The basis for the Regulatory Authority to conduct a scheduled inspection of the primary financial monitoring of compliance with the requirements of the legislation in the field of prevention and counteraction to legalization (laundering) of proceeds from crime, financing of terrorism and financing of proliferation of weapons of mass destruction is its inclusion in the plan-schedule of inspections of primary financial monitoring the corresponding quarter according to the Procedure on Monitoring the Compliance with Legislation in the Sphere of Prevention and Counteraction to Legalization (laundering) of Proceeds from Crime, Terrorist Financing and Financing the Proliferation of Weapons of Mass Destruction by Primary Financial Monitoring,  Supervision of which is performed by the NSSMC (NSSMC REsolution on 17.07.2015 № 1038, state registration at the Ministry of Justice of Ukraine on August 06, 2015 for № 955/27400). The schedule shall be approved by an Order of the Chairman of the Supervisory Body or a person performing his duties and shall be published on the official website of the Supervisory Body.

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Legal entity EDRPOU Checking Unit Check Date Validation Status Basis of verification

During financial monitoring, the subjects of primary financial monitoring face the issues of implementation of certain provisions of the legislation in the field of combating legalization (laundering) of proceeds from crime or terrorist financing.

In accordance to the Law of Ukraine on Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime or Terrorist Financing, the NSSMC provides methodological and other assistance to the subjects of primary financial monitoring.

In order to provide methodological assistance to the SPFM and to clearly comply with the requirements of the legislation in the field of financial monitoring, the NSSC publishes clarifications on the most problematic issues, which were sent to the NSSMC.

Recommendations for risk management of clients of subjects of primary financial monitoring

The NSSMC recommends  that primary financial monitoring entities – securities traders and asset management companies – set the risk level “high” for the following clients:

  1. to issuers of securities who have not placed regular annual information in the Public Information Database of the NSSMC during the last two years;
  2. to issuers of CII securities (in case of public placement of securities), for which there is no information for the last two years in the Public Information Database of the NSSMC;
  3. to issuers whose securities are suspended on any stock exchange, or changes to the depository accounting system have been suspended for the entire issue of securities;
  4. issuers of securities in respect of which information is available on the official website of the NSSMC on the preparation of an act of absence at the location;
  5. persons who enter into transactions with securities of issuers specified in paragraphs 1 – 4;
  6. persons who in the course of service do not provide the full amount of information necessary for the risk assessment of the client;
  7. non-resident persons who have a place of registration (location) in the aggressor country.

At the same time, these Recommendations are one of the elements aimed at eliminating the shortcomings identified by the Report on the National Assessment of Risks of Money Laundering and Terrorist Financing in Ukraine and related to the securities market.

Recommendations to the subjects of primary financial monitoring, which are regulated and supervised by the  NSSMC regarding the risks of remote services

In accordance with sub-clause 4 of clause 2 of section XVI Ensuring detection of financial transactions Regulations on financial monitoring by primary financial monitoring entities, state regulation and supervision of which is carried out by the NSSMC, approved by the NSSMC Resolution of 11.03.2021 №176 (hereinafter – Regulation № 176) measures aimed at identifying a financial transaction subject to financial monitoring are determined by the Rules (section on the procedure for identifying financial transactions subject to financial monitoring) and, in particular, include the management of risks associated with the introduction or use of new and existing information products, business practices or technologies, including those that ensure the conduct of financial transactions without direct contact with the client.

Clause 25 of the second part of Article 8 of the Law of Ukraine on Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Financing of the Proliferation of Weapons of Mass Destruction stipulates that the subject of primary financial monitoring is obliged to manage risks. related to the introduction or use of new and existing information products, business practices or technologies, including those that ensure the conduct of financial transactions without direct contact with the client.

Also, according to section V of the Criteria for risk of legalization (laundering) of proceeds from crime, terrorist financing and financing of proliferation of weapons of mass destruction, approved by the order of the Ministry of Finance of Ukraine from 08.07.2017 № 584 on Approval of Criteria for Legalization (Laundering) Criminal Risk, Terrorist Financing and Financing the Proliferation of Weapons of Mass Destruction, client risk assessment is carried out, in particular, by the type of goods and services provided by the subjects of primary financial monitoring, if they are remote services.

The latest financial instruments allow a financial institution to provide services to their clients conveniently, quickly and efficiently with low costs.

However, despite the significant advantages of such resources, the use of financial institutions of technologies that allow them to provide services remotely, in particular without direct contact with the client, may carry significant risks of use for money laundering and terrorist financing.

Regulation № 176 provides for new tools and methods for remote identification and verification depending on the chosen model and channels of customer base involvement.

Thus, the subjects of primary financial monitoring have the opportunity to choose:

  • full-fledged models of remote identification and verification,
  • simplified models that will contain certain limits on the volume of transactions.

Full-fledged models of remote identification and verification, for which no limits will be set, include:

  • verification of customer identification data using the BankID System of the National Bank and a qualified electronic signature (hereinafter – QES);
  • conducting video verification. namely, communication between the client and the employee of the subject of primary financial monitoring on identification by means of video broadcast.

In addition to full-fledged verification models, the subjects of primary financial monitoring, state regulation and supervision of which are carried out by the NSSMC, will be able to offer clients simplified verification mechanisms. They are simpler in terms of building a process for SPFM. Also, these models are more accessible to certain segments of the population, which, for example, do not have a high-quality Internet connection or QES or access to the BankID of the NBU. The arsenal of simplified mechanisms for verifying customer credentials includes:

  • verification by means of QES,
  • verification by means of the BankID System of the NBU;
  • payment for a symbolic amount of 1 hryvnia to the SPFM account, provided that such transfer is accompanied by the payer’s data (at least last name, initials);
  • remote reading by the client of data from the contactless electronic carrier implanted in the ID-card by means of the NFC module of the smartphone.

Also, when applying some simplified mechanisms, it will be necessary to carry out photo-fixation of the client using the method of face recognition (liveness detection) and with your own identification document.

Regulation № 176 sets limits on these simplified client verification models, namely:

  • the risk of a business relationship with a client (financial transaction without establishing a business relationship) is low;
  • the total amount of financial transactions does not exceed UAH 400 thousand per year (equivalent);
  • financial transactions are carried out exclusively in non-cash form.

Given the above, the subjects of primary financial monitoring are professional participants in organized commodity markets; institutions of accumulative pension provision; managers of construction financing funds / real estate funds; Professional capital market participants (other than banks) should take measures to limit the risk of using remote services to legalize (launder) proceeds of crime or to finance terrorism, in particular:

  • ensuring risk management of money laundering / terrorist financing;
  • establish internal documents of the analysis in order to identify financial transactions subject to financial monitoring, carried out using new and existing information products, business practices or technologies, including those that ensure the conduct of financial transactions without direct contact with the client (for availability);
  • identify and record financial transactions that are subject to financial monitoring or in respect of which there are reasonable grounds to suspect that they are related, related to or intended to finance terrorism or the proliferation of weapons of mass destruction;
  • take measures to ensure the authentication of the person initiating the financial transaction for the use of modernized and reliable systems.

 

International Agencies on Combating Money Laundering and Terrorism Financing

Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG)

The Eurasian group on combating money laundering and financing of terrorism (EAG) is a FATF-style regional body which comprises 9 countries: Belarus, India, Kazakhstan, China, Kyrgyzstan, Russia, Tajikistan, Turkmenistan, and Uzbekistan. EAG is an associate member of the FATF.

12 more states and 17 international and regional organizations have observer status within the EAG.

EAG’s activities aim at assisting the countries of the region in establishing the appropriate legal and institutional frameworks for combating money laundering and financing of terrorism according to the FATF standards.

As part of this effort, EAG conducts mutual evaluations of the national AML/CFT (anti-money laundering and counter financing of terrorism) systems of its countries based on the FATF methodology, explores the typology of money laundering and terrorism financing, and implements technical assistance programs for the Group member states, including staff trainings.

Egmont Group of Financial Intelligence Units

In 1995, a group of Financial Intelligence Units (FIUs) met at the Egmont-Arenberg Palace in Brussels and decided to establish an informal network of FIUs for the stimulation of international cooperation. Currently it is known as the Egmont Group of Financial Intelligence Units. Its FIUs regularly meet to seek ways of cooperation, in particular in terms of information exchange, training and sharing of expertise.

The objectives of the Egmont Group are to hold meetings for FIUs from around the world in order to enhance cooperation on the anti-money laundering and counter financing of terrorism and facilitate the implementation of national programs in this area. This includes the following:

  • Expansion and systematization of international cooperation on mutual information exchange;
  • FIUs’ efficiency improvement by offering training and facilitation of staff exchange in order to improve the experience and capabilities of the FIU staff;
  • Improvement of quality and safety of communication between the FIUs through the use of technologies such as the Egmont Secure Website;
  • Better coordination and assistance between the operating divisions of the member FIUs;
  • Improvement of operational autonomy of the FIUs; and
  • Promotion of formation of FIUs in jurisdictions with existing or emerging AML/CFT programs.

Egmont Group Structure and Organization

The operational structure of the Egmont Group consists of the heads of the FIUs, Egmont Committee, Working Groups, and Egmont Group Secretariat.

Heads of the FIUs

The HoFIUs comprise the Egmont Group’s governing body; making decisions on any matters that affect the Group’s membership, structure, budget and principles. The HoFIUs reach decisions by consensus.

Egmont Committee

The Egmont Committee serves as the consultation and coordination mechanism for the HoFIUs and the Working Groups. Its primary functions include assisting the Egmont Group in a range of activities, from internal coordination and administration, to representation in the international arena. It also oversees the work of the Egmont Group Secretariat. The Egmont Committee is comprised of permanent and regional members. The Egmont Committee is currently made up of the Chair of the Egmont Group, two Vice-Chairs, the Chairs of the five working groups, regional representatives from Africa, Asia, Europe, the Americas and Oceania, a representative of the Financial Crime Investigation Network (FinCEN, the U.S.), a representative of the host of the Egmont Secure Website, and the Executive Secretary of the Egmont Group.

Working Groups

In order to accomplish its mission of development, cooperation, and sharing of expertise, the Egmont Group created five working groups. The working groups meet periodically and report to the HoFIUs about their activities. The working groups and their functions are as follows:

  • Legal Working Group is responsible for considering potential member candidacies and managing all legal aspects and key issues within the Egmont Group, including cooperation between FIUs.
  • Working Group for New Members Attraction is responsible for the creation of a global FIU network by identifying FIU candidates for joining and cooperating with the Egmont Group to ensure that they meet the Egmont Group standards.
  • Training Working Group is responsible for establishing needs in trainings and opportunities for FIUs and their employees, as well as conducting training workshops for the Egmont Group members and non-member jurisdictions.
  • Operational Working Group is responsible for integrating the FIUs in developing typologies and long-term strategic, analytical projects.
  • IT Working Group is responsible for providing consultations and technical assistance to new or existing FIUs on development, improvement or modernization of their IT systems, as well as exploring the use of new software that may facilitate analytical work.

Egmont Group Secretariat
The Egmont Group Secretariat (EGS) was established in July 2007 and is based in Toronto, Canada. The Secretariat provides administrative and other support to the general activities of HoFIUs, the Egmont Committee, and Working Groups. The EGS is headed by the Executive Secretary whose appointment is endorsed by the HoFIUs, and reports directly to them through the Egmont Committee.

Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL)

The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) was established in 1997 and its functioning was regulated by the general provisions of Resolution Res(2005)47 on committees and subordinate bodies, their terms of reference and working methods.
At their meeting on 13 October 2010, the Committee of Ministers adopted the Resolution CM/Res(2010)12 on the Statute of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). The statute elevates MONEYVAL as from 1 January 2011 to an independent monitoring mechanism within the Council of Europe answerable directly to the Committee of Ministers.

MONEYVAL Committee Objectives

The objectives of the MONEYVAL Committee are to ensure that its member countries have effective AML/CFT systems and comply with the relevant international standards.

Such standards are those set forth in the FATF Recommendations, the Special Recommendations on Terrorism Financing, including in the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988), the UN Convention against Transnational Organized Crime, the UN Convention for the Suppression of the Financing of Terrorism (1999), Directive 2005/60/EC of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorism financing and other implementing measures (26 October 2005), and the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (1990), entered into within the framework of the Council of Europe.

The MONEYVAL Committee evaluates the compliance of its member countries with all international standards in the legal, financial and law enforcement sectors by providing expert review in the course of mutual evaluations.

The Committee’s reports contain very detailed recommendations on how to improve the efficiency of the national AML/CFT regimes and the country’s ability to engage in international cooperation in this area. The MONEYVAL Committee also conducts typology research on methods, schemes and trends in money laundering and terrorism financing.

MONEYVAL Committee Structure

The Committee elects a chairman and a vice-chairman for a period of two years, as well as three other persons who comprise the Bureau. The Bureau makes preparations for the Committee’s work. The Committee’s activities are supported by the Secretariat provided for by the Council of Europe.

MONEYVAL Committee Members and Observers

The MONEYVAL Committee Statute states that the Committee should consist of representatives who are well-informed of their national AML/CFT regimes.
Currently the MONEYVAL Committee has 30 members who are subject to its evaluation procedure. In addition, the FATF appoints two delegations of two FATF member countries with one representative from each delegation with the renewable term of office for two years.
In addition, the below authorities, countries and organizations, which are authorized to nominate a representative to the Committee, have the MONEYVAL Committee observer status:

  • Parliamentary Assembly of the Council of Europe, Council of Europe Development Bank, European Committee on Crime Problems, Conference of the Parties to the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and Financing of Terrorism (CETS 198);
  • European Commission, and General Secretariat of the Council of the European Union;
  • Countries with the Council of Europe observer status (Canada, Japan, Mexico, USA).

International organizations and institutions:

  • Secretariat of the Financial Action Task Force on Money Laundering and Terrorism Financing (FATF);
  • International Police;
  • Commonwealth Secretariat;
  • IMF;
  • United Nations Office on Drugs and Crime;
  • United Nations Counter-Terrorism Committee;
  • World Bank;
  • European Bank for Reconstruction and Development;
  • Group of International Finance Centre Supervisors (formerly known as the Offshore Group of Banking Supervisors);
  • Egmont Group of Financial Intelligence Units;
  • Eurasian Group on Combating Money Laundering and Financing of Terrorism;
  • Other FATF regional organizations that are or will be FATF associate members on a reciprocal basis (currently only the Asia/Pacific Group on Money Laundering);
  • Other FATF members.

Cooperation with Other Bodies

MONEYVAL closely works with the below organizations:

  • FATF: MONEYVAL is a FATF observer that has been its associate member since June 2006. MONEYVAL benefits from its new status: for example, many countries can actively participate in the FATF meetings on the Council of Europe / MONEYVAL delegation.
  • International Monetary Fund and World Bank: Common methodology enables joint recognition of evaluations thereby avoiding duplication of evaluations in the same countries and overwork of national authorities on these tasks; other institutions, where MONEYVAL has the observer status (e.g. the Eurasian Group, established in 2004).

Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorism financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

The FATF has developed a series of Recommendations that are recognized as the international standard for combating money laundering and financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a coordinated response to the threats to the financial system integrity and help to ensure a level playing field. First issued in 1990, the FATF Recommendations were revised in 1996, 2001, 2003, and most recently in 2012 to ensure that they remain up to date and relevant, and they are intended to be of universal application.

The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorism financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally. In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

The FATF’s decision making body, the FATF Plenary, meets three times per year.

Recommendations for the Reporting Entities regarding the Risks Related to Financing Separatist or Terrorist Measures in the Territory of Ukraine

Due to the difficult situation in the eastern regions of Ukraine resulted in the seizure of hostages, civilian and military objects, aggravation of the social and political state and human losses, the pressing issue is to deprive persons connected with terrorist or separatist activities of financing sources.
According to Article 6 of the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime or Terrorism Financing” (hereinafter referred to as the Law), the reporting entity (hereinafter referred to as the entity) shall:

  • Detect financial transactions that show sufficient grounds to suspect that they are related to, connected with or aimed at financing terrorism, and on the day of detection or attempted execution, inform the State Financial Monitoring Service of Ukraine and law-enforcement bodies specified by law, in particular, the Security Service of Ukraine thereof;
  • Classify their clients, taking into account the risk criteria defined by the State Financial Monitoring Service of Ukraine and the authorities that regulate and oversee their activities when processing financial transactions that may be related to legalization (laundering) of the proceeds from crime or terrorism financing, and take precautionary measures against clients, whose activities indicate the increased risk.

In view of the aforesaid, when establishing business relationships, the entity shall determine the client risk level under the relevant criteria, in particular, type of client, geographical location of the registration country or institution through which it transfers/receives assets, and type of goods or services.
The high risk level is assigned to clients included in the List of persons related to the terrorist activities or imposed international sanctions, generated by the State Financial Monitoring Service of Ukraine, and to clients that show sufficient grounds to suspect that they are involved in or related to terrorism financing.
Special attention shall be paid to the following clients:

  • Non-profit or charitable organizations (other than charitable organizations operating under the auspices of international organizations);
  • Public figures or related persons, including those with the wide range of powers in Ukraine;
  • Residents of the country that supports terrorist activities;
  • Leaders or founders of public or religious organizations, charitable foundations, foreign NGOs, affiliates or missions thereof that operate in the territory of Ukraine;
  • Those whose activities involve big cash turnovers;
  • Those that conduct transactions with funds or other property exclusively through a proxy;
  • Those that make payments for transactions via Internet technologies, electronic payment systems, money transfer systems or other alternative remote systems that make it impossible to fully identify the sender/recipient of funds;
  • Those that provide the entity with no additional details specified in the entity’s relevant by-laws;
  • Those that raise doubts regarding the authenticity of the documents submitted or identification data previously provided.

According to Article 9 of the Law, in respect of such persons, the entity shall:

  • Conduct in-depth identification and verify its identity, including owners;
  • Collect information in order to get insight into the client’s activities, nature and level of its operations;
  • Establish the core, nature and purpose of business relationships and, in case of suspicion, intensify the monitoring of the client’s transactions.

In view of the aforesaid, we consider it necessary for the entities to use the following criteria for the following payments from/to the client:

  • Made to Ukrainian banks from the country that supports international terrorist activities;
  • Made via the payment systems of the country that supports international terrorist activities;
  • Made in the currency of the country that supports international terrorist activity;
  • Made by NGOs of radical or other direction;
  • Made by individuals who are citizens of the country that supports international terrorist activity;
  • Made by legal entities registered in the territory of the country that supports international terrorist activities, or whose founders/participants or governing body members are citizens of the country that supports international terrorist activity.

In order to establish countries that support international terrorist activities, the entities may use any official means of information (including web-sites) of the Cabinet of Ministers of Ukraine, the National Bank of Ukraine, other government agencies, as well as international and inter-governmental organizations involved in combating money laundering or terrorism financing.
In view of the aforesaid, after processing transactions with the above features, the entity shall conduct the analysis and decide whether to send information on them to the State Financial Monitoring Service of Ukraine and the Security Service of Ukraine (Article 6 of the Law).
When analyzing financial transactions for the availability of suspicions that they are related to, connected with or aimed at financing terrorism, the entities shall clearly understand that terrorism financing may be carried out by terrorist organizations pretended to be official legal entities, a through the use of official legal entities as terrorism financing channels.
Thus, in order to reduce the entities’ risks of being used by criminals for terrorism financing, we recommend that the entities use the right to refuse to process a financial transaction in case if the financial transaction contains features of that being subject to financial monitoring under the Law, including those in respect of which there is a suspicion that they are related to, connected with or aimed at financing terrorism, and notify the State Financial Monitoring Service of Ukraine within one working day, but not later than the next working day after the refusal (Article 10 of the Law).
In order to reduce the risks of financing separatist or terrorist activities in the territory of Ukraine, the State Financial Monitoring Service of Ukraine also recommends that the entities suspend financial transactions conducted by the persons on the List of individuals from Ukraine and the countries that support international terrorist activities in relation to the application of economic sanctions to such individuals, and notify the State Financial Monitoring Service of Ukraine thereof (Article 17 of the Law).
Please follow this link to read the list of persons subject to sanctions by the Council of the European Union and the United States of America (including OFAC):

http://www.treasury.gov/ofac/downloads/prgrmlst.txt
http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx
http://www.treasury.gov/resource-center/sanctions/Programs/Pages/ukraine.aspx
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014D0238&rid=1
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2014:078:0006:0015:EN:PDF
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=1
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

On October 8, 2020, the Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury  imposed blocking sanctions against 18 major Iranian banks. You can find the list of identifiers of sanctioned persons at this Link.

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