Financial Monitoring Law in Ukraine

On April 28, 2020, a law on financial monitoring came into force in Ukraine. It establishes new rules for the authentication of clients of banks and other financial organizations. The law “On Preventing and Countering the Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Financing the Proliferation of Weapons of Mass Destruction” existed earlier. But in April the rules were changed to more effectively combat the laundering of proceeds from crime and compliance of the procedure with the current international and European standards of financial monitoring.

Financial monitoring

Let’s try to find out what changes the new law brings for banks, businesses, accountants and ordinary citizens. It is worth starting with a short introduction to what financial monitoring is.

Financial monitoring is the process of activities of financial organizations aimed at identifying transactions with funds or other property related to legalization (laundering) of proceeds from crime and financing of terrorism.

Money laundering is usually carried out in the following way: first of all, cash obtained by criminal means is deposited in another, less suspicious form. Then the source of illegal income is hidden. After that, the “laundered” income is put into circulation on a par with legal funds.

In order to identify such schemes, financial institutions create internal control systems that create and enforce a number of measures to counter the legalization (laundering) of proceeds from crime. These measures may include: customer identification, identification of suspicious transactions, timely submission of information received to control authorities, storage of information, appointment of responsible officers and training in employee rules.

It should be noted that usually clients are not informed about the measures taken, which is also one of the methods of counteraction.

Thus, in accordance with this law, every Ukrainian bank is obliged to study its clients and their operations. And it has the right to refuse service if the client cannot explain the origin of his funds and provide supporting documents.

New law on financial monitoring

Critics of the financial monitoring law were concerned about the process of implementing the monitoring system. They say, there is a risk financial institutions will tend to block the operation once again “just in case”. In addition, some citizens are worried that they will have to “account for every penny.”

In fact, the new law only the rules of financial monitoring, making banks responsible for illegal financial transactions. Violation is subject to severe fines. Such monitoring is not at all a Ukrainian innovation. This policy is pursued in many other countries, including the EU.

What specific changes have occurred? Let’s consider some of them:

1. The threshold amount of a financial transaction subject to financial monitoring was increased – from UAH 150,000 to UAH 400,000.
2. A risk-oriented approach has been introduced into the monitoring system. It is understanding, assessing and identifying money laundering risks and taking appropriate risk management measures to ensure their minimization. Financial institutions are obliged to apply this approach, taking into account the associated risk factors, such as the geographic location of the state (through which the client carries out transactions), the types of goods and services from which the income is received, the method of providing or receiving services, etc. This approach is intended to replace mass control toughened and reduce bureaucratic processes.

3. New procedure for customer identification that does not require his physical presence.

4. Tightening the procedure for identifying the ultimate beneficial owners. If earlier financial organizations, when identifying the beneficiaries of the client, were based on the ownership structure provided by the client, as well as on the data of the unified state register, now the law provides for checking the final beneficiary on a number of points, for example, checking data from other official sources, checking the reliability of the information received about the final beneficiary, etc. In case of discrepancy between the data received from the register and the data received from the client, the organizations are obliged to notify the authorized bodies of control over financial monitoring.
5. New rules for transferring funds. For verification, both the recipient and the sender of funds will need to provide certain data. Then for an amount up to UAH 30,000 – account number / electronic wallet / electronic payment instrument / bank card / unique number of the financial transaction (for the recipient). And for an amount exceeding UAH 30,000, or if the transfer is made outside Ukraine, they must be accompanied by information about the recipient and the sender – surname, name, patronymic (full name for legal entities), account number or unique number of the financial transaction.
6. Responsibility for violation of the requirements of the Law. First of all, the law stipulates that only one punishment can be applied for one violation. In case of committing several violations, the fines are “plus”. In addition, the size of the fines has been increased

 

Transactions (not) subject to monitoring

Immediately after the adoption of the law, Ukrainians were faced with situations when banks blocked transactions for large amounts. At the same time, requiring documentary confirmation of the origin of funds and the purpose of their use, referring to financial monitoring. This undoubtedly caused outrage on the part of clients who knew nothing about the new law. What transactions will you have to account for?

The analysis covers the accounts and transactions of absolutely all Ukrainians, whether they are individuals, legal entities, entrepreneurs, etc. As for the amounts, the bank has the right to block transactions for any amount if they have signs of illegal activity – money laundering, fictitious entrepreneurship, tax evasion, etc. It is logical that financial transactions with large amounts get used to more attention. Transactions in excess of UAH 400,000 are subject to mandatory financial monitoring. But even in cases where clients withdraw smaller amounts several times, or the transaction amount is greater than your standard transactions, this may raise questions from the bank. In this case, the bank will require documents. These can be contracts with counterparties, accounting documents confirming the fact of the provision of services, invoices and other documents. The main thing is that the bank makes sure that you received the money legally.

With regard to the type of transactions, financial monitoring does not apply to:

• payment of utilities, taxes, fines and other mandatory payments (regardless of the amount);
• loan payment (up to UAH 30 thousand);
• transfers made using a payment card to pay for goods and services, if the card number accompanies the transfer;
• all cash transfers within Ukraine (up to UAH 5 thousand);
• withdrawing funds from your account.

Summing up, the new law on financial monitoring improves the system of combating the laundering of proceeds from crime. But all the advantages and disadvantages can be fully appreciated only after a while.

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