A night of long knives for Ukrainian business?

Ukraine is making desperate efforts to “thwart the looming, large-scale scandal” over FATF sanctions, said Stanislav Arzhevitin, chairman of the Azhio bank board of governors and head of the Association of Ukrainian Banks. A February 12 deadline was set for when FATF experts, who will assemble in Paris, may replace wrath with mercy by lifting the sanctions. Yet, according to FATF Executive Secretary Patrick Moulette, even this will not mean removing Ukraine from the organization’s “blacklist.” Presently, that is not even a point of discussion.

The problem inside Ukraine is that this country apparently is not yet fully aware of the magnitude of the danger hanging over it. Even such an experienced politician and financier as National Bank (NBU) President Serhiy Tyhypko, asked about how dangerous the FATF sanctions are for Ukraine, he said he saw “no serious enough problems” in this situation that has not yet considerably affected the Ukrainian banks’ foreign transactions. The banker said this is “just the first stage of sanctions: this is the way the international community is warning us.” Some other experts, including parliament members, aired a similar complacent view to The Day. Yet, the new NBU head admits that if Ukraine does not take the necessary steps, there will be tougher sanctions. He hopes that the Ukrainian parliament will pass the required acts in early February and that the Ukrainian side will be legislatively prepared for the FATF’s Paris round. It is perhaps this approach that kept Mr. Tyhypko from attending the Ukrainian League of Industrialists and Entrepreneurs (ULIE) round table devoted to combating the shadow economy and countering the legalization of criminally earned incomes. (The media duly highlighted this conference because the press service had announced the participation of Mr. Tyhypko as well as some other key figures, such as Tax Administration chief Yury Kravchenko.)

The roundtable debate (as well as the debate occurring in Ukrainian society) centered on several crucial questions: does Ukraine really deserve international condemnation, especially as to funding terrorist organizations? Does its law meet the FATF requirements and what is to be done to make this organization drop its accusations of “liberalism?” How can Ukrainian business and the budget avoid losses due to the toughened international sanctions? In any case, almost all speakers urged the Verkhovna Rada (which is going to discuss this matter on February 6) to immediately adopt all the necessary documents to satisfy the FATF demands. In particular, Valery Diyesperov, head of the State Department for Financial Monitoring, stressed that “we should not wait for the true financial sanctions.”

Ex-prime minister and ULIE president Anatoly Kinakh noted that the enormous shadow economy (40-50% of GDP) undermines international trust in Ukraine and that the relationship with the FATF “is, above all, our problem.” As Mr. Kinakh thinks, the more the domestic confrontation intensifies, “the higher will be the temptation of exerting external pressure on and applying double standards to Ukraine, which is in fact the case in the current situation.” The debaters rejected the allegations that Ukraine is unscrupulously laundering criminal money and, still more, that it may take part in financing terrorism. Pavlo Haydutsky, deputy chief of the Presidential Administration, said bluntly “there are no grounds at all to accuse Ukraine of making feeble legislative attempts in this field.” In his opinion, the current Ukrainian legislation meets 95% of the FATF standards.

Striving to reach 100%, the State Department for Financial Monitoring has drawn up amendments to the law On Preventing and Countering the Legalization (Laundering) of Criminally-Earned Incomes. After these have been adopted, the minimal amount subject to financial monitoring will drop to 15,000 euros. Besides, the law is being complemented with a provision that financial institutions are allowed to divulge the banking secret to an inspecting body if the latter establishes the fact of money laundering. Moreover, financial institutions will not be held responsible for opening the banking secret.

Naturally, Ukraine’s banking and business community is taking a cautious view of these measures. Assuring the audience that Ukrainian banks are interested in the establishment of the financial monitoring system, Oleksandr Sukhoniako, president of the Association of Ukrainian Banks, cautioned parliament against passing “police-state laws.” “The last thing the banking system wants is a repetition of the year ‘37 (1937 saw the peak of Stalinist repression — Ed.),” he emphasized. Mr. Haidutsky also voiced some critical remarks along this line. He pointed out that “even such operations as the purchase of a one-room Kyiv apartment by a peasant for his children may be subject to monitoring.”