Government to “take care” of FATF

Here are two equally bad pieces of news. The Verkhovna Rada has toughened liability for money laundering. Meanwhile, the embassy of Germany in Ukraine has announced that Berlin is exploring the possibility of imposing financial sanctions against Kyiv. And although, as Interfax-Ukraine reports, the Germans “have not yet made the final decision,” it is obvious that the Ukrainian delegation attending the next FATF meeting, on February 12-14, in Paris, will receive a good telling-off. One might recall that the two previous meetings (last October and December) ended with the FATF recommending applying countermeasures against Ukraine.

PRICE NO BAR

The imposition of sanctions can, at worst, compel the financial institutions of civilized countries to virtually boycott operations in which Ukrainian economic entities are involved. In these troublesome days, First Vice- Premier and Minister of Finance, Mykola Azarov, looks resolute and optimistic. He said publicly that Ukraine had satisfied the FATF’s previous demands on combating money laundering, and now the problem should be solved by way of negotiations. Mr. Azarov explained that the FATF was very likely to cancel its previous decision because one (one more — Author) of this intergovernmental organization’s demands was that Ukraine adopt a number of amendments to the current law, namely, the Criminal and Criminal Procedural Codes (approved by parliament last Thursday) and the law On Banks and Banking (passed in the first reading).

In essence, these changes are supposed to clear the way for the enforcement of the already amended (also on FATF demand) law On Preventing and Countering the Legalization (Laundering) of Unlawful Incomes. We have written more than once about this and the likely consequences of the application of the European standards of combating “dirty money” to a profoundly warped Ukrainian market. Now the situation is that, for example, conducting a financial operation (signing a contract) involving funds and property obtained by a dangerous antisocial and unlawful act that preceded the legalization (laundering) of incomes is punishable with a 3-to-6-year imprisonment and confiscation of the criminally-gained funds or property.

Mr. Azarov may be right, and the revised Criminal Code may indeed make a deep impression on FATF experts. In that case, everything will be OK. The trouble is that the law On Preventing... does not rule out the interpretation of “tax evasion” as “preceding the legalization,” while the altered Criminal Code refers to the terms “dangerous unlawful” and “preceding the legalization” as an offense that results in an illegal income and carries a sentence of three-plus years in prison. Therefore, even if the well-known Criminal Code Articles 207 and 212 do not attach the label of money-laundering terrorist to a businessman who hides his profit from the state, they will still make him the object of “financial monitoring,” with all that this implies. It should also be noted that amendments to the law On Banks and Banking (with effect from February 1, according to Mr. Azarov) will allow the National Bank to check, at least once a year, the extent to which banks obey the anti-money-laundering laws.

THE AMERICAN ROULETTE

It looks like our state has drawn up “dirty money” combating techniques that even overdo FATF demands. What is more, Viktor Suslov, chairman of the State Commission for Financial Market Regulation, told The Day that “no large money is being laundered in Ukraine. Instead, enormous financial flows have been running out of Ukraine and laundered abroad over the past few years.” In other words, it is wrong to consider this country a “laundry.” Unless the FATF cancels its decision to “sanction” Ukraine in February, the situation can only be understood in the political context. Besides, our authorities will find it extremely difficult to justify very harsh measures against money laundering.

Very few know that the recommendations of the intergovernmental anti-money-laundering organization are of a rather general nature, which gives sufficient freedom of action to individual countries. That the Ukrainian state has displayed extraordinary capabilities can also be explained by the fact that, given a downturn in relations with the US (which doesn’t play last fiddle in the “orchestra” of 28 FATF member states), our authorities just have no right to make mistakes.

Mr. Azarov said “these (above-mentioned — Author) laws are being translated, and Ukrainian experts will soon begin to work with FATF experts.” Meanwhile, Oleksiy Berezhny, dismissed by presidential decree from the office of State Secretary at the Ministry of Finance and chief of the State Financial Monitoring Department, “will be replaced by a professional who will manage to organize work as required by the situation in Ukraine.” The candidature of the official who will lead the Ukrainian delegation during the new “Paris pilgrimage” is just “under consideration.” Yet, Mr. Azarov spoke bluntly about Mr. Berezhny’s dismissal: “The FATF imposed sanctions, thus requiring an assessment of Ukraine in this area, This is why a decree was issued which should be considered as Ukraine’s serious intention to combat money laundering.”

According to adviser Vitaly Lukyanenko, Mr. Azarov himself plans to pay an official visit to the US on January 27 to February 3. The visit’s program reportedly includes talks at the US State Department, the World Bank and the International Monetary Fund, as well as “discussion of a wide range of economic issues.” It will be very strange if the FATF problem is excluded from this “wide range.” It is also clear that Mr. Azarov will be visiting the United States during an extremely difficult foreign political situation, exacerbated by the Kolchuga radar scandal, the Melnychenko tapes, and the problems of returning ex- premier Pavlo Lazarenko’s money. One might recall that President Kuchma said at a press conference that settling relations with the US was “the main problem” last year and solving this problem is “the main goal” of this year.

“Proving our just cause before February 12 is a key point for Ukraine,” a source close to the government told The Day. According to some reports, it is the attitude of the US and Germany that swung the FATF opinion against our country at the previous meeting. The Ukrainian delegation can try to use to its advantage such a weak counter-argument as the US government-sponsored unprecedented “roundup” of almost a million American nationals who own offshore banking accounts. More than a thousand of such account owners have already been found to evade paying taxes, the Russian News Bureau reports.

Much more will depend on whether Ukraine will find more convincing arguments. In any case, Mr. Suslov seems to be close to the truth when he says that a negative FATF decision on Ukraine “will be tantamount to foreign political pressure.”