The Federal financial monitoring service 2013 Annual report

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1 The Federal financial monitoring service 2013 Annual report 1

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3 I. FUNCTIONS AND STRATEGIC OBJECTIVES MISSION The Russian Financial Intelligence Unit protects the country s national security by safeguarding its financial system against abuse, combats money laundering, financing of terrorism and proliferation of weapons of mass destruction. Mandate Rosfinmonitoring s strategic goals To improve the effectiveness of the Russian anti-money laundering and terrorist financing system To facilitate international implementation of AML/CFT standards. Objectives To combat money laundering and terrorist financing To develop state anti-money laundering policies To provide legal regulation in AML/CFT sphere To coordinate the activities of other government agencies in this area To evaluate the level and nature of threats to the national security arising from money laundering, terrorist financing and proliferation of weapons of mass destruction Rosfinmonitoring attains its strategic goals by discharging the powers granted to it by the President of the Russian Federation, i.e. To monitor and oversee compliance by individuals and legal entities with Russian law on combating money laundering and terrorist financing, as well as to prosecute persons responsible for violation of this law To establish a legal and regulatory framework in the area of responsibility To gather, process and analyze data on transactions with monetary funds or other assets subject to monitoring under Russian law To establish a single information system in the area under its purview To create and maintain a federal database in the area under its purview To prepare and implement preventive measures against violations of Russian antimoney laundering and terrorist financing law To coordinate the activities of the federal bodies of executive power in the area under its purview The Federal financial monitoring service 2013 Annual report 3

4 To facilitate cooperation and sharing of information with the competent authorities of foreign states in accordance with the international treaties of the Russian Federation concerning matters under its purview To represent the Russian Federation at international organizations in matters under its purview and participate in the prescribed manner in the activities of these organizations To participate in the development and implementation of international cooperation programs, as well as in the preparation and conclusion of international, including interagency, agreements of the Russian Federation concerning matters under its purview. II. NATIONAL ANTI-MONEY LAUNDERING SYSTEM Just as in all developed countries, the Russian Federation has its own national antimoney laundering and terrorist financing system. The creation of such a system was necessitated not only by the requirements of the international community, represented by the Financial Action Task Force (FATF), but also awareness on the part of the nation s leadership of the seriousness of threats posed by money laundering and terrorist financing. National anti-money laundering system Financial instituons: banks, professional securities market participants, insurance and leasing companies, pawn shops, etc. Rosfinmonitoring Law enforcement Within the structure of the Russian antimoney laundering system, Rosfinmonitoring occupies a unique position at the confluence of financial institutions and law enforcement. As part of the first phase, financial institutions identify amid numerous financial transactions executed by them on behalf of their clients the suspicious transactions meeting certain criteria and report them to Rosfinmonitoring. During the second stage, the Intelligence Agency processes and scrutinizes the submitted reports on suspicious financial transactions and, if necessary, requests 4 The Federal financial monitoring service 2013 Annual report

5 additional information, including from credit institutions and various government agencies. Following this, the Agency issues a conclusion about the presence or absence in the submitted by financial institutions data of any indication of money laundering or terrorist financing activities. During the third stage, law enforcement agencies decide whether the material gathered by Rosfinmonitoring is sufficient to warrant a criminal investigation into money laundering or terrorist financing. As of 1 January 2014, the Russian anti-money laundering and counter financing of terrorism (AML/CFT) system comprised over 120,000 financial institutions carrying out transactions with monetary funds or other assets on behalf of their customers. Rosfinmonitoring itself monitors about 24,000 entities which do not have a supervisor in their activity. Regulatory control One of Rosfinmonitoring s main achievements in 2013 was the adoption of Federal Law No FZ of June 28, 2013 «On amendments to certain legislative acts of the Russian Federation with regard to countering illegal financial transactions» (hereinafter «Federal Law No. 134-FZ»). This law has effectively opened in a new era in the security of the domestic financial system, setting very strict, forward-looking and fully compliant with international standards requirements for transparency and use of oversight tools. Among the main new features of this law relating to efforts aimed at boosting transparency in the activities of legal entities, including measures against tax evasion through offshore and shell companies, are: The term «beneficial owner» has been introduced and mechanism for establishing beneficial ownership was developed Tax authorities have been granted the right to request from banks information about accounts opened by individuals and transactions conducted through them A list of grounds for refusal of state registration of legal entities has been expanded Investigative findings of law enforcement may now be submitted to tax authorities and used to establish possible links to tax crimes, while law enforcement agencies have been authorized to request and receive customer identification data from tax authorities, which will allow the prosecution of persons who committed crimes using shell companies. Last year saw the commencement of the work on the National Plan to Combat Tax Evasion and Concealment of Beneficial Owners of Companies, which is being prepared according to the provisions of Russian President Vladimir Putin s annual Address December 12, 2013 delivered to the Federal Assembly. One of the outcomes of Rosfinmonitoring s last year s work aimed at increasing the transparency of financial flows was the introduction of amendments to Article 9 of Federal Law No. 115-FZ of August 7, 2001 «On combating money laundering and terrorist financing» (hereinafter «Federal Law No. 115-FZ»), granting the Russian Financial Intelligence Unit a real-time access, including direct access, to the databases of three state extra-budgetary funds (the Pension Fund, the Social Insurance Fund and the Federal Compulsory Medical Insurance Fund), public corporations and other organizations established by the Russian Federation on the basis of federal The Federal financial monitoring service 2013 Annual report 5

6 laws, as well as organizations established to perform the tasks assigned to federal government agencies. One of the important developments was the introduction in AML/CFT law the concept of «freezing (blocking)» non-cash money or securities and property, required by the FATF Recommendation 6. In this context, a particularly important step was a decision to supplement the main antimoney laundering law with a new article titled «Additional measures to counter the financing of terrorism», establishing a proactive administrative mechanism for the freezing of terrorist assets on reasonable grounds (i.e. sufficient reasons to believe or suspect that a person is involved in the financing of terrorism) as well as a standard compliance procedure for the fulfillment of third-party freezing requests. The Agency also established a clear mechanism for dealing with delisting requests and an effective and publically known procedure for unfreezing frozen funds of persons inadvertently affected by freezing mechanism. Interagency cooperation In accordance with the FATF Recommendations, which are mandatory for the Russian Federation, the country is required establish an effective interaction and coordination mechanism for concerned government bodies operating in this area. With this in mind, one of Rosfinmonitoring s key goals for 2013 remained the task of raising the effectiveness of interagency cooperation, coordination and application of measures by all national AML/CFT system participants. To ensure the proper fulfillment of its coordinating powers, Rosfinmonitoring set up in 2005 the Interagency Commission to Combat Money Laundering and Terrorist Financing (IC). Now we are in a position to state that the Interagency Commission and its structures the Advisory Board and working groups represent an effective mechanism for maintaining a dialogue not only with the public authorities, but also with members of the national anti-money laundering system representing the business community and academic circles. Types of AML/CFT-BASED INTERAGENCY COORDINATION Interagency AML/CFT Comission (4 subgroups) Interagency Working Group for Combating Illegal Financial Transactions (IWG) National Counter-Terrorism Committee (NCC) State Antidrug Committee (SAC) Advisory Board Regional interagency groups Expert Consultative Group U.S. Russia Bilateral Presidential Comission 6 The Federal financial monitoring service 2013 Annual report

7 Among the key 2013 highlights, pertaining to the national AML/CFT system are the adoption 6 th the Follow-up Report of the Russian Federation by FATF experts and the enactment of Federal Law No. 134-FZ; both achieved thanks to the concerted efforts of all stakeholders, including within the framework of the IC and the Interagency Working Group on Combating Illegal Financial Transactions (IWG), established by the President of the Russian Federation on July 31, 2012 and for which information and analytical support is provided by Rosfinmonitoring. If the IC is responsible for Rosfinmonitoring s interaction with public authorities, the Advisory Board serves as a forum for discussions involving bodies that bring together all participants of the national AML/CFT system. The Advisory Board comprises some of the largest associations and unions, while the level of interest in its work continues to grow, as evidenced by an increase in the number of requests from various institutions to include their representatives into its structure. Rosfinmonitoring, in turn, participates in the events organized by representatives of the Advisory Board through its involvement in specialized working bodies of organizations represented there. The IWG undertook targeted coordinated measures to eliminate shadow structures for illicit financial transactions in the Republic of Dagestan and the Samara region, undermining the infrastructure used for illegal financial transactions in the Samara region and achieving an almost 90-fold decrease in the number of monthly suspicious transactions. RELOCATION OF SHADOW CASHING SERVICES FROM DAGESTAN TO SAMARA REGION Rosfinmonitoring identified a pattern for reorientation of shadow cashing schemes from Dagestan toward Samara region SAMARA REGION MOSCOW REPUBLIC OF DAGESTAN CLOSED DOWN: AKB EXPRESS JSC AKZB DERBENT-KREDIT JSC KB TRUST BANK LTD TRANSENERGOBANK LTD The Federal financial monitoring service 2013 Annual report 7

8 The IWG also examined the issue of existence of permanent shadow banking channels for moving funds under fictitious foreign trade contracts concluded with Belarusian and Kazakh companies. In this regard, the IWG decided to undertake a comprehensive analysis of the implementation of the decisions of the Eurasian Economic Commission and use its findings in the preparation of proposals for improving the customs and exchange control mechanisms governing the trade between residents of countries members of the Customs Union for consideration by the Supreme Eurasian Economic Council. Volume of international payments from Russia to Belarus and Kazakhstan (Rosfinmonitoring`s data, January 2012 July 2013) BELARUS 1,4 bln rubles KAZAKHSTAN 8,4 bln rubles The Group conducts regular monitoring of enforcement practice and inter-agency coordination efforts aimed at combating illegal financial transactions and suppression of illicit financial schemes. Proposals were made to strengthen control over the housing and public utilities sector by improving transparency of regional investment programs operating within this industry, licensing the activities of management companies and establishing centralized processing centers, all of which have been submitted to the Government of the Russian Federation. The work to implement these proposals is under way. Some federal districts set up their own regional interagency working groups, tasking them with working at the local level towards the timely identification and reduction of risks and threats associated with illegal business activities and illicit financial transactions, as well as with forecasting future developments and taking preventive action. A permanent IWG Expert Group was establish and began its work. In 2013, Rosfinmonitoring actively participated in the work of the State Anti-Drug Committee, the National Anti-Terrorism Committee, the Interagency Committee of the Security Council of the Russian Federation on Public Safety, and the Presidential Anti-Corruption Council. Rosfinmonitoring and the Federal Drug Control Service held a joint board meeting. 8 The Federal financial monitoring service 2013 Annual report

9 Interaction with supervisory authorities Pursuant to Federal Law No. 115-FZ, monitoring and supervisory powers in the national anti-money laundering system are distributed among various agencies. If any organization does not have its own designated supervisor, its compliance with anti-money laundering and terrorist financing laws is monitored by the Financial Intelligence Unit. In 2013, the Bank of Russia was granted the powers of a financial mega-regulator, with responsibilities ranging from rule-making and financial market oversight to licensing, auditing and sanctions. GOVERNMENT AGENCIES RESPONSIBLE FOR SUPERVISION OVER LEGAL ENTITIES CORE ACTIVITIES Bank of Russia Rosfinmonitoring Assay Chamber Roskomnadzor Credit institutions Professional securities market participants Management companies Insurance companies, Consumer credit cooperatives Leasing companies Factoring companies Gambling establishments Payment processors Pawnshops Jewelry companies Federal postal operators Microfinance organizations Real-estate agents As a part information exchange initiatives undertaken by Rosfinmonitoring and the Bank of Russia in 2013, the two sides identified the following new areas of future cooperation: Expanding cooperation with the Bank of Russia in light of its new powers over nonbanking financial institutions Improving the effectiveness of internal controls in the activities of financial institutions and oversight mechanisms through exchange of information on the results of risk analysis carried out by Rosfinmonitoring and the Bank of Russia Carrying out joint work to analyze the practical implementation of credit institutions new mechanisms for customer engagement, provided for by Federal Law No. 134 FZ, in order to reduce the risk of involvement of financial institutions in questionable transactions. Short-term objectives: to establish a viable feedback link to the mega-regulator with the goal of strengthening controls over financial flows, as well as to create an effective and integrated mechanism for monitoring the activities of financial institutions. Special attention was devoted last year to the joint work with the Russian Assay Chamber, whose supervisory powers were terminated in The Finance Ministry expressed its support for Rosfinmonitoring s initiative: the The Federal financial monitoring service 2013 Annual report 9

10 draft Federal Law «On amendments to certain legislative acts», aimed at reestablishing state control over the circulation of precious metals and precious stones and at authorizing the Russian Assay Chamber to exercise federal state assay control and state monitoring of compliance by the jewelry sector with AML/CFT legislation, submitted to the Government on November 15, Interaction with supervised entities In line with the FATF Recommendations, the current focus of Rosfinmonitoring s supervisory activities is not only on ensuring compliance by organizations and individuals with the country s legislation, but also on monitoring and identification of risks of money laundering and terrorist financing and on the use of counter-measures. Thus, Rosfinmonitoring s regulatory and supervisory activities contribute to the reduction of risks associated with the use of the financial system for money laundering and terrorist financing purposes. In 2013, priority areas of Rosfinmonitoring s supervisory activities were: Integration of the risk-based approach into the activities of supervisory authorities and supervised entities with AML/CFT responsibilities Assessment of the effectiveness of the AML/CFT activities conducted by supervised entities and preparation of proposals for their improvement. ENTITIES REGISTERED WITH ROSFINMONITORING Real-estate agents (including individual entrepreneurs) 42% Pawnshops 31% Leasing companies 17% Payment processors 8% Factoring companies 2% It should be noted that starting from April 1, 2014, pawnshops will report to the Bank of Russia (Federal Law of 21 December 2013 No. 375-FZ «On amendments to certain legislative acts of the Russian Federation»). The number of organizations registered with Rosfinmonitoring increased by about 2% in The Federal financial monitoring service 2013 Annual report

11 NUMBER OF ENTITIES REGISTERED WITH ROSFINMONITORING apx. 16,000 apx. 19,000 apx. 22,000 apx. 23,000 apx. 24, Together they submitted to Rosfinmonitoring a total of about 400,000 reports, a 35% increase vs. 2012, with leasing companies traditionally accounting for the bulk of this correspondence 45%. There was a change in the composition of submitted data, with STRs now accounting for about 16% of all reports (7,5% in 2012), 3-fold increase. In addition, there was a more than 3-time increase in the number of reports submitted by pawnshops, while the total volume of data relating to dubious transactions increased by a factor of five. There was no change in the number of reports submitted by gambling establishments. The volume of data coming from real estate agents went up by almost 50%, driven by both rising entity numbers, including new individual entrepreneurs, and improved quality of internal control and Rosfinmonitoring s oversight measures. Interaction with credit institutions The main suppliers of reports on transactions with monetary funds or other assets submitted to Rosfinmonitoring were credit institutions, accounting for approximately 95% of the total. As of December 1, 2013, there were 930 credit institutions and 2037 branches operating in Russia, with the majority of them in the Central, Volga and North-Western federal districts. The same regions boast the most extensive branch networks. In his December 12, 2013 annual Address delivered to the Federal Assembly, Russian President Vladimir Putin identified measures to improve transparency of the country s economy as one of our top priorities: «We must increase the transparency of our economy. It is imperative to introduce criminal liability for executives who knowingly provide false or incomplete information about the true state of banks, insurance companies, pension funds and other financial institutions. We need to maintain our fundamental, firm position on ridding our credit and financial system of various types of money laundering operations. Meanwhile, the interests of honest clients and depositors in problematic banks should be securely protected». The goal facing the entire Russian antimoney laundering system today is to improve performance of all of its members: the FIU, the Bank of Russia, law enforcement, tax and oversight agencies, and the private sector. All this should help improve the «health» of the Russian economy. There was a drop in the number unscrupulous lending institutions in Thus, the number of banks and their branches decreased by 10.2% vs (26 banks The Federal financial monitoring service 2013 Annual report 11

12 and 312 branches), with the CFD and NCFD accounting for the biggest share of reduction in this sector 12 and 7 banks respectively. The steepest fall in the number of banks was registered in the NCFD, about 14%. Among other districts recording a significant branch network contraction 23.6% was the Volga Federal District, the decrease caused mainly by the busting of the illicit obnalichka ( shadow chasing ) market in the Republic of Dagestan and the Samara region (see page 11). Despite the falling numbers of credit institutions and their branches, the number of transaction reports coming from them in 2013 actually increased by 3.2% vs CREDIT INSTITUTIONS There were a total of 956 credit institutions operating in (923 in 2013). Licenses revoked CFD-19 UFD NCFD-7 VFD-4 SibFD-2 FEFD-1 NWFD-0 SFD-0 CFD VFD NWFD SibFD NCFD SFD UFD FEFD Interaction with non-credit institutions The number of reports received by supervisory authorities from non-credit institutions in 2013 stood at about 500,000, an increase of a more than 20% compared to The structure of the information submitted to Rosfinmonitoring by the non-credit sector in 2013 compared with 2012 also underwent some positive changes: there was an almost 2-fold increase in the number of reports about suspicious transactions identified as a result of internal control procedures, while their share in the overall volume of reports amounted to about 7%. The main flow of messages came from the jewelry industry, about 80% of all reports submitted by non-credit institutions that have their own supervisory authorities. 12 The Federal financial monitoring service 2013 Annual report

13 III. FINANCIAL INVESTIGATIONS Rosfinmonitoring s main priorities in 2013 were: Compliance with international requirements and standards Ensuring transparency of financial institutions Decriminalization of the economy Monitoring Russian budget expenditures (control over state-owned companies and corporations) Reducing the risks of money laundering and terrorist financing associated with certain areas Monitoring and supervising compliance by supervised entities with Russian antimoney laundering and terrorist financing legislation Identifying new risks associated with money laundering and terrorist financing schemes. Anti-money laundering Among the most significant and extensive areas of Rosfinmonitoring s activity remain the economic sector, including housing and public utilities, public procurement and activities of public corporations and credit institutions, as well as the combating of illegal activities of individuals and legal entities involved in the laundering of drug trafficking proceeds. The task of improving efficiency of financial investigations was addressed through the concentration of efforts on the priority and industry-specific areas of work, participation in investigations into high-profile economic crimes, including corruption cases, as well as on detection and suppression of dubious financial schemes. The field of in-depth financial investigations is dominated by the following priority areas: Agrobusiness Public procurement Public corporations Corruption Industry Narcotics Fish In comparison with the last year, the direction of Rosfinmonitoring s activities in the priority areas of financial intelligence has remained largely unchanged: Rosfinmonitoring has continued to strengthen its efforts aimed at countering threats to the country s budget. While working in close cooperation with Rosfinmonitoring, law enforcement authorities successfully identified and disrupted a number of large-scale illegal financial schemes. The total number of ML financial investigations in 2013 continued to grow: by 11% vs A considerable share of Rosfinmonitoring analysts effort was devoted to the detection of money laundering schemes. Housing and public utilities The Federal financial monitoring service 2013 Annual report 13

14 While working in close contact with the Bank of Russia, the Main Directorate for Economic Safety and Counteracting Corruption of the Interior Ministry and other law enforcement authorities, Rosfinmonitoring put an end to an illicit obnalichka scheme that had been operated through the Master-Bank in the period from 2010 to This bank was in fact a veritable «obnalichka factory», whose services were popular with criminals and other intermediary banks alike. A majority of legal entities involved in the scheme displayed some obvious signs of fictitiousness. The scheme involved the use of thousands of credit cards registered on straw men as well as thousands of physical persons, most of whom were taking part in the scheme for a small fee. The central concept of this obnalichka scheme was as follows: customers funds were transferred through bank accounts of several controlled entities and credited either directly to the accounts of individuals as loans or to the accounts of brokerage firms, which subsequently transferred the funds to individuals as payment under contracts for provision of brokerage services. Subsequently, the funds were cashed out. For each such transaction, organizers of the scheme charged a 7% commission. With the help of this scheme, criminals illegally received in cash several billion rubles. A separate area of Rosfinmonitoring s activates was dedicated to prevention of of budget funds, e.g. maternity capital. We can now confirm that in 2013 the criminal practice of maternity capital misuse through conclusion of fictitious loan agreements to finance acquisition of real estate and renovation work on property was continued. The chief recipients of the maternity capital in such cases were consumer credit cooperatives and microfinance institutions, as well as, occasionally, individuals, which were left with only 20-50% of their maternity capital remaining. All materials and information relating to these financial investigations were forwarded to law enforcement and used in investigations against organizers and main participants of the criminal schemes targeting maternity capital. The number of criminal cases initiated in 2013 in which the materials provided by Rosfinmonitoring were used remained largely the same as in At the same time, the number of money laundering investigations went up. Rosfinmonitoring used its own initiative to identify a group of individuals suspected of being behind of an interregional pyramid investment scheme operating in 56 Russian regions. Under the pretext of investing in high-yield projects, a group that went under the name of «Vityaz» attracted investment from Russian citizens with a promise of high returns (30% per month). The ensuing investigation helped identify the specific individuals involved in the creation and operation of the pyramid, as well as reveal their roles in the Vityaz hierarchy. This financial pyramid managed to attract over 400 million rubles in investment from more than 10,000 individuals. As part of a large-scale operation connected with this scheme, the Interior Ministry conducted in September 2013 simultaneous investigations in 18 Russian regions, resulting in the initiation of criminal proceedings under Art. 160, Part 4 of the Criminal Code (embezzlement) and arrest of the Vityaz pyramid ringleaders. In order to a ensure a compressive nature of its anti-money laundering efforts, Rosfinmonitoring s initiatives in the area of international cooperation were dedicated to organizing timely response to the negative processes occurring in the anti-money laundering systems of foreign countries and to the reduction of global risks. 14 The Federal financial monitoring service 2013 Annual report

15 Cooperation with foreign FIUs helped uncover foreign assets belonging to a Russian national convicted and sentenced for crimes covered by Part. 4 of Article 159 of the Criminal Code. As part of enforcement proceedings initiated by the Russian Federal Bailiff Service, Rosfinmonitoring jointly with the Prosecutor General s Office are currently working to build international cooperation with local authorities of the relevant country needed to allow the repatriation of the criminal assets seized by a court in favor of the Russian Federation. In the past year, the number of audits conducted in response to requests from financial intelligence units of third countries increased by 20%. The number of cases referred to court containing materials provided by Rosfinmonitoring remained largely the same as last year, at the same time there was a 41% increase in cases initiated under Articles 174 and of the Criminal Code. Combating the financing of terrorism Despite the success of the concerted counter-terrorist efforts in the North Caucasus undertaken by all relevant agencies, some financing channels continue to operate, thereby preserving the threat of terrorist attacks in this and other regions of the Russian Federation. This was confirmed by the events in Volgograd in December Based on the intelligence gathered by Rosfinmonitoring and law enforcement authorities specializing in counter-terrorist and extremist measures (CFT), it is important to emphasize that financial and logistical support for terrorist and extremist groups currently comes from both foreign and domestic sources. Rosfinmonitoring s efforts on countering terrorist financing in 2013 became more comprehensive in their nature, as evidenced by improved statistical data covering key performance indicators: there was an almost 27% increase in the number of replies to requests coming from law enforcement and a more than 36% jump in the number of CFT financial investigations. One of the key areas of the Agency s CFTrelated work continues to be the task of compiling a List of organizations and physical persons in relation to which there is suspicion of participation in extremist or terrorist activity (hereinafter the «List»), bringing it to the attention of institutions carrying out transactions with monetary funds or other assets, and freezing the transactions of listed individuals. LIST OF ORGANIZATIONS AND INDIVIDUALS KNOWN TO BE INVOLVED IN EXTREMIST OR TERRORIST ACTIVITY Number of listed persons The Federal financial monitoring service 2013 Annual report 15

16 As of January 17, 2014, this List contained 3297 individuals and entities, including 2796 individuals on the national List who are either being investigated on extremism and terrorism charges or have been found guilty of these crimes, and 52 terrorist and extremist organizations whose activities in Russia have been outlawed by the Supreme Court of the Russian Federation and in respect of which the court has issued liquidation or prohibition orders. The International list contains 367 individuals and 82 legal entities (as per UN Security Council resolutions). In 2013, the List was extended through addition of 930 individuals from Russia, of whom 453 persons for involvement in extremism and 477 for terrorism. The newly adopted Federal Law No. 134-FZ has made significant changes to the national antimoney laundering system and, in particular, to the List procedures. A majority of changes made to Federal Law of August 7, 2001 No. 115-FZ «On combating money laundering and terrorist financing» are designed to help Russian legislation implement the FATF Recommendations revised in February As part of its work aimed at shutting down channels used to finance terrorist and extremist activity, Rosfinmonitoring applied a legal mechanism for judicial suspension of transactions carried out through accounts of persons affiliated with individuals placed on the List. Financial investigations conducted jointly with the Federal Security Service allowed the Agency to freeze the assets of a number of companies registered in Russian Federation and connected with a terrorist who is hiding abroad. Tracking proceeds of illegal drug trade Opportunities offered by international cooperation were successfully used to fight the financing of drug trafficking. This was done through political and technical groups of the Paris Pact as well as the International Coordination and National Interagency Headquarters of the operation Channel-Caucasus. Rosfinmonitoring actively contributed to the work of the U.S.-Russia Presidential Group for Uncovering and Analysis of Financial Flows Associated with Illicit Trafficking of Afghan Drugs. Representatives of the Russian financial intelligence unit took an active part in the work of the Tripartite Working Group of the U.S., Russia and India to uncover the financial flows stemming from the trade in Afghan opiates. Financial investigations conducted in conjunction with the U.S. FIU helped to uncover an extensive international trafficking network operating in many countries. It was revealed that money raised from the sale of large consignments of Afghan heroin in Russia was subsequently transferred by members of the gang and their associates to the account of the gang s financier, who used it to purchase luxury vehicles and real estate. The investigation identified a person engaged in the provision of drug money laundering services to individuals operating a channel for the delivery of heroin to Russia and traced his connections to one of the Arab countries. The gathered intelligence was subsequently transferred to the Russian Federal Drug Control Service. By enlisting the support of the competent authorities from the U.S., the UAE, Tajikistan, Kazakhstan, Uzbekistan, Afghanistan, Kyrgyzstan, Germany, Holland, China and Lithuania in the tracing of illegal assets, investigators were able to track the movement of cash within the criminal scheme. An economic analysis run by the Russian Federal Drug Control Service put the amount of laundered funds at about $3 million. As a result of investigative activities conducted, among others, with the use of materials provided by Rosfinmonitoring, investigators established the whereabouts of the drug delivery channel operator and secured his extradition to Russia. The Russian Federal Drug Control Service opened a criminal case under Art. Art. 228, 210 and of the Criminal Code. 16 The Federal financial monitoring service 2013 Annual report

17 In line with the Key Point Plan of the Coordinating Council of Heads of Competent Authorities Responsible for Combating Drug Trafficking (KSOPN) of the states members of the Collective Security Treaty Organization (CSTO), the regional anti-drug operation Canal- Caucasus was conducted in the period from 1 to 4 October, National risk assessment center In June 2012, in conformity with the Presidential Decree No. 808, Rosfinmonitoring became directly subordinate to the President of the Russian Federation. Among the new responsibilities delegated to the financial intelligence unit in the course of subordination was the function of a national center for the assessment of threats to national security arising from money laundering, terrorist financing and proliferation of weapons of mass destruction. The use by criminals of increasingly sophisticated methods and techniques calls for a continuous improvement of counter-measures used to combat money laundering and terrorist financing. In 2013, Rosfinmonitoring devoted much effort to the establishment of a national center for the evaluation of risks and threats to national security (hereinafter the «Center») arising from money laundering, financing of terrorist and proliferation of weapons of mass destruction, as well as to the preparation of a report for the President of the Russian Federation. The purpose of the Center it to monitor the situation, ensure rapid response to and localization of risks of money laundering and terrorist financing (risk management) and to carry out an assessment of the measures taken. Center s incoming data Situation identification Situation analysis Decision-making Assessment of decisions and measures taken The Center s target audience: President and Government of the Russian Federation Interagency coordination bodies (National Security Council of the RF, IWG, etc.) Federal agencies of executive power and law enforcement Regional leaders and plenipotentiary representative of the President of RF in the federal districts Departments of Rosfinmonitoring s central apparatus Rosfinmonitoring s territorial authorities Rosfinmonitoring launched the first elements of the Center s operating cycle, including information and analytical resources of the tactical (operational) and strategic levels, and defined the concept of its future development. The Federal financial monitoring service 2013 Annual report 17

18 International cooperation One of the most important areas of international cooperation involves the building of a comprehensive system of countermeasures against money laundering and terrorist financing based on common international standards. For this reason, Rosfinmonitoring s international activities in 2013 were aimed at further strengthening Russia s participation in the work of international organizations and expanding cooperation, both in bilateral and multilateral formats. Last July, Russia s representative, Vladimir Nechaev, was elected President of the FATF. Mr. Nechaev began his term by focusing on the implementation of the priorities of the Russian presidency, among which are the following: Promotion and implementation of the revised Recommendations Further efforts to develop cooperation and closer ties with the private sector and civil society Continuing assessment of risks and new threats to the integrity of the global financial system Promotion of initiatives concerning financial inclusion Further engagement with G20 on the issue of corruption In line with the FATF standards and commitments made at the G8 leaders summit, Russia is pursuing reforms aimed at ensuring transparency in the beneficial ownership of companies and other legal entities and prevention of tax evasion, including through offshore jurisdictions. With this goal in mind, our country has significantly tightened its national legislation by introducing additional oversight measures. Thanks to these measures, Russia has successfully tabled its Follow-up Report at the FATF Plenary in October 2013, which allowed Russia to achieve a very ambitious task of switching to a biennial monitoring process, the most simplified of the monitoring processes. A high degree of trust placed in the Russian national anti-money laundering system represents the culmination of many years of hard work aimed at addressing the recommendations made by the experts during the third round of FATF mutual evaluations. In line with FATF standards and commitments made by the country at G8, Russia has launched the National Plan of Measures to Increase Transparency and Prevent the Misuse of Companies, Legal Persons and Arrangements. An indicator of the level of respect Russia enjoys in the MONEYVAL is the unanimous election of its representative to the office of this organization following the end of the term of the Russian chairmanship. In anticipation of the start of the fourth round of FATF mutual evaluations, in particular the upcoming joint FATF/MONEYVAL/EAG mutual evaluation of the Russian Federation in 2016, a Council of AML/CFT Experts made up of Rosfinmonitoring s employees was set up and began operating. The country continued its efforts aimed at promoting engagement with the FATF and the Egmont Group in order to ensure an integrated approach to the challenges facing the FATF global network and FATF-style regional bodies (FSRB) in terms of risks of money laundering and terrorist financing. In 2013, the presidency in the Eurasian Group on combating Money Laundering and Financing of Terrorism (EAG) has passed from Russia to India. Tn the framework of this process, Russia adopted and enacted the Federal Law «On ratification of the Agreement between the Government of the Russian Federation and the EAG on the conditions of stay of the EAG Secretariat in the territory of the Russian Federation». With the participation of the UN Counter- Terrorism Committee Executive Directorate, Rosfinmonitoring helped to organize an international workshop on asset freezing in accordance with the requirements of UN Security 18 The Federal financial monitoring service 2013 Annual report

19 Council Resolution 1373 (2001). This resolution sets the standards for freezing of terrorist assets, which have been further developed and consolidated in the FATF recommendations, including with regard to the formation of national lists of terrorists alongside with strict compliance with the requirements of the UN sanctions list, and containes a detailed description of the types of terrorist assets to be frozen. The Council of Heads of CIS (Commonwealth of Independent states) FIUs held its first meetings and it was agreed that the Russian Federation will permanently host the Council Secretariat. In 2013, as part of the efforts to strengthen the international legal framework, Rosfinmonitoring signed 7 bilateral interagency agreements with financial intelligence units of Mali, Poland, Saudi Arabia, Slovak Republic, Uzbekistan, Fiji and Cuba, as well as 2 memorandums of understanding with the FIUs of Japan and Senegal. It brings the total number of agreements to 70. IV. OUR RESOURCE BASE Personnel Challenges associated with combating money laundering and terrorist financing remain relevant to the entire international community. Under these conditions, the task of providing relevant training to employees of financial intelligence units, law enforcement, supervisory authorities and financial institutions to allow them to perform the tasks of detection, suppression and prevention of ML/FT crimes is of great importance. For this reason, the issues of selection, placement and training of personnel were all given special attention in 2013 by Rosfinmonitoring. In order to automate the processes of personnel recruitment, the Agency piloted a new initiative allowing job seekers not only to submit their CV online through the official website, but also to undergo online testing. Another important area of Rosfinmonitoring s HR department s work is devoted to the strengthening of internal controls to enable the identification of systemic problems that bear the risks of inadequate implementation by the agency s structural units of the functions and tasks assigned to them, as well as to the development of measures designed to minimize such risks. Training Staff development is one of Rosfinmonitoring s priority personnel management tasks. Trainings are conducted in several areas: Training of newly hired employees Trainings under government contracts Activities organized and conducted by the International Training Center for Financial Monitoring (ITMCFM) Internships for interregional directorate employees at Rosfinmonitoring s central office International courses The Federal financial monitoring service 2013 Annual report 19

20 International Training and Methodology Center for Financial Monitoring ITMCFM s work in 2013 was conducted in the following areas: Training of personnel for the Russian antimoney laundering system, development of human resources in the light of new challenges and threats Organizing international workshops, providing technical assistance to partner countries in the development of national AML/CFT systems and expert participation in Russian delegations at international events The events organized by the Center have greatly contributed to improving compliance of EAG and CIS member states national anti-money laundering systems with international standards. Training activities were aimed at raising the professional level of national anti-money laundering system participants (both from the public and private sector), ensuring compliance with FATF Recommendations, exploring new approaches to national risk assessment and improving interagency cooperation. Another initiative of the Center to gain considerable momentum was a training program on combating terrorism and extremism financing. A total of 1900 persons attended ITMCFM courses in 2013, of whom over 250 represented law enforcement and over 300 supervisory authorities. In order to promote international cooperation and collaboration in solving practical problems, as well as in view of the Russian presidency of the FATF, the ITMCFM organized 9 international training events with the participation of more than 350 government experts from EAG. Institute of Financial and Economic Security MEPhI Under the Cooperation Agreement signed with the IFES in 2006, the ITMCFM provides trainings in the field of «Integrated information security of automated systems» («Information and analytical security systems»), «Security of information technology in law enforcement» and «Economic security». About 100 students (3 rd, 4 th and 5 th -year) undergo on-the-job training at the Russian financial intelligence unit each year, with the vast majority of graduates starting up working for Rosfinmonitoring. Network Institute In 2013, on-line learning emerged as a new approach to AML/CFT training. The joint efforts of Rosfinmonitoring, the Ministry of Education and Science and the Federal Agency of Scientific Organizations resulted in the establishment of the AML/CFT Network Institute, represented by 15 leading educational and scientific institutions of Russia, Kazakhstan and Kyrgyzstan. The responsibility for the overall management of the Institute is assigned to the ITMCFM, which will coordinate the interaction and collaboration of its members and provide teaching and research support for its participants. The Institute is expected to become an important scientific and educational center responsible for the training of personnel and development of new scientific solutions to counter corruption, money laundering and terrorist financing. 20 The Federal financial monitoring service 2013 Annual report

21 Information technology Rosfinmonitoring put much effort into the development of a Unite Information System and provision of modern IT solutions for its functional units. In 2013, the Agency received more than 10 million reports on transactions with monetary funds or other assets, almost 5% more than a year earlier. The number of electronic messages increased by 4.2%. This was made possible thanks to the launch of a specialized software suite HMI «Organization» and a client area on the agency s website, which allow non-credit institutions to share information in real time. In addition, in 2013 Rosfinmonitoring developed a plan of action to further expand the access to external information resources. TRANSACTIONS (mln) 0,4 0,9 1,7 3,2 6,1 8,5 8,6 6,2 7,2 8,9 10,01 10, Security The key areas of Rosfinmonitoring s work related to internal security in 2013 were as follows: Increasing oversight over Rosfinmonitoring s security regime Taking steps to boost the engineering components of the data security system Implementation and development of information and communication technologies with the goal of boosting information security Conducting educational and preventive work, including taking measures to prevent possible offenses. The Federal financial monitoring service 2013 Annual report 21

22 Notes 22 The Federal financial monitoring service 2013 Annual report

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24 Moscow, 2014