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Meeting with Director of the Federal Service for Financial Monitoring Yury Chikhanchin

June 18, 2020, The Kremlin, Moscow

Vladimir Putin had a working meeting with Director of the Federal Service for Financial Monitoring Yury Chikhanchin.

President of Russia Vladimir Putin: Good afternoon,

Mr Chikhanchin, I would like to hear from you today on the results of monitoring government spending and the use of funds allocated for national projects. How is it all going?

Director of the Federal Service for Financial Monitoring Yury Chikhanchin: Mr President, as per your instruction, we have built a system to monitor and control the spending of budget funds together with other concerned agencies – primarily the Treasury, the Taxation Service, the Prosecutor General’s Office, and the FSB. We have established interaction and developed a control mechanism, meaning we have worked out unified risk assessment criteria and built a monitoring system, and are now working on a system of measures to minimise these risks. We submit all the new proposals to the Government and we are now working well with Mr Mishustin on this track.

What have we achieved in building this mechanism? I would like to say a few words about the coronavirus, because at present the biggest spending is being channelled in this direction. We are monitoring about 7,000 state contracts and about 4,500 contractors and we can see that the financial flow is really very high. The dynamics are presented on this cash flow chart.

But at the same time, at the initial stage, some of the contractors that were identified were in the risk zone, and we had to take some of the cases and send about 160 files to the Prosecutor General’s Office, the FSB, and the Interior Ministry. As a result, some of the contracts have been terminated, and criminal proceedings have been initiated. But after that, the dynamics began to change for the better. Indeed, the contract discipline of those who work with the coronavirus has definitely improved. These graphs here indicate downward trends in the number of suspicious transactions, in the use of fly-by-night firms, in the use of bank accounts for shady transactions. A similar situation was recorded with the procurement of ventilators and other medical equipment. Here we can also see improved results, and generally everyone’s good work.

The second package of issues linked with the coronavirus is assistance to backbone companies. We looked at over 1,000 of these from different angles. First of all, some of them deliberately conceal their real financial position. Second, others may transfer funds abroad, primarily, taxable funds, to offshore companies. We looked at the work with shadow venues, deposition of funds and the issue of interest-free loans. We also paid attention to the involvement of non-residents in the operations and management of the companies.

Regrettably, we noticed that all these actions are being made. Indeed, some companies transfer funds abroad, and there are non-residents working in over 100 companies. We prepared all the material and have now submitted it to the Government. They will be taken into account in the elaboration of approaches to the work with backbone companies.

Now a few words about national projects. This is how the situation developed. As of today, the total amount of money transfers exceeds 2 trillion. The recipients received approximately the same amount.

There is a minor problem with cash disbursements though. Not all the funds that have been received are being contracted. Naturally, part of national projects will be revised with the account of the current situation but procrastination must be avoided to prevent the past year’s situation when both funds and not very scrupulous contractors appeared at the end of the year.

If we look at yet another slide, we will see that today about a third of contractors we are tackling nationwide are in the risk zone. What risks do we see today? They conduct a considerable number of suspicious operations with banks. Some companies are fictitious and only have one or two employees. Others have only existed for a relatively short period of time, say up to six months.

Vladimir Putin: They are not fly-by-night companies but yet they were not set up for real work.

Yury Chikhanchin: Yes, they have just appeared but are already looking for contracts worth billions. We are reviewing their activities in cooperation with the relevant departments.

If we look directly at each national project, we will see that the picture is about the same in all of them. Maybe the national project on small and medium-sized businesses has some particular features. It has a much better interest rate. This also applies to the projects on education and the comprehensive plan for upgrading and expanding the trunk infrastructure. Now we are working directly with the Government on all these issues. Mr Mishustin assigned a deputy prime minister specifically for this purpose and we are now working with him.

If we look at how the funds allocated for national projects are being spent, the Southern and the Far Eastern federal districts evoke the biggest number of questions. We are now closely working with the offices of their plenipotentiary envoys and are trying to warn them in advance about the risks we see and are looking for ways of jointly minimising them.

Risks really do exist in a number of regions: the Stavropol Territory, the Penza Region and the Khabarovsk Territory. We are starting to work directly with their governors. We are testing a pilot project in the Novgorod and Tula regions. In cooperation with them we identified all risky contractors. They have simply established control over them and given instructions to their regulatory bodies. The Novgorod Region Governor has taken these under his control and visits them.

This option that was offered to the Novgorod and Tula regions, was analysed at a Government meeting, by the Government Commission and recommended to all regions. They have been advised to work according to the same principles. We believe that this will make it possible to reduce the risks while implementing national projects.

We are not only monitoring the problems but also taking more resolute actions. In cooperation with the Federal Anti-Monopoly Service and the Federal Security Service we have already revealed cartel agreements worth 700 million this year and cancelled them. Budget funds worth 3.8 billion rubles have been saved by ousting unscrupulous contractors. In effect, almost 3 billion have been reimbursed – this is when taxes were returned voluntarily. About 50 criminal cases have been opened and about 2 billion rubles arrested.

Vladimir Putin: But it is necessary to bring these cases to court, not to let them get lost on the way.

Yury Chikhanchin: We will do our best.

I can quote two examples. The first project is linked with environmental protection in the Volga River area. The funds were allotted but unscrupulous contractors transferred part of these funds to affiliated structures and even to the accounts of subcontractors.

The second example concerns the company that worked in the oncological centre in Kaliningrad and some facilities in Crimea. The situation was similar. Criminal cases were opened with our participation and based on our materials.

I would like to say what problems we are facing today in monitoring budget funds. We still would like to “colour” budget funds so that banks are able to see that these funds come from the budget and are designated for national projects, like we once did on the Defence Procurement and Acquisition. This will make the performance of the banks more effective. They will not conduct dubious, suspicious transactions.

Second, we need to develop unified classifiers for all ministries and agencies to be aware of what is a risk. This is not only the risk for our Service, for the Federal Security Service or for the Federal Treasury, it is a risk for all of us.

And, of course, a decision-making centre. We are working on this now together with the Government as every risk cannot be minimised by one agency. Let's say that a bank has its license revoked; its customers need to know what they should do in this situation. There are many examples like this.

Let me say a few words about defence procurement. I should note that the groundwork laid in this area back in 2016 has produced good results. We have largely reduced the number of dubious transactions by about 35–37 percent. Certain areas have seen a three-fold reduction, with no fly-by-night companies involved anymore. There are no cases of banks refusing transactions for defence procurement contractors. The situation has stabilised in this area, and we have to keep it at this level.

Vladimir Putin: I know that the recently introduced system is working efficiently.

Yury Chikhanchin: It is.

Another important thing is that it was the right decision to make Promsvyazbank the lead bank in resolving this matter. I can say that currently 58 percent of defence procurement contractors have become Promsvyazbank customers. Together with the bank, we are developing common approaches; the bank has a good control system. They are cooperating with us, the Federal Treasury, the Federal Taxation Service, and with law-enforcement agencies. All this allows us to keep these financial resources safe.

I should also add that the extensive work we have implemented along with the Central Bank and law-enforcement agencies, particularly with the Federal Security Service, the Interior Ministry and the Prosecutor General's Office, has allowed us to clean up the banking sector. If 18 months ago we had several dozen questionable banks in the country, today we can say there are only about a dozen. We know them and we are taking efforts to gradually eliminate them all.

Yet, the demand for “grey” money is still there, and unscrupulous businessmen choose to act through foreign platforms. For instance, we are jointly working now with our Kyrgyz colleagues on the 'Kyrgyz scheme' case to find out where the money went. About ten more countries are providing assistance to us in this regard. A total of 2 billion rubles has been seized so far. I believe we will push this matter through; we have already reduced the outflow of monetary resources to Kyrgyzstan seven-fold thanks to assistance from our colleagues there.

Along with the issues in the banking sector, another set of problems is also seen in the insurance industry. Here the principle is simple: a twin company is set up – that is, an insurance company and an insurance agent, and the money that an individual or a company are to bring for insurance, go to the insurance agent, and it is then distributed, leaving the insurance company out. We understand how to handle this, we work on this, and we are building a system. I think it will give us an opportunity to keep the allocated financial resources safe.


June 18, 2020, The Kremlin, Moscow