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Financial monitoring

In order to meet the requirements of Article 6 of the Law of Ukraine "On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime or Terrorist Financing and Financing Proliferation of Weapons of Mass Destruction" primary financial monitoring entities, governmental regulation and control after which carries out the Ministry of Infrastructure in the event of termination of activity must notify the Ministry of infrastructure and the State service for financial monitoring of Ukraine to take appropriate measures.

 Information for primary financial monitoring entities:

Guidelines of the risks of funding of separatist and terrorist activities on the territory of Ukraine

 Due to the difficult situation in eastern regions of Ukraine which results in taking of hostages, and civilian and military facilities, worsening of the socio-political situation and human toll, it is an urgent question to deprive persons related to terrorist and separatist activities of their financial sources. According to Article 6 of the Law of Ukraine "On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime or Terrorist Financing" (hereinafter - the Law) primary financial monitoring entity (hereinafter - the subject) shall:

  • identify transactions for which there are reasonable grounds to suspect that they are connected, related or directed to terrorism financing and on the day  they were identified or attempted transaction to inform the SCFM of Ukraine about them and enforcement bodies determined in the Law, including the Security Service of Ukraine;
  • classify their clients taking into account risk criteria defined by SCFM of Ukraine and bodies that regulate and supervise their activities during their financial transactions that may be related to the legalization (laundering) of profits from criminal actions or terrorism financing and to take precautionary measures to customers whose activities are evidence of an increased risk of such transactions.

Taking into consideration the above, the subject, while establishing business relations, defines client risks according to relevant criteria, including the type of customer, geographical location of the country of registration of the client or agency through which it transmits (receives) assets and the type of goods and services.

The high level of risk shall be assigned to clients who are included to in the list of persons related to terrorist activity or concerning whom international sanctions are applied, this list is formed by SCFM of Ukraine and to clients whom subject suspects of being engaged or involved in terrorism financing.

Special attention should be given, in particular, to such clients:

  • non-profit or charitable organizations (except charitable organizations operating under the auspices of international organizations);
  • public officials or related persons, including those with broad powers in Ukraine;
  • residents of countries that support terrorist activities;
  • leaders or founders of public or religious organizations;
  • Charity Fund, foreign non-profit non-governmental organization, its branch or representative office, operating in Ukraine;
  • activity of whom is involved in the heavy turnover of cash;
  • conducting transactions with cash or other property only through a representative acting by proxy;
  • performing calculations for transactions using Internet technology, electronic payment systems, money transfer or other alternative systems of remote access that make it impossible to conduct a full identification of the sender / recipient);
  • who do not provide a subject with additional information specified by internal documents of the subject;
  • about whom, there are doubts about the authenticity of documents submitted by them or identity details submitted before.

In respect of such persons according to Article 9 of the Law subject:

  • provides in-depth client identification and verify customer identity, including its owners;
  • collects information to understand the activity of client, the nature and level of transactions conducted by him;
  • identifies the nature, character and purpose of business relationships and in case of suspicion strengthens monitoring of transactions conducted by the client.

 In view of the foregoing, we find it necessary to use the following criteria, in particular, to  payment of (to) client in such cases:

  • payment arrives in Ukrainian banks from country supporting international terrorist activities;
  • payment arrives by using the payment system of the country that supports international terrorist activities;
  • payment is made in the currency of the country that supports international terrorist activities;
  • payment is made by non-profit radical organizations or other;
  • payment carried out by individuals - citizens of countries that support international terrorist activitie;
  • payment carried out by legal entities registered in the country that supports international terrorist activities, and in which citizens of a country that supports international terrorist activities, are the founders (participants) or members of the administration of the entity.

For the purpose of identification of countries supporting international terrorist activities, entities may use any official media (including the Internet pages) of the Cabinet of Ministers of Ukraine, the National Bank of Ukraine, other state agencies, and international and intergovernmental organizations involved in combating legalization (laundering) of profits from criminal actions or terrorism financing.

Taking into consideration the above, after transactions with similar characteristics subject provides their analysis and make decisions about the submission of information about them to SCFM of Ukraine and the Security Service of Ukraine in accordance with Article 6.

When analyzing financial operations whether they are connected with, related to or intended for terrorist financing, subjects must have a clear understanding that terrorist financing can be done through terrorist organizations pretending legal entities, as well as through legitimate entities as conduits for terrorist financing.

Thus, in order to reduce the risk of subjects to be used by criminals for the purpose of  terrorist financing we recommend subjects to use the right to refuse financial transaction if the financial transaction contains elements of such that under the Law is subject to financial monitoring, including those are connected with, related to or intended for terrorist financing and inform the SCFM of Ukraine within one working day, but not later than on the next working day after refusal (article 10 of the Act).

Also, to reduce the risk of financing separatist and terrorist activities on the territory of Ukraine, the SCFM of Ukraine recommends subjects, pursuant to Article 17 of the Law, to stop financial transactions conducted by persons mentioned in the list of Ukrainian individuals and individual countries that support international terrorist activity, in terms of  application to them economic sanctions and inform the SCFM of Ukraine.

To see a list of individuals subject to sanctions by the Council of the European Union and the United States (incl. OFAC) go to web resources links:

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014D0238&rid-l

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX: 32014D0151 &rid=4

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0433&rid=l

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0477&from=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL 2014 160_R_0004&from=EN

http://www.treasury.gov/resource-center/sanctions/Programs/Documents/31cfr589.pdf

http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140716.aspx 

Clarification by SCFM of Ukraine for primary financial monitoring entities about the risks of funding separatist and terrorist activities on the territory of Ukraine

With a view of unambiguous interpretation of the Guidelines of SCFM of Ukraine regarding the risks associated with the funding of separatist and terrorist activities on the territory of Ukraine, placed 21/07/2014 on official website SCFM of Ukraine in application of Article 17 of the Law of Ukraine "On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime or Terrorist Financing"(hereinafter - the Law) .

Taking into account the fact that the United States and the Council of the European Union have introduced individual (restrictions on financial transactions) and sectoral (restriction of capital market funding) sanctions concerning the list of individuals from the Russian Federation and Ukraine, entities of the Russian Federation and entities of Ukraine, located in temporarily occupied territory, due to the actions of these individuals which undermine and threaten the territorial integrity, sovereignty and independence of Ukraine, the SCFM of Ukraine in order to reduce the risk of financing separatist and terrorist activities on the territory of Ukraine recommends the financial monitoring subjects, in accordance with Article 17 of the Law, stop financial transactions conducted by persons mentioned in the list of individual sanctions, and inform the SCFM of Ukraine.

To see a list of individuals subject to sanctions by the Council of the European Union and the United States (incl. OFAC) go to web resources links:

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014D0238&rid-l

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX: 32014D0151 &rid=4

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0433&rid=l

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0477&from=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL 2014 160_R_0004&from=EN

http://www.treasury.gov/resource-center/sanctions/Programs/Documents/31cfr589.pdf

http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140716.aspx 

 Concerning exercise of the Law of Ukraine "On amending some legislative acts of Ukraine regarding freezing of assets related to terrorist financing or financial transactions suspended pursuant to the decisions were based on UN Security Council Resolutions, and stipulating the procedure for authorizing access to them"

According to the United Nations Charter, Ukraine, as a member of the UN, must enforce UN Security Council resolutions (Article 25 of the UN Charter). Countries should have effective laws and procedures to freeze terrorist funds or other assets under sanctions as defined by the UN Committee.

Ukraine, as a member of the UN should implement the UN Security Council Resolution and  to freeze the assets of terrorists of  "Al Quaid," "Taliban" and other terrorist organizations. However, they should be immediately frozen for an indefinite period, i.e. until the person will not be excluded from the list on the basis of UN Security Council Resolutions.

In addition, the sixth FATF Recommendation specifies that countries should implement targeted financial sanctions regime to ensure compliance with UN Security Council Resolutions to prevent and combat terrorism and terrorist financing. Resolution establish requirements for countries to immediately freeze the funds or other assets and to ensure that no funds or assets are granted, directly or indirectly, to any person or entity defined by the Security Council under Chapter VII of the UN Charter so that can be related to terrorist financing or concerning which international sanctions are applied.

For that matter on April 21, 2011 the Verkhovna Rada of Ukraine adopted the Law of Ukraine "On amending some legislative acts of Ukraine regarding freezing of assets related to terrorist financing or financial transactions suspended pursuant to the decisions were based on UN Security Council Resolutions, and stipulating the procedure for authorizing access to them" (hereinafter - the Law), which entered into force on 19 May 2011.

The Law is a tool of Ukraine's international commitments on improving national legislation on prevention and counteraction to legalization (laundering) of proceeds from crime or terrorist financing, including the possibility of the seizure of assets related to terrorist financing, release from seizure of such assets and providing access to them.

The Law made comprehensive changes to the Law of Ukraine "On Terrorism Counteraction," "On the Security Service of Ukraine," and the Code of Administrative Legal Proceedings of Ukraine (hereinafter – the Code), which introduced the administrative procedure of seizure of assets, that is different than the one specified by the Criminal Procedure Code of Ukraine.

The Legislative novel was the definition of "assets related to terrorist financing and related financial transactions stopped in accordance with a decision taken on the basis of UN Security Council resolutions." The Law of Ukraine "On Terrorism Counteraction" under such assets understands money, property, property and non-property rights, in whole or in part, directly or indirectly owned or controlled by persons related to terrorist activity or concerning which international sanctions are applied and assets obtained or derived from such funds, assets, property and non-property rights and other assets of these individuals.

The law provides that the seizure of such assets and release from seizure are carried out by a court decision on the initiative of the Security Service of Ukraine.

In turn, the Code was supplemented with the a new Article 183-4, which defines the features of the proceedings on the request of the Security Service of Ukraine concerning the seizure of assets related to terrorist financing and related financial transactions stopped in accordance with a decision taken on the basis of the UN Security Council Resolutions, release from seizure and giving access to them.

Under the new provisions of the Code in these cases, proceedings are based on an administrative claim of the Head of Security Service of Ukraine or his deputy. Administrative action is submitted to the court of jurisdiction defined by the Code.

The law provides that the ruling on the claims essentially shall be passed by the court no later than on the next working day after receipt of the claim, considered in closed court session involving only the applicant. However, the owner of the assets related to terrorist financing and related financial transactions stopped in accordance with a decision taken on the basis of UN Security Council resolutions, which are seized or released from seizure or to which access is given, is not notified about the hearing of a case.

The decision of the Court shall include:

  • date of the ruling;
  • name of the court, name of the judge;
  • reasons and judgment of the court with reference to the law; order of actions provided by the ruling.

Ruling on refusal to accept the claim can be appealed. The Court of Appeal within three days of receipt of the appeal examines the legality of the ruling of the court of the first instance and makes decisions on the merits.

Judgments of this category of cases that became final and came into force are immediately enforceable.

However, the Law of Ukraine "On Terrorism Counteraction" is supplemented with a new Article 111, which regulates the suspension of financial asset transactions related to terrorist financing and related financial transactions stopped in accordance with a decision taken on the basis of UN Security Council Resolutions and arrest such assets.

Thus, financial transaction participant or beneficiary of which is person included to List of persons related to terrorist activity or concerning whom international sanctions are applied stops under the Law of Ukraine "On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime or Terrorist Financing”.

 Legal documents and other documents

Public statement of The Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) in accordance with Step 3 of MONEYVAL's Compliance Enhancing Procedures in respect of Bosnia and Herzegovina;

Order of the Ministry of Infrastructure of Ukraine of 26.11.2012 №707 "On approval of the preventive measures to countries that do not fulfill or improperly fulfill recommendations of international, intergovernmental organizations related combating the legalization (laundering) of proceeds from crime or financing of terrorism

Order of the Ministry of Infrastructure of Ukraine of 26.11.2012 №708 "On approval of the Commission of the Ministry of Infrastructure of Ukraine on application sanctions for violations of the Law of Ukraine"On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime or Terrorist Financing and Financing Proliferation of Weapons of Mass Destruction" and / or of regulations governing activities in the area of ​​prevention and counteraction to legalization (laundering) of proceeds from crime ";

Order of the Ministry of Infrastructure of Ukraine of 03.08.2012 №156-e "On authorizing officers of the internal investigation and prevention of corruption and economic offenses to draw up protocols for administrative offenses";

Order of the Ministry of Infrastructure of Ukraine of 01.04.2013 №199 "On approval of the Financial Monitoring reporting entities, governmental regulation and supervision of which is made by the Ministry of Infrastructure of Ukraine";

Order of the Ministry of Infrastructure of Ukraine of 20.01.2014 №32 "On approval of the Action Plan to prevent and combat corruption and economic crimes in the Ministry of Infrastructure of Ukraine for 2014";

Order of the Ministry of Infrastructure of Ukraine of 08.04.2014 №173 "On approval of the Plan of Inspections the Ministry of Infrastructure of financial monitoring entities in the second quarter of 2014."