A Hundred Thousand? Explain Whence and What For?

Verkhovna Rada has grudgingly agreed to pass the final version of the law on combating money laundering. It was supported by 228 deputies, with 226 votes being the required minimum. This passivity can be attributed above all to the fact that certain political forces are fearful of very thorough inspections by the financial intelligence service, a new body envision by this law. Financial intelligence already exists as part of the Ministry of Finance, but only now on gaining legal status will it be able to demand that commercial banks furnish information on the operations of various companies and individuals.

From now on, over UAH 300,000 banking settlements will automatically get into the sphere of financial intelligence officers’ interests. A receipt of more than 100,000 hryvnias in cash will also be subject to scrutiny by law enforcement. Moreover, banks will have to take their own measures to combat money laundering. To this end, they have already received criteria for the so-called dubious deals. The bankers made it clear in response they are not going to set up their clients and will only resort to financial intelligence services in extreme cases. To have as many such extreme cases as possible, the NBU has already begun to check whether the banks have made their own decisions to combat money laundering.

In reality, the main reason why the parliament reluctantly passed this law was to let Ukraine avoid international sanctions. The FATF, an organization for combating money laundering, has made it quite clear that Ukrainian bank’s correspondent accounts might be frozen on December 15. This news was, for some reason, enthusiastically welcomed by the European Union, which said it would take tough actions. NBU Governor Volodymyr Stelmakh admitted that Kyiv was recently visited by envoys of several Western banks, who warned they might cut off relations with this country. The envoys were too fervent, for the president is certain to sign the law which takes effect in the first half of December.

For another year, the FATF will be monitoring the effectiveness of this law. In all probability, the financial intelligence agency will have to submit a few high-profile cases to prosecutors next year. Otherwise, the apparent opaqueness of the Ukrainian banking system will give foreign emissaries yet another pretext for raising tough claims against this country. Businessmen deputies are only too well aware of this. It is they who may be sacrificed first of all. People’s Deputy Viktor Kapustin (Our Ukraine faction), who is associated with a Ukrainian bank, appealed to the bankers’ conscience and called on them to act in the interests of clients, not intelligence officers, “If a bank doubts the nature of an operation, it must make a choice in favor of the client.” Oleksandr Suhoniako, president of the Association of Ukrainian Banks, admitted that the law might cause problems for banks, but in this case one must choose the lesser evil, “I would not say everything in this law suits me. Still, it was the right decision to approve it because Ukraine faces a great danger.”

Under the approved law, money laundering is an attempt to legalize illicit incomes, for example, by evading taxes. The current tax system prompts the absolute majority of private businesses to launder money. Nevertheless, chief financial intelligence officer Oleksiy Berezhny is convinced that his organization is not going so far to take any dramatic steps. In his words, the new agency will not be coercive body. Intelligence officers will not even be authorized to carry out investigations of their own. Simultaneously, it is Mr. Berezhny who will supervise the analysis of information from commercial banks on potentially illegal deals. This analysis could result in submitting the materials to public prosecutors. Despite the ostensibly peaceful facade of the new agency, its political weight is almost as heavy as that of the tax administration. In brief, Ukrainian politicians will have to address a double- edged sword: to handle money according to strict FATF rules and, at the same time, not to use these rules selectively.