Lately, Ukraine has actively started to make progress in improving its current legislation in the financial monitoring sphere. Probably all businessmen from different spheres of activities have already felt the significant impact of the new AML rules. This is due to the enactment of the new Law “On Preventing and Combating the Legalization (Laundering) of Proceeds from Crime, Terrorism Financing and Financing the Proliferation of Weapons of Mass Destruction” No. 361-IX (hereinafter referred to as the “Law”).
Nevertheless, adoption of the Law is a very important step within the implementation by Ukraine of international obligations in line with the requirements of the EU-Ukraine Association Agreement. It is necessary to understand that such a control instrument has been in place for a long time in the most developed countries with a sustainable and efficient economic system. Hence, there is no need to consider the Law as an intention to pressure business or common citizens. It shall be noted, that new legislative norms definitely aim to increase transparency in business processes and reduce business risks for foreign investors.
What should business do to prepare for the new financial monitoring realities?
An important thing to remember is that in Ukraine there is a two-tier system of financial monitoring: state-level regulators and initial monitoring institutions. The following types of business belong to the initial monitoring institutions: banks, insurance companies, commodity exchanges, auditors, accountants, advocates, notaries, persons trading in precious metals and stones, persons providing lottery and gambling services, cryptocurrencies, etc.
First of all, those businesses should verify who their regulator is and monitor the recommendations and by-laws this institution develops. For instance, the Ministry of Digital Transformation of Ukraine is a regulator for those dealing with the virtual currencies market; the Ministry of Justice of Ukraine regulates notaries and those providing legal services.
The next step is to register with the State Service of Financial Monitoring of Ukraine (hereinafter – the SSFMU). To secure a high level of adherence to the Law, all initial monitoring institutions must develop and implement internal documents – the Program and the Rules on conducting financial monitoring. They also should appoint or hire a special person – a compliance officer who will be responsible for financial monitoring within the company.
In addition, entities should take steps to ensure that the compliance officer undergoes training in preventing and combating money laundering within three months of his/her appointment. Also, a separate requirement is to improve the skills of the compliance officer at least once every three years on the basis of the relevant educational institution belonging to the sphere of management of the SSFMU, and in other educational institutions in coordination with the SSFMU.
On September 2, 2020, the Cabinet of Ministers of Ukraine by Decree № 777 approved the Procedure for organizing and coordinating the work on retraining and advanced training of specialists in financial monitoring. Currently, on the official website of the SSFMU you can find educational programs for many different professions. Information and the cost of such programs can be obtained directly from state-regulators.
It is worth noting that the Law has fixed the number of threshold financial transactions at a reduced amount and, in the process of any financial operation, everyone should be aware of new features of the threshold operations. Threshold financial transactions are transactions during the conduct of which a person will most certainly be inspected by relevant state authorities. They include transactions for which the amount exceeds UAH 400,000 or the equivalent amount in foreign currency, bullions, or other assets, and they have one of the following signs:
- the transaction is conducted in cash (deposits, transfer, receipt of funds);
- transactions involving politically exposed persons;
- transfer of funds abroad (especially for offshore areas);
- the transaction is conducted with the participation of persons in the place of registration from countries that fail to comply with the FATF recommendations.
Moreover, issues may arise concerning “suspicious” transactions — those in an unusually large amount (payment for an expensive purchase), the transfer of charity support, the sale of property/real estate at a significantly higher price than the market price, etc.
One should pay attention to the fact that the Law updated the requirements for determining the submission of information about an ultimate beneficial owner (UBO). To carry out certain registration actions, legal entities must provide the following documents to a state registrar:
- information about the ownership structure (the special form and its content are defined by the Law);
- an extract, excerpt, or another document from a trade, bank, court register, etc. confirming the registration of a non-resident legal entity in the country of location (if a non-resident legal entity is a founder of the legal entity);
- a notarized copy of an identification document of a person who is UBO — for an individual non-resident, and if such a document is executed with applying the means of the Unified State Demographic Register, for an individual resident.
From now on, we have a completely new system of financial monitoring in Ukraine: procedures and priorities have changed, penalties have increased, and liability for failure to comply with the new requirements has expanded. We can only hope that the newly created mechanisms will actually work and be regarded positively by society. If so, they will become a significant contribution to the prevention of crime and corruption not only in Ukraine but also at the international level.
Dr. Valentyn Gvozdiy
Managing Partner, Attorney at law, PhD
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