Money-laundering bill stalls in parliament; banks accuse STA of unwanted interference
nce industrialized nations carry out their threat to levy sanctions over the government’s failure to effectively combat money laundering.
The country faces a mid-October deadline to adopt proposed legislation or face sanctions from the Financial Action Task Force, a Paris-based anti-money laundering initiative organized by industrialized nations. The issue is on the agenda for the FATF meeting Oct. 7 through Oct. 11.
Bankers said they anticipate both trade and non-trade sanctions to be imposed unless parliament increased efforts to pass the bill.
Legislation addressing the problem, however, is unlikely to be passed quickly enough as parliament is currently locked in political bickering.
Finance Minister Ihor Yushko said Sept. 27 that he hopes Ukraine will avoid sanctions despite the Rada’s foot-dragging on the issue.
“These sanctions have never been applied to any country in the world,” he said. “We will work hard so it doesn’t happen [to Ukraine].”
FATF experts have accused Ukrainian companies of laundering illicit profits from organized crime groups, putting the country among 15 countries blacklisted by the task force last year. Others included Russia, Myanmar, Nigeria, Indonesia, and a host of island nations known for their offshore banking activities.
Deputies and bankers said a decision to impose sanctions could make it more difficult for Ukrainian banks, companies and individuals to transfer or receive money from abroad.
Measures could include checking remittances of individuals to relatives and other parties in FATF member countries, resulting in unnecessary delays, as well as closer examination of deposit accounts maintained by Ukrainian citizens abroad.
Should sanctions be applied, Ukrainian citizens traveling to FATF-member countries could be subjected to questions regarding the amount of currency being brought into a member country. Failure to declare might lead to confiscation of the currency or deportation.
Issuance of non-immigrant visas may also be delayed as additional questions regarding sources of cash and the purpose of travel may appear at foreign consular offices in Kyiv.
“Ordinary citizens using Western Union, banks with foreign correspondent accounts, exporters and importers, could all be adversely affected if the measure is not debated and supported,” said Serhy Buryak, chairman of the parliament’s finance and banking committee.
Compliance problems
FATF said in June that Ukraine has fully complied with only 10 of the FATF’s 40 money-laundering criteria. The report said the government lacks a complete set of anti-money laundering measures and has no efficient mandatory system for reporting suspicious transactions.
According to local bankers, one of the FATF’s main concerns today is the lack of an independent agency in Ukraine to investigate money-laundering violations.
Bankers accuse the State Tax Administration of trying to take over the role of money-laundering watchdog. They say the STA is neither transparent nor independent, and claim that the FATF is insisting that the STA have no part in policing Ukraine’s efforts to curb money laundering.
Valery Volkov, a lawyer with the Association of Ukrainian Banks, a trade group that represents many Ukrainian commercial banks, said that the FATF agrees with this assessment.
“The FATF recommendations have nothing to do with tax collection,” Volkov said. “They are designed to counter money-laundering schemes and prevent crimes linked to arms transactions, terrorism, drug trafficking and prostitution.”
Jacques Mounier, management board president at Credit Lyonnais Ukraine bank, said that the FATF would likely not find Ukraine compliant if tax evasion is incorporated in the bill.
“It does not mean that tax evasion should not be dealt with – quite the contrary – but this is not part of the anti-money laundering setup,” Mounier said.
Mounier said that the FATF comprehends that including language on taxes in an anti-laundering bill in Ukraine would make the set up ineffective.
Rada deputies have voiced concerns that a government-sponsored anti-laundering bill being considered in the Rada fails to placate FATF concerns about setting up an independent agency to monitor compliance.
“The [Cabinet’s draft] law was not crafted to combat dirty money but to put everyone on the hook,” said Viktor Pynzenyk, a member of the Our Ukraine faction.
STA defiant
Tax officials say they are already doing their part of the job to remove Ukraine from FATF’s list of uncooperative nations.
Tax police reported that they cracked down on 46 conversion centers, which draw cash from settlement accounts, during the first three months of this year alone, also discovering 1,300 “fictitious commercial structures.” In addition, tax agents said they opened 276 criminal cases on money laundering over the same period.
STA police Chief Oleksandr Spyrydonov said that over 800 firms and 356 “transit entities” engaged in illegal conversion were nabbed during the course of “operation envelope,” a month-long investigation by the STA agents against money laundering.
The STA’s actions rankle the Association of Ukrainian Banks, which opposes provisions in the government-drafted anti-laundering bill that require banks to provide tax authorities with information that the bankers consider confidential. That includes information on transactions exceeding 50,000 euros and cases involving alleged tax evasion. AUB lawyer said the government has misinterpreted the FATF’s recommendations.
“The law should never mention that a big transaction is by definition dubious,” said Mounier, who’s bank is a member of the AUB.
But Trifin Roule, a University of Pittsburgh researcher who has analyzed money laundering in more than 60 countries for the U.S. government, said that not enough has been done to investigate suspicious transactions at private banks. He said private banks remain largely unregulated and are a convenient means for laundering funds and avoiding taxes.
He said the NBU must begin levying heavy fines on and revoking the licenses of banks that fail to meet anti-money-laundering requirements.
“Otherwise, funds from Ukrainian financial institutions will continue the decade-old patterns of being sent to offshore zones, and accounts in Western Europe,” he said.
The FATF was first created in 1989 under the aegis of the Organization for Economic Cooperation and Development. The money laundering task force reviews its mission every five years. Its 31 members include the world’s most industrialized nations – the United States, United Kingdom, Germany, France and Japan.
