Financial Monitoring in a New Way?
The Verkhovna Rada approved in the first reading Draft Law #2179 on Preventing and Countering Legalization (Laundry) of Proceeds of Crime, Financing Terrorism and Financing Proliferation of Weapons of Mass Destruction, which is a version of the FATF Recommendations and the 4th Directive of the European Union against money laundry and financing terrorism adapted into the national legislation.
The aforementioned Directive has already been implemented in all EU member states and is mandatory for countries intending to join EU. Moreover, adoption of the finalized Draft Law will help not only to reach a new quality level of financial monitoring, but also ensure receiving the second tranche of the macrofinancial assistance from EU in the amount of 500 million euros.
It is worth pointing to the main positive changes introduced by the given Draft Law:
- making transactions exceeding 400,000 hryvnas rather than those exceeding the present 150,000 threshold transactions to be reported on to the State Financial Monitoring Service of Ukraine
- refining the procedure for business entities to disclose their final beneficiaries (controllers) and strengthening requirements for identification by initial financial monitoring entities of beneficiary owners of their clients
- reducing features of threshold transactions (under the new Draft Law, the number of features of threshold transactions will be reduced from 17 to 4)
- introducing an updated verification system which does not require presence of a client
The Draft Law also suggests adding to the Criminal Code of Ukraine new Articles 258-6 Terrorism Training and 258-7 Entering and Leaving Ukraine for Purposes of Terrorism. Criminalization of the aforementioned acts is a requirement of the 5th FATF Recommendation, Convention for the Suppression of Financing of Terrorism and Resolution of the UN Security Council No 2178.
To the negative aspects of the Draft Law one must refer a large number of evaluative notions and criteria to specify, for example, grounds for freezing assets related to terrorism and its financing. The Draft Law also does not include a list of offences for which the sanction such as removal of an official of an initial financial monitoring entity from office may be imposed.
At the same time, to implement the requirements of Art. 59 of the EU Directive the Draft Law suggests introducing penalty sanctions in the amount up to 10 million tax-free minimum incomes of an individual for banks and financial institutions and up to 1 million tax-free minimum incomes of an individual for other persons. For example, penalty for violating requirements to due diligence (identification and verification) of a client has been significantly increased from 500 tax-free minimum incomes of an individual to 20,000 tax-free minimum incomes of an individual.
Summing up the aforementioned in respect of the Draft Law and accounting for its positive thrust, it can be concluded that the given Draft Law needs further formalization, particularly in the aspect of specifying grounds to correlate assets with terrorism and its financing, being an independent reason for initial financial monitoring entities to stop clients’ transactions.