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Anti-money laundering officers urged to be vigilant over Ukrainian cash movements

Source: Tue, 25 Feb 2014 12:48 GMT
Author: Compliance Complete
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In this 2012 file photo, a customer and street vendor are seen before the background of an outdoor ad with an image of the Ukrainian hryvnia and U.S. dollar bank notes in central Kiev REUTERS/Anatolii Stepanov
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Martin Coyle, Compliance Complete

Money laundering reporting officers must balance extra vigilance about suspicious Ukrainian cash entering or leaving the UK following the ousting of President Victor Yanukovich but they cannot afford to jump to conclusions, officials said. Serious civil unrest has followed in recent days with scores of people killed.

Campaign group Transparency International (TI) issued a risk alert on Ukraine saying it believed corrupt assets might be laundered through or into the UK following the devastating upheaval in the country. It called on the government, money laundering reporting officers (MLROs), law and accountancy firms plus luxury estate agents to be on the lookout for dirty funds emerging from the country. TI said lessons needed to be learnt from the Arab Spring where, it said, there had been a slow international response to freezing assets. 

Robert Barrington, executive director of the UK arm of TI, said MLROs needed to prioritise Ukrainian transactions immediately. "With the Arab Spring it took quite a long time for everybody in London to wake up to the fact that there was a series of revolutions happening in North Africa…there was a process that took weeks. We have issued the risk alert because this looks like it is the next Arab Spring and this time let's not close the stable door after the horse has bolted. Let's act right now because we can see where this is going," he told Compliance Complete.

Barrington urged MLROs to file suspicious activity reports (SARs), and called on the government to respond to the SARs without delay. "Frankly, large amounts of money coming out of a country where there is a revolution is a suspicious activity. You need to submit a SAR." 

Banks should not however freeze Ukrainian money unilaterally because this would need government backing, he said.

Martin Saunders, a partner at Clifford Chance, agreed regime change suggested there was a greater likelihood that corruption charges might be brought against officials. He said this should make no difference to MLROs, however. 

"Money laundering reporting officers shouldn't in theory be basing their assessments on whether there are going to be prosecutions but on whether or not something is illegal. The suspected illegality is the same whether someone is in office or has just been deposed from office," he told Compliance Complete.

"That said if we are in a period of regime change some of those people might be trying to move their assets out of Ukraine to avoid confiscation, so I agree that it is prudent to exercise extra vigilance at this point," he said.

Watching capital flight

Simon Davis, an AML consultant and former financial investigator at the Metropolitan Police, said MLROs needed to look at the chain of events that had occurred in the country since January and examine whether transactions from a client matched up. "This may give you this extra degree of suspicion which ordinarily might not be present. On the balance of probabilities when you look at the calendar of events you need to consider whether capital flight would have occurred so," he told Compliance Complete. 

He said MLROs needed to consider whether Ukrainian PEPs would be moving their assets if the demonstrations had turned out to be peaceful. He said MLROs should consider the following maxim: "Think once, think twice; make the report."

Davis said if it emerged that an MLRO had not reported something that looked suspicious at the time it could spell trouble. "That MLRO job is very lonely. If you make a report, it's very healthy if someone says have you reported on a PEP or a high-net-worth individual," he said.

Davis warned of several red flag indicators for MLROs. Firms should be mindful of instructions coming in from accountants or solicitors acting for Ukrainian officials or PEPs wanting to move money to around. Firms should also watch out for Ukrainians wanting to move money into Russian entities. Russians tended not to give up stolen money once it has been moved into the country, he said. 

He added that MLROs should look out for situations where a lucrative savings scheme is quickly closed down and the client is willing to take a financial penalty on the chin. Firms could also look at the salaries of officials. If they had £100,000 in a Guernsey bank account and they earned 10,000 euros a year, it was a red flag, he said.

Barrington warned of an additional complication for banks in that dirty money could filter into the UK from neighbouring countries or from other jurisdictions such as Dubai or the British Virgin Islands, for example. MLROs therefore needed to look out for Ukrainian money leaving the UK as well as cash coming into the country. "If you are a corrupt Ukrainian you might be sending on your money overseas from the UK. It might be money that was shipped over to the UK a few weeks ago when you saw the way the wind was blowing. They may be sending it off again to make it ultra-safe," he said. 

Saunders said banks could only comply with the Money Laundering Regulations and sanctions laws and could not interfere with customer transactions by taking their own view of things. Banks need to look at each transaction 'in the round' and genuine grounds for suspicion were needed before action could be taken, he said.

"It's not realistic to expect banks to freeze assets beyond complying with any financial sanctions and, within the AML framework, asking for consent in appropriate case under the Proceeds of Crime Act," he said. 

Avoid jumping to conclusions

"We have to be careful. The rule of thumb is that each transaction needs to be looked at on its own merits. There might be perfectly cogent reasons for why transactions are going ahead and one should not jump to conclusions without looking at the full circumstances of each particular customer," he said.

"One should not suddenly take the view that all Ukrainian business is linked to corruption, because I am not aware of any evidence that demonstrates that."

In a letter to George Osborne, the Chancellor of the Exchequer, TI called on the government to immediately remind all relevant sectors, and their regulators to examine the money laundering risks from members and associates of the Ukrainian regime. It said enhanced know your customer (KYC) checks should be carried out immediately if firms suspected any links between their businesses and assets coming out of Ukraine. All associated politically exposed persons (PEPs) should be investigated thoroughly, it said.

All related requests to transfer assets out of the UK should be regarded as suspicious transactions and should be reported to the National Crime Agency, it said. MLROs should be made aware enhanced due diligence was required for any transaction involving Ukrainian PEPs. "This is the case irrespective and independently of the progress of EU financial sanctions," TI said. 

Last week the European Union announced it would impose targeted sanctions on the country including an asset freeze and visa ban against those responsible for the violence and human rights abuses. The EU did not mention names but it is thought that government ministers and protest leaders are likely to go on the sanctions list; a final list has yet to be made public. 

TI said other financial centres needed to follow the European Union's lead. "The enforcement of anti-money laundering laws has been weak in the past and we hope a thorough and robust enforcement of sanctions against corrupt Ukrainian officials will establish a benchmark for stronger enforcement down the road," said Cobus de Swardt, managing director. 

The anti-corruption body said for years powerful Ukrainian elites had allegedly hidden their ill-gotten gains throughout the European Union while the authorities had failed to stop them. There is no clear indication of how much money has left Ukraine in recent weeks, although there has been an increase in the number of private planes leaving the country for the UK. There is anecdotal evidence that cash has been loaded on to these planes with some hidden in diplomatic bags. 

"Until there are concrete allegations of named individuals being involved in corruption it's not realistic for the shutters to come down across the board. I agree that there is a case for the government to devote resources within law enforcement to look at this but one has to be realistic and the Ukrainian authorities need to start taking the lead," Saunders said.

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