion.
What tools are we using to resolve these problems? First of all, this is a personal account of oversight bodies. It is being used by several dozens of thousands of financial and non-financial organisations that supply us with information. We transfer online information on any new risks, new typologies and new crimes and they quickly respond by sending us quality information. This is on the one hand. On the other hand, we are seeing how law abiding they are: each of them has a panel with several segments that show if they are violating anything by switching on a red signal. As a rule, they quickly correct any mistakes and we do not have to visit financial organisations to check up on them. This works remotely.
And second, we are now launching a personal account of law enforcement agencies that also work online: exchange information on the operational environment, respond to specific inquiries and situations, and receive training. I think we will try to integrate all the law enforcement agencies in this system in 2021 and later government bodies that are involved in the anti-laundering system.
We are closely cooperating with our International Learning and Teaching Centre that allows us to teach the public and increase its financial literacy. We educated 1,500 civil servants and more than 26,000 experts on financial institutions. We are also training our foreign colleagues, primarily from the Eurasian group and the CIS: Belarus, India, Kazakhstan, China, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. We provided education for over 2,000 people.
We are also using out International Network Institute that has 40 educational institutions from seven countries. They have the same educational programmes, the same manuals we compile and give to our colleagues. We are writing them in cooperation with them as well. We have about 4,000 students from 30 countries. These are our tools.
Now we are actively working to increase financial literacy of the population together with the Central Bank and the Finance Ministry. Needless to say, we are primarily working with our foreign colleagues. There is plenty that we are doing.
I would like to thank you very much for supporting the creation of the International Centre for Assessing the Risks of Money Laundering and Financing of Terrorism. The Government has allocated additional funds for us and I think we will launch this mechanism with our CIS colleagues fairly soon.
This is how we worked in 2020 and plan to work in 2021, if you support us.
Vladimir Putin: Ok.
“Transparent blockchain” – what is it?
Yury Chikhanchin: “Transparent blockchain” is exactly the mechanism that will allow us to see all the movements of cryptocurrency, and expose any attempts to hide behind it. It is ostensibly inaccessible, and makes it possible to hide the true beneficiary but I think this mechanism will let us reveal everything.
Vladimir Putin: That’s good.