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. Last Updated: 07/27/2016

Super Financial Watchdog In Works

Commercial secrets will soon be a thing of the past.

A financial watchdog with unprecedented powers to force corporations to hand over documents is to be set up to fight money laundering, a senior Finance Ministry official said Tuesday.

The new body's creation is part of an anti-money-laundering bill that President Vladimir Putin signed into law Monday and which comes into force in February, Deputy Finance Minister Yury Lvov said at a news conference.

"Banks, securities companies and others will be expected to directly inform this body, without withholding anything under the pretext of preserving commercial or state secrets," Lvov said.

"The structure will in turn guarantee that any information turned in remains confidential," he added.

Putin is to determine the form of the body and whether it is to be an independent agency or a structure within one of the ministries, Lvov said.

The body will require 50 to 200 employees and its creation will cost $6 million. Lvov said it would start operating by the end of 2002 and become fully operational in two years.

The new law, requiring banks to report large or suspicious transactions by their clients, will bring Russia into compliance with an international convention against money laundering.

"We have no doubts that we have become a worthy partner and we are sure there wasn't and there isn't a place for Russia on the blacklist," Lvov said.

Russia signed the convention in May 1999, but lawmakers took until last April to ratify the treaty, earning the country a slot on a blacklist of 15 nations deemed "non-cooperative" in the international effort to fight money laundering. The Group of Seven's Financial Action Task Force, or FATF, in June gave Russia until Sept. 30 to take steps against money laundering or face financial restrictions.

The law requires banks, insurance and leasing companies, brokerages and other financial institutions to report all cash transactions of more than 600,000 rubles ($20,500) by an individual or company. Transfers of amounts above that sum to or from suspicious locations such as off-shore zones will also be affected, as will transactions that are not typical of the individual's or company's activity. Purchases of real estate and antiques are excluded. The body is to report criminal transactions to the police.

The law also requires financial institutions to set up special departments to carry out the requirements.

If the body has sufficient evidence that an operation is linked to money laundering, it will have the right to question the relevant parties on the source of funds involved in the transaction.

Andrew Somers, president of the American Chamber of Commerce, said the new law should satisfy the FATF but went against the grain of other reforms.

"This legislation should go a long way toward changing the image of Russia, but the creation of another agency goes against the principle of the general process of reducing the number of bureaucratic bodies," Somers said. "But this issue is so important for creating the friendly investment environment for attracting capital that it is appropriate to have a special agency with power."

Jonas Bernstein, a senior Russia analyst with the Jamestown Foundation, a Washington-based think tank, said information obtained by the monitoring body could be misused.

"The likelihood that the new anti-money laundering body's powers will be misused is great, given that, as Putin himself admitted last year, powerful business interests continue to use the state apparatus, including the law-enforcement agencies, in their competitive struggles," Bernstein said. "So it's a fairly safe bet that at least some of the documents sequestered from companies will be used for extra-legal purposes."

Analysts were skeptical that the new law and body would be effective in increasing financial regulation.

"All illegal money is already off-shore, out of jurisdiction, and I don't think this body is particularly going to make a lot of difference," said Tom Adshead, an analyst at Troika Dialog.

Yury Korgunyuk of the Center for Applied Political Studies said the creation of a new body "is a typical, bureaucratic way of resolving a problem."

"In Soviet Russia, for example, when there was a lack of valenki [felt boots], the government immediately created a body responsible for valenki provision."