Legalization (laundering) of proceeds of crime

Rosfinmonitoring has created a draft of the Federal Law ''On Amendments to Certain Legislative Acts of the Russian Federation'' (hereinafter - the Project). Most of the amendments were aimed at increasing the transparency of currency transactions needed to combat laundering of money obtained from crime. Also there will be a list of reasons by which a bank will refuse to open or cancel a bank account.

Legalization (laundering) of proceeds of crime

Currently, the basic legislative act of the Russian Federation against the legalization (laundering) of proceeds of crime is the Federal Law of 07.08.2001 "On Combating Legalization (Laundering) of Criminally Gained Income and Financing of Terrorism" (hereinafter - the Law). The Project is designed to make important changes in the Law.

In the current version of the Law legalization (laundering) of proceeds of crime means claiming ownership, use, or disposition of funds or other assets derived from criminal offenses, that is offenses committed prior to the legalization of funds. In other words, money laundering can only be established, if there is proof that the money was obtained from crime. However, not all crimes count. For example non-return of a large sum of foreign currency, evasion of customs duties and tax crimes are not considered as crimes prior to the legalization of funds.

International legal acts, which was ratified by Russia, allows national legislators to decide (to some extent) which crimes should be considered as prior money laundering. For example, the provisions of Art. 6 of the UN Convention against Transnational Organized Crime (adopted in New York 15.11.2000) states that each country should seek to regulate a wide range of predicate offenses relating to money laundering. Subsequently, there is no reason why the crimes mentioned above can't be considered. This approach was implemented by the legislator when drafting the Project.

When prosecuting for laundering of criminally obtained funds or other property, the amount of money involved is important. Money laundering on a large scale is identified by qualified content. The project proposes to reduce the amount considered to be large from 6 million to 600 thousand rubles. This will include a new qualified content: committing these offenses on a large scale that amount to more than 6 million rubles.

The Project stipulates that persons found guilty of money laundering operations (transactions) will have the property obtained from the crime confiscated from them in addition to any other measure of criminal punishment under criminal law.

Subjects of operations on combating money laundering

In order to prevent, detect and suppress acts related to money laundering, the law regulates the relations of Russian, foreign citizens and stateless persons, organizations performing operations with monetary funds or other assets, as well as government agencies that control these operations. Art. 5 of the Law lists the categories of organizations performing operations with monetary funds or other assets, which are subject to this Law. The project proposes to expand this list with the following:

  • Mutual insurance companies;
  • Insurance brokers;
  • Non-state pension funds, which have license to provide pensions and insurance;
  • Operators, who have the right to provide mobile phone services.

In accordance with the Project there will be a ''beneficial owner'' in the legislation on combating money laundering. A Beneficial owner is a natural person who can determine the actions (decisions) of a client. This person can make decisions directly, indirectly, independently or with affiliated individuals. The criteria and requirements necessary for choosing a  beneficial owner will be established by the Government of the Russian Federation, but for credit institutions, the requirements will be established by the Bank of Russia in coordination with the Federal Financial Markets Service and Federal Financial Monitoring Service (Rosfinmonitoring).

Operations subject to obligatory control

According to the current Law operations with funds or other assets will be subject to obligatory control, if they meet two criteria: quantitative and qualitative. The project proposes the first one to remain unchanged: operations that amount to 600 thousand rubles or more or the equivalent in foreign currency will be subject to obligatory control. The qualitative criteria will be changed. The list of operations subject to obligatory control, will be significantly expanded. For example, it will include:

  • Issuance of a loan in cash by a microfinance organization on the basis of a loan agreement, and the return of the loan in cash;
  • Transfer of funds into an account (from an account) under a lease contract;
  • Providing (receiving) a loan, the interest rate on which is more than two times lower than the refinancing rate at the date of granting the loan;
  • Transfer of money into a client's (the creditor) account for a third party (the debtor).

The project proposes to make controlled payments, as well as a number of insurance and reinsurance operations that amount to 3 million rubles or the equivalent in foreign currency.

It is anticipated that credit institutions will not be allowed to open and maintain accounts (deposits) for anonymous owners (that is, natural persons or legal entities that do not provide the necessary identification documents), as well as owners with fictitious names.

If there are sufficient grounds proving that an operation is related to legalization of proceeds of crime or terrorist financing, Rosfinmonitoring will provide relevant information and materials not only to law enforcement agencies, but also to tax authorities.

Bank's right to refuse to enter into or perform bank account contracts on grounds provided by the Law

The project is designed to give banks the right to refuse to enter into or perform bank account contracts. Reasons credit institutions can site for refusing to enter into a bank account (deposit) contract with a natural person or legal entity may include suspicion that the account is for money laundering operations.

Banks may refuse to execute such contracts on certain grounds: for instance, customer transactions, which have no obvious economic sense or apparent lawful purpose; operations that clearly don't reflect the function of an organization; operations that show an intent to evade obligatory control procedures.

The Bank of Russia and Rosfinmonitoring will set the criteria for the validity of any suspicions of operations done to legalize (launder) proceeds from crime.

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