How to conduct KYC on Russian Counterparties ?
Doing business with Russian entities in non-sanctioned sectors of the economy requires some specific attention points regarding client due diligence (the risk exposure assessment process of clients to money laundering and terrorist financing).
Moreover, through the membership in the FATF, the Eurasian Group and the Council of Europe Committee of Experts on the evaluation of AML measures and the Financing of Terrorism, Russia indicates the common goal to combat AML and financing of terrorism. Recently, on 13 November 2017, the adoption of the beneficial owners disclosing procedure had been published.
A clear understanding of some basic principles will allow you to strengthen your processes. In Russia there are three main types of companies:

The General Participant’s Meeting (General assembly) is the highest governing body of an LLC, and almost all matters fall within its exclusive competence. Even if the LLC participants choose to create a board of directors, the General Participants Meeting has the power to limit the delegation of several matters to the board and as stipulated in the charter. The possibility exists to create a “supervisory board” and a “board of Directors”. This means that the identification of both governing bodies might be necessary over Client Due Diligence (besides the 25% UBO legal rule).

The joint stock company can be on the one hand an Open Joint Stock Company (OJS), or OAO in Russian, where shares may be publicly traded without the permission of other shareholders. An OAO can distribute its shares to an unlimited number of shareholders and sell them without limitations. On the other hand, we have a Closed Joint Stock Company (CJS), or ZAO in Russian, whose shares are distributed among a limited number of shareholders (maximum 50).
The JSC “organisation charter” must satisfy a number of requirements. In addition to the name and business address, the charter must specify whether the JSC is public or non-public and specify other provisions required by law. Both public and non-public JSCs must maintain a shareholder register in which the holdings of the shareholders are listed. A “licensed registrar" must perform this function. For KYC purposes, one can ask a declaration made by the licensed registrar. Eventually, it is possible to have two layers of governing bodies: a “supervisory board” and a “board of Directors”. A best practice is to have a copy of the charter in the KYC archive.
As in other countries, some of the above-mentioned companies might be “partially” state-owned corporations. In some cases, the JSC can be completely or partially owned by the federal government. In this case, politically exposed persons (PEPs) will probably be present in the Governing bodies and an Enhanced due diligence process will be applicable. The state will be one of the shareholders (both possible for OJS or CJS).

One partner can buy or sign contracts. So, what are the proxies for the company? The interaction between the Supervisory Board (Board of Directors) and the (Operational) Executive Board can be different from one company to another. If the counterparty is a Russian entity – we would advise to ask for a “translated copy” of the charter and/or a declaration of the General Manager/COO or CFO.
How to establish a company in Russia?
Establishing a company in Russia will start similarly to a company settlement in Belgium with the signing of a charter. In this charter, most of the basic principles on how the company will be organised will be written down. A copy of this document will allow an in-depth analysis of the corporate structure.What are Russian Customer Due Diligence requirements?
Nevertheless, we have to keep in mind that based on Transparency International’s corruption index, Belgium is ranked 15 out of 176 countries and that Russia is positioned 131. (See Transparency Index). The burden of regulatory compliance is getting stronger in an interconnected environment. Getting a view on the different aspects can be a benefit to the understanding of your professional relationships.
- Customer acceptance policy and the related AML Matrix Risk Score system meeting regulatory requirements
- Corporate Governance
- Ultimate Beneficial Owner (UBO) and Political Exposed Person (PEP) identification procedures
- Monitoring transaction detection scenarios
- Entreprise Wide Risk Assessment
- Compliance framework and Regulatory Watch solution
- Screening tools adapted to your business model
- Formations & Trainings on AML and financial crimes topics
- Participants filtering with international sanctions lists and embargoes
- Review of the KYC register
- And many other topics