“Stop Money Laundering!” Conference - 26th February 2002, London

MONEY LAUNDERING:

Implemetation of 40 FATF recommendations in Ukraine

By Oleg Veremienko, L.L.M. student, Ukraine

Plan

1. Basics of Money Laundering

2. 40 FATF recommendations

3. Conclusions

4. References (used literature)

5. Appendix (Ukrainian cases)
   

Introduction and Questions:
What is Money Laundering?
What is the scale of the problem?
How are money laundered?
Where does the Money Laundering occur?
How does Money Laundering affects business?
What influence does Money Laundering have on economic development?
What is the connection of Money Laundering with society at large?
How can fighting Money Laundering help fight crime?
What shall Ukrainian Government be doing to face Money Laundering?

BASICS OF MONEY LAUNDERING
1. DEFINITION:

There is no unified approach to the definition of the “Money Laundering” as such. However we can find couple of approaches in the literature. Strictly speaking, money laundering is the age-old process of disguising the illegal origin and criminal nature of funds (obtained in sanctions-busting arms sales, smuggling, trafficking in humans, organized crime, drug trafficking, prostitution rings, embezzlement, insider trading, bribery, and computer fraud) by moving them untraceably and investing them in legitimate businesses, securities, or bank deposits. But this narrow definition masks the fact that the bulk of money laundered is the result of tax evasion, tax avoidance and outright tax fraud. Tax-related laundering nets between 10-20 billion US dollars annually from France and Russia alone. However in this research we will focus only Ukrainian “traditions” of money laundering, trying to reveal this phenomenon with it”s country colour.

2. THE SCALE OF THE PROBLEM:

Globally, the scale of the problem is between 2-5 percent of the world’s GDP2. In Ukraine[1], the problem of money laundering is still in its initial stage. At the time of writing this paper, there were no officially published statistics on this criminal phenomenon. However, the only fact that Ukraine signed both the Vienna and Palermo conventions testify that the crime exists.

3. HOW MONEY ARE LAUNDERED

In Ukraine, money that is laundered comes mainly from corrupt practices, illicit drug and arms trafficking (and some other crimes), and from abroad in form of loans and development aid. However, in the country itself, most of the money laundered come from the predicate offence of corruption. Corruption includes offering, giving, soliciting, and accepting any form of bribe, undue advantage or other inducement, where the proposed recipient is a public official and the purpose of the bribe relates to his/her official duty.

Most corrupt officials use placement, layering and integration techniques to launder what they have unduly received. By placement, they introduce the ill-gotten profits into the financial system. Layering then follows placement of the ill-gotten assets/money. At this stage, persons engage in the movement of the funds to distance them from source. Most often, such corrupt officials take the money abroad where it is saved in foreign banks especially in the western ones.

Integration of these proceeds follows next after layering. At this point, the funds re-enter the legitimate economy following their investment mainly abroad by both nationals and foreigners alike. Most often, these persons invest in real estates, new companies etc.

4. WHERE DOES MONEY LAUNDERING TAKE PLACE?

Money laundering occurs in Ukraine very often because of lack of specific legislation regarding this kind of illegal activity. For this reason, the country can be termed a non co-operative territory because, money launderers cannot be prosecuted as such (Once Ukraine has been in the FATF 15 countries black list!). Ukraine, being a country with emerging democracy, serves as an integration state for illegal proceeds obtained elsewhere. This is so because at times some western countries get illegal proceeds and give them to developing countries as loans in order that such proceeds re-enter their legal economies in form of loan repayments. Money is also laundered through currency exchange houses, casino, trading companies and banks etc.

5. HOW DOES MONEY LAUNDERING & BISINESS DEVELOPMENT

Both Micro and macro economic in Ukraine can feel influence of Money laundering. This activity has bad economic consequences, which all slows down business and its activities in Ukraine. It provides the fuel for criminals to expand their criminal enterprises thus affecting legitimate business. It also gives certain advantage to illegal practices over legitimate business practicers, who obey legal regulations, which is usually much more difficult to do.

Unchecked money laundering can undermine security of Ukraine’s financial institutions. It also adversely affects the Hrivna UA National currency and interest rates thus undermining also the national economy. Money laundering has enormous influence on the economic development in Ukraine. If this phenomenon is allowed to grow uncontrolled, it will definitely harm the legitimate private sector. Money launderers (engaged also in legal business, in other words investing their dirty money in legal business activities) with their ill-gotten funds tend to sell their products below production cost, thus putting other legitimate companies within the same area of production out of business.

This makes impossible for legitimate business to make concurrence with such companies with “left” funding. Situation may result in the overwhelming of the private business sector with legalised criminal organisations. And it constitutes big danger for new Ukrainian emerging democracy. On the other hand, money laundering as such will lead to the undermining of the security of the financial market in Ukraine. Financial institutions that used to rely on the proceeds of crime will have additional challenges in adequately managing their assets. For example, large sums of laundered money may arrive at a bank but then disappear suddenly without notice. This will lead to problems in liquidity and put bank I dangerous situation of bankrupt. This can even cause “the domino” effect, if we assume that not only one bank has connection with “shadow economy”. History proved, criminal activities have been associated with a number of bank failures in Ukraine, including the failure of “Bank Slovianskiy” and “Bank Ucraina” (btw the former Governor of the Bank was Mister Yuschenko at a time) in the 2001.

Money laundering, been uncontrolled, can lead to the loss of control over economic policy.

So, money laundering may result in drastic changes in money demand and increase interests and exchange rates. The unpredictable nature of money laundering, coupled with the attendant loss of policy control, may make transparent and prosperous economic policy almost impossible to achieve in Ukraine. Money laundering can also lead to economic instability. Since money laundering redirect funds from seroius investments to low quality investments that hide their proceeds, in such may slowing down economic growth.

Uncontrolled money laundering also lead to loss of revenue by state budget in Ukraine. This is so because it diminishes government tax revenue and therefore, indirectly harms honest tax payers. It also makes government tax collection difficult. Money laundering risk to jeopardise the privatisation efforts. For example, many of the State owned enterprise have all been bought by foreign concerns which might have been a way for them to hide their illicit proceeds in a developing country.

Another consequence of money laundering in Ukraine may be that of loss of reputation. Confidence in markets and in the signalling role of profits is eroded by money laundering and financial crimes. The negative reputation of that results from these activities diminishes global opportunities and sustainable growth while attracting international criminal organisations with desirable reputations and short term goals. This can result in diminished development and slow economic growth if not worse.

6. HOW DOES IT AFFECT SOCIETY AT LARGE

Money laundering has a corrosive effect on Ukrainian economy, government, and social well-being. There are significant social costs to be paid for this phenomenon in Ukraine. Money laundering is a process vital needed to make crime attractive. It allows different criminals to expand their operations. Among its negative socio-economic effects, money laundering brings economic power from the market, government, and citizens to criminal sector.

Furthermore, the sheer magnitude of the economic power that accrues to criminals from money laundering has a corrupting effect on all elements of the society. Thus if left uncontrolled, the economic and political influence of criminal organisations can weaken the social and ethical standards. Not mentioning democratic institutions.

7. CAN FIGHTING MONEY LAUNDERING HELP FIGHT CRIME?

Fighting money laundering helps fight crime, no doubt. Because effective stop “money laundering” measures deprive criminals of their “blood”! Since they cannot hide their illicit funds. And effective money laundering measures can have “Robin Hood” effect – depriving criminals of their wealth giving it back to victims. Besides, depriving criminals of their ill-gotten profits means targeting them exactly where they are vulnerable.

8. WHAT SHOULD UKRAINIAN GOVERNMENT BE DOING TO FACE THIS CRIME?

In order to face this criminal phenomenon, Ukrainian government should establish comprehensive anti money laundering governmental strategic programme for next couple of years, aimed at:

a) raising awareness on money laundering issues.

b) providing legal assistance; aimed at making the act of money laundering a crime, giving law enforcement agencies the authority to trace, seize, and confiscate criminally derived profits.

Besides, competent authorities should be permitted to exchange information “on request” between themselves and on international level too!

Indeed to stop money laundering activities in Ukraine is impossible (and we must be realistic), however Ukrainian government can do everything possible to keep the beast on the “short leash”.

Last but not least, Ukraine has a lot of things to be done to attaining international standards in co-operation with other countries if it wants to reduce the ability of criminals to launder their proceeds and carry out their criminal activities across borders.

9. Implementation of 40 FATF recommendations in Ukraine

*** Financial Action Task Force on Money Laundering ***

INTRODUCTION

State Tax Aadministration of Ukraine press service report refers to the audit report on a conversion center at one of Kyiv's large banks. The audit revealed that out of the total 106 coded accounts, 90 accounts have been opened using lost passports or in deceased persons names. Daily, from 2 to 3 million Hryvnias has been converted into cash by this center daily. UAH 40 million has been transferred to bank accounts of fake persons in the last 9 months alone. In January to September 2000, 197 coded bank accounts have been opened with this bank, with UAH 1.2 billion having been transferred into Hryvnia accounts and US$ 87.5 million into 151 foreign currency accounts. All the transfers have been paid out by the bank "The amount equal to the annual budgets of several Ukraine's oblasts was converted in cash which cannot be traced by anyone", the STA report concludes.

Last year STA disclosed 2,800 bogus companies and 74 converting centers, with a turnover reaching UAH 5.5 billion annually.

Unfortunately, Ukraine is not a FATF member-country; however since 1997 has it”s representatives in the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (PC-R-EV) within Council of Europe. And indirectly is entitled to follow advice, prescribed in 40 FATF recommendations.

GENERAL FRAMEWORK OF THE RECOMMENDATIONS

Recommendation 1

Each country should take immediate steps to ratify and to implement fully, the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention)

1. On the legal side, Ukraine has signed and ratified the 1988 United Nations Convention on Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention), which came into force in 1991 and the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (the Strasbourg Convention), which came into force on 01.05.98. The examiners were advised that both these Conventions were directly applicable in Ukrainian law. Nonetheless concerns were expressed that national legislation had not been brought into conformity with those Conventions at the same time, and work is ongoing to supplement the Conventions with further domestic legislation. As a result of the ratification of the Vienna Convention, Article 229 (12) of the Criminal Code was introduced in 1995, criminalising drug money laundering. Cases of drug money laundering have been investigated, though there have been no convictions.

Recommendation 2

Financial institution secrecy laws should be conceived so as not to inhibit implementation of these recommendations.

1. Previously bank secrecy was regarded as “sacred cow” and none could violate it in any way, including judges.

2. However after Parliament of Ukraine made changes to series of Laws, regarding activities of investigations in money laundering, and thus restricted bank secrecy, which is not seems to be so “secred” afterwards.

3. But, I must mention, that I order to get access to information handled by banks and financial institutions investigator should get special indictment of a judge.

Recommendation 3

An effective money laundering enforcement program should include increased multilateral co-operation and mutual legal assistance in money laundering investigations and prosecutions and extradition in money laundering cases, where possible.

1. Within the scope of this very rec.N3 we consider “increased multilateral co-operation” as key issue. This is a noble goal, and no doubt there is still a lot to be done for improving bilateral and multilateral co-operation and getting assistance in investigation and prosecutions of international criminals.

2. However, only wish is not enough. Firstly, there is lack of political will – that means that Ukrainian government sometimes leads “double standards” policy, proclaiming on every corner necessity of investigations and prosecutions etc., but making serious obstacles to judges and prosecutors brutally interfering in their independent activities. In order to protect some high officials, and escape justice.

3. Secondly, there is set of human resources problems of law enforcement agencies. Nowadays salary of the most highly qualified experts (investigators, for example) is not higher that 100 Euro. Which is at time very low, if not degrading human dignity. And this is one of the reason why qualified experts flee from Ukrainian law enforcement agencies into private business sector, or even to the camp of criminals, unfortunately.

ROLE OF NATIONAL LEGAL SYSTEMS IN COMBATING MONEY LAUNDERING
Scope of the Criminal Offence of Money Laundering

Recommendation 4

Each country should take such measures as may be necessary, including legislative ones, to enable it to criminalise money laundering as set forth in the Vienna Convention. Each country should extend the offence of drug money laundering to one based on serious offences. Each country would determine which serious crimes would be designated as money laundering predicate offences. (See Interpretative Note)

1. Firstly, Ukrainian parliament adopted new Penal code on 17th May 2001. However you will not found there separate crime, called “money laundering”. However, it prescribes criminal responsibility for similar crimes which aim at hiding illegal origin and criminal nature of funds.

1a. How is money laundering defined? On the one hand, money laundering is all about hiding the proceeds of criminal - or at least illegitimate - activity. Generally speaking, it's a three-stage process:

first comes placement, getting the money into the global financial system and away from where it was made in the first place;

then comes layering: pushing the money through multiple transactions, using a number of countries and a handful of shell companies - also known as "brass plate" companies, bought off the shelf and with nominee directors standing in front of whoever really benefits;

finally comes the integration: getting the money back to a place and form in which you, the original crook, can spend it.

2. List of predicate offences for Ukraine can be also very long (not mentioning drug trafficking), and thus constitutes topic of the separate legal research.

3.Most criminal activity in Ukraine appears to have an economic purpose. While drug use is increasing, the Ukraine remains primarily a transit route in view of its geographical situation at the centre of Europe. Three primary areas of criminal activity are thought broadly to generate illegal proceeds: smuggling (of drugs, human beings and arms); fraud and tax evasion including the illegal manipulation of the privatisation process; and corruption. It is believed that most crime is conducted by groups, as opposed to individuals. Tackling organised crime is a major law enforcement priority.

4. A new article in the Criminal Code is intended to widen the range of predicate offences the proceeds of which can be the subject of money laundering investigations and prosecutions. The examiners urge speedy introduction of such a provision, and it is important that it covers all the physical aspects of the offence, as envisaged in the existing international conventions.

Recommendation 5

As provided in the Vienna Convention, the offence of money laundering should apply at least to knowing money laundering activity, including the concept that knowledge may be inferred from objective factual circumstances.

1. It”s difficult to imagine spontaneous money laundering. It always precludes existence of evil intentions, and constitutes area of mens rea.

2. Mens rea is obligatory element of any serious crime to be proved before independent court while criminal trail. Here all arsenal of evidences can be used by prosecutor.

Recommendation 6

Where possible, corporations themselves - not only their employees - should be subject to criminal liability.

1. Unfortunately, provision of rec.N6 is not possible for Ukraine due to several reasons. Firstly, Ukraine being traditionally a Civil law country has no institute of criminal liability of legal entities.

2. It”s presumed that criminal liability is individual, but not corporate in any case. What is true for US (as a common law country) is not true for Ukraine.

Provisional Measures and Confiscation

Recommendation 7

Countries should adopt measures similar to those set forth in the Vienna Convention, as may be necessary, including legislative ones, to enable their competent authorities to confiscate property laundered, proceeds from, instrumentalities used in or intended for use in the commission of any money laundering offence, or property of corresponding value, without prejudicing the rights of bona fide third parties.

Such measures should include the authority to : 1) identify, trace and evaluate property which is subject to confiscation; 2) carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer or disposal of such property; and 3) take any appropriate investigative measures.

In addition to confiscation and criminal sanctions, countries also should consider monetary and civil penalties, and/or proceedings including civil proceedings, to void contracts entered into by parties, where parties knew or should have known that as a result of the contract, the State would be prejudiced in its ability to recover financial claims, e.g. through confiscation or collection of fines and penalties.

1. Confiscation of property obtained as a result of laundered money is separate issue in every criminal investigation. And addressed by judge in every verdict in each individual case. However, there are must be evidences provided and, without any doubts, there must be legal basis for confiscation of such property (However there is also one limitation – Ukrainian Penal Code – in it”s appendix – contains a list of property that cannot be confiscated in any case – it concerns personal property of members of the family (children, wife etc.) of the criminal).

2. It”s also very difficult to imagine in practise confiscation of property of criminal without prejudicing the rights of bona fide third parties. In my short two years legal practice in Ukrainian legal clinic I faced many times with examples of confiscation be courts of such property with violation of rights of bona fides parties. Hopefully, this tendency will change with flow of time.

3. Unfortunately, Ukrainian Criminal Procedure law doesn’t have provisions allowing to confiscate “property of corresponding value” (part one of rec.N7). It”s hardly possible in Ukraine, because it can violate rights of the accused sometimes, and can be subject to appellate procedures in the court of the higher instance. Maybe in the future, Ukrainian Criminal Procedure law will be amended and there will be basis for confiscating “property of corresponding value” in the future.

4. Very often, while investigation and also on the stage of implementing judicial decisions law enforcement agencies allow themselves incorrectly evaluate property which is subject to confiscation. Usually they underestimate it. And there is a reason for it. For example, Law of Ukraine “On Sheriffs of courts” allows servismen, who work in co-operation with courts, to get 5% of the confiscated property to their own benefit(they are interested parties themselves)! Can you imagine that these servicemen try to confiscate usually all possible and impossible property of the accused.

5. Part two of rec.N7 is dedicated to “provisional measures, such as freezing and seizing, to prevent any dealing, transfer or disposal of such property; to be carried out”. Usually in practice, Ukrainian judicial system and tax authorities are so slow and so burocratic that when they finally decide to enact provisional measures to freeze property, for example, criminals manage to resell what they have up to 10 times!

6. This is very progressive and very positive provision. Concerning “civil penalties, and/or proceedings including civil proceedings, to void contracts entered into by parties, where parties knew or should have known that as a result of the contract” there is definitely extensive positive practice exists. Usually, together with criminal proceedings, interested parties (here can be prosecutor and others) start civil proceeding to void contract regarding transferring of laundered property. And it takes little time and requires minimum burden of proof to be manifested. It”s twice as easier when plaintiff already has verdict of the judge in criminal case, establishing predicated offence and punishing accused.

7. There have been some successful confiscations, but the basis of these orders and their extent were not clear. In the view of the examiners, the confiscation regime should be carefully reviewed by the Ukrainian authorities to satisfy themselves that it is capable of confiscating both proceeds (with the wide meaning that is attached to the term by the Strasbourg Convention) and instrumentalities. The regime should not be capable of frustration by transfer of proceeds to third parties. It should be ensured that value confiscation orders can be made.

8. 7(2(2) Ukrainian authorities have had some success in obtaining provisional measures in criminal cases. It was noted, however, that no provisional measures had been taken in any of the 39 drug money laundering investigations that had been opened. The examiners consider that the provisional measures regime should also be revisited to ensure there is full legal provision to identify, trace and seize property and freeze accounts with a view to confiscation of proceeds, as widely defined in the Strasbourg Convention.

ROLE OF THE FINANCIAL SYSTEM IN COMBATING MONEY LAUNDERING

Recommendation 8

Recommendations 10 to 29 should apply not only to banks, but also to non-bank financial institutions. Even for those non-bank financial institutions which are not subject to a formal prudential supervisory regime in all countries, for example bureaux de change, governments should ensure that these institutions are subject to the same anti-money laundering laws or regulations as all other financial institutions and that these laws or regulations are implemented effectively. (See Interpretative Notes: Recommendation 8 and Recommendations 8 & 9)

1. We must say that rec.N8 looks very reasonable and actual to situation in Ukraine nowadays. Since accept banks, there are many so called “non-banking” financial institutions operating on the financial market and carrying out many of the possible financial activities (listed in the annex to rec.N9), such as credit unions, currency exchange buros etc.

2. Since recent time this “non-banking” financial institutions are very often also subject to strict regulations existing for banks, for example. And also they are subject to prudential supervision by competent authorities or by National Professional Unions (for example, there is National Union of Credit Unions in Ukraine that has some control functions too). This play very important role in preventing money laundering as such.

Recommendation 9

The appropriate national authorities should consider applying Recommendations 10 to 21 and 23 to the conduct of financial activities as a commercial undertaking by businesses or professions which are not financial institutions, where such conduct is allowed or not prohibited. Financial activities include, but are not limited to, those listed in the attached annex. It is left to each country to decide whether special situations should be defined where the application of anti-money laundering measures is not necessary, for example, when a financial activity is carried out on an occasional or limited basis. (See Interpretative Note)

1. There are some financial activities, carried out by some professions (which are not financial institutions by nature), where such conduct is allowed or not prohibited. For example, notary fall under this definition. They are subject to money laundering legislation as far as law establishes it.

2. Besides, there are also some other so-called “gate keepers”, and we cannot find common solution for them. For example, advocates, bankiers etc. Very serious debates continue in our society whether they shall reveal their professional secrets to competent authorities or not, however there is no unified answer. And answer is rather “No”, than “yes”.

Customer Identification and Record-keeping Rules

Recommendation 10

Financial institutions should not keep anonymous accounts or accounts in obviously fictitious names: they should be required (by law, by regulations, by agreements between supervisory authorities and financial institutions or by self-regulatory agreements among financial institutions) to identify, on the basis of an official or other reliable identifying document, and record the identity of their clients, either occasional or usual, when establishing business relations or conducting transactions (in particular opening of accounts or passbooks, entering into fiduciary transactions, renting of safe deposit boxes, performing large cash transactions).

In order to fulfil identification requirements concerning legal entities, financial institutions should, when necessary, take measures:

(i) to verify the legal existence and structure of the customer by obtaining either from a public register or from the customer or both, proof of incorporation, including information concerning the customer's name, legal form, address, directors and provisions regulating the power to bind the entity.

(ii) to verify that any person purporting to act on behalf of the customer is so authorised and identify that person.

1. “Financial institutions should not keep anonymous accounts”! This is rule number one for banks and other financial institutions, if we want to fight money laundering effectively.

2. Example, in first years of independence in Ukraine (1991-1994) there was possibility to have anonymous accounts in banks. (and in some Baltic countries there have been so called “coded bank accounts”, which do not require person identification document, just a code was enough). And this was obvious paradise or heaven for criminals and money-laundering experts! Statistic shows, that some 70% of Ukrainian economy at that time was in the “shadow”! That means no taxes, no state control, nothing! By the way, level of the organised crime was very high at that times. Luckily, new laws where imposed under pressure of international community abolishing such practice of having anonymous accounts in banks.

3. Another example concerning non-fulfilment of identification requirements. There were many famous cases, especially in big cities like Kyiv and others, when a “firms-butterfly” were established.

The main scheme of work of the firm is very simple. In first day of it’s existence, after “Butterfly” was registered by competent authorities; it receives from other legal entities electronic money via transferring from other bank account. Then “butterfly” makes out of them paper money, or cash if you will – without paying tax or being checked by law enforcement agencies. Usually, for two-three days of “butterfly” life some 1,5-3 millions of US Dollars of electronic money can be converted into cash! As a rule, “director” or “chef” of such firm was a person of the stolen passport! So, real criminal remained unpunished.

4. However, this practise also was revealed soon by State Tax Administration of Ukraine and new rule was introduces on the level of Law. Since now all owners and directors of legal entities wishing to register them must go with their personal documents to competent authorities (tax authorities etc.) by themselves, and they must sign all relevant registration documents in person!

5. So now this rule, introduced in FATF rec.N10 concerning identification is fulfilled!

Recommendation 11

Financial institutions should take reasonable measures to obtain information about the true identity of the persons on whose behalf an account is opened or a transaction conducted if there are any doubts as to whether these clients or customers are acting on their own behalf, for example, in the case of domiciliary companies (i.e. institutions, corporations, foundations, trusts, etc. that do not conduct any commercial or manufacturing business or any other form of commercial operation in the country where their registered office is located). (See Interpretative Notes: Recommenation 11 and Recommendations 11 & 15 through 18)

1.Please, sea comments to rec.N.10

Recommendation 12

Financial institutions should maintain, for at least five years, all necessary records on transactions, both domestic or international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of criminal behaviour.

Financial institutions should keep records on customer identification (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence for at least five years after the account is closed.

These documents should be available to domestic competent authorities in the context of relevant criminal prosecutions and investigations.

1. This provision concerning terms of keeping data and business correspondence seems to be very reasonable. On the one hand, because it will allow law enforcement agencies to obtain important information about possible financial crimes, involving money laundering, even through a long period of time.

2. On the other hand, if this data is saved in hard-copies or in paper format – and it must be saved up to 5 years! Seems to be almost impossible to implement. (Bank offices, most of which are not very big in Ukraine, can be overwhelmed with mountains of unnecessary “rubish”).

3. However there can be found compromise. For example, banks should save information about transactions over 10,000 Euro etc. Another solution, is to establish and mountain electronic databases; which seems to be very economic and can save information for ages.

Recommendation 13

Countries should pay special attention to money laundering threats inherent in new or developing technologies that might favour anonymity, and take measures, if needed, to prevent their use in money laundering schemes.

1. The Ukraine is seriously vulnerable to money laundering. While some limited steps have been taken, there is still much work to be done to create an anti-money laundering system. There are currently significant deficiencies in all sectors. Paramount among these is the absence of a comprehensive anti-money laundering preventive law.

2. It was generally accepted that some of the main outflows of money from Ukraine were unpaid taxes, facilitated by the use of front companies. It was, however, less clear to the examiners how far all the relevant authorities had fully analysed the extent and movement of proceeds, which are in fact produced by major non-revenue profit-generating offences. The examiners perceived that there is, at present, an incomplete understanding of the money laundering problem in the Ukraine by the Ukrainian authorities. Numerous agencies were seeking to craft responses to the money laundering threat without a real sense of the overall problem. The examiners strongly advise therefore that, as a first step, consideration is given to convening a seminar of all relevant ministries, regulators, bank representatives, prosecutors and investigators to develop a greater understanding of how criminals launder their money in Ukraine and how they move their funds into foreign accounts.

Increased Diligence of Financial Institutions

Recommendation 14

Financial institutions should pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies.

1. Some action has been taken to stop the opening of anonymous accounts by a Presidential Decree in 1998, which annulled an earlier decree which allowed anonymous accounts to be held by residents and non-residents. Coded accounts are permitted, though their extent is unknown. When the preventive law is passed, the Ukrainian authorities will need to have regard to the risk that comprehensive control procedures for identifying suspicious transactions can be greatly restricted by the handling of numbered accounts. Moreover, customer identification and record-keeping obligations for the opening of normal accounts currently apply only to banks and these need to be extended to all financial institutions. Clear provision should be made to ensure steps are taken to verify beneficial owners when an account is opened (or a transaction is conducted).

2. Example N.1: State Tax Administration of Ukraine press service report refers to the audit report on a conversion center at one of Kyiv's large banks. The audit revealed that out of the total 106 coded accounts, 90 accounts have been opened using lost passports or in deceased persons names. Daily, from 2 to 3 million Hryvnias has been converted into cash by this center daily. UAH 40 million has been transferred to bank accounts of fake persons in the last 9 months alone. In January to September 2000, 197 coded bank accounts have been opened with this bank, with UAH 1.2 billion having been transferred into Hryvnia accounts and US$ 87.5 million into 151 foreign currency accounts. All the transfers have been paid out by the bank "The amount equal to the annual budgets of several Ukraine's oblasts was converted in cash which cannot be traced by anyone", the STA report concludes.

Last year STA disclosed 2,800 bogus companies and 74 converting centers, with a turnover reaching UAH 5.5 billion annually.

3. Example N2. KYIV, April 8 - Ukrainian tax police opened investigations into 3,000 cases of tax evasion and money laundering worth millions of dollars in the first quarter of 2002, an official said Monday. The head of Ukraine's Tax Police, Viktor Zhvaliuk, said authorities uncovered 1,300 shell companies and seized almost seven million hryvna (dlrs 1.3 million), according to the Interfax news agency.

Police also found that 90 million hryvna (dlrs 16.82 million) had been laundered illegally in 300 cases of money laundering, he said.

Since January 2002, Ukrainian tax police have seized alcohol, tobacco and other unlicensed goods estimated worth 22 million hryvna (dlrs 4.11 million), Zhvaliuk told the news agency. Ukraine's economy, in decline since the breakup of the Soviet Union in 1991, is undermined by a shadow sector believed to represent approximately 40 percent of the country's economic activity.

Recommendation 15

If financial institutions suspect that funds stem from a criminal activity, they should be required to report promptly their suspicions to the competent authorities.

(See Interpretative Notes: Recommendation 15 and Recommendations 11 & 15 through 18)

1. Currently the banks, and the other main actors in the financial system, are not required to detect and/or report suspicious transactions. Indeed, the detection of suspicious transactions appears at present not to be within the priorities of the banks.

2. A range of law enforcement agencies are pursuing anti-money laundering matters. Some, such as the Tax Administration, are working hard, according to their own priorities and perspectives on money laundering, and are having some modest successes. However the current lack of convictions and restraint orders in drug money laundering cases indicates an ineffective response so far to the overall money laundering threat by law enforcement. The Ukraine urgently needs some successful money laundering prosecutions and confiscation orders arising from traditional criminal activities associated with organised crime. Proper priority should be given to investigations and prosecutions in serious profit-generating criminal activities. Any unnecessary obstacles in the investigative process caused by banking secrecy should be identified and removed. Prosecutors and investigators, as well as needing to develop a clearer understanding of the techniques involved in money laundering, need to agree a common approach to the minimum evidential requirements for launching money laundering prosecutions, and receive more training and support in the techniques of financial investigation.

3. Another old-fashioned negative trend is manifested in Ukraine now. Instead of encouraging intensive economic growth and using financial, tax and legal levers, the state prefers to extensively increase the number and powers of the controlling and punitive bodies. The experience gained over the years of “developed socialism” does not appear to teach anything to the advocates of this approach, though this totalitarian experience is generally recognised to testify that “you will never have enough policemen to follow everyone”. Evidently, the state is not going to follow everyone. The question is who, then?

Recommendation 16

Financial institutions, their directors, officers and employees should be protected by legal provisions from criminal or civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, if they report their suspicions in good faith to the competent authorities, even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred. There is much work to be done in building the co-operation of the financial sector in order that the preventive law does not fail for lack of compliance, as was understood to be the case with a reporting system in respect of dubious cash movements set up under the 1993 Law on the Principles of Combating Organised Crime. The examiners consider the development of a partnership approach between the authorities and the financial sector will be critical to the success of the Ukraine's fight against money laundering. To support this, it is necessary to establish clear legal provisions protecting financial institutions and their staff from criminal and civil liability in respect of disclosures made in good faith and to design systems for appropriate feedback.

Recommendation 17

Financial institutions, their directors, officers and employees, should not, or, where appropriate, should not be allowed to, warn their customers when information relating to them is being reported to the competent authorities.

No comments.

Recommendation 18

Financial institutions reporting their suspicions should comply with instructions from the competent authorities.

No comments

Recommendation 19

Financial institutions should develop programs against money laundering. These programs should include, as a minimum :

the development of internal policies, procedures and controls, including the designation of compliance officers at management level, and adequate screening procedures to ensure high standards when hiring employees;

an ongoing employee training programme;

an audit function to test the system.

1. In order to avoid pitfalls in documentary credit transactions bankers need to take a due diligence approach in their handling of documentary credit transactions. What is “due diligence”?

At a recent conference of lawyers in Kyiv an eminent corporate attorney, when asked to explain what he meant by the term “due diligence” stated “protecting your butt!” In other words he may well have said “protecting your back!” Nonetheless, the concept clearly involves taking steps to insure, as far as it reasonable, that if subsequently challenged it can be proved that all due care was in fact taken.

2. For example, when the Ukrainian banks” own money is at risk, through financing transactions, discounting the bills or, forfeiting, having due diligence process in place could avoid losses and unwanted litigation.

3. There is growing obligation imposed on those operating within the financial market in Ukraine to exercise affirmative and acceptable due diligence as an essential part of their service. The level of the due diligence required may vary from bank to bank. Nonetheless, it needs to include, but not to be limited to, the following aspects:

(i) The training of bank employees on the application of the UCP in documentary credit transactions. Employees should be made aware of the vulnerability of the system of fraud and money laundering;

(ii) The education of customers on the usage of UCP and its limitations. Ukrainian banks should make clear to their customer that documentary credit is merely a payment mechanism. In a documentary credit transactions, banks deal with documents not with goods and the credit is independent of the underlying contract

(iii) The keeping of the detailed records of each transaction, including verbal conversation with account parties and other banks

(iv) Procedures to verify account parties” identity, their business and financial capabilities

(v) Procedures to establish authenticity of the credit

(vi) Procedures to evaluate the validity of the transaction

(vii) Procedures to monitor the transaction at the stages

(viii) Procedures to carry out further investigations in the transactions

(ix) Procedures to stop payments under a documentary credit in case of fraud

(x) Procedures to report fraudulent or suspicious transactions.

Measures to Cope with the Problem of Countries with No or Insufficient Anti-Money Laundering Measures

Recommendation 20

Financial institutions should ensure that the principles mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply these Recommendations, to the extent that local applicable laws and regulations permit. When local applicable laws and regulations prohibit this implementation, competent authorities in the country of the mother institution should be informed by the financial institutions that they cannot apply these Recommendations.

1. FATF Blacklist On June 22, the Financial Action Task Force, (“FATF”), released the 2001 money-laundering report. The report named the following jurisdictions as unsuitable: Cook Islands, Dominica, Egypt, Guatemala, Hungary, Indonesia, Israel, Lebanon, Marshall Islands, Myanmar, Nauru, Nigeria, Niue, Philippines, Russia, St. Kitts-Nevis, St. Vincent and the Grenadines.

The FATF has singled out Russia, as well as Ukraine, as having failed to take adequate measures to prevent money laundering since the 2000 report. If these two countries fail to enact legislation to make significant changes by September 30, the FATF countries, which include the United States, the United Kingdom and 27 other major nations, have threatened to urge multinational companies not to do business with them. Additionally, the FATF countries will require banks to amass detailed information before conducting business transactions with people or companies in those countries and will make it more difficult for banks based in those countries to function abroad.

Recommendation 21

Financial institutions should give special attention to business relations and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply these Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies.

No comments

Other Measures to Avoid Money Laundering

Recommendation 22

Countries should consider implementing feasible measures to detect or monitor the physical cross-border transportation of cash and bearer negotiable instruments, subject to strict safeguards to ensure proper use of information and without impeding in any way the freedom of capital movements.

1. It seems that here all procedures are in compliance with International standards. For example, according to Ukrainian Custom laws it”s allowed to bring out of the country no more than 4,000 Euro of cash, or 5,000 Euro of travel checks and foreign currency (but with special licence from Bank).

2. Ukraine boarders with Poland and very serious control is established between this two states. However it”s absolutly out of control physical cross-border transportation of cash on Ukrainian-Russian boarder, for example. So, there is obviously much to be done!

3. Also, we have bright example earlier this year. When German Mark was going to be out of the civil curricular (remembering the Euro was to come in power). Special charter flights from Kyiv were arranged to bring cash Dautshe Mark back to Germany, where it was exchanged fro Euro. However in this case, physical cross-border transportation of cash was made according to law and was made by Ukrainian commercial banks merely.

Recommendation 23

Countries should consider the feasibility and utility of a system where banks and other financial institutions and intermediaries would report all domestic and international currency transactions above a fixed amount, to a national central agency with a computerised data base, available to competent authorities for use in money laundering cases, subject to strict safeguards to ensure proper use of the information.

1. Under Article 61 of the law “On banks and banking activity”, banks are banned to have any contractual relationships With anonymous persons. Banks must identify persons involved in large or dubious transactions with cash. A large non-cash transaction is such which equals EUR 50,000 or more. A large cash transaction equals or is more than EUR 10,000. A dubious transaction is such which is carried out under unusual or entangled terms, Or is economically not profitable, or contradicts the laws of Ukraine.

The law defines procedures for maintaining bank secrecy with respect to clients and Outlines cases when banks are to reveal information on their clients. Instead of anonymous bank accounts, coded banks accounts could be opened by natural persons.

Recommendation 24

Countries should further encourage in general the development of modern and secure techniques of money management, including increased use of checks, payment cards, direct deposit of salary checks, and book entry recording of securities, as a means to encourage the replacement of cash transfers.

1.The economy is primarily cash-based, with limited use of non-cash financial instruments. This exposes Ukraine to money laundering at the placement stage. The commercial banks have therefore been the focus of Ukraine's first efforts at addressing money laundering through development of some rules on customer identification.

2. In any case, not all smuggled money - whether laundered or for terrorist consumption - has to pass through the mainstream western banking system. Organised crime in Eastern and Central Europe, and especially in Ukraine, has long relied on informal money transfer networks.

The systems share two characteristics.

Neither involve records that can be traced; instead, tokens - now no more than often passwords in an email - are sent from one country to another, telling a trusted confederate to deliver a given amount of local currency to its destination.

And in all such systems, the original sum delivered to the broker never actually leaves the country of origin. The whole system relies on trust between brokers, rather than paper records or third party guarantees, with any shortfalls between what goes out and what comes in settled periodically.

The systems are hundreds of years old, and are used entirely legitimately by, say, people working abroad and sending money home to relatives who may not have a bank account.

But they are also a godsend to crooks and terrorists - and a huge headache for those who try to catch them.

Recommendation 25

Countries should take notice of the potential for abuse of shell corporations by money launderers and should consider whether additional measures are required to prevent unlawful use of such entities.

1. The Ukraine authorities estimate that organised crime gangs control no fewer than 1,200 national commercial structures. Some laundering is achieved or avoided there (and in other countries in transition) by means of barter operations, or unauthorised transfers out of the country (which itself is an offence) by cash smuggling, transfer pricing or even fictitious invoicing to offshore companies, to non-Ukrainian individual accounts inside and outside the country, and to foreign bank accounts held illegally overseas. Foreigners use shell companies based in Ukraine to launder their money, performing to beneficial functions to the Ukraine economy.

2. The Ukrainian authorities reported that money laundering is often achieved through "payments" by front companies, under fictitious external contracts with fictitious companies overseas via offshore banks. Such money is often reinvested in Ukraine through the privatisation process. The purchase of real estate and luxury cars can also offer opportunities for money laundering at the integration stages.

3. The use of "front" and "shell" companies as vehicles for money laundering, the company licensing regime should be urgently considered with a view to the development of strengthened powers on business licensing.

Implementation and Role of Regulatory and Other Administrative Authorities

Recommendation 26

The competent authorities supervising banks or other financial institutions or intermediaries, or other competent authorities, should ensure that the supervised institutions have adequate programs to guard against money laundering. These authorities should co-operate and lend expertise spontaneously or on request with other domestic judicial or law enforcement authorities in money laundering investigations and prosecutions. (See Interpretative Note)

1. In the absence of an FIU there is no one body at the centre of the national anti-money laundering effort. Consequently there was inadequate communication and co-ordination across the law enforcement agencies. The creation of an FIU will therefore be central to the success of the Ukraine's overall fight against money laundering. The FIU, when it is established, should meet the definition for Egmont Group Membership and in due course apply to join that group. Planning for the FIU needs to start immediately and consideration should be given to making it a multi-agency unit. Indeed, the process for implementing the law as a whole should begin in advance of its enactment and it is recommended, additionally, that a co-ordination body is set up at a suitably senior level, including all the main players in the anti-money laundering regime, to develop joint ownership of an action plan.

2. Recent developments: However there are some efforts to establish National Anty-money laundering Center. According to the new decree of the president Leonid Kuchma “On Additional Measures to Fight Laundering of Illegal Incomes”, the State Tax Administration of Ukraine will be made responsible for coordinating its effort and cooperation with the European Task Force for Financial (sic!) Counteraction against Money Laundering. Our government, in its turn, will recruit from its own ranks “an inter-departmental task force to study the methods of and trends in money and income laundering”. The logistics of the task force activities, as you might have guessed, will be commissioned to the same State Tax Administration of Ukraine. These same structures will also be tracing down “shady operations”.

Recommendation 27

Competent authorities should be designated to ensure an effective implementation of all these Recommendations, through administrative supervision and regulation, in other professions dealing with cash as defined by each country.

1. There are also clear vulnerabilities at the placement stage in the exchange houses (of which the precise numbers are uncertain but which are estimated at about 5000) and in the casinos, which have money remitting services and currency exchange services attached to them. The number of casinos is not known. The casinos were not at the time of the on-site visit subject to any registration or licensing regime.

Recommendation 28

The competent authorities should establish guidelines which will assist financial institutions in detecting suspicious patterns of behaviour by their customers. It is understood that such guidelines must develop over time, and will never be exhaustive. It is further understood that such guidelines will primarily serve as an educational tool for financial institutions' personnel.

1. A DUE DILIGANCE APPROACH TO BE ESTABLISHED IN ASSESING THE VALIDITY OF TRANSCATIONS[2]:

It is essential for bankers to uphold the fundamental principles of the UCP in handling documentary credit transactions, a great deal of “non-documentary” checks can be performed satisfactorily prior to entering into the proposed transaction. The checks focus on issues surrounding the proposed transaction including:

(i) Issuing bank

- With\without money laundering regulations?

- Offshore or onshore?

- Reputation?

- Court interference?

(ii) Account parties

- Track record

- Relationships between the parties involved

- Offshore or onshore companies

- Status report

- Addresses

(iii) Size of the transaction

- Amount

- Rounded figures

- Frequency

(iv) Commodity

- price

- type

- descriptions

(v) Transport arrangements

- CFR of FoB

- ICC Incoterms 2000

(vi) Time-frame

- letter of credit issuing\expiring date

- shipment date

(vii) Documents

- Documents required

- Who issued the documents ?

- Who is presenting the documents?

(viii) Circumstances of transaction

- What is normal for the beneficiary\applicant

- What is normal for this bank country

- What is normal for this type of goods

(ix) Payment terms

- Sight payment

- Deferred payment

- Revolving letter of credit (L\C)

- Discount arrangements

(x) Transferability of the credit

- non-transferable L\C

- Transferable L\C

- Assignment of the proceeds

(xi) Terminology\language

(xii) Disposal of the proceeds

Contradictory to bankers” general belief, these checks are not difficult, expensive or time consuming. It”s merely the process that bankers should go through in order to know their customers and their transactions with the main objective of identify any irregularity in a L\C transaction at the earliest possible stage. It helps bankers to assess the validity of the proposed transaction and ensures that bankers meet regulatory compliance under money laundering laws and regulations.

Recommendation 29

The competent authorities regulating or supervising financial institutions should take the necessary legal or regulatory measures to guard against control or acquisition of a significant participation in financial institutions by criminals or their confederates.

1. Stricter controls on the licensing of banks and exchange houses need to be put in place, and consideration is urged of a requirement whereby the source of original capital is checked as part of the licensing process. The National Bank of Ukraine should have powers to revoke licences if money laundering or criminal infiltration has been established.

STRENGTHENING OF INTERNATIONAL CO-OPERATION

Administrative Co-operation

Exchange of general information

Recommendation 30

National administrations should consider recording, at least in the aggregate, international flows of cash in whatever currency, so that estimates can be made of cash flows and reflows from various sources abroad, when this is combined with central bank information. Such information should be made available to the International Monetary Fund and the Bank for International Settlements to facilitate international studies.

This procedures are not new for Ukraine, and there are specific regulations by the National Bank of Ukraine on this issues.

Recommendation 31

International competent authorities, perhaps Interpol and the World Customs Organisation, should be given responsibility for gathering and disseminating information to competent authorities about the latest developments in money laundering and money laundering techniques. Central banks and bank regulators could do the same on their network. National authorities in various spheres, in consultation with trade associations, could then disseminate this to financial institutions in individual countries.

No comments.

Exchange of information relating to suspicious transactions

Recommendation 32

Each country should make efforts to improve a spontaneous or "upon request" international information exchange relating to suspicious transactions, persons and corporations involved in those transactions between competent authorities. Strict safeguards should be established to ensure that this exchange of information is consistent with national and international provisions on privacy and data protection.

No comments

Other Forms of Co-operation

Basis and means for co-operation in confiscation, mutual assistance and extradition

Recommendation 33

Countries should try to ensure, on a bilateral or multilateral basis, that different knowledge standards in national definitions - i.e. different standards concerning the intentional element of the infraction - do not affect the ability or willingness of countries to provide each other with mutual legal assistance.

1.There are three level of guilt, according to one of the popular classification:

- Purposeful interference or deliberate ignorance: Under this doctrine, bankers must be proactive in identifying suspicious activities. For example, it is nit enough that a customer tell a banker that a business or transaction is legitimate. The banker has the obligation to conduct further due diligence.

- Wilful blindness: Under this doctrine, if a person avoids or ignores information which could have led to discovery of unlawful activity, he\she is responsible for whatever knowledge an investigation would have revealed. Ukrainian Law would find that a defendant is found to have consciously and\or deliberately avoided knowledge of facts which were essential to proof of a criminal violation.

- Collective knowledge: Under this doctrine, a bank is treated as if it possesses all the knowledge of all individuals (directors, officers, the employees). The government may be able to prove the business entity’s knowledge by offering evidence of the aggregate knowledge of the corporation’s individual employees. This makes it crucial for banks to communicate effectively, both across and within functional areas.

2. The mental element of the offence would benefit from revisiting in the light of experience with the provisions. In the passage of the new criminal offence it may be helpful to consider additionally a mental element based on reasonable suspicion with lesser penalties. Consideration should also be given to the introduction as envisaged in the Strasbourg Convention of the concept of negligent money laundering.

Recommendation 34

International co-operation should be supported by a network of bilateral and multilateral agreements and arrangements based on generally shared legal concepts with the aim of providing practical measures to affect the widest possible range of mutual assistance.

1. The number of international legal instruments signed in a relatively short period of time by the Ukrainian authorities and the growing number of bilateral agreements demonstrate the country's willingness to co-operate internationally. Presently, the range of mutual assistance in money laundering cases is limited only to drug money laundering cases, and early enactment of a broader based money laundering offence is urged in this context also.

2. International cooperation is a noble and lofty purpose. This cooperation can be especially fruitful when the partner-countries have mutual (economic, legislative or other) problems and address them in a similar way. I mean, for Ukraine to improve its collaboration with Europe (in any sphere), we need to harmonise our legislation and economy with those of Europe.

Recommendation 35

Countries should be encouraged to ratify and implement relevant international conventions on money laundering such as the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime.

It would be helpful in particular to the international co-operation regime if the Ukrainian authorities inserted into their law the procedure for the enforcement of foreign confiscation orders in case problems arise in the implementation of the Strasbourg Convention.

Focus of improved mutual assistance on money laundering issues

Recommendation 36

Co-operative investigations among countries' appropriate competent authorities should be encouraged. One valid and effective investigative technique in this respect is controlled delivery related to assets known or suspected to be the proceeds of crime. Countries are encouraged to support this technique, where possible.

No comments

Recommendation 37

There should be procedures for mutual assistance in criminal matters regarding the use of compulsory measures including the production of records by financial institutions and other persons, the search of persons and premises, seizure and obtaining of evidence for use in money laundering investigations and prosecutions and in related actions in foreign jurisdictions.

As usual these procedures are established in bilateral or multilateral treaties on “Mutual legal assistance in criminal and civil cases”.

Recommendation 38

There should be authority to take expeditious action in response to requests by foreign countries to identify, freeze, seize and confiscate proceeds or other property of corresponding value to such proceeds, based on money laundering or the crimes underlying the laundering activity. There should also be arrangements for coordinating seizure and confiscation proceedings which may include the sharing of confiscated assets.

I think that it”s a good provision, promoting international co-operation in order to fight internationally organised criminal groups. However there is still room for improvement.

Recommendation 39

To avoid conflicts of jurisdiction, consideration should be given to devising and applying mechanisms for determining the best venue for prosecution of defendants in the interests of justice in cases that are subject to prosecution in more than one country. Similarly, there should be arrangements for coordinating seizure and confiscation proceedings which may include the sharing of confiscated assets.

No comments

Recommendation 40

Countries should have procedures in place to extradite, where possible, individuals charged with a money laundering offence or related offences. With respect to its national legal system, each country should recognise money laundering as an extraditable offence. Subject to their legal frameworks, countries may consider simplifying extradition by allowing direct transmission of extradition requests between appropriate ministries, extraditing persons based only on warrants of arrests or judgements, extraditing their nationals, and/or introducing a simplified extradition of consenting persons who waive formal extradition proceedings.

1. Extradition issue seems to be very crucial for conducting trails against criminals charged with money-laundering. Ukraine co-operates with other countries in this sphere. However there must be some preconditions: firstly, extradition is possible only on the basis of bilateral treaty between two states. It”s hardly possible, that extradition will take place if such treaty does not exist. Secondly, Ukraine usually never extradite it”s own nationals and citizens of Ukraine. Thirdly, being a member-state of Council of Europe (please, see Sorring Case of ECHR), Ukraine does not extradite people\men who are accused of crimes, committed in other states, that may result in capital punishment in the final verdict of foreign judge. Extradition issues also includes other specific, which is subject to separate research and will not be touched in this paper.

Annex to Recommendation 9: List of Financial Activities undertaken by business or professions which are not financial institutions

Acceptance of deposits and other repayable funds from the public.

Lending.[1]

Financial leasing.

Money transmission services.

Issuing and managing means of payment (e.g. credit and debit cards, cheques, traveller's cheques and bankers' drafts...)

Financial guarantees and commitments.

Trading for account of customers (spot, forward, swaps, futures, options...) in:

money market instruments (cheques, bills, CDs, etc.) ;

foreign exchange;

exchange, interest rate and index instruments;

transferable securities;

commodity futures trading.

Participation in securities issues and the provision of financial services related to such issues.

Individual and collective portfolio management.

Safekeeping and administration of cash or liquid securities on behalf of clients.

Life insurance and other investment related insurance.

Money changing.

Footnote:

[1] Including inter alia

consumer credit

mortgage credit

factoring, with or without recourse

finance of commercial transactions (including forfaiting)

***

CONCLUSIONS

1. By pursuing these recommendations urgently, the Ukrainian authorities can make progress towards rectifying the current deficiencies and make progress towards meeting the international standards.

2. According to this recommendations Ukraine must follow a five-step plan in order improve situation in Ukraine. Their governments must place a new emphasis on the criminalization of money laundering, create suspicious transaction reporting regimes, establish proper customer identification requirements, eliminate excessive bank secrecy and cooperate with international efforts to stop money laundering.

Reference list:

1.”WORKING TO INTENSIFY CONTROL OVER FIGHTING. NEW DECREE ON MONEY LAUNDERING”, V. Vyshnevsky, “Mirror of the Week” August 2001

2. 19 January 2001 PC-R-EV Report (00) 20 Summ. EUROPEAN COMMITTEE ON CRIME PROBLEMS (CDPC) ,Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures

3. By Jeremy Scott-Joynt BBC News Online business reporter 2002

4.” PRESIDENT KUCHMA ABROGATES HIS EARLIER DECREE BANNING ANONYMOUS BANK ACCOUNTS”, article in “Kyiv Post” August 2000

5. “CODED BANK ACCOUNTS ARE MAIN TOOLS FOR ILLEGAL CASH CONVERSION, STATE TAX ADMINISTRATION SAYS”, article in “Kyiv Post” April 2002

6. William C. Gilmore, “Quo Vadis, Money Laundering?” BBC news 2002

7. S.Kin Lin Kuo-Ellen, Preveting Money Laundering “Bankers Guide”; publ. In “Journal of Money Laundering Control”, vol.5, no.3 2002

© Author: Oleg Veremienko, Ukraine, 2002

APPENDIX: Ukrainian case (Pavlo Lazareno, ex-Prime Minister)

U.S. Department of Justice

United States Attorney
Northern District of California

11th Floor, Federal Building
450 Golden Gate Avenue, Box 36055
San Francisco, California 94102

July 23, 2001

The United States Attorney's Office for the Northern District of California announced that a federal grand jury returned a second superseding indictment last week against Pavel Ivanovich Lazarenko, former Prime Minister of Ukraine, charging Mr. Lazarenko in 53 counts with conspiracy to commit money laundering, money laundering, wire fraud and receipt of stolen property in violation of 18 U.S.C. §§ 1956, 1343, and 2314, as well as criminal forfeiture of certain property. The Second Superseding Indictment is similar to charges previously pending against Mr. Lazarenko, but adds wire fraud charges.

According to the second superseding indictment, Mr. Lazarenko was the Prime Minister of Ukraine from May 1996 until July 1997 and occupied other official positions in Ukraine since 1992. The grand jury alleges in Count One that while he was a public official in Ukraine, Mr. Lazarenko conspired to launder money that was the proceeds of extortion and fraud through bank accounts in the United States in violation of 18 U.S.C. § 1956(h). The grand jury alleges that this money was the proceeds of Mr. Lazarenko's extortion of businessmen in Ukraine and from several fraudulent schemes, including a scheme involving Naukovy State Farm, a Ukrainian government enterprise, and a scheme involving United Energy Systems of Ukraine, which at the time distributed natural gas imported into Ukraine from the Russian company RAO Gazprom.

The grand jury alleges that Mr. Lazarenko used and/or opened various bank accounts in Switzerland and Antigua into which he deposited the money, including accounts in Switzerland at Banque SCS Alliance, Banque Populaire Suisse, Credit Suisse, Credit Lyonnais (Suisse), and account at European Federal Credit Bank in Antigua. The grand jury alleges that Mr. Lazarenko thereafter transferred portions of the money into the United States. Mr. Lazarenko is charged in Counts Two through Eight of the second superseding indictment with laundering approximately $21 million of the proceeds of the extortion and frauds through bank accounts located in the Northern District of California in violation of 18 U.S.C. § 1956(a).

In Counts Nine through Thirty, Mr. Lazarenko is alleged to have wire transferred over $100 million into the United States in furtherance of a scheme to defraud the people of Ukraine of money and property and his honest services as a public official in violation of 18 U.S.C. § 1343. The grand jury alleges that while Mr. Lazarenko was a public official, he unlawfully received over $200 million from various businesses in Ukraine, and that he failed to disclose that he was exercising his official authority in favor of these businesses and failed to disclose his receipt of these funds.

In Counts Thirty-one through Fifty-three, the grand jury also alleges that Mr. Lazarenko transported into the United States money that was stolen, converted and taken by fraud in violation of 18 U.S.C. § 2314. Finally, the grand jury alleges that Mr. Lazarenko shall forfeit to the United States all property involved in the money laundering offenses, totaling approximately $21,696,000, including the real property and improvements located at 100 Obertz Lane, Novato, California.

The maximum statutory penalty for each count in violation of 18 U.S.C. § 1956 is 20 years imprisonment and a fine of $500,000 or twice the value of the funds laundered. The maximum penalty for each count in violation of 18 U.S.C. § 2314 is 10 years imprisonment and a $250,000 fine, and the maximum penalty for each count in violation of 18 U.S.C. § 1343 is 5 years imprisonment and a $250,000 fine. In addition, the court may order restitution. However, any sentence following conviction would be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and would be imposed in the discretion of the Court. An indictment simply contains allegations against an individual and, as with all defendants, Mr. Lazarenko must be presumed innocent unless and until convicted.

Mr. Lazarenko is currently in federal custody, and his next scheduled appearance is on August 15, 2001 at 10 a.m. before Judge Martin J. Jenkins for a hearing on motions.

The prosecution is the result of a three-year investigation by agents of the Federal Bureau of Investigation and the Internal Revenue Service. Martha Boersch and Jonathan Howden are the Assistant U.S. Attorneys who are prosecuting the case.

A copy of this press release may also be found at the United States Attorney's Office's website at www.usaondca.com.

All press inquiries to the U.S. Attorney's Office should be directed to Assistant U.S. Attorney Matthew J. Jacobs at (415) 436-7181.

--------------------------------------------------------------------------------

[1] According to Ukrainian experts, the levels of money laundering in Ukraine reach US$ 5 billion annually, with the bulk of this money being untaxed profits.

[2] S.Kin Lin Kuo-Ellen, Preveting Money Laundering “Bankers Guide”; publ. In “Journal of Money Laundering Control”, vol.5, no.3 2002