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C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 000342 
 
SIPDIS 
 
DEPT FOR EUR/RUS, EEB 
TREASURY FOR TORGERSON/WRIGHT 
DOC FOR JBROUGHER 
NSC FOR MMCFAUL 
WHITE HOUSE FOR USTR EHAFNER 
 
E.O. 12958: DECL: 02/12/2020 
TAGS: EFIN EINV PTER RS IR
SUBJECT: RUSSIA CBR DEPUTY DISCUSSES IRAN, FINANCIAL 
LEGISILATION, AND REGULATORY DEVELOPMENTS 
 
REF: A. MOSCOW 2889 
     ¶B. MOSCOW 228 
     ¶C. MOSCOW 79 
 
Classified By: EconMinCouns Matthias Mitman for reasons 1.4(b) and (d). 
 
1.(C) Summary: Central Bank Deputy Chairman Melnikov briefed 
us on plans to lead a banking delegation to Iran, increased 
cooperation with Russia's markets regulator, new anti-money 
laundering legislation, CBR's financial transaction remote 
monitoring system, and potential "soft measures" against 
speculative capital.  EconMinCouns expressed concerns with 
pending National Payment System legislation that would hurt 
both American credit card companies and the GOR's ambitions 
to make Moscow an international financial center.  End 
Summary. 
 
Bankers' Trip to Iran Postponed 
------------------------------- 
2.(C)  On February 11, EconMinCouns met with Central Bank of 
Russia (CBR) Deputy Chairman Viktor Melnikov, who heads CBR 
departments on anti-money laundering (AML) and capital 
controls. EconMinCouns asked Melnikov about press reports 
that that a delegation from state-owned banks, led by 
Melnikov, was to travel to Iran in order to "resolve banking 
issues and facilitate exchange and economic and trade 
activities between the two countries."  Melnikov said that 
the trip had been prepared by Chamber of Trade and Commerce 
President (and ex-PM) Yevgeny Primakov, but that the trip had 
been delayed.  While not directly explaining the purpose of 
the trip, Melnikov said that the clearing of foreign trade 
transactions in local currencies was a "live subject" for the 
GOR.  Local currency clearing was already happening with 
China, he said, and the GOR was in discussions with India and 
Turkey as well.  The impetus was to reduce currency risk in 
foreign trade because of the volatility of the euro and 
dollar, to which the ruble is loosely pegged.  Melnikov 
opined that authorities such as the CBR should create a 
framework and mechanisms for local currency clearing.  Then 
merchants should decide for themselves how to reduce their 
currency risk, whether that means hedging, dollars, or local 
currency clearing.  He noted that about 30% of trade with CIS 
countries is done in rubles. 
 
3.(C) Melnikov said that he had the responsibility at the 
Central Bank for ensuring economic sanctions are implemented. 
 He follows this issue very closely and takes his 
responsibility seriously, he stressed.  He added that he was 
not aware of any Russian banks breaking existing financial 
sanctions against Iran. 
 
CBR Increasing Cooperation with Markets Regulator 
--------------------------------------------- ---- 
4.(C)  Russian daily Kommersant reported in late January that 
the head of the Federal Service for Financial Monitoring 
(FSFM -- the markets regulator) Vladimir Milovidov had met 
with PM Putin to inform him that the FSFM, with help from the 
CBR, revoked the licenses of about 30 professional securities 
markets participants for AML violations.  Melnikov laughingly 
said that Kommersant did not know the full story, adding, 
"the meeting (between Milovidov and Putin) did not happen by 
chance."  He explained that the CBR had detected AML 
violations among market participants and brokers and had 
notified the FSFM, which then investigated and revoked the 
licenses. 
 
5.(C)  Melnikov told us that cooperation between the FSFM and 
the CBR, not normally very strong, had intensified in the 
last two or three months.  To strengthen this further, the 
FSFM and CBR are preparing an MOU to make the sharing of 
information automatic between the two regulators.  Finally, 
Melnikov said that the CBR supports the FSFM's desire to sign 
an MOU with the US Securities and Exchange Commission, as 
reported ref A.  (Note: Post requested EUR/RUS check with the 
SEC about the possibility of an MOU with the FSFM.) 
 
AML/CT Legislation to Clarify "Beneficial Owners" 
--------------------------------------------- ---- 
6.(C)  One hole in the GOR's AML legislation, according to a 
2009 report from the Eurasian Group on combating money 
 
MOSCOW 00000342  002 OF 002 
 
 
laundering and financing of terrorism (EAG), is that the term 
"beneficial owner" (i.e. the person on whose behalf a 
transaction is conducted) is not clearly defined.  Bank chief 
compliance officers have told us that as a result smaller 
banks in particular do not properly look into who the 
beneficial owner is in financial transactions.  CBR Deputy 
Department Director Ilya Yasinky explained the GOR's efforts 
to rectify this problem, starting with the 2004 AML/CT 
amendment that elucidated the "who benefits from the 
transaction" aspect of beneficial owner.  The second aspect, 
which he called "the real owner," has been addressed in a new 
law written with CBR participation.  This law was presented 
to the Duma and so far has passed its first reading. 
According to Yasinsky, once this law passes, the "beneficial 
owner" concept will be legally defined in accordance with 
FATF recommendations. 
 
CBR's Remote Monitoring System 
------------------------------ 
7.(C)  Melnikov expressed pride in Remote Monitoring System 
for financial transactions that the CBR developed.  He said 
that the system monitors all kinds of domestic financial 
transactions, including 3 million per day in Moscow alone. 
The system looks at 15 characteristics of transactions, and 
when seven or eight criteria are met and the system raises a 
flag, the CBR does an unscheduled inspection of the financial 
institution in question.  Melnikov further elaborated that 
money-laundering schemes in Russia had been changing every 
couple of months and now change every half year, but they 
have the same components arranged differently.  Red flags 
include when a lot of money is going through an account held 
by a company with negligible capital and almost no employees, 
or a so-called "transit account" in which 80% of the money 
immediately leaves after being deposited.  He claimed that 
U.S. regulators rely too heavily on what companies' chief 
compliance officers report, a mistake that the CBR is not 
making.  Melnikov offered to share CBR's remote monitoring 
software with other countries, saying that countries with 
large economies would especially benefit. 
 
Speculative Capital 
------------------- 
8.(C)  Finance Minister Kudrin among others has said that 
"soft measures" might be imposed to limit the inflow of 
speculative capital.  EconMinCouns asked about the kinds of 
measures the CBR had under consideration.  Melnikov stated 
that if the G20 recommended a Tobin Tax (i.e. a tax on 
foreign currency exchanges), Russia would probably join this 
initiative.  He said that in 2008, the foreign debt of 
Russia's private companies peaked at too high a level, and 
that situation should not be allowed to repeat.  However, he 
added that CBR First Deputy Chairman Ulyukaev had the lead on 
monetary policy, while Melnikov himself was involved in 
implementation and played no policy role. 
 
National Payment System 
----------------------- 
9.(C)  EconMinCouns expressed concerns with the draft 
legislation on the National Payment System, noting that 
cutting off Russia from the international payment card 
infrastructure would hurt average Russians and hamper GOR 
efforts to make Moscow an international financial center 
(refs B and C).  Melnikov said he understood that the banning 
of offshore payment transaction processing was an issue. 
While Russia's national interests take precedence, he 
predicted that "some sort" of compromise would eventually be 
found.  (Note: President Medvedev's deadline for this 
legislation to go through the GOR's interagency process and 
be submitted to the government has been extended to April 1.) 
Beyrle