More Leeway for Natural Persons

Last year, 60% of all payments to nonresidents for construction services were made via two undisclosed, average-sized Ukrainian banks. Notably, major cash flows were in the direction of the Baltic States. The NBU has begun investigating the activities of the two banks, said NBU Governor Serhiy Tyhypko, insisting upon the need for tighter NBU and Finance Ministry controls on costs of services provided by nonresidents to residents. This follows from the NBU resolution On Making Bank Transfers in National and Foreign Currencies to Pay for Services of Nonresidents.

The data on Ukraine’s balance of payments, cited by the NBU, suggest that in 2002 alone Ukrainian nationals transferred some $3 billion abroad in payment for services provided by foreigners. Audits of the banks have shown that some of these operations were performed with the prices for services much overstated. In the majority of cases, they were unjustifiably high and did not correspond with the market situation. The NBU leadership was particularly concerned with bank transfers for construction services totaling $214 million in 2002 and for “other business services” amounting to $1.214 billion, the lion’s share of which were made via the two before- mentioned banks. According to Mr. Tyhypko, this suggests that either the commercial banks or their clients could be involved in some fraudulent schemes.

From now on, operations involving imports of services with a price tag in excess of 50,000 euro will be examined by the State Data Analysis Center for Monitoring Foreign Goods Markets, a structure within the Finance Ministry. Should the price examination reveal an overstatement of contract prices, bank transfers under this contract will be possible only upon NBU approval. Mr. Tyhypko believes that the price examination will not take more than a week. According to Olena Shcherbakova, deputy director of the NBU Department of Currency Control and Licensing, banking, insurance services, and telecommunication services have been excluded from the list of services to undergo an examination.

The NBU has called this measure a “step two” in the fight against capital outflows from Ukraine, the first step being the introduction of licensing of stock retirements. The other day, the NBU governor stated that over 20 Ukrainian banks were involved in taking capital out of the country through the retirement of stocks. However, he declined to name those banks. Mr. Tyhypko believes these two measures will make it possible to stem capital outflows from Ukraine and move towards the discussion on the question of the liberalization of the foreign exchange market. “We need to do our utmost to liberalize the foreign exchange market and give our companies maximum freedom to use their money in hryvnias or hard currency,” the country’s chief banker said.

Meanwhile, citizens will soon feel the easing of foreign currency restrictions. As of March 16, natural persons will be allowed to leave Ukraine with up to $3,000 without indicating this amount in the customs declaration (currently, this amount is limited to $1,000). The NBU also allowed individuals to transfer foreign currency abroad to pay tuition fees to foreign educational institutions, with the amount not to exceed $30,000 per year. Such transfers should be made via the Ukrainian Export Import Bank or other banks having correspondent accounts with it. Citizens will not need a license to make money transfers abroad to pay litigation expenses or funeral services for deceased persons (the amount thus transferred is to be confirmed with the corresponding documents), as well as money transfers to pay membership fees in international organizations, with the amount not to exceed $500.

Additionally, individuals will be able to make money transfers to nonresidents to pay for their services, such as booking plane tickets and hotels, to the maximum amount of $500 (currently $300). The NBU has allowed Ukrainian nationals to take loans from nonresidents, with only two limitations imposed, that is, such loans may be taken in cashless form only and for a period in excess of 6 months. When taking such loans, natural persons should report to the NBU department in the region where they live.