A MEETING BETWEEN THE DIRECTOR OF ROSFINMONITORING AND THE PRESIDENT OF THE RUSSIAN FEDERATION

Published: 12.11.2019

A meeting between the Director of the Federal Financial Monitoring Service and the President of the Russian Federation was held on 12 November 2019. Yury Chikhanchin reported to Vladimir Putin about the activities of Rosfinmonitoring in monitoring the funds allocated for national projects and about the results of the Mutual Evaluation Report of the Russian Federation by FATF.

V. Putin: Mr Chikhanchin, I asked you to organize control over appropriation of public funds allocated for national projects. I know you've already begun doing that. Please tell me about it.

Yu. Chikhanchin: Thank you, Mr. President.
If you don't mind, I'd like to speak on another small issue first. Russia has just reported to the FATF, with a lot of work preceding this event. I'll show you some slides, if I may. And then to the national projects.

This work continued for almost 18 months; this is the fourth assessment of Russia. The first one, if you remember, resulted in Russia being identified as jurisdiction with weak measures to combat money laundering and terrorist financing (AML/CFT), and it was only thanks to your decision that we passed a law and managed to join the FATF. A total of 24 agencies and 1500 financial institutions were involved in this work, with 50 laws adopted. Finally, we ensured successful adoption of the report at the FATF, receiving the rating that places us among the top five countries.

Our report at the FATF will be used as a benchmark in the assessment ratings process by the UN, OECD, G20, G7, the International Monetary Fund and the World Bank.

Incidentally, Turkish Mutual Evaluation Report was adopted at the same Plenary meeting as Russia’s. As we know, Turkey ended up being identified as jurisdiction with strategic AML/CFT deficiencies for which an action plan has been developed. Despite enormous political pressure, we successfully achieved our goal, argued with experts professionally and proved that the Russian system is comprehensive. There were several comments, but those were working comments. 

What did the assessors focus on? They noted that Russia, after all, is able to identify and understand the ML risks, and there is a political decision and a good level of cooperation between agencies. As I already said, 24 agencies are directly involved, not counting those representing a large number of new areas, such as national projects, working strategies, etc.

We have a sound legal framework for combating terrorism in place, which allows us to start working on the transparency of financial institutions and business in general. They have specifically highlighted our work with beneficiaries. Special attention was paid to the control over budgetary funds, which I'd like to elaborate on, and the automation of our processes.

Several areas, meanwhile, were identified as requiring some improvements. On the eve of the mission, we received your instruction and set up an interagency committee, which is fully operational now. We're currently drafting a plan and, if I may, I'd like you to sign a document to allow the committee's work to continue.

V. Putin: All right.

Yu. Chikhanchin: As for the national projects. You instructed us to work with the Treasury to set up a monitoring mechanism there.
We're making final adjustment to it now. We've begun work to identify the so-called unscrupulous contractors with whom we deal in three ways: preventive measures, i.e., when we take steps to prevent the embezzlement of public funds; precautionary measures, i.e., termination of contracts; and disruptive measures, i.e., criminal prosecution.

Jointly with ministries and agencies, we've developed a set of criteria for identifying high-risk contractors involved either in shadow schemes or in criminal activity. We, working in collaboration with the Federal Antimonopoly Service, the Treasury and tax authorities, have developed common approaches to risk assessment. As a result, we have created a consolidated table, Mr President, (I will show it to you), which summarizes all national projects, ministries and agencies. It allows us to see the flow of funds: how much money has been allocated, how much appropriated, how much contracted out and how much cashed out. The number of high-risk contractors requiring special attention are highlighted in yellow. Regretfully, there's a rather high percentage of them in some sectors, and we're working directly with the relevant authorities.

What I'd like to draw your attention to is that we do verifications every week and convey our findings to the agencies concerned. This allows us, jointly with the General Prosecutor’s Office, the FSB and the Treasury, to identify the “bottlenecks” and find out more about them. The subsequent analysis enables us to see the districts – and even specific entities – that are facing problems. 

We've also identified two focus areas. The first one is the national project Ecology. Here on the map we've marked the high-risk areas. We've concluded agreement and are developing information sharing with the Ministry of Natural Resources and Environment, headed by Dmitry Kobylkin, to allow them to make the necessary adjustments.

We've divided the “Ecology” project into several segments, say, Lake Baikal, Clean Environment, etc. We have a specific number of contractors whose performance in percentage terms, as we can see on the district chart, raises some questions. In the future, we plan to pass this information on to the main national project stakeholders, plenipotentiary envoys and, if necessary, ministers and governors. 
We worked on the second project jointly with our partners in Tula. To this end, we signed a similar agreement with them, entering data for all our contracts linked to national projects, and are monitoring them together. We've done a lot of work with the Tula administration, which is beginning to yield results in terms of reductions. Still, there're several problematic areas. If you look at the table, you'll see the data for each ongoing national project in the Tula Region given in both percentage and numerical terms. 

So, what have we accomplished so far? I'd say that we have done a good job with our Tula partners in terms of prevention, and now have everything under control. As for the measures designed to prevent the embezzlement of public funds, we've worked together with the Federal Antimonopoly Service (FAS) and the FSB on the “Healthcare” national project in the Moscow Region, terminating procurement contracts with unscrupulous contractors in the healthcare sector worth some 450 million roubles. 

The situation in Crimea and Sevastopol is similar. Our work there resulted in the termination of contracts worth about 400 million rubles. Unfortunately, we've already begun launching criminal investigations directly related to national projects. 
What problems has monitoring of national projects revealed? The main conclusion is that we're yet to set up a working system for highlighting money flows. There're several types of money flows: federal, regional, local, subsidies, etc., but no common approach to highlight them. We're working on this problem together with the Treasury. Once we've labelled these funds, it will be much easier for us to track them.

Another problem is the absence of a unified inter-agency database that would allow us to identify unscrupulous contractors. We're working on this together with the FAS. When we cannot see who is who, we have to deal with each contractor post-factum.
The third group of issues concerns the lack of unified automation in addressing these issues. While we already share information remotely with the Treasury almost on a daily basis, we're yet to do the same with other agencies, which calls for additional efforts.
This is how we organize our work around national projects.

V. Putin: Good.
Please keep me updated.

Yu. Chikhanchin: I will. Thank you.