23 July 2010

NEW Anti-Money LaunderingRules for Legal and TaxConsultants

Dmytro Gadomsky

New Anti-Money Laundering Law adopted It will come into force in 29 days

“Behind every great fortune there is a crime”

Honore de Balzac

SFM

MinFin MinJust NBU

Subjects to Initial Finance Monitoring

Special Subjects to Initial Finance Monitoring

• Banks

• Financial institutions

• Stock exchanges

• Etc.

• Audit companies

• Public notaries

• Attorneys

• Legal consultants

FATF EU WB IMF

Structure of financial monitoring

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Special subjects to initial financial monitoring

Who:

•Notaries,

•Attorneys at law (адвокаты),

•Auditors, audit companies,

•Legal entities who provide legal services (except in-house legal)

•And some others

Structure of initial financial monitoring

Initial financial monitoring

Obligatory FM Internal FM

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Criteria for obligatory financial monitoring

Transactions which fall under obligatory FM:

Single financial operation performed during a day is equal or exceeds UAH 150 thousand AND meets one of the below descriptions:

‒ anonymous accounts in offshore jurisdictions; 

‒ country that do not take part in international cooperation on prevention and counteraction of legalization (laundering) of illegally obtained profits (FATF lists);  

‒ cash operations;  

‒ legal entity operates for less than 3 months;  

‒ etc.

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Criteria for internal financial monitoring

Single financial operation performed during a day for any amount if it meets one of the below descriptions:

‒ lack of economic sense; 

‒ contradiction to business activity;   

‒ Avoidance of financial monitoring;

‒ etc.  

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Transactions that are subject to financial monitoring for consultants

What to report:

•Sale and purchase of real estate – if transaction is equal or excess UAH 400 thousand;

•Asset management;

•Bank account operation;

•Fund raising for the purpose of establishing legal entities, arranging their activities and administration;

•Establishing of legal entities, arranging their activities and administration, as well as sale and purchase of legal entities.

No obligation to report if the respective information is subject to attorney’s secret or professional secret.

10

Transactions that are subject to financial monitoring for consultants (EXAMPLES)

What to report:

One-day operation exceeding UAH 150’000 + anonymous account + establishing of legal entity = inform SFC

or

One-day operation exceeding UAH 150’000 + cash + SPA of real estate + inform SFC

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Person, responsible for financial monitoring

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Obligations of consultants

New Anti-Money Laundering Law added more then 20 (!) new obligations for consultants, in particular:

• Register with the SFM;

• Appoint responsible person;

• Clients’ identification;

• Register financial operations;

• To inform the SFM on the identified financial operations;

• To provide the SFC with additional information;

• To provide the SFM with any clients’ documents and information (including restricted);

• etc.

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Limitations for consultants

Among others, the new Law also provides for the consultants the following limitations of responsibility and restrictions for their actions:

• No liability for informing SFM even if their actions infringe rights and interests of legal entities and/or individuals.

• Consultants who submitted information on the financial operation to SFM are prohibited from informing their clients, to whom this information was concern, or any third parties;

• Consultants, who received an information request from SFM or provided the latter with an answer to such request, are prohibited from informing their clients, to whom this request was concern, or any third parties.

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Identification of the client

One of the main obligations of consultants is the client’s identification

• Consultants are obliged to perform identification of their clients (i.e. to gather information, the scope of which defined by the new Law) before or during establishing business relations or making a deal, but not before executing a financial operation.

• Consultants are obliged to refuse from establishing business relations with a client or executing a financial operation in case the identification of the client is impossible.

• Consultants have a right to refuse from executing a financial operation if characteristics of such operation corresponds to those, which are subject to the financial monitoring.

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Liability of specially defined subjects of the financial monitoring

Penalties:

• Non-fulfillment of client’s identification – in the amount of 500 minimum level of income exempted from taxation (UAH 8,500);

• Non-identification, untimely identification and improper registration of the financial operations – 800 minimum (UAH 13,600);

• Non-interruption of the financial operation – 1,000 minimums (UAH 17,000); etc.

Besides, persons could be prohibited from providing some types of business activity.

The legal entities that executed financial operations aimed at laundering or terrorism financing could be liquidated under the court decision.