New amendment drafts on anti-money laundering and illegal funds transfer abroad, have been approved and presented to the government, three federal officials told Vedomosti. The amendments, initially drafted by Rosfinmonitoring, have been doing the ministerial approval rounds since March, including Minfin, the Minsitry for Economic Development, the Interior Ministry, the Federal Tax Authority and the Central Bank. The bills were initiated by ex-Vice Premier Viktor Zubkov, who estimated illegal financial transactions at 2 trillion roubles in 2011: roughly half were illegal transfers abroad, the other half was illegal cash withdrawal. Officials decided to counter this with simplified bank data access for controllers, according to the approved amendments.

For instance, amendments to Article 86 of the Tax Code allow the taxman to request private individuals account information (balance and transactions) from banks without court order. The deadline for reply is three days, and a security check is sufficient grounds for the request. Corresponding amendments have been introduced to Article 26 "On Banks and Banking", which regulates banking secrecy.

Amendments to the Anti-Money Laundering Law require banks to collect information on beneficiaries of corporate clients and disclose it to Rosfinmonitoring. The term "beneficiary" is subject to extremely broad interpretation: a private individual directly or indirectly, acting separately or as part of a group of affiliates, capable of determining client actions. The government has the right to refine the criteria and develop the beneficiary identification procedure, while the Central Bank is authorised to do so for banks and brokers. Essentially, Rosfinmonitoring turns into a data center, with the possibility of forwarding collected data to law enforcement and tax agencies. The latter have wider powers: including the right to litigate for damages and initiate subsidiary liability proceedings against founders, owners and beneficiaries. Lawsuits can be brought even now, but their outcome is unpredictable due to unclear laws, says Federal Tax Authority official, while the amended version will allow to use this option frequently.

In the tax official`s opinion, the proposed amendments are logically connected. Illegal transactions run through fly-by-night operations, their directors are useless to prosecute and they are incapable of paying damages. Therefore, banks are requested to supply beneficiary data, including accounts, so that lawsuits could be filed against them. The need for litigation frequently arises not only in fly-by-night cases, says Vedomosti source: asset stripping and bankruptcy is a common scheme, making it impossible to collect already accrued taxes for the budget. Arbitration manager Evgeny Semchenko says that the new amendments significantly improve the chances of suing owners of bankrupt companies. They can be sued if the company loses its accounting documents or executes contracts that lead to material damage for creditors. Still, with no clear definition of "material damage", creditors or tax authorities are armed with a strong weapon — any liability increasing contract could serve as grounds for litigation against owners, says Semchenko. And in this case, the burden of proof lies with shareholders, not suitors.

Along with fly-by-nighters, the disclosure of personal accounts by banks could hit medium and small businesses who receive income by loans from offshore subsidiaries, says Deputy Director of DS Express Consulting Alexander Zakharov. New laws make interest-free or below-market-rate loans over 600000 roubles subject to control.

Partner at Taxadvisor Dmitry Kostalgin fears that if tax collectors are given a private financial data request mechanism as simple as this, taxmen could start fishing for info on high net worth individuals.

More administrative powers is not all the new amendments are about. There will be more opportunities to apply the Criminal Code to financial transactions. Today, money laundering (Article 174, up to seven years in prison) does not cover funds received by commiting tax and customs offences (six Code articles), while the amendments omit this exception. A new crime has emerged — the use of forged documents in currency transactions with non-residents (Article 193.1). The limit for non-repatriation of currency income becoming a criminal offence is down from RUB 30mn to RUB 6mn, and the maximum prison sentence is up from three to five years.

Partner at Nalogovik Legal Advisors Roman Terekhin says that the amendments will automatically add laundering to tax and customs offences, as is the case with other criminal economic offences, and thus a fine or a suspended sentence is not good enough any more. The worst repercussions could follow from the new Article 193.1, he thinks: easy to file a suit, suitable for most currency transactions if you take the contract from the bank and find "forgery". Even if the case is destroyed in court, the investigation will yield enough leverage for the police to put pressure on the business, says Terekhin.

Banks, whose cooperation is required for the amendments to work, are wary of the amendments. Partly tax authorities delegate their work to the banks, which means infrastructure investment and could potentially ruin client relations, says Senior VP at Investbank Vladimir Pakhomov. "Despite the good intentions, the state tends to use its favourite time-tested tool -- the hammer", he says of the initiative. Head of Financial Monitoring and Currency Control at Absolut Bank Sergey Avramenko foresees more litigation risks for banks and possible misunderstandings with controllers. For instance, banks will send mandatory requests for beneficiary info, but nobody knows how to proceed if the client refuses to cooperate.

Dmitry Kazmin, Tatiana Voronova

Project Group №1