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

November 12, 2019, The Kremlin, Moscow

Yury Chikhanchin informed the President about the Federal Service’s work to control the use of funds in national projects as well as the results of assessing the report of the Russian Federation by the Financial Action Task Force (FATF).

President of Russia Vladimir Putin: Mr Chikhanchin, I asked you to build up a framework for controlling the funds allocated to the national projects. I know that you have already begun working on this. Please tell me about it.

Head of the Federal Service for Financial Monitoring Yury Chikhanchin: Thank you, Mr President.

If you do not mind, I would like to speak on another small issue first. Just recently Russia reported to the FATF, with a lot of work preceding this. I will show you some slides, if I may. And then to the national projects.

The work has been underway for almost 18 months; this is the fourth assessment of Russia. The first one, if you remember, resulted in Russia being blacklisted, and only thanks to your decision we adopted the law and managed to join the FATF, with 24 agencies and 1,500 financial organisations working on this and with 50 laws adopted. Finally we managed to defend the report at the FATF, and this is a very important indicator: we were included in the top five countries.

Our report at the FATF will be used in the ranking conducted by the UN, OECD, G20, G7, the International Monetary Fund and the World Bank.

But I would like to say that, for example, Turkey was defending with us: Turkey was greylisted. There was enormous political pressure, but we passed with flying colours, talked directly with the experts and proved that the Russian system is flawless. There were several comments, but these were working comments.

What did the assessors focus on? They noted that Russia could see and understand the risks of the anti-laundering system; there was a political solution and a good level of cooperation between agencies. I said that 24 agencies were directly involved, with even more considering that today we have a lot of new areas such as national projects.

The legislative counterterrorism base is well-structured, and today we have finally begun working on the transparency of financial organisations and businesses in general. This work with beneficiaries has been noted. Special focus is on organising control over budget expenditures, on which I would like to elaborate, and the automation of our processes.

Several areas were noted as requiring revision. On the eve of the mission, we received your instructions and set up and interagency commission, which is operating successfully. We are developing a plan, and if I may, I would like to ask you to sign a document to allow this commission to continue.

Vladimir Putin: All right.

Yury Chikhanchin: Now for the national projects. Indeed, we had your instruction to launch jointly with the Treasury a mechanism of national projects monitoring.

Currently, such a mechanism is being fine-tuned. We have reached the stage of exposing the so-called bad faith executors and reached three forms of interaction: preventive factors, when we do not allow for funding to be misappropriated when contracts and agreements are terminated, and measures to bring offenders to justice, when criminal cases are initiated.

Jointly with ministries and departments, we have developed several criteria enabling us to detect the executor, to see if they are subject to any risks, involved in shadow schemes or implicated in crimes. A single risk assessment system has been established together with the Federal Antimonopoly Service, the Treasury and tax services.

As a result, Mr President, we have drawn up this table (I will show it to you) with a breakdown for each national project according to ministries and departments. And we can see the flow of funds: how much money was allocated, how much was absorbed, how much was contracted in and how much cash is already on hand. And the yellow indicates the number of executors in the danger area, which requires special attention and effort. Regretfully, there is a rather high percentage of them in some sectors and we are working directly on each sector with the relevant departments.

What I would like to draw your attention to is that we perform checks every week and convey the information to the departments concerned. As a result, jointly with the General Prosecutor’s Office, the FSB and the Treasury we identify bottlenecks and try to gain information about them. The analysis allows us to see the districts and even the specific entities that are facing problems.

We have also determined two main areas. The first one is Ecology, as a pioneering national project. Here on the map we have marked the zones of the highest risk. We have entered into a contract and are establishing an exchange of information with the Minister of Natural Resources and Environment Dmitry Kobylkin, so that they could make their adjustments.

We have divided the Ecology project by areas, say, Lake Baikal, Clean Environment, etc. We have a specific number of executors, and we can see the state of affairs in the areas for each executor. Further, we are planning, if necessary, to convey our information on the national projects to the Presidential Plenipotentiary Envoys to the federal districts and, if need be, to ministers and governors.

We worked on the second project jointly with our partners in Tula. We signed a similar agreement with them, entering data for all our contracts in the relevant national projects, and now we are implementing them together. We have worked a lot with the Tula administration. There are several problem areas. If you look at the table, you will see the data for each national project underway in the Tula Region given in both percentage and numerical terms.

So, what have we accomplished so far? I would say that we worked well together with our Tula partners in terms of prevention; we are controlling every aspect now. As for blocking spending on unbudgeted expenses, we worked together with the Federal Anti-Monopoly Service (FAS) and the FSB under the Healthcare national project in the Moscow Region, terminating medical acquisition contracts worth some 450 million rubles with fraudulent producers. The situation in Crimea and Sevastopol is similar. Our work there resulted in the termination of contracts worth about 400 million rubles. Regrettably, criminal proceedings had to be launched within national projects.

What problems has this monitoring of national projects revealed? The main conclusion is that we do not have a streamlined system of markings for monitoring the movement of funds. There are several types of allocations, such as budgetary, regional, local, subsidies, etc. but there are no agreed markings. We are working on this problem together with the Treasury. When we “mark” the allocations in different colours, it will be easier to monitor their disposal.

Another problem is the absence of a united departmental database that would allow us to see fraudulent executors during tenders. We are working on this together with the FAS. When we cannot see who is who, we have to settle problems with each executor separately after the deals are made.

The third group of questions has to do with the fact that we do not have computerised relations with all the parties. We exchange data with the Treasury nearly every day online, but we have not yet created similar mechanisms for other agencies. This calls for additional efforts.

This is the overview of how we work on the national projects.

Vladimir Putin: Good.

Please report to me regularly on your progress.

Yury Chikhanchin: Of course. Thank you.

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November 12, 2019, The Kremlin, Moscow