Countries/Jurisdictions of Primary Concern - Russia
While there has been significant progress in improving Russia’s AML/CFT legal and enforcement framework, the prevalence of money laundering in Russia remains a major obstacle to financial sector development. Money laundering continues to cost the Russian economy billions of dollars every year. The Central Bank of Russia (CBR) estimates that $26.5 billion in 2013 and $5.7 billion in the first half of 2014 left Russia through what the CBR terms “fictitious transactions.” This definition, according to the CBR, includes payment for narcotics, bribes to government officials, and tax evasion. Domestic sources of laundered funds include organized crime, evasion of tax and customs duties, fraud, smuggling operations, and corruption. In particular, official corruption remains a significant problem at all levels of government, despite several recent high profile anti-corruption actions by the Government of Russia, and is a major source of laundered funds, with proceeds frequently moved offshore.
Russia is considered a significant transit and destination country for international narcotics traffickers. Criminal elements from Russia and neighboring countries continue to use Russia’s financial system and foreign legal entities to launder money. Criminals invest and launder their proceeds in securities instruments, domestic and foreign real estate, and luxury consumer goods.
Gaming is only allowed in specified regions, with regulatory authority shared across multiple agencies, including the Ministries of Finance and Internal Affairs. The Federal Financial Monitoring Service (Rosfinmonitoring) has been designated as the competent AML/CFT authority for casinos. Only licensed casinos in special gambling zones can register with Rosfinmonitoring, which has inspected the two registered casinos. Online gaming is prohibited.
Cybercrime remains a significant problem. Russia’s highly skilled hackers and traditional organized crime structures have followed the global trend of increasingly combining forces, resulting in an increased threat to the financial sector.
There is a large migrant worker population in Russia. While the majority of workers likely use formal banking mechanisms, a considerable amount of transfers are believed to occur through informal value transfer systems that may pose a vulnerability for money laundering.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: //2009-2017.state.gov/j/ct/rls/crt/
DO FINANCIAL INSTITUTIONS ENGAGE IN CURRENCY TRANSACTIONS RELATED
TO INTERNATIONAL NARCOTICS TRAFFICKING THAT INCLUDE SIGNIFICANT
AMOUNTS OF US CURRENCY; CURRENCY DERIVED FROM ILLEGAL SALES IN THE U.S.; OR ILLEGAL DRUG SALES THAT OTHERWISE SIGNIFICANTLY AFFECT THE U.S.: YES
CRIMINALIZATION OF MONEY LAUNDERING:
“All serious crimes” approach or “list” approach to predicate crimes: All crimes approach
Are legal persons covered: criminally: NO civilly: YES
KNOW-YOUR-CUSTOMER (KYC) RULES:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Banks and credit institutions; Russian Post; payment acceptance and money transfer services; securities, insurance, and leasing companies; investment and non-state pension funds; casinos and gaming outlets; dealers in precious metals and stones; real estate agents; pawnshops, microfinance organizations, and consumer credit cooperatives; and legal or accounting service providers
Number of STRs received and time frame: 6,072,765 in 2013
Number of CTRs received and time frame: Not available
STR covered entities: Banks and credit institutions; securities markets, investment and pension funds; Russian Post; insurance sector; leasing companies; pawnshops and dealers in precious metals and stones; casinos; real estate agents; lawyers, notaries, and legal or accounting service providers; microfinance organizations; consumer credit cooperatives; and non-commercial organizations receiving funds from certain foreign entities
MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:
Prosecutions: Not available
Convictions: Not available
RECORDS EXCHANGE MECHANISM:
With U.S.: MLAT: YES Other mechanism: YES
With other governments/jurisdictions: YES
Russia is a member of the FATF and two FATF-style regional bodies: the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL); and the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG). Its most recent mutual evaluation can be found at: http://www.fatf-gafi.org/countries/n-r/russianfederation/
ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:
In 2013, Russia took a number of regulatory and legal measures to strengthen its capacity to combat financial crime and money laundering. Among these measures are improved beneficial owner definitions; better access to information on bank accounts for tax inspectors and law enforcement investigators; the right of banks to unilaterally decline to open an account or terminate an existing account of a client suspected of criminal activities; and the ability of credit institutions to freeze any client’s account if they suspect any involvement in extremist activities or terrorism. While this legislation is a major step forward for Russia, full and unbiased implementation will be required to address Russia’s reputation as a center for money laundering.
Apart from taking responsibility for regulating non-bank financial entities, the CBR stepped up enforcement within the banking sector, revoking 26 banking licenses in 2013. Some of these revocations were related to money laundering and tax evasion schemes. It is unclear, however, how many of the license revocations specifically involved money laundering concerns.
A new law on public procurement was adopted in April 2013 and is the most significant improvement since 2005. The legislation has come into force gradually, beginning in January 2014. One of the more important components of the legislation has been the obligatory public discussion of all government procurement contracts with a value of more than 1 billion rubles (approximately $21.3 million).
In 2014, building on the significant steps taken in the previous year, the Russian Government undertook additional measures centered on its tax system. For example, the National Plan on Countering Tax Evasion and Concealing Beneficial Owners was adopted in April 2014. The plan develops a number of items of important AML legislation. These steps include the introduction of beneficial ownership registries in June 2014, the improvement of beneficial ownership identification procedures in December 2014, and an enhanced system for information exchange on violations of AML/CFT rules in December 2015. Russia also enacted additional changes to the AML/CFT legislation to establish a lower, 100,000 rubles (approximately $2500), threshold for Russian NGOs who are receiving money and in-kind assistance from abroad. Under new legislation, pawn shops began filing STRs on April 1, 2014.
In November 2014 the State Duma (the lower house of the Russian Parliament) also passed new legislation on “controlled foreign companies” to come into force January 1, 2015. The legislation states that offshore entities that are at least 50 percent Russian-owned must pay tax on unallocated profits, but the threshold will fall to 25 percent in 2017. Russian ownership in a controlled foreign company of more than 10 percent must be reported to the Russian authorities before April 1, 2015. Russia is unable to effectively enforce foreign forfeiture orders.