Photographer: Andrey Rudakov/Bloomberg

The Latest Weapon Russia Is Wielding to Punish Wayward Banks

  • Central bank planning to reduce reporting burden, raise fines
  • More than quarter of banks shut down amid unprecedented sweep

After felling more than a quarter of its banks, Russia wants to make sure the survivors get more than a slap on the wrist for flouting the rules.

As part of its campaign against money laundering, the Bank of Russia is taking a page from the playbooks of regulators in the U.S. and Europe. It’s now planning to reduce the reporting requirements on lenders while increasing the punishment for getting caught, Deputy Governor Dmitry Skobelkin said in an interview in Moscow.

“We are prepared to reconsider that approach,” Skobelkin said. “But in that case we need to raise responsibility proportionally.”

Unlike the billions of dollars in penalties imposed for infractions on U.S. and European banks, Russia hasn’t leaned heavily on fines during an unsparing purge of the industry by Governor Elvira Nabiullina. Even after reducing what it calls illegal capital flight to 64 billion rubles ($1 billion) in the first quarter, less than than half the level a year earlier, the Bank of Russia is asking lenders to commit to cutting operations that have hallmarks of money laundering by 20 percent every quarter, according to Skobelkin.

Nabiullina’s Cleanup

The financial industry is fighting a crisis as asset quality worsens during the second year of recession, the longest since President Vladimir Putin came to power. Regulators have been hunting down banks deemed mismanaged or under-capitalized, with Nabiullina shutting down more than 250 banks since her appointment in 2013 to restore the system to health.

With the closures, the number of banks suspected of a large share of dubious transactions has fallen to five at the end of the first quarter from 150 in mid-2013, Skobelkin said. The regulator defines “dubious operations” as fake trades or loans used to move money abroad.

“The shadow economy continues to need financial support, and we can only say that there’s less support from banks now,” Skobelkin said.

Going Easy

But the regulator has been reluctant to use big fines, relying on stringent reporting requirements to monitor activities. After Deutsche Bank AG identified suspicious transactions that moved as much as $10 billion out Russia from 2012 to 2014, the central bank responded with a fine of less than $5,000, people with knowledge of the matter said last year.

While the German lender was fined 300,000 rubles for reporting lapses related to the money-laundering case, it’s still under investigation in London and New York. It set aside about 5.5 billion euros ($6.1 billion) in 2015 for potential liabilities, including penalties related to the Russian trades.

Under new rules that may go into effect within a year, banks will no longer be mandated to report client deals related to leasing and real estate or settlements, Skobelkin said. There are more than 200,000 related notifications a year. Russia’s anti-money laundering authority, Rosfinmonitoring, said it received over 9 million statements from banks last year, up from 6.9 million in 2014.

The number of mandatory reports has steadily grown, and the central bank’s decision to reduce the required notifications would be the first such move, according to Promsvyazbank PJSC, a top-five private lender.

Still, a slight reduction in required reports wouldn’t provide much relief, its press service said. If the regulator switched from the current system to one that audits unusual operations, higher penalties would be justified, Promsvyazbank said.

‘New’ Life

The central bank has begun setting higher fines. The record, imposed on an unidentified bank by the regulator this year, amounted to “several million” rubles, according to Skobelkin. The large lender that paid it is now enjoying a “new, more correct life,” he said.

“It was a useful lesson,” he said. “No one can prevent us from giving out large fines in the future.”

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