Rada adopts money-monitoring provisions in hopes of avoiding international sanctions (01/05/03)

Rada adopts money-monitoring provisions in hopes of avoiding international sanctions

by Yarema A. Bachynsky
Special to The Ukrainian Weekly

KYIV - In a move that is likely to keep Ukraine's economic fat away from the fire of potentially tough economic sanctions, Parliament on December 24 adopted a series of amendments to the recently passed anti-money laundering law that had been deemed substandard by the Financial Action Task Force, the international body charged by its 30 member-countries with battling the worldwide movement of funds obtained from illegal activities such as narcotics trafficking, arms smuggling, as well as those destined for terrorists.

With 396 "ayes," the vote represented record approval for substantive legislation of this kind, according to the Parliament newspaper Holos Ukrainy (Voice of Ukraine).

The decision to comply with FATF requirements was made after that organization announced on December 20 that it was recommending its members adopt tough controls on transactions with Ukrainian banks - measures that could include the closure of correspondent bank accounts in FATF countries as well as warnings to potential investors about alleged additional risks of doing business with Ukraine.

President Leonid Kuchma praised the Rada's action at a press conference on December 25, although he added that the national deputies were, in his opinion, too slow adopting what he called crucial changes, and that, as a result Ukrainian enterprises might nonetheless feel the pinch of sanctions from some FATF member-countries.

The amendments adopted require banking institutions to monitor "questionable" transactions, which include international wire transfers in amounts of $50,000 or more. Banks will also be required to notify a central financial monitoring body, as well as other law enforcement organizations, on demand, of such questionable and other transactions.

Such measures had been vehemently opposed by many opposition deputies, who claimed that their adoption would give the government additional mechanisms to meddle with the legitimate business activities of enterprises whose owners are supportive of such political forces as Our Ukraine, led by Viktor Yushchenko, former prime minister and likely 2004 presidential contender.

On December 19, the day before the FATF announced its sanction recommendation, Mr. Yushchenko had said his caucus would not support the proposed changes because of the potential for abuse by state authorities. During debate on the draft amendments, Our Ukraine Deputy Serhii Teriokhin, in voicing his opposition to the bill, said he thought the likelihood the United States and other FATF members would actually impose sanctions should Parliament fail to adopt the measures was minute.

However, other Our Ukraine deputies, including banker Viktor Kapustin of the Finance and Banking Committee, had implored their colleagues for weeks on end to adopt the FATF-required measures. Pro-presidential deputies were generally in favor of the proposed provisions all along during the debate, which was at one point frozen for several days as the nine majority factions and the opposition four dueled for control of committee chairmanships and over the fate of Volodymyr Stelmakh, now ex-chairman of the National Bank of Ukraine and a Yushchenko ally.

Local analysts generally agreed that the likelihood of actual enactment of specific sanctions by FATF member-countries would have, at worst, a limited effect on the Ukrainian economy, insofar as that body is likely to review the sanction issue at its upcoming meeting in February. How the enacted amendments work as a matter of practice will become apparent quickly as well, and their enforcement is sure to be monitored closely by interested parties, both international and local.

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