Will Ukraine be admitted to FATF as an observer?
In a little while Ukraine will forget what the Financial Action Task Force on Money Laundering (FATF) is all about. As was made clear from a letter from FATF President Claes Norgren to Ukraine’s Prime Minister Viktor Yanukovych and First Vice-Premier and Minister of Finance Mykola Azarov, this organization is going to discuss granting Ukraine observer status at the next plenary meeting in June. “The political statement of Ukraine’s government on improving its anti-money laundering system will be brought to the attention of FATF’s next plenary session participants,” the First Vice-Premier’s press service announced, citing Mr. Norgren’s letter. The service claims the FATF president greatly appreciated Ukraine’s efforts to develop and improve the national system of combating money laundering and terrorism funding, as well as this country’s concrete actions to implement FATF’s forty new recommendations.
Yet, there are some snags in this process. For instance, the other day Association of Ukrainian Banks (AUB) leveled sweeping criticism at the bill “On Making Amendments to Some of Ukraine’s Legislative Acts Dealing with the Prevention of Legalization (Laundering) of Criminally-Gained Incomes and of Funding Terrorism” proposed by People’s Deputy Serhiy Osyka. The AUB considers this law “dangerous for society” because it does not safeguard the constitutional rights and freedoms of individuals and corporations. As proof of this, the association claims that the proposed amendments to Article 209 of Ukraine’s Criminal Code will greatly increase the number of offenses punishable under the Law of Ukraine “On Preventing and Countering the Legalization (Laundering) of Criminally-Gained Incomes” (hereafter, anti-laundering law). The statement points out that this category of crimes will also include as a rule misdemeanors normally committed by individuals with a low regard for the law, and it will be possible to prosecute people for crimes that are more serious than the ones they have actually committed.
The AUB notes that the bill considerably increases the rights of the State Department for Financial Monitoring (SDFM) and will destroy the existing law’s principles of dealing with the subjects of primary financial monitoring. In the AUB’s opinion, this will not only duplicate the functions of a similar National Bank of Ukraine unit, but will also place an additional financial burden on the national budget.
In particular, the bill obliges banks to determine whether an individual is a political figure, to obtain permission from the subject of primary financial monitoring to establish business relations with such individuals, and to trace the sources of their income, etc. The bill also suggests complementing the anti-laundering law with a clause allowing a bank to discontinue a financial operation if reasonable suspicion arises that it can be linked to the legalization (laundering) of illegal incomes. If introduced, this clause will make banks responsible for any losses (damage) inflicted on participants of a financial operation because, as the AUB notes, “reasonable suspicion” is too vague a term. The association believes that the SDFM should be granted the right to discontinue a financial operation only in the event that the budget provides funds to compensate entrepreneurial entities for losses (damage), if it is subsequently determined that the discontinued financial operation had nothing to do with money laundering.
The AUB concludes that the bill’s provisions are not only out of line with the constitutional principles of a rule-of-law state, but can also entail additional budgetary spending and numerous court actions that will force banks to make unreasonable disclosures of secrets and to sustain the resulting losses.
FATF has struck Ukraine off the “black list” of countries that are not combating money laundering. This has led to excessive complacency. So the forthright approach to this issue on the part of both People’s Deputy Osyka and the AUB, which also supports anti-money laundering actions within strict constitutional limits, is somewhat out of step with the general feeling, ‘We’ve beaten FATF, so we can relax a bit.’ Indeed, nothing has been heard about any criminal cases, although judging by political statements, this country is implementing FATF recommendations full blast. Does this mean there is no drug trafficking here? No white slave trade? No more prostitution? Where then has the money thus “earned” gone? Unfortunately, this terrible secret is guarded here even more closely than banking secrets.
POST SCRIPTUM
Borys Feldman, former vice-president of Sloviansky Bank, initially indicted for money laundering, has been released on parole after serving four-fifths of his sentence for embezzlement.
