Russia is not currently identified by FATF as having substantial money laundering and terrorist financing (ML/TF) risks or having strategic AML/CFT deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Russia was undertaken by the Financial Action Task Force (FATF) in 2008. According to that Evaluation, Russia was deemed Compliant for 10 and Largely Compliant for 13 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 2 of the 6 Core Recommendations.
Third 3rd Round Written Progress Report (2014)
Since the adoption of the third 3rd round progress report the authorities have taken a number of steps to deal with the identified deficiencies and related recommended action points as set out in the MER.
With regard to Recommendation 1, the threshold for criminalisation of self-laundering is removed thus Russia has addressed the technical deficiencies related to Recommendation 1. However, from a desk based review, there are some concerns on the current effectiveness of the application of the ML offence. Third party ML cases need to be examined by the authorities with a view to any remedial action in advance of the next evaluation.
With regard to Recommendation 5, the CDD requirements have been revisited through legislative amendments; it is notable that notion of “beneficial owner” has been clarified in the AML/CFT Law.
A number of steps have been taken to improve the reporting regime. Namely efforts aimed at defining obligation to submit STRs on attempted transactions were developed. However as the issue is regulated under different provisions of the Law it is difficult to assess on a desk based review how this issue is applied in practice and, as it appears to the reviewers that the legislation does not fully cover reporting attempted transactions by all financial institutions, it is recommended that the legislation on this point be reviewed in advance of the next evaluation.
Overall it is considered that the Russian Federation has taken number of measures to implement the recommendations made in the MER with respect to the Core Recommendations, though there remain some issues to address as set out above.
As a result of the discussions held in the context of the examination of this third progress report, the Plenary was satisfied with the information provided and the progress being undertaken and thus approved the progress report and the analysis of the progress on the core Recommendations. Pursuant to Rule 12 (6) of the Rules of procedure, the Plenary decided not to request Russia to report back under the 3rd round of evaluations, while retaining the discretion to revisit this decision should the next round evaluation be postponed beyond 2017.
US Department of State Money Laundering assessment (INCSR)
Russian Federation is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Russia has developed a vast AML/CFT legal framework with Rosfinmonitoring, the FIU, at its center. Corruption, misappropriation and embezzlement of public funds, tax crime, and drug trafficking generate significant amounts of proceeds. There is a large shadow economy and cash is prevalent. Financial flows from illicit activity linked to Russia have threatened weak financial institutions in neighboring countries; however, criminal proceeds from Russia also make their way to global financial centers, often through opaque shell companies. To shield Russian individuals and entities from the effects of financial sanctions, the Russian government softened some reporting requirements leading to a decrease in transparency.
The EU and US have imposed sanctions against a number of persons and business entities, mainly Russian, relating to the crisis in Ukraine. This list is regularly updated.
May 2015 - OFAC publishes FAQs relating to Ukraine-/Russia-related Sanctions
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 28
World Governance Indicator – Control of Corruption 17
Corruption significantly impedes businesses operating or planning to invest in Russia. High-level and petty corruption are common, especially in the judicial system and public procurement. The business environment suffers from inconsistent application of laws and a lack of transparency and accountability in the public administration. Russia’s regulatory inefficiency substantially increases the cost of doing business and has a negative effect on market competition. The Russian Federal Anti-Corruption Law requires companies to actively implement anti-corruption compliance programs. However, compliance with these provisions in practice is lagging behind. Russian law criminalizes active and passive bribery, facilitation payments, gifts and other benefits. However, effective enforcement of anti-corruption legislation is hindered by a politicized and corrupt judicial system. For further information - GAN Integrity Business Anti-Corruption Portal
Russia has undergone significant changes since the collapse of the Soviet Union, moving from a centrally planned economy towards a more market-based system. Both economic growth and reform have stalled in recent years, however, and Russia remains a predominantly statist economy with a high concentration of wealth in officials' hands. Economic reforms in the 1990s privatised most industry, with notable exceptions in the energy, transportation, banking, and defence-related sectors. The protection of property rights is still weak, and the state continues to interfere in the free operation of the private sector.
Russia is one of the world's leading producers of oil and natural gas, and is also a top exporter of metals such as steel and primary aluminium. Russia's reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the volatile swings in global prices.
The economy, which had averaged 7% growth during 1998-2008 as oil prices rose rapidly, has seen diminishing growth rates since then due to the exhaustion of Russia’s commodity-based growth model.
A combination of falling oil prices, international sanctions, and structural limitations pushed Russia into a deep recession in 2015, with the GDP falling by close to 4%. Most economists expect this downturn will continue through 2016. Government support for import substitution has increased recently in an effort to diversify the economy away from extractive industries. Although the Russian Ministry of Economic Development is forecasting a modest growth of 0.7% for 2016 as a whole, the Central Bank of Russia (CBR) is more pessimistic and expects the recovery to begin later in the year and a decline of 0.5% to 1.0% for the full year. Russia is heavily dependent on the movement of world commodity prices and the CBR estimates that if oil prices remain below $40 per barrel beyond 2016, the resulting shock would cause GDP to fall by up to 5%.
Agriculture - products:
grain, sugar beets, sunflower seeds, vegetables, fruits; beef, milk
complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals; all forms of machine building from rolling mills to high-performance aircraft and space vehicles; defence industries (including radar, missile production)
Exports - commodities:
petroleum and petroleum products, natural gas, metals, wood and wood products, chemicals, and a wide variety of civilian and military manufactures
Exports - partners:
Netherlands 11.9%, China 8.3%, Germany 7.4%, Italy 6.5%, Turkey 5.6%, Belarus 4.4%, Japan 4.2% (2015)
Imports - commodities:
machinery, vehicles, pharmaceutical products, plastic, semi-finished metal products, meat, fruits and nuts, optical and medical instruments, iron, steel
Imports - partners:
China 19.2%, Germany 11.2%, US 6.4%, Belarus 4.8%, Italy 4.6% (2015)
Investment Climate - US State Department
American firms seeking to invest in the Russian Federation should be aware that the Russian investment climate continues to be marked by high levels of uncertainty, corruption, and political risk, making thorough due diligence and good legal counsel essential for any potential investment. Conditions for foreign investment are unlikely to improve in the near term. Foreign direct investment flows in Russia during 2015 were USD 6.7 billion, a decline of 92 percent from the figure two years earlier, according to the UN Conference on Trade and Development. This decline in investment reflected the increased risks that investors faced when doing business in Russia.
Russia’s real gross domestic product (GDP) contracted by 3.7 percent in 2015. The International Monetary Fund expects a further 1 percent contraction in 2016. The fall in the global price of oil has hit Russia’s economy hard: oil and gas production has traditionally accounted for approximately 20 percent of GDP, two-thirds of exports, and half of federal government revenues. The Russian ruble also depreciated 55 percent against the U.S. dollar through 2015. Capital outflows in 2015 decreased to USD 57 billion, after a peak of USD 151.5 billion in 2014.
Russia’s attempted annexation of Crimea in March 2014 is not recognized by the U.S. government. U.S. investors in Russia must ensure they are in full compliance with U.S. sanctions on designated Russian firms and individuals. These measures include a prohibition on the refinancing of debt beyond 30-days on sanctioned entities, restrictions on the export to Russia of certain kinds of equipment for the energy sector, and a complete ban on doing business with those entities or individuals identified by the U.S. Treasury Department as “specially designated nationals.” Specific sanctions designations are available on the U.S. Treasury’s website: www.treasury.gov.
Long-standing concerns about the rule of law in Russia persist. Several new laws in 2015 gave the Russian Constitutional Court new powers to disregard foreign arbitral decisions, while 2014 changes to the Russian high court have cast doubts on its ultimate autonomy. Russia’s judicial system is heavily biased in favor of the state, leaving investors with little recourse in the event of a legal dispute with the government. High levels of corruption in the Russian government compound this risk.
Economic activity carried out by state-owned enterprises (SOEs) is estimated to comprise over half of Russia’s GDP. Most government initiatives in 2015 point to a stronger government influence in SOE activities, including placing senior government officials on major SOE boards, dictating the percentage of SOE purchasing that must come from small and medium enterprises, and requiring Russian-made equipment purchases for government-funded projects.
Regulations require Russian government approval for foreign firms to invest in “strategic sectors” and, in some cases, ban majority foreign ownership.
Though a policy goal prior to Russia’s 2014 attempted occupation of Crimea and aggression in Ukraine, import substitution has subsequently become a central tenet of Russian government policy, with the aim of shifting Russia’s reliance on imported products to goods either produced domestically or by “friendly” nations. The Russian government hopes to achieve a higher level of self-reliance through a combination of localization and procurement restrictions. The most attractive sectors for foreign investment in Russia historically include wholesale and retail trade, finance and insurance, manufacturing, and mining. In 2015, the Central Bank of Russia created a national payment card system (NSPK) to process all domestic credit card transactions for Russian cardholders.
International payment card systems continue to process the domestic transactions of foreign cardholders and the international transactions of Russian cardholders. Russia also enacted a new law in 2015 that requires all companies processing the personal data of Russian citizens to store that data on servers located in Russia.
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