FOR THE RECORD: Memorandum on combating money laundering (02/16/03)

FOR THE RECORD

Memorandum on combating money laundering

Following is the the full text of the "Memorandum on the Establishment of the National System of Combating Money Laundering and Terrorism Financing in Ukraine." The text was released by Ukraine's Mission to the United Nations.

After the tragic events of September 11, 2001, that took place in the United States of America, which hit the whole world, the problem of combating the legalization of proceeds from crime and terrorism financing has become especially real. In this regard, the increased requirements of the Financial Action Task Force, the World Bank and the International monetary Fund represent quite a rightful response to this problem and demonstrate the consolidation of efforts of the world community towards preventing and counteracting 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 to combat 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 international measures aimed at actively combating money laundering and terrorism financing, demonstrating its openness and readiness for cooperation.

Until recently, Ukraine's efforts had not been fully effective in the fight against the said phenomenon. However, with the new government coming to power, a real evaluation of the situation took place at the end of 2002 and at the beginning of 2003. Positive and cardinal changes, in terms of the approach to the solution of the problem, came about. Today Ukraine meets almost all the requirements of the internations organizations that are generally recognized lawmakers in the sphere of combating money laundering and terrorism financing, thereby reaffirming its intention to create a completely transparent financial system and to prove to the world community the irreversibility of the course toward integration set forth by the president and the government of Ukraine.

In this context, we thank the European countries and the United States for their expert assistance in the establishment of the system of financial monitoring in Ukraine. This assistance seriously influenced the formation of a legal base of combating illegal proceeds and terrorism financing based on the national legal system in force.

We are actively introducing the complex national system of combating money laundering and terrorism financing. Paramount attention is being paid to the establishment of the system nationwide. Ukraine's government considers it a priority, and recent steps Ukraine has taken testify to this end.

Thus, on November 28, 2002, the Verkhovna Rada of Ukraine (Parliament) passed the Law of Ukraine on Prevention and Counteraction of Legalization (Laundering) of the Proceeds from Crime No. 249-IV.

After adoption of the basic law aimed at the regulation of relations in the field of combating money laundering and terrorism financing, it was analyzed by FATF experts in December 2002. FATF made several comments, recommending that Ukraine introduce amendments into the newly passed law and regulate several other legislative issues.

Upon the government's 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 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 for identification of individuals performing financial transactions, has been supplemented with provisions regarding the obligation of a 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 providing information to the State Financial Monitoring Unit, have been excluded. The amendments introduced into Article 8 of the basic law obligate the staff of subjects of financial monitoring to unconditionally disclose all transactions that give rise to suspicions that they may have sought 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 profit 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 seizures and confiscation of proceeds from crime. Now the law provides an "illustrative" list of transactions subject to financial monitoring, instead of an obligatory one. This means that broader authority is granted to subjects that perform financial monitoring for the proposes of monitoring 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 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 focused attention an this fact), but also removes all obstacles to prosecution of individuals who launder the proceeds of crime. The new article, 209, of the Criminal Code of Ukraine established culpability for violating the legislation on prevention and counteraction to the legalization (laundering) of proceeds from crime with regard to the intentional failure to submit 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 the intentional disclosure of the above-mentioned information to the client or any third party. The amendments to the Criminal Procedure Code of Ukraine established that the offenses under Article 209 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. The law brings the provisions of the Law of Ukraine on Banks and Banking Activities and the Law of Ukraine on Financial Services and State Regulation of Makers of Financial Services into 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 disciplinarily, 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 reporting threshold for cash and cashless transactions is established at 100,000 hrv (about 14,540 euros), if the transaction is carried out in Ukrainian hryvni, or its equivalent if the transaction is carried out in foreign currency. Such an approval meets generally recognized international standards, including the directive of the Council of Europe on prevention of the use of the financial system for money laundering purposes (June 10, 1991, No. 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 $10,000 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 eight special recommendations of the FATF. The draft was approved by the Verkhovna Rada of Ukraine in the first reading. Supplements to the Criminal Code 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 the financial intelligence unit (the State Department of Financial Monitoring) was activated. The department is a governmental authority under the Finance Ministry of Ukraine and functions are clearly defined by the basic law and the statute as the specially authorized body in this sphere. It is a legal entity with its independent balance, registered at the State Treasury, and has its own seal. The department is absolutely independent of 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 its 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 activities are now proceeding on a 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 Intent and final approval of performance specifications for the Project of Technical Assistance for Combating Proceeds from Crime in Ukraine. The project is planned for launch in the nearest future, before coming into force of the basic law. The funding available under the project will be around 1 million Euros. The project includes training the department's specialists in financial intelligence units in 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 creating a working system to combat money laundering and terrorism financing. At the same time, we realize that there is no criterion of sufficiency of such measures, according to formal indications. The assessment of such actions is always subjective in character. In order to obtain a positive result, Ukraine exerts every effort to exceed the standards set by the medium level of the countries, corresponding systems of which do not give rise to claims of the FATF. The government of Ukraine is determined to increase the active nature 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 real evidence of the 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 the FATF regarding the withdrawal of the above-mentioned countermeasures against Ukraine at the next plenary meeting of this institution, scheduled for the middle of February 2003. In this context, Ukraine intends to prepare for accession to the Egmont Group and to take further steps required for removal from the FATF's list of Non-Cooperative countries and territories (NCCT).

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