President of Russia Vladimir Putin: Mr Chikhanchin, the FATF [Group for developing financial measures to combat money laundering] Commission is starting its work in Moscow. How do you plan to organise their work and what results do you expect?
Head of the Federal Service for Financial Monitoring Yury Chikhanchin: Indeed, the FATF commission is starting its work here. As per your instruction, we created a large inter-agency commission involving representatives of ministries and other government bodies, as well as the Central Bank. We are prepared. I would like to speak about some of the results that we have achieved.
Vladimir Putin: Please, go ahead.
Yury Chikhanchin: The main work is based on the national risk assessment, which you approved for the most important areas, such as the credit and financial sector. This includes corruption, illegal drug trafficking, budgetary funds, terrorism and international risks.
What have we managed to get done? We conducted training for Russian experts. Some 2,000 law enforcement representatives attended our programme at our international training centre, as well as some 500 representatives of government bodies, 2,000 representatives from the credit and financial sector and some 500 people from the regulatory and supervisory authorities.
What else? Over this time, during the inspection period (from 2015 to the present), we have amended about 140 laws and regulations, such as intra-agency acts and bylaws. We have actually brought them up to the required standards. Of particular interest for the FATF commission is our work to find beneficiaries, the actual owners of the businesses: does the country know how to find them?
As a result, we have succeeded in improving our performance indicators by a significant margin. In particular, I am referring to the legalisation of illegal incomes and their transfer to state income. It is shown on the graph.
We have increased the number of business entities that fall within our monitoring zone to more than two million.
Vladimir Putin: I believe the revenue returned to the state has increased sixfold since 2013, hasn’t it?
Yury Chikhanchin: Yes, precisely, due to the legalisation. It used to be highly problematic, initially, and there were other predicate crimes…
The number of economic entities in our monitoring zone has increased. At the same time, their involvement in suspicious operations has reduced, that is, businesses are becoming increasingly law-abiding.
I would like to note, concerning your order to crack down on fly-by-night firms, the graph here shows that, working together with the tax authorities and law enforcement agencies, we have achieved a reduction to 500,000 a year. That is, we are mopping up the tax service’s database. It is very important.
There is also greater compliance with law among financial institutions involved in the anti-money laundering system. Today we can say that about 80 percent of financial organisations are adequately meeting the legal requirements. And, accordingly, the number of financial organisations that report on operations subject to mandatory control – as required by law – is growing.
In 2018 alone, we successfully shut down 27 shadow platforms in a joint effort with the FSB, the Interior Ministry and the Central Bank. The total amount of shadow money was about 245 billion rubles.
Now, what do I have to say about shady transactions? This is one of the main elements. Here we are working jointly with the Central Bank, and the drop in the number of such transactions is clearly visible.
I would like to say that the number of transactions via technical intermediaries has also decreased, I mean firms that do nothing except transfer money. That is, mopping-up has led to specific results.
At the same time, I would like to note that shadow cash circulation still exists, but it is now shifting from the banking sector to other industries, in particular, to commerce.
Major stores sell goods for cash, and then begin to sell it quietly, without collecting. Now we are working with the Central Bank and law enforcement agencies in this area.
This is a big problem, and one of your instructions is to deal with it. The banking sector has shrunk significantly…
Vladimir Putin: It is not the banking sector that has shrunk, but its use.
Yury Chikhanchin: Yes, I mean its use, sorry. The use of the banking sector.
Unfortunately, a number of industries remain the main consumers of the shadow sector – primarily the construction sector, and here we have one of the most serious issues.
One thing I would like to note, pursuant to your instructions on the rehabilitation of clients who have been denied the opportunity of opening a bank account or conducting operations, we have achieved a sharp decline here. I would like to say that in fact, we have forced the banks to take action and consider the complaints themselves.
Here are the figures for this year alone – the banks have considered about 3,000 complaints. On the whole, there has been speedy consideration of the complaints submitted to the specially created commission, which includes representatives of the Central Bank and Rosfinmonitoring [Federal Financial Monitoring Service]. This year, 70 such complaints were received. Half of the decisions were made in favour of the banks, the other half, in favour of the clients.
I would like to spend a moment discussing government contracts. We are continuing work in this area, and the total value of contracts which we are monitoring, as you can see, is almost 7 trillion rubles. The total number is about 3.6 million contracts. That is, the growth is significant.
It must be said that the banking monitoring, which we have put in place, makes it possible to keep a lid on the participation of sham businesses. The dynamics are fairly good here as well.
Vladimir Putin: “Funds transferred to offshore accounts” – is that about revenue or some kind of machinations?
Yury Chikhanchin: To a greater extent, this represents machinations and an attempt to wire to offshore accounts money disguised as something else. In other words, it is about games and temporarily withdrawing funds from circulation, that is, tax avoidance. But the decline is fairly strong.
Vladimir Putin: Yes, half of what it was in 2016.
Yury Chikhanchin: I would also like to discuss the state defence order. The situation has changed as well. First, the number of organisations that we are now monitoring has increased. Here, too, we have managed to cut down the number of sham businesses involved in the state defence order activities.
Vladimir Putin: Almost by a quarter, but there is still a lot.
Yury Chikhanchin: We are working on it, Mr. President. The work is underway. I think that the fact that we are now transferring defence orders to Promsvyazbank and leaving other banks (we are working very closely with this bank and have regular meetings with Pyotr Fradkov) will allow us to return, little by little …
About a third of all defence orders have already been transferred to Promsvyazbank. I do not want to give you an incorrect number, but I believe that about 9,000 clients have already moved to Promsvyazbank.
True, there are certain problems, and we are working to resolve them. Some of the new clients that have transferred to Promsvyazbank are high-risk customers in two respects: firstly, the contracts that they execute as part of the state defence order are associated with risk and, secondly, these are the non-contractual activities which we discussed in May. We are now sorting things out with each client in order to identify ways to improve these enterprises.
Vladimir Putin: The state defence order contractors who may be involved in suspicious operations deserve, of course, special attention.
Yury Chikhanchin: We have just assigned a group of people who are working with Promsvyazbank’s compliance control, training them so they can work efficiently and resolve these issues.
If we look at the results of our activities in general – I will not give details on each, but I can say that in 2018 alone, our service, working jointly with the law enforcement agencies, has saved around 90 billion rubles and returned about 20 billion to the state. We consider them separately by area.
I would like to thank you very much for supporting the continued operation of the interdepartmental working group on countering illegal financial transactions led by Mr Vaino [Chief of Staff of the Presidential Executive Office].
We consider a lot of issues that are later translated into action; we have just held a meeting devoted to preparations for the visit of the FATF on-site mission to Russia.
I would like to say a few words, if I may, on our work in cooperation with the other departments.
Vladmir Putin: Just a second. The “Funds subject to confiscation in civil cases” on this graph – that is quite a lot, I see, more than three billion. How quickly are decisions made by the courts?
Yury Chikhanchin: Quickly enough.
If you look at confiscation, we have two levels here. One is actual confiscation, when there is a criminal act. But the so-called voluntary compensation mechanism is also well established.
That is, once we get involved, it becomes known either through a financial investigation or a criminal case, and the criminals – or not yet criminals, just offenders – return the money. The amount of funds returned is even slightly higher than the amount confiscated in criminal cases.
Here we are actively helping to find the assets. The most important thing is to find the assets and then confiscate. Now things are going a little better.
I would like to say a few more things. One concerns cooperation with the Prosecutor General’s Office. That has worked well when the shadow sector tried to snap up the notaries. This year alone, we were able to withdraw about two billion from the shadow sector. Overall, since that joint operation, suspicous transactions have decreased by a third. Now we are making legislative changes to streamline the powers of the notaries and their responsibility.
We did a good job with the Investigative Committee. There are two cases that I would like to share with you. One of them has to do with Promsvyazbank. We worked with 27 countries as we searched for the assets. We managed to locate these assets, to seize them and even to repatriate some of them. We seized about 7 billion worth of assets. Most importantly, we were able to prove that about $350 million were not just stolen, but legalised as well.
We are working with the Interior Ministry in many areas, primarily, lending and financial operations. I would like to say a few words about drug trafficking. We have worked with almost 10 countries to expose a major scheme. We are now working on it. It involves narcotic cocaine. In total, about 1,000 people were involved in this international plot.
We are working quite well with the Tax Service and the Federal Customs Service. That is, we are looking for VAT, charges, and return. The amounts are indicated.
We implemented a project on the fuel and energy complex in the North Caucasus totaling about 13 billion rubles.
Vladmir Putin: Have this 13 billion been assessed?
Yury Chikhanchin: Yes, and a portion of this amount has already been recovered.
With regard to the Supreme Court, I told you the last time we met that we continue to thwart the attempts to involve the courts in shadow schemes. In total, we have jointly managed to prevent about 130 billion being siphoned off into the shadow sector.
The FSB is also our key partner in countering terrorism, not to mention economic, lending and financial crimes. Of course, we are working to counter the financing of terrorism.
Several cases have been implemented, especially with regard to the cells that finance the ISIS component, that is, everyone who goes there. The mechanism for freezing the assets of those who come into our field of vision is working very well. It involves extrajudicial asset freezing.
I would like to say a few words about NGOs. Foreign funding continues to pour in, and not all of it is for good causes. We are tracking about 80 billion as we are trying to understand…
Vladimir Putin: 80 billion came from foreign sources?
Yury Chikhanchin: Yes, from abroad. It came from foreign sources, including those that engage in activities associated with a certain degree of destructiveness.
We are working closely with the FSB on each of them. There are areas, industries that are the recipients of the bulk of such financing, such as the education system, that is, educational institutions and so on. There is an image here that shows which regions are most susceptible to receiving these funds.
I would like to say a few words about the work on your instructions on decriminalising Article 282. Its first part is about extremism, when we put people on our list of terrorists and extremists.
The article on decriminalisation entered into force on January 7. We removed about 60 names from the list of terrorists, revising our approach. Now we are continuing our work with the Prosecutor General’s Office and other law enforcement bodies.
I would also like to speak briefly about our international efforts. As of today, we have introduced our system of freezing the assets of terrorists on our list in 12 countries. In other words, we exchanged lists. We sent a list with about 1,500 names to Central Asian countries and France, to name a few.
Some of our projects have become international, for instance, a project on countering ISIS funding. Today, 40 countries have joined our project on an international scale.
Regarding typology on laundering corruption incomes, about 35 countries are taking part in this project.
One more topic that is making rapid headway – countering the funding of the proliferation of weapons of mass destruction. We initiated this as well and are actively working within FATF.
In line with your instructions, we are cooperating with the Academy of Sciences and the Ministry of Education on creating artificial intelligence to help prevent money laundering.
We have completed R&D and are starting on the design. We are actively working with our technical industrial partners, such as the VTB and Gazprom, and have already attained good results.
Vladimir Putin: Have you already conducted tests?
Yury Chikhanchin: Yes, we already see some approaches today. In short, there is a certain model of terrorist behaviour that has already been described and given to banks.
In the course of subsequent work on crime and financial inquiries, the machine itself makes selections and adds based on its attributes. It is working and adding on its own.
Our network institute is working. As of today, seven countries have already joined it. We have our own chairs, institutes and a common training programme, so our work is very intensive.