- Corruption poses an overarching money laundering (ML) risk in Ukraine. It generates substantial amounts of criminal proceeds and seriously undermines the effective functioning of certain state institutions and the criminal justice system. The authorities are aware of the risks emanating from coruption and significant state-wide measures to mitigate the risk are currently being implemented. However, law enforcement focus to target corruption-related ML is only at its inception.
- Ukraine has a reasonably good understanding of its ML and terrorism financing (FT) risks although there are areas (e.g. cross-border risks, risks posed by the non-profit sector and legal persons) where understanding could be enhanced. Ukraine has comprehensive national coordination and policy-making mechanisms to address identified risks, which include political commitment and have a positive effect. These mechanisms include proliferation financing (PF). Further efforts are needed to address the risks posed by fictitious entrepreneurship, the shadow economy and the use of cash, all of which are considered to pose a major ML risk.
- The Financial Intelligence Unit (FIU) generates financial intelligence of a high order. Spontaneous case referrals regularly trigger investigations into ML, associated predicate offences or FT. Law enforcement agencies (LEAs) also seek intelligence from the FIU on a regular basis to support their investigative efforts. However, the FIU finds itself at a critical juncture as its IT system is out-dated and staffing levels are no longer adequate to cope with an ever increasing work-load. Reporting appears to be in line with Ukraine’s risk profile and has resulted in a significant number of case referrals to LEAs. Ukraine has nevertheless started to take steps to further improve the quality of suspicion-based reporting.
- ML is still essentially seen as an adjunct to a predicate offence. While pre-trial investigations may be opened for ML in certain circumstances without a conviction for the predicate offence, it was widely assumed that a conviction for the predicate offence is essential before a ML case can be taken to court. The sentences for ML are almost always less than for the predicate offences and generally need to be more dissuasive in practice. The authorities have recently started aggressively restraining funds in cases of top level corruption and theft of state assets with a view to confiscation. Nonetheless, the confiscation regime does not appear to be applied consistently in all proceeds generating cases.
- Since 2014, the Security Services have concentrated on the consequences of international terrorism involving the fight against Islamic State of Iraq and the Levant (ISIL), which has led to indictments, though no convictions as yet for FT. Financial investigations are undertaken in parallel with all terrorism-related investigations. Although Ukraine demonstrates aspects of an effective system in implementing FT targeted financial sanctions (TFS), the legal framework is still not entirely in line with international standards. No funds or other assets have been frozen under FT TFS in Ukraine
- The National Bank of Ukraine (NBU) has a good understanding of risk and applies an adequate risk-based approach to the supervision of banks. Major efforts have been made by the NBU in ensuring transparency of beneficial ownership of banks and in removing criminals from control of banks. The NBU has applied a range of sanctions to banks including fines and revocation of licences. As a result, the application of preventive measures by the banking sector has been found to be broadly effective. Significant improvements are required by most other supervisory authorities in discharging their functions and by non-bank institutions and designated non-financial businesses and professions (DNFBPs) in applying preventive measures.
- Although the Unified State Register (USR) records all basic information and makes this available to the public online, the Registrar does not ensure that the basic or beneficial ownership information provided to it by legal persons is accurate or current. While this would not normally be considered a material issue, the vast majority of the private sector explained that they do rely on the USR to verify the beneficial owner (BO) of their client.Ukraine has been generally proactive in providing and seeking mutual legal assistance (MLA). However, a number of issues have an impact on the effectiveness of MLA rendered, particularly issues related to tipping off. Limitations noted in relation to the transparency of legal persons at the national level negatively impact Ukraine’s capacity to provide comprehensive assistance.
Ukraine faces significant ML risks. Corruption and illegal economic activities are the major ML threats. Organised criminality is on the rise and has a substantial impact on the overall ML risk situation. So-called conversions centers involving fictitious companies through which funds are siphoned from the real to the shadow economy are one of the prevalent ML typologies. Such centers are used to convert proceeds into cash and transfer proceeds out of Ukraine. Cash circulation is high and is considered to pose a significant threat to the financial system and economic security of the country. Turning to the risk of FT, since 2014, Ukraine has found itself used as a transit country for those seeking to join ISIL fighters in Syria. The non-profit sector is considered by the authorities to be vulnerable to FT.