Financial transactions with Ukraine now subject to stricter monitoring (01/26/03)

Financial transactions with Ukraine now subject to stricter monitoring

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Even as Ukraine made a belated effort on January 16 to avoid implementation of a stringent regime of compliance by Western countries by passing additional anti-money laundering measures, Germany announced it would begin strict monitoring of all financial transactions with Ukrainian commercial banks that exceeded 15,000 euros ($16,000). Four days later Great Britain announced it had ordered all correspondent banks to temporarily halt operations with Ukrainian partners.

The action by FATF member-countries comes amid claims by Ukrainian government officials that oversight procedures, which are effectively economic sanctions because they damper financial transactions, are not warranted.

"There are no large-scale money laundering operations in Ukraine," said Viktor Suslov, chairman of the State Committee on Financial Market Regulation. "In the last years there has been a drain of large amounts of finances from Ukraine, which have been laundered outside the country."

The monitoring procedures come a month after the Financial Action Task Force (FATF), an international agency made up of 29 member-countries that monitors financial transactions and money-laundering schemes, decided that Ukraine had failed to pass legislation that assures it adheres to new Western banking standards on fighting international money laundering.

The FATF officially blacklisted Ukraine and recommended that members closely scrutinize financial transactions with the country. It suggested that members proceed from a presumption that all movement of money from Ukrainian banks is suspect. The FATF had previously warned the country about the need to pass anti-money laundering legislation and had set a deadline of December 19, 2002, some months ago.

Ukraine's Verkhovna Rada had passed an initial law "on prevention and counteraction of the legalization of proceeds from crime" on November 28, 2002, which it based on the internationally recognized Strasbourg Convention, incorporating 40 recommendations to prevent money laundering. President Leonid Kuchma signed the bill into law on December 7.

Western financiers, however, found the legislation deficient because it failed to address criminal penalties for those violating its provisions. Ukraine also had yet to pass a law on banks and banking that assured that financial institutions would be more transparent in identifying clients that transferred large sums of moneys abroad.

On January 16 the Verkhovna Rada changed the Criminal Code to make money laundering a criminal offense punishable by three to six years of incarceration, with an additional two-year ban on a convict returning to the type of work that led to the charges, as well as confiscation of money and property associated with the laundering operation.

The same day, the Parliament also passed the initial version of an addendum to the banking law that would force commercial banks to name their clientele and require the National Bank of Ukraine to carry out inspections of its client banks at least once annually.

Interfax-Ukraine reported that Ukraine's VA Bank and Credit Bank both stated on January 20 that they had received information that at least one British clearing bank would close its correspondent accounts with Ukrainian banks because the financial flow was sufficiently insignificant to make it not worth performing the additional monitoring required by the FATF.

Also on January 20, the British Treasury issued a directive on a severe regime of control over financial transactions with Ukraine in which it recommended that: "UK financial institutions should take additional measures to ensure that transactions involving Ukraine domiciled institutions and persons are fully scrutinized. Unless there is convincing evidence that the transaction is legitimate in nature, the presumption should be that the institution will make a suspicious transaction report to the National Criminal Intelligence Service on all Ukraine-connected transactions."

Germany announced the same day that it, too, had taken up FATF recommendations and would scrutinize all financial transactions with Ukrainian commercial or private entities for possible money laundering attempts, particularly those in excess of 15,000 euros. It also said that it could suspend servicing Ukrainian-issued credit cards.

Two other FATF member-states, Canada and Turkey, also announced special countermeasures against Ukraine.

The United States had expressed its intention to introduce monitoring procedures in the first days after the FATF announcement on December 20, 2002. Washington said at the time it would limit financial transactions between Ukraine and the U.S. to $50,000 and would scrutinize all bank accounts in the U.S. held by Ukrainian citizens.

On January 22, the National Bank of Ukraine requested that all commercial banks under its jurisdiction promptly inform it of any foreign banks that close correspondent accounts, refuse to carry out financial transactions, block assets, or request additional information on the financial institution or its clients. The NBU also urged Ukrainian commercial banks to contact their correspondent banks in the West to request clear information on what anti-money laundering procedures they needed to implement to continue normal relations.

The same day, the European Bank for Reconstruction and Development, which has extensive financial dealings with the Ukrainian government, told Interfax-Ukraine it believed its current anti-money laundering policy to be sufficiently effective and therefore was not planning to institute special measures to monitor Ukraine.

In the wake of the Western banking quarantine placed on the country, the Ukrainian government remained optimistic that the economically stifling measures would be short-lived and temporary. Minister of Foreign Affairs Anatolii Zlenko issued a statement on January 22 in which he said the government expected the problem to be resolved in mid-February.

"We need to cooperate to find a way out of this complicated situation and need to do everything to have the FATF remove its recommendations," stated Mr. Zlenko.

He suggested that Ukraine would have its best chance to restore normal financial relations with Western banks by putting together a strong case to present at the next FATF meeting, where it could show that Ukraine has fully, albeit belatedly, instituted anti-money-laundering procedures that meet Western standards. That meeting is scheduled for February 12 in Paris.

Mr. Zlenko added that Prime Minister Viktor Yanukovych was to address the subject during the annual World Economic Forum in Davos, Switzerland, slated to begin on January 25. First Vice Prime Minister Mykola Azarov also had it on his agenda for his visit to Washington and New York, during which he is to meet with U.S. government officials, as well as representatives of the World Bank and the International Monetary Fund. The visit is scheduled to begin on January 27.

| Home Page |