“Cleanup” In Parliament Continues
There were nine bills on the Verkhovna Rada agenda last Tuesday, but the Kinakh cabinet withdrew the one preventing and resisting the legalization of laundered money (earlier introduced by the Yushchenko team) shortly before its scheduled consideration. Yury Karmazin, chairman of the pertinent parliamentary committee, told The Day previously that all law enforcement authorities said the Yushchenko bill was totally unacceptable. The committee was of the same opinion. Its chairman and lawmakers Viktor Kocherha and Viktor Korol prepared and submitted an alternate bill. Whether it will be put on the agenda remains to be seen.
Yury Karmazin says the lawmakers had to step up work on the bill also because the committee received a fax from the premier on October 22, stating that the cabinet “took a number of steps, in April-October, to establish a solid system for combating financial crimes. The results show that it is necessary to continue work on the basic bill. In view of the above we request postponement of deliberation of the bill submitted by the government...”
IMF estimates point to $1.5 trillion worth of turnover stemming from illicit business and corruption all over the world. Part of this money passes through the world financial centers and through government machines developed after the disintegration of the USSR.
Over the past several years, FATF (Financial Action Task Force), an international organization founded by the G-7 that tracks down laundered money, thrice studied the situation in Ukraine, each time coming up with findings pointing to a favorable money-laundering environment. They made the same findings in September.
Incidentally, the last time this happened was precisely when the EU countries declared their readiness to intensify its measures to combat money laundering, in order to deny terrorist organizations financial sources. The EU finance ministers decided to enter financial support of terrorist organizations into the list of activities that the FATF is called upon to fight against.
President Leonid Kuchma demanded decisive steps in the struggle against illicit income. He held a meeting the Saturday before last, discussing ways to combat money laundering, and criticized the cabinet for passivity. The chief executive was outraged by the absence of even dubious financial transaction criteria in Ukraine. “Every money laundering case here becomes transformed into a political affair,” he stressed and said there should be a comprehensive approach to the struggle against money laundering, and that all branches of power should combine efforts and work together with the banking system, ministries, and agencies.
That same day Mykola Azarov, State Tax Administration head, commented on the meeting, saying an interministerial coordinating and financial monitoring authority will be set up to combat money laundering. He noted that the idea was discussed at the meeting and that the president would sign an edict to this effect. Mr. Azarov believed that the new structure would focus on collecting data concerning “dubious transactions” both inside and outside Ukraine, that such data would be supplied by ministries and agencies, and that the latter will be able to use it if needed. Ukraine’s chief tax collector insisted there should be a legal framework to “control the profits and losses of individuals and legal entities.” As for the interministerial monitoring authority being set up on the president’s initiative, Mr. Azarov specified that it would not be a law enforcement body, so there was no need to pass a law. “A presidential edict will suffice,” he said. While not taking a rigid stand in the struggle against money laundering in the legislative domain, the tax administration seems determined to take this stand in retaining its oversight prerogative.
Pavlo Haidutsky, deputy head of the Presidential Administration, said at a briefing that during the meeting the president gave two weeks to determine the status, subordination, and scope of the new organization. People’s Deputy and Banking Committee Chairman Ihor Yushko noted that the key objective of the new authority would be “analytical,” aimed at actually assessing the shadow economy in Ukraine. Finance Minister Ihor Mitiukov said its establishment by the end of the year would require large spending, and some of the available resources at ministries and agencies would be used.
Most expenses would be involved in hardware, he announced and strongly denied the possibility of its being used in the political struggle, since the new authority would be “remote from power structures,” and that this would “secure it against being drawn into the political struggle.” The finance minister certainly remembers that the central tax- collecting authority was once part of the ministry’s structure, so he could still believe that it does not belong to the power structure category; moreover, he would not mind having it back in his ministerial lap. Some sources point out that this does not contradict the government’s long-term plans. Meanwhile, the State Tax Administration is enthusiastically reporting progress: 229 cases of attempted transactions on the interbank currency market involving fictitious firms (worth UAH 49.5 million), including 54 cases of loro settlements (UAH 19.5 million), and 163 attempts to transfer hard cash abroad (UAH 338 million) a recent STA executive briefing announced. True, the total amount is not too terribly impressive, all things considered. Mr. Haidutsky commented on Leonid Kuchma’s instruction to urge the Baltic states and their parliaments to prevent illicit financial transactions originating from Ukraine and told about the glaring difference between the scope of financial transactions and that of Ukrainian- Baltic trade turnover; in other words, the Baltic states are a convenient route for illicit capital. This leaves one wondering about how the STA is taking its time blocking that route.
About money-laundering Mr. Azarov cited the following example. 30% of crude oil imported from Kazakhstan is supplied by firms in Saint Vincent and the Grenadines. “This oil is delivered by obscure business entities that cannot be traced,” he said. There is, however, another problem relating to foreign investors.
Interestingly, the Ukrainian government plans in the near future to request that the Constitutional and Supreme Courts expedite proceedings in the official interpretation and application of a number of laws barring businesses with foreign investment from tax concessions. Vice Premier Vasyl Rohovy declared that this is a matter of “national security.” The NSDC deliberated such firms as a national security risk in February 2000, considering that they were taking advantage of such tax concessions, actually monopolizing oil supplies to Ukraine. Thus, the Bison Enterprise’s Kharkiv affiliates, Lutnia Enterprise, and Fianit, Ltd. respectively held 43.2%, 22.8%, and 5.2% gasoline market interest at the start of 1999. The state is still suffering considerable losses because of a number of enterprises with foreign investment continue receiving tax concessions after filing and winning lawsuits. This caused the state budget to lose UAH 3 million worth in tax revenues in July 2001, UAH 23 million in August, and UAH 131 million in September In addition, court rulings relieved businesses with foreign investment of UAH 310 million worth of customs duties in January-September. Interfax Ukraine quotes STA statistics as saying that tax concessions are given the Petrochemistry Plus State Enterprise, Fionit Firm joint venture, Dumona Ltd., the Chop branch of Pulse Ltd., Saturn State Enterprise, and Interwindows Ltd. joint venture.
We know who and where — not too many, in fact. It appears that even such a praiseworthy thing as instituting equal rules of the game takes political will. Something the Ukrainian government has failed to display in sufficient measure of late.
