Russia’s AML/CFT Regulatory Environment ‘Drastically Underdeveloped’

The regulatory environment for anti-money laundering (AML) and combating financial terrorism (CFT) in Russia is drastically underdeveloped, according to BankersAccuity.

The payment efficiency and compliance solutions provider, which is owned by Reed Elsevier, made the assessment following its attendance at the recent International AML/CFT conference in Moscow, hosted by Association of Russian Banks (ARB), Federal Financial Monitoring Service and the Bank of Russia.

BankersAccuity notes that global sanctions are officially invalid unless confirmed by president Putin under a Russian directive and there is a scarcity of legislation and terminology to address politically exposed persons (PEPs). With numerous cases of illicit financial activity in the country, financial institutions (FIs) in Russia are increasingly under pressure from foreign counterparties to comply with international sanctions and AML screening.

At the Moscow conference the company hosted an event for Russian compliance officers, providing education on the
‘Identification of PEPs, compliance monitoring and transaction efficiency’
and received feedback from attendees that there is uncertainty on how to comply within the constraints of Russian regulations. This is all the more critical now that the Russian Central Bank has brought in the 375-P legislation focusing “On the requirements for internal control in order to combat money laundering and terrorist financing.”

375-P came into force on 29 April 2012, following the latest requirements from Financial Action Task Force (FATF). A key component of this legislation encourages organisations to apply a risk based approach in monitoring for money laundering activity focusing on offshore entities and ultimate beneficiaries.  Financial institutions had until 29 April 2013 to modify their AML/CFT systems accordingly, or risk facing action.

Yet with small monetary penalties in place and gaps in the legislation meaning that requirements could be superficially applied to satisfy Central Bank inspectors, many compliance experts in Russia feel that 375-P is not tight enough to deter money laundering in Russia.

“It is clear that AML/CFT compliance in Russia has a way to go in meeting FATF recommendations and international standards” said Hugh Jones, president and chief executive officer (CEO), BankersAccuity.

“The Russian Federation is taking steps to rectify this in the long run by presenting draft law no 196666-6 to combat illegal financial transactions. With global money laundering fines and regulatory scrutiny at an all-time high, Russian organisations need to act now to bring perpetrators of financial crime to account.”

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