Shadow of FATF
On January 15 a mission of the Financial Action Task Force on Money Laundering (FATF) arrived in Ukraine. Addressing a cabinet meeting the day before, Premier Viktor Yanukovych informed the ministers about the mission’s visit, accentuated the work of the law enforcement services, and said that he briefed their chiefs earlier in the week.
As we know, the campaign against money laundering in Ukraine is run by the State Department of Financial Monitoring in the Finance Ministry, which also coordinates the activity of all other departments in this direction. The FATF mission has obviously been instructed to determine whether Ukraine has done enough to be removed from the FATF blacklist. The government expects this to happen in February 2004 after it successfully demonstrates to the FATF mission how it implements the money-laundering laws.
That Yanukovych briefed the uniformed services on this issue could be evidence of some new requirements put forth by the FATF and the resulting shift of accents in this work in Ukraine. It was no accident that Yanukovych stressed that this year the government faces a difficult task of bringing the Ukrainian economy out of the shadows. Quite probably, in the measures taken to this end the government will alter the ratio between economic and forceful methods in favor of the former. Such changes are long overdue. Yet care should be taken not to allow our law enforcement to overdo it, as is often the case, and prevent them from cracking down on private structures that have fallen into disfavor of the authorities.
“I would like us to include in the cabinet action plan measures that envision combating the shadow economy in the country. We must make this step, and the FATF visit will be the first step,” the premier thus specified the goals of state structures. In his view, a program drafted to this end should envision both preventive action by the uniformed services and the drafting of bills that would create transparent mechanisms enabling the economy and citizens’ incomes to come out of the shadows. According to him, 47% of Ukrainian businesses are losing money. “Why? On the one hand, this question goes to the local government, businessmen, and industrialists, and on the other hand, it is a nationwide problem,” the premier stressed.
Recently, when introducing the new Zhytomyr Governor Serhiy Ryzhuk, Yanukovych already touched on the issue of combating the shadow economy. He then said that some businesses “conceal their incomes, which move into the shadows.” In particular, according to Ukrainian experts, nearly 40% of Ukraine’s economy is in the shadows. The premier cited this fact to justify the need for reforms in the country, in particular a fiscal and pension reform. “The task of the day for local government is to work on the transparency of enterprises of various forms of ownership,” he said, adding that such tasks are extremely difficult “since this year is also a year of political rivalry” (referring to the presidential elections — Author). “Our priority is to improve people’s welfare. Let us strictly carry out our commitments,” he stressed. Speaking of the possible mechanisms of bringing the economy out of the shadows, Yanukovych said there is foreign experience that we will draw upon, taking into account the possibilities of the legislation in force and its constant improvement in the sphere of combating the shadow economy.
As for world experience, it was recently brought to Ukraine by World Bank expert Theodore Greenberg, who visited Ukraine on the invitation of First Vice Premier and Finance Minister Mykola Azarov. No reports have been made on his conclusions and recommendations, but one can assume that the crackdown on Odesa’s illegal distilleries that began after his visit was somehow connected with the expert’s conclusions. Yet our law enforcement officers, who have vast information available but are not always authorized to use it, could have made this move by themselves. Moreover, the FATF mission plans to visit Odesa, in which connection all our state agencies that have their divisions or controlled commercial structures in this city ranging from banks to credit unions and pawnshops are bending over backwards to stage various inspections and briefings. Understandably, all their efforts will not pass unnoticed, the FATF decision on Ukraine notwithstanding. Yet it is questionable that this FATF mission will recommend a positive decision for Ukraine, despite some officials’ belief to the contrary. In fact, none of them doubts that visits by similar missions to Ukraine will continue.
