Banks start categorizing clients based on their risk level, following the guiding principle of a lighthouse.
Russia's latest anti-money laundering (AML) platform, known as "Know Your Customer" (KYC), has commenced operations as of July 1. This initiative aims to reinforce identity verification and ongoing monitoring processes for companies and individual entrepreneurs, with significant consequences for non-compliance.
### Key KYC Requirements
The new platform mandates several changes to the way businesses operate, including:
1. **Customer Identification and Verification**: Before establishing any business relationship, companies and entrepreneurs must verify the identity of their clients, ensuring accurate customer profiles are created. This includes verifying citizenship, residency, ownership structures, and beneficiary details.
2. **Expanded Scope of Politically Exposed Persons (PEPs)**: The definition of PEPs has been broadened to cover a wider range of domestic and foreign political figures. Enhanced due diligence is mandatory regardless of the origin of funds when dealing with such individuals.
3. **Ongoing Monitoring**: Compliance shifts from a one-time onboarding check to continuous, dynamic monitoring of customer transactions and behavior patterns. Companies are obliged to track changes in client risk profiles persistently.
4. **Third-Party Reliance Rules**: Financial institutions or intermediaries relying on third parties for KYC processes face clearer delineation of responsibilities and liabilities if verification standards fail. This means firms must ensure third-party compliance rigorously.
5. **Sanctions Screening**: There is increased emphasis on screening against sanctions lists relevant to Russia, including more stringent name-matching protocols and frequent list updates. Ultimate beneficial ownership identification is critical, especially amid international sanctions related to Russia.
6. **Use of Advanced Technologies**: The adoption of technologies such as blockchain and artificial intelligence (AI) is encouraged to streamline KYC processes, reduce redundancy, and improve data security and sharing across institutions.
### Consequences for Non-Compliance
Entities found non-compliant with the KYC obligations risk facing fines, legal sanctions, and operational restrictions, particularly in sensitive sectors like finance and trade. Failure to adhere to strict KYC and AML rules may lead to reputational harm, loss of business partnerships, and exclusion from international financial markets.
Entities are subject to heightened reporting requirements, especially regarding transactions linked to politically exposed persons and Russian-owned entities, which can trigger investigations for sanction breaches or money laundering. Firms may face bans or restrictions on certain financial activities, including limitations on correspondent banking relations or restrictions on handling assets related to prohibited entities or jurisdictions.
These measures align Russia’s AML and KYC framework with global standards amid tightening international sanctions and the growing use of technology in compliance operations. The platform enhances both preventive due diligence and ongoing supervisory control, with a clear focus on addressing risks associated with politically exposed persons, sanctioned entities, and cross-border financial flows.
- In the context of the new "Know Your Customer" (KYC) platform in Russia, businesses must now verify the identity of clients, including citizenship, residency, ownership structures, and beneficiary details, as part of the customer identification and verification requirement.
- As part of the expanded scope for Politically Exposed Persons (PEPs) in Russia, financial institutions must conduct enhanced due diligence when dealing with a broader range of domestic and foreign political figures.
- Under the ongoing monitoring requirement, companies are now obliged to track changes in client risk profiles persistently, shifting compliance from a one-time onboarding check to continuous, dynamic monitoring of customer transactions and behavior patterns.
