President of Russia Vladimir Putin: Mr Chikhanchin, usually we listen to the main part of your report behind closed doors but I know you want to start with your efforts to counter money laundering.
Go ahead, please.
Director of the Federal Service for Financial Monitoring Yury Chikhanchin: If I may, I would like to tell you first how we are developing the anti-money laundering service in the new conditions. Our main goals are to preserve our positions in international venues, adjust our legislative foundation, develop a system for organising work with financial institutions, ensure proper use of budget funds and, of course, suppress economic crimes.
As for international venues, our main task today is to uphold our interests at the Financial Action Task Force (FATF), an international organisation dedicated to countering money laundering and financing of terrorism, and at its regional group. Unfortunately, some states are trying to exclude Russia from FATF.
Vladimir Putin: How will they fight money laundering in such a situation? Without our participation.
Yury Chikhanchin: This is what we are telling them: you will destroy the entire system. But probably, sometimes political interests prevail. We are working with interested ministries; our reliable partners and I hope we will retain this platform.
We continue to cooperate with relevant committees and working groups of the UN, SCO, CSTO, RIC and BRICS. We are now concentrating on our regional FATF group – the Eurasian Group on Combatting Money Laundering and Financing of Terrorism (EAG). In addition to Russia, this group includes Belarus, India, Kazakhstan, China, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. We are helping them technically and train them at our international training support centre.
In addition to the participants in our group, there are many experts – about 150 – from international agencies, the UN, the World Bank, the IMF, the Council of Europe, and separate countries, for instance, the United States, European and Southeast Asian countries, etc.
We are taking an active part in the work of the CIS Council of the Heads of Financial Intelligence Units. This is our association with the CIS. At this point, I would like to thank you for supporting this project.
We are creating an international risk assessment centre for the CIS to draft measures on minimising the risks involved in countering money laundering. We are working within the framework of Operation Barrier against the funding of terrorism. We have already produced results and there are frozen assets on both sides. Therefore, work is underway.
I would like to say a few words about international information exchange. A number of countries in the Egmont Group, which unites the financial intelligence services of almost 180 states, are also trying to disconnect us from communication channels. However, we continue working nonetheless. Today, we are actively cooperating with about 70 countries and conducting over 100 joint financial investigations, including with countries – the list is attached – that are even in the category of unfriendly to a certain extent. This year alone, we launched over 40 cases and are investigating them in cooperation with the Prosecutor’s Office, the Federal Security Service and the Interior Ministry.
We are looking for assets abroad with the help of our law-enforcement colleagues. At present, we have about 60 cases. We are giving priority to offshore companies. We have already discovered a number of beneficiaries and some of their assets and we are continuing to work with law-enforcement agencies.
We are actively resorting to new formats. One of them is the initiative to hold an international competition on financial security, which you supported. Last year, we conducted it for CIS countries. This year, we have already involved BRICS states in addition to the CIS. So far, we have held a financial security class in schools and over 2 million schoolchildren have taken a special course. Now we are in the process of selection. We have received applications from over 30,000 schoolchildren and students from Russia as well as other BRICS and CIS countries. We are very busy with this work now.
The final tour will take place in Sirius in October. Thank you for supporting this. Sirius is very helpful to us. I think we will resolve this task with the help of the Ministry of Education, the Ministry of Science and Higher Education, our international training centre and the network institute.
We are upgrading our legislative foundation. Eight initiatives have already become law this year, including tougher measures against extremism and terrorism, and resistance to sanctions by circumventing special economic measures.
Vladimir Putin: And reduction of the burden on businesses.
Yury Chikhanchin: Yes, certainly.
Vladimir Putin: This is important.
Yury Chikhanchin: Yes, we need to reduce the load on businesses, no matter what.
We are analysing financial flows, primarily international flows. I would like to note here that operations with unfriendly countries have plunged by about 80 percent, but it is necessary to note that financial operations with Southeast Asian countries, the Arab world, Central Asian countries and some others have soared about three times over. In effect, economic life continues, we are posting financial flows, and this means that the economy is functioning.
We are working on foreign high-risk banks – here is a list of these banks – and we are working on banks that businesses have started cooperating with, and which are seen as more comfortable. Unfortunately, some major enterprises are still working with high-risk banks. We have now informed sectoral ministries that they should pay attention to this fact. First of all, we are evaluating new banks, seen as comfortable by our businesses, so that they do not become involved in any shady or criminal schemes. We are now working with the financial action task forces of these countries and streamlining our relations. We are also telling our sectoral ministries to continue working.
We are looking at the following situation with domestic financial flows. Some clients have withdrawn their assets from banks covered by sanctions, and transferred them to other banks, including those with foreign capital. Our main task is to evaluate banks where businesses have made deposits, so that we do not create any problems for businesses.
We now see the following situation with state support: about 25 authorised banks will work with the 2,500 major enterprises or so, as defined by ministries and agencies. About 100 authorised banks, including regional banks, will work with small and medium-sized businesses.
But the problem is that over 50 percent of new banks have never supported various companies, and they have never handled such impressive budgetary funding. Together with the Central Bank we are therefore trying to expand a model that Promsvyazbank has successfully tested on state defence contracts to all these banks.
As you have noted correctly, we need to reduce the load on businesses as much as possible. As an oversight and monitoring agency, we have teamed up with our colleagues from the Bank of Russia, the Federal Taxation Service, the Treasury, the Ministry of Justice and Roskomnadzor [Federal Service for Supervision of Communications, Information Technology and Mass Media]. We are using our own personal accounts that we have created, and we are working online with all the companies we supervise. We oversee about 100,000 organisations. This makes it possible to reduce the number of corporate legal violations about 2.5-fold. It takes no more than three days to eliminate the violations that we expose. Earlier, it took us two to three months to conduct audits and to compile reports. We have now rectified this situation.
In addition to this, together with the Central Bank we are now developing several areas that would make it possible to reduce the load on businesses. Ms Nabiullina and I discussed these issues. At the same time, we are introducing additional criteria that would help us see possible deviations or violations. In particular, speculative transactions, transactions that circumvent special economic measures, misuse of state support, and so on.
Vladimir Putin: And what are “speculative transactions”?
Yury Chikhanchin: This is when prices go up, when we see excessive overpricing.
Vladimir Putin: Does this mean unfounded?
Yury Chikhanchin: Yes. I will give you an example a bit later. Unfortunately, it is true that there already are reports on such matters, and we checked them together with the Ministry of the Interior and the Federal Security Service.
I would also like to elaborate on backbone enterprises. We have determined the main sectors, backbone enterprises and regions. We have selected those in need of the most attention, such as, above all, agriculture, healthcare and construction, including transport construction, and defence procurement.
We had a look at preferential loans and subsidies in view of state support, and gave special attention to contracts with single suppliers. This is primarily due to the fact that there is some easing of antimonopoly and treasury laws in order to prevent unreliable contracts there.
As for contracting, I would also like to say a few words. At the beginning of the year, there was still a certain decrease in the overall execution of contracts. This is due to the fact that contractors have not yet decided on logistics, prices and so on.
However, speaking about the national projects, we can see growth there, Mr President. There is a good level of growth where we have long-term projects, where there are good relations between customers and contractors, both in terms of the number of contracts concluded and the monetary component.
Vladimir Putin: Because the outlook is clear.
Yury Chikhanchin: Yes, the outlook is clear.
Having analysed the activities of backbone enterprises, I would like to add that we have singled out those enterprises that we believe to pose a risk. This includes enterprises that are at the stage of bankruptcy, and those that have non-residents from unfriendly countries in the management system. But we mainly focus on enterprises that produce medicines and agricultural produce. Here we are working very closely with the Government.
We also pay attention to high-risk regions. These are the ones with large amounts of cash, where there are high-risk contractors, tech companies and so on. Here is a group of regions…
Vladimir Putin: I see.
Yury Chikhanchin: We are working very closely with the plenipotentiary envoys and governors; we are working on the issue directly.
I would like to spend a moment discussing the state defence order. We continue working with the Defence Ministry, the Prosecutor's Office and the FSB. The number of financial transactions is on the rise meaning that the state defence order economy continues. At the same time, settlements with unfriendly nations have almost ended.
You mentioned price gouging and profiteering. I just wanted to cite an example. After your meeting with the steel workers, we started looking into it and saw that prices had indeed gone up and that metallurgical produce manufacturers and state defence order companies had an issue. Indeed, prices went up, but the emergence of a large number of intermediaries is among the reasons.
Vladimir Putin: Yes.
Yury Chikhanchin: That is, they account for about 15 percent of the markup. We are now sorting it out in conjunction with the FAS, the FSB, the Prosecutor's Office and the Taxation Service. I think we will look at the entire chain.
I would like to mention shady dealings involving major illegal cash-out transactions. There are some good results here. Trade through shadow dealers has been cut in half, and the number of customers was down to a third. Most importantly, the banks are leaving these shadow dealers, but at the same time…
Vladimir Putin: The customers of these services.
Yury Chikhanchin: Yes, the customers of the shadow services.
However, a shady site came to our attention in the Central Federal District this year. In conjunction with the FSB, the Prosecutor's Office, and the Bank of Russia, we identified the contractor and the customers. I believe we will be able to localise it quickly.
Unfortunately, our crackdown on shadow platforms led to some clients taking their business to banks that are most seriously involved in these current economic developments. So, we are working with these banks to keep them safe from being criminalised or implicated in shady schemes.
Notably, the so-called pseudo-online platforms, including pseudo-educational programmes, pseudo-brokers, online casinos, etc., remain a problem.
Vladimir Putin: All they do is collect money.
Yury Chikhanchin: Yes, but there are two problems here. When they bring aboard the participants of these operations, they press them into applying to financial institutions for secured loans. We have received several hundred complaints. I think the biggest problem is that lending institutions usually act as moneylenders rather than financial intermediaries who look at what kind of funds are used for loans to avoid dealing with individual borrowers later.
The second issue is, of course, improving financial literacy. The reason I mentioned the Olympics is because we are currently carrying out a range of activities in cooperation with the Finance Ministry and the Central Bank.
I wanted to cite a few examples. With the FSB, we are now working on a case of foreign pharmaceutical companies striking a deal with a number of heads of medical institutions and medical workers in 30 regions.
Vladimir Putin: Our regions?
Yury Chikhanchin: Yes, our regions. These companies used them to push through their medications paying them handsomely for doing so. We saw 500 million in one scheme alone.
Vladimir Putin: They do this everywhere, including in Europe and overseas. This is the way they do it.
Yury Chikhanchin: Unfortunately, it is.
With the sanctions pressure on us and now that they are pressing us into living by these rules, we must put an end to this. We are now working hard on it with the FSB.
As I mentioned earlier, we are active in the state support system. Here, too, we uncovered a situation where an agricultural company that has been receiving state support for a long time now, wired funds abroad in March under the guise of purchasing technical equipment, whereas in fact they bought a yacht. We are now working with our colleagues from the financial intelligence agencies of these countries and the FSB to document this event in order to stop it.
Vladimir Putin: So, they took the money to build a greenhouse but bought a yacht instead?
Yury Chikhanchin: Yes, a yacht, which I think will be seized as soon as tomorrow.
I would like to say a few words about trading in cryptocurrency, which, unfortunately, continues unabated. Several hundred thousand Russian citizens are participating in transactions on two exchanges with turnover estimated at tens of billions. We can see that there is more to it than settlements and speculative transactions and that it also involves drug trafficking, the financing of terrorism and extremism, cybercrime, etc.
We are currently conducting about 400 financial investigations and over 20 criminal cases along with the Interior Ministry and the FSB. Admittedly, the so-called “transparent blockchain” project that you supported helps us a lot to track the entire chain from sender to recipient. This project is being carried out jointly with the Bank of Russia. It is VTB’s main project with us, and we are expanding it to cover other currencies. I think we will try to get it under way. Regarding the quality of this project, I can say that, according to analysts, there is nothing like this abroad. This is one hundred percent our original project.
I would like to close by saying that with your support we will continue this work aimed at maintaining our position on international platforms, enforcing legal regulations and the integrity of financial institutions, identifying and suppressing illegal acts in the public sector and, of course, suppressing economic crime.
Vladimir Putin: This is a critically important area, so keep working on it.
Yury Chikhanchin: Thank you very much.
Vladimir Putin: Thank you very much.