Russian Anti Money Laundering Law Developments

August 2004

Russia has recently further amended its Federal Law On Counteraction of Legitimization (Laundering) of the Proceeds of Crime and Financing of Terrorism, of 7 August 2001 (the "Law"). The amendments were signed into law on 28 July 2004 and published in Rossiiskaya Gazeta on 31 July 2004. They took effect 30 days after publication - 31 August 2004.

The amended Law tightens the anti-money laundering regime in Russia. Below we briefly describe some of the most notable changes:

Requirements Applicable to Lawyers and Accountants

The amended Law broadens the list of organizations that are subject to the Law's requirements to disclose information about certain categories of transactions to the Financial Monitoring Service of the Russian Federation (the "Service"). In addition to banks, other credit organizations, securities brokers and dealers, insurance and leasing companies, postal and telegraph companies, and certain other noncredit organizations that conduct money transfers, organizations subject to the Law now include real estate agencies and advocates, notaries and organizations providing legal and accounting services.

The new Article 7.1 of the amended Law requires that advocates, notaries and organizations providing legal and accounting services must undertake the following compliance steps:
(i) identification of the client;
(ii) organizing of internal controls; and
(iii) recording and safekeeping of the documentation.

The above requirements apply to the abovementioned persons if they prepare or fulfill on behalf, or at the request, of a client the following transactions:
(i) transactions with immovable property;
(ii) management of cash funds, securities or other property of the client;
(iii) management of bank accounts or securities accounts;
(iv) raising funds (attraction of financial resources) to create an organization, to support (maintain) its activity or to manage it; and
(v) creation of organizations, supporting (maintaining) their activity or management thereof, as well as the sale and purchase of organizations.

In addition, an advocate, notary or legal or accounting service provider must report to the Service if it has reason to believe that any transaction or financial operation listed above is conducted or may be conduced for money laundering purpose.

The new requirements resemble similar legislation applicable to financial service-related businesses (including law firms) in the United Kingdom.

New Transactions Subject to Mandatory Control

The amended Law also expands the list of operations subject to special scrutiny by the Service. In addition to certain operations that are equal to or exceed 600,000 Rubles (about US$20,200 at current exchange rates), certain cash operations, transactions with accounts held anonymously, operations by legal entities registered within the past three months, and financial leasing operations, the amended Law now includes among the matters subject to reporting interest-free loans that equal or exceed 600,000 Rubles by or from a non-credit organization, and transactions with immovable property that equal or exceed 3 million Rubles. It should be noted that notwithstanding the new requirements only "suspicious" transactions are subject to reporting.

This is an important development that places lawyers and accordingly law firms on a heightened level of alertness and it will be interesting to see how these new requirements will be observed and enforced.

 

Author: Brian Zimbler, Vasilisa Strizh.

This article appeared in the October 2004 edition of Russia/Eurasia Executive Guide.