With the increasing growth of financial services industry countries should be aware of the risks involved in hiding the illegal origin of money. Thus, on the path to association with the European Union, the priority for future development of Ukraine's financial system is to ensure it functions effectively.

Money laundering is highly destructive as it is used in illegal arms and drug trafficking, financing of terrorists and proliferation of weapons of mass destruction. Realizing such activities, criminals receive large profits and aim to divert the attention of interested persons. When fighting against money laundering, experts must carefully study the nature and mechanism of financial transactions.

Since the beginning of 2018 the National Bank of Ukraine (NBU) has applied measures of influence on 12 banks for violating legislation in the sphere of financial monitoring. The largest number of fines for violations in the sphere of financial monitoring was recorded in 2014, when banks received 94 fines. The number of banks that receive fines for violating legislation in the sphere of financial monitoring is falling with every year.

Risk–oriented approach

When using risk-oriented approach banks, as subjects of initial financial monitoring, are obliged to study and clarify information on the client and analyze its financial transactions. The National Bank of Ukraine regularly raises requirements for the identification by banks of operations regarding financial monitoring. The use of a risk-oriented approach is stated in paragraph 72 of the Regulation of NBU No. 417 On Approval of the Regulation On the Implementation by Banks of Financial Monitoring. Such an approach is a common practice in the European Union and is based on international standards in the sphere of anti-money laundering, also implementing an effective system of anti-money laundering and countering funding of terrorism.

The NBU independently determines the factors and the list of clients to which this approach should be applied. It requires supporting documents, and in case the client does not confirm the appropriate use of funds, it can block the transaction and refuse to transfer funds. Articles 15 and 16 of the Law On Prevention and Counteraction of the Legalization (Laundering) of the Proceeds from Crime, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction (the Law) provides a list of operations subject to financial monitoring. This is a transaction for an amount equal to or in excess of UAH 150,000 for credit and transfer of money relating to:

  • an anonymous account abroad or receipt from such an account from abroad, if one of the parties in a financial transaction is registered in the state - an offshore company, or a state that does not comply with the recommendations of international organizations fighting terrorism;
  • the account of a legal entity or private entrepreneur, whose period of activity does not exceed 3 months from the date of registration;
  • under foreign economic contracts;
  • exchange of banknotes for banknotes of another denomination;
  • buying and selling recepts, cash receipts;
  • financial transactions with cash;
  • transactions with promissory notes, bearer securities, non-profit organizations, agreements for which the form of payments is not determined;
  • insurance payment, payment of winnings, payment for the right to participate in gambling;
  • high-risk financial transactions.

A bank is obliged to inform law-enforcement agencies on the day of detection of financial transactions in relation to which there are reasons to suspect that they are related or relevant and foreseen for financial terrorism – have the right to suspend a financial transaction on the client's account.

NBU inspection

For the first time ever, the NBU posted its annual plan of inspections of banks for 2019 on its official web site. Inspections are carried out in accordance with the decision approved by the NBU Board on 22 December 2018 to a plan drawn up on the basis of a risk-oriented approach in accordance with NBU Resolution No. 197 On Approval of the Regulation on the Procedure for the Organization and Conduct of Audits on the Prevention and Counteraction of the Legalization (Laundering) of Proceeds. A risk-based approach takes into account the bank belonging to a certain category, its size in the banking system, the nature and complexity of operations, level of risks corresponding to its activities, as well as on the basis of a general estimate of the SREP (Supervisory Review and Evaluation Process).

During the bank inspections facts have been identified that may indicate that there are signs of risk taking in the following cases:

  • at the stage of clarifying information about the client, the latter provided documents to the bank from other banks, and such information was not confirmed by other banks;
  • in accordance with the terms of the contract, the currency of payment differs from the currency of the price and as a result of the transfer of rates that may differ significantly from the market rates, the amount of payment going abroad increases and indicates the absence of supporting documents.

In the event of violations being detected, a bank was subject to measures of influence stipulated in Article 73 of the Law On Banks and Banking Activity.


The NBU and banks are constantly improving the system for preventing, the legalization of criminal incomes, financing of terrorism by expanding cooperation with leading international organizations.

Among all international organizations involved in the legalization (laundering) of the proceeds of crime, the Financial Action Task Force takes a prominent place. It is an inter-governmental body that implements measures and standards for combating money laundering at national and international levels. Every year, the FATF prepares its Annual Report, which outlines practical recommendations for combating corruption and is recognized by all FATF member countries. This is a standard in the field of anti-money laundering law and counter-terrorist financing law.In turn, the FATF monitors the success of member countries in the fighting of money laundering and promotes the adoption and implementation of the Forty Recommendations by member governments on a global scale.

The main FATF recommendations include the following:

  • сriminalization of money laundering as a result of serious crimes;
  • obligation for financial institutions to identify their clients and keep proper records;
  • a requirement for financial institutions to notify the competent authorities of suspicious transactions;
  • adequate systems for monitoring and overseeing the activities of financial institutions;
  • the need to sign international agreements and the adoption of national legislation that would enable countries to cooperate at all levels.

Ukraine is not part of the FATF at present, so its rules cannot be applied to Ukrainian citizens. Also, participation in the FATF requires the introduction of the CRS standard (the standard of automatic exchange of financial information), which obliges banks, insurance companies and brokers to provide information on their clients.

However, Ukraine has joined the BEPS Plan on 1 January 2017, which confirms its intention to become a member of the FATF regime for the automatic exchange of tax information between European countries.

New draft AML-law

In order to implement the provisions of the Directive (EC) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, as well as in accordance with the Association Agreement signed between Ukraine and the European Union, it is necessary to implement the international standards set out by the FATF. Thus, a Draft law No. 9417 was submitted with the participation of international experts which proposes to improve the national legislation and for entities of initial financial monitoring (banks, insurers, credit unions, pawnshops, payment organizations and other financial institutions) to:

  • increase the threshold of the financial transaction and reduce the number of signs for mandatory reporting to the State Financial Monitoring Service to more than UAH 300,000(currently UAH 150,000);
  • expand the range of parties and include persons providing information and consulting services on taxation issues;
  • improve the procedure on disclosure by business entities of their final beneficial owners;
  • introduce international tools on asset freezing.

For payment systems, the draft introduces:

  • support of money transfers with information on payer and recipient;
  • the availability and completeness of information on the payer and recipient of the payment;
  • pre-trial restriction aimed against manipulations with money.

Thus, money laundering, tax avoidance and illegal economic activity (fake entrepreneurship and fraud) are a permanent phenomenon. Thus, the main task of the regulator and the banking community is to prevent a return of fraudulent transactions to the banking sector. Consequently, the NBU pays special attention to ensuring that banks understand the nature of transactions and obtain significant amounts of information on banks in order to identify money laundering risks. The efforts of banks should be aimed specifically against money laundering rather than low risk customers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.