Monitoring for middlemen In another bid to counteract ‘undesirable organizations,’ Russian banks will be required to verify all transfers from abroad

On June 9, the Russian State Duma adopted a package of laws on countering “the infiltration of undesirable organizations into the Russian Federation” in their third and final reading. One of the bills in particular aims to combat the use of intermediaries for obtaining funds for “undesirable organizations.” To achieve this goal, the authors of the bill chose the simplest possible method — tasking banks and other credit institutions with monitoring every single money transfer received by Russian citizens and organizations from an as of yet unspecified list of foreign countries. Meduza looks into how this new legislation threatens both banks and Russian citizens alike.

What does the bill say?

Under Russia’s current law on countering money laundering and terrorist financing, banks are required to check payments from foreign senders in the following cases:

1. They amount to 100,000 rubles ($1,390) or more.
2. They are for use by nonprofits.

During the bill’s second reading (which was approved on June 8 — five days after it was submitted to parliament) amendments were introduced to “improve” these procedures. If the president signs the new law, then from October 1, 2021 onwards:

• All banks will have to carry out mandatory checks on transfers of any amount to any individuals or legal entities if they come from a sender in a country included in a specially compiled list (or from a bank registered in one of those countries).  
• The list of countries will be compiled by the authorized governmental organization (Russia’s state financial watchdog, Rosfinmonitoring). The list will not be made public; aside from officials, only banks will know its contents. 
• If the banks find out that an organization that received a transfer from abroad has acted as an intermediary for (read: sent money to) an “undesirable organization,” then this “intermediary” can also be declared an “undesirable organization.”
• If, on the other hand, an individual is caught acting as an “intermediary,” then under the new law, an administrative case can be brought against them, and in the case of “repeat offenses,” a criminal case. The penalties stipulated range from fines to five years in prison. Furthermore, any financial transfer received by or intended for an undesirable organization can be considered participation in that organization, which itself carries charges. 
• Separately, banks will monitor all payments to the accounts of nonprofits made from outside Russia (except for state, municipal, and general education nonprofits, as well as homeowners’ associations, industrial co-ops, and horticultural associations).

At first glance, this bill doesn’t threaten anything for citizens who receive transfers from outside Russia, so long as they don’t interact with “undesirable organizations.” However, the procedures for “monitoring payments” adopted in Russia mean that life could become more difficult for any citizen who’s engaged in financial transactions with foreign organizations. 

How will the “monitoring” work?

• Under the anti-money laundering law, banks are required to check all payments — not just those originating outside Russia — over 600,000 rubles (about $8,350) or over 100,000 rubles ($1,390) if it’s from a postal money order.
• This check involves credit institutions verifying whether or not the payment is linked to economic activities, and whether or not there are documents justifying those activities. The credit institution also identifies the details of the sender and the recipient (if one of them is a legal entity rather than a person, they identify the ultimate beneficiary). In addition, where possible, the bank determines the provenance of the sender’s money and ensures that the transaction (if applicable) doesn’t contain any signs of money laundering. 
• If suspicious payments are identified, the credit institution must block them and report them to Rosfinmonitoring.
• Information on all payments is to be kept for five years; the credit institution is required to hand over this information upon any request from Rosfinmonitoring.

There are separate rules for payments from foreign sources (in addition to the checks on transfers of more than 100,000 rubles from certain countries for use by nonprofits):

• Any transfers for (or to) countries that do not comply with the international recommendations of the Financial Action Task Force on Money Laundering (FATF) must be verified. Currently, only Iran and North Korea are on this list. 
• Any transactions conducted in Russia with cards issued in countries on yet another list are also subject to mandatory verification. This list of countries is not made public, but is sent to banks and other credit institutions through their individual accounts on Rosfinmonitoring’s electronic system. This list may now include offshore jurisdictions. 

As is clear from the bill that the State Duma adopted on June 9, the obligations for banks may broaden significantly, as they will now have to conduct checks (that is, ascertain all the details of the sender, receiver, and their business relationship) when carrying out minor transfers.  

How does this threaten Russian citizens?

The authorities put organizations on the “undesirable” list according to totally opaque criteria, so it’s never clear when a person will unexpectedly be found to be a sponsor of one of these groups.

Furthermore, we don’t know whether or not lawmakers are thinking of using the data gathered by banks for purposes other than identifying the “intermediaries” helping “undesirable organizations” (remember that information on transfers must be kept for five years). There is also the possibility that laws countering foreign organizations’ “infiltration into the Russian Federation” will be tightened further. For example, a person can find themselves on Russia’s list of “foreign agents” just for receiving some foreign funding and writing something on social media.

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But even in its current form, the bill could cause a lot of inconvenience for Russian citizens. In all likelihood, banks will pass on a portion of the new additional costs to clients and increase their requirements for processing payments. And payments that are processed incorrectly (even small ones) will be blocked.  

What do the banks think about this?

Based on a review from the National Council on Financial Markets (an association of banks and other credit institutions set up for the purposes of interacting with the authorities), journalists from Kommersant reported that the banks think they won’t be able to ensure monitoring for small transfers by the time the law is set to come into force (October 1, 2021). As such, the banks proposed not checking payments amounting to less than 600,000 rubles or even less than 100,000 rubles. Otherwise, according to the bankers, they will have to scrutinize even a refund from a foreign online store or content provider. 

It’s also unclear how the banks are supposed to monitor transfers from a foreign card to a Russian one (p2p transfers): these include minimal information about sender and recipient, which means banks will have to demand additional data from the transaction’s participants or block the transfer.

The burden on departments involved in oversight will increase many times over (Alfa-Bank thinks it will grow ten times over; Sber says 24 times). According to the bankers, these verifications can’t be automated: the field in the SWIFT international system through which information on payments is reported has no clear structure and can be filled out in various ways. As such, the National Council on Financial Markets’s review concluded that banks are prepared to organize monitoring, but only from mid-2022 onwards.