January 30, 2003
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January 30, 2003 Memorandum On the situation regarding establishment of the national system of combating "dirty" money laundering and terrorism financing in Ukraine After the tragic events of September 11, 2001 in the United States of America, which hit the whole world, the problem of combating legalization of proceeds from crime and terrorism financing has become especially actual. In this aspect, the increase of requirements of FATF, the World Bank and the International Monetary Fund represents quite a rightful consequence of consolidation of efforts of the world community towards prevention and counteraction to those socially dangerous phenomena. Despite the fact that Ukraine's financial system is only being established and the fact that Ukraine lacked sufficient experience and relevant laws related to combating money laundering, we clearly realize the harm caused to the financial and economic system by this phenomenon. That is why Ukraine's government fully supports the international measures aimed at activation of relevant efforts, demonstrating its openness and readiness for cooperation. Until recently, Ukraine's efforts in this field had been not fully effective for activation of fight against the said phenomenon. However, with the new government coming to power, a real activation of the situation took place in end-2002 and at the beginning of 2003; positive and cardinal changes of the very approaches to the solution of the problem came about. Today Ukraine meets almost all requirements of the international organizations that are generally recognized lawmakers in the sphere of combating money laundering and terrorism financing, thereby reaffirming its intention to create a maximally transparent financial system and prove to the world community the irreversibility of the integration course set forth by the President and the government of Ukraine. In this context, we thank for the expert assistance to the establishment of the system of financial monitoring in Ukraine, provided by the European countries and the U.S. This assistance seriously influenced the formation of legal base of combating illegal proceeds and terrorism financing based on the national legal system in force. We are actively introducing the national complex system of combating money laundering and terrorism financing. Paramount attention is being paid to establishment of the system nationwide; Ukraine's government considers it a priority. The recent steps of Ukraine testify to this end. Thus, on November 28, 2002, the Verkhovna Rada of Ukraine passed the Law of Ukraine on Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime # 249-IV. After adoption of the basic Law aimed at regulation of relations in the field of combating money laundering and terrorism financing, it was analyzed by FATF experts in December 2002. FATF expressed several remarks, according to which Ukraine was recommended to introduce amendments into the newly passed law, as well as to regulate several other legislative issues. Upon governmental initiative, proposals were urgently drafted and approved on December 24, 2002 by the Verkhovna Rada of Ukraine in the form of the Law of Ukraine on Introduction of Amendments and Supplements into the Law of Ukraine on Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime. The amendments and supplements meet the recent recommendations of FATF experts. The said Law introduced amendments into articles 5-8, 12 and 14 of the basic Law. In particular, article 6 of the Law, which determines the procedure of identification of individuals performing financial transactions, has been supplemented with provisions regarding the obligation of subject of initial financial monitoring also to identify the individual on whose behalf such transaction is performed or who is the real beneficiary. Paragraphs 3 and 4 of article 7 that enabled the subject of initial financial monitoring to avoid the procedure of provision of information to the State Financial Monitoring Unit have been excluded. The amendments introduced into article 8 of the said basic Law obligate the staff of subjects of financial monitoring to unconditionally inform about all transactions that give rise to suspicions that they may be performed to launder proceeds from crime or finance terrorism. According to paragraph 2 of article 13 of the Law, the authorized agency submits relevant materials to law-enforcement bodies for investigation and prosecution, in accordance with their competence, given the proofs that a financial transaction may involve the legalization (laundering) of the proceeds and financing of terrorism. According to the Criminal Code of Ukraine and the Criminal Procedure Code of Ukraine, these provisions settle the issue of seizure and confiscation of proceeds from crime. Now the Law provides "illustrative" list of transactions subject to financial monitoring, instead of obligatory one. This means that broader authorities are granted to subjects of financial monitoring for the purposes of monitoring of financial transactions. On January 16, 2003, the Verkhovna Rada of Ukraine passed the Law of Ukraine on Introduction of Amendments into the Criminal Code of Ukraine and the Criminal Procedure Code of Ukraine. This Law stipulates for a new edition of article 209 of the Criminal Code of Ukraine named "Legalization (laundering) of money and other property obtained from crime". The proposed edition of the article not only broadens the objective side of corpus delicti of this crime (FATF experts turned attention to this fact), but also removes all obstacles to prosecution of individuals for laundering of proceeds from crime. A new article 2091 of the Criminal Code of Ukraine establishes responsibility for intentional violation of requirements of the legislation on prevention and counteraction to the legalization (laundering) of proceeds from crime with regard to intentional failure to submit the information on transactions, late submission or submission of deliberately false information regarding transactions subject to internal or compulsory financial monitoring to the financial intelligence unit and to intentional disclosure of the abovementioned information to the client or any third person. The amendments to the Criminal Procedure Code of Ukraine established that the offences under article 2091 are subject to prosecution. On the same plenary day, the Verkhovna Rada approved in the first reading the draft Law of Ukraine on Introduction of Amendments into Certain Laws of Ukraine Regarding Prevention of Use of Banks and Other Financial Institutions for Legalization (Laundering) of Proceeds from Crime, which stipulates for bringing the provisions of the Law of Ukraine on Banks and Banking Activities and the Law of Ukraine on Financial Services and State Regulation of Markets of Financial Services in compliance with the provisions of the new Law. A stricter definition of "bank secrecy" is established, and greater possibilities for information exchange among the subjects of financial monitoring are provided; these subjects have the right and obligation to completely identify the real beneficiary. During the drafting of the law, scheduled for approval at the beginning of February, amendments were introduced to envisage that the entities of initial financial monitoring, their officials and other personnel shall not be disciplinary, administratively and criminally liable or subject to civil penalties for submission of information about a financial transaction to the Authorized Agency, if they acted pursuant to and within the limits of the basic Law. The reposting threshold for cash and cashless transactions is established at 100000 UAH (about € 17540), if the transaction is carried out in Ukrainian hryvnias, or its equivalent, if the transaction is carried out in foreign currency. Such approach meets the generally recognized international standards, including the Directive of the Council of Europe on prevention of use of financial system for money laundering purposes (June 10, 1991 # 91/308/EEC) and FATF recommendations. According to the requirements of the basic Law, on December 12, 2002, the National Bank of Ukraine enacted a resolution that stipulates that all foreign currency exchange operations exceeding US$ 10000 must be carried out through bank cash registers only with obligatory client identification. On September 12, 2002, Ukraine ratified the International Convention on Fighting Terrorism Financing. Supplements to the draft Law on Combating Terrorism were drafted on its basis, taking into account 8 special recommendations of FATF. The draft was approved by the Verkhovna Rada of Ukraine in the first reading. Supplements to the Criminal Code of were also drafted to include criminal penalties for terrorism financing. These supplements are scheduled for parliamentary approval in March 2003. The government of Ukraine has approved the Program of Counteraction to Legalization (Laundering) of Proceeds from Crime for 2003. It has also approved a relevant complex of legal, organizational, methodical and material/technical measures, contained in a separate plan, which are necessary for the basic Law to enter into force. It should be noted that the work of financial intelligence unit (the State Department of Financial Monitoring) was activated. The Department is a governmental authority under the Finance Ministry of Ukraine functions of which are clearly defined by the basic Law and the Statute as of the Specially Authorized Body in this sphere. It is a legal entity, with its independent balance, registration account at the State Treasury and a seal. The Department is a state authority that is absolutely independent from political processes; it is subordinate and accountable to the First Vice Prime Minister. No political parties or groups can influence the appointment of the Head of the Department or his/her deputies, as well as the day-to-day work in general. Due to the specific character of the work of the financial intelligence unit, selection of highly qualified personnel for the key activity areas is now proceeding on the competition basis. Moreover, it was decided to considerably increase the number of its staff, especially to strengthen the analytical unit. The Cabinet of Ministers of Ukraine has decided to relocate the Department into the newly equipped building of the Ministry of Finance. Proceeding from the tasks laid down upon the financial intelligence unit at this stage, the Department's needs will be funded accordingly. Fruitful cooperation between Ukraine and the Council of Europe was confirmed by signing the Declaration of Intents and final approval of performance specifications for the Project of Technical Assistance for Combating Proceeds from Crime in Ukraine. It is planned to launch the project in the nearest future, before coming into force of the basic Law. The funding available under the project will be around € 1000000. The project includes training of Department's specialists in FIUs of such countries as Switzerland, Italy and others. We take full responsibility to state that Ukraine makes use of a complex of urgent legislative and organizational actions, aimed at creation of a working system of combating money laundering and financing terrorism. At the same time, we realize that there is no criterion of sufficiency of such measures, according to formal indications. Assessment of such actions is always subjective in character. In order to obtain a positive result, Ukraine exerts every effort to exceed the medium level of the countries, corresponding systems of which do not give rise to claims of FATF. The government of Ukraine is determined to increase the activeness of this process and make it irreversible. We are confident that the actions taken by Ukraine within such a short period will be highly appraised by the global community and will serve as a real evidence of aspiration of our state to create a transparent financial system that will work and change in the format of international cooperation and leading global experience. These actions should contribute to a positive decision by FATF regarding withdrawal of the above-mentioned countermeasures against Ukraine at the next plenary meeting of this institution scheduled for mid-February 2003. In this context, Ukraine's intentions to prepare for accession to Egmont Group and take further steps required for exclusion from NCCT list. State Department for Financial Monitoring, Ministry of Finance of Ukraine Kyiv 30 January 2003 |
