President of Russia Vladimir Putin: Please, Mr Chikhanchin,
Head of the Federal Service for Financial Monitoring Yury Chikhanchin: I would like to tell you, Mr President, how the national anti-laundering system is organised in today’s conditions; what goals have been set and what results we have achieved.
We have focused on three main areas: protection of national interests in international venues, creation of a financial security belt regarding the distribution and development of budget funds, and countering terrorist threats and extremism.
In order to resolve these problems, more than ten laws were proposed and adopted; this concerns terrorist activity, reducing the burden on businesses, and developing international cooperation.
I would like to elaborate on international cooperation. One of the main goals is to defend our interests, that the national anti- laundering system works in accordance with the standards of the FATF and other international specialised platforms. You know that Russia was evaluated for this at one time, and the Russian national anti-money laundering system is considered one of the best.
At the same time, attempts are being made today to exclude us from the FATF and even to include Russia on the FATF’s blacklist. A similar situation is emerging on the Egmont Group’s platform. However, we are trying to prove in every manner possible that we comply, and we do not pose a threat to the international community.
The second set of issues includes the improvement of the mechanism for the return of assets, primarily criminal assets, as part of joint work with the Prosecutor General’s Office, the Interior Ministry, and the FSB. And the second block includes the assets that are associated with the sanctions, which are frozen, blocked today. We are currently cooperating with financial intelligence agencies abroad, and they confirm that some of the assets are not of a criminal nature. We can say, at international platforms, that these actions are absolutely illegal, first. And second, I believe that even the owners of those assets will be able to go to court in the future, since they are not criminals. About 70 countries cooperate with us, and we found over 30 defendants’ assets abroad, and now we are working to return them.
As for changes in international financial flows, there is indeed less of it to the Western countries and Europe in general. However, we are working more with new regions (they are shown on the slide), and financial flows to Arab, Central Asian and Southeast Asian countries have increased approximately five-fold. So we are developing this area with them to make it convenient for our businesses and for us to work with it.
As for financial flows inside the country, certain changes have taken place here as well. Some clients and financial assets have left the banks that were hit by the sanctions and gone to banks with foreign participation and sanctions-free regional banks that are comfortable for businesses now. The number of flows has increased five-fold.
Looking at our financial sector overall, there are about 320 banks operating in Russia, including about 115 banks working with budget funds.
Today, we are monitoring about 20 trillion rubles. About 80 percent of all budget funds are concentrated in our 15 largest banks.
I would like to say a few words about the shadow financial sector that, unfortunately, exists. We managed to eliminate six large shadow platforms and have already returned 4.5 billion rubles to the state. We have initiated over a hundred criminal proceedings in cooperation with the Interior Ministry, the Federal Security Service and the Prosecutor General’s Office. Another eight shadow platforms are still operating today. The next slide shows the regions they are working in. We are cooperating with law-enforcement agencies, plenipotentiary envoys’ offices and governors to reduce these risks as much as possible in those regions. This slide also shows the banks.
A few words about the results – how we have still managed to deal with the shadow sector. The use of bills and notarised documents has decreased five-fold. We have increased the involvement of the judicial system together with the Supreme Court, the prosecution service by more than 40 percent. Most importantly, we have prevented about 110 billion rubles from going underground. Overall, the courts are processing some 130 criminal cases in this area.
There is still fraud by criminal groups in the financial market. These include pseudo brokers and financial pyramids…
Vladimir Putin: Are you referring to the internet?
Yury Chikhanchin: Yes, the main problem is that they are on the internet – more than 90 percent of it. This is the first point.
The second point is that usually the beneficiaries are in other countries. They are mostly citizens of Ukraine, Latvia, Great Britain and Bulgaria, to name a few. As of today, we have closed 11 financial pyramids that are now being reviewed in over 60 criminal cases.
I would like to say a few words about the financial security belt – something that is specifically designed to preserve the budget. We have already launched the treasury, banking support mechanism, which you once supported. This has produced the first results. Overall, we are monitoring over 2.5 million contracts, about 120,000 customers and some 240,000 contractors.
In terms of the risks, which we have identified together with our main counteragents, only 1 percent of them are in the risk zone.
At the same time, the budget funds of some 15 banks working with businesses are facing risks. We are working with the Central Bank and the Prosecutor General’s Office to minimise these risks.
I would like to say a few words about the criminal organisations that have access to the budget. This slide shows the regions that have the majority of areas and industries that criminal organisations try to penetrate.
We have identified over 3,500 legal entities whose founders or directors were involved in these crimes. Over 2,000 of these entities have been closed down; their accounts have been closed, blocked with the assistance of the tax service, or they were removed from the Unified State Register of Legal Entities. This has reduced the number of shady transactions at our financial organisations.
I would also like to say that we continue working with national projects, our backbone strategic enterprises. With national projects, this system has become more effective. In fact, the bulk of contractors are working based on an advance payment scheme, which allows us to monitor the entire chain of banking, treasury support to prevent misuse of funds and crimes. The system is likewise applied to backbone enterprises, where we are focused on companies in the pre-bankruptcy or bankruptcy stages, so that funds are allocated specifically for financial restructuring of these enterprises. We are working on this with the Government, the Ministry of Industry and Trade, and the Ministry of Agriculture.
Vladimir Putin: What are the at-risk industries?
Yury Chikhanchin: Basically, if we are talking about industries, it’s demography and construction – they face the biggest problems. As part of the Eastern Operating Domain project, we are working directly with Deputy Prime Minister [Marat] Khusnullin and corresponding ministries and agencies, trying to put things in order there.
A few words about the state defence order. A draft project for banking and treasury support has been adopted; it gives us, together with the Defence Ministry, a possibility to track movement along corporate chains as best as we can.
Even though the amount of funding and the number of contractors has increased, we still managed to cut the number of financial transactions with so-called technical firms – fly-by-night instruments – by about two-thirds. Cash-out transactions dropped to one-twentieth of the number. That is, the number of shady transactions under the state defence order has decreased.
Vladimir Putin: Yes, if we keep in mind that the number of contractors has increased almost by a third, and there has still been a decrease in shady dealings, it means the actual decrease was even greater.
Yury Chikhanchin: Even greater, yes. This was due to bank-based and treasury-based oversight.
Overall, we have conducted over a thousand financial investigations in this area and helped initiate more than a hundred criminal cases.
With such bank-based oversight, Promsvyazbank alone identified more than 160 entities that were at risk.
I would like to speak about some of the results concerning the budget as a whole. Together with our colleagues from the law enforcement agencies, the Prosecutor General's Office, the Federal Security Service, the Ministry of the Interior, and the Bank of Russia, we managed to cut the share of budget funds being channelled through high-risk banks to a third, and the involvement of technical firms, fly-by-night companies, by about 40 percent. More than 43 billion rubles allocated from the country’s budget has been saved; 32 billion has been transferred back to the budget, and the assets of officials who were implicated in criminal cases have been seized – assets worth about 7 billion rubles. We have helped initiate over a thousand criminal proceedings.
I have to say that where there is a budget, there is always a criminal. In particular, there was the Pushkin Card project – a plastic card that gave young people the opportunity to…
Vladimir Putin: It still does.
Yury Chikhanchin: It gives young people the opportunity to visit theatres, museums and so on. But a criminal group embezzled 100 million rubles from the project using false names. The criminal organisation has been revealed.
Vladimir Putin: How?
Yury Chikhanchin: They compiled lists of people allegedly entitled to the benefit, but no such people actually existed.
The scheme has been exposed, and almost all the money…
Vladimir Putin: Dead souls?
Yury Chikhanchin: Dead souls.
The suspects have been arrested, and their assets have been seized. We are working the case with the Federal Security Service.
A similar scheme was revealed with the tourist cashback programme.
Vladimir Putin: Whatever you do, crooks are everywhere.
Yury Chikhanchin: Well, once an opportunity arises, people find it, so we are working on this now.
Unfortunately, I must admit that the use of crypto currency is growing. We have yet to fully regulated this. In particular, we are monitoring over 25,000 participants in these transactions and have identified about ten financial organisations that are helping them. We believe crypto currency trade is over 630,000 bitcoins. We initiated about 120 investigations that resulted in over 60 criminal cases.
We launched a software product called Transparent Blockchain. At one point, you instructed us to do this together with VTB Bank. We have upgraded this project. A year ago, we worked with just bitcoin crypto currency whereas now we are dealing with over 20 currencies. Testing is currently ongoing at the Ministry of the Interior, the FSB and the Investigative Committee. A number of CIS countries have asked us about using this programme so they can launch it at home. This programme helped us shut down a very big internet platform called Hydra in cooperation with law enforcement agencies and our colleagues from financial intelligence services abroad. This platform focused on drug trafficking, arms sales and money laundering. All people involved have been arrested. It was established that one Ukrainian terrorist nationalist organisation was provided with funds in crypto currency. We are working on this now with the FSB.
As for countering the financing of terrorism, we have officially identified about 1,500 people as terrorists, including legal entities and terrorist groups linked with nationalists in Ukraine.
Reciprocal “freezing” works particularly well. This is when…
Vladimir Putin: What is that?
Yury Chikhanchin: Reciprocal “freezing” is when our foreign colleagues give us their lists of terrorists that they believe to be in our country or are wanted. In turn, we give them our lists of people who we think are abroad. We have received lists with about 1,500 names from them and have given them lists with about 2,000 names.
Over 280 cases on terrorism have been initiated and are being conducted with our participation.
Unfortunately, I must say that non-profit organisations are being used today to raise funds and then give them to terrorists. We are also working with the FSB on this.
I would like to say a few words about the Olympiad. We have held the 2nd International Financial Security Olympiad; you gave it your blessing the first time. This Olympiad was held at the Sirius venue and supported by the Government, the Ministry of Science and Higher Education, the Ministry of Education, the Ministry of Foreign Affairs, our International Education and Methodology Centre and a number of universities under the network institute including PFUR, MEPhI, and Siberian University.
The first session had to do with financial security and involved more than 2 million students not only in Russia, but also in the CIS countries. About 40,000 took part in the qualifying round, and then 500 finalists arrived at the Sirius centre in person. We organised the event with the Talent and Success Foundation. It included more than 100 foreigners from 12 countries. In addition to the CIS countries, the BRICS countries also joined us. We held workshops, business games, and a large number of sporting events and laid the Olympiad alley.
Vladimir Putin: Great.
Yury Chikhanchin: We planted three palm trees for the number of continents that participated in the Olympiad: Eurasia, Africa and America. Several other countries have approached us now to join this Olympiad. The CIS countries asked for help in holding school Olympiads and Olympiads for university students.
If you give the go-ahead, we will launch the third Olympiad.
Vladimir Putin: How are you promoting your events? How do people come from abroad?
Yury Chikhanchin: We are working on this with the respective financial intelligence agencies and our colleagues abroad. We have the International Network Institute, which includes 50 universities in Russia, the CIS countries and the BRICS countries, and we work through them. Our universities, in particular the Peoples' Friendship University of Russia, are helping us a lot, and the Ministry of Foreign Affairs is helping us. Now Rossotrudnichestvo has joined in, that is, this work is actively underway. Especially in the CIS – we have our Slavic universities there, and they are very active in helping.
Vladimir Putin: Go ahead. That’s great.
Yury Chikhanchin: This is what we have been doing, and we plan to continue the project in the future, if you support it.
Vladimir Putin: Thank you.