Police and SBU are authorized to ban private operations with foreign currency

Ukraine’s Security Service (SBU) and Ministry of Internal Affairs have been authorized to refuse Ukrainian nationals and entities permits to conduct operations with foreign currency. The National Bank of Ukraine has passed a decree to this effect. Within five days after the receipt of applications the NBU will alert these agencies about applicants seeking to obtain such licenses. Under the decree, the NBU is to consult with the SBU and MIA on granting licenses to juridical and natural persons to import or export foreign currency, precious metals, and check forms, as well as permits to entities registered in Ukraine to open bank accounts and invest overseas. In addition, the NBU will provide information on natural persons applying for permits to open bank accounts and make deposits in foreign currency abroad. These agencies will also verify information on anyone submitting such applications. The NBU attributes the decree to the ongoing campaign against money laundering. It is common knowledge that in September the Financial Action Task Force on Money Laundering (FATF) blacklisted Ukraine as a country not working to curb illegal financial operations. The EC accented Ukraine’s losing battle against money laundering back in January. Moreover, the NBU cites the December 10 presidential decree, On Measures to Prevent Laundering of Illegally Obtained Money. Before the decree is brought to a vote in the parliament, banks are obliged to keep an eye on operations of entities and natural persons arousing suspicion. The said decree instructs the government to establish a State Department for Financial Monitoring as part of the Finance Ministry. Although setting up the department will take time, banks will be obliged to report on operations with foreign currency as of January 1, 2002, which, incidentally, is timed to coincide with the start of the election campaign.

If the presidential decree is carried out in full, one should be able to gauge the efficacy of the newly adopted regulations as soon as February or March. Beyond doubt, by revealing their findings the SBU and MIA will leave the door open to accusations in political partisanship. But whether such measures will bring capital flows out of the shadows is an open question. Most probably, faced with a threat of tougher oversight by the SBU and police, the currency cads might altogether stop using the banking system for their operations. To illustrate, according to the NBU, Pavlo Lazarenko charged with endless counts of money laundering, somehow never turned to the NBU to obtain any licenses to open bank accounts or conduct operations with currency overseas.