Deutsche Woche 2014, St. Petersburg, 25.04.2014

Alexander Mosyagin

Deputy Chairman of Commerzbank (Eurasija) SAO

Latest developments in Russian anti-money laundering (AML/CFT) legislation

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1. Introduction Commerzbank in Russia

2. AML as part of compliance in Russian banks

3. Client’s Beneficial Owners

4. KYC Procedure

5. Payment refusal, assets freeze & account closure

Agenda

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• Commerzbank (Eurasija) SAO is a 100-percent subsidiary of Commerzbank AG

• Operates in Russia since 1999 (since 2001 licensed to open private accounts)

• In 2010 merged with Dresdner Bank (since 1993 present in Moscow & St-Pet)

• Core business: Corporate Banking

• Core clients: German enterprises + Russian companies having connectivity (e.g. franchise, export or import) with German-speaking countries & Poland

• Assets as of 1.01.14: RUB 42.4 bn

• Capital as of 1.01.14: RUB 12.8 bn

• Staff: 140 in Moscow & St-Pet (branch)

1. Introduction Commerzbank in Russia

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2. AML as part of Compliance in Russian banks

In contrast to German Geldwaeschegesetz Russian AML/CFT rules are strictly formalized Banks to report to ‘watchdog’ not only suspicious, but also ‘mandatory-controlled’ transactions, e.g.:

• Bank account debit/credit in the amount of RUB 600k or above if the company-account holder has been existing for less than 3 months (incl. due to reorganization)

• Acceptance or transfer of leased assets having a value of RUB 600k or above• Lending/borrowing of interest-free loans from RUB 600k and above by non-banks• Transactions for ownership transfer over real estate having a value of RUB 3m or above

Violation of reporting requirements (incl. minor issues: 1-2 day delay, mistypes in message fields) leads to sanctions imposed by CBR against both banks and their employees

Compliance in banks

AML/CFTSanctions &Embargos

Fraud Prevention

SecuritiesCompliance

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3. Client’s Beneficial Owners

As of 01.07.2013 Russian AML Law introduced ‘Beneficial Owner’: an individual who directly or indirectly holds or controls 25% or more shares or voting rights in the corporate client or is able to control client’s actions, i.e. valid for individual clients as well

Beneficial Owners (BOs) must be disclosed by the client to bank as part of KYC check. Exemptions:

• government (federal and local) authorities, institutions subordinated to government, public legal entities or companies where Russia or its region owns more than 50 % shares

• international organizations, foreign states or their political units• public companies listed on Russian stock exchanges

Client BO identification process includes two steps:Client BO identification process includes two steps:1)1) detection of BOs based on the client’s written disclosuredetection of BOs based on the client’s written disclosure2)2) verification by bank of BOs identity based on ID copiesverification by bank of BOs identity based on ID copies

ProblemProblem: what to do if client has no access to ID of its BOs?: what to do if client has no access to ID of its BOs?personal data protection?personal data protection?

A bank may not outsource BO identification to third parties, except in cases when individuals A bank may not outsource BO identification to third parties, except in cases when individuals

transfer money without opening a bank accounttransfer money without opening a bank account

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4. KYC procedure

KYC = banks to identify clients, their representatives, beneficiaries and BOs + collect and file client-related data and documents to ensure AML Law compliance

Banks must undertake KYC check before opening a bank account/ entering into a contractual arrangement

New: Clients have to disclose the purpose of setting business relationship + planned business volume (e.g. bank account turnover) + latest financial statements + third parties references to confirm their business reputation

Bank must undertake AML risk assessment based on its risk-scoring model; high-risk criteria are prescribed by CBR

KYC data collected by bank and AML risk assessment must be reviewed min once a year for all AML risk levels!

If bank reveals that KYC data is incorrect or outdated the bank has 7 business days to remedy it

Beneficiary (= principal under agency/commission/trust arrangement) must be identified prior to opening a bank account or, if newly appeared in specific transaction, within 7 business days since the effective date of this transaction

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5. Payment refusal, assets freeze & account closure

Banks received legal tools to prevent their involvement in AML/CTF activities

Refusal to open an account if bank employees become suspicious that the purpose of such account is money laundering or terrorism financing

Refusal to perform client payment instruction which is not justified by legal documents requested by bank or if bank employees become suspicious that the payment is made for money laundering or terrorism financing purpose

Termination/closure of bank account in case of 2 or more bank’s refusals to perform client payment instruction within the same calendar year (60 day prior notice to be served)

Freeze of account balance and other assets of black-listed (i.e. allegedly involved into terrorist or extremist activities) persons held by the bank

Special accountSpecial account to be opened with CBR to be opened with CBR where unclaimed money have to be where unclaimed money have to be transferred into after bank account closure transferred into after bank account closure

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Open questions

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Thank you very much for your attention!