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COMMITTEE OF EXPERTS ON THE EVALUATION OF ANTI-MONEY LAUNDERING MEASURES AND THE FINANCING OF TERRORISM (MONEYVAL)

MONEYVAL(2017)20

Anti-money laundering and counter-terrorist financing measures

UkraineFifth Round Mutual Evaluation Report

December 2017

Dear colleagues !

On December 7, 2017, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) approved the 5th round mutual evaluation Report of Ukraine. On January 30, 2018, the Report was published on MONEYVAL’s web-site (https://rm.coe.int/fifth-round-mutual-evaluation-report-on-ukraine/1680782396).

The approval of the Report was preceded by a hard work of MONEYVAL’s experts, in particular the evaluation team of Ukraine, including a scientific expert from the United Kingdom of Great Britain and Northern Ireland, and the representatives of such countries as the State of Israel, the Principality of Liechtenstein, the United States of America, the Isle of Man, Guernsey, as well as the representatives of MONEYVAL Secretariat. In the process of preparation, the draft report has been reviewed by the representatives of the Republic of Armenia, Hungary and FATF Secretariat.

The adjustment of the Report was also promoted by a number of unprecedented complex organizational and practical measures which have been taken and coordinated by the State Financial Monitoring Service of Ukraine during the whole evaluation process which lasted more than a year and started in August 2016.

The State Financial Monitoring Service of Ukraine has been a national coordinator of the 5th round mutual evaluation of Ukraine and its significant efforts have been focused on completeness of information and analytical support of international experts, as well as on coordination of joint actions with state authorities of Ukraine in this area.

In full, the report confirmed that Ukraine is a reliable jurisdiction in the AML/CFT area which does not require the special control measures of MONEYVAL and FATF.

The mentioned result assures an unconditional progress in the development of the national AML/CFT system and confirms the growing effectiveness of actions of all its participants.

As a result of evaluation, MONEYVAL confirmed a significant level of operational and institutional development of the national financial intelligence unit – the State Financial Monitoring Service of Ukraine following all ratings.

In addition, the Report focuses on the significant level of inter-agency coordination, the quality of the first National Risk Assessment, the organization of international cooperation, as well as high level of regulatory and supervisory activities, in particular over the banking sector and the securities market.

Consequently, the MONEYVAL has recommended a number of constructive recommendations to the work of the national financial monitoring system which pertain all evaluated areas of activities.

The State Financial Monitoring Service of Ukraine will continue to take effective actions in the context of further development of internal cooperation and cooperation with the MONEYVAL and all international community.

Head of the State Financial Monitoring Service of Ukraine Igor Cherkaskyi

An unofficial translation of the report in Ukrainian has been made by the State Financial Monitoring Service of Ukraine. The publication of the report was made with the assistance of the EU Anti-Corruption Initiative in Ukraine (EUACI).

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All rights reserved. Reproduction is authorised, provided the source is acknowledged, save where otherwise stated. For any use for commercial purposes, no part of this publication may be translated, reproduced or transmitted, in any form or by any means, electronic (CD-Rom, Internet, etc.) or mechanical, including photocopying, recording or any information storage or retrieval system without prior permission in writing from the MONEYVAL Secretariat, Directorate General of Human Rights and Rule of Law, Council of Europe (F-67075 Strasbourg or moneyval@coe.int)

The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism – MONEYVAL is a permanent monitoring body of the Council of Europe entrusted with the task of assessing compliance with the principal international standards to counter money laundering and the financing of terrorism and the effectiveness of their implementation, as well as with the task of making recommendations to national authorities in respect of necessary improvements to their systems. Through a dynamic process of mutual evaluations, peer review and regular follow-up of its reports, MONEYVAL aims to improve the capacities of national authorities to fight money laundering and the financing of terrorism more effectively.

The fifth round mutual evaluation report on Ukraine was adopted by the MONEYVAL Committee at its 55th Plenary Session (Strasbourg, 5 – 7 December 2017).

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CONTENTS

EXECUTIVE SUMMARY ............................................................................................................................ 5 

Key Findings ................................................................................................................................................ 5 Risks and General Situation ......................................................................................................................... 6 Overall Level of Effectiveness and Technical Compliance ......................................................................... 6 Priority Actions .......................................................................................................................................... 13 Effectiveness & Technical Compliance Ratings ........................................................................................ 15 

MUTUAL EVALUATION REPORT ........................................................................................................... 16 

Preface ....................................................................................................................................................... 16 

CHAPTER 1.  ML/TF RISKS AND CONTEXT ...................................................................................... 17 

ML/TF Risks and Scoping of Higher-Risk Issues ..................................................................................... 17 Materiality .................................................................................................................................................. 21 Structural Elements .................................................................................................................................... 22 Background and other Contextual Factors ................................................................................................. 22 

CHAPTER 2.  NATIONAL AML/CFT POLICIES AND COORDINATION ......................................... 33 

Key Findings and Recommended Actions ................................................................................................. 33 Immediate Outcome 1 (Risk, Policy and Coordination) ............................................................................ 35 

CHAPTER 3.  LEGAL SYSTEM AND OPERATIONAL ISSUES ........................................................ 43 

Key Findings and Recommended Actions ................................................................................................. 43 Immediate Outcome 6 (Financial intelligence ML/TF) ............................................................................. 47 Immediate Outcome 7 (ML investigation and prosecution) ...................................................................... 56 Immediate Outcome 8 (Confiscation) ........................................................................................................ 72 

CHAPTER 4.  TERRORIST FINANCING AND FINANCING OF PROLIFERATION ........................ 82 

Key Findings and Recommended Actions ................................................................................................. 82 Immediate Outcome 9 (TF investigation and prosecution) ....................................................................... 85 Immediate Outcome 10 (TF preventive measures and financial sanctions) .............................................. 90 Immediate Outcome 11 (PF financial sanctions) ....................................................................................... 93 

CHAPTER 5.  PREVENTIVE MEASURES ............................................................................................ 96 

Key Findings and Recommended Actions ................................................................................................. 96 Immediate Outcome 4 (Preventive Measures) ........................................................................................... 97 

CHAPTER 6.  SUPERVISION ............................................................................................................... 106 

Key Findings and Recommended Actions ............................................................................................... 106 Immediate Outcome 3 (Supervision) ....................................................................................................... 108 

CHAPTER 7.  LEGAL PERSONS AND ARRANGEMENTS .............................................................. 125 

Key Findings and Recommended Actions ............................................................................................... 125 Immediate Outcome 5 (Legal Persons and Arrangements) ..................................................................... 126 

CHAPTER 8.  INTERNATIONAL COOPERATION ............................................................................ 131 

Key Findings and Recommended Actions ............................................................................................... 131 

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TECHNICAL COMPLIANCE ANNEX ................................................................................................... 138 

Recommendation 1 - Assessing Risks and applying a Risk-Based Approach ..................................... 139 Recommendation 2 - National Cooperation and Coordination ............................................................ 142 Recommendation 3 - Money laundering offence ................................................................................. 142 Recommendation 4 - Confiscation and provisional measures ............................................................. 145 Recommendation 5 - Terrorist financing offence ................................................................................ 147 Recommendation 6 - Targeted financial sanctions related to terrorism and terrorist financing .......... 150 Recommendation 7 - Targeted financial sanctions related to proliferation ......................................... 154 Recommendation 8 - Non-profit organisations .................................................................................... 157 Recommendation 9 - Financial institution secrecy laws ...................................................................... 159 Recommendation 10 - Customer due diligence ..................................................................................... 160 Recommendation 11 - Record-keeping ................................................................................................. 166 Recommendation 12 - Politically exposed persons ............................................................................... 167 Recommendation 13 - Correspondent banking ...................................................................................... 169 Recommendation 14 - Money or value transfer services ....................................................................... 169 Recommendation 15 - New technologies .............................................................................................. 170 Recommendation 16 - Wire transfers .................................................................................................... 170 Recommendation 17 - Reliance on third parties .................................................................................... 173 Recommendation 18 - Internal controls and foreign branches and subsidiaries .................................... 174 Recommendation 19 - Higher-risk countries ......................................................................................... 175 Recommendation 20 - Reporting of suspicious transaction ................................................................... 176 Recommendation 21 - Tipping-off and confidentiality ......................................................................... 177 Recommendation 22 - DNFBPs: Customer due diligence ..................................................................... 177 Recommendation 23 - DNFBPs: Other measures .................................................................................. 178 Recommendation 24 - Transparency and beneficial ownership of legal persons .................................. 179 Recommendation 25 - Transparency and beneficial ownership of legal arrangements ......................... 182 Recommendation 26 - Regulation and supervision of financial institutions ......................................... 183 Recommendation 27 - Powers of supervisors ........................................................................................ 189 Recommendation 28 - Regulation and supervision of DNFBPs ............................................................ 190 Recommendation 29 - Financial intelligence units ................................................................................ 192 Recommendation 30 - Responsibilities of law enforcement and investigative authorities .................... 194 Recommendation 31 - Powers of law enforcement and investigative authorities ................................. 194 Recommendation 32 - Cash Couriers .................................................................................................... 196 Recommendation 33 - Statistics ............................................................................................................. 198 Recommendation 34 - Guidance and feedback ...................................................................................... 198 Recommendation 35 - Sanctions ........................................................................................................... 199 Recommendation 36 - International instruments ................................................................................... 202 Recommendation 37 - Mutual legal assistance ...................................................................................... 203 Recommendation 38 - Mutual legal assistance: freezing and confiscation ........................................... 205 Recommendation 39 - Extradition ......................................................................................................... 206 Recommendation 40 - Other forms of international cooperation .......................................................... 208 Compliance with FATF Recommendations ............................................................................................. 212 GLOSSARY OF ACRONYMS ............................................................................................................... 216 

 

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TECHNICAL COMPLIANCE ANNEX ................................................................................................... 138 

Recommendation 1 - Assessing Risks and applying a Risk-Based Approach ..................................... 139 Recommendation 2 - National Cooperation and Coordination ............................................................ 142 Recommendation 3 - Money laundering offence ................................................................................. 142 Recommendation 4 - Confiscation and provisional measures ............................................................. 145 Recommendation 5 - Terrorist financing offence ................................................................................ 147 Recommendation 6 - Targeted financial sanctions related to terrorism and terrorist financing .......... 150 Recommendation 7 - Targeted financial sanctions related to proliferation ......................................... 154 Recommendation 8 - Non-profit organisations .................................................................................... 157 Recommendation 9 - Financial institution secrecy laws ...................................................................... 159 Recommendation 10 - Customer due diligence ..................................................................................... 160 Recommendation 11 - Record-keeping ................................................................................................. 166 Recommendation 12 - Politically exposed persons ............................................................................... 167 Recommendation 13 - Correspondent banking ...................................................................................... 169 Recommendation 14 - Money or value transfer services ....................................................................... 169 Recommendation 15 - New technologies .............................................................................................. 170 Recommendation 16 - Wire transfers .................................................................................................... 170 Recommendation 17 - Reliance on third parties .................................................................................... 173 Recommendation 18 - Internal controls and foreign branches and subsidiaries .................................... 174 Recommendation 19 - Higher-risk countries ......................................................................................... 175 Recommendation 20 - Reporting of suspicious transaction ................................................................... 176 Recommendation 21 - Tipping-off and confidentiality ......................................................................... 177 Recommendation 22 - DNFBPs: Customer due diligence ..................................................................... 177 Recommendation 23 - DNFBPs: Other measures .................................................................................. 178 Recommendation 24 - Transparency and beneficial ownership of legal persons .................................. 179 Recommendation 25 - Transparency and beneficial ownership of legal arrangements ......................... 182 Recommendation 26 - Regulation and supervision of financial institutions ......................................... 183 Recommendation 27 - Powers of supervisors ........................................................................................ 189 Recommendation 28 - Regulation and supervision of DNFBPs ............................................................ 190 Recommendation 29 - Financial intelligence units ................................................................................ 192 Recommendation 30 - Responsibilities of law enforcement and investigative authorities .................... 194 Recommendation 31 - Powers of law enforcement and investigative authorities ................................. 194 Recommendation 32 - Cash Couriers .................................................................................................... 196 Recommendation 33 - Statistics ............................................................................................................. 198 Recommendation 34 - Guidance and feedback ...................................................................................... 198 Recommendation 35 - Sanctions ........................................................................................................... 199 Recommendation 36 - International instruments ................................................................................... 202 Recommendation 37 - Mutual legal assistance ...................................................................................... 203 Recommendation 38 - Mutual legal assistance: freezing and confiscation ........................................... 205 Recommendation 39 - Extradition ......................................................................................................... 206 Recommendation 40 - Other forms of international cooperation .......................................................... 208 Compliance with FATF Recommendations ............................................................................................. 212 GLOSSARY OF ACRONYMS ............................................................................................................... 216 

 

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EXECUTIVESUMMARY

1. This report provides a summary of the anti‐money laundering (AML) and countering thefinancingofterrorism(CFT)measuresinplaceinUkraineasatthedateoftheon‐sitevisit(between27Marchand8April2017).ItanalysesthelevelofcompliancewiththeFinancialActionTaskForce(FATF) 40 Recommendations and the level of effectiveness of Ukraine’s AML/CFT system, andprovidesrecommendationsonhowthesystemcouldbestrengthened

KeyFindings

• Corruptionposesanoverarchingmoney laundering (ML)risk inUkraine. It generatessubstantialamounts of criminal proceeds and seriously undermines the effective functioning of certain stateinstitutions and the criminal justice system. The authorities are aware of the risks emanating fromcorruption and significant state‐wide measures to mitigate the risk are currently being implemented.However,lawenforcementfocustotargetcorruption‐relatedMLisonlyatitsinception.

• Ukraine has a reasonably good understanding of its ML and terrorism financing (FT) risksalthough there are areas (e.g. cross‐border risks, risks posed by the non‐profit sector and legalpersons) where understanding could be enhanced. Ukraine has comprehensive nationalcoordination and policy‐making mechanisms to address identified risks, which include politicalcommitment and have a positive effect. These mechanisms include proliferation financing (PF).Further efforts are needed to address the risks posed by fictitious entrepreneurship, the shadoweconomyandtheuseofcash,allofwhichareconsideredtoposeamajorMLrisk.

• The Financial intelligence Unit (FIU) generates financial intelligence of a high order.SpontaneouscasereferralsregularlytriggerinvestigationsintoML,associatedpredicateoffencesorFT. Law enforcement agencies (LEAs) also seek intelligence from the FIU on a regular basis tosupporttheirinvestigativeefforts.However,theFIUfindsitselfatacriticaljunctureasitsITsystemisout‐datedandstaffing levelsareno longeradequate tocopewithanever increasingwork‐load.ReportingappearstobeinlinewithUkraine’sriskprofileandhasresultedinasignificantnumberofcasereferralstoLEAs.Ukrainehasneverthelessstartedtotakestepstofurtherimprovethequalityofsuspicion‐basedreporting.

• MLisstillessentiallyseenasanadjuncttoapredicateoffence.Whilepre‐trialinvestigationsmaybeopened for ML in certain circumstances without a conviction for the predicate offence, it was widelyassumedthataconvictionforthepredicateoffenceisessentialbeforeaMLcasecanbetakentocourt.Thesentences forMLarealmostalways less than for thepredicateoffencesandgenerallyneed tobemoredissuasiveinpractice.Theauthoritieshaverecentlystartedaggressivelyrestrainingfundsincasesoftoplevelcorruptionandtheftofstateassetswithaviewtoconfiscation.Nonetheless,theconfiscationregimedoesnotappeartobeappliedconsistentlyinallproceeds‐generatingcases.

• Since 2014, the Security Services have concentrated on the consequences of internationalterrorism involving the fight against Islamic State of Iraq and the Levant (ISIL),which has led toindictments,thoughnoconvictionsasyetforFT.Financialinvestigationsareundertakeninparallelwith all terrorism‐related investigations.  Although Ukraine demonstrates aspects of an effectivesystem in implementing FT targeted financial sanctions (TFS), the legal framework is still notentirelyinlinewithinternationalstandards.NofundsorotherassetshavebeenfrozenunderFTTFSinUkraine. 

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• TheNationalBankofUkraine(NBU)hasagoodunderstandingofriskandappliesanadequaterisk‐based approach to the supervision of banks. Major efforts have been made by the NBU inensuringtransparencyofbeneficialownershipofbanksand inremovingcriminals fromcontrolofbanks.TheNBUhasappliedarangeofsanctionstobanks,includingfinesandrevocationoflicences.As a result, the application of preventive measures by the banking sector has been found to bebroadly effective. Significant improvements are requiredbymost other supervisory authorities indischarging their functions and by non‐bank institutions and designated non‐financial businessesandprofessions(DNFBPs)inapplyingpreventivemeasures.

• Although the Unified State Register (USR) records all basic information and makes thisavailable to thepubliconline, theRegistrardoesnotensurethat thebasicorbeneficialownershipinformationprovidedtoitbylegalpersonsisaccurateorcurrent.Whilethiswouldnotnormallybeconsideredamaterialissue,thevastmajorityoftheprivatesectorexplainedthattheydorelyontheUSRtoverifythebeneficialowner(BO)oftheirclient.

• Ukrainehasbeengenerallyproactiveinprovidingandseekingmutuallegalassistance(MLA).However, a number of issues have an impact on the effectiveness of MLA rendered, particularlyissuesrelatedtotippingoff.LimitationsnotedinrelationtothetransparencyoflegalpersonsatthenationallevelnegativelyimpactUkraine’scapacitytoprovidecomprehensiveassistance.

RisksandGeneralSituation

1. Ukraine faces significant ML risks. Corruption and illegal economic activities (includingfictitiousentrepreneurship,taxevasionandfraud)arethemajorMLthreats.Organisedcriminalityison the rise and has a substantial impact on the overall ML risk situation. So‐called conversionscentres involving fictitious companies through which funds are siphoned from the real to theshadoweconomyareoneoftheprevalentMLtypologies.SuchcentresareusedtoconvertproceedsintocashandtransferproceedsoutofUkraine.Cashcirculationishighandisconsideredtoposeasignificantthreattothefinancialsystemandeconomicsecurityofthecountry.TurningtotheriskofFT, since 2014, Ukraine has found itself used as a transit country for those seeking to join ISILfighters inSyria.Thenon‐profitsector isconsideredbytheauthoritiestobevulnerabletoFT.Thesectorhasbeenmisusedtochannelfundstoterroristsandterroristorganisations.

2. The Ukrainian financial sector is bank‐centric and roughly holds 80% of the assets in thefinancial sector. The banking services provided are generally traditional in nature and includedeposits, loans, money transfers, foreign exchange and guarantees. High‐risk products are eitherforbidden or not generally provided. The size of the shadow economy in Ukraine, which isexacerbated by the widespread use of cash, constitutes a significant ML vulnerability. Moneyremittances(throughbanks)playasignificantrolewithinUkraine’seconomy.Mostremittancesarepurportedly linked to Ukrainians working abroad sending money to their relatives in Ukraine.However,asignificantportionoftheremittancesareconductedthroughinformalchannels.

OverallLevelofEffectivenessandTechnicalCompliance

3. Since the last evaluation, Ukraine has taken steps to improve the AML/CFT framework.Notably, a new AML/CFT law was adopted in 2014 which, inter alia, requires the authorities toconduct a national risk assessment (NRA) with a view to identifying ML/TF risks, as well asmeasures to prevent or mitigate such risks; defines measures to combat the financing of

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proliferation of weapons ofmass destruction; introduces tax crimes as predicate offences toML;providesforcompulsoryfinancialmonitoringoffinancialtransactionsofnationalpublicofficialsandofficials fromothercountriesand internationalorganisations;and improvesexistingprocedureonthesuspensionoffinancialtransactions.AmendmentswerealsocarriedouttotheCodeofCriminalProcedureofUkraine(CPC),which includemodificationstotheprovisionsrelatedto jurisdictionalissuesinrespectofArt.209(MLoffence)oftheCriminalCode(CC)andtopre‐trialinvestigationinMLproceedingsincertaincases.However,somedeficienciesanduncertaintiesremaininUkraine’stechnicalcomplianceframework,particularlywithrespecttotheFToffenceandtheTFSregime,thesupervisionofDNFBPsandsanctionsfornon‐compliance.

4. The Ukrainian authorities (UAs) have demonstrated a substantial level of effectiveness inML/FTriskunderstandinganddomesticco‐ordinationtocombatML,FTandPF;aswellasinusingfinancialintelligenceinML,associatedpredicateoffencesandFTinvestigations.Amoderatelevelofeffectivenesshasbeen achieved in theother areas coveredby theFATF Standards, except for theinvestigationandprosecutionofML.

AssessmentofRisks,coordinationandpolicysetting(Chapter2–IO.1;R.1,R.2,R.33)

5. Ukraine has undertaken a ML/FT NRA and published a NRA report. A suitable number ofprivate sector representatives participated in the NRA process. Ukraine has demonstrated areasonably goodunderstanding of itsML/FT risks although there are areaswhereunderstandingwouldbeenhancedbytakingfurtherstepstoidentifyandassessrisk.Informationsourcesshouldbeincreased, for example, by improving the statistical framework and increasing focus on externalthreats,organisedcrime,beneficialownershipandnon‐profitorganisations(NPOs)andotherfacetsofFTrisk.

6. Ukraine has a substantial background in coordinating and setting five yearly strategies andannual plans to address ML/FT. It has comprehensive national coordination and policy makingmechanisms, which include political commitment and which have a positive effect. ThesemechanismsincludePF.NationalpoliciesandactivitiesarecoordinatedwellbytheFIU,andalsobytheMoF in relation to legislation.Bothbodiesareproactive. Substantial initiativeshavebeen,andare being, introduced at the national level to address the key and other ML/FT risks. AML/CFTmeasuresareembracedwithinwider“wholeofGovernment”initiatives,CombattingcorruptionandMLarisingfromcorruptionisthehighestpriority.Examplesincludeestablishmentofanationalanti‐corruptionstrategyandtheestablishmentoftheNationalAnti‐CorruptionBureauofUkraineNABUandtheNationalCorruptionProsecutorsOfficeasbodiesdedicatingto fightingcorruptionandMLarising fromcorruption.There are also initiatives aimedat addressing fictitious entrepreneurshipandtheuseofconversioncentres, taxevasionandMLfromtaxevasion, theshadoweconomyandorganisedcrime.

7. Cooperation at operational level and information exchange between authorities is generallypositive,particularlywheretheFIUisinvolved.

8. Some significant and positive initiatives have been undertaken by competent authorities.ExamplesincludetheNBU’sverysignificanteffortstoremovecriminalsfromhavingcontrolofbanksand its development of themed onsite inspections on politically exposed persons (PEPs) risk; thehighfocusoftheFIUonMLandinaddressingrisk(suchastheintroductionofanautomatedsystemfor the prioritisation of its analysis, the successful development of complex ML cases and theestablishmentofaseparateteamtoberesponsibleforensuringtheeffectivenessofcasereferralsto

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LEAs);thesignificantoutreachbyanumberofthesupervisorybodiessuchastheNBUandtheFIU.However, there are also some areaswhere the objectives and activities of authorities need to bestrengthened and alignedwithML/FT risks.These includepursuit byNABUof corruption‐relatedcases systematically; more focus on the investigation and prosecution of ML and on theimplementation of the confiscation framework; in relation to FT, extending the objectives andactivities to cover parallel financial investigations; andmore focus outside the banking sector inparticular on risk based approaches to supervision following statutory moratoria on onsite andoffsiteinspections.

9. Areasofsimplifiedduediligenceareminorandareconsistentwith identifiedrisksalthoughtheNRA and other published riskmaterial has not led to specific requirements on enhanced duediligence(EDD).

FinancialIntelligence,MoneyLaunderingandConfiscation(Chapter3–IOs6‐8;R.3,R.4,R.29‐32)

10. The FIU produces good quality operational analysis. Effective mechanisms allow for theproactivecollection,risk‐basedprioritisationandanalysisoffinancialintelligenceoriginatingfromabroadrangeofsources, includingtheveryhighnumberofreports,mainlymandatory, filedbytheobliged entities. Reporting appears to be in linewith Ukraine’s risk profile and has resulted in asignificant number of case referral to LEAs. Ukraine has nevertheless started to take steps toemphasise suspicion‐based reporting with a view to diminishing the number of reports andalleviatinganalyticalresourceneeds,aswellasmakingsurethatfinancialintelligenceisasreflectiveaspossibleofconstantlyevolvingrisks.StrategicanalysisproducedbytheFIUsupportstheannualupdateofthereportingcriteria,aswellasLEAsinvestigativeefforts.

11. Spontaneous case referrals regularly trigger investigations into ML, associated predicateoffencesorFTbyLEAs,whichalsoseekintelligencefromtheFIUonaregularbasistosupporttheirself‐initiated investigative efforts. Cooperation among competent authorities is facilitated by anumberof institutionalmechanismsallowing for the timely and confidential exchangeof financialinformationandintelligencewiththerelevantauthorities.

12. Since2014,theFIUhasbeenunderagrowingresourcestrain,withdiminishingresourcesandincreasing numbers of reports to be processed. In addition, the information technology (IT)equipmentneedssignificantupdating.InadequateresourcesarelikelytohaveanegativeimpactontheFIU’seffectivefunctioningifnoturgentlyaddressed.

13. ML was still seen by most interlocutors met onsite primarily as an adjunct to a predicateoffence.While pre‐trial investigations may be opened for ML in certain circumstances without aconviction for the predicate offence, it was widely assumed that a conviction for the predicateoffence isessentialbeforeaMLcase canbe taken tocourt.Some interlocutorsconsidered thatanacquittal for thepredicateoffencemeans thatMLcannotgoahead.Art.209of theCCneeds toberevisedtoestablishbeyonddoubtthataconvictionisnotneededforthepredicateoffenceinordertoproceedwithaMLcaseincourt.Art.209shouldalsoclarifythatinaMLprosecutionunderlyingpredicatecrimemayalsobeinferredfromfactsandcircumstances.

14. Before 2014 ML prosecutions rarely confronted Ukraine’s highest AML risks (top levelcorruptionandtheftofstateassets).Prosecutionsgenerally involved localofficials/mayors,whereML was added to indictments containing other counts (which attracted higher penalties). ThereremainmanysimilarMLcasesbeingprosecutedinvolvingsuch“lowhangingfruit”.

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15. SinceMarch2014activestepsarebeingtakenagainstpersonsinUkrainewhowereconnectedat senior levels to the former regime. These involve complex pre‐trial investigations formisappropriation and laundering of state assets. They appear to have resulted so far in 2 courtconvictions,1ofwhichisforMLinverysignificantamounts.

16. It is welcome that the Specialised Anti‐Corruption Prosecutor is also taking action againstcurrent senior politically exposed persons for corruption (and to some extent ML). He shouldroutinelyalsofocusontheMLaspectsalongsidecorruptionoffences.Moreresourcesareneededforfinancialinvestigationinhisofficeandinlawenforcementgenerally.

17. ItisimportantfortheProsecutorGeneral’sOfficeofUkrainetouseMLoffencesmoreactivelytoattack thecreationof fictitiousenterprises,whichareahighnationalMLrisk.MLprosecutionsinvolving these sham businesses need to result in dissuasive sentences, as Art. 205 of the CC(fictitious entrepreneurship) can only be punished administrativelywith fines. Art. 205 of the CCurgentlyneedsstrengtheningwithdissuasivetermsofimprisonment.

18. ThesentencesforMLarealmostalwayslessthanforthepredicateoffencesandgenerallyneedtobemoredissuasive inpractice. Somedefendants servenoprisonsentencesat all for thebasicoffence under Art. 209‐1 due to the operation of Art. 69 and 75 of the CC, aimed at reform ofconvictedpersons.Theimpactoftheseprovisionsshouldbeindependentlyreviewed.InappropriateMLsentencesshouldautomaticallybeappealedbytheprosecutiontocounteranypublicperceptionthatthehigherthedefendant,themorelenientisthesentence.

19. Creditisgivenforthedeterminedworkthatisnowongoingtorestrainandconfiscatefundsincasesoftoplevelcorruptionandtheftofstateassets,inlinewithnationalMLrisks.Therearenowsomeverysignificantrestraintorders inplaceinmanyof thecasesinvolvinghighlevelofficialsofthe former regimeand their associates. Thesehavenecessitated complex (and far‐reaching) assettracingthroughaccountsofnumerouscompanies,bothinUkraineandabroad.Inrespectofpre‐trialinvestigationsofpersonsbelievedtobeconnectedtotheformerPresident,itwassaidatthetimeofthe onsite visit thatUAH35 billion (~EUR1.15 billion), EUR1 billion, apartments, cars and evenislandswereunderrestraint.TheAgencyresponsibleforAssetRecovery,whichhasbeencreated,isnotyetoperational, so theseassetsarenotallundermanagement.These investigationsappear tohaveresultedin2courtconvictionssofar,oneofwhichwasforMLinverysignificantamounts.1

20. Nonetheless,itisdifficulttoassesssystematicallywhetherthenewsystemisfullyestablishedinpracticeinallproceeds‐generatingcases.Itisunclearhowregularlythenewprovisionsarebeingused by the judges and how many final special confiscation orders have been made as mostinformationonthisisanecdotal.NotallMLconvictionsresultinconfiscations.

21. There are issues that still need to be addressed by the prosecution and judiciary on thepractical implementation of the new Special Confiscation provisions in the courts. A workablestandardofproofinconfiscationproceedingsonthelinkagesofallegedproceedstotheoffencesforwhichthereareconvictionsneedstobeestablishedandconsistentlyapplied.

22. There also appear tobe someproblems in conducting financial investigations, and a lackofresources for them across the board. More financial investigations need to be undertaken to 1On28March2017aftertheconvictionofonehighofficialoftheformerregimeforMLandparticipationinacriminal group, funds and securities totallingUAH34,973,266,108.65 (equivalent toEUR1.12billion)wereconfiscatedunderacourtverdict.Thisdecisionwasenforced in favourof thestatebudgetofUkraineon28April2017.

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ascertainthedirectandindirectprofitsinallmajorproceeds‐generatingcrimes,andnotjustinthehighestprofilecases.

23. TheevaluatorsconsiderthereforethatthenewSpecialConfiscationregimestillneedstimetobed down and achieve the objectives of the CPC amendments of 2015 on a consistent basis. It isimportantthattheopportunitiesprovidedbythenewprovisionsonvalueconfiscationordersandconfiscationfrom3rdpartiesareusedbyprosecutorsandcourtswidelyinfuture.

TerroristFinancingandFinancingProliferation(Chapter4–IOs9‐11;R.5‐8)

24. Since the lastevaluationbyMONEYVAL in2009,Ukrainehas introducedanautonomousTFoffence (Art. 2585) supplementing the range of terrorist‐related offences in Ch. IX Criminal Code.Since2014,UkrainehasfounditselfusedasatransitcountryforthoseseekingtojoinISILfightersinSyria. The Security Services have concentrated on the consequences of international terrorisminvolving the fight against ISIL,whichhas led to indictments, thoughno convictions as yet for FTunder Art. 2585. Parallel financial investigations are integrated with, and used to support, allterrorism‐relatedinvestigations.

25. During 2015 and 2016, the Security Services uncovered the activities of 4 transnationalnetworks operating in Ukraine, transiting FTFs from the Caucuses and facilitating their return totheirhomecountries.3membersofISILwereamong69personsdetained.These3personsaresaidtobeactiveparticipants intherecruitment, trainingandfinancingof thetravelof fighterstoSyriaandIraq.TheyhavebeenreferredtotheUkrainecourtsunderArt.2583,Art.2585(FT),Art.263andArt. 358 of the CC. The cases have not yet been concluded. Other significant criminal justicemeasureshavebeentakenbytheUAsagainsttheremainderofthegroupinvolving,variously,othercriminaloffencesinUkraine(underCh.IX,XIVandXVoftheCC),extradition,anddeportation.TheSecurityServiceofUkraine(SSU)continuesactivelytomonitorover900otherpersonswithaviewtoFToffences.

26. UkrainedemonstratesaspectsofaneffectivesysteminimplementingTFSrelatingtoterrorismand FT. Authorities, financial institutions (FIs), and most DNFBPs are aware of their respectiveobligationsinthatcontextanddemonstratecompliancewithoutdelay.However, inadditiontothelackofeffectivenessof the implementationofbeneficialownership‐relatedcustomerduediligence(CDD)requirements,some important technicaldeficienciesundermineUkraine’sability to fulfilallitsobligationsunder theUnitedNations (UN) framework.Critically,notall fundsandotherassetscoveredbytheUnitedNationsSecurityCouncilResolutions(UNSCRs)aresubjecttofreezingandtheprohibitiontomakefundsandotherassetstodesignatedpersonsisincomplete.

27. Authorities are aware of the FT risks faced by non‐profit sector, which can be used forchannellingfundstoterrorists.However,Ukraine’sunderstandingofriskscouldbenefitfromdeeperanalysis – by considering risks arising from international terrorism and by sharing the SecurityService’s more granular understanding of risks in the sector with other authorities, the privatesectorandthenon‐profitsectoritself.Althoughinsufficientlyrisk‐based,anumberofmeasuresarecontributingtoFTriskmitigation,includingregistration,obligationstomaintainandrecordabroadrange of information and to issue financial statements, as well as monitoring by the State fiscalService of Ukraine (SFS), which, despite including clear AML/CFT objectives, is focused on taxcollectionconsiderations.

28. Inrelationtoproliferationofweaponsofmassdestruction(WMD),UAshaveasophisticatedinstitutional framework to handle the transit of controlled or prohibited goods, and to monitor

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sanctioned entitieswhenpresentedwith a specific case of illicit commercial transaction or trans‐shipment.However, theeffectivenessofPF‐relatedTFSsuffersfromsimilardeficienciesastheFT‐related TFS. There is limited operational cooperation between export and customs controlauthorities and other competent authorities when handling PF UNSCRs. It is unclear whetheradequate resources are allocated by supervisors to monitoring compliance with PF‐TFS relatedobligations.Theprevalenceofcashandubiquitoususeoffictitiouscompaniesmayalsocontributetosanctionsevasion.

PreventiveMeasures(Chapter5–IO4;R.9‐23)

29. TheprivatesectorappearstohaveapositiveandconstructiverelationshipwithboththeFIUand with their respective regulators, communication and education came out as being particularstrengthsofthisrelationship.

30. Theprivatesector’sunderstandingoftheirAML/CFTobligationswasdemonstrablyverygood.However, outside of the banking sector, the understanding of the ML/TF risks facing thosebusinesses was much weaker. The private sector understood their obligation to establish theownership structure of their client aswell as to identify and verify the ultimate beneficial owner(UBO)of theclient.Theresourceused,almostexclusivelyoutsidethebankingsector, toverifythebeneficial ownershipof a client is theUSR.However, authorities andprivate sectorbroadly agreethattheinformationheldbytheUSRlacksreliability.

31. Suspicioustransactionreport(STR)reportingobligationsaregenerallywellunderstoodbytheprivatesectorasarethepotentialoffencesfortippingoff.Tippingoffwasgenerallyagreedtoincludedisclosurebytheofficerresponsibleforfinancialmonitoring.However,extendingthosetippingoffrequirementstoanyotherstaffmemberswhomaybeawareofadisclosurebeingmadewasmixed.Inanumberof cases,understanding that thereneeds tobe controls topreventamemberof stafffrom disclosing that they have reported their suspicions to the officer responsible for financialmonitoring,aremuchweaker.

32. There are some legislative gaps in respect of persons acting as nominee directors andmembers of Ukrainian legal persons. Where persons are acting in these capacities and are nototherwise supervised as accountants or lawyers, there is no obligation under the AML/CFT Lawupon these persons to apply preventativemeasures. In addition, the AML/CFT Law allows for allPEPstobederecognisedthreeyearsafterleavingoffice,thisisnotconsistentwithFATFguidanceonrecommendation12.

Supervision(Chapter6–IO3;R.26‐28,R.34‐35)

33. VerysignificanteffortshavebeenmadebytheNationalBankofUkraine(NBU)inrelationtoensuringtransparencyofbeneficialownershipofbanksand inremovingcriminals fromcontrolofbanks; these efforts have been complemented by the Deposit Guarantee Fund. The NationalSecurities and Stock Market Commission (SC) has made strong efforts to ensure that beneficialowners(BOs)andcontrollersarenotcriminals.However,othersupervisoryauthoritiescannot,ordonot,verifywhetherornotrelevantreportingentities(REs)arebeneficiallyownedorcontrolledbycriminalelementsortheirassociates.

34. TheNBUand the SChave a goodunderstandingofML risks in thebanking and investmentsectors respectively and a broad understanding of FT risks in those sectors. The National

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CommissionfortheStateRegulationofFinancialServicesMarkets(NC)hasagoodunderstandingofMLrisks.Othersupervisorshadabasicunderstandingofrisksorunderstandingwaslacking.

35. TheNBUisundertakingcomprehensiveonsiteandoffsitesupervision forbanks. It followsalargely risk based approach (RBA) toAML/CFT supervision. TheNBU for non‐bank licensees andother supervisory authorities have insufficient staff and, except for the NBU and the Ministry ofJustice (MoJ), have been the subject of moratoria on supervision (none was in force when theevaluationteamvisitedUkraine); these factorshave limitedsupervisionsince2014.Noneof thesesupervisoryauthorities(excepttheNBUinaverylimitedwayfornon‐banks)hasbeenconductingroutine offsite supervision.Other than theMoJ, onsite supervision outside the banking sector hasbeenlimited.Hence,outsidethebankingsectoroveralllevelsofsupervisionhavenotbeensufficient.In addition,with thepartial exceptionof theSC, the statutory criteria for classifyingREs into riskcategories and the time frames for onsite inspectionsmean that supervision canbe only partiallyML/FT risk based. The intensity of supervision between non‐bank licensees by supervisoryauthoritiesotherthantheNBUisvariedinaverylimitedwayornotatall.

36. TheNBUhasappliedarangeofsanctionstobanks,includingfinesandrevocationoflicences.Ithasalsoappliedstrongsanctions(prohibitions)toindividualsbutnootherpenalties.Outsidethebanking sector, the levels of fines are too low and only the SC has applied strong sanctions inaddition to the imposition of fines. Sanctions have not been applied to individuals. There aresignificanttechnicalgapsandthesanctionsframeworkcanbeonlypartiallyeffective.

37. TheNBUhasmadeademonstrabledifferencetothelevelofcomplianceinthebankingsector.While the SC has made a difference in relation to beneficial ownership and control of licensees,overall, theevidencethatnon‐banksupervisoryauthoritiesareroutinelymakingacomprehensiveandsystematicdifferenceonlevelsofcomplianceisnotstrong,withtwoofthesupervisorsmakingnodifference.Apartfromsupervisionofthebankingsector,thelevelsofsupervisionandsanctionsmilitateagainstsupervisorsmakingadifferenceinlevelsofcompliancebyREs.

38. The large majority of supervisory authorities have undertaken outreach to promoteunderstandingofobligationsandrisks.Particularly strongandpositiveoutreachactivityhasbeencarried out by the FIU, the NBU (for banks) and the NC, while the MoF was responsible forestablishingandoperatingatrainingcentreuntil2015(thisisnowoperatedbytheFIU).However,provision of information by the Ministry of Infrastructure and the Ministry of EconomicDevelopmentandTradeislacking.

TransparencyofLegalPersonsandArrangements(Chapter7–IO5;R.24‐25)

39. TheextenttowhichlegalpersonsandlegalarrangementscangenerallybemisusedforML/TFpurposesiswellunderstood.However,noexercisehasbeenconductedtospecificallyconsiderhowlegalpersonsestablishedunderUkrainianlaw,havebeenusedtodisguiseownershiportolaundertheproceedsofcrime.

40. Therewasnoprocessor legislativepower identifiedwhichobliges theauthorities toensurethatallinformationstoredontheUSRiscorrect,accurateanduptodate.

41. The USR records all basic information and makes this available to the public online, theRegistrardoesnotensurethatthebasicorbeneficialownershipinformationprovidedtoitbylegalpersons is accurateor current.While thiswouldnotnormallybe considered amaterial issue, thevastmajorityof theprivatesectorexplainedthat theydorelyontheUSRtoverify theBOof their

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client.BecausetheinformationisnotbeingverifiedbytheRegistrarandisalsonotgenerallybeingindependentlyverifiedbytheRE,thisdeficiencyappearstobemorepervasive.

42. Whilethelawenforcementagenciesareabletolevycriminalsanctionsforprovidingfalseormisleading information to the USR, there are only around 1% of such referred cases beingprosecuted.

InternationalCooperation(Chapter8–IO2;R.36‐40)

43. In general, Ukraine provides good quality and timely MLA in relation to investigations,prosecutionsandrelatedproceedingsonML,predicateoffencesandTF,asbroadlyrecognisedbyitsinternationalpartners.However,theeffectivenessofincomingMLA,inparticularinrelationtoassetseizure and confiscation, remains hindered by factors such as: corruption and breaches ofconfidentiality;weaknessesinthedomesticregimefortheseizureofdocuments;andtheabsenceofaprioritisation system forprocessing requests.Ukraine isproactive in seekingMLA in relation toML, predicate offences, particularly corruption, and FT. However, Ukraine has demonstrated alimitedlevelofeffectivenessinrequestingassistancewithaviewtoconfiscation.Limitationsnotedin relation to the transparencyof legal persons and arrangements at thenational level negativelyimpactsUkraine’scapacitytoprovidethewidestassistance.Basedontheinformationavailableonother forms of cooperation, all competent authorities seem to exchange informationwith foreigncounterpartsforpurposesofAML/CFT,including,inparticular,inrelationtoaddressingtaxevasion,assetrecoveryandconsolidatedsupervision.

PriorityActions

• TheanalysisandwrittenarticulationofMLandFTriskshouldbeenhanced,whetherbywayofrevisingtheNRAorotherwise,by:

(a) utilisingmorestatisticsandensuringthatthestatisticsusedarerobust;(b)furtheranalysingtheexternalthreatsandthethreatsoforganisedcrimeandbeneficialownership;(c)communicationofrelevant information held by the SSU on FT risks to other authorities and further analysing thethreatsofNPOs.

• Introduce a provision under Art. 209 of the CC which clearly states that a person may beconvicted ofML in the absence of a judicial finding of guilt in respect of the underlying criminalactivityandprovidingthattheexistenceofthepredicateoffencemaybeestablishedonthebasisofcircumstantial or other evidence without it being incumbent on the prosecution to prove aconvictioninrespectoftheunderlyingcriminalactivity.

• MoreML prosecutions and convictions in linewith nationalML risks are required in casesinvolvinghighlevelcorruption,theftandembezzlementofStateassetsbycurrenttopofficialsandtheirassociates(aswellasthoseconnectedwiththeformerregime).

• Financialinvestigationsintothesourcesofallegedproceedsshouldberoutinelyundertakeninproceeds‐generating cases using trained financial investigators working in parallel with theinvestigatorsofthepredicateoffences.

• The authorities should ensure that early restraints are routinely made in all proceeds‐generating cases. In this context it should be considered whether investigators should have thepowerofearlyrestraint,subjecttofasttrackedreviewsofsuchrestraintsbytheprosecutors.

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• BringtheFToffenceandTFSframeworkforFTandPFinlinewithinternationalstandards.

• ConsideroptionstolimitstaffturnoverattheFIU.Thiscouldincludesuchproposalsascareerdevelopmentprogrammes;andevaluatingtheremunerationpackagesonoffer.

• AllsupervisoryauthoritiesshouldaddtotheirexistingsupervisoryapproachbyundertakingsystematicoffsitesupervisionandanalysingmaterialreceivedsoastoinformtheirunderstandingoftheML/FTriskprofileofindividuallicensees(andofsectors)andapproachestoonsiteinspections,sothaton‐siteandoff‐sitesupervisionisfullybasedonML/FTrisk.

• ThoseresponsibleforthemaintenanceoftheUSRshouldtakereasonablestepstoverifytheinformationsubmittediscorrect,accurateanduptodate.

• TheMoJshouldestablishaclearsystemfortheprioritisationofincomingMLArequests.TheauthoritiesshouldapplymeasurestoensurethattheeffectivenessofincomingMLArequestsisnothinderedby tippingoff andotherpracticesconcerningprovisionalaccess to information. ImprovethequalityofoutgoingMLArequestsseekingassistanceforconfiscationpurposes.

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Effectiveness&TechnicalComplianceRatings

EffectivenessRatings(High,Substantial,ModerateLow)

IO.1–Risk,policyandcoordination

IO.2–Internationalcooperation

IO.3–Supervision IO.4–Preventivemeasures

IO.5–Legalpersonsandarrangements

IO.6–Financialintelligence

Substantial Moderate Moderate Moderate Moderate Substantial

IO.7–MLinvestigation&prosecution

IO.8–Confiscation IO.9–TFinvestigation&prosecution

IO.10–TFpreventivemeasures&financialsanctions

IO.11–PFfinancialsanctions

Low Moderate Moderate Moderate ModerateTechnical Compliance Ratings (C – compliant, LC – largely compliant, PC – partially compliant, NC – noncompliant,N/A–notapplicable) R.1–assessingrisk&applyingrisk‐basedapproach

R.2–nationalcooperationandcoordination

R.3–moneylaunderingoffence

R.4–confiscation&provisionalmeasures

R.5–terroristfinancingoffence

R.6–targetedfinancialsanctions–terrorism&terroristfinancing

LC C LC LC PC PC

R.7‐targetedfinancialsanctions–proliferation

R.8–non‐profitorganisations

R.9–financialinstitutionsecrecylaws

R.10–Customerduediligence

R.11–Recordkeeping

R.12–Politicallyexposedpersons

PC LC C LC C LC

R.13–Correspondentbanking

R.14–Moneyorvaluetransferservices

R.15–Newtechnologies

R.16–Wiretransfers

R.17–Relianceonthirdparties

R.18–Internalcontrolsandforeignbranchesandsubsidiaries

C LC LC C N/A LC

R.19–Higher‐riskcountries

R.20–Reportingofsuspicioustransactions

R.21–Tipping‐offandconfidentiality

R.22‐DNFBPs:Customerduediligence

R.23–DNFBPs:Othermeasures

R.24–Transparency&BOoflegalpersons

C C C LC LC LC

R.25‐Transparency&BOoflegalarrangements

R.26–Regulationandsupervisionoffinancialinstitutions

R.27–Powersofsupervision

R.28–RegulationandsupervisionofDNFBPs

R.29–Financialintelligenceunits

R.30–Responsibilitiesoflawenforcementandinvestigativeauthorities

PC LC LC PC C C

R.31–Powersoflawenforcementandinvestigativeauthorities

R.32–Cashcouriers

R.33–Statistics R.34–Guidanceandfeedback

R.35–Sanctions

R.36–Internationalinstruments

C LC PC C PC LC

R.37–Mutuallegalassistance

R.38–Mutuallegalassistance:freezingandconfiscation

R.39–Extradition R.40–Otherformsofinternationalcooperation

LC LC LC LC

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MUTUALEVALUATIONREPORT

Preface

44. ThisreportsummarisestheAML/CFTmeasuresinplaceinUkraineasatthedateoftheon‐sitevisit. It analyses the level of compliance with the FATF 40 Recommendations and the level ofeffectiveness of Ukraine’s AML/CFT system, and recommends how the system could bestrengthened.

45. Thisevaluationwasbasedonthe2012FATFRecommendations,andwaspreparedusingthe2013 Methodology. The evaluation was based on information provided by the country, andinformationobtainedbytheevaluationteamduringitson‐sitevisittothecountryfrom27Marchto8April2017.

46. Theevaluationwasconductedbyanassessmentteamconsistingof:

MrJohnRingguth–ScientificExpert,MONEYVAL(legalexpert)

MrSharonFriedman–HeadofEconomicCrimeDivision,StateAttorney,Israel(legalexpert)

MrAmar Salihodzic – Senior Policy Advisory, Financial IntelligenceUnit, Liechtenstein (lawenforcementexpert)

Ms Julia Friedlander – Senior Policy Advisor for Europe Office of Terrorist Financing andFinancialCrimes,DepartmentoftheTreasury,USA(expertontargetedfinancialsanctions)

MrDanJohnson–SeniorManagerofPolicy&Authorisations,FinancialServicesAuthority,IsleofMan(financialexpert)

MrRichardWalker–DirectorofFinancialCrimePolicyandInternationalregulatoryAdvisory,PolicyCounciloftheStatesofGuernsey(financialexpert)

MONEYVALSecretariat

MrMichaelStellini–HeadofAML/CFTMonitoringandTrainingUnit

MsAstghikKaramanukyan–Administrator

MsSolenePhilippe–Administrator

MrPanagiotisPsyllos–ProgrammeAssistant

47. The report was reviewed by Mr Daniel Azatyan (FIU Armenia), Mr Gabor Simonka (FIUHungary)andtheFATFSecretariat.

48. UkrainepreviouslyunderwentaMONEYVALMutualEvaluationin2009,conductedaccordingto the 2004 FATF Methodology. The 2009 evaluation and the 2015 follow‐up report have beenpublishedandareavailableathttp://www.coe.int/en/web/moneyval/jurisdictions/ukraine.

49. ThatMutualEvaluationconcludedthatthecountrywascompliantwith2Recommendations;largelycompliantwith12;partiallycompliantwith27;andnon‐compliantwith6.Ukrainewasratedcompliant or largely compliant with 13 of the 16 Core and Key Recommendations. Ukraine wasplacedundertheenhancedfollow‐upprocessimmediatelyaftertheadoptionofits3rdRoundMutualEvaluationReportandwasmovedtobiennialupdatesinSeptember2015.

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CHAPTER1. ML/TFRISKSANDCONTEXT

50. Located in easternEurope,Ukraine is the second largest countryon the continent, coveringover603,000squarekilometres.UkrainesharesborderswithRussiaintheeast,Belarusinthenorth,Poland,SlovakiaandHungaryinthewest,RomaniaandMoldovainthesouthwest,andtheBlackSeaandSeaofAzovtothesouth.KyivisthecapitalofUkraine.ThepopulationofUkraineis42.7million(2015State Statistics Service estimate as of January01, 2016).Ukraine’sGDP is aboutUSD90.62billion(2015WorldBankestimate)anditsofficialcurrencyistheHryvnia(UAH).

51. Ukraineisarepublicwithaparliamentary‐presidentialformofgovernment.ThePresidentofUkraine is elected for a five‐year term and is the Head of State. The constitution provides thePresidentwith strong executive powers, such as issuance of decrees, appointment of presidentialrepresentativestooverseepolicyimplementationbylocalauthoritiesandthepowertoappointthePrimeMinisteruponconfirmationbyParliament.Theday‐to‐dayadministrationofthegovernmentrests in the hands of the Prime Minister, who heads the Cabinet of Ministers (CoM). Legislativepower is vested in the Parliament. A unicameral parliament (Verkhovna Rada) consists of 450deputies. The parliamentarians are elected for a five‐year term in free,multi‐candidate elections.Ukraine’slegalsystemisbasedoncivillawprinciples.

52. UkraineisamemberoftheUnitedNations,theOrganisationforSecurityandCooperationinEurope,theWorldTradeOrganisation,theCouncilofEurope,theEuropeanBankforReconstructionandDevelopment,theWorldBank,theInternationalMonetaryFund,theOrganisationoftheBlackSeaEconomicCo‐operationandotherinternationalorganisations.

ML/TFRisksandScopingofHigher‐RiskIssues

OverviewofML/TFRisks

MLThreats

53. Corruption is one of the major ML threats in Ukraine generating substantial amounts ofproceeds2. According to Transparency International, corruption in Ukraine is widespread,permeatingalllevelsofsociety.Thepublicadministration,particularlythecivilservice,judiciary,theprosecutionandthepolice,areespeciallyvulnerabletocorruption.ReportsissuedbytheGroupofStates against Corruption (GRECO) and other bodies of the Council of Europe also highlight theextentofcorruptioninUkraineandthelackofindependenceinjudiciaryandpolice(customsserviceincluded).

54. TheNRAidentifiesillegaleconomicactivitiesasanothermajorMLthreat3.Whitecollarcrimehas exceeded other more conventional proceeds‐generating offences, such as drug trafficking, intermsof threat4. Indeed, the top fivepredicateoffences in theperiodunderreviewwere fictitiousentrepreneurship5,taxevasion,fraud,embezzlement,andabuseofpower6.

2NRAp.423NRAp.414Ibidp.425Fictitiousentrepreneurshipisdefinedbyarticle205oftheCCofUkraineandreferstoshambusiness,thatistheestablishmentoracquisitionofbusinessesentities (legalpersons) tocover illegalactivitiesorengage inprohibitedtypesofbusiness.The“enterprise”–i.e.firm,orcompanyorbusiness–isnotfictitiousinthesense

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55. Inextricably linkedto fictitiousentrepreneurshiparetheso‐calledconversioncentres,whichpresentakeyMLrisk. Suchcentres areusedby individuals to takeproceedsoutofUkraineor toconvertproceedsintocash.Conversioncentresareconsideredtobehubsthroughwhichfundsaresiphoned fromtherealeconomyto theshadoweconomy.Companiesareoftenusedaspartof theconversion centre process7. The misuse of companies for the conversion of proceeds is alsofacilitatedbythegapsintheverificationofbeneficialownershipsystem8,sinceapproximately20%ofUkrainiancompaniesfailtoprovideaccurateinformationtotheregistry.TheNRAalsounderlinesthat there is no procedure for detection of non‐provision and verification of credibility of theinformation on the end beneficiary owners (controllers) provided by legal persons to the stateregistrars.

56. Organisedcrimeisalsoa factorwithasubstantial impactontheoverallMLrisksituation inUkraine.AccordingtotheNRA,internationalOrganisedCrimeGroups(OCGs)recentlyhaveshownagrowinginterestinUkraineinthespheresofMLandtraffickinginhumanbeings(THB)9,weapons,hazardousmaterialsandnarcoticsubstances.10Cybercrimeisalsoanareaofinterest.11Itissaidthatduetoanincreaseinillegalmigration,ethnicorganisedcrimeisontherise.12ThegrowingpresenceoforganisedcrimeinUkrainehasalsobeenreinforcedbythehighcorruptionlevelswithinthestateservices. In fact, corruptionhashelped feed theupsurgeoforganisedcrimeand itsextension intopolitics. Linkages between political and administrative elites and criminals are not a rarephenomenon.Asaresult,theUkrainianstatefacesdifficultiestofunctioneffectively.13

57. ThehighlevelofcashcirculationisconsideredasamajorriskintheNRA.Inconjunctionwiththestrongoutflowsofcash,weakbordercontrolsandverylimitednumberofinvestigationsonMLcashcouriers it causesanumberofnegativesconsequences to the financial systemof thecountryandasignificantthreattoitseconomicsecurity14.

ofhavingnoexistenceatall,butisasham,whichisnotwhatitpurportstobe,andwhoserealfunctionsarenotwhattheypurporttobe.Suchentitiescanperformavarietyoffunctionsinwrongfuleconomicdealings.Inthisparticularcontext,theycanbeusedtorecordspuriousindebtednesstobenetted‐offagainstearningsfortaxpurposes,ortheycanbeintroducedintocirculartransactionsinwhichmoneychangesitsexchangevalue;etc. 6StatisticsonpredicateoffencesareincludedintheNRAunderfigure1.5.27NRAp.428NRAp.589Accordingtothe2014ReportoftheCouncilofEurope’sGroupofActionagainstTraffickinginHumanBeings(GRETA) on Ukraine 89% of the victims in THB are subject to labour exploitation, 8% subject to sexualexploitation,and3%subjecttoforcedbeggingandorganremoval.10NRAp.41.AccordingtotheUNODCAnnualDrugSeizuresdataintheperiod2011‐2014morethan23tonsof cannabis plants were seized by the UAs. See https://data.unodc.org/ . Also, in 2014 only the EuropeanMonitoring Centre forDrugs andDrugAddiction reported thedestructionof 1584 illegal poppy and 1773illegalcannabiscorps.11Ibidp.181.Also,the2012ReportoftheDataProtectionandCybercrimeDivisionoftheCouncilofEuropehasidentifiedthefollowingcrimetypesinUkraine:GSMnetworkfraud,internetauctionfraud,paymentcardfraudandtheuseofcompromisedbankaccountdetailsoraccountsinelectronicpaymentsystems.12Ibidp.4113AnexampleoftheOCGs’influenceonstatemechanismsistheinefficientinvestigationoforganisedcrimeasunderlinedbytheNRA(p.152).14Ibidp.70

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FTThreats

58. Turning to the riskofFT, since2014,Ukrainehas found itself usedas a transit countrynotonly for displaced persons, but also for those seeking to join ISIL fighters in Syria. The SSU hasconcentratedontheconsequencesofinternationalterrorisminvolvingthefightagainstISIL,whichhas ledto indictments, thoughnoconvictionsasyet forFT.Thenon‐profitsector isconsideredbythe authorities to be vulnerable to FT. TheNRA rates the risk of NPOs as one of themajor risks(albeit not one of the highest risks). According to theNRA, themainway of unlawful use of non‐commercial organisations is channelling the funds to terrorists by non‐profit organisations. Theirspecialstatus(charitystatus,taxexempt)createsidealconditionsforthenon‐traceabilityofillegalfundsandtheiruseforterritorialtransferofsuchfundsthroughbranchesortoprovidematerialandtechnicalsupporttoterrorists.

59. IntheNRA,theUkrainianauthorities(UAs)consideractsofmaterialsupporttotheeventsineastern Ukraine as giving rise to FT risks. According to information provided by the UAs, during2014‐2016,morethanthreehundredcriminalproceedingswereinitiatedbytheSSUunderArt.2585(FT offence) of the CCU in relation to these acts and 11 persons were convicted. As the formalapplicabilityoftheFTConventiontodomesticeventsintheeasternpartofUkraineiscurrentlysubjudiceinthecasependingbeforetheInternationalCourtofJustice15,theevaluationteamhasfocuseditsassessmentontheactivitiesoftheUAstocounterthefinancingofinternationalterrorism,whichindisputably fall within the scope of the FT Convention, and consequently also the FATFRecommendations.

Country’sriskassessment

60. UkrainepublisheditsfirstNRAin2016.TheNRAreportconsidersbothMLandFT.TheStateFinancialMonitoringService(FIU)co‐ordinatedthedevelopmentoftheNRAwiththeassistanceoftheOrganisationforSecurityandCo‐operationinEurope.Representativesofalltheparticipantsofthenational financialmonitoringsystemparticipated in theanalysisandotherwork leadinguptothefinalreport.Higherriskareasandinstitutionalgapswereidentifiedasaresultoftheprocessandanactionplanwasdrawnupbytheauthoritiesattheendof2016toaddressthoserisksandgaps,althoughithasnotbeenfinalisedyet.

61. SourcesofinformationfortheNRAincludetheknowledgeoftheUAs,legislativeinstrumentsinUkraine,somereportsgeneratedbyauthoritiesinsideUkraine(theSFSandtheNBU)andoutsidethejurisdiction,andsome(mostlyUkrainian)websites.

62. The NRA methodology is unique to Ukraine. It identifies a range of external and internalthreats,dividedintothematicgroups,andspecifiesthirty‐sevenrisksarisingfromthem.Eachriskisallocatedalevelofpotentialconsequence(anumberonadesignatedscale)whichcouldarisefromitand a separate probability level (a number on a designated scale) of that consequence occurring.Vulnerabilitiesareincludedwithintheanalysisofthreat,consequenceandrisk.Thecombinationofconsequenceandprobabilitygeneratesanoverallnumericalrisklevel.Thisisreducedtoanetrisklevelineachcasebymeansofaproxy(anumberonadesignatedscale)forthelevelofeffectivenessofavailablemeasurespresentinthesystemforthatrisk.

15International Court of Justice, Application of the International Convention for the Suppression of theFinancing of Terrorism and of the International Convention on the Elimination of All Forms of RacialDiscrimination(Ukrainev.RussianFederation).

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63. Eachrisk thereforehasanet risk level,whichrepresents theNRA’sconclusion for that risk.The 37 risks are divided into four risk reduction levels (i.e. priorities), namely high (nine),major(22),moderate(five)andminor(one).Thesefourlevelsallowforsomeprioritisationofriskswithineachlevelaseachriskhasanetrisklevel.Theninehighcategorieshavenetrisklevelsrangingfrom16 (3 risks) as the highest to 12 (6 risks) as the lowest. The net risk levels represent the NRA’sconclusions.

64. TheNRAcontainsageneraloverviewontheUkrainianeconomy,dataonthefinancial/non‐financialsectorsandanoverviewoftherisksintherelevantsectors.Theriskfactorswereidentifiedon the basis of a qualitative and quantitative analysis of industry questionnaires, statisticalinformationofcompetentauthoritiesandinformationfromvariousinternationalorganisationssuchas Transparency International Ukraine, Political Risk Services, International Centre for PeaceStudies,PeaceFund,andEconomistIntelligenceUnit,UkrainianSociologyServiceetc.

ScopingofHigherRiskIssues

65. TheassessmentteamidentifiedareaswhichrequiredanincreasedfocusthroughananalysisofinformationprovidedbytheUAs,includingtheNRA,andbyconsultingvariousopensources.

66. Corruption:Theassessment teamsought todetermine theextent towhich theefficiencyofthecriminaljusticesystemhasbeendentedbycorruption.DiscussionstookplacewiththerelevantofficialsontheeffectivenessofthemeasuresthathavebeeninstitutedtofightcorruptionandrelatedML and the challenges that LEAs face in effectively curtailing this phenomenon. The issue of thenumber of ML investigations/prosecutions/convictions in respect of those that alleged to havelaundered/launderedonbehalfofpoliticallyexposedpersons(PEPs)/highlevelofficialsarrestedintheaftermathoftheEuromaidanuprisingsandinrelationtothosepresentlyinoffice,alsoreceivedconsiderableattention.TheissueofSTRsprocessing(in2015,20%ofallSTRsarerelatedtoPEPs)wasexplored.

67. OrganisedCrime:Theassessmentteamexploredtheextent towhichMLrelatedtoOCGs isprioritisedbylawenforcement(especially3rdparty,foreignpredicate‐relatedandstand‐aloneML)andthemannerinwhichthesecasesareinvestigatedandprosecuted.Inaddition,theapplicationofspecific measures targeting cash‐conversion centres was discussed with the authorities, sinceaccordingtotheNRA,arecommonlyusedbyOCGstoconvertnon‐cashresourcesintocashwiththeassistanceofbanks,lawyersandotherprofessionals16.

68. Economiccrimes:Asnotedpreviously,economiccrimeshavesurpassedmoreconventionalproceeds‐generating crimes such as drug trafficking in Ukraine. The assessment team thereforeexploredwhetherlawenforcementobjectivesandactivitieshaveevolvedtoaddresstheseemergingthreats, especially thoseof theDepartment for theProtectionof theEconomywithin theNationalPolice.

69. Mutual legal assistance (MLA) and international cooperation: Both ML and FT have asignificant cross‐border element inUkraine.The assessment teampaidparticular attention to theexistenceof robustMLAmechanisms andother formsof international cooperation, aswell as themannerinwhichUAsprovideMLAandco‐operatewiththeirforeigncounterpartsandwhethertheyproactivelyseekinternationalassistance.

16NRAp.42,seealsohttp://www.graham‐stack.com/?page_id=944

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70. Shadoweconomyanduseofcash:Theshadoweconomyaccountsforaverysignificantpartofthegrossdomesticproduct(GDP)17inUkraine.Thusthelevelofcashincirculationisveryhigh18.Taking into account the widespread use of cash and the fact that tax evasion is one of themostsignificantMLthreatsinUkraine,discussionwereheldwiththetaxauthoritiesonthemeasurestomitigatetheserisks.

71. Formal and informalmoney remittances: Given the important role played by incomingformalandinformalremittances19inUkraine’seconomyandthepossibilitythatthesearemisusedfor ML and FT, the effectiveness of preventive measures by banks and supervision receivedparticularattentionbytheassessmentteam.

Materiality

72. The Ukrainian financial sector is bank‐centric. The share of the banking system in totalfinancial systemassets is roughly80%.Thebankingservicesprovidedaregenerally traditional innature and include deposits, loans, money transfers, foreign exchange and guarantees. High‐riskproductsareeitherforbiddenornotgenerallyprovided.Only0.5%‐1%ofthebanks’customersareclassified as higher‐risk (such as PEPs,NPOs, natural persons involved in large cash transactions,natural and legal persons conducting unusual transactions, customers from higher‐risk countries,etc.).

73. Thesizeof the shadoweconomy inUkraine,which is exacerbatedby thewidespreaduseofcash,constitutesasignificantMLvulnerability.Accordingtoofficialsources,thesizeoftheshadoweconomyinthecountryisaround42%oftheGDPandtheproportionofcashinthesupplyofmoneyis around 30%.20 Other reasons for the high circulation of cash include limited access to cashlesssettlements and low population awareness/confidence in the national currency and the financialsystem,bothofwhichsignificantlycontributetofinancialexclusion21.

74. Money remittancesplay a significant rolewithinUkraine’s economy. For instance, incomingremittancestotalledUSD6.5billionin2014.22MostremittancesarepurportedlylinkedtoUkrainiansworking abroad sending money to their relatives in Ukraine.23 A significant portion of theremittances are conducted through informal channels.24 The main sending countries are CzechRepublic,Germany,Italy,RussiaandtheUnitedStates.25

17AccordingtotheNRA,theshadoweconomycomprised35%oftheofficialGDPin2013and41%in2014,althoughitispurportedlygeneratedbylegitimatetradeandbusinessratherthancriminalenterprises18NRAp.3319Forinstance,incomingremittancestotalledUSD6.5billionin2014.Seehttp://www.bank.gov.ua/doccatalog/document?id=8065120MEDTUofficialweb‐site“ShadowEconomyTrendsinUkraine,2015”,availableat:http://www.me.gov.ua/Documents/List?lang=uk‐UA&id=e384c5a7‐6533‐4ab6‐b56f‐50e5243eb15a&tag=TendentsiiTinovoiEkonomiki.Seealso,NRAp.3321NRAp.3322http://www.bank.gov.ua/doccatalog/document?id=8065123http://www.iom.org.ua/sites/default/files/iom_migration_as_an_enabler_of_development_in_ukraine.pdf24Ibid25http://www.bank.gov.ua/doccatalog/document?id=80651

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StructuralElements

75. The key structural elements which are necessary for an effective AML/CFT regime aregenerally present in Ukraine. There is a high‐level commitment to address AML/CFT issues.AML/CFTpolicy‐makingandcoordinationisconductedthroughtheFIU.TheactivitiesoftheFIUareregulated and coordinated by the CoM through the Minister of Finance. Nevertheless, Ukraine isregardedasapoliticallyunstablecountry.26Thishashadanegative impactonsocial stabilityandeconomicdevelopmentinthecountry,whichhascreatedfavourableconditionsforbothMLandFTtomaterialise.

BackgroundandotherContextualFactors

76. Corruption is endemic and permeates all levels of the public administration to varyingdegrees27.Thisseriouslyunderminespublicconfidence in thecivil serviceand thecriminal justicesystem and encourages criminals to actwith impunity28. In the 2016, Transparency InternationalCorruptionPerceptionIndex(CPI)Ukraineranks131stoutof176countries.TheestablishmentoftheSpecialized Anti‐Corruption Prosecutors Office, in late 2015, and the National Anti‐CorruptionBureau, in late2014,broughtaboutsomeprogress inthefightagainstcorruptionboth intermsofpreventionandevidence.

77. The level of financial inclusion is considered asmedium,with 53% of the adult populationmaintaininganaccountata formal financial institution.29TheNBUhaspublisheda lotofmaterialand conducted awareness‐raising campaigns especially on consumer protection. Information onbasic account features, account switching information, information on types of accounts availableand account services is frequently disseminated to the public at large. However, distrust in theformal financial sector remains an issue and the use of cash is stillwidespread. Furthermore, theUkrainianlegislativeframeworkencouragestheestablishmentofcreditunionswhichcatertolowerincomepersonswhichfurthersupportsthepromotionoffinancialinclusionwithinUkraine.

AML/CFTstrategy

78. ThemannerinwhichAML/CFTstrategiesaredevelopedandimplementedisdescribedinpar.82.

Legal&institutionalframework

79. TheAML/CFT legal andorganisational framework inUkraine isprincipally governedby theAML/CFT Law, along with acts of the CoM, FIU acts and other government agencies’ acts. TheAML/CFTLawissupplementedbycertainprovisionsintheCC,theCPC,theCodeofAdministrativeProceedingsofUkraine, theCodeofAdministrativeOffensesofUkraine, theCivilCodeofUkraine,

26TheNRAstates that,accordingtoananalysisbasedondata from, interalia, theStateStatisticsServiceofUkraine,WorldBankandtheInternationalCentreforPeaceStudies,thepoliticalstabilityindicatorsinUkraineinthepast10yearshavebarelyreachedthelevelof50%.27NRAp.17–2128Itistobenoted,however,thatvariouscountry‐widemeasureshavebeeninstitutedinrecentyearstofightcorruption.29http://databank.worldbank.org/data/reports.aspx?source=1228

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theLawofUkraine“OnBanksandBankingActivities”,theLawofUkraine“OnInsurance”,theLawofUkraine“OnStateRegulationoftheSecuritiesMarketinUkraine”,theLawofUkraine“OnFinancialServiceandStateRegulationofFinancialServicesMarket”andotherfinancialsectorlaws.

80. Since the last evaluation, Ukraine has taken steps to improve the AML/CFT framework.Notably, a new AML/CFT law was adopted in 2014 which, inter alia, requires the authorities toconductaNRAwithaviewto identifyingML/FTrisks,aswellasmeasures topreventormitigatesuch risks; defines measures to combat the financing of proliferation of weapons of massdestruction; introduces tax crimes as predicate offences toML; provides for compulsory financialmonitoringoffinancialtransactionsofnationalpublicofficialsandofficialsfromothercountriesandinternational organisations; and improves existing procedure on the suspension of financialtransactions. Amendments were also carried out to the CPC, which include modifications to theprovisionsrelatedto jurisdictional issues inrespectofArt.209(MLoffence)of theCCandtopre‐trialinvestigationinMLproceedingsincertaincases.

81. The main agencies involved in Ukraine’s institutional structure to implement its AML/CFTregimearethefollowing:

82. The Council onPrevention and Counteraction to the Legalisation (laundering) of theProceedsfromCrime,TerroristFinancing,andFinancingofProliferationofWeaponsofMassDestruction(AML/CFTCouncil)wassetuptocoordinatetheactivitiesofvariousauthoritiesinthefight against illegal financial flows and the proliferation ofweapons and terrorism. TheAML/CFTCouncilisheadedbytheFIUandcomprisesrepresentativesofallgovernmentagenciesinvolvedinAML/CFTandrepresentativesofself‐regulatoryorganisations.TheAML/CFTCouncilparticipatesinthe drafting of legal acts for the implementation of international standards in the fight againstML/FT, including the FATF standards. It also prepares action plans to combat illegal finance andsubmitsrecommendationsandproposalstotheCoM.

83. TheStateFinancialMonitoringService(FIU) isanadministrative‐typeofFIUandhas thestatusofanindependentcentralexecutiveagency.ItistheleadingauthorityintheAML/CFTsysteminUkraineandisempoweredtoimplementandcoordinatethenationalAML/CFTpolicy.ItconductstypicalFIUactivitiesbutalsosupervisesrealestateagents.Accordingtoitsstatute,theactivitiesoftheFIUareregulatedandcoordinatedbytheCoMthroughtheMinisterofFinance.

84. TheProsecutorGeneral’sOfficeofUkraine(PGOU)supports theprosecution in courtonbehalfofthestate;representstheinterestsofindividualsorthestateincourtinthecasesstipulatedby law; supervises detective operations, inquiries and pre‐trial investigations; supervises theenforcement of court judgments delivered in criminal cases, as well as in application of othercoercivemeasuresrelatedtorestraintof individualpersonal liberty. In2015, theSpecialisedAnti‐CorruptionProsecutor’sOffice(SAPO)wasestablishedwithinthestructureofthePGOU.SAPOisanindependentstructuralunitofthePGOU.ThemaintasksandfunctionsofSAPOincludesupervisingpre‐trialinvestigationsconductedbytheNationalAnti‐CorruptionBureauofUkraine(seebelow).

85. The National Police of Ukraine (NP) is under the command of the Minister of InternalAffairs.TheNPisresponsibleforpoliceservices,statemigrationandstateborderservices.Itsmainfunctions include, inter alia, undertaking the necessary operative‐investigatory measures for theprevention, detection and investigation of crime, protection of public and private property, andmaintenance of law and order. The departments within the NP responsible for the pre‐trialinvestigation of ML are mainly the Department for the Protection of the Economy, Department

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responsible for Combatting Cybercrime, Department responsible for Combatting Drug Crimes,DepartmentresponsibleforCombattingHumanTrafficking.

86. TheSecurityServiceofUkraine(SSU)isaspecial‐purposelaw‐enforcementagency,whichisentrustedwiththesecurityofthestateandissubordinatedtothePresidentofUkraine.TheSSUistheonlylawenforcementbodyresponsiblefortheinvestigationofFToffences.TheMainDirectorateforCombatingCorruptionandOrganisedCrimeisalsoresponsibleforrelatedMLcases.

87. The State Fiscal Service of Ukraine (SFS) is responsible for the implementation andsubmissionofproposalstotheMoFconcerningstatetaxandcustomspolicyaswellasstatepolicyrelatedtolawenforcementintaxationandcustomscontrol.Inaccordancewithitspowers,providedbylaw,theSFS,interalia,controlsthetransferoftaxes,fees,customsdutiesandotherchargestothepublic budgets and state specialised funds. Since 2015, its structure includes the Department forCombatingtheLaunderingofCriminalProceedsandisresponsibleforthepre‐trialinvestigationofMLrelatedtopredicateoffencesfallingwithintheremitoftheSFS.

88. TheNationalAnti‐CorruptionBureauofUkraine(NABU)isastatelawenforcementagencywiththekeyobjectiveofpreventing,exposing,stopping,investigatingandsolvingcorruption‐relatedoffencescommittedbyhighofficials,andavertingnewones.

89. The National Bank of Ukraine (NBU) is a specialised state institution whose mainresponsibilityistoensuretheexternalandinternalstabilityofthenationalcurrency.NBUhasbroadregulatory,licensingandsupervisoryfunctionsinthebankingsectorundertheLawsontheNBUandOnBanksandBanking.NBUissueslicensesfortheestablishmentandoperationofforeigncurrencyexchangeoffices,aswellasforMVTS,whichhavetoperformtheiractivitiesthroughabank.MVTSalsoneedtoberegisteredwithNC.AsofApril1,2017,theactualnumberoftheNBUemployeeswas5440.152ofthem,theemployeesoftheFinancialMonitoringDepartment,weredirectlyinvolvedintheAML/CFTarea.

90. TheNationalSecuritiesandStockMarketCommission(SC)isauthorisedtodetermineandimplement the securities market state policy. The SC is the licensing and supervisory authorityresponsible forentities thatperformprofessionalstockmarketactivities in thecountry:securitiestraders,assetmanagementinstitutionalinvestors,depositaryinstitutions,stockexchanges,personsexercising clearing activity and Central depository of securities. 7 employees are responsible forAML/CFTmatters.

91. TheNationalCommissionfortheStateRegulationofFinancialServicesMarkets(NC)isresponsiblefortheimplementationofaunifiedpolicyontheprovisionoffinancialservicesandfortheregistration,licensingandsupervisionofcreditunions,leasingcompanies,pawnshops,insurancecompanies, pension funds and companies, financial companies and other institutions whoseexclusiveactivityistoprovidefinancialservices.Thedivisionresponsibleformonitoringcompliancewith AML/CFT requirements comprises 5 employees. The division is a part of the departmentresponsibleforthedevelopmentoffinancialservicesmarketsandinternationalcooperation.On‐site,theevaluationteamwasinformedthattheNCwasexpectedtobedismantledinthecourseof2017anditsfunctionstransferredtotheNBUandtheSC.

92. The Ministry of Economic Development and Trade (MEDT) regulates and supervisescommodity and other exchanges involved in financial transactionswith commodities. Since 2015,MEDT’s Methodological Support Unit of the Department of the State Property Management andIndustrialDevelopment,hasbeeninchargeofAML/CFTissuesandcomprised7employees.

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93. The Ministry of Infrastructure (MoI) regulates and supervises the activities (includingAML/CFT) of “Public JSC” Ukrainian Postal Office”, which is the state enterprise licensed by theNationalCommissiononthe IssuesofCommunicationRegulation inUkraine forperformingpostaltransfers.AML/CFT‐relatedtasksandfunctionsareperformedbytheUnitforInternalInvestigation,CorruptionPreventionandStateFinancialMonitoring,whichcomprises8staffmembers.TheposthasagenerallicensefromtheNBUtoconductcurrencytransactions.

94. TheMinistryofFinance(MoF)isresponsibleforformulatingandimplementingstatepolicyon AML/CFTmattes. It also regulates and supervises lotteries and gambling, traders in preciousmetals and stones, auditors, auditor firms, individual entrepreneurs who provide accountingservices (except for persons that provide services under employment relations). There are 5employeesengagedinAML/CFTmattersattheMoF.

95. The Ministry of Justice (MoJ) is the national executive body responsible for draftinglegislation in Ukraine. Within the AML/CFT framework, the MOJ is responsible for the stateregulationandsupervisionofnotaries,barristers,barristerbureausandassociationsandbusinessentities that provide legal services (except for persons that provide services under employmentrelations).ThreepersonsareentrustedwithAML/CFTdutiesattheMoJ.TheMoJisalsoresponsibleforMLA.

96. TheMinistryofForeignAffairsofUkraine(MFA)isanationalexecutivebodyinchargeofformulating and implementing the Government’s policy in the area of foreign affairs. Within theAML/CFT framework, the MFA is responsible for submitting proposals to committees of the UNSecurity Council to include/remove natural or legal persons to its sanctions lists. In addition, theMFA coordinates the conclusion and implementation of international treaties, coordinatesmembership of the country (and of its representative bodies) in international organisations, andregularly updates competent national authorities on the UN Security Council Resolutions inconnectionwithFTandPF.

97. TheDepositGuaranteeFund(DGF) is responsible forprotecting therightsand interestofbankdepositors.Themain responsibilitiesof theDGFare to ensure theproper functioningof thedepositguaranteesystemandtheresolutionoffailedbanks.AlllicencedbanksaremembersoftheDGF.TheDGFhasestablishedadepartmentofillegalactivitiestodetectactionsofacriminalorcivilnaturewhichhavetakenplaceinbanksinadministrationorliquidation.

Financialsector

98. OneoftheGovernment’sprioritiessince2014hasbeenthestabilisationandrestructuringofthe national financial system in order to improve its competitiveness and compliance withinternational standards and regain public confidence. The process has been supported byinternational technical cooperation programmes. This has notably included the “cleaning up” ofmanyinsolventbanksandthenationalisationofthelargestnationalbank,Privatbank,inDecember2016.

99. TheUkrainianbanking system,whichdominates the country’s financial sector, is a two‐tierstructureconsistingoftheNBUandstateandcommercialbanks.AsofApril1,2017,182bankswereregisteredintheStateRegisterofbanksofUkraine.95ofthemhavealicense30,3arerecognisedasinsolvent,and87underliquidation. ThevalueoftotalbankingassetswasestimatedatUAH1,737

30Takingintoaccount1bank,whichisbeingsanitised.

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billion in December 2016 (EUR 61 billion). The nationalisation of Privatbank has resulted in anincrease in theshareof thestate‐ownedbanks innet‐assets (51.3%).Therehasbeenasignificantdecline in the number of banks, from 147 solvent banks in 2014 to 93 in January 2017. Theconcentration of the sector thus has increased, with the top 5 banks representing 56.1% of thesector’snetassetsinDecember2016(40%in2013)31.Thewithdrawalofbanksfromthemarketandtheoptimisationofbranchnetworksbythetwolargestbankshavealsoledtoasignificantfallinthenumber of branches of the past 3 years, from 19,300 in December 2013 to 10,300 in December201632.

Table1:EntitieslicensedbytheNBU

2010 2011 2012 2013 2014 2015 2016 01.04.2017

LicensedBanks 176 176 176 180 163 120 100 95

CurrencyExchangeOffices 207 233 184 186 166 135 5 5

MVTS 29 29 31 38 46 47 39 30

100. Asof1April2017,bankswithforeignequitycapitalaccountedfor34,6%ofthebanksystemcapital,withtheforeigncapitalsharebeingmainlyfromtheRussianFederation(20%),Luxemburg(3,6%),Cyprus(4%),Hungary(1,4%)andAustria(1%).

101. Asof31December2016, the total assetsof financial companies amounted toUAH67,401.4million(~EUR2,209.62million).ThetotalassetsofinsurancecompaniesamountedtoUAH56,075.6million(~EUR1,838.33million),thetotalassetsofcreditunionsamountedtoUAH31,962.3million(~EUR1046.64million).

102. Asof 31December2016, the followingnon‐bank financial institutionswere registeredwiththe State Register of financial institutions by the National Commission for State Regulation ofFinancialServicesMarkets:

Insurancecompaniesandbrokers:367 Creditinstitutions:621.Thisincluded462creditunions,130othercreditinstitutionsand29

legalpersonsofpubliclaw. Pawnshops:469 Financialcompanies:65033 Non‐governmentpensionfunds:64 Administratorsofnon‐governmentpensionfunds:22

103. As regards non‐banking financial institutions (NBFIs) supervised by the National SecuritiesandStockMarketCommission(NSSMC),asof31December2016,therewere:

300assetmanagementcompanies; 302licenceholdersconductingsecuritiestrading 291licenceholdersconductingbrokerageactivities;

31NBU,BankingSectorReview,February201732NBU,BankingSectorReview,February201733Theseentitiescarryoutthefollowingtypesofactivities:lending,includingfinancialloans;financialleasing;factoring;guaranteesandwarranties;administrationof financialassets forthepurchaseofgoods ingroups;managementofbuildingfinancingfunds;managementofrealestatefunds.

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278licenceholdersconductingdealershipactivities; 51licenceholdersconductingunderwriting; 24licenceholdersconductingsecuritiesmanagementactivities; 1licenceholdersconductingmortgagemanagementactivities; 8licenceholdersconductingactivitiesontheorganisationoftradeinthestockmarket.

DNFBPs

104. Thesector isdominatedby lawyers,notariesandaccountants.LawyersareregulatedbytheLawonAdvocacy,while stateorprivatenotariesoperate inaccordancewith theLawonNotariesandaccountantsareregulatedbytheLawonBusinessAccountingandFinancialReportingaswellastheProvisionsonOrganisationofBusinessAccountingandFinancialReportinginUkraineapprovedbytheCoM.Auditorsandaccountantsareregisteredasentrepreneurs.Privatenotaries,lawyersandarbitrationmanagerswhoarenotregisteredasindividualentrepreneursareregisteredaspersonsengaged in independent professional activity with the law administration and have to receive acertificateconfirmingtheirrightofanindividualtoconductindependentprofessionalactivityfromthe responsiblegovernmentauthorities.Advocateswhoacquired the right toadvocacy inUkraineareenteredintheUnifiedRegisterofAdvocatesofUkrainewhichisoperatedbytheBarCouncils.

Table2:NumberofDNFBPs

DNFBP 2010 2011 2012 2013 2014 2015 2016Realestateagents* 57 160 190 205 193 195 179Entitieswhichcarryouttradingincashofpreciousmetalsandpreciousstonesandproductsfromthem*

4 4 5 4 4 4 5

Notaries 6760 6960 7089 7226 6944 6811 6604Lawyers* 64 68 69 70 70 69Entitiesthatprovidelegalservices* 71 85 87 86 90 90Auditors,auditcompanies* 23 55 57 59 60 73 74Accountants* 7 12 10 10 10 11 13Commodityexchanges* 251 261 302 306 315 319 324Economicentitiesthatconductlotteries* 3 6 7 11 11 10 10

Postaloperators* 4 4 4 6 6 6 6Total 7139 7674 7884 8052 7769 7674 7460

*informationonentitiesregisteredwiththeFIU(nottakingintoaccounttheseparatedunits)

Preventivemeasures

105. Atthetimeofthe3rdroundmutualevaluation,whereasall typesofFIscoveredbytheFATFRecommendations were found to be designated entities under Ukraine’s AML/CFT legislation,DNFBPs only included casinos. Although the Law "On the prohibition of gambling business inUkraine"(2009)prohibitedgambling,casinosandvirtualcasinosinthecountry,thenewAML/CFTLaw(2010)retained“entitiescarryingoutactivitiespertainingtolotteriesandgambling,includingcasinos,electronic(virtual)casinos”aspartofthedesignatedentities.ThesuccessivenewAML/CFTLaws(2010and2015)alsoincludedallDNFBPsasdefinedbytheFATFRecommendations,exceptforanumberofTCSPactivitiestheprovisionofwhichisnotprovidedforbyUkrainianlaw.

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106. Thecornerstoneof theAML/CFTpreventivemeasures is theLawofUkraine"Onpreventionand counteraction to legalisation (laundering) of proceeds from crime or terrorist financing"(AML/CFTLaw).TheAML/CFTLawwasadoptedin2002,andamendedseveraltimes,beforeitwasreplacedbyanewAML/CFTLawin2010,whichtookintoaccounttherecommendationsfromthe2009Moneyvalmutual evaluation; relevant international conventions and standards; and lessonsdrawnfromexperienceonAML/CFTissuesgatheredinpreviousyears.Thenewlawexpandedthelistofreportingentities(REs)andenhancedpreventivemeasures.On6February2015,anewlaw"Onpreventionoflegalisation(laundering)ofproceedsfromcrimeandterrorismfinancingandthefinancingofproliferationofweaponsofmassdestruction"cameintoforce.Thelawtookintoaccountthe2012FATFRecommendationsand,interalia,furtherexpandedthescopeofdesignatedentitiesandenhancedpreventivemeasures(inrelationtoPEPs,customerbeneficialownership,risk‐basedCFF measures…) and designated entities’ responsibility of banks for violation of AML/CFTrequirements.ThelawalsoamendedthelegislationonsomecategoriesofREs,notablyinrelationtothe articulation between professional secrecy and AML/CFT reporting obligations. The AML/CFTLawissupportedbyanumberoflawsgoverningspecificcategoriesofdesignatedentities(Laws"OnBanks andBankingActivity", "On Credit Unions", “On Securities and StockMarket”, “On FinancialServicesandStateRegulationofFinancialMarkets”,“OnPaymentSystemsandMoneyTransfer”,"OnNotaries","OnAccountingandFinancialReporting",etc.).AnumberofresolutionsdevelopedbytheFIU and adopted by the Government, as well as by‐laws issued by the respective AML/CFTregulators, providemore detailed obligations for the implementation of the aforementioned laws.TheprovisionofguidancebysupervisorsispartofthemissionstheAML/CFTLawhasassignedtothem.

107. The AML/CFT Law now appears to have addressed many gaps in preventive measureshighlighted in the 2009 mutual evaluation. A number of deficiencies remain, as noted in the TCAnnex.

Legalpersonsandarrangements

108. ThemainlawsgoverningthecreationandregulationoflegalpersonsinUkrainearetheCivilCode, the Commercial Code and the Laws of Ukraine “On Business Companies”, “On StateRegistration of legal persons, Private Entrepreneurs and Public Formations” (hereafter “Law onRegistration”),“OnSecuritiesandStockMarket”and“onJointStockCompanies”.Legalpersonalityisgranted upon registrationwith theUnified StateRegister of legal persons, Private Entrepreneurs,and Civil Associations (USR). The USR, set up in Since 1 July 2004, is a single state informationsystem, which registers information on legal persons, individual entrepreneurs and publicformations that do not have legal personality. Data in the USR is open and public (except forregistration numbers of tax payers cards and passport details) and only in few limited casespayment is required. State authorities and their officials receive information from theUSR freeofcharge for the purpose of exercising their powers specified by law, exclusively in electronic formthroughanelectronicportal.

109. Legal persons are either “Private Law” or “Public Law” entities. “Private Law legal persons”mustbeorganisedonthebasisofconstituentdocumentsandcanbeestablishedandoperateunderthemodelstatuteinthemannerspecifiedbylaw.“PublicLawlegalpersons”canbeestablishedonthebasisofaregulatoryActbythePresidentofUkraine,thestatepowerauthority,orthelocalself‐governmentbody.Foreigncompaniesorotherlegalpersonsestablishedunderthelawsofanother

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jurisdiction can conduct economic activities in Ukraine through branches or permanentestablishments.BranchesmustberegisteredwiththeUSR.

110. Asof01.07.2017,accordingto informationfromtheStateStatisticsServiceofUkraine,therewere1,207,282registeredlegalpersons,including663foreignlegalpersons.

111. Themost common form of legal persons in Ukraine is the company. There are threemaincategoriesofcompaniesunderUkraine’slaw:

Themostpopulartypeofcompanyisthelimitedliabilitycompany.Establishedbyoneorupto100persons,itscapitalisdividedintosharesoftheamountspecifiedbyitscharter.Membersare not liable for the company’s obligations and bear risks of loss connected with thecompanyactivityonlyuptotheamountoftheircontribution.

A joint stock company is entitled to issue shares (the issuance of bearer shares has beenprohibited since 2006). Its capital is divided into a definite number of shares of the samenominalvaluecertifyingcorporaterightstothecompany.Theliabilityofmembersislimitedtotheunpaidamountoftheirshares.Ajointstockcompanycanbepublic(withshareslistedon at least one stock exchange) or private (with shares distributed privately among itsfounders).

Acompanywithadditional liability isfoundedbyoneormorelegalpersonswhosecapital isdividedintosharesdeterminedbythecompany’scharter.Membersbearsolidarysubsidiaryliability for the company’s obligations in the amount equal to their contributions into thecapitalofthecompanyand,incasethiscapitalisnotsufficient,totheamountdeterminedbytheconstituentdocumentofthecompany.

112. Asof01.07.2017,accordingto informationfromtheStateStatisticsServiceofUkraine,therewere551,620limitedliabilitycompanies;14,957jointstockcompanies;and1,417companieswithadditionalliability.

113. UnderUkrainianlaw,uponregistrationwiththeUSR,legalpersonalityisalsoconferredtotwocategoriesofpartnerships:

Under ageneralpartnership,members carry out entrepreneurial activities on behalf of thepartnershipand incur jointsubsidiary liability inrespectof thepartnership’sobligationbyallpropertytheyown.

A limitedpartnershipalso includesoneormorepartnerswhobear liability inrespectof thepartnership’s obligation limited to the amount of their contributions and who do notparticipateinthemanagementofthepartnership.

114. Asof01.07.2017,accordingto informationfromtheStateStatisticsServiceofUkraine,therewere1365generalpartnershipsand380limitedpartnerships.

115. The other types of legal persons registeredwith theUSR are:publicassociations,which areestablished for charitable purposes and cannot distribute profit, income or assets (in case ofdissolution),totheirmembersorexecutives;co‐operatives,whichareassociationsofindividualsforthepurposeofjointproduction;andprivateenterprises,basedonprivateownership,andwhichcanconducteconomicactivitiesforprofitofitsmembers.

116. Asof01.07.2017,accordingto informationfromtheStateStatisticsServiceofUkraine,therewere17317publicassociations,2272productionco‐operativesand201134privateenterprises.

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117. Ukraine stands at 80 in the ranking on the Ease of Doing Business but 20 on the Ease ofStartingaBusinessintheWorldBankReport2017.Thecountryisthusinthesecond‐to‐lastplaceinEasternEuropeunderthefirst index,and inthe6thplaceunderthesecond.Thereporthighlightsthe complexity of Ukraine’s legal and political environment andweight bureaucratic obstacles, aswellstepsrecentlytakentowardsclarityandsimplicityofprocesses.

118. TheLaw "OnAmendments toCertainLegislativeActs ofUkraine regarding thedefinitionoffinal BOs of legal persons and public figures", which came into force on 25 November 2014 andamended, interalia, theLawonRegistration, introducedanobligation for legalpersons todeclarebeneficial ownership information to the USR. The USR contains information on the BOs of legalpersons,butitisbelievedthattherearecaseswheninformationissubmittedtotheUSRonlyontheeconomicownersoflegalpersons(shareholders,stockholders,personswhohavetherighttovote)andnotonothereconomicbeneficiaries,whosesignificantinfluenceonacompanyresultsfromtheactualcircumstances.AdministrativeliabilityfornotsubmittinginformationonBOsoflegalpersonswasintroducedthereafter.TherangeofsanctionsavailableincludesfinesofbetweenUAH3,000and5,000(~EUR98.35andEUR163.92)aswellasadministrativepenalties.

119. Art.1(41)oftheAML/CFTLawdefinesatrustasanon‐residentlegalpersonwhichrunsitsoperationsonfiduciarytermswherethe“attorney”actsfortheaccountofandintheinterestsoftheprincipal, and is obliged to take certain legal actions for reward.The legislationUkrainedoes notprovide for the establishment of trusts and is not a party to the Hague Convention on the LawApplicabletoTrustsandontheirRecognition.TheprovisionoftrustservicesisalsonotprovidedbythelegislationofUkraine.However,thereisnoprohibitionforresidentstoactasatrustee,protectoror administrator of a trust that is set up outside of Ukraine, if allowed by the legislation of thecountry of establishment of such a trust and solely in accordancewith themanner prescribed bysuchlegislation.

Supervisoryarrangements

120. TheAML/CFTsupervision frameworkappears tohavebeensignificantlyenhancedsince thelastmutualevaluation,witharangeofstateauthoritiessupervisingalldesignatedentitiesasfollows:

Financialinstitutions

Licensingorregistration

AML/CFTSupervisor

Relevantlegislation

Banks LicensingbyNBU NBUAML/CFTLawLawontheNBULawonBanksandBanking

CurrencyExchangeOffices

LicensingbyNBU

NBU (forcurrencytransactions bybanks)NC (for non‐bank FIsconductingcurrencytransactions)

AML/CFTLawNBU Res. No. 297 on the Procedure of issuingnon‐banking financial institutions and theNational postal services operator generallicensetocarryoutforeigncurrencyoperationsNBU Res. No. 338 on the Procedure of on‐siteand off‐site inspectionswith regard to complywithcurrencylawrequirementsbybanks,non‐bankingFIs,UkrainianPostalOffice

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MVTSLicensingbyNBU

NBU

AML/CFTLawLawonBanksandBankingLawonFinancialServicesandStateRegulationofFinancialServicesMarkets

Post office (forpostal moneytransfers)

Licensing by theNational Commissionon the Issues ofCommunicationRegulationGeneral license fromthe NBU forconducting currencytransactions

MoI

AML/CFTLawLawonPostalCommunicationLaw on Payment Systems andMoney TransferinUkraineLawonFinancialServicesandStateRegulationofFinancialServicesMarkets

Securitiestraders

LicensingbySC SCAML/CFTLawLawonSecuritiesandStockMarketLawonStateRegulationofSecuritiesMarket

Stockexchanges

LicensingbySC SCAML/CFTLawLawonSecuritiesandStockMarketLawonStateRegulationofSecuritiesMarket

Depositoryinstitutions

LicensingbySC SC

AML/CFTLawLawonSecuritiesandStockMarketLawonStateRegulationofSecuritiesMarketLaw on National Depository System andPeculiaritiesofElectronicSecuritiesCirculationLawondepositorysystemofUkraine

Assetmanagementcompanies

LicensingbySC SC

AML/CFTLawLawonSecuritiesandStockMarketLawonStateRegulationofSecuritiesMarketinUkraineLawontheInstitutesofCommonInvestment

Insurancecompanies andbrokers

LicensingbyNC NC

AML/CFTLawLawonFinancialServicesandStateRegulationofFinancialMarketsLawonInsurance

Creditunions LicensingbyNC NC

AML/CFTLawLawonCreditUnionsLawonFinancialServicesandStateRegulationofFinancialMarkets

Non‐statepension fundsandadministratorsof non‐statepensionfunds

LicensingbyNC NC

AML/CFTLawLawonFinancialServicesandStateRegulationofFinancialMarketsLawonNon‐StatePensionProvision

Pawnshops LicensingbyNC NCAML/CFTLawLawonFinancialServicesandStateRegulationofFinancialMarkets

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Financialcompanies

LicensingbyNC NCAML/CFTLawLawonFinancialServicesandStateRegulationofFinancialMarkets

Other financialinstitutions

LicensingbyNC NC

AML/CFTLawLawonFinancialServicesandStateRegulationofFinancialMarketsLawonFinancialLeasing

Commodityexchanges

Nolicensingrequired MEDT

121. In the 2009mutual evaluation report, DNFBP supervisionwas rated as non‐compliant. Themain deficiencies related to the supervisory and regulatory regime of the gambling industry, theinadequate resources of the MoF to perform AML/CFT supervision and the fact that, with theexceptionof the gambling sector,no specificAML/CFT supervisionwasprovided for inUkrainianlegislationfortheothercategoriesofDNFBPactivities.UnderthenewAML/CFTLaw,allDNFBPsarecoveredbyspecificAML/CFTsupervision,underthebelowarrangements:

DNFBPsLicensing,registration,

appointment,regulation

AML/CFTSupervisor Relevantlegislation

Realestateintermediaries Notsubjecttolicensing FIU AML/CFTLaw

Preciousmetalsandpreciousstonesdealers

TheLawofUkraine“OnAmendingSomeLegislativeActsofUkraineonRestrictionofStateRegulationofEconomicActivity”of19.10.2010N2608‐VIdoesnotprovideforthelicensingoftheseentities

MoF AML/CFTLaw

Lawyers,lawofficesandlegalservicesproviders

Issuingofcertificatesontherighttoexerciseadvocacyiscarriedoutbasedonthedecisionofthequalificationanddisciplinarycommissionofadvocacy.ThestateregistrationofadvocateofficeandadvocateassociationiscarriedoutinthemannerprescribedbytheLawofUkraine“OnStateRegistrationoflegalpersonsandIndividuals‐Entrepreneurs”,takingintoaccountparticularitiesprovidedforbytheLawofUkraine“OnAdvocacy”

MoJ AML/CFTLaw

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Notaries

IssuingcertificateontherighttoexercisenotarialactivityiscarriedoutbytheMoJ

MoJ AML/CFTLaw

Accountants Licensingisnotprovidedfor MoF AML/CFTLaw

Auditors,auditfirms

Auditorsarerequiredtohaveacertificatethatdeterminestheirqualifyingavailabilitiestoexerciseauditactivity

MoF AML/CFTLaw

InternationalCooperation

122. UkraineisactivelyengagedinavarietyofinternationalinitiativesintheareasofAML/CFT.Inparticular,allcompetentauthoritiesofUkrainetakepartintheworkofsuchmultilateralfora,bothat policy and operational level, as MONEYVAL, the Egmont Group, Interpol, Europol or Eurojust.Ukrainehassignedandratifiedtherelevantinternationaltreatiesregulatingcooperation,andtakenstepsto implementUNSCRsinareasrelevanttoAML/CFT.Bilateralcooperation, includingMLA, isalsobasedonawiderangeofbilateraltreatiesandotherarrangements.

TerroristFinancingandFinancingofProliferation

123. Theevolutionof international terrorismhashadan impactonUkraine’sFTriskprofile.TheSSUhas identified that the country isusedas a transit country forpersons seeking to join ISIL inSyria. Four transnational networks linked to ISIL operating in Ukraine have been identified. Theauthorities are acutely aware that NPOs, in particular charities, are vulnerable to FT but theunderstandingoftheassociatedriskscouldbenefitfromdeeperanalysis.

124. TheauthoritiesreportthattherehasbeennocaseofproliferationofWMDorPF.Aproducerofdualusegoods,Ukrainehasarobustinstitutionalframeworktohandlethetransitofcontrolledorprohibited goods, and monitor sanctioned entities when presented with a specific case of illicitcommercialtransactionortrans‐shipment.However,thelegalframeworkgoverningPF‐relatedTFSneedstobefurtherbroughtinlinewithinternationalstandards.

CHAPTER2. NATIONALAML/CFTPOLICIESANDCOORDINATION

KeyFindingsandRecommendedActions

KeyFindings

• UkrainehasdemonstratedareasonablygoodunderstandingofitsML/FTrisksalthoughthereareafewshortcomingsinrelationtothestatisticalframeworkandtheanalysisofexternalthreats,organisedcrime,beneficialownership,andNPOsandinthesharingofinformationonotherfacetsofFTrisk.

• Ukraine has a substantial background in coordinating and setting five yearly strategies andannualplanstoaddressML/FT.

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• Ukraine has comprehensive national coordination and policy making mechanisms, whichinclude political commitment and which have a positive effect. These mechanisms include PF.Nationalpoliciesandactivitiesarecoordinatedwellby theFIU,andalsobytheMoF inrelationtolegislation.Bothbodiesareproactive.

• Cooperation at operational level and information exchange between authorities is generallypositive,particularlywheretheFIUisinvolved.

• Substantialinitiativeshavebeen,andarebeing,introducedatthenationalleveltoaddressthekeyandotherML/FTrisks.

• Somesignificantinitiativeshavebeenundertakenbycompetentauthorities(forexample,theNBU’sverysignificanteffortstoremovecriminalsfromhavingcontrolofbanksanditsdevelopmentof themed onsite inspections on PEP risk). There are also other examples of positive actionsundertakeninlinewithrisks.However,therearealsosomeareaswheretheobjectivesandactivitiesofauthoritiesneedtobestrengthenedandalignedwithML/FTrisks.

• Areasofsimplifiedduediligenceareminorandareconsistentwith identifiedrisksalthoughtheNRA and other published riskmaterial has not led to specific requirements on enhanced duediligence(EDD).

• AsuitablenumberandrangeofprivatesectorrepresentativesparticipatedintheNRAprocessandtheNRAreporthasbeenpublished.

RecommendedActions

• TheanalysisandwrittenarticulationofMLandFTriskshouldbeenhanced,whetherbywayofrevisingtheNRAorotherwise,by:

(a)utilisingmorestatisticsandensuringthatthestatisticsusedarerobust;

(b) further analysing the external threats and the threats of organised crime and beneficialownership;

(c) communication of relevant information held by the SSU on FT risks to other authorities andfurtheranalysingthethreatsofNPOs;

(d)conductofaspecificassessmentoftherisksposedbylegalpersons;

• The coordination framework should be enhanced so that the objectives and activities of allAML/CFTauthoritiesarealignedandaddressingML/FTriskseffectively.

• Add to the existing significant work on reducing the extensive use of cash and shadoweconomyinordertomitigatetheserisksandimprovefinancialinclusion.

• Identified risks should be reviewedwith the aim of ascertainingwhether any further risksrelevant to Ukraine should be the subject of EDD andmaking any necessary changes to the EDDframework.

125. The relevant Immediate Outcome considered and assessed in this chapter is IO 1. TherecommendationsrelevantfortheassessmentofeffectivenessunderthissectionareR1‐2.

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ImmediateOutcome1(Risk,PolicyandCoordination)

Country’sunderstandingofitsML/TFrisks

126. Ukraine has demonstrated a reasonably good understanding of its ML/FT risks. This wasevident indiscussionswithmostof theauthoritiesmeton‐site,whowereconfident in identifyingthemainrisksfacingthemataninstitutionallevelbutalsotheoverarchingrisksfacingUkraineasawhole. This understanding comes from information gathered in the course of the authorities’operational activities, research conducteddomestically, reports generatedboth internally (e.g. theSFSandtheFIU)andexternally,andtheNRA.SincetheML/FTrisksfacingUkrainearecomplexandmulti‐faceted, theNRApresentedanopportunity for theauthorities toobtainamoredetailedandfocussedviewoftherisks,therebyenhancingtheirunderstanding.AllofthepolicyandoperationalAML/CFTauthoritiesinUkraineandasuitablecross‐sectionofprivatesectorentitiesparticipatedintheNRA.Significantandworthwhileefforthasbeendevotedto theNRA(themethodologyused isdescribed in Ch. 1),which is based on avariety of information sources, albeit that the evaluationteamconsidersthatfurtherexternalsourcescouldhavebeenused.TheauthoritiesaregenerallyinagreementwiththerisksasratedandrankedintheNRA.

127. ThekeyrisksoflaunderingoffundsinpracticeareseenbyUkraineasarisingfromcorruption,fictitious entrepreneurship (the establishment of fictitious companies where front persons act asshareholdersanddirectors)andtheuseofso‐calledconversioncentrestofacilitatelaundering,taxevasion, organised criminality and the shadoweconomy.Theevaluation teambroadly agrees thatthese are the key risks and that they are consistentwith its findings.However, as the authoritiesthemselvesacknowledge,theunderstandingofotherriskscouldbefurtherenhanced.

128. The extent towhich legal persons can generally bemisused forML/FT iswell understood.However,theNRAdoesnotspecificallyconsiderhowlegalpersonsestablishedunderUkrainianlawcanbeusedto laundertheproceedsofcrime(seeCh.7).Theevaluationteamconsidersthat legalpersonspresentahigherriskthantheriskofweaknessesintheverificationofBOswhichisthefocusoftheNRA.AlthoughtheNRAincludessomeinformationontheriskspresentedbylegalpersons,aseparateanalysisoftheriskshasnotbeenundertaken.ItdoesidentifytherisksrelatedtothelackofverificationofBOs,whichincludesgapsin,andlackofverificationof,theinformationintheUSR,andtheuseof strawmen.While there are typologieswhich include legal persons, there is no specificassessmentofthewiderthreats,vulnerabilitiesandrisks,includingthespecificrisksofeachtypeofUkrainianlegalpersonthatcanbeformed.Overall,meetingswithsomeauthoritiesandtheprivatesectorsuggest that20%ofUkrainiancompaniesmayhaveprovided falseorotherwise inaccurateinformationtotheregistry.ThepossibilityofregisteringcompaniesbyfrontpersonsisconsideredbytheFIUandLEAstopromotethefunctioningofconversioncentres.

129. The cross‐border element of ML risks to Ukraine from foreign criminality have not beenseparately considered within the overall risk analysis except by way of noting that Ukraine isbecomingtheobjectofgrowinginterestfororganisedgroupsandflowsofinformationbetweentheFIU and counterparties in other jurisdictions, and are partly understood. The FIU was aware ofexamples of a few cases of criminals outside Ukraine using the jurisdiction and also noted anincrease incybercrime.Useofhighvaluewire transfers forMLappears tobe linked to theuseofnominees in Ukraine. The impact of external threats warrants more in‐depth consideration byUkraine.

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130. With regard to transportation of cash, the authorities are not aware of the risks betweenUkraineandneighbouringcountries.Whiletherehavebeenasignificantnumberofundeclaredcashmovements,inpractice,theverylimitednumberofinvestigationsandthelackofknowledgeaboutanypenaltiesappliedstronglyreducestheopportunitytounderstandtherisks.Theauthoritiesareawarethatacombinationofstatisticsandcompletedcasesisneededtofullyunderstandtherisks.

131. WhiletheNRAexplicitlyconsiderssuspicionofMLinconnectionwiththesituationineasternUkraine to someextent (theFIUhasalsoadvised that theNRAgenerally took the situation in theEastintoaccount)andtheNBUhasconsideredtheMLrisks,theevaluationteamwasnotprovidedwithdemonstrableevidenceduring theonsiteelementof theevaluation thatanyMLrisksarisingfromeasternUkrainewerecomprehensivelyunderstood.Nevertheless,followingitsvisittoUkraine,furtherinformationhasbeenprovidedtotheteamwhichindicatesthattheriskshavebeenanalysedand are generally understood by the FIU. The FIU has noted the risks of large migration flows,incompletecontroloverthemovementofassets,andthepotentialforlinksbetweentheseparatismissuesreferredtobelow(seepar.79)andML.ThemaintoolsusedinMLschemeshavebeenstrawmen,cash,useoffictitiouslegalpersonsandinterruptionofthetransitofassets.

132. More generally, the authorities plan to improve the reliability of the existing statisticalframeworkandincreasethesourcesofdatasoastoenhanceunderstandingofrisk.Somestatisticsused for theNRA are collected by authorities on the basis of different assumptions. For example,someLEAshavereportedstatisticsonthebasisofcasesopenedwhileothershavecompiledthemonthe basis of cases closed. There are also differences in relation to the number and type ofinvestigated cases presented to the courts on the one hand and cases heard by the courts on theother.TheFIUconsidersthatthestatisticalinformationusedintheNRAistrustworthyandprovidesthe general picture accurately albeit that the basis of calculation is different between authoritieswheremore than one authority provides information.No informationwas seenby the evaluationteamthatwoulddisagreewiththisconclusion.

133. The threats of international terrorism have contributed to a change in Ukraine’s FT riskprofile.Ukrainehasfounditselfusedasatransitcountrynotonlyforinternallydisplacedpersons,butalsoforthoseseekingtojoinISILfightersinSyria.WhiletheNRAdoesnotconsiderit,theSSUunderstandsthisrisk.Thisunderstandinghasarisenfrominvestigationscarriedoutbetween2014and2016toidentifypersonsillegallycrossingtheborderforthepurposesofinternationalterrorismandfromactivityin2015/2016whichuncoveredtheactivitiesoffouractivetransnationalnetworksofISILoperatinginUkraine.FTFtransitpointswerealsoidentifiedandtheSSUhasconcludedthatUkraine has been used as a transit zone for FTFs. While the need to protect confidentiality ofsensitivesecurity information is fullyunderstood,amorecoordinatedapproachto identifyingandcommunicatingsomeinformationabouttheseriskstootherauthoritiesandtheprivatesectorintheAML/CFTsystemwouldbebeneficial.

134. TheauthoritiesareacutelyawarethatNPOsarevulnerabletoabusebyillicitfinancialactorsandtoFTnotleastasaresultofthesizeoftheshadoweconomy.However,theunderstandingoftheassociatedriskscouldbenefitfromdeeperanalysis.TheriskclassificationusedbytheSFSasabasisformonitoring the sector is unduly focussed onwhetherNPOs are beingmisused for commercialpurposes,which alsomilitates against a complete understanding of FT risk. The SSUwas able toarticulate better why charities posed a significant FT risk but this understanding has not beencommunicatedtootherauthorities,privatesectorortheNPOsector.

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NationalpoliciestoaddressidentifiedML/TFrisks

135. TheCoMsetsAML/CFTstrategiesat fiveyearly intervalsand, todate,actionplansannually.Thestrategyagreed in2011(covering theperiod2011–2015) includedmeasures toensure thatUkraine is a reliable international partner; prevent the prerequisites for ML/FT; increase theeffectiveness of analysis and the development of typologies; enhance of AML/CFT legislation;enhance the activities of LEAs and other authorities; enhance supervision; and provide publicinformationonAML/CFTmeasures.

136. The2016strategy(fortheperiod2016–2020)hassimilarobjectivesbutwiththeadditionofCPF,professionaldevelopment,andeffectiveinternationalcooperation.The2016actionplan,whichwas implemented completely at the time of the on‐site visit, contains 27 actions divided intothemes34. While the action plan was approved before the completion of the NRA, many of themeasures relate to national vulnerabilitieswhichwere later identified in theNRA. Turning to FT,whiletherearepositiveactionsinthe2016actionplanwhichaddressedFTandthe2015strategyincludesanumberofmeasures,thetotalityofthesemeasuresdoesnotconstituteacomprehensivestrategywhichaddressestheissuesraisedinIO9.Suchastrategyisplannedbytheauthorities.

137. TherisksidentifiedintheNRAaremorefullyaddressedunderthedraftnewactionplan(for2017),whichwasawaitingapprovalbytheCoMatthetimeoftheon‐sitevisit.ItisintendedtocoverthreeyearsuptotheperiodofthenextiterationoftheNRA.Ittakeseachofthe37NRArisksinturnand identifies 92 mitigating actions and the authorities responsible for those actions. It alsoidentifiestimeframesforcompletionorwhethertheactionshouldberegardedascontinuous.Focusincludes actions on revamping the training process for LEAs, establishment of a domestic PEPdatabase,updatingoftheFIU’sITsystems,statisticalreportingrequirementsandtemplates,NPOs,efficiencyofLEAsandthetransformationofcasereferralsfromtheFIUtoLEAsintocriminalcases,improvement of investigation of tax related crimes so as to address conversion centres, thecompletionofastudyoncasesheardbytheSupremeCourtandthedevelopmentofguidelines,andimprovement of the quality of beneficial ownership information through the audit of informationfiledbylegalpersons.MeetingsoftheAML/CFTauthoritieshavebeenheldonanumberoftopicsofjointinterestsuchascybercrime,thecollectionofstatistics,foreigntradeissuesandNPOstoidentifymitigatingactions.

138. Substantialinitiativeshavebeen,andarebeing,introducedbyUkraineatthenationalleveltoaddress thekeyandotherML/FTrisks.AML/CFTmeasuresareembracedwithinwider “wholeofgovernment”initiatives.

139. CombattingcorruptionandMLarisingfromcorruptionistheUkrainianGovernment’shighestpriority.IthasagreedtheestablishmentofaNationalCouncil,astrategyonanti‐corruptionfortheperiod2014‐2017andan implementationplan for the strategy.Therearea significantnumberofGovernmentplanswhichincludecombattingcorruptionasthehighestareaoffocus.BothNABUandtheNationalAnti‐CorruptionProsecutorsOffice have been established as authorities dedicated tofightingcorruptionandMLarising fromcorruption.Inaddition,anauthority responsible forassetrecoveryisbeingestablished.

34Namely, improvementof legislationonAML/CFT/CPF;minimisingof risk; increasing theefficiencyof lawenforcement and other State authorities; improving the regulation and supervision of reporting entities;ensuringtransparencyoftheoperationofStateentities;theprofessionaldevelopmentofstaffwithinreportingentitiesandtheauthorities;andparticipationininternationalcooperation.

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140. With reference to addressing fictitious entrepreneurship and the use of conversion centres,legislationwasagreedon3April2017onthecreationofanewauthority,whichwillberesponsiblefor prevention, detection and investigation, and criminal justice measures, in relation to crimesagainst the State and/or local government. This authority will not only help to address fictitiousentrepreneurshipbutisalsopartofthenationalpolicytoaddresstaxevasion.

141. TheAML/CFTagendaisaddressingtaxevasionandMLfromtaxevasionthroughmorefocusonbanksinparticulartoidentifyandmitigaterisk.Inaddition,Ukrainehasastrategyforsustainabledevelopment, which is addressing tax evasion through tax reform. The aim is to simplify the taxsystem,createafairersystemandmakepaymentoftaxeasier.Inatleastsomeareasthetaxburdenis being reduced and the system is being remodelled so that it is more customer‐focussed. Inaddition,measuresarealsobeingtakenbymeansoflegislationtochangefacetsofthetaxsysteminordertotacklethepotentialfortaxevasionschemesandtheconsequentML.Thisactivityalsohastheobjectiveofreducingtheshadoweconomy.Asnotedinpar.29,theNBUhasundertakenvariousmeasurestoimprovefinancialinclusion.However,distrustintheformalfinancialsectorremainsanissueandtheuseofcashisstillwidespread.

142. Measures have been taken to address organised crime via a policy and action plan for theperiod2011to2017.Theauthoritiesarereviewingadraftofthenextpolicy.

143. More generally, Ukraine’s strategy and action plans envisage increasing the effectiveness ofsupervisoryauthorities in identifyingandmitigatingrisksandofLEAs in investigatingMLandthepredicatecriminalityleadingtoML.

Exemptions,enhancedandsimplifiedmeasures

144. UnderArt.6(5)oftheAML/CFTLaw,REsarerequiredtoperformEDDonhigherriskclients.Therearealsoadditional,specificprovisionswhichmustbecompliedwithrelatingtocorrespondentbankingrelationshipsanddomesticand foreignPEPs.Thesamerequirementscanbe found in thesectorallegislationonbanksandNBFIs.MoFOrder584of2016establishestheframeworkforclientrisk assessment, including an annex which establishes a range of factors, the presence of any ofwhichmeansarelationshipshouldbeclassifiedashighrisk.SeeR.1andR.10.Overall, there isnospecificprovision requiringentities automatically to take theNRAorother risk identificationandassessmentmaterialproducedbytheauthoritiesintoaccount.

145. UnderArt.9(3)oftheAML/CFTLaw,itisnotobligatorytocarryoutclientidentificationandverificationinconnectionwith:

(a)insurancecontractsotherthanlifeinsurance,underwhichtheclientisanindividual,andthetotalinsurancepaymentdoesnotexceedUAH5000(~EUR163.92),oritsamountisequivalenttothespecifiedamount,includinginforeigncurrency;(b)business relationswhichariseon thebasisof theagreementsonparticipating in lotteriesprovidedthesizeoftheplayer’sbetdoesnotexceedUAH5000(~EUR163.92);(c)thepaymentorganisation,participantormemberofthepaymentsystem,bank,branchofaforeignbankconductingfinancialoperationswithoutopeninganaccountintheamountwhichislessthanUAH150000(~EUR4,917.46),orintheamountwhichisequivalenttothespecifiedamount,includinginforeigncurrency,preciousmetals,otherassets,andunitsofvalue);

(d)transactionsbetweenbanksregisteredinUkraine.

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146. WhiletheprovisionsunderArt.9(3)oftheAML/CFTLawdonotappeartobeunreasonable,therewasno analysis prior to the Law coming into forcewhichwould support the application ofsimplifiedduediligence.Nevertheless,thelower‐riskscenariosarenotinconsistentwiththeNRA.

Objectivesandactivitiesofcompetentauthorities

147. Somesignificantinitiativeshavebeenundertakenbythecompetentauthorities.

148. NABU and SAPO are authorities dedicated to addressing the most important risk – anti‐corruption andML from corruption. NABU hasmade significant efforts since its establishment in2016topursuecorruptionoffences, includingdealingwitha largenumberofcasesagainstformerand current high‐level officials (although corruption‐relatedML offences do not yet appear to bepursuedonasystematicbasis).NABUhasalsoestablishedaspecialisedanalyticalunittoassistotherLEAstoundertakefinancialinvestigations.Asaconsequence,therehavebeensomesignificantandsubstantialrestraintorderswhichhavebeenmadebythecourtsinconnectionwithcorruptionandtheftofStateassets.

149. Theactivitiesoflawenforcementandprosecutors,since2014,havebeenmuchmorefocusedonaddressingUkraine'shighestMLrisks,within theresources theyhaveat theirdisposal.This isespeciallythecasewithrespecttotaxevasion,embezzlementandothereconomiccrime.However,more emphasisneeds tobe given to fictitious enterprises ‐which is anoverarchingML risk. Theprosecutors and the courts stillneed to resolveissues connected with the levels of proof inconfiscationproceedings,assetout inIO8, ifconfiscationofcriminalassets is tobeeffective inallproceeds‐generatingcrime.Indepthfinancialinvestigationsappeartobefewandfarbetween,andmoreresourcesandtrainingareneededforfinancialinvestigation.MorejudicialtrainingisrequiredonML issuesand thenewconfiscationprovisions ifrecent amendments to theCCandCPCare toachieve theirobjectives.There isno real opportunity forCustoms to focusonMLby investigatingcashcourierseffectivelyattheborder. Itcanonlyseizesuspectedproperty,transfercasestoLEAsandinformtheFIUaboutillegalcurrencyvalues.

150. Acts of terrorism are a priority for LEAs, particularly the SSU. The SSU has carried outsignificantpre‐trialinvestigations(includingparallelfinancialinvestigations)since2014toidentifypersonsillegallycrossingtheborderforthepurposesofinternationalterrorismanduncoveredfourtransnational networks operating in Ukraine. Significant measures have been taken against thenetworks by LEAs and prosecutors, including prosecution of offences in Ukraine, extradition anddeportation.

151. TheFIUhasahighleveloffocusonMLandinaddressingrisk.Ithasintroducedanautomatedsystem for the prioritisation of its analysis of STRs and successfully developed complexML caseswhichaddressUkraine’srisks.IthasalsoestablishedaseparateteamtoberesponsibleforensuringtheeffectivenessofcasereferralstoLEAs.Inaddition,theFIUhasadoptedanumberof initiativesaimedat promotingmeasures for the authorities andREs tomitigate risks.Bywayof example, itdevotes significant effort to seeking to ensure that its training centre is effective in providingoutreachtoREs.

152. Very significant efforts have been undertaken by the NBU in relation to seeking to ensuretransparencyofbeneficialownershipofthebankingsectorandinremovingcriminalsfromcontrolof banks; six banks havebeen closeddowndue to lack of transparency and tenbanks havebeenclosed on the basis of AML/CFT deficiencies. The NBU also devotes very significant attention tocombattingcorruptionandthepartplayedbyPEPsinthis,undertakingthematiconsiteinspections

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since 2016which focus solely on PEP risk. It provides or is involvedwith significant training forbanksnotonlyoncorruptionandPEPsbutalsobeneficialownership,fictitiouscompanies,fraud,theprovisionofdistanceservicesandFT.

153. TheDGFestablishedadepartmentinearly2016toaddressillegalactivitywithinbanks.Ithastaken positive steps both in detecting illegality (corruption, fraud and ML in particular) andsubmitted some3,500 cases toLEAs for the initiationof criminalproceedingsand inundertakingworktotakethesecasesforward.

154. TheSChasmadestrongeffortstoseektoensurethatlicenseesaregoodqualityandBOsandcontrollers are not criminal. It also conducts themed inspections which consider ownership andcontrol.However,theevaluationteamhasaconcernthattheissueofalicencebytheNCisautomatic(as a result of legislative shortcomings). In addition, other supervisory authorities or other thirdpartiesdonot,orareunableto,carryoutchecksonBOsorcontrollers.

155. AllthesupervisoryauthoritiesofREswererequiredtoputinplacestatutorilyprescribedriskgrading systems for registered/licensed entities in 2015 or 2016 (the NBU’s system being anenhancementtoanexistingmethodology).NoneofthesystemsiswhollyML/FTriskbased.TheNBUisinthebestpositionasAML/CFTelementsarearelativelylargecomponentoftheclassificationforbanks,whiletheframeworkfortheSChassomeelementofML/FTriskbut,intheothercases,theprescribedclassificationisonlypartiallyML/FTriskbased.Inaddition,otherthanfortheNBUandtheSC, statutory time frames foronsite inspectionsalsomean that supervisoryauthoritiescannotundertakeawhollyRBAtosupervision.TheNBU(forbanks)hasthemostcomprehensiveapproachto both onsite and offsite supervision, which is largely risk based in practice, and its resourcesappear to be directed at the areas of greatest risk. Except for the NBU (for banks) and theMOJ,statutorymoratoriaononsiteandoffsitesupervisionandlackofstaffcapacitysignificantlyreducedthelevelofAML/CFTsupervisionfromthesummerof2014tothetimeoftheevaluationteam’svisittoUkraineso thatsupervisionhasnotbeensufficient.Thetermsofallof themoratoriahavenowexpired. There is meaningful outreach to the private sector by the large majority of supervisoryauthorities.Thisisakeypartoftheobjectivesandactivitiesofsuchauthorities;particularlystrongandpositiveactivityhasbeenundertakenbytheFIUandFIsupervisors(notablytheNBUandtheNC) and by the MOF in establishing the training centre, which has come within the FIU’sresponsibilitysince2015.

156. AsindicatedinIO10,theSFSasthesupervisorforNPOshasbeenfocussedoncommercialandtaxissuesratherthanonFTrisk.However,in2016,legislationcameintoforcewhichrebalancestheSFS’sobjectivesandactivitiesbyrequiringitalsotoconsiderML/FTissues.

Nationalcoordinationandcooperation

157. Ukraine has comprehensive national coordination and policy making mechanisms, whichinclude political commitment. Thesemechanisms also apply to CPF following amendments to theAML/CFTLawinFebruary2015.TheMOFisresponsibleatpoliticallevelforthedevelopmentandimplementationofnationalpolicies.At theoperational level, theFIUcoordinates thedevelopmentandimplementationofthesepoliciesandactivitiesinrelationtothem;itwasalsothecoordinatoroftheNRAandthepreparationoftheNRAreport.

158. TheAML/CFTCouncil facilitates coordination and cooperationbetween the authorities. TheAML/CFTCouncil,whichmeetsapproximatelythreetimesayear,alsoconsidersandproposeswaysof overcoming challenges related to implementation of AML/CFT policies and assessing the

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effectivenessofthemeasuresrelatedtoML/FT.Inaddition,theCouncilprovidesaplatformforthecoordinationofsupervisoryandregulatoryactivitiesatanoperationallevel.Thistakesplaceintheformof twoworking groups (one forbanks andone fornon‐banks),which includeprivate sectorrepresentatives.MeetingsoftheworkinggroupstakeplacequarterlyandcovermeasurestakenbyREs, issues facedbysuchentitiesandproposed legislation.Discussionwithin theCouncil includesCFTaswellasAML.Thishasincluded,forexample,NPOsandCFTtrainingfortheprivatesector.

159. TheCoMapprovesanewstrategyat fiveyearly intervalsand, todate,actionplansannuallyfollowing agreementof themby theCouncil. The actionplans are also approvedby theNBU.Thedraftactionplanarising fromtheNRA,whichhasbeenprovidedto theCoMis intendedtohaveathreeyearlifeinordertotieinwiththecompletionofthenextiterationoftheNRA.TheFIUbriefsthe CoM, the NBU and the National Council on Security and Defence on a quarterly basis on theimplementationofpoliciesandactionstakenbyauthoritiesinresponsetothecurrentstrategyandtheactionplanswhichimplementthestrategy.QuarterlyandsubstantialannualwrittenreportsarealsoprovidedbytheFIUtothesebodies.

160. AlthoughthefirstactionplanarisingfromtheNRAhasnotyetbeenapproved,progressonthe2016 action plan (completed at the end of 2016) and its predecessors, and the development ofmitigatingmeasures,hasbeentrackedonaquarterlybasis.TheFIUcoordinatesthepreparationofadocument which contains input from the authorities and provides this toCoM, the NBU and theNationalCouncilonSecurityandDefenceCouncil.TheMoFis involvedthroughitsparticipation intheCouncil.

161. Thecoordinationframeworkmakesapositivedifference.Ukrainepointsinparticularto:

completionoftheNRA;

active and productive investigation of the laundering of the proceeds from corruption,embezzlement and appropriation of state funds and property by the former President ofUkraineViktorYanukovychandothers,leadingtosignificantconfiscationofassets;

theestablishmentofNABUandcooperationbetweentheFIUandNABUleadingtosignificantexchangeofinformationinrelationtocasesinvolvingsignificantpotentialproceedsofcrime.The cases include members of parliament, judges, a prosecutor, public servants, heads ofenterprisesandothers;

effectiveactivitybytheFIUtrainingcentre,withinputbytheMoFandsupervisoryauthorities.

162. Linked with the coordination role of the FIU, the MOF coordinates the preparation oflegislation. It works closely with the authorities, including the FIU in particular. Coordination isdemonstratedbytheenactmentofsimilarlegislationforeachofthesupervisoryauthoritiesontheriskgradingofentitiesandthetimingofonsiteinspections.Otherrecentlegislationtoaddressgapsand risks includes changes of legislation in relation to improve the effectiveness of TFS and theintroduction of an autonomous FT offence in the CC. Legislation is currently being drafted onfinancialinvestigations,revisionstotheAML/CFTLaw,andthesubmissionofinformationbyREstoassistmonitoringbytheauthorities.

163. Thestructureandcoordinationactivitydescribedabovehasbeeninplacesince2003.NationalpoliciesandactivitiesarecoordinatedwellbytheFIU,andalsobytheMOFinrelationtolegislation.Bothbodiesareproactive.

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164. There are formal and informal information exchangemechanisms that support cooperationandcoordinationbetweentheauthoritiessuchasMoUs.

165. LookingspecificallyatLEAs,severalofNABU’sstafforiginate fromtheFIU,which isseenashelpfulinfacilitatinginteragencycooperationandinfurtheringNABU’sobjectives.Informationfromthe FIU also helps NABU’s effectiveness in providing it with intelligence which allows it to seekinternational cooperation. NABU ensures that its staff meet representatives of other LEAs tofacilitatepositiverelationshipsandcooperation,andinformationexchangetakesplacewhenneeded.InsomecasesjointinvestigationteamshavebeenestablishedbetweenLEAsandprosecutors.LEAscooperatewiththeFIUonanongoingbasisinaveryconstructivemanner;thislevelofcooperationshouldbeextendedbyLEAstothesupervisoryauthorities.LEAsreceivesignificantinputfromtheFIUinrelationtothefinancialaspectsofinvestigations.

166. DealingspecificallywithinvestigationofFTbyLEAs,thecooperationbetweentheSSUandtheFIUontheidentificationandinvestigationofFTcasesappearstobefunctioningproperly.

167. TheFIUhassignedMOUswithalargenumberoftheAML/CFTauthorities.ThereissignificantliaisonbetweentheFIUandsupervisoryauthorities.TheFIUregardsinformationexchangeswithitbysupervisorsaseffective.

168. TheNBUhasenteredintoMOUswithNABU,Customs,theSFS,theFIU,theSC,theNCandtheDGF. It also discloses information without an MOU being in place. There has been substantialinformationexchangewiththeSSU,theFIUandLEAssuchasNABU.ThereisstrongliaisonbetweentheNBUand theFIU inparticular, includingon training for theprivatesector. Itmeetsbilaterallywithotherauthorities todiscusscurrent issuesandshareexperience, includingmonthlymeetingswiththeNCinrelationtoMVTS.

169. TheNChas signedMOUswith the FIU, theNBU and the SC but also exchanges informationwithoutanMOUbeinginplace.IthasexchangedinformationwiththeFIUandLEAs.TheNChasalsoliaisedwiththeFIUandtheSCinconnectionwithprivatesectortraining.Inaddition,itprovidestheFIUwithinformationonbreachesbyREs,actionbeingtakentoaddressbreaches,generallevelsofcompliancebysupervisedentitiesandwindingupofREs.TheSC,theMOFandtheMOJalsoprovidesuchinformationtotheFIU.

170. Turning to PF, the UAs were able to demonstrate effective operational cooperation onproliferation between customs and export control authorities, as well as their collaborationwithsecurityservices.However,operationalcooperationwas lessevidentbetweencustomsandexportcontrolauthoritiesontheonehandandtheFIU,supervisorsand lawenforcementontheother inrelationtoPF.

Privatesector’sawarenessofrisks

171. TheNRAreportwaslaunchedinDecember2014atameetingcomprising40representativesoftheprivateandpublicsectors.Thiswasfollowedupbydiscussioninmeetingsofthetwoworkinggroupsmentionedabove,publicationofthereportbytheFIUonitswebsiteandfourworkshopsforthe private sector held on theNRA report in Lviv and Kiev in late 2015 and early 2016. FIs andDNFBPsmetbytheevaluationteamwereawareofthereport.Inaddition,manyoftheREsmetbytheevaluationteamhadsomeinvolvementwiththeNRAprocess.

172. TheFIUhasalsopublishedFTtypologiesandindicatorsin2012andits2016riskassessmentofNPOs.TheFIUhasalsopublishedabookletontypologiesfortheperiodfrom2014andpresented

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it to the twoworkinggroups. Inaddition, theFIUplacesstatisticspertinent toriskon itswebsite.TheFIUalsohostsatrainingcentrewhichprovidestrainingtotheprivatesector;thishasreferredtotheNRAandtherisksreferredtointheNRAreport.

173. The MoJ has also issued typologies and guidance while the MOF has published typologies.Moregenerally,asindicatedinIO3,substantialoutreacheffortshavemadetoREs.

Conclusion

174. Ukraine has demonstrated areasonably good understanding of its ML/FT risks. Thisunderstandingwouldbeenhancedby takingsome furthersteps to identifyandassess riskby, forexample,increasinginformationsourcessuchasimprovingthestatisticalframeworkandincreasingfocusonspecificareassuchasexternalthreats,organisedcrimeandNPOs.

175. Ukraine has asubstantial background in coordinating and setting five yearly strategies andannual plans to addressML/FT, and it possesses comprehensivenational coordination andpolicymakingmechanismswhichincludePF.Substantialinitiativeshavebeen,andarebeing,introducedatthenationalleveltoaddressthekeyandotherML/FTrisks.Somesignificantinitiativeshavebeenundertaken by competent authorities (for example, the NBU’s very significant efforts to removecriminalsfromhavingcontrolofbanksanditsdevelopmentofthemedonsiteinspectionsonPEPs)andtherearealsoexamplesofpositiveactionsundertakeninlinewithML/FTrisks.However,therearealsoareaswheretheobjectivesandactivitiesofauthoritiesneedtobestrengthenedandalignedwith risks. Further coordinated attention might also be directed at the shadow economy and, inparticular, financial inclusion. Itwould also be beneficial for there to be a coordinated reviewofwhetheradditionalEDDmeasuresshouldbeappliedtoREs.

Cooperationatoperationallevelandinformationexchangebetweenauthoritiesisgenerallypositive,particularlywheretheFIUisinvolved.UkrainehasasubstantiallevelofeffectivenessforIO1.

CHAPTER3. LEGALSYSTEMANDOPERATIONALISSUES

KeyFindingsandRecommendedActions

KeyFindings

IO6

• Basedonarobustlegalandinstitutionalframework,anddespiteanincreasingresourcestrain,theFIUproducesgoodqualityoperational analysis.Effectivemechanismsare inplace togeneratefinancial intelligenceoriginating fromabroadrangeofsources, includingtheveryhighnumberofreportsfiledbyREs.

• ThespontaneousdisseminationofcasesfromtheFIUregularlytriggersinvestigationsintoML,associatedpredicateoffencesorFTbyLEAs.MostLEAsalsoregularlyseekintelligencefromtheFIUtosupporttheirowninvestigativeefforts.Cooperationamongcompetentauthoritiesisfacilitatedbyanumberofinstitutionalmechanismsallowingforthetimelyandconfidentialexchangeoffinancialinformationandintelligencewiththerelevantauthorities.

• StrategicanalysisproducedbytheFIUsupportstheannualupdateofthereportingcriteria,aswellasLEAsinvestigativeefforts.

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• However, since 2014, the FIU’s personnel and budget resources have decreased while itsworkloadhasrisensharply.Inaddition,theITequipmentoftheFIU,whichisheavilyreliedonforthe purpose of analysing the high number of transactions submitted by REs, appears to needsupdating.Ifnoturgentlyaddressed,theseresourceissuesmayhaveanegativeimpactontheFIU’sabilitytocarryoutitsfunctionsinaneffectiveway,bothdomesticallyandinternationally.

• Theongoingefforts aimedat emphasizing the suspicion‐basednatureof reporting, asnotedunderIO4,resultinginasmallernumberofbetter‐focusedreports,shouldcontributetoalleviatingtheabovementionedresourcestrainissues.

IO7

• ThenumberofMLinvestigationsinitiatedbylawenforcementcomparedwiththeincreasingnumberofsignificantproceeds‐generatingoffencesissmall,andMLindictmentsaredeclining.

• MLisstillseenbymostinterlocutorsmetonsiteprimarilyasanadjuncttoapredicateoffence.While investigationsmaybe opened forML in certain circumstanceswithout a conviction for thepredicateoffence, it isessential tohaveaconvictionforthepredicateoffencetotakeaMLcasetocourt. Some interlocutors considered that an acquittal for the predicate offence means that MLcannotgoahead.

• Most ML cases brought to court either involve self‐laundering or 3rd parties on the sameindictmentastheauthorof thepredicateoffence.ProsecutingcontestedautonomousMLcases,onthe basis of underlying predicate crime being inferred from facts and circumstances, has still notbeentested.

• Before2014,MLprosecutionsrarelyconfrontedoneofUkraine’shighestMLrisks(top levelcorruptionandtheftofstateassets).SinceMarch2014,complexpre‐trialinvestigationsareactivelybeingtakenforwardagainstseniorofficialsoftheformerregime.Theyappeartohaveresultedsofarin one conviction forML in very significant amounts. The SAPO is also now taking action againstcurrentseniorpoliticallyexposedpersons,whichincludesML.

• ThesentencesforMLarealmostalwayslessthanforthepredicateoffencesandnotdissuasive.Somedefendants servenoprison sentence at all for thebasicMLoffencedue to theoperationofArticlesintheCCaimedatreformofconvictedpersons.

IO8

• The confiscation legal regime has been updated and improved since the last evaluationthrough the introduction of special confiscation aimed at proceeds, though confiscation as anadditionalpenaltyremainsavailable formanygraveoffences. It isdifficulttoassesssystematicallywhetherthenewsystemhasbeddeddowninpracticeinallproceeds‐generatingcases.Itisunclearhow regularly thenewprovisions (as opposed to confiscation as an additional penalty) are beingusedby the judgesandhowmanysignificant final special confiscationordershavebeenmade, asmostinformationonthisisanecdotal.NotallMLcasesappearedtoresultinconfiscationorders.

• There appear to be some problems in conducting financial investigations and a lack ofresources for them across the board. In practice, thorough financial investigations in majorproceeds‐generatingoffencesarefewandfarbetween,thoughconsiderableeffortsaremadeinthebiggestcases.

• Since2014,officialsfromthepreviousregimeandcurrenttopofficialsandpoliticallyexposedpersonsarebeinginvestigatedandmadesuspectsincasesandtheirassetsarebeingrestrainedwith

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aviewtoconfiscation.Creditisgivenforthedeterminedworkthatisnowongoingtorestrainandconfiscate funds in casesof top level corruptionand theftof stateassets, in linewithnationalMLrisks. At the time of the onsite visit there was a considerable gap between obtaining significantrestraintsandtheachievementoffinalconfiscationorders.Morefinalconfiscationorders,includingthoseusingthenewspecialconfiscationprovisions,arenecessary.

• There is not yet a consistent evidential standard for establishingwhether alleged proceedscamefromcrime,whenthespecialconfiscationissueisraisedafterconviction

Recommendedactions

IO6

• Ensure that the personnel and budget resources allocated to the FIU, in particular to itanalytical function, are consistentwith itsworkload.Consideroptions to limit staff turnover.Thiscouldincludesuchproposalsascareerdevelopmentprogrammes;andevaluatingtheremunerationpackagesonoffer.

• UpdatetheITequipmentoftheFIU.

• Continueeffortstoemphasizethesuspicion‐basednatureofreportsfromobligedentities,asnotedunderIO4.

IO7

• Introduce a provision under Art. 209 of the CC which clearly states that a person may beconvicted ofML in the absence of a judicial finding of guilt in respect of the underlying criminalactivityandprovidingthattheexistenceofthepredicateoffencemaybeestablishedonthebasisofcircumstantial or other evidence without it being incumbent on the prosecution to prove aconvictioninrespectoftheunderlyingcriminalactivity.

• StopthedeclineinthenumberofMLindictmentsbyensuringthatprosecutorsadviseLEAstoproactivelyfollowthemoneyinmajorproceeds‐generatingoffenceswithaviewtoidentifyinghowandbywhomtheproceedsarelaundered.IdentifyspecializedprosecutorsdealingwithMLtoguidetheir colleagues in handling these cases (where they are not handling them themselves) and toadviseasnecessaryonappealsagainstinappropriatesentences.

• Conduct prosecutorial andLEA training covering the FATF standards onML criminalisation(andUkraine’sobligationsundertheWarsawConvention).

• Pending legislative clarification, as recommended above, prosecutors should (following theprovisionsoftheWarsawConvention):

‐sendautonomousMLcasestocourtwithoutaconvictionforapredicateoffencewhenthereisevidencefromwhichacourtcanproperlyreachaconclusionastotheexistenceof theunderlyingpredicateoffence(s);

‐routinelyconsidertheissueofpursuingprosecutionswithoutaconvictionforthepredicateoffence(s) where there is evidence that a court may properly conclude the existence of theunderlyingpredicateoffence(s).

• LEAs should consider the creation of a dedicated team(s) of investigators specialized infinancialinvestigations(financialinvestigators)andensuretheirclosecooperationwithspecializedprosecutors inmatters relating toML. Law enforcement authorities should conduct on a regular

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basis training for more law enforcement officers on pursuing effective financial investigations inparallelwiththepredicateoffence.

• Develop short and clearmandatory instructions forprosecutorsonwhenandhow todirectlawenforcementauthoritiestopursuefinancialinvestigationsinmajorproceeds‐generatingcases.

• MoreML prosecutions and convictions in linewith nationalML risks are required in casesinvolvinghighlevelcorruption,theftandembezzlementofStateassetsbycurrenttopofficialsandtheirassociates(aswellasthoseconnectedwiththeformerregime).

• NABU needs to place emphasis on the ML aspects of its corruption cases involving seniorofficialsandtorecruitandtrainmoreskilledfinancialinvestigators.

• The Ukrainian authorities should use ML offences more actively to attack the creation offictitious enterprises. Art. 205 CC also needs legislative strengthening, with dissuasive terms ofimprisonment.

• MLpenaltiesissuedbythecourtsneedtobemuchmoredissuasiveinpracticethantheyareatpresent.Aspartofthisprocess,theimpactofArt.69andArt.75CConMLprosecutionsshouldbereviewed.InappropriateMLsentencesshouldbeautomaticallyappealedbytheprosecution.

• TheSupremeCourtResolutiononMLprosecutionsurgentlyneedsupdating.All judgesneedprofessional training tohandlebasicMLcases.SpecialistML training for judges involved inNABUcases should be actively considered so that they are also able to handle theML aspects ofNABUcorruptioncases(andwithinspecialisedanti‐corruptioncourts,iftheyareintroduced).

• DuringML/FTinvestigationsLEAsshouldwidelyapplythepracticeofappealingtothecourtwiththeclaimofprovisionalaccesstoitemsanddocumentswithoutsummonsingaperson.

• Inorder tomeasure itsownperformance inMLprosecutionandconviction,Ukraineshoulddevelop and keep reliable, reconciled and centralised statistical data on ML prosecutions andconvictions, disaggregated by types of cases (law enforcement generated, STR related, self‐laundering,3rdpartylaundering,autonomousML)andtheriskprofilesofthecases.Thisstatisticaldata should be regularly reviewed by the FIU, law enforcement and prosecutorial authoritiescollectively, and corrective action takenwhere necessary to improve the quality of the data. Thepolicy implications of the statistics should be regularly reviewed by law enforcement andprosecutorsatseniorlevels.ItisadvisedthatthePGshouldconsiderperiodicallyengagingwiththeSupremeCourtatapolicylevelwheretherearesignificantissuesinMLcaseswhichneedresolutionatahighlevel.

IO8

• The authorities should examinewhy somanyML cases appear not to result in confiscationorders.

• Financialinvestigationsintothesourcesofallegedproceedsshouldberoutinelyundertakeninproceeds‐generating cases using trained financial investigators working in parallel with theinvestigatorsofthepredicateoffences.Financialinvestigationsshouldnotsimplybereservedforthebiggestcases.ThepriorrecommendationunderIO7forthecreationofdedicatedteamsoffinancialinvestigatorsasresourcestoalllawenforcementbodiesisre‐iteratedalsointhecontextofIO8.

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• The authorities should ensure that early restraints are routinely made in all proceeds‐generating cases. In this context it should be considered whether investigators should have thepowerofearlyrestraint,subjecttofasttrackedreviewsofsuchrestraintsbytheprosecutors.

• ThereshouldbedevelopedbetweentheJudiciaryandthePGaworkablepolicyonthelevelofevidence needed to determine whether assets were the proceeds of crime, after conviction forproceeds‐generatingcriminaloffences.Thispolicyshouldbeconsistentlyappliedbythecourts.Toensurethatconfiscationisalwaysraisedattheconclusionoftrialsforproceeds‐generatingoffences,thePGshould issuedirections toallprosecutors in thisregard. In the longer term, theauthoritiesshoulddecidewhetherthelawneedsamendingtoincludeaclauseontheconfiscationissueintheindictment.

• Theauthoritiesshouldreviewthetrainingthatisprovidedtojudgesonthenewconfiscationprovisionsandwherenecessarypursuefurtherawareness‐raisingandeducationoftheJudiciaryontheseissues.

• The PG should ensure that all supervising prosecutors in proceeds‐generating cases aretrained in modern financial investigative techniques and are capable of directing investigatingofficers in financial investigationswhere necessary.More focused guidance on the importance ofearlyrestraintandconfiscationofproceedsshouldbeissuedtoallprosecutors.

• AfteroneyearthePGandtheJudiciarytogetherwiththeAssetsRecoveryOfficeshouldreviewhoweffectivelythenewconfiscationprovisionsarebeingappliedandtakeanynecessaryremedialaction.Tosupportthisreviewtheauthoritiesshouldmaintainaccurate,reconciledstatisticsontheuseofspecialconfiscationandearlyseizingandfreezing.

• TheAssetsRecoveryOfficeshouldbecomeoperationalassoonaspossibletoensureeffectivemanagementofassetsunderrestraint.

176. The relevant Immediate Outcomes considered and assessed in this chapter are IO 6‐8. TherecommendationsrelevantfortheassessmentofeffectivenessunderthissectionareR.3,R.4&R.29‐32.

ImmediateOutcome6(FinancialintelligenceML/TF)

Useoffinancialintelligenceandotherinformation

177. TheStateFinancialMonitoringService,whichisanadministrative‐typeFIU,isthemainbodywhich generates intelligence of a financial nature in Ukraine. Its function within the country’sAML/CFT framework is well understood by the other competent authorities and its outputs areregularlyusedbyLEAs.Numerouscaseswerepresentedwherefinancial intelligencegeneratedbytheFIU(eitheron thebasisof reports/information fromREsorexchangeswith foreignFIUs)wasusedbyLEAstodevelopevidenceforpre‐trialinvestigationsintoML,associatedpredicateoffencesandFT.TheFIU’sinputisalsoregularlysoughtbyLEAsinthecourseoftheirinvestigations.

178. The examples provided in the boxes below illustrate how the FIU’s analysis was of majorassistanceindevelopingcasesinitiatedbyaLEA.

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IO6CaseExample1:SupportprovidedbytheFIUinanLEA‐initiatedinvestigation

In2014, theSSUinitiatedapre‐trial investigationonbankofficialssuspectedofhavingassisted inthe concealment of a large volume of illicit funds in conspiracywith a client of the bank. It wassuspected that proceeds of crime had been used by the client to purchase preciousmetals in theamount of UAH 500million (approximately EUR 17million). Subsequently, the client re‐sold thepreciousmetals,depositedtheprofitsintoseveralprivateaccountsheldbyotherbankssituatedinUkraine and abroad and withdrew the funds from the accounts in cash. Following a request forinformationfromtheSSU,theFIUconductedasearchinitsdatabaseandidentifiedfourreportsontransactions involving the suspect, which had previously been filed by other banks. Additionalinformation was obtained from the institutions involved and, following further analysis, it wasestablished that thesuspecthaddepositeda totalamountofUAH13million(EUR426,179.91), incash into a personal account and had sold 35 kg of gold in the period under investigation.Subsequently, theFIUcontactedtheSFS,quicklyestablishedthatthepersonwasregisteredas thedirectorofanumberoffictitiouscompaniesandreceivedfurtherclearindicationsthatthosefundswereproceedsof crime. Furthermore, theFIU requested additional information from thebankingsector,whichrevealedadditionalconnectionstooffshoreaccountsandresultedintheexchangeofinformation between the FIU and nine foreign counterparts. Ultimately, these exchanges revealedthatthepersonhadbeenconnectedtoalargescalecybercrimefraudschemeinEuropeandNorthAmerica.Theperpetratorwassuccessfully indictedand,correspondingly,all fundsassociatedwiththeperpetratorandhiscriminalactswereseized.

179. TheboxbelowillustrateshowLEAssuccessfullyinvestigatedamoneymulecaseonthebasisofinformationspontaneouslydisseminatedbytheFIU.

IO6Caseexample2:FIU‐initiatedinvestigation

Based on the financial analysis of cash threshold‐based reports filed by banks in 2015, the FIUsuspectedthataccountsmighthavebeenmisusedinmoneymuleoperations.Thosecash‐intensiveaccounts had been held by two non‐EU citizens. Seemingly fictitious contracts through shellcompanieshadbeenpresentedtothebanksasjustificationsforthepayments.TheFIUliaisedwithforeign FIUs andwas informed that the two individualswere connected to additional accounts inneighbouring jurisdictions, and that one of those individuals had also been the subject ofinvestigations in his home country. The FIU analysed the information inmore detail and alertedcustomsofficials at specific border checkpoints to the fact that the vehicles of the twopersonsofinterestcouldbeusedtotransportcashoutofUkraine.ByincludingtheSFSandCustomsaswellastheSSU into the case, itwas later revealed that the twopersonshadbeenmoneymulesandcashcouriersofanorganisedcrimegroupwhichusedtheaforementionedmethodtolaunderproceedsofcrimetotalling~USD165millionover2008‐2014.Thetwoforeignindividualsweresubsequentlyarrestedupon trying tomove largeamountsof cash (including foreigncurrency)acrossUkraine’sexternalbordersaswellasthroughtheinternationalairportinKyiv.

180. CooperationisalsoeffectiveinCFT,asillustratedbytheexampleintheboxbelow.

IO6CaseExample3:Co‐operationinFTcase

Basedontheresultsoftransactionsmonitoring,theFIUidentifiedfinancialtransactionsinvolvingacitizen of Libya, E., and conducted onmulticurrency accounts opened in several Ukrainian banksusing international payment systems. Credit operations involved immaterial amounts (up to USD1,000)fromcitizensofothercountries.Further,thefundsweredirectedtoaBelgiancitizen,A.The

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FIUidentifiedthatthefinancialtransactionsandtheirparticipantswerehighrisks.Inaddition,theFIU received information froma foreignFIU indicating thatA.was suspected tohave createdandsuppliedfalseidentificationdocumentstoformerSyriansoldiersandpersonsfromIraqintendingtoenter Europe. The FIU suspended the financial transactions on the account of E. The CR wasdisseminatedtotheSSU,whichinitiatedacriminalproceeding.Accordingtotheresultsofthepre‐trialinvestigation,anindictmentunderArt.263‐1CC(IllegalHandlingofWeapons,Ammunition,orExplosivesSubstances) in relation toE.was transferred toa court.Acourt sentence imposeda3‐yearimprisonmentpenalty.

181. FIUinformationisalsocritical intheseizureofcriminalassetsthroughtheapplicationof itspower to suspend suspicious financial transactions. According to statistics, for the period 2014‐2016,thesuspensionoffinancialtransactionswasexecutedin402dossiers,ofwhich230dossiers(57.2%)werepreparedattherequestofLEAsduringapre‐trialinvestigation.Theinitiatorsofthesuspension of financial transactions were the following: LEAs ‐ 230 dossiers (57.2%), REs ‐ 123dossiers (30.6%), FIU ‐ 49 dossiers (12.2%). The total amount of funds suspended was UAH 26,921.3million(EUR851million),theinformationonwhichwasalsotransferredaspartofthecasereferrals to LEAs. In addition, in the period from 2010 to 2016, the FIU received from LEAsinformation regarding the restraint on cash and other property in criminal proceedings totallingUAH31,351.41million(EUR991.3million)andassetseizureamountingtoUAH389.5million(EUR12.3million).

STRsreceivedandrequestedbycompetentauthorities

182. TheFIUactsasthecentralauthorityforthereceiptofreportsfromREs:“mandatoryfinancialmonitoring” (see R.20) based on a combination of a value threshold (exceeding UAH 150 000)(~EUR 4,917.46) and a list of objective indicators, i.e. pre‐defined categories of transactionsconsidered to be higher risk; and “internal financial monitoring”, triggered either by subjectiveindicatorsrequiringsomequalitativeanalysisfromtheREs(e.g.complexorunusualtransactionsor“grounds to believe that the financial transaction is connectedwithML or FT”). Statistics on thereportsareprovidedunderIO4.

183. During the on‐site visit,most REs appeared to demonstrate a satisfactory understanding oftheir reporting obligations, including the professions with the lowest reporting levels. Failure ordelaysinfilingmandatoryreportsappeartobesanctionedbysupervisorswithfines,whichresultsin very timely reporting (sameday inmost cases). Those sectors that file the highest numbers ofmandatory reports feel that the resources allocated to the process are disproportionate to thebenefitsthatareperceivedtobederivedtherefrom.Thereportsubmissionformhasbeensimplified,which has contributed to making this process less resource‐intensive. Suspicion‐based reportsconstituteasmallerpercentageofthetotalnumberofreportsand,accordingtotheFIU,onlyasmallportionofthesecontainanyclearsuspicionofML/FT.Inpractice,thelistofindicatorsprovidedbythe authorities in relation to suspicion‐based reporting seems to be over‐relied on byREs,whichmaylimittheircapacityinreachingtheirownsubjectiveconclusionsonwhetherasuspicionexistsbasedontheparticularcircumstancesofeachcase.Despitetheseissues,asubstantialpercentageofthe reports (whether mandatory or suspicion‐based) has generated a case‐referral to LEAs (seeTable under core issue 6.3). The authorities have undertaken outreach to the obliged entities topromote suspicion‐based reporting. In addition, the FIU has initiated the adoption of draftamendmentstotheAML/CFTLawaspartofthelegislativepackagetotransposethe4thEUAnti‐MLDirective,which,interalia,seekstoimprovethereportingregime.Theamendments,onceadopted,

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willreducethenumberofmandatoryreportingindicatorsfrom17to4andincreasethethresholdfromUAH150000to300000,(~EUR4,917.46toEUR9,834.92)inordertoenableREstoallocatemoreresourcestoandfocustheirattentiononsuspicion‐basedreporting.

184. Theevaluationteamwasinformedthat,overall,bothmandatoryandsuspicion‐basedreportsare fully in line with the country’s risk‐profile. Most reports are submitted in relation to PEPs,especially domestic; the use of “conversion centres”, including fictitious companies; and cashtransactions. Authorities indicate that mandatory reporting criteria are developed and annuallyreviewed by the FIU taking into account mandatory and suspicion‐based reports, the NRA,recommendationsfrominternationalexperts(e.g.IMF)andtheexperiencefromothercountries.

185. TheFIUalsoreceivesreportsfromCustomsonillegalmovementsacrossthecustomsborderofUkraineof cash,monetary instruments,preciousmetals, precious stonesand theirproducts, aswellasculturalproperty,inanamountequalto/orexceedingEUR6000orequivalent.

Table3:InformationfromCustomstotheFIUonundeclaredassetcross‐bordertransportation

2012 2013 2014 2015 2016No.ofreports 80 30 13 32 37No.ofindividualsinvolved

8436Ukrainiancitizens48foreignnationals

2913Ukrainiancitizens16foreignnationals

237Ukrainiancitizens16foreignnationals

18294Ukrainiancitizens88foreignnationals

10452Ukrainiancitizens52foreignnationals

Currency(M) EUR 0.34USD0.60RUB1.58UAH0.43

EUR 0.37USD2.47RUB3.65UAH2.24CAD0.11GBP0.11PLN0.21

EUR 0.72USD2.08RUB0.30UAH5.87AED0.005CNY0.05

Preciousmetals Silver:14.79kg,UAH0.17MGold:3kg,UAH2.41M

Silver:0.10kg

Preciousnaturalstones

Rawamberandproducts:166.48kg,UAH11.37M

Rawamberandproducts:168.03kg,atleastUAH3.24M

Other 3vehiclesusedforcross‐bordertransportation(valueofUAH0.39M)

1,060rings,704earrings,66pendantsAncienticon1000medicalneedles

186. The UAs have provided several examples of successful cooperation between the FIU, lawenforcementauthorities,includingCustoms,andforeignFIUsindetectingandcombatingtheillegalexportofcurrencyinstrumentsfromUkraine,usingcashcouriers.

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IO6CaseExample4:InputfromCustomsintheFIU’soperationalanalysiswork

The FIU received STRs from REs regarding a group of nationals from Moldova and Uzbekistaninvolvedinlargecashcreditanddebitoperationsinforeigncurrencyonthesamedayfromseveralbankaccounts.Inordertoobtainmoreinformation,theFIUsubmittedrequeststotherelevantREs,theStateBorderService,Customs,theSSU,aswellasforeignFIUs.

AccordingtoUkrainianbank1,thefundsdebitedbyMoldovancitizen1andtheUzbekcitizenhadbeenreceived fromanon‐residentcompany,asa“loan for theconstructionandcommissioningofoffice buildings.”Ukrainianbank1 also indicated that thenon‐resident company transferredUAH2.23billion(~EUR73,106,246million)asaloantoMoldovancitizen2andtheUzbekcitizen.

AccordingtoforeignFIU1,thenon‐residentcompanyisashellcompanyusedtofacilitatecriminalactivity. The registered agent of the non‐resident company is a company that provides companyincorporationservices.Theregistrationagentiscurrentlyunderinvestigation.

According to foreignFIU2 thepersonwith theright todisposeof theaccountof thenon‐residentcompany,openedataLatvianbank,isacitizenofRussia.

Thenon‐residentcompanytransferredUSD164.92milliontoMoldovancitizen1(USD6.5million)andUzbekcitizen(USD158.42million).Basedoninformationfromthecustomsauthorities,itwasestablished thatMoldovan citizen1 and theUzbek citizen, using theOfficialHall of theUkrainianairport,movedoutUSD4millionworthcashbycharterflightsonprivateplanestoMoscow.Inthisconnection, the individualshadprovided the customsauthoritieswith certificateson theoriginofcurrencyissuedbyUkrainianbank1.

TheUzbekcitizencarriedoutseveraltripsfromtheUkrainianairporttoMoscow,inthecontextofwhichhedeclaredtheexportofaboutUSD70millioncash,providingthecustomsauthoritieswithcertificatesofcashwithdrawalfromhisaccountissuedbyUkrainianbank1.

The results of the FIU’s analysis were sent to SSU, which established that an organised criminalgroupconsistingofcitizensfromUkraine,Russia,MoldovaandUzbekistanhadcreatedchannelsfortheillegalexportofcurrencyoriginatingfromaccountsopenedwithUkrainianbank1anddestinedforCIS countries, includingRussiaandMoldova.The functionsof courierswereperformedby thetwoMoldovancitizens,theUzbekcitizenandtwonationalsfromUkraine.Inaddition,itwasfoundthatanumberofnon‐residentcompanieswereinvolvedinthecriminalscheme.

FollowinganattempttoexportforeigncurrencyinstrumentstoRussiaatBorispolairport,SSUstaffdetained Moldovan citizen 2 and seized USD 9.5 million. After having reviewed the materialscollected,SSUopenedcriminalproceedingsunderArt.205(fictitiousbusiness)and209(legalisation(laundering) of proceeds from crime) of the CC. The investigation is being conducted by theProsecutorGeneral’sOfficeofUkraine.

OperationalneedssupportedbyFIUanalysisanddissemination

(a)Operationalanalysis

187. The FIU can obtain information held by all REs, including those that had not previouslyreportedatransaction.InformationfromREsisregularlysoughtbytheFIUasanintegralpartofitsanalysiscycle.Furthermore,theFIUhasdirectaccesstoallrelevantdatabasesheldbyLEAsaswellasaccesstoawiderangeofdatabasescontainingadministrative information.Thesedatabasesaredirectlyavailablethroughinternetaccess.

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188. TheFIU’soverall inputtooperationalanalysisisquitesubstantial.CasefilesthatarecreatedbytheFIUitself(basedontheanalysisofvarioustypesofreports; theuseof itspowerstocollectadditional intelligence from REs; or bilateral or multilateral exchange of information withinternational partner agencies) have been successfully considered by all types of LEAs for thepurpose of pre‐trial criminal investigations into ML, associated predicate offences and FT. Inaddition,theFIUhasassistedinvestigatingbodiessuccessfullyinservicingtheiroperationalneeds,i.e. in providing financial analysis (par.356‐357 andKF2 under IO.9 are also relevant to this coreissue).

189. FIU Order No. 89 establishes the procedure for analysing reports on financial transactionswithin the Financial Investigations Department, as well as the methodology for the analysis ofreportsonfinancialtransactionsthatmayberelatedtoML,FTorPF.AllSTRsreceivedbytheFIUare automatically classified according to the level of risk, using the resources of the unifiedinformation system. All reports are subject to thorough analysis taking into account all availableinformation. Each transaction is analysed to identify any indications that the transactionmay berelatedtoML,FTorPForassociatedwiththecommissionofothercriminalacts.

190. For high risk transactions, an electronic dossier is immediately created. With respect tomediumrisktransactions,ananalystcarriesoutadditionalriskanalysis.ThepotentialofML,FTorPF is analysed under separately determined algorithms. The following information is established:schemeandkeyparticipants;signsofknownrisks,methods,schemesandtypologiesofML,FTorPF,etc.Afterhavinggatheredallavailableinformationonthekeyparticipantsandrelatedpersons,theanalyst seeks to establish the presence of suspicion ofML, predicate offences, FT or PF. In case areasonablesuspicionexists,adraftcasereferralissubmittedtotheFIU’sExpertCommissiononthereviewof case referrals and additional case referrals ,which elaborate onprevious case referralsbased on additional information), which decides whether case referrals/additional case referralsshouldbedisseminatedto legalpersonand intelligenceagencies. In theabsenceofsuspicions, theanalyst recommends to the Director of the Financial Investigations Department that the file bearchived. If connections between key participants and other major dossiers are identified, theanalyst can recommend to theDirector that the financial transactions be included in the relevantdossier. Informationon financial transactionsperformedbyparticipantsmentionedinanarchiveddossiercanbeusedfurtherwhenanalysingthefinancialtransactionslinkedwiththeseparticipants.FinancialtransactionsclassifiedaslowriskarekeptintheunifiedinformationbaseoftheFIUandmaybeusedinthecourseofotherfinancialinvestigations.

191. TheassessmentteamwasinformedbyallLEAsaswellasthemainsupervisorybodiesmeton‐sitethattheFIUisclearlythemainpartnerauthorityofreferencewhenanytypeoffinancialanalysisis needed either to start or continue an investigation. According to these authorities, the FIU’sanalyticalproductsareofgoodqualityandinthevastmajorityofcaseshaveproveninstrumentalintheirwork.TheFIUhascontinued toprovideanalysisof goodqualityalthough its resourceshavebeensignificantlyreducedsince2012.TheFIU’sbudgethasbeendecreasinganditsITsystemneedssignificant updating. More importantly, the ratio between the FIU’s human resources and itsworkloadhasrecentlydecreaseddramatically:between2012and2016,30%ofthestaff,includingsenior managers, left the FIU mainly due to the uncompetitive salaries offered by the FIU ascomparedwiththeprivatesectorandthenewlyestablishedNABU.Atthedateontheon‐sitevisit,38ofthe237postswerevacant.Meanwhile,thenumberofreportsreceivedbytheFIUmultipliedbyfourbetween2014and2015,asaconsequenceoftheexpansionofthelistoffinancialtransactionscovered by mandatory reporting. Despite these circumstances, the FIU has managed to remain

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effective by prioritising cases in linewith the risks identified in the NRA, aswell as its own riskanalysis: cases includingPEPs, fictitiousdomestic companies (in relation to grand scaleorganisedcrime), offshore companies (in relation to corruption) and FT have been given priority attention.Accordingtoitsownassessmentofongoingcasesandtrends,theFIUisoftheviewthatshouldthecurrentresourcesituationcontinuetoworsen,theFIUmightnolongerbeinapositiontofulfilallitsobligations, especially responding to LEAs’ financial analysis needs and international partners’assistancerequests.

192. ThereisnoindicationthattheeffectivenessoftheFIU’soperationalactivities ishinderedbyanyundueinfluence.

(b)Strategicanalysis

193. According to FIUOrderNo. 89, the FIU performs strategic analysis aimed at identifyingMLrisks, trends,methodsand financial schemesonanon‐goingbasis.Onthisbasis,asalreadynoted,proposals aremade to improve the list of criteria for selecting the suspicious transactions to bereportedtotheFIU.ProposalsareapprovedbytheHeadoftheFIU.Typologicalresearchreportsareconducted annually by the FIU in consultation with all participants in the AML/CFT system, andpublishedonitswebsite.

(c)Dissemination

194. The FIU has dealt with a significant and increasing number of cases in the period underreview:responsestoLEAs’requests for information;casesalready investigatedbyLEAsandinputinto the unifiedpre‐trial investigation register; or cases disseminated to LEAs in accordancewiththeirinvestigationcompetenciesunderArt.216oftheCPC.

Table4:No.ofassistancerequestsfromLEAsandsupervisoryauthoritiestotheFIU

2012 2013 2014 2015 2016FromtheNP(MinistryofInternalAffairs(MIA)) 170 317 444 323 230Fromsupervisoryauthorities 32 41 27 14 35FromthePGO 33 34 220 284 333FromtheSFS 63 154 216 262 211FromtheSSU 34 61 375 458 356FromtheNABU 0 0 0 12 157FromtheMDU 0 0 0 0 2Fromintelligenceagencies 0 7 2 2 24Total 332 614 1,284 1,355 1,348

195. The following table provides information on the analytical work of the FIU and thegeneration/disseminationoffinancialintelligence.

Table5:Intelligencedisseminatedspontaneouslyandonrequest

2012 2013 2014 2015 2016Totalno.of

transactionsreportedbyREs

967,821 982,141 1,287,496 4,357,117 6,319,776

Totalno.incomingrequestsfromLEAs 300 573 1,257 1,341 1,313

Totalno.ofalltypesofsubmissionsfromthe

FIUtoLEAs1,326 2,295 2,407 2,378 1,516

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Totalno.ofcasereferralsandadditional case

referralstransmittedtoLEAs

719 822 774 686 591

NooftransactionssubmittedtoLEAsaspartofthecasereferralsandadditionalcase

referralMandatorymonitoringInternalmonitoring

104,408

81%19%

44,831

74%26%

78,217

59%41%

143,802

52%48%

62,154(1sthalfof2016)

Valueoftransactionsincludedincase

referrals/additionalcasereferral(million

UAH)

158710(~EUR

3,278.3M)

80794(~EUR2648M)

330283(~EUR10,827M)

217305(~EUR7,123M)

62202(~EUR2,039M)

Totalno.ofinvestigationsbasedon

casereferrals/ additional casereferrals

Incl.ML‐relatedcases(criminalproceedingunderArt.209ofCC)

310

19

840

98

602

82

406

44

290

22

Totalvalue(millionUAH)offunds

suspendedbasedoncasereferrals

/additionalcasereferrals

60.7(~EUR1.99M)

113.23(~EUR3.71M)

19,581.06(~EUR461.93M)

6330.86(~EUR207.55M)

681.14(~EUR

20,232.99M)

196. Theratiobetweennumberoftransactionsreportedandcasesdisseminatedisveryhigh,whichis linked to the threshold‐basednatureof thereporting.Thepercentageof cases referred toLEAsthat are taken forward for further investigation is high, which tends to corroborate the positivefeedbacktheyexpressedonthequalityoftheanalysisproducedbytheFIU.

197. Thecase‐referralsrelatedtoFTareanalysedundercoreissue9.2inthesectionentitled‘FIUDisseminations’.

198. Internally, the Commission on the review of case referrals and additional case referralsdetermines the beneficiary of its disseminations. The Commission comprises the Chairman of theFIU,hisDeputy (HeadofAnalysis), the caseanalyst and, if needed, colleagues fromotherLEAs incases where several LEAs could potentially be interested in following up on that case. TheCommissionmeetsat leastonceaweekoronanad‐hocbasis ifneeded, i.e. inhigh‐priority casesincludinghigh‐level/grand‐schemecorruptionandPEPsingeneral,aswellasFT.

199. The FIU has concluded framework cooperation agreements with 17 state authorities ofUkraine. Theseprotocols determine i.a. the structure of the files and the requisite composition ofinformation,thegroundsforexchange,measurestoensuretheprotectionofinformation,etc.

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200. Cooperation between the FIU and supervisors is governed by the AML/CFT Law and otherbylaws,includingjointones.Detailsofsuchco‐operationaresetoutunderIO3.

Cooperationandexchangeofinformation/financialintelligence

201. TheFIUregularlyexchangesML‐related informationwiththeNP, thePGOU,theSFSandtheNABUonanoperationallevel.WithregardtoFT,theSSUwouldbethemainpartneragencyfortheoperationalexchangeofinformation.Inadditiontotheinternaldisseminationcommitteedescribedabove,co‐operationisalsofacilitatedbyaspecialdepartmentwithintheFIUwhichisempoweredtoexchangeconfidential,operationalinformationwithcompetentdomesticLEAs.Furtherinformationoncooperationmaybefoundundercoreissue1.5.

202. Notechnicalorlegalobstaclesappeartolimittheeffectiveexchangeofinformationbetweenauthorities.

203. Theredonotappeartobeparticularissuesinrelationtotheprotectionoftheconfidentialityofinformation,beitinthecontextofexchangesbetweentheFIUandREs,LEAsandforeignpartners;or in the analyticalwork internally carried out by the FIU. STRs and threshold‐based reports aregenerally filed inelectronic formthroughasecurewebline.Only1%ofreports involveaphysicaltransferviapostalcourierservices.ThosereportsareusuallyfiledbysmallerDNFBPswithoutmuchexperienceinco‐operatingwiththeFIU.Tipping‐offrulesseemtobebroadlyunderstoodbyREs(cf.IO4).The informationcontained inadossier for submission to theLEAs isgatheredelectronicallyandstoredintheclosedITsystemoftheFIU.Ateachstageofdossierprocessing,informationisonlyavailableforconsultationbyananalystanddirectseniormanagementoftheFinancialInvestigationDepartment. Under the Procedure for providing and reviewing case referrals, approved by jointOrder of theMoF and LEAs, case referrals constitute proprietary information of the FIU and areclassifiedas “ForOfficialUseOnly”.The transmissionof such information is carriedoutusing themeansof cryptographicprotectionof information. case referralsmayalsobesent inenvelopesbypersonswho have the right toworkwith the documents of "ForOfficial UseOnly", in away thateliminates unauthorised access to their content. Under the Procedure the registration of casereferralsandadditionalcasereferralsreceivedfromtheFIU,aswellastheiruse,iscarriedoutbytheLEA in accordancewith the legislation on the use of informationwith restricted access, includingArt.222 of the CPC on protection of investigation secrecy and the Laws “On Operative andInvestigativeActivity”and“OnCounterIntelligenceActivity”.Lastly,informationisexchangedwithinternationalpartnersthroughthesecuredweb‐siteoftheEgmontgroup.

204. The FIU also hosts the domestic FIU training centre that offers various different sorts oftrainingprogramsinthefieldofAML/CFT.LEAsaswellassupervisorybodiesuseitsservicesinitsheadquarters inKyiv aswell as variousbranchesacrossUkraineonanongoingbasis.Apart fromdomestically‐organisedtrainingsessionsthatcanalsoincluderepresentativesoftheprivatesector,thetrainingcentrealsocooperateswithinternationaldonorsonabi‐ormultilateralbasis,ifneedbe.

Conclusions

205. TheFIUproducesgoodquality financial intelligenceandstrategicanalysisbasedonabroadrangeofsources, including theveryhighnumberreports filedbyREs.As illustratedbynumerouscaseexamplesprovidedbytheauthorities,asignificantpercentageofcasereferralsfromtheFIUtoLEAs generates investigations into ML, associated predicate offences or FT by LEAs. LEAs alsoregularlyrequestsupportfromtheFIUintheirowninvestigativeefforts.Cooperationbetweenthe

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FIUandothercompetentauthoritiesisfacilitatedbyanumberofinstitutionalmechanismsallowingforthetimelyandconfidentialexchangeofinformationandintelligence.Overall,reportssubmittedto theFIUbytheREsappear tobe in linewiththecountry’sriskprofile;however, theauthoritieshave started to takemeasures to encourage suspicion‐based reporting,with a view to improvingfurtherthequalityofthiscriticalsourceoffinancialintelligence.Theseefforts,whichcouldresultina smaller number of better‐focused reports, could contribute to alleviating the growing resourceissues faced by the FIU,which suffers from staff turnover and relies on IT equipment that needsupdating.UkrainehasachievedasubstantiallevelofeffectivenessforIO6.

ImmediateOutcome7(MLinvestigationandprosecution)

MLidentificationandinvestigation

IdentificationofpotentialMLcases206. TheUAsindicatedthatthedetectionofMLoffencesisachievedthrough:reportsfromtheFIU;law enforcement authorities initiating such investigations in carrying out operational‐searchactivities;duringinvestigationsofothercriminalproceedings;receivingrequestsforMLA;andasaresultofinformationfromothers.

207. Proceeds‐generating crimes inUkrainehavebeen increasing since the last evaluation. From2010 to the first quarter of 2016, the number of recorded crimes of embezzlement by abuse ofofficialposition(Art.191CC),forgery(Art.366CC),andoffencescommittedbyanorganisedgrouporhierarchicalorganisation(Art.28,parts3and4CC)roseyearonyear.Thetotalsfrom2010tothefirstquarterof2016arereportedas:83035(Art.191embezzlement);57756(Art.366forgery);and9459(OCoffencesArt.28).Thereisasimilarupwardtrajectoryinotherproceeds‐generatingcrimesinthisperiod.ThenumberofopenedMLinvestigations(withoutanSTR)fortheperiod2010tothefirstquarterof2016was944(0.6%ofthe3typesofmajorproceeds‐generatingcrimereferredtoinpar. 1 above).ThepercentageofML investigationsopenedwouldbe lower if itwasbasedon thetotalsof all proceeds‐generatingoffences in thisperiod.Thus theevaluators concluded thatmanymoreMLinvestigationscouldhavebeenfollowedupinproceeds‐generatingcrimesinthisperiod.

208. Theauthoritiesprovided,aftertheonsitevisit,revisedfiguresonMLpre‐trialinvestigationsinthe table below, which include FIU case referrals. Even though this table covers all of 2016, thefiguresappearconsistentwiththeconclusionsintheprecedingparagraph.

Table6:NumberofMLpre‐trialinvestigationsandprosecutions 2012 2013 2014 2015 2016

Investigations

Prosecutions

Investigations

Prosecutions

Investigations

Prosecutions

Investigations

Prosecutions

Investigations

Prosecutions

PGOU ‐* ‐* 16 5 16 6 24 2 25 1NABU ‐* ‐* ‐** ‐** ‐** ‐** 1 0 15 0NP ‐* ‐* 105 63 116 67 101 36 64 21SFS ‐* ‐* 107 27 72 20 47 8 37 8Total ‐* ‐* 228 95 204 93 173 46 141 30

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209. Oneof themainreasons for the lownumbersofML investigations is thatML isstill seenbymost interlocutorsmetonsiteprimarilyasanadjunct toapredicateoffence.Despite the technicalpositionsetoutintheTCAnnexunderR.3,thePlenarySupremeCourtRes.No5(15.04.2005)“Oncourtpracticeofapplicationoflegislationoncriminalresponsibilityforlaunderingofproceedsfromcrime”(hereinafter“theSupremeCourtresolution”),which,thoughinneedofcompleterevisionandupdating,wasstillappliedbyjudgesinMLcases.ThisResolutionappearstoassumethatapredicateoffender would be identified before criminal responsibility for ML could be applied, althoughcriminal liability forML is said to be “not excluded”where the predicate offenderwas subject tostatutory indemnity or was dead. Thus, in practice, the evaluators found that ML criminalproceedingswerealmostexclusivelyconsideredonlywhenapredicateoffence(andofteninpracticeapredicateoffender)wasidentified,orafteraconvictionforthepredicateoffence.

210. The first requirement of law enforcement in Ukraine traditionally has been to identify apredicate offence. Competence to investigate ML was before 2015 determined by whoeverinvestigatedthepredicateoffence.ThedecisiontoopenallMLpre‐trialinvestigationswasmadeatthe discretion of the agency conducting pre‐trial investigations of predicate offences, under thesuperintendence of the prosecutor. The evaluators were advised that if an investigation into apredicate crimewas closed, then, at present, therewould be noML investigation. It follows that,priortothereformstotheCPCin2015,iftherewasnoidentifiedpredicateoffence,inpractice,therewas no investigative body which could take on an investigation for ML ‐ unless the prosecutordirectedaninvestigativebodytodoso.

211. Inthecourseofthe2015amendmentstoArt.216oftheCPCareformwasproposedtoallowany investigative body that detected the crime (of ML) to be included in the bodies that couldinvestigate ML. The adopted amendment on investigative competence now allows ML pre‐trialinvestigations to be undertaken by an investigator of the authority that “initiated a pre‐trialinvestigation” (which appears to allow for autonomousML investigations where the predicate isunknown) or by investigators whose jurisdiction is the predicate offence (socially dangerous actprecedingML),asbefore.

212. ThesecondpartofArt.216par.8of theCPC isrelevant to the issueofwhatconstitutes theexistence of a predicate offence for the purposes of opening ML pre‐trial investigations. Theauthorities proposed that the reformofArt. 216of theCPC should clarify that the identity of thepredicateoffenderwasnotnecessarytobeprovedtoopenMLinvestigationsbutthisproposalwasnotincludedbyParliament.

213. Art.216,asamended,doesnotstatethataconvictionfortheunderlyingpredicateoffenceisnotapre‐requisiteforMLcriminalproceedings.ItsimplyallowsfortheopeningofinvestigationsforMLwithoutapreliminaryorsimultaneouschargingoftheunderlyingpredicateoffence,when:

‐apredicateoffencewascommittedoutsideUkraineandthelaunderingwascommittedinUkraine;

‐the fact of a predicate offencewas establishedby a court in “relevant procedural decisions” (i.e.courtorders).

214. Thereisno“or”betweenthesetwoparagraphs,but,asnotedintheTCAnnex,theauthoritiesconsiderthatthetwoconditionsshouldbereaddisjunctively,soMLpre‐trialinvestigationscannowbe opened for both foreign anddomestic predicateswhere the predicate offences are revealed inprocedural decisions. As noted in the TC Annex, there are examples in other legislative acts(includingtheAML/CFTLaw)whichsupportthisconstruction.Howevernobindingauthorityfrom

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an appellate court has been provided which confirms that Art. 216‐8 applies to pre‐trialinvestigationsinbothdomesticandforeignpredicates35.

215. Thus,tocommenceaMLpre‐trial investigation,LEAsdonotneedaconvictionandsentenceforthepredicateoffence.Theyconsiderthatpre‐trialinvestigationsforMLcanbeopened,inparallelwithinvestigationsintothepredicateoffences,wheretherearefindingswhichassumetheexistenceofpredicatecrimesincourtorders.LEAsalsoadvisedthattheycanopenMLpre‐trialinvestigationsunder certifications from a prosecutor, that there is sufficient information to suspect underlyingforeignordomesticpredicatecrime(untilanycontraryrulingbythecourtsontheapplicationofArt.216‐8oftheCPCtodomesticpredicatecrimes).

216. HowevertherewasuniversalagreementonsitethatlawenforcementareunabletotransferaMLinvestigationtocourtonthisbasis,andthatevenacompletedMLenquirywouldhavetobeputinto abeyance until the predicate offence is completed with a conviction. Thus, while in somecircumstances it appears law enforcement commence ML pre‐trial investigations without aconviction for the predicate offence,most law enforcement officers still firmly believed that theyneed a conviction for the predicate offence if theML is to go to court.When asked ifML can bepursuedwhereapredicateoffenderisdeadorproceedingsforthepredicateoffencearetime‐barred,theevaluatorsweretold(byexperiencedinvestigators)thattheywouldneedapersonresponsibleforthepredicateoffencebeforecriminalproceedingscouldbetakenforML.Anappellatejudgealsoadvisedtheevaluators that ifadefendant isacquittedofan identifiedpredicateoffenceaMLcasecannot go ahead in theUkrainian system. It follows that if the underlyingpredicate criminality isunidentified (whether foreignordomestic), generally speaking,nothingwouldhappen in termsofMLinvestigations.

217. There is one caveat. There appears to have been at least 1 recent case where the courtaccepteda“recognitionofguilt”ofMLbyapersonchargedwith(autonomous)ML,which impliedhisacceptancethatproceedscamefrompredicateoffences(withouttheprosecutionindependentlyprovingthoseactsintheMLhearing).Itwasunclearwhetherthepredicateoffence(s)werecapableor incapable of proof independently. What seems clear is that, if a person is alleged to havelaunderedproceedsfromunidentifiedpredicateoffencesandisnotpreparedto“recognise”hisguiltinrelationtoML,currentpracticewouldbenottoprosecutehimforML.

218. Proceeding with a ML contested trial without a conviction for the predicate offence, byestablishing in theML trial that underlyingpredicate offenceshadoccurred fromwhichproceedswerederived(eitherthroughindependentevidenceorbyinferences)hasstillnotbeentested.Someauthoritieswereconvincedthatthiswasimpossible.Thus,goingforward,prosecutorsarestronglyurgedtochallengethenotionthataconvictionforthepredicateoffenceistheonlybasisuponwhichunderlyingpredicatecriminalitycanbeestablishedincontestedMLcases.Theevaluatorsconsiderthataclearlegislativeamendmentisrequiredtomakethishappen.

Financialinvestigations

219. Theprosecutors advised that LEAs areobliged to obtain their approval to conduct financialinvestigations. The authorities emphasised that financial investigations could always be openedwherethereisevidenceof“lifestyle”issues–suchaswhenapersonwithnoformalincomeacquiresortransferssignificantpropertytoothers,orspendslargesumsonentertainment.Inthelast2years

35Caseexampleswereprovidedaftertheonsitevisitwhichshowthatpre‐trialinvestigationsforArt.209MLoffenceshavebeenopenedinrespectofforeignpredicateoffences

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prosecutorsadvisedthatinMLcasestheywouldseektoapplythenewSpecialConfiscationorders,whichrequirefinancialinvestigations.

220. The Prosecutors referred to the 2012Methodological Recommendations onOrganisation ofprosecutors’supervisiononfictitiousbusinesses,conversioncentresandlegalisationoftheproceedsofcrimeasmandatingfinancialinvestigationsinthesecases.TheyarepostedontheofficialsiteofthePG’sOfficeandareavailabletolawenforcement.Theyarelengthy,generalguidancedocuments,which set out elements of these offences.However they do not appear to contain anymandatoryrequirementstoprosecutorstodirectMLinvestigationsintheseorothermajorproceeds‐generatingcases. The authorities also pointed to Art. 214 CPC as an authority for mandating financialinvestigations.Art.214requiresinvestigators/prosecutorstoenterimmediatelyintotheRegisterofPre‐Trial Investigations circumstances likely to indicate the commission of a criminal offence,includingML.Thisdoesnot,ofitselfmandatefinancialinvestigations.

221. There was some confusion between LEAs as to what is meant by financial investigation –investigation into ML, or investigation into other financial offences, or investigation of proceedsderivedfromoffences.Therearenocommoninstructionsonwhentostartafinancialinvestigationandwhatshouldbeitsaim.

222. Inpractice,indepthfinancialinvestigationsappeartobefewandfarbetween.TheevaluatorsweresurprisedthattherewerenoMLrelatedfinancialinvestigationsbeingconductedbytwounitswhich the teammet (one investigating organised crime predicate offences, and one investigatinghumantrafficking).Theevaluatorsconsideredthatbothunitslackedtheresourcesandcapacitiestoconduct financial investigations, and that opportunities to identify ML were being missed. Bycontrast, there appeared to be some financial investigations being undertaken by investigators ofdrugrelatedpredicatecrimesleadingtolimiteduseofthediscretedrug‐relatedMLoffence(Art.306CC).

223. Scarce resources for ad hoc financial investigations are sometimes found by the NP, usingaccountantsingovernmentservice.Somesquadshaveeconomiccrimeofficerswithbasictraininginfinancial investigation. But there are no dedicated financial investigators available as a singleresource to the NP. There also appears to be little systematic training in modern financialinvestigativetechniquesformostofficersandprosecutorsinvestigatingproceeds‐generatingcrime.It is advised that a dedicated team of financial investigators (with access to accountancy advice)shouldbedevelopedwithintheNPasasingleresourcewhichcanbecalleduponbyunitswithintheNP.

224. ItwasamatterofconcernthattherewasashortageoftrainedfinancialinvestigatorsinNABU.During the onsite visit, NABU had 300 pre‐trial investigations opened ‐ some involving currentMinisters36,MPs and judges. However, it appeared at that time that theywere not systematicallyfollowingupMLaspectsinhighlevelcorruptioncases,thoughsomesignificantrestraintsofassetshadbeenachieved(seebeneathunderIO8).AsNABUbedsdown,theevaluatorsconsiderthatrealemphasisshouldbeplacedonfollowingupsignificantMLschemesidentifiedintheircases,withaviewtoprosecutingthosethatlaunderonbehalfofhighofficialsinthesameproceedings.37 Todo

362Ministers,1MPandtheformerCommissioneroftheSFShadbeenmadesuspectsatthetimeoftheonsitevisit37 Since the onsite visit the evaluators were advised of steps being taken by NACBU and anti‐corruptionProsecutorstoinvestigate/prosecutemoreMLcasesinparallelwithcorruption.

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so,moredetectivesneedtoberecruitedbyNABUandtrainedinfinancial investigativetechniquesandincomplexMLinvestigations.

225. One area where ML cases can no longer be pursued is in relation to certain aspects ofsmuggling. As noted in the TC Annex, following the partial decriminalisation of offences that canapply to smuggling in 2015, there is no longer a possibility of investigating the laundering ofproceedsfrombulksmugglingofsomesignificanttaxablegoods.Thisisunfortunate.Theauthoritiesare strongly encouraged to review this policy decision and restore the possibility of MLinvestigationsandprosecutionsforthistypeofsmuggling.

HowwellaretheMLcasesbeinginvestigated?226. The inefficient investigation of ML, organised crime, tax crimes and predicate crimes areconsideredasmajorrisks20‐23intheNRA.

227. The NBU considers that generally banks provide provisional access to bank secrecyinformation to LEAs in a timely way. However some law enforcement authorities encounterproblems in this area.UnderCh. 15CPCprovisional access to such information is possible for30days following a court order. The procedure under the CPC is for the court to summon the partyholding the documents to an access hearing, togetherwith the applicant. It is permissible for thebanks,whensummonsed, tonotifythesuspectandforthesuspectand/orhisadviserstoattendaprovisionalaccesshearing,whichappearstodefeattheobject.Theevaluatorswereadvisedthatthemere fact of such applications beingmade can trigger tipping off as networks of persons offeringconversioncentreservicesaresaidtooperatethroughsomeofthecourtstaffadministeringtheseapplications.

228. It ispossibleunderArt.163(2)and(7)CPCforthecourtnottosummonthepersonholdingdocumentswherea“realthreat”existsoftheirdestruction.Whiletheauthoritiesweregenerallyoftheviewthatthiswasnotan insurmountablehurdle,someLEAsconsiderthatestablishinga“realthreat”issodifficultthattheyrarelyusetheseprovisions.Eveniftheseprovisionsareused(withoutthe intervention of any criminal networks), all court orders (including provisional access orders)wereatthetimeoftheonsitevisitsubjecttoimmediatepublication38.

229. In some of the case examples provided, where provisional access orderswere granted, thedocumentswerenotprovided in full by the entities or the entitiesdidnot complywith the courtorderatall.Theauthoritiesconsiderthenumberofrefusalsoftemporaryaccesstobedeminimis39thoughnofigureshavebeenprovidedwhichshowhowmanydeniedapplicationsweremadeafterinter partes hearings. A denial by the court of a provisional access order (or the provision ofincompleteinformationundersuchanorder)doesnotstoptheinvestigatorsapplyingforageneralhousesearchwarrantunderArt.166CPC.However,thisfurtherdelaysinvestigationsandincreasestherisksofvitaldocumentsbeingremovedordestroyed.

230. Theauthoritieshadnostatisticsonthenumbersofapplicationsforhousesearchesmadeasaresult of their inability to obtainprovisional access todocuments.However, someexamplesweregivenofsuchapplicationsbeingmadewhereprovisionalaccesshadbeendenied,orwhereordersonprovisional accesswerenot followed.Failure to execute court rulingsonprovisional access is the 38Thishassincebeenrectified.39Theauthoritiesprovidedaftertheonsitevisitofficialfiguresshowing4635petitionsforprovisionalaccessoutof855906applicationsweredeniedbetween2014andthefirsthalfof2017

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basisuponwhichdatawasenteredontotheRegisterofPre‐TrialInvestigationsunderArt.382CC(failuretoexecuteacourtdecision)in20ongoingpre‐trialinvestigations40.

231. The police also advised that they frequently use the FIU to provide them with necessaryfinancial intelligence,ratherthanusetheCPCprovisions. If theFIUisabletoassist, thepolicestillhavethechallengeofturningsuchmaterialintoadmissibleevidenceundertheCPC.

232. TheevaluatorsadvisethattheoperationaleffectivenessofCh.15CPC(andrelatedsanctioningforbreachesofcourtorders)shouldbereviewedatleastinthecontextofMLcases,giventherisksinvolved in these cases. The aim should be to remove requirements for parties holding relevantdocuments to attend interpartes hearings and thusbeing alerted topossibleproceedings. At theveryleast,theevaluatorsconsidersuchhearingsshouldbeexceptionalinML(andFT)investigationsand that Lawenforcement shouldmoreproactivelyuse inML (andFT) investigationsArt.163 (2)CPC,whichallowsforprovisionalaccesshearingswithoutsummonsingtheholderofthedocuments.This review of the effectiveness of these LE powers should also consider practical solutions tominimise tipping off in the investigative process and to ensure that non‐compliancewith relatedcourtorders,whenproved incriminalproceedings, isappropriatelysanctionedby thecourts (thesentenceintheconvictionreferredtoinfootnote42seemshardlydissuasive).

233. IfthecourtsultimatelyareresistanttoamoreproactiveuseoftheexparteprovisionsunderArt.163(2)CPCinML(andFT)cases,thentheauthoritiesshouldconsideraformallegalreviewofthispartoftheCPCandstatutoryrevisionsofCh.15CPC.

Consistency ofML investigations and prosecutionswith threats and risk profile, and national AMLpolicies

234. The evaluators consideredwhether ML investigations and prosecutions address two of thehighestrisksthatUkrainefaces,namelycorruptionandtheftofstateassetsbyseniorstateofficialsandfictitiousentrepreneurship/conversioncentres.

Seniorstateofficials,andpoliticallyexposedpersons

235. In2014,complexandsensitivepre‐trialinvestigationsinvolvingcorruption,misappropriation,embezzlement of state property, and abuse of power (withML as an ancillary offence in 4 cases)wereopenedbythePGOUandconductedbythatoffice,togetherwiththeFIU,inrespectofformerhighofficials fromthepreviousregime.Significantassetswererestrained in2014at theoutsetoftheseinvestigations.Itisallegedbyprosecutorsthattheformerheadofstate,togetherwithsomeofhismost senior associates, operated to commit especially grave crimes against state property forpersonalenrichment.SomeofthesepersonscurrentlywithinUkrainehaveadmittedtheircomplicityinsuchacriminalorganisationfollowingconsiderationbythecourts.

236. Someinformationwasprovidedaboutthestatusofthesedelicatecases.Itisunderstoodthatthefirstpersontobeconvictedinthiscontextwascitizen“C”intheObolonskyidistrictcourtofKyivon 22/12/2016 for offences under Art.255 CC (creation of a criminal organisation), Art.28 CC(participating in a criminal organisation operating on a particularly large scale) and Art.191 CC(misappropriation)butnotofML.

40 Of the 97 criminal proceedings since 2012 for Art.382 offences (failure to execute a court decision) theauthoritiesadvisedthat71wereclosedagainstthelegalpersononthebasisofabsenceofacrime.Indictmentsweresenttocourtin2cases(1resultedinanacquittaland1inaconviction,withafineof~EUR453).

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237. The authorities also advised the team after the onsite visit of one further important pleaagreementinvolvinganothermemberofthisorganisation.ThispleaagreementwasapprovedbytheKramatorskCityCourton28.3.2017,during theonsite visit.Theperson concernedwas convicted(during in camera proceedings) under Part 4 of Art. 28 CC (participating in a criminal groupoperatingonaparticularlylargescale),andofMLbythisgrouponaparticularlylargescaleunderArt. 209‐3CC. The evaluatorswere advised that the particulars of these offences are classified assecretandthatthecourtjudgmentisnotsubjecttopublication41.Theauthoritiesexplainedthatinview of this plea agreement the person concerned was sentenced to 5 years imprisonment, andreleasedonaprobationorderfor3yearsunderArt.69CC(impositionofapunishmentmilderthanprescribed by law). It is possible to apply Special Confiscation where there are court rulingsreleasingpersonsfromcriminalliability.Specialconfiscationwasappliedinthiscase42.

238. Todate these are theonly convictions arising from themajorpre‐trial investigationswhichbeganafterthefallofthepreviousregime.Investigationsremainongoinginthiscontextwithregardtootherpersons.

239. At the time of the onsite visit, NABU had made 2 current Ministers, 1 MP and the formerCommissioneroftheSFSsuspectsincriminalinvestigations,butnoindictmentshadbeenissuedatthattime.

240. TheSAPOhasalsobeenactivewithregardtocurrentPEPs.InFebruary2017thisofficegaveprocedural guidance to investigators in respect of a current UkrainianMP, R. It is said that R, in2013,withaviewtoappropriatingstatefunds,createdacriminalorganisationinvolvingofficialsofthestateenterprise"U".FromJanuary2013toJune2016,itisallegedthatthisgroupillegallytookpossessionof funds received from the sale of natural gas in the amountofUAH1,613,224,251.69(~EUR 52,886,443.57). This is estimated to have caused losses to the state of UAH 740,065,924(~EUR 24,261,632.99). It is alleged that an official of the state enterprise, acting on instructions,laundered the proceeds by transferring funds to accounts of fictitious enterprises. Subsequentlythese funds are said to have been converted into cash or transferred to accounts abroad43. Theindicted defendants appear to be missing. The MP and other members of the group have beendeclaredwantedinseparatecriminalproceedings.44

Officialsofstateenterprises

241. WhileML itselfdidnotappear tobewithin thesightsofNABU investigatorswithwhomtheteammetduringtheonsitevisit, the teamwassubsequentlyadvisedofapre‐trial investigation incriminal proceedings involving officials of a state‐owned enterprise and officers of privatecompaniesthatwasinitiatedon04.12.2015bydetectivesofNABU.ThisinvolvesarangeofoffencesincludingArt.255CC(participationinanorganisedcrimegroup),Art.209‐3CC(MLbyanorganisedgroup/inlargeamounts),Art.364CC(abuseofauthority)45.

41Thecourtjudgmenthassincebeenshowntotheevaluators.42 On 28 March 2017 a confiscation order was made in respect of funds and securities totalling UAH34,973,266,108.65equivalenttoEUR1.12billion.Thisorderwasenforcedon28April2017infavourofthestatebudgetofUkraine.43Followingtheresultsofthepre‐trialinvestigation,anindictmentincriminalproceedingsincludingArt.209‐3MLwassenttoSolomyanskydistrictcourtofKyivon30.05.2017. 44As of 13 June 2017, prosecutors of the Specialized Anti‐Corruption Prosecutor's Office are carrying outproceduralguidancein24criminalproceedingsforlaunderingunderArt.209.  45 Theindictmentinthiscasewassenttothecourton30.05.2017.

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242. TheSAPOalsopointedtoanothermajorcasewhichiscurrentlyawaitingtrial.ItisallegedthatV,whoistheultimateUBO/controllerofagroupofbusinesses(LLCSandLLCI),inconspiracywiththedirectorof thestateenterprise"U"(andothers)acquiredUAH20,272,524(~EUR664,595.57)belongingtothestateenterpriseasacorruptreward.It isallegedthattwoofthedefendants‐thefinancialdirectorofLLC"S"andthedirectorofLLC"I"illegallytookpossessionoffundsofthestateenterprise, following the instructions of V. The funds are alleged to have been laundered throughtransfers to the accounts of fictitious enterprises. The indictment, which includes counts ofmisappropriation, ML and tax evasion was sent to the Solomyansky District Court of Kyiv on30.03.2017.Viswantedalsoinothercriminalproceedings.

243. AsecondcasewashighlightedinvolvingA,anactingheadofastateenterpriseoftheMinistryofDefence.HewasprosecutedforArt.209(1)CC(ML),Art.364CC(abuseofposition),andArt.367(2)CC(negligenceinoffice)andconvicted.AreceivedfundsinhisofficialcapacityfromaBuildingFinanceFundZinforeigncurrency,intheamountofUAH1,113,433.41(~EUR38,572.19)tobuildhouses.The fundswerenotusedbyA for the intendedpurpose.Witha view to legalising inpartsomeof the fundshehadappropriated,A, inhisprivatecapacity, tookoutan interest fee loan forUAH 230 000 (~EUR 7,540.11) with a view to repaying it with the appropriated funds. He wassentencedto5years,withdeprivationoftherighttoholdofficialpositionsfor3yearsandorderedto pay compensation to the Ministry. Art. 75 CC was also applied and he was released under aprobationorderof3years.Thetablebeneathindicatesthat3headsofstatecompanieshavebeenconvicted.

244. Between2010and2016theauthoritiesalsopointedtoMLinvestigationsandconvictionsinrespect of middle ranking officials of state companies and their subordinates. The ML charges,however,donotappeartohaveaddedmuchtotheoverallsentences.

Example1

245. The Krasnolutsky City Court of Lugansk Region considered a case in 2013 involving theformationofacriminalgroupbythechiefofastationassemblyanddismantlingworks(personA),his assistant (personB) and aminingworker (personC) to appropriate fundsof the companybyfalsifyingtimerecordsforpersonalgain.PersonAwasconvictedofmisappropriation,falsificationofdocumentsandML.MisappropriatedfundstotalledUAH335,488.11(~EUR109,983.53).PersonAadmitted his guilt and was sentenced to 5 years for misappropriation and 3 years for ML withdeprivationoftherighttoholdamanagementpositionfor1yearandafine.Thetotalsentencewas5years.AccordingtoArt.75CCpersonAwasreleasedonprobationunderArt.75CC.TheotherswerenotchargedwithML

Example2

246. ThisinvolvedadirectorofaStateEnterprisewhowasprosecutedforabuseofauthorityandML. Knowing that the State Executive Service had placed an arrest on all current accounts of thecompany(torepaycreditors)theDirectoropenedaccountsintowhichmoneyfromtheStatebudgetwas channelled forhispersonal enrichment.He legalisedproceeds totallingUAH254,810 (~EUR8,353.45).HewasconvictedinJuly2010ofabuseofauthorityandsentencedto3years6monthsforthatoffence,andconvictedandsentencedto2years5monthsunderArt.382CC(failuretocomplywithajudgment).ForMLhewasconvictedandsentencedto3yearsimprisonmentwithdeprivation

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of the right to hold management positions in State enterprises for 1 year 8 months (with noconfiscationofproperty).Thetotalsentencewas3years6months.

Judges,prosecutorsandLEA

247. No convictions have been achieved for ML in respect of judges and prosecutors, wherecorruptionperceptionlevelsarereportedintheNRAtobehigh.Howeverthereareseveralpre‐trialinvestigationsongoing.As of January21, 2017,NABUwas conducting investigations regarding23such persons. Some examples have been provided of pre‐trial investigations in this risk categorywhichpredateNABU, andwhich also remain ongoing. In 2015, thePGOU commenced a pre‐trialinvestigation of a judge and associates forArt. 368‐2 (Illegal enrichment) andArt. 209 (ML). ThePGOUalsobegancriminalproceedingsin2016inrespectofpersonsintheRivneregion,including5employees of law enforcement, and representatives of state authorities. They are alleged to havecommittedgravecrimesrelatedtoillegalminingofmineralsofstateimportance(amber).Relevantoffences under investigation includeArt.255 (criminal organisation), Art.368 (bribery), Art. 426‐1(excessofpower),Art.191 (misappropriation), andArt.209CC (ML).ThePGO isalso conductingpre‐trialinvestigationswithregardto2employeesoftheprosecutor’sofficeunderArt.368oftheCC(obtainingabribe)andillegalprofit.ThenamedofficialsaresuspectedofdemandingandobtainingbribesintheamountofUSD200thousand.

Corruptioninlocalgovernment248. Officialcorruptioninlocalgovernmentsectors(involvingmisappropriation,embezzlementortakingpublic funds throughabuseofpower, forgeryofofficialdocuments,and illegalenrichment)are prevalent. Numerous investigations, which led to ML charges, have been brought involvingmayorsandotherlocalofficialsinrespectoftheirdealingswiththeprivatesector.Atypicalexampleofthisisdescribedbeneath.

Example3249. ThisrelatestoaconvictionintheMelitopolCityCourtofZaporizkain2015.Insummary,theMayor,DeputyMayor and aHead of Sector of theCity Council (deemed for these purposes as anorganised group) abused their powers and extorted and laundered UAH 858,515.4 (~EUR28,144.77).TheywereallindictedunderArt.2093ML(byorganisedgrouporinlargeamounts).Inoperative sentences, the Deputy Mayor received 6 years for abuse of authority, and with theapplicationofArt.69CC,5.5yearsforML–withafinaldefinedsentenceof6years,withconfiscationof fundsandotherproceedsandconfiscationofpropertyanda fineofUAH8500(~EUR278.66).TheMayorreceived5yearsforabuseofauthorityand5.5yearsforMLwithafinaldefinedsentenceof5.5yearswithconfiscationoffundsandotherproceedsandconfiscationofallproperty.TheHeadof Sector received8yearson theabuseof authority and8.5 yearson theMLwitha finaldefinedsentenceof8.5years,withconfiscationoffundsandotherproceedsandconfiscationofpropertyandafineofUAH13,600(~EUR445.85).

250. Whileitisappreciatedthatconvictionsandsignificantdissuasivesentenceswereobtainedinthiscase,includingunderArt.209,itisillustrativeofothersalreadynotedwhereMLisjoinedwithotherseriousoffences.Thatistosaymuchthesameoutcomewouldhavebeenachieved,evenintheabsence of a ML charge. Where a slightly longer sentence was given for ML here, it was a verymarginaladditionof6months.

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Fictitiousentrepreneurships

251. TheevaluatorssoughttoestablishhowaggressivelyMLchargeswerebeingpursuedinrespectof themajorAML risks arising from the creation of fictitious enterprises/conversion centres. Thefirstcasehighlightedinthiscontextwasinitiatedin2006andwasnothearduntil2013.Themaindefendantswere2officialsoflawfulbusinessesintheLvivregionwhoformedacriminalassociationwith4otherstoobtainfromthestatebudgetillegalrefundsofVAT.Theypurchasedandregisteredanumberofseparatebusinessentities, throughwhich theyrannon‐existent transactions, forwhichtheyclaimedandreceivedVATrefunds fromtheStateofUAH15,539,841.18(~EUR538,350.327)between2002and2005.6personswerefoundguiltyofoffencesunderArt.2093CC(launderinginespecially large amounts), embezzlement and fictitious entrepreneurship. Operative sentencesrangingfrom3‐7yearswerepassed.Thoughconfiscationwasnotapplied,thesumsinvolvedwerefullycompensatedthroughacivillawsuit.

252. Theevaluatorswerealsoadvisedofa2014caseintheMelitopolDistrictCourtin2014,where2peoplewereconvictedofMLand taxevasion through fictitiouscompanies that theysetup, andthroughwhichtheylegalisedUAH2.3million(~EUR75401).ThefinaloperativepenaltiesforMLweresignificantones–higher than thepenalties imposed for taxevasion.ForML theyreceived7and7.5 years respectivelywithproperty confiscation and finesofUAH255000 (~EUR8,359.68)each,anddeprivationoftherighttoholdleadingpositionsinenterprisesfor3years.

253. A further case involving a lawyer who created fictitious enterprises to launder proceeds isdiscussedbeneathinthecontextofsentencing.

254. Oneongoingcaseinvolvingthecreationofafraudulententerpriseforthepurposesofassistingtaxevasionbeganasapre‐trialinvestigation,withArt.205CC(forgery)astheinitialsubjectoftheenquiry. The investigation established that a group of 3 persons created enterprises to provide“conversioncentre”servicestoconcealunlawfulactivities.ThreepersonsarenowbeingprosecutedforMLandotheroffences.PropertytoatotalvalueofUAH100million(~EUR3.28million)hasbeenarrested.Thecaseisbeingreviewedbythecourt.

255. Theevaluatorswelcomethesedevelopments.Buttheyareonly4casessince2006respondingtothismajorAMLrisk,accountingfor22%ofpredicatecrime.TheauthoritiesarestronglyurgedtocontinuetoprosecuterobustlyunderArt.209theformationoftheseenterprisesforthelaunderingofproceeds,tochallengeinappropriatelylenientsentencesthatmaybeissuedforMLinthesetypesof cases, and also to seek the radical amendment of Art. 205 CC, so it too is sanctionable withproportionateanddissuasivepenaltiesofimprisonment.

TypesofMLcasespursued

ConvictionsforML256. As noted, indictments and convictions for ML have been declining, though the authoritiesattachsomeresponsibilityforthistochangesintheCPCanddelaysinreceiptofinternationalMLA.ThestatisticsreferredtointhepublishedversionoftheNRAshowthatindictmentsreviewedwithaverdictwere150for2013,91for2014,and45for2015.ThefollowingnaturalpersonsshownintheNRAasconvictedforML,131for2013,73for2014and40for2015(244personsintotal).

257. Thetablebeneathwasprovidedaftertheon‐sitevisit.Itshowsthetypesofcasesandpersonsproceededagainstwheretherewereconvictions.Someof thestatisticsaresomewhat inconsistent

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with those in theNRA andother information received. But the table is illustrative of the types ofcasespursued.Therewere524convictionsfortheperiod2010‐2016.FortheyearscoveredbytheNRA(2013‐2015)itshows166convictionsunderArt.209(78lessthanappearsintheNRA).

Table7:DifferenttypesofMLconvictions

Art.209(1)

Art.209(2)

Art.209(3)

Self‐laundering

3rdPartyM

L

AutonomousM

L

MLw

ithapredicateforeignoffence

Formerorcurrenthigh‐levelofficial

Convictedpersonisoligarch

Headofstatecom

pany

Headofothercom

pany

Convictedpersonisajudge

Convictedpersonisaprosecutor

Other

2010 50 17 5 71 1 1 34 37

2011 57 41 10 108 37 71

2012 72 38 48 157 1 71 87

2013 41 20 3 58 6 24 40

2014 30 18 11 57 1 1 1 19 39

2015 25 6 12 43 1 9 33

2016 15 4 1 19 1 6 14

Total 290 144 90 513 9 1 1 0 0 3 200 0 0 321

258. TheauthoritiessubsequentlyconfirmedthatthemostaccuratefiguresarethosethatappearintheNRA,andtheyprovideda further tablesetoutbeneath,basedon informationrecordedbytheStateJudicialAdministration.ThesefiguresalsodifferslightlyfromthosepublishedintheNRA.

Table8:MLconvictions

№

Indicator(accordingtocourt

decisionswhichenteredandnotenteredinto

force)

Year

2013 2014 2015 2016Total

2013‐2016ArticlesoftheCC

209

209‐1

209

209‐1

209

209‐1

209

209‐1

209

209‐1

1

Numberofcriminalproceedings(cases)underwhichthe

sentenceswereimposed)

148 2 90 1 45 0 27 0 310 3

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2

Numberofpersonssentencedfor

commissionofthementionedcriminal

offences

130 1 72 1 40 0 19 0 261 2

3 Acquitted persons forcommissionMLcrimes 97 2 48 0 35 0 19 0 199 2

4 IncludingsentenceundertheotherArticleoftheCC 91 2 35 0 26 0 6 0 158 0

5

Amount of the legalisedproceeds (money,property) from crime isdetermined according tothecourtdecision(UAH)

200,487,591(~EUR6,572,598,73)

0

35,507,110(~EUR

1,164,032.07)

03,148,164(~EUR

103,602.48)0

34,212,293(~EUR

1,121,584)0

273,355,158(~EUR8,961,421.2

8)

0

6

Numberofpersonsregardingwhoma

decisiononconfiscationofmoneyandproperty

wastaken

75 0 29 0

10 0 4 0 118 0

259. Theoneareawhereall the statistics agree is that convictions forMLhave steadilydeclinedfrom2013onwards.While the limitationsonstartingMLenquiriesand theperceivedneed foranestablished predicate offence inhibit ML prosecutions and convictions, part of the decliningconvictionrateseemsalsoattributabletoacquittals.

260. TheNRAnotesthatfrom2013to2015,ofthe286MLcriminalcasesreviewedwithaverdict,therewere,182acquittalsforML.Thisindicatesanapproximateacquittalrateof43%inthoseyears(whichisthesame%ofacquittalsasinthetableabovefor2013‐2016).Theevaluatorsdiscussedtheacquittalratewithprosecutors.Itwasnotdisputed.Itwasexplainedthattherewereconvictionsforotheroffences in theCC in respectof154/158personsacquittedofML.Theevaluatorswere toldthatsomejudges,particularlyinsmallercourts,werepoorlyinformedaboutMLcases,preferringtoconvict defendants for other offences rather than consider the ML aspects, and complex issuesaroundfictitiouscompanies.Moreover,asnoted,itwasunderstoodthatmostjudgesstillfollowthePlenumoftheSupremeCourtRes.No.5,eventhoughthedomestic lawonwhichitwasbasedhaschanged, and Ukraine has since acceptedwider obligations inML following its ratification of theWarsawConvention.

261. An Appellate judge indicated that prosecutors should have appealed more of the decisionsmade following thisResolution if theywere considered tobe inconsistentwith current legislationandUkraine’s internationalobligations.This isaviewwithwhichtheevaluatorsconcur.However,informationsubsequentlygatheredfrom379verdictsintheUnifiedStateRegisterofCourtDecisionsfrom 2010‐2016 found only 9 references to the interpretative Supreme Court Resolution. Thisinformation and the ML acquittal rates published in the NRA prima facie lead the evaluators toconcludethatatleastsomeoftheMLcasesprosecutedfrom2013‐2015maynothavebeenstrongevidentiallyorwerepoorlyinvestigated/presented.

262. The evaluators consider that a national system of specialisation of prosecutors in ML (andcomplex financial cases) should improve conviction rates. Prosecutors at senior levels in each

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Prosecution Area, properly trained in AML prosecution (and the provisions of the WarsawConvention),couldactaslocalreferencepointsor“champions”fortheircolleaguesonthesecases.Where there are grounds for believingML caseswerewrongly decided, appeals should be takenforward.SuchareachampionscouldalsobetaskedwithreviewingallMLacquittalsintheirareastoestablishwhatlessons,ifany,needtobelearnedfortheinvestigationprocessinfutureinMLcasesifthere are no grounds for appeal. Resulting guidance needs to be fed back to other prosecutorsinvolvedinMLcasesbothlocallyandfeduptothePGHeadquartersforwiderpromulgationtoMLspecialistsinallProsecutionareasandtoinvestigators.

263. EveryoneseemedtoacceptthattheSupremeCourtResolutionneedsupdatingiftheresultsofML investigations are to be properly considered by the courts. It should be revised as soon aspossibleafterthenewSupremeCourtisinplace.ItwouldbehelpfulifthePGandseniorcolleagueshadsomeengagementattheirlevelswiththenewSupremeCourt,particularlyontheimplicationsofUkraine’sratificationof theWarsawConventionforevidential issuesinautonomousandotherMLcases,beforeanewResolutionispromulgated.

264. Asalreadynoted,intheevaluators’viewaclearerlegislativeamendmentstotheCC/CPCarerequiredtoclarifybeyonddoubtthataconvictionforapredicateoffenderisnotaprerequisiteforaconviction in court forML. In themeantime, the PG and his staff should be proactive in bringingcasestotheappealcourtstoestablishclearlythattheexistenceofunderlyingpredicatecriminalityinMLcasescanbeestablishedbyfactsandcircumstances,withoutconvictions.

265. While theevaluatorsconsider that responsibility for thehighacquittal rate inMLcannotbeplacedsimplyon the judiciary, interlocutors froma rangeofbodies referred to theperceived lowprofessional quality of some Ukrainian judges. After the new Supreme Court Resolution ispromulgated a programme of basic judicial training on ML cases should also be pursued for alljudgessotheyareallcomfortablewithhandlingstraightforwardMLcases.

266. However,ifmeaningfulresultsaretobeachievedincomplexMLcasesinUkraine,aswiththeprosecutors, more specialisation of judges should be actively considered. It may assist if a smallgroup of specialist judgeswith the skill‐sets to handle complex financial crime andML cases aretrained to handle themost complexML cases (including those involving the creation of fictitiousenterprisesinUkraineand/ortheuseofforeigncorporatevehicles,shellcompaniesandtrusts).

267. ThelinksbetweenhighlevelcorruptionandMLareclearlyunderstoodinUkraineandtheselinkages need to be followed through in prosecutions. In the evaluators’ view, if Special anti‐corruptionCourtsaresetupinUkrainetodealwithcorruptioncasesinvolvinghighlevelofficials(aswasadvocatedbysomeinterlocutorsonsite),thesamespecialisedjudgesshouldbesimilarlytrainedincomplexML‐sotheycan,withintheanti‐corruptioncourts,alsohandlemajorMLcasesinvolvingtheassociates/professionaladvisersofthehighofficialswhoareprosecutedforcorruption.

Typesofcases

268. Several types of cases pursued have been discussed above in the context of national risks.Clearly addressing the highest risks in the national ML risk profile should be a priority in MLinvestigations.Howevertherisinglevelofotherproceeds‐generatingcrime(humantraffickingetc.)and the falling numbers of ML cases brought, indicates that priority also needs to be given topursuingMLinvestigationsandprosecutionsinallmajorproceeds‐generatingcases,aswellasthoseinvolvingtheftofstateassets/highlevelcorruption.

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269. Thelargemajorityofcasesbroughtareownproceedslaundering.Eachofthe11othercasesset out inTable7 as3rd partyML, autonomousML, and launderingwith a foreignpredicatehavebeenconsideredby theevaluators.ExamplesweregivenofML investigations in foreignpredicateoffenceswerealsoprovided.

270. The one so‐called autonomous conviction arises out of a plea agreement between theprosecutorand thedefendant.Fromthecommentaryprovided thepersonwhowas thesubjectoftheplea agreementhadpreviouslybeen convictedof fraud, sentenced to3years and releasedonprobationunderArt.75CC.Duringhistrialforfrauditwasestablishedhehadsetupafraudulententerprisetoprovidelongtermloans,receivingadvancepayments,whichhedidnotintendtorepay.Oneof theseadvancepayments fromxofUAH4000(~EUR130)wastransferred intohisaccountandmarkedasexpenditureonofficeequipmentandrent toconceal theallegedcriminalnatureoftheir receipt.He subsequently accepted a plea agreement underArt. 209‐1 forML andwas againsentencedto3yearsandreleasedonprobationunderArt.75CC.Quitewhatthisprosecutionwasintendedtoachieveisunclear.ItsprecedentvalueforautonomousMLisdubiousashehadalreadybeenconvictedoffraud.Ifitisintendedtobeaprecedentbecausetheprosecutionwasrelievedonthatdayofestablishingtheunderlyingpredicatecrime,whenacceptinghispleatoML,itmaybeofsomevalue.ButitdoesnotaddresstherealprobleminUkraine–whichisestablishingunderlyingpredicatecriminalityinanautonomousMLcasewherethedefendantdoesnotpleadguilty.

271. As also noted, in 2011Ukraine ratified theWarsawConvention. This instrument contains amandatoryprovision(Art.9[5])requiringStates toensurethatapriororsimultaneousconvictionfor the predicate offence is not a prerequisite for a conviction forML. The courts appeared to beunawareofthisinternationalobligation.ItisclearthatProsecutorshavenotbeeninstructedbythePGorhisseniorstaffonhowtoapproachMLcasesfollowingtheirinternationalcommitmentsunderArt.9(5)oftheConvention.

Effectiveness,proportionalityanddissuasivenessofsanctions

272. The sanctions for Art. 209 have the potential to be dissuasive for both natural and legalpersons46.TheNRAplacesinconsistency/(lackof)severityofMLpunishmentasahighrisk.

273. There are isolated examples of potentially dissuasiveML sentences against natural personsunderArt. 209 (2) and (3), though they all appear tobeaccompaniedbya conviction for a graveoffence forwhich thesentencewasashigh,orhigher.OneexperiencedLEofficernoted thatevenwhere3rdpartyMLisonthesameindictmentasthepredicateoffence,thepenaltiesforMLarelowerthanforthepredicatecrime.

274. The evaluators asked if ML sentences were ever made consecutive to sentences for otheroffences for which the defendant is convicted. The normal practice is that the lesser sentence issubsumedwiththegreater.Thegreatersentenceisusuallygivenforthepredicateoffence.TheSFSadvised of one case where a defendant was prosecuted for ML after his conviction for fraud. Asentence of 7 yearswas given on the fraud. In the subsequentML case the defendant received 8years‐inpractice,anextrayearforML.

275. Where a sentence imposed involves restraint of liberty or imprisonment not exceeding 5years, the courtmay, underArt. 75 CC discharge the convicted person from serving the sentenceimposedandsubstitutefortheprisontermaprobationorderfor1‐3years. 46AstherearenoMLcasesagainstlegalpersonsnocommentcanbemadeondissuasivenessofsanctions.

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276. In the majority of cases brought under Art. 209 (1) CC (including some involving seniorofficials) theprovisionsofArt.75CCwereapplied.Theauthoritiesadvised that from2010 to thefirstquarterof2016152personswereconvictedunderArt.209(1)where the judgesettledonasentenceof5years(i.e.belowthestatutorymaximumof6years),thusbringingthecasewithinArt.75. Probation orders followed so these 152 convicted persons served no prison sentences. 110individualsinthesameperiodreceivedeffectivesentencesof5yearsorless.

277. ItmaybethattheuseofArt.75foroffenceswhichcarryupto5yearsisnogreaterinMLcasesthan in any others. Butwhatwas rather concerning from the judgments read onArt. 209 (1)MLoffences was the degree of automaticity of the imposition of probation orders, with scantinformation as to why the judge considered that in the particular case he should exercise thisdiscretion.

278. The wide use of Art. 75 for Art. 209 (1) ML offences is not dissuasive to potential moneylaunderers. Arguably it offers opportunities for attempted (or actual) judicial corruption. Noinformationwasavailableastowhetherany judgehadbeenaccusedofcorruption inthiscontext.Some interlocutors noted that the higher the official facing prosecution, the lighter is the finalsentence.ManysharedourconcernsaboutthepotentialofArt.75forjudicialcorruption.

279. Art.69CCallowsforimpositionofapunishmentmilderthanprescribedbylaw.Itcanbeusedin aggravated ML. In one case a lawyer who had created sham businesses for laundering wasprosecutedforMLunderArt.209(2)[MLcommittedrepeatedlyorinlargeamounts,whichcarries7‐12years].TheteamwassurprisedthatthejudgeappliedArt.69CCandreducedthesentencetoonewhich is normally given under Art. 209 (1) (5 years), and thereafter appliedArt. 75 CC. Theresultwasaprobationorderfor3years,plusdeprivationofoccupationalfunctionsfor3yearsandconfiscation.While the lawyermay have been in custody earlier in the case, it is still difficult tounderstandhowthefinaldisposalwasproportionateanddissuasive,giventhatthecreationofshamcompaniesisanationalAMLrisk.

280. Anappealbytheprosecutoragainstinappropriatedecisionsundertheseprovisionsispossibleandhadbeenused(thoughitwasunclearwhetherthiscasetriggeredsuchanappeal).Nostatisticswereprovidedontheseappeals.

281. The evaluators advise that it may increase public confidence if an independent review isconductedontheoperationofArt.69oftheCC,andArt.75oftheCCinseriouscases,includingML(andFT). Itspurposewouldbe: toascertainwhethersufficientreasoning isgivento justifymilderdisposals; and to establish whether the provisions of Art. 69 and Art. 75 may be overused ormisused. Depending on its findings, legislative modifications may be required. At least clearerguidanceshouldbegiventojudgeshandlingsensitivecasesinvolvingmajornationalAMLrisks.

Extenttowhichothercriminaljusticemeasuresareappliedwhereconvictionisnotpossible

282. GiventhecontinuingneedforaconvictionforthepredicateoffenceforMLcourtproceedingsmanyoffencesofMLwillbeimpossibletoprosecute.WheresuchlaunderingcasesinvolvetheuseofshambusinessesArt.205CCmaybeused.

283. Art.205isnotanappropriatealternativemeasure,asitisanadministrativeoffenceandfinesunder it are not dissuasive. When it is used in its aggravated form at least freezing and SpecialConfiscationcanapply.TherecentreformstoConfiscationaredesignedinparttoaddressRisk7in

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the NRA – inconsistency of appropriate punishment for ML. As noted below, the use of SpecialConfiscationisonlyjustdeveloping.

284. Theevaluatorswerealsoadvisedthatopeningpre‐trial investigationsagainst3rdpersonsasaccomplices to the predicate offence could sometimes cover laundering activity. Where this ispossible, thisactivitywouldbetriedwiththepredicateoffence.Theevaluatorswerenotprovidedwith figures showinghowregularly thisapproach isusedorwhatsentenceswere imposedon3rdpartieswhoaidandabetthepredicateoffence(viaML).

Conclusions

285. Before 2014, ML prosecutions rarely confronted Ukraine’s highest AML risks (top levelcorruptionandtheftofstateassets).Prosecutionsgenerally involved localofficials/mayors,whereML was added to indictments containing other counts (which attracted higher penalties). SinceMarch2014,activestepsarebeingtaken(primarilytoconfiscateassetsstolenbyseniorofficialsoftheformerregime)throughcomplexpre‐trialinvestigationsformisappropriationandlaunderingofstateassets.Theyappeartohaveresultedsofarin2courtconvictions,thoughonly1oftheseisforML, albeit invery significantamounts.Atone level it ishard to seehowa5year sentencewithareleaseonaprobationorder for3yearscanbe seenasaneffective,proportionateanddissuasiveoutcometoaddressoneofthehighestnationalMLrisks.

286. It iswelcome that the SAPO is now taking action against current senior politically exposedpersonsforcorruption(andtosomeextentML). HeshouldroutinelyalsofocusontheMLaspectsalongsidecorruptionoffences.Moreresourcesareneededforfinancialinvestigationinhisofficeandinlawenforcementgenerally.ItisequallyimportantforthePGOUaggressivelytoprosecuteMLbythosewhocreatefictitiouscompanies.

287. Theperceivedoperationalneed toestablish that therehasbeenaconviction forapredicateoffencebeforeaMLcasecanbebroughttocourt isamajorobstacletooveralleffectivenessofMLcriminalisation.Itrequiresalegislativesolution.MostofthegeneralMLconvictionsareeitherself‐laundering or 3rd party laundering, where the 3rd parties are charged in the same proceedings,avoiding the necessity of establishing predicate criminality independently. It is necessary tochallengethecourtswith(contested)autonomousMLcaseswhereunderlyingpredicatecrimehastobeestablishedbyindependentfactsandcircumstances.UntilthatispossibleMLcriminalisationwillnotbereallyeffective.ThesentencesinmanyMLcases,particularlyunderA.209‐1,areunlikelytodissuadepotentialcriminalsfromML.Indeedsomemayactuallyreinforceapublicperceptionthatthehigherthedefendant,themorelenientisthesentence.

288. OveralltheresultsachievedinMLprosecutionsbytheendoftheonsitevisitdidnotindicatethatMLwasbeingusedsystematicallyasaneffectivecriminaljusticetooltoaddressthesignificantML risks towhichUkraine is exposed, thoughmore caseswere in the pipeline. The low level ofparallel financial investigations, the low number of ML investigations, the low level of MLprosecutionsthatalignwiththehighestnationalrisks,thedeclininglevelofMLindictmentsandthefactthatMLsentencesarealmostalwayslessthanforpredicateoffences(andarenotdissuasiveinthemselves)indicatethatfundamentalimprovementsareneededintermsofeffectiveness.UkrainehasachievedalowlevelofeffectivenessforIO7.

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ImmediateOutcome8(Confiscation)

Confiscationofproceeds,instrumentalitiesandpropertyofequivalentvalueasapolicyobjective289. Since the last evaluation in 2009 Ukraine has updated and improved its legislative base toensure freezing, seizing and confiscation of property which represents the direct and indirectproceedsof crimeand,where this is notpossible, propertyof corresponding value.The amendedconfiscationlegislation,inforcesince2015,nowalsoextendsthereachofconfiscationtoproceedsinthehandsof3rdparties.Allthesenewdevelopmentsfallunderthebroadterm“specialconfiscation”.Thepre‐existingsanctionofconfiscationasanadditionalpunishmentremainsonthestatutebookfor most grave proceeds‐generating crimes in the CC. Thus, when the authorities speak ofconfiscationresultsbefore2015,theyusuallymeanconfiscationasanadditionalpenalty,asopposedtotheactualproceedsofthegivenoffences.

FinancialInvestigationstotraceproceeds

290. ItwasacceptedbytheauthoritiesthatbeforetheeventsofEuromaidanin2014theamountofconfiscationsachieveddidnotreflectthenumberandcostofpredicateoffences.Withthenewlegaltools and, in the post 2014 environment, the authorities consider that they are slowly improvingtheir effectiveness in this area. They advised that the policy objective to pursue confiscation ofproceeds through financial investigation is now reflected in A 170 of the revised CPC, whichmandatestheinvestigatorandtheprosecutortotaketherequiredactionstoidentifyandfindassetsthatmaybearrestedincriminalproceedingsbyrequestinginformationfromavarietyofsources.

291. Theexecutionof thispolicyobjective is largely in thehandsof theprosecutors,asLEAsareobliged to come to them to open a financial investigation. The prosecutors pointed to their 2012MethodologicalRecommendationsinthiscontext.AspreviouslyindicatedunderIO7,thisguidancedocument, while useful for supervision of the types of cases they cover, does not constitutemandatorypolicyinstructionstoprosecutorstodirectthepolicetoconductfinancialinvestigationsin all major proceeds‐generating crimes. It does not directly stipulate as policy objectives theconfiscationofproceeds, instrumentalitiesandpropertyof equivalentvalue.Neitherdoes it reallyexplain the issues that law enforcement need to consider in following what has happened toproceeds. It does not appear to explain the practical differences between direct and indirectproceeds or what may constitute instrumentalities liable to confiscation in proceeds‐generatingoffences.

292. ThePGOUneedstoensurethatallsupervisingprosecutors inproceeds‐generatingcasesaretrained in modern financial investigative techniques and are capable of directing investigatingofficersinfinancialinvestigationswherenecessary.AsnotedunderIO7,shortandclearmandatoryinstructions for prosecutors on when and how to direct law enforcement authorities to pursuefinancialinvestigationsinmajorproceeds‐generatingcasesneeddeveloping.

293. Aswasalsonotedunder IO7, inpractice thoroughparallel financial investigations inmajorproceeds‐generating cases are few and far between, though considerable efforts aremade in thisregard in the biggest cases ‐ through ad hoc involvement of other economic crime officers orgovernmentaccountants.Art.170(2)CPC,since2015,mandateseveryofficerinvestigatingcrimestoidentify and find assets. However, the huge workload in investigating the predicate offencesthemselves means that financial investigations cannot be done effectively by each investigatingofficerinallmajorproceeds‐generatingcases.

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294. The evaluators consider that financial investigations into the sources of alleged proceedsshouldbe routinelyundertaken inproceeds‐generating cases,using trained financial investigatorsworkinginparallelwiththeinvestigatorsofthepredicateoffences.Theevaluatorsalsoconsiderthatfinancialinvestigationsshouldnotsimplybereservedforthebiggestcases.AsnotedunderIO7,itisrecommend that a pool (or pools) of financial investigators (fully trained in modern financialinvestigative techniques) should be available as resources to theNP and other LE bodies (and toprosecutors) ‐ from which expert financial investigative assistance can be formally assigned toinvestigative units to follow up the financial aspects in major proceeds‐generating crimes. Thisrecommendationisre‐iteratedinthecontextoftracingproceedsforIO8.

295. Asnoted,financialinvestigationsarefocusedonthebiggestcasesandareachievingsomesignificantrestraints.NABU,forinstance,hasitsowndiscretepowerstoobtain(underArt.269‐1oftheCPC)ordersforsurveillanceofaccounts(accountmonitoring).Thisplaces it inastrongpositionto identifypotentialproceedsaswellastoidentifylaunderingactivities,ifithassufficientresourcesforfinancialinvestigation.Ithadinsufficientresourcesforthisatthetimeoftheonsitevisit.Asnotedearlier,NABUinvestigatorshadnotreallyfocusedonMLatthetimeofthevisit,sotheirdiscretepowerstoapplyforthemonitoringofaccountsforMLinvestigationsappearednottohavebeenused.Itwasunclearwhethertheyhadbeenusedtotraceassetsincorruptioninvestigationswithaviewtoconfiscation.NABUshouldutilisethesepowersregularlyforeffectiveassettracinginitscases.

296. Theproblemstowhichsomelawenforcementofficersdrewtheevaluators’attention(inlesshigh profile cases than those involving NABU) regarding timely provisional access to financialinformation under Art. 163‐166 CPC (outlined under IO 7) have the potential to compromisefinancialinvestigationsintoallegedproceedsorinstrumentalitiesinpredicateoffences,andfinancialinvestigations into proceeds/laundered property in ML cases. Law enforcement concerns on thisissue should be addressed in the review of Ch. 15 CPC recommended above, to ensure parallelfinancialinvestigationstoidentifyproceedsareabletobeconductedeffectivelywithminimalriskofcompromise.

297. To further assist with financial investigations to trace proceeds the UAs should considerfurtherdevelopingtheregisterofbeneficialownership,asrecommendedunderIO5.

Instrumentalities

298. In the absence of a clear policy instructions on the confiscation of instrumentalities, theauthorities provided some anecdotal case examples to demonstrate that instrumentalities can besubject to confiscation. These examples arise out of the pre‐trial investigations into high levelofficialsoftheformerregime,whowereallegedtobepartofanoverallconspiracytomisappropriatestate assets. Convictionswere achieved against 3 persons in different cases in the secondhalf of2016foroffences(from2012and2013)whichinvolvedmisappropriation,forgery,andparticipationin an OC group. The modus operandi in each case was the appropriation of state funds andmovementofthemintoaccountsoffictitiouscompanies,asVATrefunds(theywerenotlawfulVATrefunds). In2of the cases the sentences includedorders to repay the sums involved,whichweredescribedas“compensationtothestate”ofUAH130million(~EUR4.26million),andUAH500,000(~EUR16,391.53)respectively.

299. Though these orders were badged as compensation, arguably these sums wereinstrumentalitiesoftheoffences.HadMLbeencharged(whichitwasnot)thefundscouldhavealsoconstituted laundered property. In any event, however described, the effect of the orderswas todeprive the defendants of the funds and return them to the state.Other than these ratherunique

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cases involving former high level officials, no further examples have been presented involvingconfiscation of instrumentalities. It therefore remains debatable whether confiscation ofinstrumentalities in cases involving proceeds‐generating cases is really embedded in the criminaljusticeprocessasyet.Thereforetheproposedmandatoryinstructionstoprosecutorsshouldincludeexplanationsofwhatcanbecoveredforconfiscationpurposesbytheterm“instrumentalities”.

Valueordersandordersagainst3rdparties

300. The authorities have not provided any figures or anecdotal examples of value orderconfiscations, so it is unclear whether prosecutors are applying for such orders, where proceedshavebeendissipated,orwhetheranyvalueordershavebeenmade.Likewise,theteamhasnotbeenadvisedofanyconfiscationordersinrespectof3rdpartiestowhomproceedshavebeentransferred.Statisticalinformationgoingforwardneedstobeavailableonthenumbersofsuchapplicationsandordersforaproperunderstandingbytheauthoritiesoftheirownperformanceinconfiscation.

Confiscationsofproceedsfromforeignanddomesticpredicates,andproceedslocatedabroad

301. There are no reliable figures in relation to overall economic loss from crime year on year.Giventhis,itisdifficulttomakeaninformedjudgmentastohoweffectivethecompetentauthoritiesare in confiscating proceeds of crime in the generality of criminal prosecutions for proceeds‐generating crimes. As noted beneath, there are encouraging signs since 2014 of a workingprovisional measures regime, particularly in high profile cases involving senior officials of theformerregime,andalsonowinrelationtohighprofilesuspectswhoarecurrentpoliticallyexposedpersons.Inparticular,on28March2017onehighofficialoftheformerregimewasconvictedforMLand participation in a criminal group funds and securities totalling UAH 34,973,266,108.65(equivalenttoEUR1.12billion)wereconfiscatedunderacourtverdict47.

MLcases

302. TheauthoritiesprovidedsomeindicativefiguresonnumbersofconfiscationordersandtotalamountsofconfiscatedassetsinMLcasesfortheyearsunderreview.Theyaresetoutbelow.Thesefiguresareunlikelytoincludemanyspecialconfiscationordersastheseonlycameintoforceattheend of the period, so most figures are more likely to relate to confiscation as an additionalpunishment.

Table9:ConfiscationordersforML

Criminalcasesinvolving

crimesunderArt.209withtheadoptionofasentence,

total(asoftheendofthereportingperiod)

ConvictedforcrimesunderArt.209ofthe

CC

ThenumberofpeopleconvictedofcrimesunderArt.209oftheCCwhosesentencehascomeintoforceinthe

reportingperiod

therefromPersonswhichthecourtdecisionon

confiscationoffundsorotherproperty

obtainedbycrimeand

confiscationofproperty

Amountoflegalisedincome(money,property)crime,establishedacourtdecision(UAH

million)

47Theconfiscationordercameintoforceon28April2017,aftertheendoftheon‐sitevisit.

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2010 185 190 91 35 93.8(~EUR 3.08M)2011 192 189 92 51 114(~EUR 3.74M)2012 195 182 100 47 56.8(~EUR 1.86M)2013 148 130 63 38 138(~EUR 4.52)2014 90 72 52 23 27.8(~EUR 0.91M)2015 45 40 14 7 3.4(~EUR 0.11M)2ndQof

201611 6 4 2 34(~EUR1.11M)

Total 866 809 416 203467.8(~EUR15.34M)

303. It should be noted that these statistics do not correspond with some of the statisticalinformationprovidedunderIO7.Thetableaboveshowslessconfiscationordersin2013and2014,sotheearlierfiguresprovidedunderIO7shouldbetreatedwithcaution48.

304. Astriking featureof this table is thedifferencebetweenthenumberofreportedconvictionsunderArt.209CCandthenumberofconfiscationorders.Theevaluatorswouldhaveexpectedthatall or almost all defendants would have received such orders, and not approximately 50% ofdefendants,asappearstobethecase.

305. NotwithstandingSpecialConfiscation,alltheoffencesunderParts1‐3ofArt.209carryconfiscationasanadditionalpenalty.Theevaluatorsweretoldthatconfiscationasanadditionalpenaltywasmandatory,butthenumbersabovewouldindicateamorediscretionaryuseofconfiscationasanadditionalpenalty.TheauthoritiesshouldexaminewhysomanyMLcasesappearnottoresultinconfiscationorders.

Earlyprovisionalmeasures

306. Asalackofconfiscationorderscanfrequentlyrelatetolackofearlyprovisionalmeasures,theauthoritieswereaskedtoprovidesomestatisticstoshowhowregularlyprovisionalmeasureswereapplied in ML cases. The following table was provided. Unfortunately, it contains only rolled‐upannual figuresof the sums involved, andnot thenumbersof cases inwhichprovisionalmeasureswereappliedfor(andobtained).

Table10:Provisionalmeasures

YearSeizedproceedsfromcrimeduring

thepre‐trialinvestigation(UAHmillion)

Arrestedproceedsandpropertyfromcrime(UAH

million)Total

2010 38.02(~EUR1.25M) 1691.22(~EUR5.55M)1729.24(~EUR

56.69M)

2011 74.21(~EUR2.43M) 1817.98(~EUR59.60M)1892.19(~EUR

62.03M)

2012 51.30(~EUR1.68M) 214.81(~EUR7.04M)266.11(~EUR

8.72M)

Total 163.53(~EUR5.36M) 3724.01(~EUR122.08M) 3887.54(~EUR127.45M)

48Theauthoritiesadvisedthatfrom2010‐2012allLEAskepttheirownMLstatisticsbutsince2013theyarekeptsolelybythePGO.

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FiguresbyPGOU

YearSeizedproceedsfromcrimeduringthepre‐trialinvestigation(UAH

million)

Arrestedproceedsandpropertyfromcrime(UAH

million)Total

2013 0.02(~EUR655.66M) 11.92(~EUR 0.39M) 11.94(~EUR0.39M)2014 5.22(~EUR0.17M) 11.28(~EUR 0.37M) 16.50(~EUR0.54M)2015 0 2.79(~EUR 0.09M) 2.79(~EUR0.09M)2016 0 1.70 (~EUR 0.06M) 1.70(~EUR0.06M)Total 5.24(~EUR0.17M) 27.69(~EUR 0.91M) 32.93(~EUR1.68M)307. Given the lackof clarityon theextentof theuseofearly restraints inMLcases (andalso inpredicatecrimes) theauthoritiesneed to takesteps toensure thatearlyprovisionalmeasuresareroutinelytakeninallproceeds‐generatingcases.Morefocusedguidanceontheimportanceofearlyrestraint and seizure, in the confiscation of proceeds should be issued to all prosecutors. In thiscontextitcouldalsobeconsideredwhetherinvestigatorsshouldhavethepowerofearlyrestraint,subjecttofasttrackedreviewsofsuchrestraintsbytheprosecutors.

Predicateoffences

308. In order to determine how embedded confiscation and particularly the new special confiscationprovisionsareinthegeneralcriminaljusticesystemtheauthoritieswereinvitedtoprovidetheevaluatorswithastatisticaloverviewofconvictionsandassociatedconfiscationordersforpredicateoffencesintheCC2014‐2016.Anextractfromthestatisticsprovidedon158offencesintheCCissetoutbeneath.

Table11:ConfiscationordersforPredicateOffences

2014 2015 2016Offences Convictions

(persons)Confiscationorders

Convictions(persons)

Confiscationorders

Convictions(persons)

Confiscationorders

Art.185‐1Theft 13 618 4 14 019 5 12216 3A.185‐1Theft(grossamounts)

122 84 22 19 27 14

Art.191‐5Misappropriation,embezzlement

113 48 45 22 38 14

Art.201‐2smuggling 5 0 5 3 2 0Art.212‐1Evasionoftaxes,dutiesorothercompulsorypayments

29 0 29 0 18 0

Art.212‐2Evasionoftaxes,dutiesorothercompulsorypayments

9 0 6 0 1 0

Art.212‐3Evasionoftaxes,dutiesorothercompulsorypayments(largeamounts)

35 24 18 10 4 3

Art.255‐1Creationofacriminalorganisation

5 0 0 0 7 6

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Art.307‐2production,transportation,saleofdrugs

2014 912 1379 716 618 335

Art.368‐2Takinganunlawfulbenefitbyanofficial/illegalenrichment

159 13 32 3 11 1

Art.369‐2Abuseofpowers

53 1 91 5 138 0

309. So far, theevaluatorshavenot seeneitherestimatedor finalised totalamounts inmonetarytermsofallconfiscationordersmadebycourts ineachoftheseyears.Neitherhavetheevaluatorsseenanyestimatesorfinalisedfiguresofrealisedconfiscationordersineachoftheseyears.

310. Theoverviewofconvictionsandconfiscationsprovideddoesnotdistinguishbetweenspecialconfiscationandconfiscationasanadditionalpenalty. Itshowsthatformanyproceeds‐generatingoffencesintheseyearstherewereconvictions,butwithnorecordedconfiscationorders.Someoftheoffenceswherenoconfiscationordersweremadealsocarryconfiscationasanadditionalpenalty.The position seems therefore to be the same as with ML – a more discretionary approach toconfiscationasanadditionalpenaltyappearstobetaken.

311. Forsomeoffencesthepicturewasslightlybetter(theftingrossamountsanddrugsoffences)thoughthenumberofconfiscationordersindrugscaseswhichrelatetotheproceedsoftheoffences,rather than the drugs themselves, is unclear. The low numbers of confiscation orders in illegalenrichmentandabuseofpowerscaseswassurprising.

312. These figures generally seem to support a conclusion thatwhere financial investigations donot occur in proceeds‐generating cases there are no Special Confiscation orders as, without suchinvestigations,thecourtwillneverknowhowprofitablethecrimeswere.Thestatistics,ofcourse,donotshowwhereresourcesforfinancialinvestigationshavebeenputintoacaseandwhatsumswereinvolvedintheordersmadeinthosecases.Forthatwehavehadtorelyonanecdotalcaseexamples.

ExamplesofProvisionalMeasures,andConfiscationsofproceedsandinstrumentalitiesforpredicateoffences

313. Regardingrestraints indomesticpredicateoffencesofassets located inUkraineandabroad,theauthoritiesfirstlypointedtoexamplesoflargeordersofattachmentunderArt.170oftheCPC,inthemosthighprofilecasesbeingconsideredcurrently.Asnoted,significantassetswererestrainedin the 2014 investigations of misappropriation of state funds by an organised group of seniorofficialsintheformeradministrationallegedlyunderthecontroloftheformerPresidentandPrimeMinisterwhichhasledto2convictions,oneofwhichwason28March2017.49

314. ThePGOUcontinuestoconductpre‐trialinvestigationsintotheallegedappropriationofstatepropertyby the formerPrimeMinister and formerPresident ofUkraine, andpersonsunder theircontrol.Thepropertyofthesesuspectshasbeenseized,includingtheformerPresidentialresidence"Mezhyhiria",movableandimmovableproperty,cars,foratotalamountofmorethanUAH2billion(~EUR65,566,140).

49ThisconvictiontriggeredasubsequentconfiscationorderonApril2017inrespectof fundsandsecuritiestotallingUAH34,973,266,108.65equivalenttoUSD1.32billionorEUR1.12billion.

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315. ThePGOU isalso conductingpre‐trial investigations intoallegedcriminal actsof the formerPresidentandChairmanofapoliticalparty.DuringhousesearchescashtotallingUSD4800000wasseizedandisrestrained.

316. The PGOU has also conducted pre‐trial investigations into alleged criminal offences ofembezzlement in respect of a former Chairman of the NBU. During this investigation the courtarrestedfundstotallingmorethanUAH200million(~EUR6.56million)placedoncurrentaccountsinUkrainianbanksofthesuspectandhisfamily,fundstotallingUSD1.37billiononaccountsinmorethantwentyoffshorecompaniescontrolledbythesuspect,andfundstotallingUSD49.51millionontheaccountsofnon‐residentcompaniesabroad.

317. ThePGOhasalsobeeninvestigatingsinceMay2014allegedcriminaloffencesbythe formerHeadof theStateAgencyofForestryResourcesofUkraineandanaccomplicewho (from2011 to2014)arealleged tohavereceived illegalbenefits from importersofwoodproducts totallingoverUAH 141 million (~EUR 4.62 million). These funds are alleged to have been moved to offshorecompaniescontrolledbythesuspectandhiswife.FundstotallingUSD1.4milionandEUR1.2millionareseizedunderanorderofthePecherskdistrictcourtofKyiv.

ForeignAssets

318. As part of the same ongoing enquiries into the alleged crimes by high level officials of theformer regime, Ukraine has sought international assistance where apparent criminal funds havebeentracedabroad.Inthiscontext,CompetentAuthoritiesoftheSwissConfederationhaveexecutedaMLArequestbyUkraine.ThishasresultedinfundstotallingUSD1.4millionplacedinSwissbanksbeing seized as alleged instrumentalities of crime, upon a decision of the competent Swissauthorities.

319. Similarly,arisingoutoftheinvestigationsintotheformerofficialsmovingillegalVATrefundsto accounts of fictitious companies inUkraine, someof these fundswere traced to accountsof 16companiesinLiechtenstein,ofwhichtheaccusedpersoninUkraineandarelativeareallegedtobetheBOs.OverUSD26millionhavebeenblockedontheseaccounts.

320. It is simply noted that many of these restraints of property, allegedly connected to highofficials of the former administration, have been outstanding for quite lengthy periods. Criminalproceedingswillneedtofollowsooniftheauthoritiesaretoavoidlegalchallengestowhatmayatsomepointbeconsideredasindefinitepropertyarrests.

Casesnotconnectedtoactorsintheformeradministration

321. Theauthoritiesarealsoabletopointtoseveralmorerecentexamplesofsubstantialrestraintor seizure orders in other cases, not connectedwith the former regime. For example, in a recentinvestigation into embezzlement and abuse of office in the SFS, assets of suspected personswerearrested totallingUAH2.58million(~EUR800,000). 3othercaseswerecited:a fraudcase;a taxevasion case; and a forgery/ML case. In these cases seizure orders or property arrests have beenmadeofUAH16.6million(~EUR0.54million),UAH12.3million(~EUR0.40million),andUAH7.9million(~EUR0.26million)respectively.Inanothercasebeingconsideredbythecourtcurrentlyagroupof3personsareallegedtohavecreatedfictitiousenterprisestocoverillegalactivities.MLandArt. 205 offences are on the indictment and UAH 100 million (~EUR 3.28 million) has beenrestrained.

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Conclusionsonprovisionalmeasures

322. To conclude, since 2014 provisional measures are being used effectively, but there is animbalance.Thereremainsatpresentaverylargegapbetweenprovisionalmeasuresbeingobtainedsince2014,andfinalconfiscationordersbeingachieved.Whileit isunderstoodthatmanyoftheseenquiriesare lengthyandmayrequireMLA,theevaluatorswerestillconcernedthathardlyanyofthecasesmentionedabovehavebeenconcluded(withconfiscationorders).

323. With theexceptionof the case referred toabovewhich resulted ina significant confiscationorder, theevaluation team lacksoverall informationon totalamountsorderedby thecourts tobeconfiscated ineachof theseyearsandcorrespondingstatisticsontheamountsactuallyrealised ineachoftheseyears.ThoughtheAssetsRecoveryOfficehasbeencreateditisnotyetoperational,somostrestrainedassetsarenotundermanagement.TheOfficeneedstobecomeoperationalassoonaspossible.Given thissituation,andbearing inmind that there iswideuseofArt.75CCallowingdefendantstobereleasedonprobationwhensignificantconfiscationordersaremade,itisnecessarythat there should be dissuasive sanctions for defendants (particularly thosewho serve no prisonterm)whofailtofulfilconfiscationorders.Itisunclearwhatthesanctionsarefordefendantswheretheconfiscationorderisunrealised.

Thenewprovisionsinpractice

324. Therearethusseveral issueswhichstillneedclarifyinganddevelopingbytheauthoritiestocreate a fully effective confiscation system, where restraints are regularly followed through witheffective confiscation orders. Assuming that a financial investigation has traced assets liable tospecialconfiscation, theburdenofproof forprovisionalmeasuresand forconfiscationremainsontheprosecutor to show that theproceeds came fromcrime, presumably to the criminal standard.UkrainehasnoseparateCodeofEvidence.TheprosecutorsconsiderthattheycanimportaslightlylowerstandardofevidencefromtheCivilCodeintothisprocess,andthattheyhavetobecreativeinpersuading judges that theproperty forwhicha confiscationorder is requestedwas linked to thecrimes on the indictment. There are no reverse onuses or assumptions as to the provenance ofallegedassetsthatcanbemadebycourtsintheUkrainiansystem.

325. TheevaluationteamwastoldthatthePGOUplansinbigcasestotrytousethe“mules”thatlend their names to fictitious enterprises to connect defendants with criminal property for thepurposesof freezingandconfiscation.Suchinitiativesmayassist inindividualcases.Buttherestillneedstobeuniformityofpractice.Aspartofthejudicialreformprocess,theevaluatorsadvisethataworkable policy should be developed between the Judiciary and the PG on the level of evidenceneeded to determine whether assets are the proceeds of crime, after conviction for proceeds‐generatingcrimes.Thispolicyshouldbeconsistentlyappliedbythecourts.

326. Itisalsounclearwhoshouldraisetheconfiscationquestionattheendofatrialtoensurethisissueiscoveredincourt–thejudgeortheprosecutor.Somethink,fortheavoidanceofdoubt,thattheconfiscationissueshouldbeclearlyindicatedontheindictment.Theevaluatorswouldsupportsuchanapproach,asnocleardirectivehassofarbeengiventoprosecutorsbythePGdirectingthemalways to raise the confiscation issue at the conclusion of trials. The evaluators consider the PGshould issue such directions to all prosecutors. In the longer term the authorities should decidewhether the law needs amending to include a clause on the indictment covering the confiscationissue.

327. It is also unclearwhether judges use the new provisions, orwhether they still fall back ontraditional property confiscation where this is possible, andwhichmay not truly reflect the real

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proceeds of the crimes. No statistics are available or significant anecdotal examples of the newprovisionsbeingusedbyjudgeswereofferedbytheauthorities.Theprosecutorsconsiderthatthereis no uniform legal position on these issueswithin the judiciary, and thatmany judges still needconvincingoftheneedforsuchordersanddemonstratealackofknowledgeofthenewprovisions.Clearlymore judicial training isneeded in thisarea.Theauthoritiesshouldreviewtraining that isprovided to judges on the new confiscation provisions and where necessary pursue furtherawareness‐raisingandeducationofthejudiciaryontheseissues.

328. Arguably prosecutors may only raise the confiscation issue currently when financialinvestigationshavebeenconductedandtheyhaveafinancialstatementinrespectofthedefendant’sassets to present to the court.Without this, it is perhaps inevitable that judges will fall back ongeneral property confiscation orders. This underlines the crucial need for more routine financialinvestigationstobeundertaken.

329. Overall,with regard to thenewprovisions, the evaluators recommend that after 1 year thePGOUandtheJudiciarytogetherwiththeAssetsRecoveryOfficeshouldreviewhoweffectivelythenewconfiscationprovisionsarebeingappliedandtakeanynecessaryremedialaction.Tosupportthisreviewtheauthoritiesshouldmaintainaccurate,reconciledstatistics.Itissuggestedthesecovertheuseofspecialconfiscationwithregardtoproperty,instrumentalities,valueordersandordersinrespectof3rdparties, theuseofconfiscationasanadditionalpenalty,and theextentof theuseofprovisionalmeasures.Thereafteranyremedialactionshouldbetakenincollaborationwithall thepartiestothereview.

Confiscationoffalselyorundeclaredcross‐bordertransactionofcurrency/BNI

330. Non‐declaredcashatthebordersisseizedbyCustomsandaprotocol issentbythemtothecourtsfortheconfiscationofthecashandimpositionofadministrativefinesof100%ofthevalueofconfiscatedcasesorinlargeramounts3timesthevalueofthepropertyseized.

331. In2016,CustomsseizedUSD2.3m,EUR1.4m,andRUB1.5billion.Allpersonsinvolvedweresubject to administrative liability and arrested fundswere confiscated under court decisions. Thetablebeneathshowsamountsinvolvedindetectednon‐declarationsattheborder.Whilethetotalshaverisensince2010theUAsadvisedthatoveralltotalsofdetectednon‐declarationsamountto8‐10%ofthetotalsofassetsdeclaredbypersonscrossingtheborders. Theadministrativepenaltiesappearnotparticularlyproportionateanddissuasive.

Table12:Cashconfiscatedattheborders

Year

USD Euro RUB UAHandotherCurrencies Total

Amount

(USD)

Amount

(EUR)

Amount

(RUB)

Amount

Value(UAH)

Amount

2010 2,244,328 963825 42,634,375 366620 594856 39,687,82750

2011 5,279,784 1,252,768 14,696,702 248943 1,272,598 61,804,681

2012 4,847,791 1,007,707 42,682,960 392124 961818 61,200,175

50EUR1,307,054.0

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2013 7,187,174 1,955,192 115,705,840 243013 599738 107,801,850

2014 5,564,554 897565 3,282,482 1,079,178 753095 83,454,742

2015 3,331,753 653368 7,050,863 7,903,795 2,950,648 102,278,873

2016 2,282,024 1,430,630 150,234,670 1,877,186 1,406,697 161,571,63251332. AsnotedintheTCAnnex,theCustomshavepowerstostopandrestraincurrencyinordertoascertain whether ML/FT may be found. If the Customs receive operational information/signalsfromlawenforcementthatpersonsbelievedtobecarryingpropertyorcashforMLorFTwillcrosstheborder,theCustomscanseizesuchsuspectedpropertyasevidenceandreferthecasetothelawenforcement authorities and the FIU. In 2016, the Customsmade 103 such case referrals to lawenforcement authorities and the FIU. In practice, Customs have no formal responsibility as a lawenforcementagencytoinvestigateMLbycashcouriersattheborderautonomously.

ConsistencyofconfiscationresultswithML/TFrisksandnationalAML/CFTpoliciesandpriorities

333. InUkraine,themosturgentandimportantMLrisksinvolvetoplevelcorruptionandtheftofState assets. Before 2014 these riskswerenot confrontedby the authorities. Since 2014, this haschanged.Officialsfromthepreviousregimeandcurrenttopofficialsandpoliticallyexposedpersonsarebeinginvestigatedandmadesuspectsincasesandtheirassetsarebeingrestrainedwithaviewtoconfiscation.

334. Asalreadyseen,therearenowsomeverysignificantrestraintordersinplaceinmanyofthecases involvinghigh levelofficialsof the formerregimeand theirassociates.Theprimary focusofthese investigationshas been to find and return state assets alleged tohavebeen stolenby thesepersons. This has necessitated complex (and far‐reaching) asset tracing through accounts ofnumerouscompanies,bothinUkraineandabroad.Inrespectofpre‐trialinvestigationsofpersonsinUkrainebelievedtobeconnectedtotheformerPresident,itwassaidatthetimeoftheonsitevisitthatUAH35billion(~EUR1.15billion),EUR1billion,apartments,carsandevenislandswereunderrestraint.TheAgencyresponsibleforAssetRecovery,whichhasbeencreated,isnotyetoperational,sotheseassetsarenotallundermanagement.

335. Theseinvestigationsappeartohaveresultedin2courtconvictionssofar,oneofwhichwasforML in very significant amounts.52Wewere told that other trials should be forthcoming and thatconfiscationrequestswouldbemade.

336. Asnoted,actsofterrorism(asdefinedinUkrainianlaw)andseparatismrelatedtoevents ineastUkraine,plustherisksofbeingusedasatransitcountryforFTFs,areseenasthemainFTrisks.Confiscationhasbeenusedinthedomesticcaseswhichhavebeenbrought,thoughthesizeofsuchordersisunclear.Indictmentsrelatingtointernationalterrorismareawaitingcourtconsideration.

337. Creditisgivenforthedeterminedworkthatisnowongoingtorestrainandconfiscatefundsincases of top level corruption and theft of state assets, in linewith nationalML risks.Nonetheless 51RUR5,323,072.052On28April2017,onemonthafterconvictionson28March2017ofonehighofficialoftheformerregimeforMLandparticipationinacriminalgroup,fundsandsecuritiestotallingUAH34,973,266,108.65(equivalenttoEUR1.12billion)wereconfiscatedunderacourtverdict.ThisdecisionisbeingenforcedinfavourofthestatebudgetofUkraine. 

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morerestraintsanddissuasivefinalconfiscationordersinrespectofthosepersonsthatcreateandusefictitiousenterprises/conversioncentresforlaunderingpurposesneedtobepursuedwithequalvigour.ThepersonsbehindconversioncentrespresenthighnationalMLrisks.Theyincentivisenotonly corruption and theft of state assets by high officials, but also all other proceeds‐generatingcrime in Ukraine. Currently these persons facilitate the laundering process on a very wide scalethroughoutthecountry.

Conclusions

338. Itisdifficulttoassesssystematicallywhetherthenewsystemisfullyestablishedinpracticeinallproceeds‐generatingcases.Itisunclearhowregularlythenewprovisionsarebeingusedbythejudgesandhowmanyfinalspecialconfiscationordershavebeenmadeasmostinformationonthisisanecdotal. Not allML convictions result in confiscations. However, therewas one very significantconfiscationorderduringtheon‐sitevisitinrelationtoonehighofficialoftheformerregime.

339. There are issues that still need to be addressed by the prosecution and judiciary on thepractical implementation of the new Special Confiscation provisions in the courts. A workablestandardofproofinconfiscationproceedingsonthelinkagesofallegedproceedstotheoffencesforwhichthereareconvictionsneedstobeestablishedandconsistentlyapplied.

340. There also appear tobe someproblems in conducting financial investigations, and a lackofresources for them across the board. More financial investigations to ascertain the direct andindirectprofits inallmajorproceeds‐generatingcrimesneedtobeundertaken,andnot just inthehighestprofilecases.

341. TheevaluatorsconsiderthereforethatthenewSpecialConfiscationregimestillneedstimetobeddownandachievetheobjectivesof theCPCamendmentsof2015onaconsistentbasis.Whilemanysignificantrestraintordersareinplace,morefinalconfiscationorders,particularlythoseusingthe new special confiscation provisions, are necessary. Additionally it is important that theopportunitiesprovidedbythenewprovisionsonvalueconfiscationordersandconfiscationfrom3rdparties are used by prosecutors and courtswidely in future.UkrainehasachievedamoderatelevelofeffectivenessforIO8.

CHAPTER4. TERRORISTFINANCINGANDFINANCINGOFPROLIFERATION

KeyFindingsandRecommendedActions

KeyFindings

ImmediateOutcome9

• UkrainehasanoperationalsystemonFToffencesandactivitieswhichshowsacertaindegreeofeffectivenessinpractice.However,theFToffenceisstillnotentirelyinlinewiththeStandards.

• The SSU, which is in charge of FT investigations, has developed significant expertise interrorism‐relatedoffences,includingfinancing,andisassistedbytheFIUintheidentificationofFTcases.ParallelfinancialinvestigationswithaviewtoidentifyingFToffencesareconductedalongsideallterrorism‐relatedinvestigations.

• Following the emergence of ISIL‐related risks in 2014, the SSU has refocused its activitiesconsiderably.Anumberofpre‐trialinvestigationshavebeeninitiatedinlinewiththeriskprofileof

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thecountry.Theseeffortshad,atthetimeoftheon‐sitevisit,resultedin1ISIL‐relatedindictment,though no convictions as yet for FT. Concerns remain about the speedwith which both relevantinvestigationsandindictmentswerebeingtakenforward.

• Where in ISIL‐related cases insufficient evidenceof FTwas found,other significant criminaljusticemeasureshavebeentakenbytheUAsinvolving,variously,indictmentsforcriminaloffencesunderCh.IX,XIVandXVoftheCC,aswellasextradition,anddeportationmeasures.

• Ukrainehasinplaceacounter‐terrorismstrategywhich,aspartofitsobjectivetodetectandterminate terrorist activities, includes the identification of FT sources and the identification ofindividuals,groupsandorganisationswhoseactionsaredirectedatthepreparationorcommissionof terroristacts.FT investigationsare integratedwith,andareused to, support counter‐terrorisminvestigations. The yearly AML/CFT action plans invariably include measures to improve FTinvestigations.

ImmediateOutcome10

• Ukrainehas abroadly sound legal and institutional framework to identify targets andmakeproposalsfordesignationstotherelevantUNSanctionsCommittee.However,despitetheSSUhavingidentified persons connected to ISIL on the territory of Ukraine and thwarted their activities, noproposalsfordesignationshadbeenmadeatthetimeoftheon‐sitevisit.

• UAs,FIs,andthemajorityofDNFBPsareawareof theirobligations to implementrestrictivemeasure as prescribed by theUNSC, and do sowithout delay. Some FIs have said that they havestoppedtransactionspursuanttosanctionsmeasures,whichhavebeenfound,uponfurtheranalysisbytheSSU,tobefalsematches.However,technicaldeficienciesundermineUkraine’sabilitytofulfilallitsobligationsundertheUNframework.Nofundsorotherassetshavebeenfrozeninrelationtodesignatedpersonsorentities. 

• AuthoritiesareacutelyawarethatNPOsarevulnerabletoabusebyillicitfinancialactorsandto FT. The FIU has conducted a review of the sector and identified some specific vulnerabilitiesrelatedtotheNPOsinUkraine.

• Although the risk classificationusedby theSFS ismainly focusedon the riskofNPOsbeingmisusedforcommercialpurposes, italsoincludesAML/CFTconsiderations.Thescopeofpotentialrisk in theNPOsector isunderstood ingreaterdepthby theSSU,but thisunderstandingdoesnotappeartobecommunicatedtotheotherauthoritiesortheprivatesector.

ImmediateOutcome11

• UkrainedemonstratesseveralaspectsofaneffectivesystemwithregardstoPF.UAs,FIs,andthe majority of DNFBPs are aware of their obligations to implement UN measures, althoughunderstandingofmorerecentsectoralrestrictions,suchasthoseintroducedinthecontextofDPRK,appearsweaker.

• BecauseUkraine is aproducerofweapons,materiel, anddual‐usegoods,Ukrainian securityand financial authorities have developed a sophisticated system to oversee and restrict the illicitmovementofgoods.CustomsandexportcontrolauthoritiesappeartocooperateeffectivelywiththeSSUasfarasproliferationisconcerned.Authoritieswereabletoprovidetwoexamplesofsuccessfulinterdictions.However,resourcelimitationsamongborderandcustomsauthoritiesmayundermineefforts toprevent thephysical transportof goods (and related financing) outofUkrainianareaofcontrol.

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• There is limited operational cooperation in practice between export control authorities andothercompetentauthorities(lawenforcement,FIU,supervisors)intheareaofcounter‐PF.

• Despiteconsiderableeffortstodetectandinterdictthemovementofrestricteditems,UAsarelikelynotequippedandlackadequateresourcestoaddressthefinancialaspectofproliferation,suchassanctionsevasion,duetothewidespreaduseofcashandfictitiouscompanies.

RecommendedActions

ImmediateOutcome9

• Afast‐tracksystemwhichisrigorouslyappliedwithinthecourtsshouldbeactivelyconsideredforterrorismandFTcases.

• To remedy deficiencies identified in the TC Annex under R.5, legislative amendments arerecommendedtoensurethatthere isaclear linkage inthe languageofArt.2585of theCC(theFToffence),orinArt.258oftheCC,whichensuresthatthefinancingofalltreatyoffencesunderArt.2(1) Terrorist Financing Convention (TFC) is covered (whether or not they are in the CC andregardlessoftheirconsistencywiththewidementalelementinArt.258oftheCC).Itshouldalsobeclearlyprovidedthatfinancingofterrorisminconnectionwithatreatyoffencedoesnotrequirethewidementalelementprovided for inArt.258.Harmonisationof thedefinitionofFT in theCC, theAML/CFT Law and the Law on the fight against terrorism is also urged to resolve remaininguncertaintiesdescribedintheTCAnnexunderR.5.

• Ukraineisstronglyadvisedtoratify(andsubsequentlyimplement)theAdditionalProtocoltotheCouncilofEuropeConventiononthePreventionofTerrorism(onFTFs).

• Some guidance on sentencing for Art. 285 –2855 offences by the Supreme Court should beconsideredcoupledwithrelevantjudicialtrainingtoensureagreaterdegreeofconsistency.

ImmediateOutcome10

• The SSU, in conjunction with the MFA, should be more proactive in proposing persons orentities to the 1267/1989 and 1988 Committees, where they are identified as targets fordesignation.

• The following technical deficiencies shouldbeaddressed: (1) theFTTFS freezingobligationshould extend to all funds or other assets referred to under C. 6.5(b); (2) all natural and legalpersonsshouldberequiredtofreezethefundsorotherassetsofdesignatedpersonsorentities(notonlyFIsandDNFBPs);(3)toensurefullcompliancewithC.6.5(c),thereshouldbeaclearprohibitionforUkrainian nationals and any person or entitywithinUkraine frommaking any funds or otherassets,economicresources,orfinancialorotherrelatedservices,availabletodesignatedpersonsorentities.

• StreamlinetheAML/CFTLawandtheLaw“OnSanctions”inordertoremoveanyambiguityinthelegalbasisfortheimplementationoftherelevantUNSCRsandimprovetheTFSregime.

• ReinforceinteragencyeffortstomitigateFTrisksintheNPOsector,includingbyemphasisingoutreach toNPOs, REs and donors and enhancingmonitoring. This should be informed by an in‐depth reviewof theML/FT risks associatedwith theNPO sector (taking into account the variouscategoriesofNPOs’ respective risks),whichshouldalsostrengthen theapplicationof a risk‐basedapproach.

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ImmediateOutcome11

• AddresstechnicaldeficienciesrelatedtoR.7.

• Export control authorities and other competent authorities should make greater use ofavailablecommunicationandcoordinationchannelsforthepurposesofaddressingPF.

• DevelopUkraine‐specificPFindicators.

• AllauthoritiesshouldcollaboratetoprovidemoreoutreachtoREs.

• Supervisory authorities should assign adequate priority to PF issueswhenmonitoring REs’compliancewithPFTFSobligations.

342. The relevant ImmediateOutcomesconsideredandassessed in this chapterare IO9‐11.TherecommendationsrelevantfortheassessmentofeffectivenessunderthissectionareR.5‐8.

ImmediateOutcome9(TFinvestigationandprosecution)

Prosecution/convictionoftypesofTFactivityconsistentwiththecountry’srisk‐profile

343. The 2009MONEYVALMER stated that Ukraine did not appear to suffer from internationalterrorist incidents. The impression of the previous evaluators was confirmed during the presentassessmentasfarastheperioduntil2013isconcerned,asallrelevantauthoritiesthatthepresentteammetconsideredtherisksfromterrorismandFTthenassmall.TheoffencesunderArt.258CChadrarelybeenusedduringthatperiod.

344. However, since2014,Ukrainehas found itselfusedasa transit country for thoseseeking tojoin ISIL fighters in Syria. In the face of this emerging risk, the SSU has concentrated on theconsequences of terrorism involving the fight against ISIL and has refocused its prioritiessubstantially.TheSSUadvisedthatitsworkhasincreasedbyathirdsincetheseriskshavestartedmaterialising.Anumberofpre‐trialinvestigationshavebeeninitiatedinlinewiththeriskprofileofthecountry.Theseeffortshad,atthetimeoftheon‐sitevisitresultedin1ISIL‐relatedindictment,though no convictions as yet for FT under Art 2585 CC. Many FT‐related investigations are stillongoing. Details are provided under core issue 9.2. While the efforts of the SSU are to becommended, concerns remain about the speed with which both relevant investigations andindictments are being taken forward. It seems to the evaluators that FT (and all terrorism) caseswouldbenefitfromafast‐tracksystemwhichisrigorouslyappliedwithinthecourts.

345. There isnowanautonomousFToffencewhichmeetsormostlymeets10of the11relevantcriteria.However,afewsignificantdeficienciesremainoutstanding,asnotedundertheTCAnnex.Itremains tobe seenwhether thesedeficiencieswillhavean impacton theeffectiveprosecutionofISIL‐related and other eventual FT prosecutions. The authorities are urged to remedy thesedeficienciesasapriority.

FTidentificationandinvestigation

346. Inpractice, theOffice forCombattingTerrorismin theSSU,withspecialistexpertise inFT isthemainplayerintheidentificationandinvestigationofFTandotherterrorism‐relatedoffences.AlllawenforcementoperationalunitsarerequiredtomonitorthedailylistingsintheUnifiedRegisterofpre‐trialinvestigationsforFT,notonlyforprioritisationandconsolidationoflinkedinvestigationswithinlawenforcement,butalsoforensuringthatallFTpre‐trialinvestigationsarebroughttothe

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attentionofprosecutors,sothattheycanmakedecisionsastowhichunitsshouldberesponsiblefortheinvestigations.TheprosecutorsmayassignFTinvestigationsortheiroversight,asappropriate,totheinvestigativeunitoftheSSU,withitsspecialistexpertiseinFT.CurrentlytheNPdoesnothaveaninvestigativecompetenceforoffencesunderArt.258‐2585CC.Priortothe2015amendmentstoArt.216CPCtheNPcouldinvestigatecasesofthiscategory.WheresuspicionofFTnowarises,theNPtransfersthesecasestotheSSU.

347. FT is in practice detected by LEAs using intelligence information, investigative measures,operationalinvestigations,financialinvestigations,informationfromtheprivatesectorandtheFIUinformation and upon receipt of information from foreign counterparts. Operational andinvestigative measures concerning FT are carried out by the following operational units of SSU:counterintelligence; protection of national statehood; special units for combating corruption andorganisedcrime;andthefightagainstterrorism.

348. TheSSUadvisedthatparallelfinancialinvestigationswithaviewtoidentifyingFToffencesareconductedalongsideallinvestigationsofterroristacts.Theauthoritiesstatethattheprimaryaimofthe financial investigation is to identify thesourcesof financingof the terroristactivity,developafinancial profile of the suspected person, identify any potential criminal networks, and obtainevidencetobeusedduringcriminalprosecution.Afinancial investigationtypicallyinvolveschecksonthesuspectedpersonsininternaldatabasesandotherlawenforcementdatabasestodeterminewhether the suspect has any criminal record; inquiries into state databases (e.g. SFS accountdatabase) to identify bank accounts and other assets belonging to the suspect; requests forinformationtoFIs;requestsforinformationtotheFIUinrelationtosuspiciousorthreshold‐basedtransactionsconnected to thesuspect; requests for information to foreigncounterparts to identifyproperty of the suspect located outside of Ukraine; and the application of special investigativetechniques to identify linksbetween thesuspectandotherpersons, inparticular thesourceof thefinancingofterroristactivities.

349. Financial investigationsare conductedby the informationandanalysisunitsof theSSU thatmanagedatabasesanddevelopsoftwaretoolsforthesearchandanalysisofinformation.Theseunitsappear to be suitably equippedwith computer facilities that provide high‐speed data processing,rapidinformationsearches,accesstovastinformationsources.TheSSUreferredtosuchsoftwareas“IBMI2Analyst’sNotebook”,“Microstrategy”andotherprogrammesadaptedtotheneedsoftheSSU.Itwasnoted that the SSU internal trainingprogramme covers financial investigation including, inparticular,theuseofITtools,collection,evaluation,analysis,monitoringanddisseminationofdata.Unlikesomeothermembersoflawenforcement,theSSUdidnotconsidertimelyreceiptofbankinginformationhadbeenaproblemintheircases.

350. During 2015 and 2016, the SSU uncovered the activities of four transnational logisticalnetworksof ISIL operating inUkraine.Thesenetworks identified, recruited, trained, financed andsent natives of the Caucasus, Central Asia and European countries to fight in Syria. They alsofacilitatedthereturnoftrainedterroristsfromSyriatotheircountriesoforigin.ThreemembersofISILwereamongthesixty‐ninepersonsdetained.Theyweresaidtohavebeeninchargeofoneofthe logisticalcentresandwereactiveparticipants in therecruitment, trainingand financingof thetraveloffighterstoSyriaandIraq.ThesethreewerereferredtothecriminalcourtsunderArt.2583,2585 (FT), 263 and 358 CC on 30 November 2015, and proceedings are ongoing. The indictmentreferstothreepersonschargedwiththecommissionofcrimesinPart1ofArt.2583andPart2ofArt.2585oftheCC.Inthiscase,throughaparallelfinancialinvestigation,theSSUobtainedevidenceon the funds receivedby the accused to finance the travel and subsistenceof theFTFs (including

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rental money, purchase of false passports, airfare, foodstuffs, etc). The organisers of the otherlogisticalcentreswerechargedwithothercriminaloffences(seecoreissue9.5)butnotFT.Financialinvestigations in their regard revealed that they had not provided, collected or received anyterrorism‐relatedfunds.

351. During this period, seventeen “transit points” (i.e. apartments or residences) were alsoidentifiedwithinUkrainianterritory,whichwereusedastemporaryaccommodationofISILFTFsinUkraine.Thesewerecloseddownandsixty‐ninepersonswereapprehendedbytheSSU(fifteenofwhomwereontheInterpolwantedlist).Alargeamountofcashwasseizedfromthem,whichissaidtohavebeendestined for ISIL.Bankpayment cards,weapons, storagemediawith instructionsonproductionofimprovisedexplosivedeviceswerealsoamongtheitemsfoundandseizedfromthesepersons. Parallel financial investigations revealed that the suspected FTFs had self‐funded theiractivities.

352. OthersignificantcriminaljusticemeasureshavebeentakenbytheUAsagainsttheremainderofthegroupinvolving,variously,othercriminaloffencesinUkraine(underCh.IX,XIVandXVoftheCC),extradition,anddeportation.Furtherdetailsareoutlinedbeneathinthesectiononalternativemeasures.TheSSUcontinuesactivelytomonitorover900otherpersonswithaviewtoFToffences.

353. As noted in the TC Annex, there are still some uncertainties as to whether all aspects offinancingoftravelforterroristpurposesarecoveredbyexistinglegislation.Theauthoritiesconsiderthat they can successfully prosecute the organisation andmovement of FTFs underArt. 2583CC.Whatever the outcome of this case, Ukraine is strongly advised to ratify (and subsequentlyimplement) the Additional Protocol to the Council of Europe Convention on the Prevention ofTerrorismtoensurethatallaspectsof the internationalstandardsontheFTFissuearewithintheUkrainianlegislativeframework.

354. In2016,chargeswerefiledagainstaFrenchcitizenaccusedofillicithandlingandattemptedsmugglingofweapons,ammunitionandexplosivesandinvolvementinthepreparationofanactofterrorism.TheSSUdeterminedthatthesuspect,whohadaradicalisedmindset,hadconspiredwithpersons on the territory of France to commit a terrorist attack and had travelled to Ukraine topurchaseweapons, ammunition and explosives illegally using his own funds. Special investigativetechniqueswereusedbytheSSUtodetainthesuspectinflagrantedelictoashewassmugglingtheweaponsoutsideofUkraine.Aparallel financial investigationhadbeencarriedoutwhichinvolvedextensive formalandinformalcooperationwithforeigncounterparts.NoFTchargeswerebroughtagainsttheaccusedasnoevidencewasfoundthatfinancinghadtakenplaceinUkraine.

355. TheFIU,onadailybasis,analysesreportsonfinancialtransactionsrelatedtosuspicionsinFT,received from REs, as well as received in the form of information from LEAs. In addition, FTinvestigationiscarriedoutonthebasisofaquarterlystrategicanalysis.From2014to2016,theSSUsought FIU assistance 171 times regarding suspicions of FT. The FIU receives information onsuspicions of FT from other state bodies. In particular, during the above‐mentioned period, 9notificationswerereceivedfromthePGOU.

356. Themajority of disseminations are sent directly to the SSU. The SSU prioritises all FT casereferralsby theFIU.Between2014and the firsthalfof2016 theFIUpreparedand sent124casematerialsresultingfromFIUanalyses.ThesematerialsincludeanalysesofthoseFTSTRsrelatedtosuspicionofterrorism,ofwhich17werespecificallyrelatedtosuspicionsofFT.Thematerialssentalso includetheresultsofFIUoperationalandstrategicanalysisofall informationavailable in theFIU databases, which may indicate FT. The FIU also disseminated to the SSU all the FT STRs it

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receivedduringtherelevantyearsarisingfrompresumedmatcheswithUNlists.Intheyearsunderconsiderationtheyallprovedtobefalsepositives,afterchecksbytheSSU.Therefore,theywerenotrelevantforthepurposesoftheidentificationofFTinvestigations.

357. TheFIUhasalsoidentifiedinitsanalysespossibleFTissuesinrelationtosomeNPOsandhaspassed these materials to the SSU. In 2014, 6 materials disseminated by the FIU containedinformationon financial transactions involvingNPOs.TheSSUtook forwardoneof thesereferralsinvolvingNPOsasacaseforinvestigation. Accountswereseizedunderacourtorderandthepre‐trialinvestigationisstillongoing.In2015,7disseminationsinvolvedNPOs.TheSSUisconsidering2of thesecasereferralswithincriminalproceedings for suspicionofFT.Pre‐trial investigationsarealso ongoing. In 2016, 2 materials disseminated to the SSU contained information on financialtransactions conducted by NPOs. Both are being taken forward as pre‐trial investigations andaccountsareseizedundercourtorders.

358. The evaluatorshavebeen advised that the StateBorderGuard Service sent reports connected topotentialoffencesunderArt.285‐2855totheSSUin2015and2016.OnthebasisofthesereportstheSSUprovidedinformationtotheUnifiedRegisterofPre‐TrialInvestigationsandopenedcriminalproceedings.WhiletheSSUalsoregularlyadvisesborderauthoritiesofwantedpersons(thenamesof5personswantedforFToffenceshavebeencirculatedtoborderauthorities)noFTinvestigations(otherthantheFTFcases)appeartohaveresultedincriminalproceedingsasyetarisingfromtheactivitiesofborderauthorities.Theauthoritiesindicatedthatnoneofthementionedpersonscrossedtheborders.

FTinvestigationintegratedwith‐andsupportiveof‐nationalstrategies

359. The UAs advised that by a Decree of the President of Ukraine in April 2013, a counter‐terrorismstrategy,‘ConceptoftheFightagainstTerrorism’,fortheperiod2013‐2020wasapproved,providing for the implementation of a range of measures. A plan for the implementation of thestrategywas also approved in 2013. Although the strategypre‐dates the change inUkraine’s riskprofilein2014,itaimstocounterterrorismasaseriousthreattointernationalpeaceandsecurityand therefore its objectives have continued to be relevant. Since 2014, the application of themeasuresinthestrategyhasintensified.

360. Thestrategysetsoutsixobjectives:(1)preventingterroristactivity;(2)detectionandterminationofterroristactivity;(3)eliminationandminimisationoftheconsequencesofterroristactivities;(4)provisionofinformation,scientificandothersupporttothefightagainstterrorism;(5)strengtheninginternationalcooperationintheareaofcombattingterrorism;and(6)ensuredomesticco‐ordinationinthefightagainstterrorism.Aspart of its secondobjective, ‘detection and terminationof terrorist activities’, the strategyincludes the identification of FT sources and the identification of individuals, groups and organisationswhoseactionsaredirectedatthepreparationorcommissionofterroristacts.

361. Asnotedundercoreissue9.2,FTinvestigationsareintegratedwith,andareusedto,supportcounter‐terrorism investigations. Successive AML/CFT action plans have invariably includedmeasures to improve FT investigations. However, the relevant authorities conceded that noconsiderationhadbeengivenastowhetherUkraineshouldmakeanynominationsfordesignationsbytheUNofkeyplayersdetainedinthecontextoftheorganisationofthetransnationalFTFtravelnetworks53.

53TheauthoritiesstatedthatUkrainesubmittedthreedesignationstothe1267UNSCRlinkedtoISIL/AlQaidaaftertheon‐sitevisit.

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Effectiveness,proportionalityanddissuasivenessofsanctions

362. Asstatedabove, an indictmentconcerningFT ispendingbefore thecriminal courts,buthasnot yet resulted in a conviction. There was some concern expressed by the authorities aboutinconsistentsentencingbetweenregionsonterrorismcasesgenerally.Someguidanceonsentencingfor Art. 285 –A2855 offences by the Supreme Court should be considered, coupledwith relevantjudicial training to ensurea greaterdegreeof consistency.Thiswouldalsobebeneficial for thosecasesinvolvingArt.2585CCconcerninginternationalterrorismwhicharecurrentlypending.

AlternativemeasuresusedwhereFTconvictionisnotpossible(e.g.disruption)

363. Inrelationtothesuccessfuloperationstoclosedownthe17ISILtransitpoints,10supportersofISILwereinvestigated(whereFToffencesappearednottobepossibleontheevidence)forothercrimes within the jurisdiction of Ukrainian courts. These related to Art. 255 CC (creation of acriminalorganisation for thepurposeofcommittingagraveoffence/leadershiporparticipation insuchanorganisation),Art.2583CC(creationofaterroristgrouporterroristorganization)andArt.263 CC (unlawful handling ofweapons, ammunition and explosives). One person has been foundguilty so far under Art. 2581 and sentenced to 5 years imprisonment. 4 personswere convictedunder Art. 2633; three of them were sentenced to 3 years imprisonment and 1 to 3 yearsimprisonment subject to a probationary term. 5 persons, currently in custody, face accusationsunderArt.255‐263CC.Thejudicialinvestigationisongoing. 

364. Itisunderstoodthat18otherpersonsremainedatthetimeoftheonsitevisitunderpre‐trialinvestigationby theSSU forcommittingcrimesunderArt.2583 (which theauthorities themselvesconsider fully covers financing of travel for terrorist purposes), Art. 263 (unlawful handling ofweapons,ammunitionandexplosives),Art.332(illegalmovementacrosstheStateborder),Art.333(violationofproceduresforinternationaltransferofgoodssubjecttoexportcontrols),andArt.358CC (useof forged identificationdocuments).TheSSUopened18criminalproceedings:15personshavepre‐trialinvestigationsstillongoing;3personswerefoundguiltyunderArt.332oftheCCandsentencedto8yearsofimprisonment. 

365. The15FTFsontheInterpolwantedlistforoffencescommittedoutsideUkrainewerereferredtothePG’sOfficeforextraditionproceduresandwereremandedincustody.38otherforeigncitizensweredeportedfromUkraine. 

Conclusions

366. Therehasbeensignificant investigativeactivitybytheSSUon international terrorismin thecontext of the movement of FTFs across Ukrainian territory. Though the investigations into themovementofFTFshavenotyetcometofruition infinalisedcourtcases,weighthasbeengivenbytheevaluatorstothestepswhichhavebeentakenbytheUAssofarinthisimportantarea.Concernsremain about the speedwithwhich both relevant investigations and indictments are being takenforward.UkrainehasachievedamoderatelevelofeffectivenessforIO9.

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ImmediateOutcome10(TFpreventivemeasuresandfinancialsanctions)

ImplementationofUNSanctionsLists

367. Ukrainehasabroadlysoundlegislativeandinstitutionalframeworkfortheidentificationanddesignation of persons or entities pursuant to FT TFS. As regards the identification of targets fordesignationunderthe1267/1989and1988sanctionsregimes,theSSUhasbeenactivelymonitoringtheterritoryofUkrainetouncovertheactivitiesofpersons linkedtoISIL,whichhavepresentedagrowing risk since 2014. While the SSU was successful in exposing the activities of four ISILtransnationallogisticsnetworksanddisbandinganumberoftransferpointsusedforthetemporaryaccommodationofforeignterroristfighters(seeIO9),noproposalshadbeenmadefordesignationtothe1267/1989or1988Committees54atthetimeoftheon‐sitevisit.TheevaluationteamtooktheviewthattheauthoritieshadnotyetfullygraspedtheusefulnessofsanctionsasapowerfultoolindeterringFT,preferring instead topursue lawenforcementmeasures.UkrainehasnotdesignatedpersonsorentitiesthatmeetthedesignationcriteriaunderUNSCR1373,eitheratitsownmotionorattherequestofanothercountry.However,designationshavebeenmadeatUkraine’sownmotionunderUkraine’ssecondlegalmechanismfordesignation,theLawonSanctions(seeR.6),inrelationtoasanctionregimenotrelatedtoFT.ThissuggeststhatUNSCR1373couldbeappliedeffectively,shouldtheneedarise.

368. Ukraine implements FT TFS without delay. According to the AML/CFT Law, when new UNsanctionsareintroducedunderUNSCR1267,theMFAmustcommunicateanynewdesignationstothe FIU within 5 working days, which must subsequently publish these amendments within 3workingdaysafterreceipt.Whilethispotentialgapfarexceedstherequirementforimplementation“withoutdelay”asrequiredbytheFATFstandard,inpractice,theFIUmonitorstheUNwebsiteonadailybasisandtheUkrainianPermanentMissiontotheUNinNewYorkwillcommunicatechangestothelistofdesignatedpersonsonthesameday.Uniformly,REsconsultedbytheteamwereawareoftheFIU’sonlineresources,whereUNanddomesticlistsarecompiledonadailybasis.ThisaspectofUkraine’ssanctionsframeworkappearshighlyeffective.

369. AsindicatedunderR.6,Ukraine’sUNsanctionslegislationdoesnotcoveralltherequirementsunder the FATF Standards. Some significant technical deficiencies negatively impact theeffectiveness of the TFS regime. The freezing obligation does not extend to all natural and legalpersonsbutonlytoREs(seeC.6.5(a)).Critically,thefreezingobligationreliesonthesuspensionofatransactioninvolvingapartyorbeneficiarythatisadesignatedpersonorentity.REsarethereforenotrequiredtofreezeall thefundsorotherassetsthatareownedorcontrolledbythedesignatedpersonorentity,whicharenotlinkedtoaspecifictransaction(seeC.6.5(b)).Itisalsounclearhowthe freezing of funds or other assets derived or generated from funds or other assets owned orcontrolleddirectlyor indirectlybydesignatedpersons,aswellas fundsorotherassetsofpersonsandentitiesactingonbehalfof,oratthedirectionofdesignatedpersonsorentities,wouldbesubjectto freezing (see C. 6.5(b)). Moreover, Ukraine does not prohibit its nationals or any persons andentitieswithinitsjurisdictionfrommakingfundsorotherassets,economicresources,orfinancialorotherrelatedservices,availableforthebenefitofdesignatedpersonsorentities(seeC.6.5(c)).

54TheauthoritiesstatedthatUkrainesubmittedthreedesignationstothe1267UNSCRlinkedtoISIL/AlQaidaaftertheon‐sitevisit.

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370. Despite these technical deficiencies, FIs and DNFBPs are aware of their respective TFSobligations. All banks consulted by the evaluation team explained that their compliance officersemployedsoftwarethatautomaticallyscreensallincomingandoutgoingtransactionsfornamesandentitieslistedbytheUN.WithregardstoUkraine’sdomesticsanctionslist,allinstitutionsindicatedthattheyregularlyreceiveupdatesfromtheFIUandwereabletomakeimmediateamendmentstotheir screening mechanisms. Other FIs and DNFBPs consulted by the evaluation team uniformlyemphasised their attention to both international and domestic sanctions. However,many rely onopen source research to ensure that their business would not service designated individuals orentities.Thisapproachmaybelesscomprehensive.

371. FIswereabletoprovidenumerousexampleswheretransactionsweretemporarilyfrozenandcases were forwarded to the FIU and SSU in the form of STRs. The vast majority of these casesinvolved a falsematch due to discrepancies in the transliteration of names. However, two bankswere able to recall that, during the reporting period, transactions were permanently blockedbecausecomplianceofficershaddrawna linktoUN‐designated individuals fromSaudiArabiaandPakistan,respectively.However,theauthoritieswereunabletoprovidefurtherinformationontheoutcomeofthesetwocases.Itisunclearwhetherfundsarestillfrozen.Accordingtotheauthorities,todate,nofundsorotherassetshavebeenfrozeninUkrainepursuanttotheFTTFSregime.

372. TheNBU, the SC and theNC (which together supervise the entire financial sector)monitorcompliancewithTFSobligationsaspartoftheirroutineAML/CFTon‐siteinspections.TheyconsiderthatFIshaveahighlevelofunderstandingofFT.NobreachesofTFShavebeenidentifiedbyanyofthese supervisors. It is not clear how the other supervisors review adherence to FT lists by theentities theysupervise.Guidancehasbeenprovided toREsonFT‐relatedTFS.Typologicalstudiesare published every year on the FIUwebsite,where a separate section covers FT typologies. Thesection"DetectionofFinancialOperations"onthewebsitecontainsrelevantinformationonhowtodetectsuspiciousfinancialtransactionsregardingtherisksofFTandTFS.TheemployeesoftheFIUandsupervisorsareinconstantliaisonwithREsviaadedicatedtelephoneline.TheTrainingCentreoftheFIU,andothereducationalinstitutions,togetherwiththestateregulators,conducttrainingforREs,inparticularregardingtheidentificationoftherisksofFTandTFS.

Non‐ProfitOrganisations

373. In the NRA and the 2016 National review of the FT risks affecting the non‐profit sector,Ukraine identifies NPOs uniformly as vulnerable to abuse by illicit financial actors and to FT.Accordingtobothreports,thethreatofinternationalterrorismcombinedwiththewidespreaduseof cash has created an environmentwhereNPOs could either be abused by or on behalf of illicitfinancialactors,orcouldbeestablishedasshamorganisationswhosesolepurposeistomovemoneyunder thepretence of charitable giving.However, theunderstandingof the associated risks couldbenefit fromdeeperanalysis.The risk classificationusedby theSFSas a basis formonitoring thesectorisundulyfocussedonwhetherNPOsarebeingmisusedforcommercialpurposes,whichalsodenotesanincompleteunderstandingofFTrisk.TheSSUwasabletoarticulatebetterwhycharitiesposedasignificantFTriskbutthisunderstandinghasnotbeencommunicatedtootherauthorities,privatesectorortheNPOsector. Inaddition,withtherecentintroductionof theRegisterofNPOs,thewholesectorhasbeensubjecttoare‐registrationobligation,whichtheauthoritiesindicatehasallowedfortheidentificationof“dormant”NPOsandimprovedthereliabilityofstatistics.However,itisdifficult,inthistransitionperiodandbasedonthestatisticscurrentlyavailable,toformaclearpictureofthescopeoftheNPOsector,itsvariouscategories,anditssize.

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374. SeveralinterlocutorsalsonotedthesheernumberofNPOsinthecountryasastand‐aloneriskfactor.Whenaskedtomakeabroadestimate,someauthoritiesestimatedthatuptoaquarterofallNPOsregisteredhavebeenestablishedwithoutaclearlegalpurpose.Whenpressed,theyidentifiedthese NPOs “established for illegitimate purposes” as the principle risk for FT, but could notelaboratefurther.

375. TheFIUhasorganisedseveraloutreachactivitiesspecificallyaimedatraisingawarenessonNPO‐related risks both to the NPO sector itself and REs. Financial transactions involving the crediting orreceivingoffundsbyNPOsaresubjecttomandatoryreportingbyREs.REscannotordonotdistinguishbetweenNPOclientsthatposeahigherriskandthosewhoseoperationsappearlegitimateortransparent.Theongoingreviewofthesector,whichoverthepastseveralyearshasstrippedmanyNPOsoftheirstatusassuch,likelyunderminestheabilityofprivateinstitutionstounderstandthisclientbase.Whenconsultedduringtheonsitevisit,allprivatesectorinstitutionsindicatedthattheyappliedEDDtoNPOclients,orchosenottoservicethemaltogether,becauseofhighFTriskinthesector.Yet,theywerenotabletonamefurthercriteriathatwouldcharacteriseariskyNPOclient.Whiletheprivatesectoristobecommendedforitscloseadherence to advice provided by authorities, the evaluation team deduced from these interviews thatfurtheroutreachwasnecessary,particularlyiftheSSUisinthepositiontoshareanytypologiesinvolvingFT.Inaddition,theimplementationoftherisk‐basedapproachshouldbeimproved,inordertoensurethattheNPOsectorisprotectedfromterroristabusewithoutdisruptingordiscouraginglegitimatecharitableactivities.

DepravationofTFAssetsandInstrumentalities

376. The amountof FT‐relatedassets and instrumentalities seizedby theauthorities is indicatedbelow.

Table15:FT‐relatedfundssuspendedbytheFIU,seizedbyLEAsandconfiscated

FIUFTcase

referralstoLEAs

PropertysuspendedbytheFIU

Propertyseized Propertyconfiscated

Cases Cases Amount(EUR)

Cases Amount(EUR)

Cases Amount(EUR)

2014 13 2 3,836 ‐ ‐ ‐ ‐2015 6 3 85,360 ‐ 80,534 ‐ ‐2016 4 1 2,424 ‐ 1,389,313 ‐ ‐1stQ2017 1 0 0 ‐ ‐ ‐ ‐377. TheFIUblockedatotalamountofEUR91,620onaccountsheldbybanksin6differentcases.ThesefundswereeventuallyseizedbyLEAs.Intotal,LEAsseizedEUR1,469,847inrelationtoFT.Thenumberofcasesthisfigurerelatestoisunclear.Asnotedundercoreissue9.2,theSSUseizedlargeamountsofcashinrelationto4transnationallogisticalnetworksofISILoperatinginUkraine.Figures forconfiscationwerenotmadeavailable.Asalso indicatedunder IO9, theSSUhasseizedinstrumentalities(bankpaymentcards,weapons,storagemediawithinstructionsonproductionofimprovisedexplosivedevices)fromthe4networks.

ConsistencyofmeasureswithoverallTFriskprofile

378. Ashighlightedabove,UAsandprivatesectorparticipantspaycloseattentiontonationalandinternationalsanctionslists.Indeed,awarenessofsanctionsandsanctionscompliancerequirements

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hasincreasedduetotheconflictintheeasternpartofthecountry.ThisiscommensuratetotheFTrisksassetforthinUkraine’sNRA.

379. Theeffectivenessof this implementation,however, is almost certainlyoffsetby the size andscope of Ukraine’s shadow economy and the widespread use of cash to conduct commercialoperations. The creation of fictitious companies is commonplace and schemes to launder fundsacross international borders are sophisticated and well documented by local civil societyorganisations aswell as internationalwatchdog groups.These factors increaseUkraine’s inherentexposuretosanctionsevasion.InternationalactorsseekingtouseUkraineasatransitjurisdictiononbehalf of sanctioned individuals and entities could exploit the same permissive environment thatallowsforhighlevelsofpubliccorruptionandelaboratefinancialschemesinthedomesticcontext.

Conclusion

380. UAs, FIs and DNFBPs are aware of and appear to effectively implement their respectiveobligationsrelatedtoFTsanctionslists.AuthoritiesshouldalsoberecognisedfortheguidancetheyhaveprovidedtoFIsandDNFBPsontheirsanctionsobligations,includingthroughimplementationguidancewithregardstotherelevantUNSCRsthattargetFT.However,technicaldeficienciesnotedunder R.6, concerning the scope of funds and other assets that can be frozen undermine theeffectivenessofUkraine’ssanctionsregime.

381. While the SSU understands the risks posed by the NPO sector, it does not share themoregranularunderstandingofthesectorithasdevelopedwithotherauthoritiesandtheprivatesector.Morein‐depthresearchcouldbeconductedonthevariousthreats,typologiesandvulnerabilitiesofspecific categories of NPOs, in order to develop a RBA to protecting NPOs from FT. Currently,supervisionbytheSFSismainlytax‐orientedandonlyprioritisesFTriskstosomeextent.TheFIUhasestablishedeffectivecommunicationchannelswithFIsandDNFBPs,andaddressesFTrisks inthesectorinthecontextofthetrainingprovidedtoREs,onlylimitedformalguidanceisprovidedinthatrespect.TheprivatesectorappearstotreatallNPOcustomersashighriskforFTinthecontextof themandatory reportingofNPO transactionsunderArt.15of theAML/CFTLaw.UkrainehasachievedamoderateratingforIO10.

ImmediateOutcome11(PFfinancialsanctions)

382. Although the UAs indicate that the country has no formal trade relationships with Iran orDPRK (and no export licence has been issued or requested in relation to those countries), as aproducerofdual‐usegoods,chemicalsandweaponry,Ukrainemaybeexposedtoproliferationrisks,whichconstituteadirectPFrisk factor.55 Inthatcontext, thecountryappearstohavedevelopedasophisticated institutional framework to interdictgoods that couldbeexported fromor transitingthe jurisdiction by or on behalf of illicit actors andweapons proliferators. The UAswere able todemonstrateeffectivecooperationbetweencustomsandexportcontrolprocedures,aswellastheircollaboration with security services. The UAs have also shown awareness and understanding of

55Theevaluationteamhasassignedparticularweight toexportcontrolsandmovementofcontrolledgoodsdue toUkraine’s riskprofileand theneed toaccount forrecentUNSCRstargetingDPRKthatgobeyondthetraditionaldefinitionofPF. In theDPRKcontextanexplicit link ismadebetweenavailablerevenuestreamsandthecountry’snuclearprogram.TheevaluationteamdidnottakeintoaccountUNmeasurespassedsincethetimeoftheonsitevisit.

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proliferation risk. Ukraine has actively contributed to the UNSCR reporting obligations on non‐proliferation,bysubmittingimplementationreportstotherelevantUNcommittees.

383. TheUAsprovidedseveralcasesofsuccessful interdictionof illicitshipmentsassociatedwithhigher‐risk jurisdictions, including Iran.The first,whichhasbeenwellpublicised inUkrainianandinternationalmedia,concernedanillegalshipmentofweaponryfromtheKyivZhulyanyairport.TheSSUandcustomsexplainedthat,duringaroutinesweepofoutgoingaircrafttoIran,theyuncoveredthree containers thatwere not declared on the plane’smanifest. Upon further investigation, theydetermined that the contents were unregistered anti‐tank guided missiles produced by a thirdcountry.TheUAshaveconfiscatedtheweaponryinaccordancewithUNSCR2231,whichmaintainsrestrictionsonarmssalestoIran.TheSFSalsoprovidedtheassessmentteamwithtwocaseswhereauthorities seizedrestrictedchemicals thathadbeendelivered to theBlackSeaportofOdessa. InFebruary 2017 and March 2015, respectively, customs authorities inspecting incoming cargouncovered shipments of controlled precursormaterials that hadbeen falsely labelled on customsdocuments. Cargomarked as containing unrestricted goodswas shipped from a Chinese address.Criminalproceedingswereopened inboth instances forviolationsof theUkrainiancustomscode.However,noinformationwasprovidedontheoutcomeoftheseproceedings,orwhetherauthoritiesassessedthatthesechemicalswereintendedforuseintheproliferationcontexteitherinUkraineorasecondaryjurisdiction.

384. Despitethesesuccesses,effortstomitigateproliferationrisksarehinderedbythefactthatthecontrolofUkraine’sexternalbordersremainsweak,especiallythoseintheeasternpartofUkraine.The Border and Customs authorities appear to be resource‐strapped and understaffed andencounterdifficultiesincarryingouttheirduties.Inaddition,onthebasisofonsitediscussions,theevaluation team formed the view that the understanding of sectoral restrictions called for undermorerecentUNSCRs,particularlyinthecontextofDPRK,wasconsiderablyweaker.ItislikelythattheUAshavenotyetfullytranscribednon‐TFSrelatedUNSCRrequirements.

Implementationwithoutdelay

385. As regards, the financial aspectof combatingPF, aswith IO10, thePF‐relatedTFS regime isbasedontwomechanismsprovidedby,respectively,theAML/CFTLawandtheLawonSanctions.AsnotedunderIO10,themechanismsinplaceseemtoensurethatchangestotheUNlistsareincludedin national legislation and communicated to REs without delay. However, the deficiencies in R.7highlightedintheTCAnnexarelikelytohaveanimpactontheeffectivenessofthePF‐relatedTFSregime inUkraine. Inparticular, theoverlappingandcomplex legalbases restrict thescopeof thefreezingobligationanddonotprovideforaclearprohibitiontomakeassetsavailabletodesignatedpersonsorentities,asrequiredbytheFATFStandards.

Identificationof fundsorotherassetsandpreventionofdesignatedpersonsorentities fromoperatingorfromexecutingfinancialtransactionsrelatedtoproliferation

386. TheUAsreportthatnocasesofPFhavebeenidentifiedinthecountry.TheimplementationofthePF‐relatedscreeningobligationshasnotresultedinany“hit”.NoSTRhasbeenfiledinrelationtoproliferation or PF. There have been no investigations and prosecutions on the financing ofproliferation, including inrelationtothedetectionof illicitshipmentsmentionedunderCoreIssue11.1.Althoughinformationexchangemechanismsareinplace,inpractice,thereislittlecooperationbetween export control and customs authorities and other competent authorities (other law

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enforcement, the FIU, supervisors) when handling PF UNSCRs. When asked, supervisors did notdemonstrateaconcreteunderstandingofUNSCRobligationsthatextendbeyondscreeningforlistednamesandentities.

387. Ukraine’scash‐intensiveeconomyandpervasiveshellcompanyactivity,aswellasthelimitedeffectiveness of CDDmeasures related to beneficial ownership identification, increase the risks ofTFSevasion,andunderminetheeffectivenessofUkraine’sabilitytodetectcomplicated,multi‐tieredpayments structures related to PF, or to uncover the involvement of a sanctioned individual andentity.Thismaymoregenerallyhaveanegative impactontheeffectivenessof theexportcontrolsregime. The ability for authorities to intercept illicit goods is also premised on the availability offinancial and other transactional records. Authorities cannot do so if cash is used to conductcommercialoperations.Thisfactorisparticularlyimportantinthecontextofillegalweaponstrade.

388. The UAs indicate that sanctions evasion is among the issues discussed within theInterdepartmental Expert Working Group on the issues of counteraction of the proliferation ofweaponsofmassdestructionandterrorism,andtheprotectionofcritical infrastructureunder theNational Institute for Strategic Studies. Analytical studies on counteraction of proliferation arecoveredbytheNationalInstituteforStrategicStudies.

FIsandDNFBPs’understandingofandcompliancewithPF‐relatedTFSobligations

389. As discussed under IO10, theUkrainian FIs andDNFBPs consulted by the assessment teamwere aware of their obligations to screen for names and entities subject to sanctions imposedpursuant to the relevant PF‐related UNSCRs. The communicationmechanisms in place in the FT‐relatedTFScontext,suchasdisseminationandguidancefromtheFIU,areinplaceinthiscontextaswell.TheFIUregularlyrelaysrelevantinformationonPFrisks(includingFATFpublicstatements)tothe REs through its official website. In 2016‐2017, the FIU’s Training Center conducted variousawareness‐raisingevents forREs,whichcovered the issuesPF.TheFIU isencouraged tocontinuereachingouttotheprivatesector,particularlyinconsultationwithsecurityservicesandtheMFA.

Competentauthoritiesensuringandmonitoringcompliance

390. ThemechanismforensuringcompliancebyREswiththerequirementsonPFisdeterminedbyeach supervisor pursuant to their respective regulations on the implementation of financialmonitoring. The UAs indicate that all supervisors include the verification of PF‐related TFSobligationintheirrespectiveinspectionprocedures.Noviolationsofthoserequirementshavebeendetected.ItremainsunclearwhatlevelofpriorityisassignedtoverifyingPF‐relatedobligations,andto what extent the analysis of risks which informs the inspection programmes include PF. Inaddition,resourceissuesfacedbysupervisors,ashighlightedunderIO3,alsohaveanimpactontheeffectivenessofthemonitoringofPF‐relatedobligations.

Conclusion

391. TheUAs have a sophisticated institutional framework to handle the transit of controlled orprohibitedgoods, and tomonitor sanctionedentitieswhenpresentedwitha specific caseof illicitcommercial transaction or trans‐shipment. However, Ukraine appears to have a weakerunderstandingofthemostrecentUNSCRsconcerningDPRK.ThecountryimplementsPF‐relatedTFSwithoutdelay,andREsappeartohaveagoodunderstandingof,andlevelofcompliancewith,related

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obligations.However, thereare important technicalgaps in thoserequirements,andthemoderatelevelofeffectivenessnotedunderIO4mayhaveanegativeimpactontheimplementationoftheTFSobligations. Inpractice, there is little cooperationbetweenexportandcustomscontrolauthoritiesandothercompetentauthoritieswhenhandlingPFUNSCRs.ThelevelofpriorityandtheamountofresourcesassignedtotheverificationoftheimplementationofPF‐relatedobligationsbysupervisorsis unclear. In the context of the particular risks faced by Ukraine, the prevalence of cash andubiquitous use of fictitious companies may also contribute to sanctions evasion. Ukraine hasachievedamoderateratingforIO11.

CHAPTER5. PREVENTIVEMEASURES

KeyFindingsandRecommendedActions

KeyFindings

• TheunderstandingoftherisksoutlinedintheAML/CFTLawandthoseadditionalriskswhichwere highlighted in theNRAwas generally good by all sectors.However among the non‐bankingsector,broader typologiessuchas foreign terrorist fighters,cashcouriersandsector‐specific risksaremostlynotconsidered.

• TheCDDprocessesareconsistentacrossallpartsoftheprivatesector.Whereexemptionsareallowed for low value transactions, often CDD is undertaken anyway.However, the application ofadequate CDDmeasures is hindered because of legislative shortcomings connectedwith the timelimitationofPEPs.

• The procedures undertaken by the private sector, outside of banking institutions do notappeartoeffectivelyverifytheultimatebeneficialowner(“UBO”)ofalegalperson.ThisstemsfromthefactthattheprocessesundertakeninvolvescomparingthedatasubmittedbyacustomertothatheldontheUnifiedStateRegister(“USR”)whichisacceptedbymanyofthoseinterviewednottobeareliablesource.

• Procedures for reporting to the FIU are generally well understood by the private sector.However,REsarenotfocusingonsuspicioustransactionreportingandreportingseemstobelargelybased on specific indicators included under the AML/CFT Law. Among the non‐banking REs, theactuallevelsofreportingseemstobeverylow.

• Adequatemeasurestopreventtipping‐offwereinconsistentlyappliedoutsidethebanks.Thedangers of front office staff tipping‐off that they have made an internal report to the OfficerResponsibleforFinancialMonitoringarenotgenerallyrecognisedbyREs.

RecommendedActions

• Supervisors and/or the FIU should broaden their training regimes to REs which aims toprovide anunderstandingofwhatunderpins risk factors and to encourage a risk‐based approach(RBA)toAML/CFTprocedures.

• Supervisors and/or the FIU should broaden their training regimes to REs on distinct risksfacing each sector aswell asmore general threats of handling the proceeds of crime by Ukraineresidentsandnon‐PEPs.

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• The authorities should ensure that all FIs and DNFBPs are applying adequate specificmeasuresinrelationtoPEPscommensuratewiththeFATFrecommendations.

• The authorities should ensure that all FIs and DNFBPs are applying adequate specificmeasuresinrelationtonewtechnologies.

• The authorities should continue their outreach and education to all FIs and DNFBPs andexpandthesyllabustocoverspecificTFthreatsandvulnerabilities.

• AuthoritiesshouldcontinuetoworkwithFIsandDNFBPsto increasetheSTRreportingandthe quality of STRs. Consideration should also be given to the cost and benefit in relation to themandatoryreportingregime.

Technicaldeficiencies(listedintheTCannex)relatingtopreventivemeasuresshouldbeaddressed.

392. The relevant Immediate Outcome considered and assessed in this chapter is I0 4. TherecommendationsrelevantfortheassessmentofeffectivenessunderthissectionareR9‐23.

ImmediateOutcome4(PreventiveMeasures)

393. ThebankingsectormakesupthemajorityofthefinancialservicessectorinUkraine.TheNRAidentifiedthatthepublictrustinthebankingsystemhasdeterioratedinrecentyearswhichappearsto have led to a rapid growth in payment services businesseswhich fill the service demands fortransferring cash without the need for a banking relationship. In 2013, the NBU had licenced 5paymentservicesbusinessesandin2016therewere19licencedtoundertakethatactivity.Asthissector is growing50%yearonyear, the sector isbecoming increasinglymaterial to the financialsectorofUkraine.

394. Interviews with the private sector and reviews of statistical information submitted by theauthoritiesdemonstrate that theprovisionof financial services inUkraineareprovided largely toresidentsofthecountry.Internationalbusinessmakesupaverysmallpartoftheoverallcustomerbaseandsitsgenerallywithintheremitoflargerinstitutions.

395. Oneof themostsignificantdangers in themindsof theprivatesector,besidescorruption, isthesizeof theshadoweconomy.Many licencedor registeredFI’sandDNFBP’s suggested that thelaunderingoftheproceedsofcriminalitywillbeundertakenthroughthisshadoworgreyeconomywhichwasfelttobesubstantialandrelativelyeasilyaccessible.

UnderstandingofML/TFrisksandAML/CFTobligations396. Art.6(4)oftheAML/CFTLawrequiresthatREstreatcertaincustomersaspresentingahigherriskwhichincludeinter‐alia:

‐ PEPs;‐ EntitiesfromcountrieswhichdonotapplytheFATFstandards;‐ CertainForeignEntities;and‐ SanctionedPersons.

397. AlloftheREsinterviewedappearedtounderstandtheirobligationsundertheAML/CFTLawand the additionalmeasures required under the lawwere consistently applied to customerswhomettheArt.6(4)criteria.

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398. ManyoftheREstheevaluationteammetwithhadsomeinvolvementintheNRAprocessandtheunderstandingdemonstratedof theassessmentwasgenerallygoodwithmostREs supportingthe findings in general terms.Moreover, ahighproportionof the sectorhas taken thehigher riskfactors identified in the NRA and have begun integrating them into their existing AML/CFTprocedures. This was evidenced by many businesses identifying NPOs as posing a higher risk, afactorwhich ispresentlyabsent fromArt.6(4)of theAML/CFTLaw.Suchcommunication to, andacceptance by, the private sector in the short time the NRA has been published is a positiveindicationoftheconstructiverelationshipbetweentheFIUandtheprivatesector.

399. The banking sector appeared to have comprehensive knowledge of the ML/FT risks facingtheirorganisationsanddemonstratedasoundunderstandingoftherationalebehindeachoftheriskfactorsidentifiedintheAML/CFTandintheNRA.MostoftheREsoutsidethebankingsectorwerewellawareoftheprescribedmatterswhichposedahigherrisk,wereabletodemonstrateasoundunderstanding of their legal obligations and explainedwhat customers pose a higherML/TF risk.However,whenquestioned,manyofthoseentities,inparticularthesmallerentities,werenotabletoarticulatewhysuchpersonspresentedahigherrisk.Forexample,whiletheNRAexaminedtherisksofNPOsfacingUkraineandthatmanybusinesseswereawarethatNPOshadtobetreatedashigherriskasaresultof theNRA’s findings,but fewunderstoodwhatdangersNPO’sposed to them,andwhattypesofactivityweremoresuspiciousthanothers.

400. Furthermore,veryfewnon‐bankingREswereabletoexplainwhatsector‐specificrisksfacedtheir sector beyond themore general threats facingUkraine as awhole. Examples of someof thepotentialrisksthattheevaluationteamexpectedtheprivatesectortoconsiderinclude:

a) Money Services Businesses – where customers are using their representatives andcounterparties or networks of customers, or where customers travel unexplaineddistancestolocationstoremitfunds.Additionally,asstatedintheMaterialitysectioninCh. 1, the volume of incoming remittances is significant. None of the private sectorentitiesconsideredthatthisposedanyelevatedrisks;

b) Life Insurance –Where agents or representatives act, or purport to act on behalf ofclients,especiallywhenpremiumsarebeingpaidthroughthosethirdparties;

c) Lawyers – establishment of fictitious companies, particularly how companies formedunderUkrainianLawmaybeabused(theuseoffictitiouscompanieswashighlightedasoneofthemajorrisksintheNRA).

d) Lawyers where the customer is seeking advice on matters which are outside theadvisorsexpertise,andconsideringthepotentialabuseoflegalprivilege.

401. Some REs do not appear to document their ML/FT risk assessments, while most of thoseinterviewedconfirmedthattheydoindeedperiodicallyreviewtheirownriskcriteria,theyonlydoso when legislation or regulations are amended and this process is not documented. REs arecategorisingriskwhichisbasedoncertaincategoriesprescribedin laworfromguidancegivenbythe authorities (e.g. type of services, geographic location). However the RBA rarely takes intoaccountrisksspecifictothesectororinstitution.

402. WhendiscussingtheprocessaroundtheassessmentofML/FTrisks,considerationisgiventothose factorswhich are detailed under Art. 6(4) of the AML/CFT Law. Art. 6(4) obliges the FI orDNFBPtotreatanycustomermeetinganyofthosecriteriaasposingahigherriskforML/FT.Beyondthis prescribed list, only NPOs and customers who are unable to provide completed CDD areconsideredasaML/FTthreat.

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403. ThestatutoryframeworkaroundPEPsallowsforapersontobede‐recognisedasaPEPthreeyears after they leave public office. This definition appears to be applied almost universally inpractice,withPEPsroutinelyde‐recognisedimmediatelyafterthethreeyearanniversaryhaspassed.BecausetheprivatesectorwereunabletoarticulateanunderstandingofthedangersposedbyPEPsthey remain vulnerable to exploitationbypersonswhohavebeende‐recognised asPEPsbecausethose persons are no longer subject to enhanced monitoring despite the risk posed by PEPsremainingverymuchaliveafterthreeyears.

404. FT risks faced by theMVTS sector,which include those seeking to use Ukraine as a transitcountry or by returning foreign terrorist fighters, appear to be well understood by the SSU. TheMVTSsector,however,considersthatthelowerlevelsoftransactionamountsassociatedwiththeirbusinessmodelinsulatesthesectorfromMLandinparticularFTthreatswithsomedescribingthesethreatsas“impossible”tomaterialise.Thisappearstobeacomfortwhichcouldnotberationalisedwhenpublishedandwell‐documentedtypologieswerediscussed.TheknowledgeofML/FTbytheprivate sector seems to be heavily reliant on the dissemination of information by regulators andLEAs.

405. Among the private sector, there was a good understanding of what processes should beundertakenwhencustomerswereidentifiedasposingahigherrisk,however,inpracticetherewereactuallyveryfewhigherriskcasesactuallyidentified‐approximately0,5%‐1%.

406. The REs interviewed discussed under which circumstances they would decline to act for acustomerorotherwiseceaseprovidingservices.Theproceduresdiscussedwerecomprehensiveandappeared reasonable. However, there were virtually no such denials or terminations of businessamongthenon‐bankingREsonAML/CFTgrounds.Whilethisispositiveforfinancialinclusion,suchfeedback further supports the conclusion that non‐banking RE do not adequately understand theML/FTrisksfacingthem.

407. TheFIUandthesupervisorsundertakefrequentoutreachsessionstotheprivatesectorwhichincludesupdatesinlegislationandcurrentAML/CFTmatters.Theevaluationteamunderstoodfrominterviews with the private sector that the outreach by the FIU in particular is very useful. TherelationshipwiththeFIUandthesupervisorswasgenerallydescribedbythoseinterviewedasverygood.

Applicationofriskmitigatingmeasures408. The controls and mitigation factors which apply to the risks identified for REs under theAML/CFT Law are broadly understood. The private sector is aware that additional screening ofclients and enhancedmonitoring is required for those customers who are identified as posing ahigher risk. Controls implemented are broadly consistent and appear to be based on the risks asprescribed. Interviews with some Officers Responsible for Financial Monitoring indicated thatinformalnetworksofcounterpartsareusedtoidentifypotentialrisksposedbycustomers.

409. RegulatorsandFIUprovideregulartrainingfortheprivatesectoronexistingrisks,emergingrisks and techniques, the purpose of which is to aid the private sector in the control and themitigation of those risks. The private sector representatives spoke highly of the training and theopendialoguebetweentheFIU,theregulatorsandthemselveswithqueriesoftenansweredquicklyandsatisfactorily.

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410. As noted above, the banking sector demonstrated a more detailed understanding of therationalebehindtherisksspecifiedintheAML/CFTLaw.Assuch,thebanksgenerallyappearedtohavemorecomprehensivemitigationcontrolsinplacewhich,whilevaried,betteridentifiedthreatsposedandcontrolledthosethreats.Non‐bankingREsdemonstratednarrowermitigationmeasuresinresponsetorisksidentified.

411. Suchcontrolswouldgenerallyinvolveeitherrefusingtoprovidetheclientwithservices,orinthe case of PEPs, wait until three years following the departure from office has passed and theperson would no longer meet the definition of a PEP. Evaluation of this process was limited toproceduraldiscussionsasveryfewnon‐bankingREsconfirmedtheyhadanycustomerswhoposedahigherrisk.Othercontrolsidentifiedbytheassessorsincludeundertakingmoredetailedmonitoringofthecustomer’sfinancialactivityandmoredetailedinvestigationintothecustomer’shistoryandbackground.

412. GiventhenumberofREstheevaluationteammetwithandtheoverallnumbersofcustomersreported, thereappears tobeanunusually lownumberofcustomers identifiedasposingahigherriskforML/FT.

ApplicationofCDDandrecordkeepingrequirements413. The CDD procedures implemented by the private sector are comprehensive and consistentacrossallsectors.

414. Allcustomers(legalandnatural)arerequiredtopresenttheiridentityverificationdocumentsto the RE in person, those documents are then examined and recorded by the business. Whenestablishing business relationships, information is obtained by the REs in the form of eitherquestionnaires, interviews, discussions or combinations of these. This information is used toestablishaprofileofthecustomeragainstwhichtheirongoingactivitieswillbemonitored. Thesesteps appear to have been useful in identifying unusual and suspicious transactions which haveresultedinSTRsbeingfiledwiththeFIU.

415. Wherecustomersarenaturalpersons,allREsreportedverysimilarprocesses.Customersarerequired to provide basic identification information with copies of supporting verificationdocumentsretainedonrecordinmostcases.ExemptionsareavailableundertheAML/CFTLawforsmall transactions which are consistent with the FATF recommendations. However, theseexemptionsareactuallyrarelyusedinpracticebymostofthosepartiesinterviewed.

416. Whereacustomer isa legalperson, the identificationandverification isexpanded toobtaininformationonthestructureoftheentity,detailsofthosepersonschargedwiththegovernanceofthat entity and its UBO. This information is verified, typically, through the use of open sourcedatabases, namely the USR. The banking sector, generally,will seek additional verification at thistimeontheUBOof the legalperson.The informationobtainedonnaturalpersonsassociatedwiththelegalpersonisthenverifiedinthesamemannerasthenaturalpersonsintheparagraphabove.

417. Where a customer is identified as posing a higher risk, additional information is sought todeterminethatcustomer’s“financialcondition”.Thisappearstoincludeinformationrelatingtothesource(s)ofthatcustomerswealthandinformationtoallowfortheREtodevelopafinancialprofileinordertomorecloselymonitorthefinancialtransactionsofthatcustomer.

418. Recordkeepingdoesnotseemtobeconsistentacrossallentities interviewed.AllREsagreethat records of transactionsmust be retained for 5 years from the date that the transaction took

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place. In respect of CDD records, all of the banks and most of the non‐banking businessesinterviewed advised that the records are retained for 5 years from the termination of businessrelationship in line with R. 11. However, a significant minority of other REs advised that theyretainedtheCDDrecordsonlyfor5yearsfromthedatetherecordswerecreated(i.e.fromwhentheclientwastakenon).Inmitigation,manyofthoseinterviewedbytheevaluationteamadvisedthatinpractice,recordswereheldindefinitely.

419. Asnotedabove,theprivatesectorutilisetheinformationheldbytheUSRtoverifytheUBOofthe client. This is a positive measure employed by the industry and shows that they are takingreasonablestepstotesttheinformationprovidedtothembyclients.Suchprofessionalscepticismisa healthy trait in an effective system. Unfortunately, the information held in the USR is generallyaccepted by some authorities and representatives of the private sector to be poor quality andunreliable.Asaconsequence,someofthelargerfirmsinterviewedundertakeadditionalcheckssuchas reviews of other open sources to further test the validity of the UBO information, particularlywhere theML/FT risk is identified tobehigher.While theauthorities and industrybroadly agreethat the information in the USR lacks reliability, quantification of this unreliability varies. Mostrespondentsagreedthatapproximately20%oflegalpersonslistedontheUSRhavefalse,inaccurateormisleadinginformationattributedtothemontheregister.

420. Relianceon thirdparties toundertakeCDD isnotpermittedunder theUkrainian legislationanddoesnotappeartooccurinpractice.

ApplicationofEDDorspecificCDD421. Application of specific measures required under recommendations 12 through 16 weregenerallyappliedinaconsistentmanneracrossallREs.

a.PEPs

422. Application of specific and EDD where a PEP has been identified by the RE is broadlyconsistentwiththeAML/CFTLaw.

423. AllREsnotedthatwhereaPEPisidentified,aseniorofficeroftheorganisationisrequiredtogiveconsenttoestablishingabusinessrelationship,orundertakingaone‐off transactionwiththatcustomer.Noneofthoseinterviewedbytheevaluationteamhadwithheldsuchconsent.

424. ThedetectionofPEPsvariesacrosstheREsbecauseasubstantialamountofrelianceisplacedonself‐declarationwithsomeentitiesrelyingoncustomerfacingstaffrecognisingapersonasaPEP.VerificationofPEPstatus isundertakenbymanyREsand this involves thereviewofopensourcedatabasesofvaryingquality.ThedatabasesusedbyREs,inparticularsmallerentities,arelimitedintheirability to identify foreignPEPs.Given theverysmallnumberofPEPs identifiedbythoseREsinterviewed, these procedures may have an adverse impact on the private sector’s ability toeffectivelyidentifyPEPs–particularlyforeignPEPs.ItshouldbenotedthatthisriskismitigatedbytherelativelysmallinternationalcustomerbaseamongUkrainianREs.

425. Where PEPs have been identified by a REs, generally additional measures are undertakenwhichestablishthecustomer’ssourceofwealthaswellasundertakingmoredetailedorenhancedongoingmonitoring.Thatbeingsaid,thedeficiencies identifiedunderrecommendation12,namelydefinitionofaPEPandthelimitationperiodhasamaterialimpactonUkraine’seffectivenessunderthespecificmeasures.

b.Correspondentbanking

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426. Correspondent banking relationships are relatively uncommon in Ukraine. Whererelationshipsareestablished,thecontrolsappeartobeconsistentandcompliantwithR.13.

427. Where correspondent relationships are established, generally the banks in Ukraine are therespondent banks themselves utilising foreign institutions to access banking markets in the US,Eurozone and Russia. A small number of banks do act as correspondents for institutions in CIScountriesandEurozonejurisdictionstoallowaccessforthoseinstitutionsintotheUkrainianmarket.

428. Where such relationships are established, thebanks interviewedoutlinedprocedureswhichappeartobecompliantwithR.13.ItshouldbenotedthatUkrainianLawdoesnotallowforpayablethroughaccounts,andthesedonotappeartobeoperatedwithinthejurisdictioninpractice.

429. Theredidnotappeartobesimilarcorrespondenttyperelationshipsamongtheprivatesectoroutsideofthebankinginstitutions.

c.Newtechnologies

430. Art. 6(23) of the AML/CFT Law requires REs to manage the risks associated with theintroductionanduseofnewandexistingproducts,businesspracticesor technologies. In termsofnewordeveloping technologies, systemsdevelopment formeda substantial and seemingly robustcontrol frameworkamongtheentities interviewedbytheevaluationteam.Thecontrolsystemsasdescribedappearedtobecomprehensiveandpositive.However,noneoftheREsoutsidethebankingsectorhadundertakenanyassessmentofthepotentialML/FTrisksthatmayarise.Whenthematterwasprobedinmoredetail,onlypotentialITsystemfailureswereidentifiedasamatterofpossibleconcern.

d.Wiretransferrules

431. The banks and non‐banking MVTS who met with the evaluation team appeared to have agenerallygoodunderstandingoftheWireTransferRulesandtherequirementsimposedundertheUkrainian legislative framework. On the face of it the requirements under recommendation 16appeartobefollowedinpractice.

432. MuchoftheUkrainianMVTSmarketisdomesticinnatureandcross‐bordertransactionsmakeup only a very small part of the registered, non‐bankingMVTS sector. ThoseMVTS authorised toundertake cross‐border transactions are almost entirely with neighbouring CIS countries. Largertransactions (over UAH 150,000 in a single or series of linked transactions)(~EUR 4,917.46) areundertakenbybanks,whowillonlyserveestablishedcustomerswhichreducesthepotentialimpactofML/FTrisk.

433. Wherepersonsactasagents foranMVTS, theprincipal remainswholly responsible for thatentity’s reporting and compliance with the relevant requirements of the AML/CFT Law. SucharrangementsappeartobeuncommoninUkraine,thosereviewedbytheevaluationteamappeartobe adhering to the same control framework as a similar sized operation structured as a singleeconomicentity.

434. Finally,ofthefirmsinterviewedwhousedbespokeandoff‐the‐shelfsoftwareapplications,theanalysis of those reports was encouraging, while significant reliance was being placed on thesystems,theeffectiveandrelativelyefficientuseofsuchsystems,inpracticecameacrossaspositive.

e.TargetedFinancialSanctions

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435. Since 2014, screening of potential customers is commonplacewith almost all REs having ascreeningprocessintegratedintotheirclienton‐boardingprocedures,duringtheprovisionofone‐offtransactionsandonanongoingbasis.Re‐screeningofexistingclientsisundertakenonaregularbasis,eitheronanatleastannualbasisorwhenatransactionisundertaken(whicheveroccursfirst).ItwasfurtherobservedthatsomeREsscreentheirentireclientbaseonamoreregularbasiswithsomelargerentitiesscreeningdaily.TheFIUpublishsanctionslistswhichincorporatedomesticallysanctioned persons aswell as integrating some international lists including UN sanctions and EUsanctions.TheselistsarethenusedbyREstoupdateinternalsystemsregularly,typicallyonadailytoweeklybasis.

f.HigherRiskCountries

436. Those REs who are involved in international business, appeared to have a very goodunderstanding of countrieswhich have been identified as posing a higher risk forML/FT by theFATF and advised that enhanced measures would be applied in these cases. Even among thosebusinesseswhoseclientbaseisdomestic,agoodawarenessoftherisksinmoregeneraltermswasdemonstratedinparticularfromcountrieswheretheFATFhascalledforEDDtobeapplied.SomeFIsadvisedthattheywouldnotacceptclientsfromthehigher‐riskcountriesidentifiedbyFATF.

Reportingobligationsandtippingoff437. Reportingrequirementsaredividedinto2forms:“mandatoryreporting”(explainedingreaterdetailunderIO6)and“internalmonitoringreporting”,whichrepresentsthetraditionalconceptofsuspicious activity reporting. The principles of reporting of suspicious activity and attemptedsuspiciousactivityseemtobebroadlyunderstoodbyallofthoseinterviewed.However,inpractice,thenumberofdisclosures appears tobeat the lowerendof the scale, having regard to the risks,sizes of the businesses and the volumes of financial transactions. The team was advised thatapproximately96%ofallreportsmadetotheFIUaresubmittedbybanks.Contextuallyitshouldbenotedthat themajorityof financial transactions inUkraineareundertakenbybankingsector.Theauthoritiesconsiderthisisconsistent,giventhesignificantlyhighervolumeoffinancialtransactionsconductedbybankinginstitutionsincomparisonwithnon‐banking.TheevaluationteamwouldstillexpectagreaterproportionofSTRstobesubmittedbynon‐bankingFI’sandDNFBP’sthanappearstobeoccurringinpractice.SuspicionbasedreportingbyDNFBPshasremainedlow.

Table16:Suspicion‐basedreportsfiledbyeachcategoryofRE

Reportingentity 2012 2013 2014 2015 2016(1stQ)

ML FT ML FT ML FT ML FT ML FT

Banks 335 930 4 316 537 6 491 041 1 413 279 2 77465 4

CreditinstitutionsandcurrencyExchangeOffices

4 0 31 0 126 0 183 0 28 0

Securitiestraders 164 0 7 0 10 0 190 0 34 0Assetmanagementcompanies

1380 0 678 0 1125 0 671 0 235 0

Otherprofessionalparticipantsofthestockmarket

651 4 17 0 0 0 1 0 0 0

Insurancecompaniesandbrokers

1870 0 2394 0 2462 0 523 0 60 0

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Otherfinancialinstitutions

209 0 124 0 301 0 240 0 45 0

Commodityexchanges

0 0 0 0 0 0 0 0 0 0

Realestateintermediaries

0 0 0 0 0 0 0 0 0 0

Preciousmetalsandpreciousstonesdealers

0 0 0 0 0 0 0 0 0 0

Lawyers,lawofficesandlegalservicesproviders

0 0 0 0 0 0 0 0 0 0

Notaries 337 0 89 0 29 0 0 0 10 0Accountants,Auditorsandauditfirms

2 0 0 0 0 0 0 0 0 0

Businessentitieswhichconductlotteries

0 0 0 0 0 0 0 0 0 0

Postoffice 37 0 37 0 28 0 131 0 11 0Businessentitieswhichconductfinancialtransactionswithgoodsforcash

130 0 3 0 0 0 0 0 00

0

Total 340 714 8 319 917 6 495 122 1 415 218 2 77 888 4

438. The restrictions around tipping‐off aredetailed inArt. 12(11)of theAML/CFTLawandarebroadlyunderstoodbythosepersonsinterviewed.ThecontrolsimplementedbytheREsdoappeartobeproportionatelyconsistentacrosstheprivatesector.Theinternalcontrolsystemsdevelopedtomeet the Art. 12(11) obligations are designed compartmentalise and ring‐fence the recordspertaining to a report being made to the FIU. Access to such records is limited to the OfficerResponsible for Financial Monitoring and often certain members of Senior Management. Suchcontrols limit theability forasuspect tobe tipped‐off thatadisclosurehasbeenmade to theFIU.However, there were weaknesses identified where a member of staff (in particular, a customerfacing member of staff) has reported their suspicions internally to the Officer Responsible forFinancialMonitoring.Forinstancecontrolstopreventthatmemberofstafffromdisclosingthattheyhave reported their suspicions internally aremuchweaker. The larger organisations, such as thebanksinterviewedbytheevaluationteam,recognisedthisasapotentialrisk(ariskwhichinsomecases had crystallised) and appropriate training is put in place, however other entities did notacknowledgethattippingoffbyamemberofstaffwasevenpossible.

Internalcontrolsandlegal/regulatoryrequirementsimpendingimplementation439. Allbusinesses interviewedhadappointedanOfficerResponsible forFinancialMonitoring inlinewithArt.6(1)whichmettherequirementsofthelegislation.Allofthoseinterviewedappearedto the evaluation team to enjoy support from their senior management and were adequatelyresourced.Reportsaremadebytheofficertothemanagementboardinallcasesonamonthlybasis.Thesereportsincludeinter‐alia;changestolegislationandregulations,legislativebreachesincurredbytheRE,trainingundertakenbytheofficerandtrainingprovidedtothestaff.

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440. Staffmembersaresubjecttovettingpriortotheirappointment,thescopeofthevettingvariesacrosssectorsandREs.Thereare,however,anumberofcommonconsiderationsgivenbyallthoseinterviewed by the evaluation team. Generally, vetting will include a review of an applicant’semploymenthistoryandqualificationsaswellasreviewingtheirLabourBook.Moreover,theREwillscrutinise that person’s reputation against open source materials such as court records and willobtainreferencesfrompastemployers.Thesescreeningproceduresappeartobesufficienttoensureahighstandardwhenhiringemployees,itshouldbenotedthatmostREsintervieweddogobeyondtheseprocesses.

441. REsrequirethatAML/CFTtrainingisundertakenat,orshortlyafterrecruitmentandalsoonanongoingbasis.Thetrainingprovidedanddeliverymethodsvariedacrossallentitiesinterviewed.The common matters described by all REs include changes to legislation, and key AML risks asidentifiedbytheAML/CFTLaw,inparticularsanctionsandPEPs.Ongoingtrainingisundertakenonaregularbasiswiththemostcommonperiodsrangingbetweenquarterlyandannuallyforallstaff.

442. TheInternalcontrolsystemsappeartobegenerallybasedonArt.6oftheAML/CFTLawandpertain,mainly, toCDDprocessesandto the identifiedandtreatmentofhigherriskcustomers(inparticular PEPs). The Responsible Officer has, almost universally, unrestricted access to allinformationwithin the RE. There are no barriers on sharing informationwithin thewider groupstructures,oranyprohibitionsonthosegroupstructuresundertakingtheirownauditprograms.ItshouldbenotedthattheAML/CFTLawprohibitsthedetailsofbothmandatoryreports,andinternalmonitoring reports (STRs) which have been made to the FIU from being shared with the widergroup,althoughhighlevelstatistics,includingnumbersofsuchreportscanbe(anddoappeartobe)sharedwithotherentitieswithintheeconomicgroups.

443. TheinternalcontrolsystemsaretestedbyanInternalAuditfunctionwhichreports,inpart,tothe Officer Responsible for Financial Monitoring. In the case of smaller REs which may lack adedicatedinternalauditfunction,anindependentauditisundertakenbytheOfficerResponsibleforFinancialMonitoring.TheauditsincludeanassessmentoftheeffectivenessofML/FTcontrolswithintheauspicesoftheinternalproceduresandwithintheAML/CFTLaw.Amendmentstoprocessesaremadeasaresultofdeficienciesidentified,suchchangesorupdatesarenormallypassedontostaffthroughtraining,proceduralupdatesoracombinationofboth.

Conclusion

444. Overall, application of legally mandated or defined procedures of preventative measuresappearstobewellapplied.However,theunderstandingoftheML/FTrisksfacingUkrainewasmuchweaker,althoughthebankingsectorwereabletodemonstrateabetterunderstandingofrisksthatthenon‐bankingsector.AssuchitwouldbereasonabletoconcludethatshouldapotentialMLorFTriskcrystallisewhichfallsoutsidethenormaldefinitionsoftheAML/CFTLaw,itislikelythatsucharisk would be overlooked by most of the private sector. An example of this where PEPs are de‐classifiedafter3yearsofleavingoffice,whiletherisksremainverymuchalive,duetothedefinitionsandweak understanding of those risks, most of the private sector would not be in a position toidentifysuchanissue.UkrainehasachievedaModeratelevelofeffectivenessforIO4.

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CHAPTER6. SUPERVISION

KeyFindingsandRecommendedActions

KeyFindings

• Very significant efforts have beenmade by theNBU in relation to ensuring transparency ofbeneficialownershipofbanksand inremovingcriminals fromcontrolofbanks; theseeffortshavebeencomplementedbytheDGF.TheSChasmadestrongeffortstoensurethatBOsandcontrollersarenotcriminals.However,othersupervisoryauthoritiescannot,ordonot,verifywhetherornotrelevantREsarebeneficiallyownedorcontrolledbycriminalelementswith the limitedexceptionthattheFIUhascheckedtherecordsofrealestateagentsduringonsiteinspections.

• TheNBUand the SChave a goodunderstandingofML risks in thebanking and investmentsectorsrespectivelyandabroadunderstandingofFTrisksinthosesectors.TheFIUappearstohavea similar level of understanding of the real estate agent sector as a whole. The NC has a goodunderstandingofMLrisks.At the timeof theevaluation team’svisit toUkraineother supervisorsdemonstratedabasicunderstandingofrisksor,inthecaseoftheMoIandtheMEDT,understandingwaslacking.

• TheNBUisundertakingcomprehensiveonsiteandoffsitesupervisionforbanksandfollowsamainlyRBAtoAML/CFTsupervision.

• WithrespecttoalltheotherREs,thesupervisoryauthorities,excepttheMoJandtheNBUfornon‐banks, were the subject of a moratorium on supervision from the summer of 2014 until 1January2017(withthemoratoriumonMoFsupervisionceasingin2015).Togetherwithshortfallsinstaff,themoratoriumhaslimitedsupervisionsince2014althoughtheeffectsontheSCandtheNChavebeenlimitedtoapartialextentasthemoratorium’seffectonthesetwosupervisoryauthoritieshasallowedsupervisionoflargerlicenseessinceJuly2015;inpracticethelevelofsupervisionbytheSC and the NC since that time has been quite limited. Except for the NBUwhich has carried outlimitedoffsitesupervisionfornon‐banks,andthelimitedsupervisionbytheSCandtheNC,noneoftheseauthoritieshasbeenconductingroutineoffsitesupervision.OtherthantheMoJ,overall,onsitesupervisionhasbeenlimited.Inaddition,withthepartialexceptionoftheSC,whileREsappeartohave been classified into risk categories, the statutory criteria and the time frames for onsiteinspections mean that supervision can be only partially ML/FT risk‐based. The intensity ofsupervisionbetweennon‐banklicenseesbysupervisoryauthoritiesotherthantheNBUisvariedinaverylimitedwayornotatall.

• TheNBUhasappliedarangeofsanctionstobanks,includingrevocationoflicences.Ithasalsoappliedstrongsanctions(prohibitions) to individualsbutnototherpenalties.Outside thebankingsector, the levelof fines is too lowandonly theSChasappliedstrongsanctions inaddition to theimposition of fines. There are significant technical gaps and the sanctions framework outside thebankingsectorcanbeonlypartiallyeffective.

• TheNBUhasmadeademonstrabledifferencetothelevelofcomplianceinthebankingsector.TheSChasmadeadifferenceinrelationtoBOandcontroloflicensees,andtheNC,theMOFandtheMOJhavebeenabletopointtoelementsofbettercomplianceduetotheiroutreachorsupervisoryactivities. However, there is scope for improvement outside the banking sector (facilitated byimproved levels of risk based supervision and a better framework for sanctions) for non‐bank

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supervisors to undertake further efforts routinely to make a comprehensive and systematicdifference.

• The large majority of supervisory authorities have undertaken outreach to promoteunderstandingofobligationsandrisks.Particularlystrongandpositiveactivityhasbeencarriedoutby the FIU, theNBU (for banks) and theNC,with the FIU’s activity allowing all RE sectors to becovered.TheMoIandMEDThavecarriedoutnooutreach.

RecommendedActions

• With regard to ensuring criminals or their associates are not, or do not become, BOs orcontrollers:

‐ for sectors currently the responsibility of the NC, and for which the NBU and the SC willassumesupervisoryresponsibility,policymakersshouldensurethat theexisting legaldeficiencieswhichapplytotheNCwillnotapplytotheNBUandtheSC;

‐ for these sectors, the NBU and the SC should apply high standards to verify that BOs andcontrollersarenotcriminalsorassociatesofcriminals.Aspartofthis,theyshoulddevelopsystemsforcheckingtheBOsandcontrollersofexistingNClicensees;

‐ theSCshoulddevelopa system for liaisingwith foreignsupervisoryauthorities toascertainwhethertheyhaveinformationrelevanttokeepingcriminalsoutofthesystem;

‐ asplanned,Ukraineshould introduce legislationgoverningstandards for realestatebrokersandaccountants;

‐ theMOI,MOF,FIU,MEDandMOJ(andtheNBUforMSBs)shouldintroducesystemstoensurethat criminals and their associates do not enter the markets for which they are the supervisoryauthorities;

‐ allsupervisoryauthoritiesshoulddevelopsystematicapproachesto“policingtheperimeter”anddetectbreachesoflicensingorregistrationrequirements;

• Theexistingapproachtosupervisionshouldberevisedby:

‐ increasingbudgetsandthenumberofstaffforallsupervisoryauthorities;

‐ outsidetheNBU,re‐focussingtrainingsothatitissystematicandcomprehensive;

‐ amendingthestatutorycriteriawhichapplytoallsupervisoryauthoritiessothatthecriteriaare focussed solely onML/FT and, outside the banking and investment sectors, ensuring that thecriteriaaresufficientlycomprehensivetobemeaningful;

‐ revising the statutory time lines for onsite inspections where they are specified for riskcategoriessothattheydonotspecifyamaximumfrequencyofinspection;

‐ amending the onsite inspection methodologies which apply to the supervisors to allowintensityofsupervisiontodifferbetweenlicenseesofdifferentrisks;

‐ supervisorsundertakingsystematicoffsitesupervisionandanalysingmaterialreceivedsoastoinformtheirunderstandingoftheriskprofileofindividuallicensees(andofsectors)andtoinformapproachestoonsiteinspections;

• Withregardtosanctions:

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‐ as is already planned, the legislative provisions on sanctions should be revised for allsupervisoryauthoritiestoensurethatthereisagoodrangeofpowersofsanctionandmuchstrongerfiningpowersforindividualsaswellasREs;

‐ thereshouldbecoordinationofrevisionstoprocedures fortheauthoritiessoasensurethattherangeofpowersisused,includinguseofthestrongerfiningpowers,whenappropriate;

• SystematicoutreachtoREsshouldbeundertakenbyMoIandMEDT.

• AddressthetechnicaldeficienciesidentifiedinrelationtoR.26to28and35.

445. The relevant Immediate Outcome considered and assessed in this chapter is IO 3. TherecommendationsrelevantfortheassessmentofeffectivenessunderthissectionareR.26‐28&R.34‐35.

ImmediateOutcome3(Supervision)Licensing,registrationandcontrolspreventingcriminalsandassociatesfromenteringthemarket

446. AllFIsandDNFBPssubjecttotheAML/CFTframeworkmustregisterwiththeFIU.Thisisanotificationframework.

NBU

447. The NBU has a separate licensing department. At the application stage completedquestionnaires are obtained by the NBU in connection with the bank, its BOs, legal owners andseniormanagement, togetherwith supporting documentation. The depth of information collectedallows theNBU to reviewbusiness reputation, experience, financial position (including taxespaidandtaxliabilities)soastoallowchecksonsourceoffunds,andthesubstantialinterestsofrelatives,includingcompaniesbeneficiallyownedbyrelatives.InternetsearchesofallBOs,ownersandseniormanagersarecarriedoutandcertificatesofnon‐convictionobtained,togetherwithreferencesfromcreditreferenceagencies.ThelicensingdepartmentchecksthereputationofindividualswithotherNBUdepartmentsand,wherethereisanythingpotentiallynegative,liaiseswithotherauthoritiesinUkraine.Inputissoughtfromsupervisorsinotherjurisdictionswherethereisalinkbytheapplicantorapersoninvolvedwiththeapplicantduringthepreviousthreeyearsalthoughthisisextendedonriskgrounds.ExceptwhereindividualsarewellknowntotheNBU,interviewsareheldwiththechiefexecutive, financial monitoring officer, auditor and chief accountant, and, where consideredappropriateongroundsofrisk,otherindividuals.Interviewshavebeenheldwith80%ofBOsduringthe last two years. The NBU also checks whether BOs, legal owners and senior managers areassociatedwithcriminals.Allcheckshavebeenundertakenwithinthestatutorytimeframes.

448. Proposedchangesofbeneficialownership,legalownershipandseniormanagementmustbeadvisedtotheNBUinadvance.BreacheshavebeenrareandinthesecasestheNBUhassuspendedvotingrightsandimposedfinancialpenalties.During2015and2016,theNBUverifiedcomplianceofallbanks’ownershipstructureswithtransparencyrequirements.Itestablishedthatsixtybankshadfeaturesofnon‐transparency,whiletwenty‐fourbankswererecognisedashavinganon‐transparentstructure.Whilemostcaseswereresolvedthroughrestructuring,sixbankswerecloseddownbytheNBU.Allnon‐transparentsituationshadbeenresolvedbytheevaluationteam’svisittoUkraine.

449. From the beginning of 2015 to the end of the first quarter of 2017, theNBU has taken 66decisions toprohibit theacquisitionor increaseofaqualifyingholding inabank;didnotproceedwith 83 applications to acquire or increase a qualifying holding as a result of withdrawal of theapplication; took 112 decisions not to approve the appointment of managers or to confirm the

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appointment of persons holding managerial positions; and did not proceed with 146 otherappointments/confirmationsbasedonwithdrawalbytheindividualsconcerned.

450. Inall,88bankshavebeenputintoliquidationbytheNBU,sixbeingcloseddownforlackoftransparencyofbeneficialownership.However,anumberofthesearesubjecttocourtprocessesandtheimplicationsofthisarenotclear.Over1,300individualshavebeenprohibitedfromownershipof, or management positions in banks (300 BOs, 988 senior managers, 50 nominees among theseniormanagersofbanksand25applicantsforbeneficialownership).

451. The NBU is not aware of any criminal infiltration or misuse of remitters and bureaux dechange. Since thebeginningof2016 theNBUhas refused to issue five licences tonon‐bankFIs toundertake currency transactions as a result of non‐compliance with ownership structurerequirements.The general approachof theNBU toMSBs is the sameas forbanksalthough ithasadoptedamuch lessdetailedapproach, themaindifferencebeing inrelation to theassessmentofbusinessreputation,improvementstowhicharebeingdeveloped.TheNBUwillbecomecompletelyresponsibleforbothMSBregistrationandsupervisioninthefuture.

452. From 2015 to the end of the first quarter of 2017, the NBU refused to issue licences inconnectionwith 24 applications for remitters andbureauxde change (with 39 other applicationsbeingwithdrawn); five of which are those referred to above for non‐compliancewith ownershipstructurerequirements.

453. The NBU is aware of the need to ensure that all remitters and bureaux de change areregisteredandsupervisedandwouldtakeaction ifanyunregisteredentityweretobediscovered.While itdoesnotactivelypolicetheperimeterforanyunlicensedactivitywithregardtoremitterstheNBUhasindicatedthatitwouldbedifficultforanunlicensedremittertooperateinthemarket,andthatitisalerttothepotentialforunlicensedbusinessandwouldnotesuchbusinessthroughthecounterpartiesinnotedduringitssupervisionoflicensedentities.Withregardtocurrencyexchangebureaux,theNBUhasmobileunitswhichactivelylookforunlicensedactivity.

454. ForbothbanksandMSBsbeneficialownership,legalownershipandcontrollersarecheckedduringonsiteinspections.InformationheldbytheFIisverifiedwiththeNCandtheUSR.

DGF

455. TheDGFhas established adepartmentof illegal activities todetect actionsof a criminal orcivilnaturewhichhave takenplace inbanks inadministrationor liquidation.Thedepartmenthasundertaken60onsiteinspectionsofbankssinceitsestablishmentinFebruary2016.Statementsonsome3,500potentialoffenceshavebeenprovidedtoLEAs,ofwhich1,862havebeenentered intotheUnifiedRegister of Pre‐Trial Investigations.The results of thosepre‐trial investigationswhichhavebeenundertakensuggest that fourteen individualsshouldbechargedandchargeshavebeenfiledwiththecourtinrelationtonineofthem.TheDGFhasmadecomplaintsthatactionsbyLEAsare not timely and that they refuse to register offences and initiate investigations. The DGF feelsobligedtoundertakeinvestigationworkwhichshouldbeundertakenbyLEAs.

SC

456. TheSC’sproactivityintighteningaccesstothesecuritiesmarketbyimprovingthequalityofparticipants isamajorreasonforthesignificantreductioninthenumberof licensees. Informationon beneficial and legal owners of legal personsmust be provided as part of the application for alicence, including information on business reputation (provided by way of a completedquestionnaire),previousemploymentandexperience.Identificationinformationforallprospective

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employees is also provided to the SC. Such information for foreign individualsmust be notarised.Documents confirming source of wealth for the capital of applicants are analysed. Informationreceived is checked against the SC’s databases and internet searches are undertaken. Input isrequestedfromotherdomesticsupervisoryauthoritieswheretheymightholdinformationand,forUkrainian residents, the national police are asked to confirm whether or not individuals have acriminal record. References are obtained from the previous employer of CEOs. Requests forinformationhavenotbeenmade to foreign supervisorsbutadditional informationon incomeandtaxpaidisrequiredinrelationtonon‐residents.WheretheforeignjurisdictionisnotasignatorytotheHague Convention, the SC seeks confirmation from the relevant embassy of the bona fides ofdocumentation provided. The SC considers that its checks on the national police registry, theinternetandothercheckssuchasthosewithothersupervisoryauthoritieswouldestablishwhetheror not an individual is an associate of a criminal. The statutory time frames for dealing withapplicationshavenotpresentedaproblem.

457. TheSCconfirmedthatithasrefusedtoissuelicencesdueinlargeparttothenon‐disclosureofownershipstructuresandthelackofidentificationofUBOs.

458. ChangestobeneficialandlegalownersandseniormanagementmustbenotifiedtotheSCsothatitcanundertakechecksbeforeapositionisoccupied.Therehavebeenonlyafewcasesoflatefilings and these have been subject to penalties. The accuracy of beneficial ownership, legalownershipandseniormanagementinformationheldbytheSCischeckedduringonsiteinspections(including themed inspections dedicated to this activity). It also analyses information at the USRperiodically.

459. TheSCpolicestheperimetertosomeextent.Itseesthediscoveryofcounterpartiesoffirmssubject to inspection as the most likely way of identifying unlicensed activity. It also considerscomplaintsfromcustomersandinformationreceivedfromtheFIU.Ithasuncoveredtwounlicensedtradingfirms,onein2015andonein2016.Penaltieswereappliedinbothcases.

460. Thereisa limitationontheabilityoftheSCtoexchangeinformationwhenthesubject isanindividual;thishasledtoaninabilityfortheSCtoprovideinformationtootherauthoritiesexcepttotheFIU.TheSCisrestrictedinitsworkasaresultoflimitationsinbeingabletoobtaininformationinrelationtobanks.Legislationisbeingdraftedtoaddressthisissue.

NC

461. The NC has 14 staff (including 7 for insurance) devoted to licensing in the sectors it issupervising. It has insufficient resources to police the perimeter actively and detect potentialbreachesoflicensingrequirements.

462. CompletedquestionnairesarereceivedfromBOs,legalownersandmanagementaspartoftheapplication to be recognised as a FI and provided with a licence. This includes confirmation ofwhether the individual has a criminal record. Theprocess for the first stage (recognition as a FI)must be completed within ten days. However, this deadline, and the limited nature of theinformationrequiredtobeprovidedbylegislationdoesnotallowfortheNCtoaskforclarifications,to verify the information or to seek further information, places the NC in a difficult position. Inpractice, the issueofa licence isautomatic.Thisregimehasbeen inplaceat leastsince legislativechangesin2015.

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463. By way of context, only a very small number of licensed entities have any non‐Ukrainianownersofmanagement. Inthesecases, theNCoccasionallyseeks informationoutsideUkraineandprovidedanexampletotheevaluationteaminrelationtoaBulgarianauthorityin2016.

464. Sincethebeginningof2016thereareexamplesofthreeapplicationsforinsurerswhichwerenottakenforwardbytheNCalbeitnotforAML/CFTreasons.Fromthebeginningof2015totheendof the first quarter of 2017, theNC has rejected 226 applications for licences by insurers and 38prospectivelegalandBOs.

465. The NC checks information on beneficial and legal ownership and seniormanagers duringonsiteinspectionsandalsousespublicsources(theUSR)andcomplaints.

466. TheNCadvisedthatitisnotawareofanyissuesinrelationtocriminalitysincethechangeoflegislationin2015butisalsooftheviewthatitistooearlytoformaconclusionastowhetherthereareanyissuesinpractice.InDecember2015theNCrequiredalltheentitiesitsupervisestoprovideinformationon itsBOs, legal owners andmanagement and is analysing the answers.Thedelay incompletingthisworkdemonstratestheNC’slackofresources.

MoI

467. Withregardtopostaloperators,duringonsiteinspectionsbytheMOI,thereputationsoftheheads of departments, including information on whether they have convictions, are checked,togetherwithwhetherthereputationofseniormanagementhasbeencheckedbytheoperatoritself.

MoF

468. Auditorsandaudit firmsarerequiredtobecertifiedbytheChamberofAuditors.Followingthe onsite element of the evaluation, the evaluation teamwas advised that there is at least some(AML/CFT)enforcementof theLawonAuditing inrelation to therequirement thatauditorsmustnothavecriminalrecordsorhavereceivedanadministrativepenaltyforacorruptionoffencewithinthelastyearinthat,beforeprovidingacertificateofpractice,theChamberofAuditorsmustreceiveacertificatefromtheMIAontheabsenceofconvictions.ThereisnoliaisonbetweentheMoFandtheChamber.Therearenootherstandardsoffitnessandproprietyrequiredofaccountantsandthereisno lawgoverning therequirements foraccountants.Only five individualshaveregisteredwith theMoF as accountants, suggesting a very significant shortfall when compared with the number ofaccountants fallingwithin the scopeof theAML/CFTLaw that canbe assumed tobe operating inUkraine.TherearenorequirementspreventingcriminalsfromowningorcontrollingDPMS.

469. Due in part to its policy role, the MoF does not have sufficient resources to actively seekbreachesoflicensingrequirementsbutithasadvisedauditfirmsithasinspectedtoregisterwiththeFIU.

FIU

470. Registrationisbywayofnotification;inpractice,onlyasmallnumberofrealestatebrokershave registeredwith theFIU.TheFIU checksbeneficial ownershipandmanagementof registeredbrokers during inspections; business reputation is checked as well as the criminal record of thecomplianceofficer(butnotother individuals).Therearenochecksonwhetherornotpersonsareassociates of criminals. The FIU advised that it had not uncovered any examples of criminalityinfiltrating the real estate sector. It is uncertain whether brokers are operating in the shadoweconomy–theFIUconsidersthatadedicated lawongoverningbrokerswillbethefoundationforensuringhighqualitystandards.TheFIUhasnotproactivelysoughttofindunregisteredbrokerson

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thebasisthatbusinessactivityspecifiedintheUSRandinthetaxauthoritydatabase(examinedbytheFIU)issogeneralthattheexistenceofrealestatebrokeragebusinesswouldbedifficulttoverify.

MEDT

471. The MEDT indicated that a substantial number of commodity exchanges (some 175 to itsknowledge) arenot registeredwith theFIU. Ithaswritten to them toadvise them to remedy thisposition.Inaddition,alargenumberhasceasedoperationasthemarketcannotsupportsuchlargenumbers.Thereareno licensingrequirementsorcheckson thecriminalityofBOsandcontrollersalthoughalawwhichwilladdressthisdeficiencyisplanned.

MoJ

472. Notaries can only engage in notarial activities upon receipt of a certificate from the MOJ,which is provided on submission of the requisite qualification. The main bulk of notaries wereregisteredin2011bytheFIUwhentheNotariesLawcameintoforcealthoughitisnotcleartotheevaluationteamthatallnotarieshaveregisteredwiththeFIU.Followingtheonsiteelementoftheevaluation,theevaluationteamwasadvisedthatthereisat leastsome(AML/CFT)enforcementofthe Law on Notaries in that, before providing a certificate of practice to a notary, the MoJ mustreceiveacertificatefromtheMIAontheabsenceofconvictions.TheMoJisawaretherehavebeencasesofwithdrawalofcertificatesandanexampleofawithdrawalduetoacriminalconvictionwasadvisedtotheteam.

473. AdvocatesmustreceiveacertificatefromtheMOJtoengageinadvocacy.ItisnotclearthatalllawyersundertakingactivityengagedbytheAML/CFTLawhaveregisteredwiththeFIU.Followingthe onsite element of the evaluation, the evaluation teamwas advised that there is at least some(AML/CFT)enforcementoftheLawonAdvocatesinthat,beforeprovidingacertificateofpracticetoanadvocate,theMoJmustreceiveacertificatefromtheMIAontheabsenceofconvictions.StatisticsonthewithdrawalofcertificatesbytheMoJarenotmaintainedbuttheMoJisawaretherehavebeencasesandanexampleofawithdrawalduetoacriminalconvictionwasadvisedtotheteam.

Supervisors’understandingandidentificationofML/TFrisks

474. EachoftheFIsupervisoryauthoritiesisprovidedeachquarterbytheFIUwithinformationonnew registrations, transactions in which it has an interest, AML/CFT breaches in relation toreportingobligationsandanyotherbreaches,andpotentialML/FTschemes.

NBU

475. The NBU seeks to ensure that banks understand the nature of transactions and obtainssignificant information in relation to the banking sector to inform its understanding andidentificationofMLrisk.TheNBU’sroleinrelationtocurrencytransactionsandthecurrencycontrolrequirements and the related activities by banks provides input to facilitate understanding oftransactions.ML from theproceeds of corruption, abuse of fictitious companies and thedesire toremove cash from the system are primary concerns. Corruption risk is considered both from theprismofownershiporcontrolofbanksbycriminalsaswellasuseofbankservicesandproductsforlaundering purposes. The NBU has an informed view of the ML risks of each bank and a goodunderstandingoftherisksinrelationtothebankingsector.

476. TheNBUalsoreceivessignificantinformationtoprovideitwithabroadunderstandingofFTrisksoftherisksofeachbankandthesectorinlightofitsknowledgeofTFSscreeningbysupervisedentitiesandotheronsiteandoffsitesupervision,publishedindicatorsonsendingmoneyabroadand

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training it has received, albeit that further exploration of the risk is needed. FT riskmust also becategorised by banks into domestic and international risk. The NBU is aware that there arecontinuinginternationalrisks.Nevertheless,theknowledgeheldbutnotsharedbytheSSU(seeIO1andIO9)militatesagainstfullunderstandingbyotheractors.

477. TheNBUreceiveslessinformationfromonsiteandoffsitesupervisionandexternalsourcesonMVTSandithasalessdevelopedviewoftherisksofeachentityandtheMVTSsectors.TheNBUseestheseFIsashavinganenhancedcorruptionriskprofile.Withreferencetoremitters, theNBUseestheriskoffragmentationoftransactionsintosmalleramountsasaparticularrisk.

478. TheNBUhasendeavouredtounderstandanypotentialrisksemanatingfromthesituationineastUkraine.

SC

479. TheSC considers themainML risks to the investment sector tobe those articulated in theNRAthroughthepredicatecriminalityoccurringinthesector.ThesectorisvulnerabletoMLarisingfrom the proceeds of fraud, corruption and tax evasion; there is also a small amount of insiderdealingandmarketmanipulation.Thenumberorparticipantsinthesecuritiesmarkethasreducedsignificantly, facilitatingunderstandingofrisk.Sometransactions linkedwithcorruptionandPEPshavebeennotedbytheSCalthough it isof theviewthatuseof the investmentsectorbyPEPs forlaunderingtheproceedsofcorruptionisnothigh.Thereisnoevidenceofthesecuritiessectorbeingused for FT. FT risk is considered to be low as the sector is regulated and use of stockmarketspresents risks to terrorist financiers as the sector does not involve the unregulated channelsattractiveforFT.TheSCwasalsoawareofTFSandthesector’sresponsetothelistsofdesignatedpersons.Giventhefactorsdescribedbelow,theSCisnot inapositiontohaveadevelopedviewoftheriskpresentedbyeachlicensee.

NC

480. Ofthesectorsitsupervises,theNCseesthehighestrisksasbeingintheinsurancesector.Thisis reflected in the questionnaires received from 44 entities for NRA purposes and, therefore, theNRA;breachesfoundbytheNCduringonsiteinspections;itsconclusionsontransactionsreviewedduringonsiteinspections(includinglackofunderstandingbyREsinrelationtosometransactions);STRsreceivedbytheFIUfromREsandtheNC;andmonthlyreportsprovidedtotheNCbytheFIUon breaches of reporting requirements by REs. TheNC perceives differences between theML/FTrisksofeachofthesectorsitsupervisesbutinlightofthefactorsdescribedbelowisnotinapositiontohaveadevelopedviewoftheriskspresentedbyeachlicensee.TheNChasnotarticulatedaviewonFTrisktotheevaluationteam.

MoI

481. TheMOIunitwasnotinapositiontoprovideinformationtotheevaluationteamonrisk.

MEDT

482. Overall, while the MEDT was uncertain as to the ML/FT risks presented by commodityexchanges, itsuggestedthat the intermediaryroleofexchangesandthe fact that theyareparty toinvestorcontractspresentsarisk.

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MoF

483. TheMOFseesdifferences intherisksof thesectors forwhichit isAML/CFTsupervisorbutconsidersthesectorsitsupervisestobelowrisk.Auditorsarenotinvolvedintransactionsbutthereisthepotentialthattheymightnotprovidereliableinformationinauditreports.RiskintheDPMSsector is seen as mitigated by the maximum limit of UAH 50,000 (~EUR 1,639.15) for cashtransactions.TheMoFhasabasicunderstandingofsectoralrisk.

FIU

484. TheFIUconsiderstherealestatebrokersectortobelowrisk.Brokersdonotparticipateinproperty transactionsandall transactionsaboveUAH50,000mustbemade throughabank.Eachtransactionisnotarisedbyanotary.TheFIUisnotawareofanytransactionshavingbeenmadeincash and, based in part on its quite significant liaisonwith the notaries sector, the FIU’s generalimpressionisthattherearenotanysystemicproblemsinthatsector.Inlightofthefactorsdescribedbelow,theFIUisnotinapositiontohaveadevelopedviewoftheriskspresentedbyeachRE.Likethe NBU, the FIU has taken steps to endeavour to understand the ML risks emerging from thesituationineasternUkraine.

MoJ

485. TheMOJconsidersthemainrisksofitssupervisedsectorstobepresentinthenotarysectoralthough itsview is that there isnorisk inpracticeofnotariesbeingused forML/FTpurposesasthey understand their ML/FT risks, the application of CDD and the noticeable participation bynotariesintrainingorganisedbytheFIUandtheMoJ.TheevaluationteamisnotconvincedthattheMoJhasaroundedviewofriskofindividualentitiesorthesectorswhichitsupervises.

Risk‐basedsupervisionofcompliancewithAML/CFTrequirements

NBU

486. Eighty‐seven staff in the NBU’s supervision department are devoted to AML/CFT.Managementandotherstaffhavesubstantialprivatesectorexperience.AcomprehensiveAML/CFTtrainingprogrammeisinplace,whichincludesMLandFTrisk.

487. TheNBUmodified its approach to supervision in 2015/2016 and has established a largelyML/FTRBAtosupervisionfromApril2016,usingspecialisedsoftwaretogiveeachbankaML/FTriskclassification,withfocusbeingdirectedtowardsareasofgreatestrisk.StructuralandbusinessrisksofbanksareevaluatedtoconcludeaML/FTriskratingforeachbank.Structuralrisksincludean evaluation of bank capital, the ownership of the bank, the board of directors and supervisoryboard and any affiliation with PEPs. Business risk considerations include types of customer(includingwhether the customer is an individual or a legal person/arrangementor resident/non‐resident),whetherPEPsareinvolved(thereisparticularfocusonthis),thevolumeoftransactions,thelocationofpaymentsmade(includingwhethertheyaredomesticortoaforeignjurisdictionandthesystemusedfortransfers,theriskpresentedbythejurisdictionstowhichpaymentsaremade,whether cash is involved, non‐face to face services, developing technologies, use of collateral,correspondentaccountsandAML/CFTpolicies/procedures.

488. Offsitequestionnaires,completedbybankseachquarter,areanalysedandtheresultsusedtoinform the onsite inspection programme, which is developed on an annual basis. Unplannedinspectionsareundertakenregularly. Inspectionsalsotakeaccountof informationprovidedtotheNBU by the SSU on FT and the NBU’s access to the MIA database on lost documents and

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administrativeoffences.ThereisverygoodliaisonwiththeFIU,whichhasprovidedtheNBUwithinformationonbreachesbybanks,whichtheNBUusestoinformitssupervision.

489. Areductioninthenumberofonsiteinspectionshasenabledincreasedqualityofinspections.AML/CFTinspectionsforlargebankstakesomethreemonthsby4‐5membersofstaffwhilesmallbanksmighttake4‐6weeksfor3‐4officersinmostcases.TheNBUfocusesontheproducts/servicesofthebankandhowitoperates,potentialMLschemes,PEPs,BOs,fictitiouscompaniesandFT.InasmallbankallPEPfilesarereviewed,togetherwithasampleoffilesforothercustomers.InalargebankfilesaresampledonaproratabasisforthetypeofcustomeralthoughthisistheonlydifferingelementofintensityasbetweenbanksinrelationtotheNBU’ssupervision.Astatutorymethodologygoverns the content of onsite inspections. In the Spring of 2016 the NBU introduced thematicinspectionsforthereviewofPEPs.Theseappeartobethorough.ThereisparticularfocusonPEPswiththelargestaccounts.Thelengthoftimeoftheinspectiondependsonthesizeofthebankbuttheuseoftwoorthreeinspectorsforamonthwouldbetypical.

490. All banksmust be subject to inspection at least every three years and,while the statutoryfactorswhichmustbetakenintoaccountgobeyondAML/CFT,inpractice,duringthelastyeartheNBUhasbeenabletoundertakeonsiteinspectionslargelyonthebasisofML/FTriskasnotallthestatutoryfactorshavebeenrelevanttoeverybankandtheAML/CFTfactorsapplytoallbanks,andalsoastheNBUhasbeenundertakingPEPthemedinspections.

Table17:On‐sitevisitstobanks

Banks Numberoflicensedentities

Riskcategory Numberofvisitstoentitiesineachriskcategory

2014 2015 2016 2017

9256

High 38 16 17 ‐

Significant 6 12 12 2

Medium 16 16 6 2

Low 55 15 9 3

Totalnumberofinspections

115(planned–

81,unplanned

‐34)

59(planned41,

unplanned18)

44(planned41,

unplanned3)

7(planned7,

unplanned‐0)

Numberoflicensedentitiesasof31.03.2017

Numberofinspectionsfrom1January2017to31March2017

491. NBUresourcesappeartobedirectedattheareasofgreatestriskinrelationtobanksandthequalityofitssupervisionishighlyregarded

492. The NBU supervises currency exchange offices separately from its other activities. This processstartedinSeptember2016.Sincethenthenumberofinspectionshasbeenasfollows:270inspectionsin2016and260inthe1stquarterof2017.Thefiguresarehighasonebureaumayhaveanumberofsub‐

56NumberofFIsineachriskcategory:High–32;Significant–36;Medium5;Low–19.

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divisionsprovidingcurrencyexchangeservicesandtheseareconsideredasseparateentitiesforstatisticalpurposes.ItappearedtotheevaluationteamthatamainlyAML/CFTsupervisionistaken.

493. TheNBUhasundertakenalimitednumberofinspectionsofnon‐bankremittersin2015and2017(threein2015andthreein2017).TheNBUhasconfirmedtotheevaluationteamthatthelevelof supervision isbasedon riskbut the teamhasa concern that theoverall level of supervisionofremittersisstilltoolow.Withinthislevelofsupervision,theapproachtakenappearstobemainlyAML/CFTrisk‐based.

494. Theapproachtoplanningonsiteinspectionsforremittersandbureauxdechangeisbroadlythesameasforbanksalthoughtheinspectionsappeartobelessdetailed.TheNBUrecognisesthatthe different risks in relation to remitters and bureaux de change sectors require differentsupervision. Representatives of the NBU’s AML, security and cash circulation departments arepresentduringinspectionsofbureauxdechangeoperations.

495. The level of onsite inspections suggests that the NBU does not have as many staff as arenecessary to undertake full risk based supervision of remitters. In any case, the more pressingconcernisthattheNBUdoesnothavesufficientstaffresourcestodealwiththeadditionallicenseesforwhichitwillbecomeresponsiblewhenresponsibilityforthesupervisioncurrentlysupervisedbytheNCistransferredtoit.

MoratoriumonSupervision

496. InAugust2014amoratoriumwasintroducedononsiteandoffsiteinspectionsbysupervisorsexcept for theNBUand theMoJ. Inspections couldonlybeundertakenwith thepermissionof theGovernment or at the request of the business. In July 2015 themoratoriumwasmodified so thatentitieswithmore thanUAH20millionof incomeannually couldalsobe subject to inspection. Inpractice, only some SC and NC licensees had sufficient income to enable supervision by thoseauthoritiesunder themoratorium.Themoratoriumexpiredon1 January2017(although theMoFwasabletorestartonsiteinspectionsin2016).

SC

497. TheSChas sevenstaffdevoted toAML/CFTactivity (onsite inspections,policy, liaisonwiththe FIU and other authorities, and engagement with REs. There are sixteen other individuals inoffices outside Kiev who have some involvement with AML/CFT. The SC is under resourced forAML/CFTand,notwithstandingthereducingnumberof investmentsector licensees,this issuewillbecomeworsewhen it takesonresponsibility forsome2,000entitiescurrentlysupervisedby theNC.While28staffin2015and6staffin2016attendedtrainingeventsputonbytheFIU,theSCdoesnotappeartohaveasystematicandcomprehensivetrainingprogrammeforAML/CFT.

498. LegislationenablessomeelementsofaML/FTRBAtobeundertakenbytheSCinclassifyinglicenseesand,alsopositively,thereisnostatutorytimeframelimitingthefrequencyofinspections(seeR.26).AllSClicenseeshavebeenclassifiedintoriskcategoriesatthetimeoftheteam’svisittoUkraine,with10%beinghighrisk.UnplannedonsiteinspectionswereundertakenaftertherevisiontothemoratoriuminJuly2015(30in2015and27in2016)aftertheFIUorLEAshadadvisedtheSCof potential breaches in relation to the reporting of suspicion. Historically, the schedule ofinspectionshasbeenplannedeachquarter.InspectionsaresufficientlyindepthtorevealAML/CFTviolationsandtoallowprovisionofSTRstotheFIUandliaisonwithLEAsonpotentialcriminality.TheSCadvisedthatitsroutineprogrammeofonsiteinspectionshadnotyetrestartedatthetimeoftheevaluationteam’svisittoUkrainebutitadvisedthatthatitcanstillinspectallhighrisklicensees

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during2017,togetherwithsomemediumandlowriskentities.Theevaluationteamconsidersthistobeveryambitious.

499. Two or three staff undertake each inspection, which lasts some 30 days. The SC devotesattention to the reasons for transactions and who makes them. While the procedure for aninspection is specified in legislation theSChas advised that the level of risk affects thevolumeofdocuments it reviews (this is theonlyelementof supervisionwhere intensitydiffersaccording torisk).MoregenerallytheSC issubject toamethodologywhichdoesnotallowforthemorethanalimited difference of intensity of supervision). A sample of customer files is reviewed with thevolumeofbusinessguidinghowmanyfilesaresampled.TheSCdoesnotundertakeoffsiteAML/CFTsupervision. Like the NBU, the SCwill need greater staff resources to deal with the licensees forwhichsupervisoryresponsibilitywillbetransferredtoitfromtheNC.

500. TheSC cannotwrite to a bank itselfwhere itwishes to obtain informationon a tradeby acustomer. Instead, the SC relies on information it obtains from the trader. The evaluation teamagrees with the SC that this is a shortcoming. Also, the SC does not have powers to conductinspectionsonbehalfofothersupervisoryauthorities.Itseesthisasanimportantgap.

501. TheSCiswellregardedbytheprivatesectorasaneffectivesupervisoryauthority.

NC

502. TheNChasfivestaffdevotedtoAML/CFT.Thisisinsufficientbyasignificantmarginforthenumberofentitiesitsupervises.

503. REshavebeenclassifiedbyriskusingrecentlydevelopedsoftwarealthoughthenatureoftherisk factors and the prescribed timing of onsite inspections means that the framework for riskassessmentandthepatternofinspectionscanonlybepartiallyML/FTriskbased.

504. There is no routine offsite supervision, although four licensees were subject to offsiteinspectionin2016followingspecificissuesraisedbytheFIU.Onsitesupervisionwascarriedoutinrelation to 135 entities in 2013 and 30 entities in 2014.No inspections have been undertaken in2015andonly11wereundertakenin2016.Thefocusisonriskmanagement,corruptionandPEPsbut theNCconsiders that thestatutorymethodology itmust followdoesnotallow foranentirelyriskbasedfocus.Asampleofcustomerfilesisreviewedalthoughthenumbersampledappearstobethesameforeachinspection.Outsidethis,licenseeswithdifferentrisksarenotsubjecttodifferentintensity of supervision (and a different intensity of approach cannot be achieved under thestatutorymethodology). Inspectionstakesometendaysand,onaverage, twostaffundertakeeachinspection.

505. TheNCisoftheviewthatsomeofthelegalrequirementstowhichitissubjectareoutdatedandnotwhollyeffective.Forexample,itconsidersthatthegroundsforconductinganinspectionarelimitedandthatitcannotsuperviseonthebasisofrisk.Theevaluationteamhasbeenadvisedthatfiveitemsofnewlegislationarebeingconsideredbyparliament,whichshouldhelptoremedythesedeficiencies.

MoI

506. The MoI has two officers responsible for AML/CFT supervision within the prevention ofcorruption,internalinvestigationsandstatemonitoringdepartment.Bothofficershavebeeninpostfor two months and had replaced a single individual, who held responsibilities in addition toAML/CFT. It appears that very limited AML/CFT supervision was undertaken in practice. The

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departmentconsistsof individualswith legal, taxorotherprofessionalbackgrounds.WhilealmostallmembersofthedepartmenthaveattendedsomeAML/CFTtrainingheldbyotherauthorities,thisdoesnotconstituteasystematicandcomprehensivetrainingprogramme.

507. ThestatutoryriskfactorsandtimingforonsiteinspectionsmeanthattheMoIcanhaveonlyapartiallyML/FTRBAtosupervision(seeR.26).Onsite inspectionshavebeenundertaken(three in2012,eightin2013,twoin2014,onein2015andnonesincethen).InspectionsincludedparticularattentiononPEPs,FT,andinformationonoriginatorsandbeneficiariesofmoneytransfers.Also,thehistoriccombinationofashortfallinresourcesandanabsenceofpenaltiesappliedfollowingonsiteinspectionsprovidestheevaluationteamwithaconcernthatthequalityofinspectionshasnotbeenrobust.Thestatutorymethodologyforinspectionsmeansthattheintensityofsupervisioncannotbeadjustedforindividuallicenseesexceptforthenumberofcustomerfilessampled.Thereisnooffsitesupervision.

508. The appointment of the new unit has been welcomed by representatives of the sector itsupervises.

MoF

509. The MoF has a team of five staff involved with AML/CFT. However, this team is alsoresponsibleforthedraftingoflegislationandthecoordinationoflegislativeinitiatives.Theteamhasthe capacity for the coordination and drafting roles (which occupies most of its time) but it issignificantlyunderresourcedforeffectiveoperationalsupervision.WhilemembersoftheteamhavetakenpartinAML/CFTtrainingeventsorganisedbytheFIUandhaveparticipatedintrainingwithdomestic authorities and with international bodies, a systematic and comprehensive trainingprogrammeisnotinplace.

510. REshavebeenclassifiedintostatutoryriskcategoriesbutthesecategoriesandthespecifiedtime frames for onsite inspections mean that only a partially RBA can be taken to AML/CFTsupervision(seeR.28).

511. Onsite inspections were reinstated in 2016 based on inspection plans formulated eachquarter.Twelveinspectionstoauditfirmswerecarriedoutin2016onthebasisthatnonehadbeeninspectedforfiveyearsandinlightofthereceiptofintelligencebytheMoFfromtheFIUanditsownanalysis of the internet that there had been AML/CFT breaches. This demonstrates that limitedoffsitesupervisionhasbeenundertakenbutitisnotsystematic(andnottoentitiescapturedbytheFATFdescription ofDNFBP). TheMoF cannotmeet the requirements to inspect high risk entitieseveryyear,mediumriskentities every twoyears and low risk entities every threeyearswith thecurrentnumberofstaffoftheunitinvolvedinAML/CFTissues.Themethodologyforinspectionsisspecifiedinlegislation,which,therefore,wouldnotseemtoallowtheintensityofinspectionstobebasedonriskexcepttotheextentthatthenumberofcustomerfilesreviewedcandifferinlightofthe scope of activities of the firm (although in practice the MoF pays attention to all customersduringonsiteinspections).TheauthoritiesadvisethatPEPsandbeneficialownershipareafocusofattention, and that a risk‐oriented approach is taken but evidence has not been provided to theevaluationteamofasystematicRBA.Inspectionsareundertakenbytwotothreeofficersandusuallytakesome20days(althoughthisperiodcanbeextendedby10days).

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FIU

512. TheFIUhassixstaffengagedinAML/CFTsupervisionbuttheseofficersarealsoengagedinnumerousotheractivities. It tooissignificantlyunderresourced.Routineoffsitesupervisionisnotundertakenthreeoffsiteinspectionstookplaceinthefirstquarterof2017.

513. Thestatutorycriteriaforriskclassificationandthetimeframesforonsiteinspectionsmeansthat only a partiallyRBA canbe taken (seeR.28).Onsite inspectionswereundertaken in 2012 to2014fromwhichtimetheFIUwassubjecttothemoratorium.Fiveonsiteinspectionstookplaceinthefirstquarterof2017.OpensourceinformationsuchastheURSisusedtoinformsupervision.Theinspection plan will be devised quarterly. Inspections must follow the methodology required bylegislationandthereforetheintensityoftheinspectioncannotbechangedfor individual licensees.Everycustomerfileischeckedinrelationtotheperiodsinceestablishmentofthebrokerageorsincethe last inspection. Inspections are undertaken by two officers for a period of up to two or threeweeks.

MEDT

514. TheMEDhasadepartmentoffive,three/fourofwhichdealwiththeMEDT’sroleinAML/CFTsupervision. In practice AML/CFT is a minor part of the department’s activities. Training hascomprised attendance at a course at the FIU by two staff and is therefore not systematic andcomprehensive. The statutory risk criteria and time frames for onsite inspections indicate thatsupervisioncanonlybeaverylimitedRBAtoML/FT.Themethodologyforonsiteinspectionsalsomeansthattheintensityofsupervisioncannotbealtered.While10onsiteinspectionstookplacein2013and2014,inspectionshaveyettoberestartedafterasignificantmoratoriumandareplannedfromthesecondhalfof2017.Bywayofoffsitesupervision,theMEDThaswrittentotenexchangestorequireremediationofbreachesdetectedbytheFIUandadvisedbyittotheMEDT.

MoJ

515. Four staff at theMOJ are involvedwith supervision inKievwith some four staff alsobeinginvolvedineachUkrainianregion(some45staffintotal).StaffaretrainedeveryyearbytheFIUbutit is unclear howmany staff are trained and it would not appear that training is systematic andcomprehensive.

516. TheMoJundertakesoffsitesupervisionbyobtainingstatisticseverysixmonthsfromnotarieson the number of transactions falling within the scope of the AML/CFT Law and the types oftransaction. It appears that this information is not amalgamated into aggregated statistics oranalysis.Eachregionanalysestheindividualnotaryinformationseparately,assemblesthedataandpreparesquarterlyonsiteinspectionschedulesforapprovalbytheheadofficeinKiev.Eachregionalsosubmitsquarterlyreportson its findingstoheadoffice forreview,togetherwithexplanationsprovidedtonotaries.Itwasnotdemonstratedtotheevaluationteamthatthereisproactiveratherthan reactive coordination and use of this information. The processes for onsite inspections aredefinedbylegislationandthereforetheintensityofsupervisioncannotbealteredbetweenlicenseeson thebasis of risk; customer files are checkedbut it is not clearwhether thenumberdiffers fordifferent licensees. The prescribed criteria for classifying licensees and specified time frames foronsiteinspectionsallowforapartiallyML/FTRBA.Inspectionsareplannedonaquarterlybasis.TheMoJhasnotbeensubjecttoamoratoriumonsupervision.Fromthebeginningof2012totheendofthe firstquarterof2017 itundertook7,986onsite inspections tonotaries. It isunclearhowmanynotarieshavebeeninspectedmorethanonceorwhetherallnotariesorallhighrisknotarieshavebeeninspected.

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517. Thesameapproachandissuesarticulatedabovefornotariesalsoapplyinrelationtolawyers.

Remedialactionsandeffective,proportionate,anddissuasivesanctions

NBU

518. Inadditiontothestrongenforcementactivitydescribedaboveoncontrolstopreventcriminalentry to themarket, theNBU haswithdrawn ten licences for AML/CFT reasons, including two in2016.TheNBUhasusedarangeofsanctions.

Table18:Sanctionsimposedonbanks

EnforcementactionsappliedtobanksforviolationoftheAML/CFTlegislation:

2013 2014 2015 2016 1stQ2017

Writtendemands57 83 93 46 37 6

Writtenwarnings 18 19 8 28 10

Numberoffines 81 94 36 28 3

Totalamountoffines,UAH 794,850(~EUR

26,057.62)

1,263,080(~EUR

41,407.64)

4,670,714(~EUR

153,120.34)

9,321,023(~EUR

11,146.24)

2,444,529(~EUR

80,139.17)

Temporarysuspensionofanofficialofthebankfromoffice

2 ‐ 1*‐

Replacementofanofficerduetoreputationalissues ‐ ‐ ‐ 1*

Limitationontransactioncarriedoutbythebank

‐ 7 1 2‐

Revocation/liquidationoflicence

‐ ‐ 1 3‐

*Thisdecisionappliedto2officialsofabank.

519. Penalties have been imposed within the statutory deadline both in relation to banks andindividuals.Theaveragefine forbanks in2015wasUAH129,742(~EUR4,253.34)whilethat for2016wasUAH332,893(~EUR11,090.28).ThelargestfinancialpenaltyissuedbytheNBUwasUAH5million(~EUR0.16million).ItisnotcleartotheevaluationteamwhatkindofbreachesbybankswouldbeneededforsignificantlyhigherfinestobeusedgiventhenatureofbreachesfoundanditwouldappearthatthereisscopeforlargerfinestobeimposedasthemaximumfineavailableisUAH500million(~EUR16.39million).

57Thewrittendemandisnotconsideredasatypeofsanctionandisissuedincaseswhenminordeficienciesareidentifiedandthebankcaneliminatetheinfringement.

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520. Only fines have been imposed by the NBU in relation to remitters. The average for finesimposed in 2016 and 2017 are UAH 8,500 (~ EUR 278.66) and UAH 21,250(~ EUR 696.64). Nosanctions have been imposed by the NBU in relation to bureaux de change. The NBU sees thesanctionsframeworkavailablefornon‐banksasinsufficient.

SC

521. TheSCconsidersthatthemaximumfinancialpenaltyavailableisnotdissuasiveandthatthevarietyof sanctions should be improved. Sanctions are normally imposed four to sevenweeks after an onsiteinspection and are the responsibility of a separate enforcement unit,mainly comprisedof lawyers, andwhichappearstohaveadequateexperience.TheoneappealagainstasanctionwaswonbytheSC.FinesaveragingUAH119(~EUR3.90)andUAH95(~EUR3.11)wereappliedby theSC in2015and2014respectively. These figures are very low. It has also used thewider palette of sanctions available to it,includingthestrongerpowersoflicencewithdrawal;ithasissuedsomepenalties(i.e.protocols,whichareapplications to the court on breaches based on which penalties are considered by the court) againstindividuals.Theoutcomesoftheprotocolsarenotclear.TheSChasalsoreferredrecentcasestothepolice;anarresthasbeenmadeinconnectionwithoneoftheseandassetsconfiscated.

NC

522. All sanctions have been applied within the time frame specified in legislation. The NCconsidersthatthesanctionsframeworkispartiallyeffective,notleastbecauseofthelowmaximumlevel for finesavailable. Inaddition, theNCadvised thatotherStateauthoritieshave theability tocomplaintoitandoverturnadecisionbytheNC.FineswerelastimposedbytheNCin2014,namely91 fines averagingUAH10,500(~EUR344.22). It also issued18protocols in2014, nine in 2015,seven in 2016 and two in the first quarter of 2017. The authorities have not provided furtherinformationontheoutcomesofthecourtprocess.TheNChasnotusedotherpowersofsanction.

MoF

523. Sanctions in the form of fines are imposed for all infringements discovered by the MoF.Sanctions have not been imposed against individuals. The potential imposition of sanctions onindividualcasesisconsideredbyaseparateCommission,whichappearstobesuitablyexperienced.Sanctions are normally imposedwithin two or threemonths,wellwithin the sixmonth statutorydeadline.TheMoFisof theviewthat,whilepenaltiesappliedhavesomeeffect, the frameworkforsanctions is not sufficiently effective. In 2013 eleven fines averaging UAH 5,294 (~ EUR 173.55)were issued by the MOF, followed in 2014 with twelve penalties averaging UAH 21,958 (~ EUR719.85).In201612finesaveragingUAH263.500(~EUR8639)wereissuedbytheMoF.

FIU

524. Sanctions, mostly fines, were imposed prior to the moratorium, well in advance of thestatutory deadline. A separate panel,which appears to be suitably experienced is responsible forconsideringandissuingsanctions.TheregimeforfinesappearstohavenoimpactontherealestateagentsectorandisconsideredbytheFIUtobelow.Sanctions,intheformoffinancialpenalties,werelast imposedbytheFIUin2014,namelythreefinesaveragingUAH170(~EUR5.57).TheFIUhasadvisedthatthebreacheswerenegligibleandthatitconsidersthefinestobeproportionateinthesecases. Following the onsite element of the evaluation, the FIU also advised that it had issued 54protocolsin2015and2016tocomplianceofficersforlatesubmissionofinformation.Theoutcomesofthecourtprocesshavenotbeenadvisedtotheevaluationteam.

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MEDT

525. Inlightoftheabsenceofonsiteinspections,nosanctionshavebeenappliedbytheMEDT.

MoJ

526. Sanctions have been imposed within the statutory deadline. The MoJ considers that thefinancialpenaltyframeworkistoolowandthattheframeworkasawholemightbetoogeneral.Theaverage financialpenalty imposedwasUAH297(~EUR9.74) in2015,UAH319(~EUR10.46) in2016andUAH201(~EUR6.59)forthefirstquarterof2017.Othersanctionshavenotbeenusedandfineshavenotbeenimposedinrelationtoindividuals.

Impactofsupervisoryactionsoncompliance

NBU

527. TheNBU’sactionsdescribedaboveon transparencyofownershipandcontrolofbanksandremovingcriminality forownershipandcontrolhashadapositiveeffectoncompliancebybanks.Bankshavebeenforciblyremovedfromthemarket.ItconsidersthatitsRBAandrequiringbankstofocusonrisk,combinedwiththeintroductionofstrongersanctions,haspreventedMLschemes.Atthe NBU’s suggestion, a time consuming coding system for each transaction has been removed,freeing resources formore effectiveAML/CFT. TheNBUhas seen evidence that its supervision isleadingtobanksanalysingtheessenceoftransactionsandrejectingpotentialMLschemes.

SC

528. Asmentionedabove,theSChastightenedaccesstothesecuritiesmarket,whichhasledtoanincreaseinthequalityofparticipants.Beyondthis,theSChasnotbeenabletopointtospecificareaswhereithasmadeadifferenceintermsofAML/CFTcompliance.

NC

529. The NC considered that risk management systems within REs had improved and that thewillingnessofentitiestoparticipateintraininginitiativesindicatesthatitishavingapositiveimpactoncompliance.EntitiesmetbytheteamvariedintheirviewsbetweennotingthattheNCcarriedoutits functions satisfactorily and recognition that the NC’s lack of capacity has had a demonstrableeffect.

MoI

530. Feedback from theprivate sector suggested to theevaluation team that theappointmentofthenewteamispositivecomparedwiththeprevioussupervisoryframework.

MoF

531. TheMoF is strongly of the view that progress by REs has beenmade since 2011 (when adifferentauthoritywasresponsibleforsupervision).Riskmanagementistakingplace,thequalityofCDD documentation seen during inspections has improved and representatives of REs attendtraining.

MEDT

532. SupervisionbytheMEDTisnotatthestagewhereitcanmakeadifferencetocompliancebycommodityexchanges.

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MoJ

533. The MoJ considers that the significant decrease in the number of AML/CFT breaches bynotariesevidencesthatitssupervisionismakingadifference.

PromotingaclearunderstandingofAML/CFTobligationsandML/TFrisks

NBU

534. TheNBUupgradedittrainingprogrammeeighteenmonthsago.Ithasconductedworkshopsforbanks,whichincludetherisksofdistanceservices.Twenty‐threeworkshops,attendedbyalmost2,000bankofficershavebeenrunsince2010. It alsoundertakes trainingona regularbasisat itsoffices, attended by representatives of every bank. The training has covered various types ofcorruption, source of wealth and source of funds, beneficial ownership, fictitious companies,identificationofPEPs,FT,frauds(includingcomputerfrauds),andpaymentsystems.TheNBUalsohasregularmeetingswithbankingassociationsandplacesinformationsuchasregulatorychangeson its website. Since August 2016, it has published the findings of onsite inspections and thesanctionsappliedonbanks.TheNBUalsoliaiseswiththeFIUonseminars.Moregenerally,theNBUprovidesguidanceroutinelybyissuingclarificationsandrespondingtoqueries.

SC

535. TheSC’swebsitehasasectiondedicatedtoAML/CFT.Italsoprovidesinformationononeofthe socialmedia and conducts training viaworkshops (including participation in the FIU trainingcentre) and webinars, and responds to questions from the private sector. Key issues on whichguidance has been provided include identification and verification of identity and reporting ofsuspicion.

NC

536. TheNChasfocussedconsiderableenergyontrainingandhasworkedwiththeFIUandtheSC.It has concluded formal arrangementswith training institutes and contributed significantly to thecurricula.TheNChasalso focussedonsupportingtheFIUtrainingcentreand, inaddition, itsstaffhavegivennumerouslectures,engagedinworkinggroups,andrunroundtableson,forexample,TFSscreening.Duringtheperiod January2014to June2016,duringvisits to theofficesofREs,almost2,000individualsattendedtalksbytheNC.Itparticipatedin67educationaleventsin2016andhascontinued its programme in 2017. The NC places information on its website on its supervisoryapproach,includingitsannualreportandcirculars,androutinelyprovidesguidanceinresponsetoenquiries.Ingeneral,FThasbeenaparticularfocus.

MoI

537. PriortotheappointmentofthenewofficerstherewasnooutreachtopostaloperatorsbytheMoI.

MoF

538. Inconjunctionwithafinancialmanagementacademy,theMoFhasprovidedtrainingcoursesfor256complianceofficersofREsduringtheperiod2011to2016.Italsopromotesattendanceatcourses.Inaddition,itmetworkinggroupsofauditorsontwooccasionsinrecentyears,arrangedaconference forauditorsandaccountants in2015andheldameetingwith firmsofaccountantsonAML/CFTissues.ItalsoplacesinformationsuchasguidanceonidentifyingPEPsandmonitoringof

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transactions,questionsandanswers,andnewsonitswebsite.Inaddition,theMoFhascooperatedwiththeFIU,providinginformationtotheFIUforthelatter’straining.

FIU

539. TheestablishmentoftheFIUtrainingcentrewasapositiveandverysignificantstep.TheFIUdevotessignificantandpositiveenergytooperatingthetrainingcentre(forusebyallREsectors.

540. Itusedthemoratoriumtoadvantagebypreparingandpublishingpublicationsonitswebsiteand by promoting use of the training centre by real estate agents – 65 individuals have attendedevents since the beginning of 2014. This numbermight be accounted for by the existence of themoratorium.Particularsuspicionisdrawntothereportingofsuspicion,typologiesintherealestatesector (developed by the FIU in 2008 and still considered by the FIU to be relevant) and riskmanagement.ThereisliaisonbytheFIUwithrealestatesectorassociationsontypologiesand,moregenerally,providingthemwithinformation;theFIUhasaMOUwithoneoftheassociations. Mostrecently,theFIUorganisedaneventforbrokers.BrokersareadvisedtopayparticularattentiontothesubjectoftransactionssuchaswhethertheyarePEPsorsubjecttoTFSandwhetherthefinancialstatus of the customer would allow for the purchase of a property. The FIU also responds toquestions.

MEDT

541. The MEDT has placed an announcement on its website promoting attendance at the FIU’strainingcentre.

MoJ

542. Annual workshops are held by the MoJ at which typologies and guidance is provided tonotaries.Information(forexample,recommendations,AML/CFTbreaches,materialfromworkshopsand current issues) is also placed on its website. In 2016 65 “methodological recommendations”wereprovided tonotariesand theMoJparticipated in46seminars (includingseminarsat theFIUtraining centre). The head office informs the branches of events it is hosting. The MOJ plans topublishadocumentonnotaries’activities.

Conclusion

543. Very significanteffortshavebeenmadeby theNBU in relation toensuring transparencyofbeneficialownershipofbanksand inremovingcriminals fromcontrolofbanks; theseeffortshavebeencomplementedbytheDGF.TheSChasmadestrongeffortstoensurethatBOsandcontrollersarenotcriminals.However,othersupervisoryauthoritiescannot,ordonot,verifywhetherornotrelevantREsarebeneficiallyownedorcontrolledbycriminalelementsortheirassociateswiththelimited exception that the FIU has checked the records of real estate agents during onsiteinspections.

544. TheNBUand theSChaveagoodunderstandingofMLrisks in thebankingand investmentsectorsrespectivelyandabroadunderstandingofFTrisksinthosesectors.TheFIUappearstohaveasimilarunderstandingoftherealestateagentsectorasawhole.TheNChasagoodunderstandingofMLrisks.Atthetimeoftheevaluationteam’svisittoUkraine,othersupervisorsdemonstratedabasicunderstandingofrisksor,inthecaseoftheMoIandtheMEDT,understandingwaslacking.

545. TheNBUisundertakingcomprehensiveonsiteandoffsitesupervisionforbanks.Itfollowsamainly RBA to AML/CFT supervision. Other supervisory authorities (and possibly the NBU in

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relationtoremitters)haveinsufficientstaff.ExceptfortheNBUandtheMoJ,supervisorshavebeenthe subject of amoratorium on supervision (nonewas in forcewhen the evaluation team visitedUkraine). These factors have limited supervision since 2014. None of the non‐bank supervisoryauthorities(excepttheNBUinaverylimitedwayfornon‐banks)hasbeenconductingroutineoffsitesupervision. Other than theMoJ, onsite supervision outside the banking sector has been limited.Hence,outsidethebankingsectoroveralllevelsofsupervisionhavenotbeensufficient.Inaddition,withthepartialexceptionoftheSC,thestatutorycriteriaforclassifyingREsintoriskcategoriesandthetimeframesforonsiteinspectionsmeanthatsupervisioncanbeonlypartiallyML/FTriskbased.Theintensityofsupervisionbetweennon‐banklicenseesbysupervisoryauthoritiesotherthantheNBUisvariedinaverylimitedwayornotatall.

546. TheNBUhasappliedarangeofsanctionstobanks,includingfinesandrevocationoflicences.Ithasalsoappliedstrongsanctions(prohibitions)toindividualsbutnootherpenalties.Outsidethebanking sector, the levels of fines are too low and only the SC has applied strong sanctions inadditiontotheimpositionoffines.Therearesignificanttechnicalgapsandthesanctionsframeworkoutsidethebankingsectorcanbeonlypartiallyeffective.

547. TheNBUhasmadeademonstrabledifferencetothelevelofcomplianceinthebankingsector.While the SC has made a difference in relation to beneficial ownership and control of licensees,overall, theevidencethatnon‐banksupervisoryauthoritiesareroutinelymakingacomprehensiveandsystematicdifferenceonlevelsofcomplianceisnotstrong,withtwoofthesupervisorsmakingnodifference.Apartfromsupervisionofthebankingsector,thelevelsofsupervisionandsanctionsmilitateagainstsupervisorsmakingadifferenceinlevelsofcompliancebyREs.

548. The large majority of supervisory authorities have undertaken outreach to promoteunderstandingofobligationsandrisks.Particularly strongandpositiveoutreachactivityhasbeencarriedoutbytheFIU(coveringallREsectors),theNBU(forbanks)andtheNC.However,provisionofinformationbytheMoIandtheMEDTislacking.

There are number of technical deficiencies in relation to relevant recommendations, including inparticularR.26to28and35.UkrainehasamoderatelevelofeffectivenessforIO3.

CHAPTER7. LEGALPERSONSANDARRANGEMENTS

KeyFindingsandRecommendedActions

KeyFindings

• The extent towhich legal persons can generally bemisused forML/FT iswell understood.However,theNRAdoesnotspecificallyconsiderhowlegalpersonsestablishedunderUkrainianlawcanbeusedtolaundertheproceedsofcrime.

• The USR in respect of beneficial ownership is intended to promote transparency of legalpersonsandisapositivesteptowardsthisaim.TheprivatesectorroutinelyusesthisresourcewhenidentifyingorverifyingtheUBOofalegalperson.ThisinformationisnotverifiedanditisbelievedbymostofthoseinterviewedfromboththeprivatesectorandtheauthoritieswhousetheresourcethataproportionoftheinformationintheUSRisinaccurate.

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• Therewasnoprocessor legislativepower identifiedwhichobliges theauthorities toensurethatallinformationstoredontheUSRiscorrect,accurateanduptodate.

• Somegapsintheframeworkhavebeenidentifiedunderrecommendation24,andaddressingtheseweaknesseswill strengthenmeasures toprevent themisuseof legalpersons forMLandFTpurposes. Inparticular, there are gaps in the applicationof preventativemeasures (see IO4) andsupervisionfornomineeshareholdersanddirectors(seeIO3).

• SanctionsforfailuretosupplyaccuratebeneficialownershipinformationtotheUSRarebothadministrative in nature and criminal. Due to the limited nature of the administrative sanctions,criminaltheSFSwillgenerallyreferrecalcitrantentitiesforcriminalinvestigation.ThelownumberofprosecutionswhichhaveresultedfromtheoverallnumberofpotentialoffencesidentifiedbytheSFSdonotappeartobeproportionate.

RecommendedActions

• The UAs should take reasonable steps to verify the information submitted to the USR iscorrect,accurateanduptodateinatimelymanner;

• TheauthoritiesshouldconductanexercisetoverifytheinformationcontainedontheUSRforlegalpersonsalreadyincorporatedinordertoquantifythelevelofinaccurateinformation

• The threatspresentedby theuseofUkrainian legalpersonsshouldbe identified inorder tostrengthentheriskmitigatingframework;

• More dissuasive sanctions should be applied to personswho either fail to supply adequate,accurateandcurrentbasicandbeneficialownership informationor fail tosupply information inatimelymanner.

• TechnicaldeficienciesidentifiedintheTCannexshouldbeaddressed,inparticularinrelationtotheuseofnomineedirectors,shareholdersandowners.

549. The relevant Immediate Outcome considered and assessed in this chapter is IO 5. TherecommendationsrelevantfortheassessmentofeffectivenessunderthissectionareR24&25.58

ImmediateOutcome5(LegalPersonsandArrangements)

550. The legal framework which underpins the creation of legal persons, or legal persons, inUkraine appears to bewell structured and easy to understand. Furthermore, the requirement forlegalpersonstoberegisteredbytheMoJthroughtheUSRpromotestransparencyofsuchentities.However, certain deficiencies in parts of the application of those laws, in particular the lack ofverificationofbeneficialownershipinformationheldbytheUSR,appearstohaveamaterialimpactintheeffectivenessoftheirintent.

Publicavailabilityofinformationonthecreationandtypesoflegalpersonsandarrangements

551. GuidanceonhowtocreatealegalpersonundertheCivilCodeofUkrainecanbefoundontheMoJwebsite.Incorporationofalegalpersonwasgenerallyconsideredbythoseinterviewedfromthe

58 Theavailabilityofaccurateandup‐to‐datebasicandbeneficialownershipinformationisalsoassessedbytheOECDGlobalForumonTransparencyandExchangeof Information forTaxPurposes. Insomecases, thefindingsmaydifferduetodifferencesintheFATFandGlobalForum’srespectivemethodologies,objectivesandscopeofthestandards.

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private sector tobea straightforwardandsimpleprocess for residentsofUkraine.Thosepersonswhoarenon‐residentarerequiredtousetheservicesofanotaryorotherauthorisedpersontoforma legal person. Notaries are able to provide guidance to non‐residents and give assistance in thecreationofaUkrainianlegalperson.Non‐residentswhoaretheBOofalegalpersonorwillholdanyofficewithinthatentityarerequiredtoregisterwiththeSFSandobtainaTaxIdentificationNumberpriortotheregistrationofthelegalperson.

552. Ukrainian Law does not provide for the creation of legal arrangements, while it does notprohibit themanagementofsucharrangementsbypersonsresident in the jurisdiction, inpracticethis appears to not be happening on a wide scale. The USR also contains the details of privateentrepreneurswho are natural persons undertaking economic activity either individually, or as apartnership.AlthoughregisteredontheUSR,suchpersonsarenotlegalpersonsintheirownrightand partnerships are neither legal persons nor do they constitute legal arrangements. ThereforethesebusinessarrangementsdonotmeetthedefinitionsunderIO.5.

Identification, assessment and understanding of ML/TF risks and vulnerabilities of legalentities

553. TheNRAidentifiedtherisksaroundthelackofverificationoftheBOs,thisidentifiesthatthereisagapontheUSRinrespectoftheownershipinformationforcertainlegalpersonsestablishedforparticularpurposes.Inaddition,itrecognisesthatthelackofverificationintheUSRleavesUkrainianlegalpersonsvulnerabletotheuseof“strawmen”.Theassessmentofthisvulnerabilityappearstobereasonableandcommensuratewiththerisksidentifiedbytheevaluationteam.

554. Widervulnerabilitiesof legalpersonswerenotedwhenassessingtheoverallML/FTrisks inUkraine. These were not specific assessments of legal persons, but considerations of typologieswhichhappenedtoincludelegalpersons.Moreover,theuniquerisksposedbyeachofthetypesoflegalpersonswhichcanbeformedunderUkrainianLawhavenotbeenassessedindepth.

555. Theunderstandingofa“fictitiouscompany”differsslightlyamongtheprivatesectorandtheauthorities,howeveritisgenerallyagreedthatsuchentitiesarethoseestablishedtobeabusedforthelaunderingoftheproceedsofcrimeortofacilitateFT.Somesectorsoftheprivatesectorbelievetheissueissmall,othersbelieveitmoreisserious.Overall,theprivatesectorreportthattheybelievearound 20% of all companies registered in Ukraine may have declared false or inaccurateinformationtotheUSR,thisinformationagreeswiththedataprovidedbytheauthorities.

556. ThestatisticsprovidedintheNRAandtotheevaluationteamsuggestthattheproblemofthemisuseoflegalpersonsiswidespreadandsuchlegalpersonsarebelievedbyFIUandLEAstobekeyto the successful operation of so‐called “conversion centres”. The evidence gathered by theevaluationteamappearstosuggestthat legalpersonsinUkraineposeahigherrisk for launderingthe proceeds of crime and the vulnerabilities ofUkrainian legal persons stem from sourcesmuchbroaderthantheweaknessesidentifiedintheverificationoftheBOs.

Mitigatingmeasurestopreventthemisuseoflegalpersonsandarrangements 557. Ukraine hasmade a number of positive legislative changes to promote the transparency oflegal persons andmake them less attractive instruments to obscure the proceeds of crime or tofinance terrorism.Themost fundamental changes in achieving this aim includepublication of thecentralregisterofbeneficialownership(theUSR)andtheabolitionofbearershares.

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558. JointStockCompanieswereprohibitedfromissuingnewbearershares inFebruary2006, in2014newregulationswere introduced to require thatbearershares incirculationpre‐2006wereimmobilised by the issuing company and then registered to the legal owner in a de‐materialisedform.Theauthoritieshaveadvisedtheevaluationteamthatthereareno longeranybearersharescurrentlyincirculation;theteamhasnotidentifiedanyevidencetothecontrary.

559. TheUSRwasestablishedinJuly2004andin2015mostoftheinformationheldbytheUSRwasmade publically available through an online portal (with the exception of the Tax IdentificationNumbers). This is a positive development by theUAs and is clear evidencewhich showspoliticalsupporttopromotetransparencyoflegalpersons.

560. The identities of the controllers, directors and BOs are recorded on the USRwhich can beaccessed by any authority or member of the public. Furthermore, training by the supervisoryauthorities and the FIU has highlighted this resource to the private sector who explained to theevaluationteamthattheyroutinelyuseitaspartoftheirduediligenceprocess,inparticulartoverifytheBOofanylegalpersonstheyenterintoabusinessrelationshipwith.

561. Moreover,somelargerREswillundertakeadditionalcheckstoverifytheveracityofthedataheld in the registry in order to satisfy themselves that the informationprovided to themby theircustomeristrue.However,manyofthesmallerREsarerelyingsolelyontheregistryasakeypartoftheirCDDprocedureonthebasisofabeliefthattheinformationisaccurateandinsomecases,aretacitlyassumingthattheinformationhasbeenverifiedbytheauthorities.

562. WhentakingstepstoverifytheBOofacustomerthatisalegalperson,REswillcomparetheinformationsubmittedbyacustomerwiththatheldontheUSRastheverificationprocess.OnthebasisthattheinformationstoredontheUSRhasnotbeenverifiedbytheREsthiseffectivelymeansthat beneficial ownership information is not actually being verified by any party. Prima facie thisreliance results in a material deficiency in the overall regime given the widely accepted level ofinaccurateinformationstoredontheregister.

563. Further to this, theMoJ is only authorised toundertake administrative checkson corporateapplications, checking that the forms are complete and to ensure that all documents have beensubmitted. There does not appear to be any discretion afforded to the administrators of the USRwheretheysuspectthatinformationsubmittedmaybeinaccurateormisleading.

564. Inmitigationof thisgap,at thesametimetheSFStakes itsownsteps to identifywhensuchinformation is false, inaccurate ormisleading by analysing the tax records of personsdeclared asbeingconnectedwith the legalpersonwherea legalperson is consideredby theSFS tobehigherrisk.Inaddition,theSFSreceivesthefinancialstatementsofthelegalpersonandcomparesfinancialoutflowssuchassalariesanddistributionsof reserves(dividends) to the incomesdeclaredon thetaxreturnsofthosepersonswhoarerecordedasentitledtoreceivethempursuanttotherecordsheldbythetaxauthorities.Wherediscrepanciesareidentifiedwhichcannotbeexplained,thecasesare reported toLEAs.Thishappensonadailybasis.Gapsoccur in circumstanceswhereapersonmaybecontrollingalegalperson,butnotreceivingdirectfinancialbenefit,suchpersonsareunlikelytobeidentifiedbytheSFS’sprocess.

Timelyaccess toadequate,accurateandcurrentbasicandbeneficialownership informationonlegalpersons/arrangements 565. Thebasic informationofeverylegalpersonestablishedunderthelawsofUkraineaswellasthe information about the UBO is stored on the USR. Access to the USR is available unrestricted

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24hours a day; information canbe sought instantlyby thosewho require it including competentauthorities.

566. In circumstances when LEAs require the identification of UBO information, it in the firstinstanceanalysesitsownrecordsaswellastheUSR.LEAshaveunrestrictedanddirectaccesstotherecords of the other competent authorities including the SFS. Where beneficial ownershipinformationcannotbeprovidedbythesemeans,LEAshavethepowertoseektheinformationfromREsdirectly.

567. IncircumstanceswhentheFIUrequirestheidentificationofUBOinformation,itinthefirstinstanceanalyses its own database and will request additional information from other competent authorities,includingtheSFSaswellasdirectlyfromREs.WheretheFIUhasreceivedarequestforinformationfromaforeignFIU,theFIUofUkraineisempoweredtorequestthebeneficialownershipinformationfromREs,LEAsandtheSFS.Todatetheserequestsforinformationhavealwaysbeenfulfilled.

568. LEAs have the power to seek an order from the Courts under Art. 164(7) of the CPC to obtainbeneficialownershipinformationandrecordsdirectlyfromREs.TheseOrdershaveavalidityofthirtydaysfromissue.Howeverinpractice,theevaluationteamidentifiedthattheseordersarenotfulfilleduntiltheend of the thirty day period. Because in practice the beneficial ownership information under thesecircumstancesoften takesaroundthirtydays toobtain, itwouldnotbereasonable toconclude that thecompetentauthoritiesareabletoobtainthisinformationinatimelymanner.

569. TheSFSholds,pursuanttoArt.168oftheTaxCode,registrationdataforallpersons,legalandnatural,whoareresidentinUkraineorhaveeconomictiestoUkraine.TheSFSwilluseinformationgatheredundertheTaxCodeandtheUSRtocalculateexpectedtaxrevenuepayablebytaxpayers.Where informationsuppliedby legalpersonsor itsassociatednaturalpersonsdoesnotmatchtheexpected financial flows identified by the SFS, the discrepancies are investigated. The SFS istherefore inapositiontobeableto identifywherefalse,misleadingor inaccurate informationhasbeen submitted to the USR. The SFS discussed with the evaluation team that unexplaineddiscrepancies like this are identified, investigated and referred for law enforcement action on analmostdailybasis.Thisfurthersupportstheevaluationteam’sfindingsthatthescaleof inaccurateinformation held on the USR is significant. However, although the USR is not a reliable source ofinformation, the evaluation team is satisfied that through the SFS, the competent authorities can“obtainadequate,accurateandcurrentinformation”.

570. Finally,asnotedunder theanalysisofR.24 in the technicalannex, theprovisionofnomineeservices isnot, inandof itself, activity subject to financialmonitoring.Theevaluation team foundevidenceofanumberofbusinesses,typicallylawyersandaccountants,basedinUkraineorabroadofferingguidanceandsupportonthecreationofUkrainian legalpersons.Generally, theseservicesare offered in order to facilitate external investment into Ukraine. Moreover, some of thesebusinesses offer to provide further ongoing support such as the provision of a registered office,nominee shareholders and nominee directors. TheMoJ advised the evaluation team that they areunable to identify the traits of instances when nominees are used in order to manage the risksappropriately.

571. TheAML/CFTlawconsidersalegalarrangementtobethesameasalegalperson.Thepowersappliedtolegalpersonswouldtherefore,intheory,applytothelegalarrangements.ThedeficienciesidentifiedunderR.25,however,wouldhaveamaterialimpactontheabilityofLEAstoobtainaccesstoadequate,accurateandcurrentbasicandbeneficialownershipinformationonlegalarrangements.

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572. Theassessorswerenotabletotesttheeffectivenessofthetimelyaccesstoinformationrelatedtolegalarrangementsbecausethereislittleinformationavailableonpersonsactingastrustee(orsimilar) within Ukraine. The evaluation team did not meet any persons on‐site who are in thebusinessofactingastrustee(orsimilar)withinUkraine.

Effectiveness,proportionalityanddissuasivenessofsanctions 573. TheLawofUkraine “OnStateRegistrationofLegalPersonsand Individuals–Entrepreneurs”stipulates that failurebya legalperson to submit informationon itsUBO (controller) to theStateRegistrar, results inadministrative liabilityunder theCodeofUkraineonAdministrativeOffences.Todatethereappearstohavebeenalownumberofsuchsanctions.

574. In addition to administrative sanctions, the SFS has the power to apply criminal sanctionswhere false informationhas been submitted to the SFS. Because all persons identified in theUSRmust hold a valid Tax Identification Number, the submission of false information to the USR isviewed as submission of false information to the SFS; this has the indirect effect of making thesubmission of false information to the USR a criminal offence. The sanctions, which are appliedunderArt.205(1)oftheCriminalCode,includeimprisonmentandmoresignificantfinesthanthoseavailableundertheadministrativeoffencesapplicablebytheregistrardirectly.

575. In2016approximately86,000newlegalpersonsappliedforaTaxIdentificationNumber.Ofthatnumber, theSFShas referredaround17,200of theseentities forprosecutionon thegroundsthat the information submittedwas suspicious, approximately 20%of all newapplications. Thesestatisticssupportthewiderfindingsthataround20%oftheregistermaybeinaccurate.

576. In2016,only190caseshavethenbeenreferredbyLEAstothecourtsforcriminalaction.Thisequates to approximately 1.1% of all cases identified being prosecuted. The total number ofconvictionscomingoutoftheseprosecutionsfor2016wasunavailable.

577. WhilsttheSFSistakingpositivereactiveactiontosuchfailings,andostensiblyappearstohavemore dissuasive sanctions available to it, only 1% of cases are being prosecuted, therefore it isdifficulttoassessthesanctionsregimeasbeingeffective.

578. Finally, where a Court order is sought to compel a RE to provide law enforcement withbeneficial ownership information that entity has 30 days to comply with that order. For theproductionofbeneficialownershipinformation,30daysisnotconsideredtobeatimelymannerbytheevaluationteam.

Conclusion

579. Thepublicregisterofbeneficialownershipisaverypositivemovetowardsatransparentandopencultureinrespectoflegalpersons.However,asignificantproportionoftheinformationheldontheregisterisagreedtobeinaccurateorotherwiseunreliable,thisunderminestheeffectivenessofsucharegime.Theprivatesectorareheavilyreliantontheregisteranduseittoverifythebeneficialownershipoftheircustomers,giventheunreliabilityoftheregister,thishasamaterialimpactontheeffectivenessoftheprivatesectorto,inturn,verifytheBOsoflegalpersonstheyenterintobusinessrelationships with. While the register is not actively policed, only 1.1% of infractions which areidentified are prosecutedwhich further undermines the effectiveness of the regime.UkrainehasachievedamoderatelevelofeffectivenessforIO5.

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CHAPTER8. INTERNATIONALCOOPERATION

KeyFindingsandRecommendedActions

KeyFindings

• UkrainehasacomprehensivelegalframeworktoprovideandreceiveMLAinrelationtoML,predicateoffencesandFT.Ingeneral,Ukraine’sforeigncounterpartsconsiderthequalityoftheMLAprovidedassatisfactoryintermsofbothqualityandtimeliness.

• Available data onMLA provided by Ukraine however tends to suggest that effectiveness islimitedincertainareas,inparticulartheseizureandconfiscationofassets.

• AnumberoffactorslimittheeffectivenessofincomingMLArequests,inparticular:

‐ The authorities involved in responding to MLA requests are vulnerable to corruption.Information leakage is not uncommon, a practice which sanctions for tipping off fail todissuade.

‐IssueshighlightedunderIO7inrelationtoprovisionalaccesstoinformation.

‐UkrainehasnotyetestablishedaprioritisationsystemforincomingMLArequests.

• Ukraine is generally prolific in seekingMLA. The number of outgoing requests has recentlyincreased in the area of anti‐corruption. However, the process to request MLA in relation toconfiscationhasnotproventobeeffectiveintheperiodunderreview.

• Beyond MLA, the UAs appear to be active in other forms of cooperation with foreignauthorities,especiallyasfarastheFIUandSSUareconcerned.

• CooperationinrelationtoBOinformationisoflimitedeffectivenessinlightofthedeficienciesnotedunder IO5 in relation to access to this typeof information.However, theUAs indicate thatothersources,includingdataavailabletotheSFSandthefinancialsupervisors,maybeusedforthepurposeofrespondingtothesetypesofrequests.

RecommendedActions

• TheMoJshouldestablishaclearsystemfortheprioritisationofincomingMLArequests.ThePGOUshouldadoptandimplementtheinternalorderonprioritisationithasstartedtodevelop.

• The authorities should apply measures to ensure that the effectiveness of incoming MLArequests is not hindered by tipping off and other practices concerning provisional access toinformation(referredtounderIO7).

• Ensurethatrequestsseekingthetemporaryseizureofassetsare followedupbyreceiptofaconfiscationorderbytheprosecutionandtimelyprovisionoftheordertotheforeignauthoritythathasrestrainedtheassets.

• AddaguidelinetoensurethatanincomingMLAforinformationontheUBOwillbeprocessedafterthematterisverified,interalia,withtheSFSandtheFIU.

580. The relevant Immediate Outcome considered and assessed in this chapter is IO 2. TherecommendationsrelevantfortheassessmentofeffectivenessunderthissectionareR.36‐40.

ImmediateOutcome2(InternationalCooperation)

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ProvidingconstructiveandtimelyMLAandextradition

581. The CPC sets out a suitably comprehensive legal framework for MLA, which enables theauthoritiestoprovideabroadpossiblerangeofassistanceinrelationtoinvestigations,prosecutionsandrelatedproceedingsconcerningML,associatedpredicateoffencesandFT.MLAistobeprovidedinaccordancewiththerequirementssetoutininternationaltreatiesanddomesticlegislation.

582. TheMoJandthePGOUarethecentralauthoritiesforthereceipt,processingandallocationofMLA requests. During the investigation stage, the competent authority for incoming and outgoingMLAsisthePGO,whodisseminatestherequeststotherelevantLEAinaccordancewiththesubject‐matteroftherequest.Atthestageofthecourtreview,thecompetentauthorityistheMoJforbothincomingandoutgoingMLArequests.

583. In general, requesting countries are satisfied with the level of cooperation received fromUkraine.However, three countries sharednegative feedbackwith theevaluation team, twoon thegrounds of major delays in receiving the assistance sought and one on the grounds that theassistancewasnotrendered.

584. TheauthoritiesprovidedthestatisticsregardingincomingMLArequests.TheevaluationteamfacedsomedifficultiesinobtainingcomprehensivestatisticsfromtheUAsinrelationtointernationalcooperation,aswellasinreconcilingthedataprovided,asreflectedthroughoutthischapter.

Table19:IncomingMLAshandledbythePGOUbrokendownbytypesofpredicateoffences

201620152014201320122011201067363919232622ML2‐‐‐‐‐‐FT353222‐24Corruption1461025057614732Drugs79505040283738Taxevasion

1No

statisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Organisedcrime

11634227Bankingoffences16819814555663763Theft28131110122626Embezzlement1953131010811Robbery94777546281118Computeroffences46404339535359Smuggling12211691476Brigandage26191221291525State‐relatedcorruption‐

offences2601661079510310987Fraud392374365360358303308Other(non‐proceeds‐

generatingcrimes:roadtrafficaccident,hooliganism,militaryoffences,sexualcrimes,etc.)Table20:IncomingMLAshandledbytheMoJbrokendownbytypeofassistancerequested(excludingseizureandconfiscation)

2010 2011 2012 2013 2014 2015 2016MLA 732 832 679 919 750 811 882Extradition 96 116 90 65 30 38 80

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Transferofcriminalproceedings 9 8 3 14 1 10 1

Transferofexecutionofsentences 34 9 11 10 2 5 10

585. TheMoJ indicatesthatnoneoftheincomingMLArequestsweredenied.ThePGOUprovidedthestatisticscontainedinTable21andexplainedthatthemajorityofrequestsforassistanceweredeniedonthegroundsthattheywereofapoliticalnature.AsofOctober2017,theNABUreceived(through the PGOU) 15 MLA requests. 8 have been executed in full; 4 in part and 3 are beingprocessed.

Table21:NumberofincomingMLArequestsdeniedbythePGOU

2012 2013 2014 2015 201612 17 33 56 64

586. TheUAs indicate that7MLArequestswerereceived inrelation to theconfiscationofassetsbetween2010and2016.

Table22:IncomingMLAs‐Seizureandconfiscationofassets

2010 2011 2012 2013 2014 2015 2016Totalofforeignarrestrequests

‐ ‐ Hardware

Sharesof14economicentities,

28propertyobjects

‐ ‐ ‐

Totalarrestedassetsbasedonforeignrequests ‐

EUR2.26M;apartmentinKyiv;

6landplotsinOdessaOblast

Hardware

Sharesof14economicentities,

28propertyobjects

‐ ‐ ‐

Totalforeignconfiscationrequests

‐ £70,125* ‐ ‐EUR 82,517;Lith.litas87,090*

Lith.litas457,397.86* ‐

Totalconfiscatedassetsbasedonforeignrequests

‐ ‐ ‐ ‐ Info.notavailable** ‐ ‐

Totalassetsforwardedtorequestingcountryafterfinalconfiscation

‐ ‐ ‐ ‐ ‐ ‐ ‐

*The  requests have not been executed either because  the assets could not be  identified by  the UAs based on  the information provided or because the crimes were not punishable in Ukraine ** A Ukrainian court has recognised a foreign court decision on confiscation (EUR 82 517) as being enforceable  in Ukraine. However, the MoJ has not yet provided an update on the implementation of the request  587. Between2010and2016,theUkrainiancourtsadoptedoneresolution(2014)recognisingaforeigncourtdecisiononassetconfiscationasbeingenforceableinUkraine.Theother6requestswererejected,including5onthegroundsthatsmugglingorcontraband(customsoffence)werepartiallydecriminalizedinUkrainein2011(seeanalysisunderR.3intheTCannex).Anotherrequestwasnotexecutedduetothefactthattheownershipandrealestateassetsmentionedbytherequestingpartydidnotexistonthebasis

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of Ukraine’s information. The UAs provided statistics demonstrating that other types of assistance(questioningofwitnesses,seizureofdocuments…)hasbeenprovidedinrelationtoMLArequestsrelatedtosmuggling since 2010. However, the absence of full criminalisation of smuggling offences restricts thepossibilityofprovidingthewidestpossibleMLA.

588. From 2010 to the first quarter of 2016, the MoJ received 8 MLA requests on criminalextradition in relation toML or FT cases. 5 incoming requestswere satisfied; 1 dismissed as thepersonwasaUkrainiancitizen;and2arebeingprocessed.

IO2CaseExample:ExtraditionOn 14 January 2015, the Tribunal de grande instance of Lyon, France issued awarrant for the arrest of aFrenchandIsraelicitizen,chargedwithoffencesincludingfraud,participationinanorganisedcrimegroupandML suspected of having been committed between January 2012 and February 2014. On 3 April 2015, theBoryspilDistrictCourthadapplieda40‐daytemporaryarrestdecisiontothesuspect.On17April2015,thePGOU received a request from the Prosecutor of the Tribunal de grande instance de Lyon concerning theextradition of the suspect. On 22 April 2015, the Prosecutor’s Office of the Kyiv region was requested toconductanextraditioninspection.On6May2015,theShevchenkoDistrictCourtofKyivrendereddecision ontheapplicationofanextraditionarresttothesuspected.On25May2015,theProsecutor’sOfficeoftheKyivregion,consideringthatnocircumstancespreventingextraditioncouldbefound,transmittedthecasetoPGO.OnJune2,2015thePGOUmadeadecisionontheextraditionofthesuspect.On26June2015,thepersonwasextraditedtoFrance.

589. Pursuant toArt.558of theCPC,MLA requests shall be executedwithinonemonth from thedateofreceipt.Ifnecessary(depending,inparticular,onthecomplexityandscaleoftherequest),thetermofexecutionmaybeprolonged(Art.545oftheCPC).PursuanttoArt.560oftheCPC,thecentralauthority shall send thematerialsobtained to the requestingpartywithin ten calendardays afterreceipt.In2010,suchrequestswereexecutedonaveragein60days,in2011–60days,in2012–60days,in2013–90days,in2014–90days,in2015–90days,in2016–60days.Althoughanaverageexecution time of a fewmonthsmay be adequate in complex cases, the lack of a clear system ofprioritisation of the requests both at the MoJ and the PGOU may slow down the processing ofrequest. The PGOU is in the process of adopting an internal order aimed at establishing aprioritisation system. A similar initiative from the MoJ, which indicates that prioritisation isestablishedonacase‐by‐casebasis,couldalsobeusefultoensuremoreeffectiveinvestigationandprosecutionofML/FTand,inparticular,restraintandconfiscationofcriminalproceeds.

590. A number of general issues which characterise the application of certain law enforcementpowers,whicharedescribedinfurtherdetailunderIO7,alsoappeartohaveanegativeimpactonthequalityandeffectivenessof the legalassistancerenderedbytheUAs,especially intheareasofprovisional seizure of documents. In addition to issues in relation to the full criminalisation ofsmuggling offences, which were noted above, concerns over corruption in public institutions, ashighlightedintheNRA,canunderminetheabilityofUkrainetosatisfysuchrequestsinaneffectiveandtimelymanner.Indiscussionswiththeauthorities,theevaluatorsweremadeawareofseveraltypicalscenarioswhereconfidentialityissuesunderminedorimpededtheeffectiveimplementationof a MLA requests. The authorities provided several examples of cases where by the time theauthoritiessoughttoseizeassetsorbankaccountsinpursuanceofanMLArequest,theassetshadalreadydissipatedasaresultoftippingoff.Challengesreportedbyseveralauthoritiesmetonsiteinseizingdocuments,alsoanalysedunderIO7,appeartohinderUkraine’scapacitytoprovideMLA.

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SeekingtimelylegalassistancetopursuedomesticML,associatedpredicateandTFcaseswithtransnationalelements

591. Ukrainehasbeenproactive in seeking international co‐operation throughoutgoingMLArequestswith regards to investigations of domestic ML or other major predicate crimes (inter alia, corruption,economiccrime,organisedcrime,drugtraffickingandhumantrafficking).TheauthoritiesindicatethattheincreaseinthenumberofoutgoingMLArequestsin2016inrelationtoMLandcorruptionistheresultofthe intensification of the pre‐trial investigation of criminal proceedings related toML and requests foradditionalinformationoncriminally‐obtainedassetsinforeigncountries.

592. ThePGOUindicatesthat,intotal,from2010to2016,LEAssent1,059MLArequests(seedetailinTables23 and24below).792of themweregranted;231werebeingprocessed; and36were refused.Assistancewasdeniedbecause,accordingtotherequestedstatetherewereinsufficientlinkageswiththesubjectoftheinvestigation;theexecutionoftherequestscouldthreatenstate interests;the investigatedoffencesweretaxoffences;andtherequestedactionscontravenedthelegislationofthecountry.Table23:OutgoingMLArequestsfromthePGOUbytypeofrequestedassistance(inconnectiontoML,POorFT)Natureofassistance 2010 2011 2012 2013 2014 2015 2016Obtainingdocumentaryevidence 145 131 86 90 104 75 181

Examinationofwitness 497 396 267 319 314 245 243Arrestofassets 5 12 3 10 2 20 29

Table24:OutgoingMLAsfromthePGOUofUkrainebytypeofpredicateoffence(withaconnectiontoMLorFTonly)

2010 2011 2012 2013 2014 2015 2016ML 9 5 11 30 6 25 86FT ‐ ‐ ‐ ‐ ‐ ‐ 2Corruption 7 9 11 2 23 154 211Drugs 38 29 27 40 19 9 19Taxevasion 40 39 39 52 54 32 43Organisedcrime No

statisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Nostatisticsavailable

Nostatisticsavailable

 593. From2010tothefirstquarterof2016,theMoJsent6MLArequestsoncriminalextraditioninrelation to ML or FT cases (the UAs provided an example of a Ukrainian citizen extradited fromGermany in 2011 in connection with ML charges). The MoJ also provided the following generalstatisticsonoutgoingMLArequests:Table25:OutgoingMLArequestsfromtheMoJbytypeofrequestedassistance(alltypesofcrime) 2010 2011 2012 2013 2014 2015 2016MLA 15 3 15 9 17 19 16Extradition 197 223 164 183 97 46 27Transferofcriminalproceedings 6 10 23 12 12 9 2

Transferofexecutionofsentences 2 2 ‐ 5 4 1 ‐

594. NABU investigators and prosecutors have followed a proactive approach for perusing legalassistance in foreign countries through MLA requests on corruption issues. Since it became

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operational,theNABUhassent248outgoingMLArequests,including74MLAin2016.Overall,inallabovementionedcasespetitionsweregrantedbycourt.

595. Between2010and2016,Ukrainesent30MLArequests(mostofthemin2016)inrelationtoassetarrests,butnonewithaviewtorequestingthefinalconfiscationofassets59.SubstantialamountsofassetswerearrestedinforeigncountriesonthebasisofarequestfromtheUAs.However,basedonmeetingswiththeauthorities,andasalsosubstantiatedbyopensources,theevaluatorshavebeenmadeawareofcasesinwhichUkrainehadnotbeeneffectivewithregardtooutgoingMLArequests,byfailingtoproviderequestedcountrieswithsufficientevidenceinatimelymannertoenablethemtorenderafinalconfiscationorder.Inparticular,itseemsthatUkrainehasnotyetbeenabletoproviderequestedcountrieswithaUkrainianfinalcourt decision on confiscation, so as to allow foreign courts to render a final confiscation decision. Nevertheless,itshouldbenotedthatthecurrentlackofcourtdecisionsontheconfiscationofseizedassetsis connected with the ongoing pre‐trial investigations into relevant criminal proceedings, since theinvestigatedcrimesarecomplex,requiringalargeamountofinvestigativeandotherproceduralactions.

596. Thereisnoobligationforcompetentauthorities,exceptfortheFIU,toprovidefeedbackontheassistance received in the contextof international cooperation nor are there any legal constraintsthat would impede authorities to do so. The authorities report letters of gratitude (includinginformationontheuseoftheassistancereceived)havebeensenttoanumberofcountries,andthatfeedbackhasbeenprovidedtocountriesupontheirrequest(forexampletoCanada,BritishVirginIslands,Austria,etc.).

SeekingandprovidingotherformsinternationalcooperationforAML/CFTpurposes

597. BeyondMLA,UAsactivelyengageinotherformsofcooperationwithforeignauthorities.

FIU

598. TheFIUisamemberoftheEgmontGroupandadheresstrictlytotheGroup’sPrinciplesfortheExchangeofInformation.TheFIUdoesnotneedtoenterintobilateralormultilateralagreementstoco‐operatewithitscounterparts.Nevertheless,theFIUhasenteredintoaMoUwith73foreignFIUstofacilitateco‐operation.ExchangeofinformationisconductedthroughtheEgmontSecureWeb.In2014‐2016, the FIU sent 1,547 requests to, and received 1,144 responses from foreign FIUs. 103lettersrelatedtospontaneousdisseminationofinformationweresenttoforeigncounterparts.TheFIUreceived725requestsand205letterscontainingspontaneousdisseminationofinformationandprovided784responsestoFIUsofforeignstates.

599. Asarequestedauthority,theFIU’sresponsetimevariesdependingonthetypeandurgencyoftherequest.Onaverage,theFIUrespondswithin30dayswithrespecttonormalrequestsand5dayswith respect to urgent requests. For example, between January and September 2016, the FIUreceivedanddealtwith14urgentrequestswithin5days.TheFIUalsosendsinformativeletterstoforeign FIUs in relation to unauthorised bordermovement of cash,money and credit documents,preciousmetals,etc.,aswellasculturalvaluesintheamountbeingequaltoorexceedingtheamountofUAH150,000(~EUR4,917.46)ortheamountinforeigncurrency,bankmetals,otherassetsequaltoUAH150,000(~EUR4,917.46).

600. TheFIUcontinuestocollectintelligenceonMLandembezzlementbytheformerPresidentofUkraine,hisrelatives,membersoftheformerGovernmentandaffiliatedpersons,aswellasinregard

59 TheUAsindicatethat,followingtheonsitevisit,requestsrelatedtoconfiscationweresenttoLatviainApril2017andtotheUSinOctober2017.

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to persons accessory to the organisation of ‘wilful hecatomb’. The FIU is particularly involved intracingandfreezingrelatedassetsabroad.RequestshavebeensenttotheFIUsof136countriesforthedetectionandfreezingofassets.8FIUsprovidedinformationonandfrozeassetsforatotalvalueofUSD107.2million,EUR15.9millionandCHF135.0million.

Lawenforcementauthorities

601. ThePGOUhassigned43agreementswith thecompetentauthoritiesof foreigncountriesonnon MLA cooperation, as well as with the International Center for Asset Recovery of the BaselInstituteofManagementICAR(2014). InJanuary2017,26workingmeetingswithspecialistsfromtheBaselInstituteofManagementwereheldbythePGOtoinvestigatecriminalproceedingsagainstformer high officials of Ukraine, as well as to identify and return their assets. In 2012, UkrainebecameanobservertoCARIN,whichaimsatstrengtheninginternationalcooperationamongLEandjudicial authorities in search, freezing, seizure and confiscationof theproceedsof crime. PGOhasexperience in establishing joint investigative teams (for example, to investigate the crash ofMalaysian Airlines flight MN17). NABU has signed international treaties with 5 countries (USA,Poland,Romania,LatviaandLithuania)andOLAFin2016.

602. 72bilateralconventionsontheavoidanceofdoubletaxationandpreventionoffiscalevasionoftaxesonincomehavebeensigned,aswellastheConventiononMutualAdministrativeAssistancein TaxMatters (2009) and the Protocol on amendments and additions onmutual administrativeassistance in taxmatters(2013).Ukrainehasalsosignedbilateralagreementsoncooperationandexchangeofinformationincombatingviolationsoftaxlawsandthemultilateralagreementbetweenthe states CIS‐members on cooperation and mutual assistance on compliance with tax laws andcombating violations in this area. In 2015, SFS dealt with 1,856 requests on fiscal informationexchange.

Financialsupervisoryauthorities

603. TheUAs indicate that financial supervisors actively cooperatewith foreign counterparts forthepurposeofsupervisiononaconsolidatedbasisandtheexchangeofinformationonactivitiesFIsinaccordancewith theprocedurespecifiedbyrelevant international treatiesofUkraine, includinginteragencyagreements.

604. Currently,NBUengagesininternationalcooperationintheframeworkof17agreementswithforeignfinancialsupervisorsforcooperationinAML/CFTsupervision.Authoritiesindicatethat:

In 2014, several requestswere sent to theUK financial supervisor regarding legal personsresidentsoftheUK,theirregistrationstatus, financialactivity intheUKaswellasBOsandreputation;

In2015,requestsweresenttothefinancialsupervisorofLatviaregardingtheactivityofonebank;

In2016,8requestsweresent toseveral foreignsupervisorsonAML issues(Poland,Latvia,NewZealand,UK,BritishVirginIslands,RepublicofSeychelles).

605. InformationreceivedfromtheseauthoritieswasusedbytheNBUincourtstosubstantiatetheunlawfulness of banks’ actions. The NBU also responded to the requests of foreign supervisors(Latviain2015,Estoniain2016)providinginformationregardingfindingsformedinthecontextofAMLsupervision.

606. The SC has signed 13 memorandums on cooperation with the competent authorities of foreigncountries:Armenia;Azerbaijan;Belarus;China;Egypt;Georgia;KyrgyzRepublic;Jordan;Malta;Republicof

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Moldova; Romania; Turkey; UAE. In 2015, SC received 216 requests. All requestswere processed andresultedinaresponse.Onaverage,SCrespondedwithin7days(3daysinurgentcases).

607. In2012and2013,theNCsentrequeststo77foreignregulatorsoffinancialservicesmarketsto conclude cooperationmemorandums. In 2013, agreementswere signedwith Armenia, Poland,Latvia and Lithuania. In 2014, the NC sent requests to counterparts in India and Germany andreceivedrequestsfromtheFinancialRegulatoryBodyofMalta.Takingintoaccountthetransferoffunctions of the NC to the NBU and the SC, active work on formalising interaction with foreignregulators and concluding corresponding agreements on cooperationwas suspended in2014, butauthorities indicate this did not hinder cooperation interaction with foreign regulators of non‐bankingfinancialservicesmarkets.Inresponsetorequestsfromthecompetentforeignauthoritiestoverifythebusinessreputationofbusinessentitiesin2012‐2016,theNChaspreparedmorethan50letterstothesupervisorybodiesofforeigncountries,inparticulartheUK,Georgia,Ireland,Spain,Kazakhstan,Germany,NewZealand,Turkey,theCzechRepublic,Switzerland,Sweden,inadditiontoe‐mailcommunication.

International exchange of basic and beneficial ownership information of legal persons andarrangement

608. Although the UAs do not keep specific statistics on incoming requests relating to beneficialownership information, they indicatedthatthenumberof this typeofrequests isrelativelyminor.SuchrequestsgenerallyaimatdeterminingtheidentityoftheBOofenterprises,andtointerrogatethem,whichUkraine notes is unconditionally pursued by the competent authorities. An incoming MLA request forinformationonbeneficialownershipwillmainlybeexecutedbyverifyingtherequestedinformationwiththeUSRwhich,asstatedunder IO5,maynothold trueoraccurate informationon20%‐30%of legalpersons. As already noted, there is no mechanism in place to verify the quality and accuracy of theinformation, asopposed to the informationonbeneficial ownershipheldby theSFS.However, theUAsindicatethatothersources,includingdataavailabletotheSFSandthefinancialsupervisors,arealsousedforthepurposeofrespondingtothistypeofrequests.

Conclusion

609. Although foreign authorities seem satisfied with the quality of MLA provided by Ukraine,effectivenessishamperedbyanumberofobstacles.Ukrainehasproactivelysoughtlegalassistancewith respect to various criminal offences. However, few requests were made with a view toconfiscation. It appears that Ukraine’s competent authorities including, in particular, the FIU andfinancialsupervisors,areactivelyengagedinotherformsofcooperation.Cooperationinrelationtobeneficial ownership is of limited effectiveness in light of the deficiencies noted under IO 5 inrelationtodomesticaccesstothistypeofinformation.Overall,UkrainehasachievedamoderatelevelofeffectivenesswithIO2.

TECHNICALCOMPLIANCEANNEX

1. This annex provides detailed analysis of the level of compliance with the FATF 40Recommendationsintheirnumerologicalorder.Itdoesnotincludedescriptivetextonthecountrysituation or risks, and is limited to the analysis of technical criteria for each Recommendation. ItshouldbereadinconjunctionwiththeMutualEvaluationReport(MER).

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2. Where both the FATF requirements and national laws or regulations remain the same, thisreportreferstoanalysisconductedaspartofthepreviousMutualEvaluationin2009.Thisreportisavailable fromhttps://rm.coe.int/mutual‐evaluation‐report‐anti‐money‐laundering‐and‐combating‐the‐finan/168071532f.

Recommendation1‐AssessingRisksandapplyingaRisk‐BasedApproach

3. ThisisanewRecommendationwhichwasnotassessedinthe2009MER.

4. Criterion1.1–TheauthoritieshaveundertakenaNRAandcompletedaML/FTNRAreportonthe findings at the end of 2016. According to theNRA Procedure60, the purpose of theNRA is toidentify,analyse,evaluateanddevelopmeasurestomitigatetherisksofML/FTthoserisks.TheNRAwas carried out according to a methodology prepared by the FIU and approved by the MoF. Itincluded the use of sectoral questionnaires issued to a sample of REs and took account of bothqualitativeandquantitativedata,includingfromindependentsources.TheNBUalsotookaleadingrolebyhelpingtheFIUpreparetheNRAmethodologyandconsolidatinginformationreceivedfrombanks.AllAML/CFTauthoritieswereinvolvedintheNRAprocess.

5. Criterion1.2–TheFIUisresponsibleforco‐ordinatingtheactionstakentoidentifyandassessrisk(Art.18.1and18.2AML/CFTLaw).

6. Criterion1.3–TheNRAwillbeconductedregularlyandatleastonceeverythreeyears(Art.21AML/CFTLaw,Art.6NRAProcedure).

7. Criterion1.4–The fullversionof theNRAwaspublishedonthewebsitesof theFIUandtheMoF.TheNRAreportwaspresentedatameetinginDecember2016toseniorgovernmentofficials,competentauthoritiesandrelevantNGOs.

8. Criterion1.5–Thereareno“wholeofsystem”policies/proceduresorpolicies/proceduresatthe level of authorities for aRBA tobe taken to allocating resources and implementingmeasures.However, a draft comprehensive action plan to manage the risks specified in the NRA has beendevelopedandissuedtotheCoMforapproval.Forexample,supervisoryauthoritiesshouldensurethat they use a RBA to identify and analyse client transactions and in also in performing a riskassessmentofREsandtousethisinplanningaudits(onsiteandoffsite).

9. Criterion1.6–UkrainehasnottakenadecisiontodisapplyanyoftheFATFRecommendations.requiringFIsorDNFBPstotakeactions.

10. Criterion 1.7 – REs are obliged to apply enhancedmeasures to higher risk clients (Art.6(5)AML/CFTLaw).AdditionalspecificprovisionsmustbeappliedinrelationtocorrespondentbankingrelationswithforeignFIsandnationalandforeignPEPs.However, there isnorequirement forFIsandDNFBPs to takeenhancedmeasures tomanageandmitigate thehigher risks identified in theNRAortoincorporateinformationonthoserisksintotheirriskassessments.

11. Criterion1.8–

Art.9oftheAML/CFTlawprovidesforregulatorsandsupervisorstoallowreportingentities(REs)toapply “simplified identification” inprescribedcircumstances.At thedateof theevaluation,onlytheNBUhadexercisedthispowerunderCls.58oftheNBURes.No.417.Cls.58requiresthatbanksapply“simplifiedidentification”onthefollowingclients: 60GovernmentofUkraineRes.No.717(16.08.2015)

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1)Ukrainianstateauthorities;

2)internationalagenciesororganisationsinwhichUkraineparticipatesunderinternationaltreatiesofUkraineratifiedbytheVerkhovnaRadaofUkraine;

3)institutions,bodies,officesoragenciesoftheEuropeanUnion;

4)diplomaticmissionsofforeignstatesaccreditedinUkraineinprescribedmanner.

Cls.59details the identificationrequirements forthesebodies, theonlyconcessionpertainstotheidentificationoftheUBO.Underthedefinitionof“UBO”underArt.1(21)oftheAML/CFTlaw,thereis unlikely to be any personwhowouldmeet the definition of UBO of these bodies. Therefore itwouldappearthatCls.58providemoreofaclarificationofidentificationrequirementsratherthan“simplifiedduediligence”intendedunderC.1.8.

UnderArt.9(3)AML/CFTLaw,itisnotobligatorytocarryoutclientidentificationandverificationinconnectionwith:

(a) insurance contracts other than life insurance subscribed by an individual, with a totalinsurance payment does not exceed UAH 5,000, or its amount is equivalent to the specifiedamount,includinginforeigncurrency;(~EUR163.92)

(b)business relationswhichariseon thebasisof theagreementsonparticipating in lotteriesprovidedthesizeoftheplayer’sbetdoesnotexceedUAH5,000;(~EUR163.92)

(c)thepaymentorganisation,participantormemberofthepaymentsystem,bank,branchofaforeignbankconductingfinancialoperationswithoutopeninganaccountintheamountwhichislessthanUAH150,000(~EUR4,917.46)or intheamountwhichisequivalenttothespecifiedamount,includinginforeigncurrency,preciousmetals,otherassets,andunitsofvalue);

(d)transactionsbetweenbanksregisteredinUkraine.

12. Thoseprovisionsdonotseemunreasonableandarenot inconsistentwiththeNRA,buttheywerenotintroducedbasedontheprioridentificationoflowerrisks.

13. Criterion 1.9 – Supervisory authorities are required to supervise compliance by REs withAML/CFT requirements andwhether theAML/CFTmeasuresundertakenby suchentities to limittherisksposedbytheiroperationsaresufficient(Art.14.2(1)and(3)AML/CFTLaw).

14. Criterion1.10–Thereisa3‐tierapproachtorequiringREstoidentify,assessandunderstandrisk: AML/CFT Law;MoFOrder 584 (July 2016) for all REs; and a series of supervisoryReg. andOrders(SROs)applyingtospecificSAsandthesector(s)theyadminister61.

(a)and(b)Firsttier–AsperArt.6(4)and(23)AML/CFTLaw,REsmustdeveloppoliciesandprogrammes including, inparticular, riskmanagementmeasures. Second tier–Art.1ofMoFOrder584 specifies thatREsmustuse theOrder’s criteria to classify clients’ risk.Art.1‐4ofpartII.addressoverallriskassessment.Art.1‐4ofpartIII.addressriskassessmentbycountry.Art.1‐4ofpartIV.addressclienttyperisk.PartV.addressesriskbyproducttypesandservicesprovided. Part VI. addresses transaction risks. Part II. states that the risk level must berecorded,togetherwiththeriskassessmentmethodandprocedure(RAMP).Thirdtier–Each

61E.g.NBURes.417forbanks;NBUReg.388forNBFIsengaginginfundtransfers(15.09.2016);NCOrder25(05.08.2003) for insurers; MoF Order 1160 (22.12.2015) for auditors and accountants; MoJ Order 999/5(18.06.2015)fornotariesandlawyers/advocates;MoFOrder662(23.07.2015)forrealestatebrokers.

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SROalso contains criteria for riskassessmentmeasures tobe carriedoutwhenestablishingandduringbusinessrelations.ThesecriteriaareexpressedinidenticaltermsacrosstheSROs.Forexample,underMoJOrder999/5,notariesandlawyers/advocatesmustassesscustomers’risks,takingintoaccountthecriteriasetoutbyMoFOrder584andtheMoJOrderitself.SROsdo not refer to distribution channels. In addition, REsmust develop their own risk criteria,takingintoOrder584criteria,therelevantSROsandtheirspecificactivities.

(c)REsmustperiodicallyreviewtheirriskcriteriaandriskmanagementmeasures(Art.3‐II.ofMoF Order No. 584). Under the SROs, each customer’s risks should be reassessed at leastannually with respect to high risk customers (2 to 3 years for low and medium) and in anumber of situations, e.g. consideration that transactions might be linked to ML/FT; orlegislativechanges.REsshoulddocumenttheresultsofsuch(re)assessments.

(d)UnderArt.6(16)AML/CFTLaw,REsareobligedtoensureaccessoftherespectiveSAsand,uponrequest,byLEAs,todocumentsorinformation.

15. Criterion1.11–C.1.11isaddressedbyUkraineatthelevelofsupervisoryOrders.

(a) For instance, NBU Reg. 417 requires banks to develop and approve internal AML/CFTdocuments, tobeupdatedagainst legislativechangesandeventsthatmayaffectML/FTrisk.The documents include the programme for AML/CFT compliance‐risk management (CRM),describing the risk management system and risk assessment methods at both bank andcustomer level. The documents must be approved by a management body or the bank’sexecutive body’s manager (or a foreign bank’s branch manager) on the proposal by thecomplianceofficer.TheotherSROscontainsimilarprovisions.

(b)UnderArt.35ofNBUReg.417,managementmustbeinformed(inquarterlyreports)oftheresultsofclientriskmonitoring;analysisofthebank’sriskassessment;measurestaken;andprecautionarymeasuresintheprogrammeforAML/CFTCRM.NBFIshavesimilarobligationsunderNBUReg.388.

(c)UnderArt.6AML/CFTLaw,MoFOrder584 and theSROs,REsareobliged to assess andmanageclients’risk.TheMoFOrderspecifiescriteriatobeautomaticallytreatedashighrisk.Clientsmustbeclassified into low,mediumorhighrisk(forbanksandNBFIssupervisedbytheNBU:low,medium,highandunacceptablyhigh).REsmusttakeprecautions/payincreasedattentioninrelationtohighriskclients,whichincludesin‐depthclientchecks;verifyingclientinformationbyobtainingadditional information from the clientorpublic sources; collectinginformation on the client’s activities and financial status from public sources; refusing toestablishorcontinuebusinessrelations;informingtheFIUoftheclient’sfinancialtransactions.REscanalsoundertakeadditionalmeasuresbutthisappearstobeoptional.

16. Criterion 1.12 –Although the situations specified in C.1.8 have not been established on thebasis of lower risk, authorised simplifiedmeasures are very restricted in nature as stated underC.10.18,andnotpermittedincaseofaML/FTsuspicion.C.1.9‐11arebroadlymet.

WeightingandConclusion

17. Most criteria are met or mostly met. Only C.1.5 is partly met, since the action plan whichrequires all authorities to apply a RBA to their activities is still in draft form. Other minordeficiencieshavebeennoted.Whiletherearerequirementstoapplyenhancedmeasurestohigherrisksituations,thereisnospecificrequirementtomanageandmitigatethehigherrisksidentifiedin

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theNRAor incorporate information on those risks into risk assessments. The situations towhichrestricted simplifiedmeasures apply have not been determined on the basis of a lower risk andconsistencywiththeNRA.ThereisnorequirementforREstoidentify,assessandunderstandML/FTrisksinrelationtodistributionchannels.R.1isratedLC.

Recommendation2‐NationalCooperationandCoordination

18. UkrainewasratedLCwiththeserequirements inthe2009MER.Whileexistingmechanismspointedintherightdirection,furtherfeedbackandaccountability,andgreaterco‐ordinationandco‐operation(particularlyattheoperationallevelandbetweenSAs),wererequired.

19. Criterion2.1–Since2003AML/CFTpolicieshavebeenadvancedthroughthenationalML/FTstrategyandtheAML/CFTactionplansimplementingthestrategy.Theselegal instruments, issuedbytheCoMandagreedbyallpolicyandoperationalAML/CFTauthorities,reflectrisksidentifiedatthetimeoftheircompletion.Anewstrategyisapprovedevery5yearsand,todate,anewactionplanannually. The current strategy dates from 2015. The action plan based on the NRA awaits finalapprovalfromtheCoM.Progressagainsttheactionplanisreviewedquarterly.

20. Criterion2.2–TheMoFisresponsiblefortheabovepolicies(CoMReg.375).

21. Criterion2.3 – The ‘Council forResearch intoMethods and Trends related to Laundering ofProceedsofCrimeandFinancingofTerrorism’(hereinafter“theCouncil62”),establishedbyCoMRes.25(2010),facilitatescoordinationandcooperationbetweentherelevantcompetentauthoritieswithrespecttoAML/CFTpoliciesandactivities.TheCouncilalsoservesasacoordinationplatformfortheoperational activities of SAs, with two working groups (one for banks and one for non‐banks)includingtherelevantSAs,privatesectorrepresentativesandtheFIU.

22. Criterion2.4 –Mechanisms referred to inC.2.1 and2.3 and theAML/CFTLawalso apply inrelationtoPF.TheAML/CFTstatutoryroleoftheFIUreferredtoinC.2.2explicitlyincludesPF.PFisincludedintheFebruary2016actionplan,whichwasdevelopedbytheFIUjointlywiththerelevantstate bodies (MEDT, MI, NSSMC, NCSRFSM, SSU, SFS, SRS, National Agency on Civil Service,Administration of the State Border Guarder Service, State Committee for Television and RadioBroadcasting,StateFinancialInspection,NBU,ForeignIntelligenceService,PGOandNABU).

WeightingandConclusion

23. R.2isratedC.

Recommendation3‐Moneylaunderingoffence

24. UkrainewasratedPCwiththepreviousR.1and2.GapsrelatedtothephysicalelementsoftheMLoffenceandthescopeofthedefinitionofpropertyandofpredicateoffences.

25. Criterion3.1 –ML is criminalisedunderArt.209CC.Amendmentsweremade in2015.Withregard to the physical elements of “conversion or transfer of property” (Art.6(1)(a)(i) PalermoConvention(PC)),theprovisioncoverseffectinga“financialorlegaltransaction”involvingfundsor 62 The Council comprises representatives of FIU, the MoF, MEDT, MFA, MoJ, MI, SFI, SFS, AntimonopolyCommittee, State Treasury, SBS, SRS, Foreign Intelligence Service, SSU, NSSMC, NC, PresidentialAdministration, National Security and Defence Council, NBU, National League of insurance organisations,UkrainianbanksAssociation,HighSpecialisedCourtofUkraineForCivilandCriminalcases,CoM.

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otherproperty(obtainedasaresultofasociallydangerousact).InthecontextoftheSupremeCourtResolution,whichisstillfollowedbythejudges,effectinga“financial”transactionmeansconductinganytransactioninvolvingprocessingorsecuringanypaymentthroughaRE.TheResolutionclarifiesthatthatthelistoftypesoftransactionisnotexhaustiveandcanbeprocessedthroughanytypesofeconomic entity. Effecting “legal” transactions means commitment of any legal actions regardingproceedsfromcrime.TheResolutiongivesasanexampleanyactionsdirectedatacquiring,changing,orsuspendingcivilrightsandobligations(citingArt.202CivilCode,appliedincriminalproceedings,asitisconsideredthespeciallawdealingwitheconomicandfinancialrelationships).Thenotionoflegal transaction or legal deedwas explained to bewider than actions effected through awrittenagreement or contract, under Art.202 Civil Code. While no case examples were provided, theauthoritiesconfirmedthatasimpletransferofanassetfromacriminaltoanotherperson,andany“conversion”ofanasset,dependingonthecircumstances,canconstituteMLoffences,withoutanywrittenagreementsorlegaldeeds.Art.6(1)(a)(ii)PCisalsofullycoveredbyArt.209.Theauthoritiesalsoconfirmed,thoughwithoutgivingcaseexamples,thatacquisition,possessionoruseofproceedsunderArt.6(1)(b)(i)PCiscoveredbythewideCivilCodedefinitionoflegaltransaction.Thementalelementof theoffenceembracesdirectand indirect (reckless) intent.Art.306CCalso criminalisestheplacingofproceedsfromdrugtraffickingintoFIsoruseoftheseproceedstocontinuetrafficking.

26. Criterion3.2and3.3–Ukraineappliesathresholdapproachtodetermineunderlyingpredicatecriminality.Art.209referstofundsorpropertyobtainedfrom‘asociallydangerousunlawfulactionwhichprecededthelaundering’,which,underNote1toArt.209,isnowanactionpunishedundertheCC “with imprisonment” of any length (thus removing the former 1‐year threshold) or a fineexceeding 3000 times the individual income tax exemption limit (equivalent to EUR 1,768).Predicateoffencesnowincludeanyimprisonableoffenceandthiscoversarangeofoffencesinallthedesignatedcategoriesofpredicateoffences.ItappearsthatsomeaspectsoftheFToffenceinvolvingTF prosecutions in respect of Art. 2(1)(a) terrorism offences annexed to the TFC may not becompletelycoveredandthuswouldnotbepredicateoffencestoML.Additionally,somecross‐bordersmuggling offences have been decriminalised which could have been predicate offences to ML.Smuggling under Art.201 CC now applies to cultural values, a range of dangerous materials andexplosivesubstances,weaponsandammunition.Whilesmugglingofdrugsetc. remainsanoffenceunderArt.305CC, thesmugglingofothergoodstowhichdutiesapplyareadministrativeoffences,whicharenotpredicatestoML.

27. Criterion3.4–UnderArt.209MListheuseof“fundsorotherproperty”.IntheAML/CFTLaw,“assets” cover “money, property, property and non‐property rights”, while “proceeds”mean “anybenefitobtainedbycommittingasociallydangerousactwhichmayconsistofmovableorimmovableproperty,propertyandnon‐propertyrights irrespectiveof theirvalue.” “Property” isdefinedas “athing or set of things aswell asproperty rights andobligations” inArt.190Civil Code and coversintellectual property rights. The authorities consider that these definitions cover any type ofpropertyasdefinedbytheFATF.ThisisreinforcedbytheSupremeCourtResolutionwhichclarifiesthatcriminalcourtsshouldfollowtheAML/CFTLawonthispoint(andpresumablytheCivilCode).

28. Criterion 3.5 – Formally, there is nothing in Art. 209 CC which requires a conviction for apredicateoffenceinordertoprovethatpropertyistheproceedsofcrime.UkrainehasratifiedtheWarsaw Convention. Art. 9(5) of that Convention (which is not subject to any reservation ordeclarationprocedure)requireseachPartytoensurethatapriororsimultaneousconvictionforthepredicate offence is not a prerequisite for a conviction for ML. The authorities advised that the

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mandatoryprovisionsofbindinginternationaltreatiestowhichUkraineisaPartycanbereferredtoincriminalcasesinitsdomesticcourts.

29. The only relevant domestic provision relating to this criterion is found in Art.216‐8 CPC.Despite the authorities’ attempts toplaceArt. 9(5)WarsawConvention clearly intodomestic law,Art.216‐8CPCdoesnotdirectlycovertheissueofwhetheraconvictionforthepredicateoffenceisaprerequisite for ML criminal court proceedings. Art. 216(8) CPC stipulates that ML pre‐trialinvestigationsmaybeconductedwithoutpreliminaryorsimultaneouslychargingthepersonwithasocially dangerous unlawful act (predicate offence) when: the predicate offence was committedoutside Ukraine and the laundering took place in Ukraine; the fact of a predicate offence wasestablished by a court in relevant procedural decisions. The authorities consider that, despite theabsenceof “or”between the2conditions, theyshouldbereaddisjunctivelyandnotconjunctively.They point to Art. 9 part 3 AML/CFT Law as a precedent for a disjunctive legislative intentionwithouttheuseof“or”.IfArt.216‐8CPCissointerpreted,thenitappliestotheopeningofMLpre‐trial investigations in domestic and foreign predicate offences without charging the predicateoffence.ThereisnobindingcourtrulingonthisinterpretationofArt.216‐8CPC.TheimpactofthisprovisionuponwhethertherestillhastobeaconvictionofapersonforapredicateoffencebeforeaML prosecution can be brought to court is discussed under IO7 (bearing in mind firm viewsexpressedonsitethatinpracticeaconvictionforthepredicateoffenceisaprerequisiteforaMLcasebeingtransferredtocourt).

30. Criterion 3.6 – Under Art.209(1), an action committed abroad is considered a sociallydangerousunlawfulactionwhichprecededlaundering,subjecttothedualcriminalityprinciple.

31. Criterion3.7 –Art.209does not exemptpersonswho committed thepredicate offence frombeingliabletoML.

32. Criterion3.8–Theprosecutionisrequiredtoprovetheguiltoftheoffender,theformofguilt,the motive and the purpose of the offence (Art.91(1) CPC). Proof is established by collecting,verifying and evaluating evidence to establish the circumstances relevant to the criminalproceedings (Art.91(2) CPC). Evidence in criminal proceedings is the actual data obtained in themannerprescribedbytheCPCwhichdeterminesthepresenceorabsenceoffactsandcircumstancesthatarerelevanttothecriminalproceedings(Art.84CPC).

33. Criterion3.9–NaturalpersonsconvictedforthebasicMLoffencearesubjectto3to6yearsimprisonment, disqualified from certain positions or activities for up to 2 years, and subject toproperty confiscation (Art. 209(1) CC). For aggravatedML (repeated actions, conspiracy or largeamounts), sanctions are 7 to 12 years imprisonment, disqualification from certain positions oractivities for up to 3 years and property confiscation (Art.209(2) CC). If ML is committed by anorganisedgrouporinlargeamounts,theoffendermaybesentencedtoimprisonmentforatermof8to15yearsanddisqualifiedfromcertainpositionsoractivitiesforupto3years,includingpropertyconfiscation(Art.209(3)CC).Sanctionsappearproportionateonpaperandcanbestricterthanforothereconomiccrimes,althoughArt.209(1)basicMLcarriesalesserpenaltythanArt.306drugML.

34. Criterion 3.10 – Since 2013, Art.963 CC provides for criminal liability for legal persons forspecificoffences,includingML.Criminalsanctionsmayincludefines,confiscationortheliquidationofalegalperson.

35. Criterion 3.11 – Art.14, 15 and 27(4)(5) CC provide for appropriate ancillary offences asindicatedinthe2009MER.

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36. All criteria are met or mostly met. The partial decriminalisation of offences in the 2015amendmentsmeans that bulk smuggling of some taxable goods (e.g. cigarettes) cannot foundMLcharges,whichmaycreateaMLrisk.ThereremainsomeissuesastowhetherallFToffenceswithinthescopeofR.5arecapableofbeingprosecutedasFTandthuscanbepredicateoffencestoML.R.3.isratedLC.

Recommendation4‐Confiscationandprovisionalmeasures

37. In the 2009MER, Ukrainewas rated PCwith previous R.3. The following gapswere noted:confiscationofinstrumentalities,propertyofcorrespondingvalue,income,profitsorotherbenefitsfrom theproceedsof crime involved in the commissionofMLarenot covered;property from thecommission of certain predicate offences cannot be confiscated; legislation cannot ensureconfiscationofpropertyusedinorintendedforuseinFT.

38. Criterion4.1‐

(a) Thissub‐criterionismetbyArt.962(1)(2)and(3)CC.

(b) Art.962(1)(1) covers direct and indirect proceeds; Art.962(1)(2)(4) coverinstrumentalities.Sub‐criterionmet.

(c) WhereaFToffence iscapableofproof thesub‐criterionwouldbemet(Art.962(1)(2)and(4)CC).AssomeFTacts involvingthetreatyoffencesunderArt.21(a)FTConventionmaybeincapableofproofbecauseofthedefinitionofactsofterrorisminArt.258CC(seeR.5),confiscationasenvisagedunderthissub‐criterionwouldbeimpossible.ThishasbeenmarkedasadeficiencyunderR.4,albeitthatitmaybedeminimis.

(d) Art.962(2) relates value confiscation to all types of property and assets covered byArt.962(1)thatareunavailableatthemomentofcourtdecision.Itisadeficiencythatvalueconfiscationdoesnotextendtoinstrumentalities,sinceinstrumentalitiesarenotcoveredbyArt.9621(1)CC.

39. Criterion4.2‐

(a) Ukrainian legislation provides a range of measures to identify and trace propertysubjecttoconfiscation.Since2015,investigatorsandprosecutorshaveastatutorydutytotakethe necessarymeasures to identify and trace property that can be seized to enable specialconfiscation or confiscation of property as punishment in criminal proceedings (Art.170(2)CPC)63.Forthispurpose,theymayrequestanynecessaryinformationfromotherstateorlocalself‐governance bodies, and natural and legal persons. Provisional access to informationcontainingsecrecyispermissible.

63 The constitutive lawsof the variousLEAs also containprovisions for access to informationheldby state

authorities:Art.23,25and27LawonNP,Art.16,17LawonNACBU,Art.4(11),(37),(57),(58),(59),(60),5(9) and 6(2),(4),(7),(14) Law on SFS, Art.8, 24, 25 Law on SSU, Art.6(3),(4),(8),(9),(10), Art. 7(1),(2),(7),(10),Art.22LawonSBI,Art.2(1),Art.9(1)(1)to(9),Art.10,11,15,Art.16(1)(1)to(3),Art.16(2) Law on ARO, Art.8(4), (15). Law on Operational and Search Activities, Art.7(2)(5) Law onCounterintelligence,Art.12(2)LawagainstOrganisedCrime.

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(b) The FATF requirement to carry out provisionalmeasures ex parte (once a person isdeclaredasuspectintheUkrainiancontext)ismet.Art.172(2)CPCprovidesthattherequestof the investigator,prosecutororcivilplaintiff forattachmentofproperty thathasnotbeenprovisionally seized canbe consideredwithoutnotificationof the suspect, anotherpropertyowner, their lawyer, representative or legal representative, where appropriate to ensureseizing. In urgent cases, and solely to preserve physical evidence or provide possibleconfiscationor special confiscation in criminalproceedings concerninga graveor especiallygrave crime, by the decision of the Director of NABU (or his deputy), approved by theprosecutor,preliminaryseizingofpropertyoraccountsmaybe imposed, forupto48hours.No later than 24 hours after such decision, the prosecutor shall request the attachment ofpropertyunderArt.170(2)totheinvestigatingjudge.

(c) ThiscriterionisaddressedunderArt.27(2)oftheAML/CFTLaw.DeedsaimedatML,FTorPFcanberecognisedasnullandvoidinamannerprescribedbylaw.UnderArt.228CivilCode transactions that violate public order can be considered invalid. Under Art.215 CivilCode,atransactioncanbevoidedbycourtwhereonepartydisputesitsvalidity.TheNationalAgency for Asset Management and NABU have specifically been empowered to initiatedeclarationsoftransactionsasinvalid.Prosecutorsmayinitiateincourtissuesrelatedtotheprotectionoftheinterestsofthestate,includingthecancellation/voidingofdeedsthatwouldprejudiceaconfiscationorder.

(d) As noted, the authorities consider that Art.170(1) now is the statutory authority forfinancialinvestigationsintoassetsandproceeds.Withregardtootherinvestigativemeasures,underArt.234(1) CPC investigative searches of property by the prosecutor/investigator canincludesearchesforassetsobtainedasaresultofthecrimeandlocatinginstrumentsusedintheCOupontherulingoftheinvestigatingjudge,followingconsiderationofarequestbytheinvestigator.Inaddition,ifthereisreasonablesuspicionthatthepersoniscommittingcriminalactivitieswiththeuseofabankaccount,ortosearchoridentifythepropertywhichissubjectto confiscationor special confiscation inNABUcriminalproceedings,underArt. 269(1)CPCthe prosecutor is entitled to apply to the investigating judge for issuing a ruling on bankaccountmonitoring.

40. Criterion4.3–TherightsofbonafidethirdpartiesareprotectedunderArt.962(4)and(5)CCandArt.100(10)CPC.

41. Criterion4.4–Currently, there isamechanismforthedisposalofconfiscatedassetsthroughthe State Executive Service in the MoJ, which does not become involved before a conviction.Managementofseizedassetswas,atthetimeoftheonsitevisit,stilllargelytheresponsibilityoftheauthorities of pre‐trial investigation. According to Art.20 of the Law “On the National Agency ofUkraine fordetection, investigation andmanagementof assetsderived fromcorruptionandothercrimes”(hereinaftertheAgency)managementoffundsseizedincriminalproceedingsiscarriedoutby thisAgency, inall criminalcases.While the legislation tocreate theAgencywas inplaceat thetime of the visit, theAgencywas not yet operational and thus no frozen/seized assetswere thenunder itsmanagement64. There are procedures, based on Art. 100 CPC, for themanagement anddisposalofphysicalevidenceandinstrumentalitiesseizedincriminalproceedingsbutitwasunclearhowfaractivemanagementofseizedproceeds(suchascars/luxurygoodsetc.)wasundertakenbypre‐trialinvestigativeauthoritiesatthetimeoftheonsitevisit.

64ItisunderstoodthatsincetheonsitevisitUAH8.6billionisundermanagementbytheAgency.

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42. Therehavebeenmajorimprovementsintheconfiscationregime,whichappearsnowtocoverawiderangeofpredicateandotheroffences.Themajorityofthemostimportantcriteriaaremetormostlymet,thoughvalueconfiscationdoesnotapplytoinstrumentalities.Atthetimeoftheonsitevisit, there were no mechanisms for systematic management of restrained property by pre‐trialinvestigativeauthorities.R.4isratedLC.

Recommendation5‐Terroristfinancingoffence

43. Inthe2009MER,UkrainewasratedPCwithSR.IIassomerequirementswerenotcoveredorcoveredonlypartially(e.g.,allactsunderArt.2(1)oftheTerroristFinancingConvention(TFC)notcoveredbytheterrorismoffence,noautonomouscriminalisationofFT).UkraineamendedtheCCin2010tocriminaliseFTasastand‐aloneoffence.

44. Criterion 5.1 – Pursuant to amendments to the CC, FT is now criminalised as a wide,autonomousoffenceunderArt.2585CC:“actscommittedwiththepurposeof financialormaterialsupport to an individual terrorist or a terrorist group (organisation), organisation, preparationorcommissionof anactof terrorism, involvement ina terroristact, to facilitate thecommissionof aterrorist act, the creation of a terrorist group (organisation)”. The formulation does not explicitlycover provision or collection of funds. However, the FT definition in the AML/CFT Law is morecloselymodelled on theTFC language and uses the terms “providing or collecting (any assets forterroristpurposes)”.Theauthoritiesadvisedthatcourtsmay followtherelevantdefinitions in theAML/CFTLawincriminalproceedings.

45. ActsofterrorismaredefinedunderArt.258CCas“theuseofweapons,explosions,fireoranyotheractionsthatexposehumanlifeorhealthtodangerorcausedsignificantpecuniarydamageorany other grave consequences, where such actions seek to violate public security, intimidate apopulation, provokean armedconflict, or international tension, or to exert influenceondecisionsmadeoractionstakenornottakenbygovernmentagenciesorlocalgovernmentauthorities,officialsandofficersofsuchbodies,associationsofcitizens,legalpersons,ortoattractattentionofthepublictocertainpolitical,religiousoranyotherconvictionsof theculprit(terrorist),andalsoathreattocommitanysuchactsforthesamepurposes.”

46. With regard to the consistency of FT criminalisationwithArt. 2(1)(a) TFCC there are someproblems.Art.258CC(definingactsofterrorism)inthecontextofFToffencesconflatesthoseactswhich constitute offences covered by Art. 2(1) (a) TFC (annexed treaty offences) and other actscoveredbyArt.2(1)(b)TFC.GiventhedefinitionofactsofterrorisminArt.258,itisdifficulttoseewhether, in all FT prosecutions based on offences within the scope of Art.2(1)(a) TFC, theprosecutioncouldestablishthataparticularterroristoffencefallswithintheambitoftheFToffence.SometreatyoffencesthatareintheCCUmaynotmeetthedefinitionofterroristactsinArt.258.InaFTprosecutiontheexistenceofaterroristoffenceunderthetreatiesasanoffenceintheCCisnotessentialsolongassuchoffencescanbeestablishedinotherwaysinaFTprosecution.NonethelessitmaybeeasiertodosoiftherelevanttreatyoffenceisintheCC.Theevaluatorsconsiderthattheprosecutionmay experienceproblems in practice linking treaty offences that are in theCC to FT,becauseofthelanguageofArt.258.Itmaybeespeciallydifficultwhere,asisthecasewithsomeof

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thetreatyoffences,theyarenotclearlycoveredintheCC65.TheauthoritiesindicatedthattheycouldalsoprosecutefinancingoftreatyoffencethatisintheirCCbychargingthefinancierwithaidingandabettingtherelevanttreatyoffenceintheCC.Thissolution,however,wouldbecontrarytofootnote14intheMethodology.

47. RelianceonArt.258forFTpurposescreatesadditionalrequirementsfortheprosecutorinaFToffence. Art. 258 CC has alternative mental elements, one of which at least needs need to beestablished to prove an act of terrorism (violatingpublic security, intimidating a population, etc.)ThusanFToffencebasedonArt.2(1)(a)TFCtreatyoffenceswouldalsorequireproofofoneofthesementalelements,whereasmost treatyoffencesdonotcontaina terroristpurpose.While it is saidthatthenotionofviolatingpublicsecuritywouldbebroadlyinterpretedandthuseasilyprovableinmostFTcases,theunnecessary,additionalmentalelementrequiredremainsatechnicaldeficiencyinanFToffencebasedonArt.2(1)aTFCtreatyoffences.

48. TurningtoArt.2(1)(b)TFC,Art.2585,readtogetherwithArt.258CC,isconsistentwithmostofthe basic elements of the “definition” of terrorism in Art.2(1)(b) TFC. It covers acts to “exertinfluence on decisions by government and local government and legal persons”. The evaluatorsunderstood that Art. 964 CC (liability of legal persons) implicitly recognises internationalorganisations as legal persons in that they are a legal person specifically excluded from criminalliability.Thus,arguably,financingofactionsseekingtoinfluenceaninternationalorganisationthatisalegalpersonisgenerallycoveredbyreferencetolegalpersonsinArt.258CC.Aminordeficiencyisthat such an interpretation would appear to exclude financing of acts aimed at influencinginternationalorganisationswhicharenotlegalpersons.

49. Art. 2585 and Art. 258 together appearwide enough to cover financing of acts intended tocausedeathor seriousbodily injury toacivilian.However,Art.258doesnot specifically referencethatpartoftheTFCwhichinArt.2(1)(b)limitsfinancingofactsintendedtocausedeathorseriousbodily injury to a civilian “or any other person not taking an active part in the hostilities in asituationofarmedconflict”.

50. Criterion 5.2 ‐ Art.2585 CC does not specify that FT is committed if funds are provided orcollected “directly or indirectly” so it is unclear if canbe committed indirectly through a chain oftransactions.TheUAsconsider that theAML/CFTLaw,whichextends thedefinitionofFTbeyondfundstothecollectionorprovisionofanyassetswiththeknowledgethattheywillbeusedinwholeor in part for any purpose by a terrorist or terrorist organisation does not limit the forms andmethods of collecting funds and that this can be done directly or indirectly and that they couldprosecute on the basis of indirect provision/collection. No decided case was provided by theauthorities covering indirect provision or collection. The requirement that the act should beperformed “unlawfully and wilfully” seems to be covered by Art.1(1)(51) AML/CFT Law, whichrequires that the “provisionor collection”of assets shouldbemadewith theknowledge that theywillbeused foranypurposebya terrorist, terroristgroupor terroristorganisation.TheLaw“Oncounterterrorism” also indicates that FT should be done “knowingly”. The requirement that FTshouldbepossiblewherethereisanintentionthatfundsshouldbeusedinfullorinparttocarryouttheactssetout inArt.2 (1)(a)and(b)TFC iscovered inArt.1(1)(51)AML/CFTLawbyuseof the

65Specifically:1of theoffencesunder the1988Protocol for theSuppressionofUnlawfulActsofViolenceatairports;atleastoneoftheoffencesunderthe1988ConventionfortheSuppressionofUnlawfulActsagainsttheSafetyofMaritimeNavigation;andatleast2offencesundertheFixedPlatformsProtocol.

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language“whollyorpartly”.Asnoted,theevaluatorsaccepttheassurancesoftheauthoritiesthattheAML/CFTLawFTdefinitionwouldbeadmissibleincriminalproceedings.

51. The FT offence on its face seems broad enough to cover support for the preparation orcommission of a terrorist act or other support to an individual terrorist or terrorist organisationwithoutalinktoaparticularterroristact.Thoughnotclearlystatedinthecriminallegislation,thisview is reinforced by Art.1(1)(51) AML/CFT Law, under which FT is committed when funds areprovidedwiththeknowledgethattheywillbeusedforanypurposebyaterrorist,terroristgroupororganisation.

52. Criterion5.2bis–TheFToffencecoversi.a.materialsupporttoaterroristorterroristgroup.TheauthoritiesconsiderthatArt.2585wouldbeinterpretedbroadlybyLEandjudicialauthoritiestocoverthefinancingoftravelforthepurposeofprovidingorreceivingterroristtraining,butthishasnot been tested. Art. 2583 CC (headed creation of a terrorist group or terrorist organisation)includesthebroadcriminalisationof“organisationalorothersupporttothecreationoractivityofaterrorist group”. This provision is currently being used for in the context of the prosecution forarrangingtravelforforeignterroristfighters,thoughthecasehasnotbeenconcluded.Whilethelawon the fight against terrorismdefines FT interalia as providing or collecting assets of every kindknowingthattheywillbeusedfor“anyotherterroristactivities”,“recruiting,armingandtraining”ofterrorists are included in this law as “terrorist activities”. Until there are some decided cases itremains debatable whether the present offences meet all of the requirements of this criterion(particularly financing the travel of individuals for thepurposeof providingor receiving terroristtraining).Ukrainehas,ofcourse,signedtheAdditionalProtocoltotheCoEConventiononTerrorism.OncetheProtocol isratifiedtheymaybeabletoargue incourtthatrelevantprovisionsshouldbereadinthelightofUkraine’sobligationsundertheProtocol.Againabindingcourtdecisiononthispointwouldbenecessarytoputthematterbeyonddoubt.

53. Criterion5.3 – The FT offence does not use the expressions “funds” or “assets” but “actionswiththeaimoffinancialormaterialsupport”.TheAML/CFTLawdefinesassetsas“money,property,propertyandnon‐propertyrights”.Whilelegislationdoesnotspecifythatfundscanbe“corporealorincorporeal, tangibleor intangible,movableor immovable,howeveracquired”, theSupremeCourtResolution, which is followed by the courts in defining property and assets for ML, wouldpresumablybeappliedmutatismutandistothedefinitionofpropertyandassetsforthepurposesofFT.ThusrelevantdefinitionsintheAML/CFTLawandCivilCodewouldbefollowedbythecriminalcourts to ensure thewidest possible application to “funds” and “assets”. The FT offence does notexpressly specify whether the financial or material support extends to any funds coming from alegitimate or illegitimate source.However, the FT offence language appears capable of embracing“materialsupport”comingfromlegitimateaswellasillegitimatesources.

54. Criterion5.4–UnderArt.2585thereisnorequirementthatthefunds(a)wereactuallyusedtocarryoutorattemptaterroristactor(b)belinkedtoaspecificterroristact.

55. Criterion5.5–UnderArt.94CPC,theevaluationofevidencebyinvestigator,publicprosecutor,investigatingjudgeorcourtisbasedonacomprehensive,completeandimpartialexaminationofallcircumstances in criminal proceedings. Evidence is evaluated from the point of viewof adequacy,admissibility,andinrespectoftheaggregateofcollectedevidence,sufficiencyandcorrelation.

56. Criterion5.6–AnaturalpersonconvictedofFTisliabletoimprisonmentbetween3‐8yearsforbasicoffencesandupto10and12yearsdependingonaggravatingfeatures.Thenaturalperson,isdisqualifiedfromholdingcertainpositionsorengagingincertainactivitiesforupto3yearsand

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confiscation of property. The sanctions for FT offences appear broadly similar to those for othercrimesagainstpublicorder (establishmentandparticipation incriminalassociation,banditry,andterrorism) and can be considered dissuasive and proportionate.However the same concerns thatapplytoMLsentencingregardingtheapplicationofArt.75CCcanbeappliedtoFT.

57. Criterion5.7–On23May2013,theParliamentadoptedtheLaw“OnAmendmentstoCertainLegislative Acts to Implement the Action Plan for the EU Liberalisation of the Visa Regime forUkraineRegardingLiabilityofLegalPersons”N314‐VIIwhich introducedtheconceptofcorporatecriminal liability.UnderArt.96‐3CCcriminalsanctionsnowapply to legalpersons, including fines(from5000timesto75000timestheminimumwage);confiscationofproperty;andtheliquidationoflegalpersonsconvictedforFT.Theseappeartobedissuasive.

58. Criterion5.8 ‐ The Ukrainian CC fully covers the FT ancillary offences: attempt (Art.15 CC);participationasanaccompliceinFTorattemptedFT(Art.27‐29CC);organisinganddirectingotherstocommitFT(Art.30CC);contributiontothecommissionofoneormoreFToffencesorattemptedoffencesbyagroupofpersonsactingwithacommonpurpose(Art.28CC).

59. Criterion5.9–AnyCOinUkrainepunishablebyimprisonmentisaPOforML.TheFToffence,punishablebyaminimumof5yearsofimprisonment,fallsintothiscategory.

60. Criterion5.10–Art.2585doesnotrequirethatthefinancierisinthesamecountryinwhichtheterrorist(s)/TO is located or the terrorist act(s) occurred/will occur.Moreover, given that FT is aserious offence against the rights and freedoms of the Ukrainian citizens and national interest ofUkraine and derives from an international convention, citizens of Ukraine, foreigners or personswithout citizenship in a foreign country, are subject to the jurisdiction of the criminal courts inUkrainewithrespecttoFToffencescommittedinaforeigncountryaswell.(Art.7and8CC).

WeightingandConclusion

61. There isnowanautonomousFToffencewhichmeetsormostlymeets10of the11relevantcriteria.However,Art.258CC,whichdefinesactsofterrorismforFTpurposes,conflatesactswhichconstitute offences coveredbyArt.2(1)(a)TFC (annexed treaty offences) andoffences covered byArt.2(1)(b)TFC.GiventhedefinitionofactsofterrorisminArt.258,Art.2(1)(a)TFCoffenceswouldrequire an unnecessary purposive element that is relevant only toArt. 2(1)(b) TFC offences. It isdifficult toseehow linkages toacts coveredbyoffences in the treatiesannexed to theTFCcanbemade in FT prosecutions involvingArt. 2(1)(a) TFCoffenceswithout some clarification in theCC,that all offences created by the treaties annexed to the TFC are terrorist acts for the purposes ofArt.2585 CC (whether or not they are criminalised in the CC and regardless of the language ofArt.285). There are still some uncertainties as to whether all aspects of financing of travel forterrorist purposes are covered by existing legislation. Less weight has been given to the minorweaknessesandpotentialdeficiencies.R.5isratedPC.

Recommendation 6 ‐ Targeted financial sanctions related to terrorism and terroristfinancing

62. In the2009MER,UkrainewasratedPCwithSR.III.Theassessorsnoted that (1)authorisedstateagencieswerenotable to temporarilysuspend financial transactionson theirown initiative;(2)thesuspensiondidnotclearlyextendtofundsownedorcontrolledbypersonswhocommitted,orattemptedtocommit,terroristactsorparticipateinorfacilitatethecommissionofterroristacts,

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where no national court decision or appropriate foreign decision existed; (3) there were noproceduresauthorisingaccesstofundsforbasicexpenses;(4)itwasnotpossibletosuspendfundsorotherassetsunlesstheywerelinkedtofinancialtransactions;(5)terrorist‐relatedfundscouldnotbe confiscated in the course of criminal proceedings of terrorist‐related offences; (6) the FIU andothercompetentauthorities(exceptfortheSSU)werenotabletopromptlydetermineandsuspendterrorist funds on the basis of foreign requests; and (7) there were no detailed publicly‐knownproceduresforde‐listingrequestsandforun‐freezingfundsofde‐listedpersonsinatimelymanner,includingcases inwhichpersonsorentitieswere inadvertentlyaffectedbya freezingmechanism.Sincethentheauthoritieshavetakenlegislativemeasuresbutsomeofthoseconcernsremain.

63. ThemainlegalprovisionsgoverningUkraine’sFTTFS,particularlythoserelatingtoproposalsfordesignation,theformationofanationallist,freezingmeasurestobetakenbytheprivatesector,communicationofdesignationsandde‐listing/unfreezingmeasures,arefoundintheAML/CFTLaw,CoMRes.966(25.11.2015)(procedureforcompilingthelistofpersonsrelatedtoterroristactivitiesor subject to international sanctions), Order 475 of the MoF (26.05.2016)(procedure forcommunicating lists to the private sector), andCoMRes. 509 (08.08.2016) (procedure for givingeffecttotherequestofanothercountry).Inaddition,CoMRes.351(11.04.2001)(concerningUNSCR1267and1333)andCoMRes1800(28.09.2001)(concerningUNSCR1373)imposeobligationsonstateauthoritiestoimplementtherelevantUNresolutionsandreporttotheMFAonactionstakenforonward transmission to the relevantUNCommittees.TheLawonSanctions (14.08.2014)mayalsoberesortedtobytheauthoritiestodesignatepersonsatthecountry’sownmotion.However,ithasneverbeenusedinthecontextofterrorismandFT.

64. Criterion6.166–

a) PursuanttoArt.23(4)AML/CFTLaw,theSSUinconjunctionwiththeMFAcansubmitproposalsfordesignationtothe1267/1989Committeeandthe1988Committee.

b) BasedontheLaws“OnOperativeandInvestigativeActivities(oncounter‐intelligence)”and “On counterterrorism”, which regulate the SSU’s operational activities, the authoritieshavedevelopedprocedurestomonitorterroristactivity. Internal instructionsfurtherspecifyhow to detect, identify and counteract FT. The authorities collect information from opensourcesandinformants,etc.TheSSUhasestablishedlistsoftargetstobemonitored,includinga list of individuals suspected of having affiliations to Al Qaida/Taliban and others. Once apersonissosuspected,theinformationiscommunicatedtotheMFAandtheDefenceCouncil.

c) In determining whether a proposal for designation should be made, the SSU inconjunctionwiththeMFAapplyanevidentiarystandardofproofofreasonablegrounds.

d) TheauthoritiesconfirmedthattheUNSCproceduresandstandardsformsforlistingarefollowedwhensubmittingproposalstotherelevantcommittee.

e) The authorities confirmed that they endeavour to provide as comprehensiveinformationaspossiblewhensubmittingproposals.

65. Criterion6.2‐

66At the timeof theon‐sitevisit,Ukrainehadnotyetmadeanyproposals fordesignation. Itwas thereforedifficulttoconfirmwithcertaintywhethertheproceduresandmechanismsforproposalswereinlinewiththeStandards.Thereafter,Ukrainesubmittedthreedesignationstothe1267UNSCRlinkedtoISIL/AlQaidaandconfirmedthatC.6.1(a)to(e)werefollowed.

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a)PursuanttoRes.966,theFIUisinchargeofcompilingandmodifyingthelistofdesignatedpersons, either on the country’s own motion or at the request of another country. AdesignationbasedonUkraine’sownmotionismadeeitherbyanadministrativedecisionofacourtbasedoninformationgatheredbytheSSUorbyadecisionoftheNationalSecurityandDefense Council pursuant to the Law on Sanctions67. A designation based on a request ofanother country ismade by the Council ofMinisters on the recommendation of theMFA inconsultationwiththeMoJ,SSU,MoF,MEDTandtheFIU.

b)SeeC.6.1(b).

c)TheprocedureforexaminingandgivingeffecttoarequestbyanothercountryisgovernedbyCoMRes.509.Inbrief,aftertheMFAreceivesofficialdocumentaryevidencesupportinganinternational request, makes a prompt determination (within one month) and submits arecommendationtotheCoM.OnceadecisionistakenbytheCoM,theMFAsendstherelevantinformationtotheFIUfor inclusionof thenaturalor legalpersons inthe listno laterthan5workingdays(Cls.5par.2ofRes.966).

d)Theinclusionofnaturalpersonsorlegalpersonsinthenationallistisnotpredicatedontheexistence of a criminal proceeding. For designations on the country’s ownmotion, Res. 966listsasgroundsforinclusionacourtdecision(asopposedtoconviction)ondeterminingthatapersonisrelatedtothepursuitof terroristactivities(Cls.2(1)).TheauthoritiesalsorefertotheLawonSanctions, inaccordancetowhichapersonwho isengaged in terroristactivitiesmaybedesignatedbyadecisionoftheNationalSecurityandDefenceCouncilofUkrainewhichdecision is thenenactedbyadecreeof thePresidentofUkraine(Art.5(3)).Fordesignationsbaseduponarequestofanothercountry,Reg.966requiresadecisionbyacompetentforeignagencythatapersonisrelatedtothepursuitofterroristactivities(Cls.2(3)).

e) Ukraine has never requested another country to give effect to freezing actions initiateddomestically. However, there is nothing in the law, which would precludes Ukraine fromproviding as much identifying information and specific information supporting thedesignation. This is also supported by Art 23 AML/CFT Law, which regulates internationalcooperation in the AML/CFT area generally and provides that UAs shall provide thewidestrangeofassistancetoitsforeigncounterparts.

66. Criterion6.3–

a) The Laws “On counterterrorism” and “On the SSU” establish legal authorities andprocedures for the SSU to collect or solicit information to identify persons and entities thatmeetthecriteriafordesignation.

b)There is no requirement tonotify apersonor entitywhohasbeen identified andwhose(proposalfor)designationisbeingconsidered.TheprocessforidentificationanddesignationfallswithinthecompetenceoftheSSUwhichissubjecttostrictconfidentialityrequirementsinrelationtoitsoperationsandactivities(Art.7LawontheSSU).

67. Criterion6.4–TheFIUmonitorschangestoUNSCR1267/1989and1988sanctionsregimesonadailybasis(Cls.5par.3Res.966)andwherenewdesignationsareidentifiedtheyareimmediately

67ItisnotclearhowadesignationmadeundertheLawonSanctionswouldbeincludedinthelistcompiledbythe FIU pursuant to Res. 966, since Cls. 2 in Res. 966 does not include a decisionmade under the Law onSanctionsasagroundforlisting.

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(withinamatterofhours)includedinthelistandbecomebinding.FordesignationsbasedonUNSCR1373,theSSU(inthecaseofdomesticdesignations)andtheMFA(inthecaseofdesignationsbasedonaforeignrequest)arerequiredtotransmitinformationtotheFIUwithinfiveworkingdaysofthedesignationdecision(Cls.5par.2Res.966).TheFIUisrequiredtoupdatethelistbynolaterthan3workingdaysfromthereceiptofinformationfromtheSSUortheMFA.Inpractice,theFIUupdatesthelistimmediately.Theevaluationteamisoftheviewthatthisprocesssatisfiestherequirementtoimplement TFS under UNSCR 1373 without delay, taking into consideration the time that isreasonably needed to examine and give effect to the request of another country and for theauthoritiestobesatisfiedthatapersonmeetsthedesignationcriteria.

68. Criterion6.5–

a)Art.17(1)AML/CFTLawrequiresREstosuspendfinancialoperation(s),whereacustomeror beneficiary is a person included in the list of designated persons involved in terroristactivity or subject to international sanctions and to notify the FIU on the same day. Thisobligationdoesnotcoverallnaturaland legalpersons in the country.TheFIUsuspends theoperationforupto30days.WherethefundsinvolvedinthetransactionaredeterminedtobesubjecttoTFS,theFIUrefersthecasetotheSSU,whichappliestotheadministrativecourtsforanindefinitefreezingorderunderArt1834CodeofAdministrativeProcedure.

b)Thefreezingobligation(Art.17(1)AML/CFTLaw)doesnotextendtoallnaturalandlegalpersons but only to REs and only applies to a party or beneficiary involved in a financialoperation.REsarethereforenotrequiredtofreezeallthefundsorotherassetsthatareownedorcontrolledbythedesignatedpersonorentity,whicharenotlinkedtoaspecifictransaction.Itisalsounclearhowthefreezingoffundsorotherassetsderivedorgeneratedfromfundsorotherassetsownedorcontrolleddirectlyorindirectlybydesignatedpersons,aswellasfundsor other assets of persons and entities acting onbehalf of, or at the direction of designatedpersonsorentities,wouldbesubjecttofreezing(PartlyMet)

c)ThereisnosuchexplicitprohibitioninUkraine.ThisisonlypartlymitigatedbyArt.10(3)AML/CFT Law, which prohibits REs from establishing business relations, or carrying outcertain types of occasional transactions (currency exchange; ‘banking metals’ or cashtransactions)withdesignatedpersons.(PartlyMet)

d)Themechanismforcommunicatingdesignations isdescribed inArt.3and4ofMoFOrder475.TheupdatedlistispostedbytheFIUinthenewssectionofitswebsitenolaterthanthenextworkingdayfromthedateofapproval.Freezingmodalitiesaredefinedbysupervisorsinrespectiveregulatorydocuments.Authorities indicate thatguidanceonUNSCRobligations isregularlyprovidedaspartofgeneraloutreachandtrainingtoFIsandDNFBPs.

e) In accordance with Art.17(1) AML/CFT Law, the RE, when suspending financialoperation(s), should notify the FIU on the day of the suspension. Where an attemptedtransactionisidentifiedREsarerequiredtosubmitaSTR.

f) The rights of bona fide third parties are protected pursuant to Art.17(10) and Art.27(3)AML/CFTLaw.

69. Criterion6.6–

a) AsperArt.23(4)AML/CFTLaw,theSSUandtheMFAareresponsibleforsubmittingde‐listingrequeststotherelevantUNSCcommittees.Theauthoritiesmaintainthattheproceduresand criteria forde‐listing requests as adoptedby the1267/1989wouldbe followed, should

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theneedariseinthefuture.TheseproceduresandcriteriaarepublishedonthewebsiteoftheFIU.

b) Art.17(11)AML/CFTLawdefinestheauthoritiesresponsibleandgroundsforremovingaperson/entityfromthenationallist.Res.966(Cls.10)specifiestheprocesstobefollowedbytheFIUinthatcontext.

c) A reviewwith regard to designations pursuant toUNSCR 1373 is carried out by the FIUaccordingtoCls.10ofRes.966.TheFIUisrequiredtocompleteitsreviewwithin30days.Inaddition,underthelegislationofUkraine,anynaturalor legalpersonhastherighttoappealthe regulatoryacts, aswell asactsoromissionsof stateauthorities inadministrative courtsArt.2(2)and17(2)CodeofAdministrativeLegalProceedings.

d)TheFIUhaspostedandbroughttotheattentionofcitizensbyplacingonitsofficialwebsiteadescriptionoftheproceduresforthede‐listingfromthelistofpersonsassociatedwiththecommission of terrorist activities. Description of the mechanism for the exclusion ofindividuals or legal persons in / from the UNSCR 1267 and 1988 is posted on the officialwebsite of the FIU in the section Combating Terrorism/Information of InternationalOrganisationsandInstitutions.Individualsmaysubmitde‐listingrequestsinaccordancewithprocedures determined by Committee 1267/1989 or Committee 1988 directly to the FocalPointoftheUNSecurityCouncilCommitteeorthroughtheMFA.

e) The official website of the FIU, in the section Combating Terrorism/ Information ofinternationalorganisationsandinstitutions,providesinformationontheavailabilityoftheUNOfficeofOmbusdpersonandtheproceduresforsendingpetitionstothisoffice.

f) As noted under C. 6.5(a), freezing only occurswhere the funds involved in a transactionsuspendedby theREaredetermined tobe subject toTFSby theFIU,which then refers thecasetotheSSUforanapplicationforanindefinitefreezingordertobeappliedforunderArt1834CodeofAdministrativeProcedure.Therefore,inpractice,freezingoccursonlywherethepersoninvolvedinthetransactionhasbeenconfirmedbytheFIUandSSUasbeingdesignatedperson.(Met)

g)thesameprocedurereferredtounderc6.5(d)applies.

70. Criterion6.7–UnderArt.11‐2of theLaw“Oncounterterrorism”access tosuspendedassetscanbegrantedonthebasisofacourtdecisiontocoverbasicandextraordinaryexpenses.

WeightingandConclusion

71. Ukrainehas implementedmostof thecriteriaunderR.6.However, thereare importantgapsunderC.6.5,whichisafundamentalcomponentofR.6:thefreezingobligationdoesnotapplytoallnaturalandlegalpersonsinthecountry;thefreezingobligationdoesnotextendtoallthefundsorotherassetsreferredtounderC.6.2(b)(i)to(iv);theabsenceofaprohibitionreferredtounderC.6.2(c) isonlypartlymitigatedbyanobligationtorefrain fromestablishingbusinessrelationshipsandcertaintypesofoccasionaltransactionswithlistedpersonsorentities.R.6isratedPC.

Recommendation7–Targetedfinancialsanctionsrelatedtoproliferation

72. ThePF‐relatedTFSregime isbasedontwodifferent legalmechanisms.TFSrelated toDPRKare governed by the AML/CFT Law; CoM Res. 966 (procedure for compiling “the list of persons

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related to terrorist activities or subjected to international sanctions”, which includes PF‐relatedTFS);Order475oftheMoF(procedureforcommunicatingthelisttotheprivatesector);andCoMRes.746(16.05.2007)(concerningUNSCR1718),whichimposesobligationsonstateauthoritiestoimplement UNSCR 1718 and report to theMFA on actions taken for onward transmission to theUNSC.TFSrelatedtoIranappeartobebasedbothonthesameregimeasforDPRKandontheLawon Sanctions aswell as CoMRes. 360 (29.04.2016) (concerningUNSCR2231); andNBURes. 654(01.10.2015),whichimposesobligationsonFIsonthebasisofCoMRes.360.TheevaluationteamisoftheviewthattheoverlapbetweenbothmechanismsundertheIran/PF‐relatedTFSregimemaycauseambiguitiesinthenatureofrequirementsandproceduresineffect.

73. Criterion7.1–Asnotedunderc.6.4,inpractice,undertheAML/CFTLaw,UNdesignationsarepublishedbytheFIUandareapplicableinthecountrywithoutdelay.

74. Criterion7.2–

a)UnderArt.17(1)AML/CFTLaw,REs shall suspend theexecutionof financial operation(s)involvingapartyorbeneficiarydesignatedundertherelevantUNSCRs.OnthesamedaytheREs shall notify the FIU. The FIU suspends the operation for up to 30 days. Where it isdetermined that the funds involved in the transaction are subject toTFS, theFIU refers thecase to the SSU, which applies to the administrative courts for an indefinite freezing orderunderArt.1834CodeofAdministrativeProcedure.Thisobligationdoesnotcoverallnaturaland legal persons. There is no requirement to give prior notice to designated persons orentities.UndertheLawonSanctions,whichalsoappliestotheIran‐relatedTFSregime,CoMRes.360appearstoapplytoanynaturalorlegalpersons.Thereisnoobligationtogivepriornoticetodesignatedentitiesorpersonsunderthatregime.ItremainsunclearwhethertheLawon Sanctions would allow for the implementation of Iran/PF‐related TFS to Ukrainiannationals, as Art.1(2) seems to exclude nationals from the scope of sanctions, except for“entitiesinvolvedinterrorism”.

b)AsnotedunderC.6.5.b,underArt.17(1)AML/CFTLaw,thefreezingobligationonlyappliestoapartyorbeneficiaryinvolvedinafinancialoperationandthusnottoallrequiredtypesoffunds.InrelationtoIran,onthebasisoftheLawonSanctions,CoMRes.360providesforthe“arrest (stoppingof expenditureoperationonaccounts)on funds,other financial assetsandeconomicresourcesplacedontheterritoryofUkraineandownedorcontrolledby[designatednatural and legal persons], or legal persons controlled by them or acting on their behalf…”,whichdoesnotcoverallcategoriesdefinedundercC7.2.b,inparticular(ii)to(iv).(PartlyMet)

c)IntheAML/CFTLaw,thereisnoprovisionthatprohibitsmakingfundsorassetsavailable,directlyor indirectly,whollyor jointly, for thebenefitofdesignatedpersonsandentities. InrelationtoIran,onthebasisoftheLawonSanctions,CoMRes.360providesfora“prohibitionontheprovisionoffunds,financialassetsandeconomicresourcesto[designatednaturalandlegalpersons]bycitizensofUkraineoranynaturalorlegalpersonsontheterritoryofUkraineor for use in their interests (…) or natural or legal persons that are controlled by them oracting on their behalf, and legal persons controlled by them or staying owned by them,includingbyillegalmeans”.ThescopeoftheprohibitionisnotclearlyreiteratedinNBURes.654,whichmaycreateambiguitiesintheobligationsimposedtoFIsinthatregard.

d) On the basis of the AML/CFT Law, the mechanism for communicating designations isdescribedinMoFRes.475.ThelistshallbemadeavailabletotheREsontheFIUwebsite,nolater than the next working day from the date of approval which seems reasonable. The

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authoritiesindicatethatguidanceonUNSCRobligationisregularlyprovidedaspartofgeneraloutreach and training to FIs and DNFBPs. In relation to Iran, on the basis of the Law onSanctions,nospecificcommunicationmechanismseemstobeinplacefortheimplementationofUNSCR2231inUkraine.(PartlyMet)

e) Under Art.17(1) AML/CFT Law, on the same day that FIs/DNFBPs suspend a financialoperationinvolvingadesignatedpartyorbeneficiary,theyshallnotifytheFIU.InrelationtoIran,onthebasisof theLawonSanctions,Cls.2ofNBURes.654requiresFIs to informtheNBU,onamonthlybasis,oftheassetsfrozenandattemptedtransactionsinrelationtoUNSCR2231designations.

f)TherightsofbonafidethirdpartiesareprotectedpursuanttotheArt.17(10)andArt.27(3)AML/CFTLaw. InrelationtoIran,onthebasisof theLawonSanctions,suchprovisiondoesnotseemtobeinplace.(PartlyMet)

75. Criterion 7.3 – Compliance with obligations under the AML/CFT Law is monitored by therespective AML/CFT supervisors as per Art.14. Pursuant to Art.24(1) AML/CFT Law, FIs andDNFBPSunabletofulfiltheirobligationsundertheLawshallbearcriminal,administrativeandcivilresponsibility.AsperArt.24(2), those entitieswhich executedML, FTorPF financial transactionsmaybeliquidatedbasedonacourtorder.Art.24furtherspecifiesthesanctionsthatcanbeappliedfor failuretocomply(orproperlycomply)withAML/CFTrequirements. InrelationtoIran,onthebasisof theLawonSanctions, theNBUmonitorscompliancewith IranTFS.However, it isunclearwhetherandtowhatextentothernaturalorlegalpersonsaresubjecttomonitoringandsanctioningforbreachesoftheIranTFSobligations.

76. Criterion7.4–Art.17(11)AML/CFTLawandRes.966containprovisionsonthegroundsandprocedurestobefollowedforremovingapersonoranentityfromthelist.

a) The UAs indicate that the FIU’s website provides information on the procedure forsubmitting a request forde‐listing, eitherdirectly to the relevantUNSCcontact centreorthroughtheMFA.Theadequacyoftheinformationcouldnotbeverifiedbytheevaluationteam.(NotMet)

b) The unfreezing procedure for persons or entities inadvertently affected by a freezingmechanismremainsunclear.TheUAsindicatethat,underArt.3oftheCivilProcedureCode,anypersoncanapplytocourtfortheprotectionoftheirviolated,unrecognisedordisputedrights,freedomsorinterests.(PartlyMet).

c) AsperArt.17(9)oftheAML/CFTLaw,accesstoFTassetsrelatedtofinancialtransactionssuspendedpursuanttoadecisionadoptedonthebasisofUNSCResolutionsshouldcoverbasicorextraordinaryexpenses. Inrelationto Iran,onthebasisof theLawonSanctions,accesstofrozenassetswhentheconditionssetoutinUNSCR2231aremetismentionedinCls.1(3)ofCoMRes.360.

d) Under the AML/CFT Law, the procedure referred to under c.7.2.d applies. In relation toIran,onthebasisoftheLawonSanctions,nospecificcommunicationmechanismseemstobeinplace.

77. Criterion7.5–

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a) NorelevantprovisionisinplaceundertheAML/CFTLaw.InrelationtoIran,onthebasisoftheLawonSanctions,Cls.4ofCoMRes.360meetstheelementsofc.7.5.a.(PartlyMet)

b) TheanalysisunderC.7.5.aalsoappliesunderb.

WeightingandConclusion

78. Therearemanyoutstandingdeficiencies, inparticulargaps inthescopeof fundscoveredbythefreezingobligation,aswellastheabsenceofaprohibitiontomakefundsavailabletodesignatedpersonsorentitiesandof clearprocedures todelist/unfreeze funds.Thearticulationbetween theAML/CFTLawandtheLawonSanctionsinrelationtoIran/PF‐relatedTFSshouldbeclarified.R.7isratedPC.

Recommendation8–Non‐profitorganisations

79. Inthe2009MER,UkrainewasratedPCwithSR.VIII.Themaindeficiencieswere:absenceofareview of the domestic NPO sector in respect of its misuse for FT; lack of outreach to NPOs;shortcomingsinNPOsupervisionormonitoring;noexplicitlegalrequirementforNPOstomaintainthe identity of person(s)who own, control or direct NPOs activities or tomaintain records for aperiodofatleast5yearsandmakeavailablesuchrecordstoappropriateauthorities.

80. Criterion8.1‐

(a) Art.1(26) AML/CFT Law defines NPOs as ‘legal persons (…)which are not FIs andwerefounded to conduct scientific, educational, cultural, recreational, environmental, religious,charitable,social,politicalandotheractivitiestomeettheneedsandinterestsofthepublic(…),withoutthepurposeofderivingprofit’,whichisbroaderthantheFATFdefinition. In2016, the FIU conducted a ‘National review on the activities of the non‐profit sector toidentify, prevent and counteract FT and define mechanisms for the prevention andcountering of the proliferation of WMD’ (2014‐2016). The National review presents anoverviewof the legislationgoverningthesector,describesthevariouscategoriesofNPOsandcontainsananalysisoftheFTthreatsandvulnerabilitiesfacedbythesectorasawhole,including typologies and recommendations for action.Although theNational reviewdoesnot clearly identify the subset of organisations falling within the FATF definition or thefeatures and typesofNPOs likely tobe at riskofFT abuse, thehigherFT risksposedbycharities are highlighted in the document,whichwas also noted by the FIU and the SSUonsite. Theunderstandingof risks couldhoweverbenefit frommore in‐depth analysis ofthespecificrisksposedbyinternationalterrorismtoUkraine.Inaddition,althoughtheriskclassificationusedbytheSFStakesintoaccountrisksofmisuseforcommercialpurposesasapriority,italsoincludesclearAML/CFTconsiderations.(MostlyMet)

(b) The National review, the NRA and the 2014 typology report on FT (which contains achapteronNPOs), identifyanumberof terrorist threatsandcontain typologies.NPOs, inparticularcharities,aremostlymisusedtore‐directfundstoterrorists.(MostlyMet)

(c) The National review describes a number of measures, including legislative, which canmitigaterisksofFTabusefacedbytheNPOsectorasawhole.ThesemeasuresaremainlybasedonthelawsgoverningtheUSR,publicassociations,charitableorganisations,aswellas theAML/CFTLawand theTaxCode.The recommendations contained in theNational

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review focus on LE action and increased CDD efforts for REs, which indicates that theadequacyofmeasuresapplyingtoNPOshasbeenreviewed.

(d) TheauthoritiesintendtoconductareviewoftheNPOsectorwithin2years.Followingtheon‐sitevisit,GovernmentDecisionno.601(30.08.2017)wasadoptedtothiseffect.

81. Criterion8.2–

(a) Althoughthereisnospecificpolicydocumentonthepromotionoftransparency, integrityandpublicconfidenceintheadministrationandmanagementofNPOs,theNationalreviewsetsoutclearandrelevantpolicyobjectivesand includesrecommendations foraction. Inaddition, this objective is reflected in legislation, mainly in the laws mentioned underc.8.1.a.

(b) TheUAsreportvariousinitiativesaimedatraisingawarenessamongNPOsaboutFTrisks,includingthepublicationoftheNationalreviewontheFIU’swebsite,trainingforNPOsatthe FIU’sTraining andMethodological Centre, and letters from the FIU toNPOs andREsdrawingattentiontoFTrisks.

(c) TheUAs indicate thatNPOshavebeen involved in thedevelopmentof typologiesandthedevelopmentofeducationalmaterial in theareaofCFTand financialmonitoring. (MostlyMet)

(d) NBURes. 637 (15.12.2004) sets a threshold abovewhich, anddelayswithinwhich, legalpersons, includingNPOs,haveto transfercashtoabankaccount,whichmakes itdifficultfor NPOs to operate without a bank account in practice. In addition, financial reportingobligationsimposethedetailedrecordingofcashtransactions.

82. Criterion8.3–TheUAshaveimposedabroadrangeofobligationsrelatingtoNPOs,includingcharities,whichcovermostmeasuresmentionedasexamplesinsub‐par.6(b)ofINR.8.Theyinclude registration (in the USR and the Register of NPOs – see analysis under R. 24); anobligationforNPOstomaintainabroadrangeofinformationandkeeprecords;accessofthepublicandLEAstothatinformation;anobligationforNPOstoissuefinancialstatements;thepossibility for donors to control the use of funds; the mandatory reporting of all NPOtransactionsbytheREs;andmonitoringfortaxandAML/CFTpurposes(onariskbasis)bytheSFS.Itisnotclearwhetherthesemeasuresarerisk‐based.

83. Criterion8.4–

(a) The SFS, in addition to being in charge of maintaining and monitoring thecomprehensiveness and accuracy of the information collected by the Register of NPOs(Art.63(11)TaxCode),monitorsthesector’sactivitiesbothfortaxandAML/CFTpurposes.Inparticular,underOrder230(2015),theSFSconductsinspectionsonNPOs,analysingthesourceanduseof their funds,with theobjective toverify thatarenot involved inML/FTactivities.Althoughrisksofcommercialabuseareprioritised,theinspectionprogrammeisalsoinformedbyananalysisofML/FTrisksbasedonthefinancialstatementsreceivedbytheSFS.

(b) Under the Code of Administrative Offences, breaches of requirements on registration andprovidinginformationtotheUSR,aswellasonfinancialreporting,areliabletofines.TheuseofanNPOforactivitiesthatarenotconsistentwithitsstatutoryobjectivesmayentailtheexclusionoftheNPO from theRegisterofNPOsand theapplicationof a fine. UnderArt.963of theCC, for

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criminaloffencesdefinedinArt.209and258‐2585oftheCCcommittedonbehalfofanNPO,theNPOmaybesubjecttoafine,liquidationandconfiscationofproperty.

84. Criterion8.5–

(a) ThemajorityofdataregardingNPOscanbefoundintheUSRandtheRegisterofNPOs.Bothareaccessibletothegeneralpublicfreeofchargethroughanelectronicportal(exceptforregistrationnumbersoftaxpayer’srecordcardsandpassportdetails,towhichLEAshaveaccess).Art.8Law“Oncounterterrorism”providesthat,ingeneral,allrelevantauthoritiesshouldcooperatetostopcriminalactivitiesofpersonsinvolvedinterrorism,includinginternationalfinancing,supportorcommitterroristactsandcrimescommittedwithaterroristpurpose.UnderArt.11anyobligedentity that uncovers a link to FT to immediately notify the SSU on any related financialtransactionsorterroristassetsfound.(Met)

(b) In the area of CT, Ukraine has established clear authorities with broad powers, notablyunder the Laws “On counterterrorism” and “On the SSU”, and appears to have adequateinvestigativeexpertiseandcapabilitytoexamineNPOssuspectedofbeingrelatedtoFT.

(c) Pursuant to MoJ Decree 1657‐5, state authorities, including judges, the NP, prosecutionagencies,theSSU,aswellaslocalgovernmentauthoritiesandtheirofficialsarerequiredtohaveelectronicaccesstotheUSR,includingunderlyingdocumentationinelectronicformat.AccesstoinformationmaintainedbyNPOs,includingontheirmanagement,isunrestricted.

(d) NospecificmechanismsforreportingsuspectedFT‐relatedactivityintheNPOsectorexists.However, Ukraine does have several reporting channels that can facilitate information‐sharingamongrelevantauthorities.Asdiscussedunder(a),allgovernmentalagenciesareauthorisedtoshareandrequestinformationrelevanttoNPOs.AsperArt.15AML/CFTLaw,financial transactions involvingthecreditingorreceivingof fundsbyNPOsaresubject tomandatoryreportingbyREs.Furthermore,banksandNBFIsprovidingservicestoNPOsarerequiredtonotifytheFIUofasuspectedlinktoFTwithin3workingdaysfromthedateofregistration or intent of execution. MoF Decree 584 obliges REs to conduct a riskassessment if the client is anNPO. In case of doubt, REs shouldnotify the FIU,which, inturn, should immediately notify the SSU of any financial transactions or terrorist assets(Art.11LawofUkraine“Oncounterterrorism”).(MostlyMet)

85. Criterion 8.6 – Art.7 Law “On counterterrorism” obliges the Anti‐Terrorist Centre operatingunder the SSU to cooperate with special services, LEAs of foreign states and internationalorganisations with all CTmatters, including in relation to NPOs. The SSU has access to the USR.Based on Art.27 Law “On counterterrorism”, Ukraine provides information to foreign statesconcerning the matters connected with international CT based on the request following therequirementsofnationallegislationandinternationalandlegalobligations.

WeightingandConclusion

86. UkrainemeetsormostlymeetsallcriteriaundertheRecommendation.R.8isratedLC

Recommendation9–Financialinstitutionsecrecylaws

87. Inthe2009MER,UkrainewasratedPCwiththepreviousR.4.TheMERnotedlimitationsontheabilityofLEAs toaccess information ina timelymanner fromsomeof the sectors and lackof

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knowledgeofrelevantproceduresapplicableinthisarea.Thereweresignificantconcernsoverthepracticalimplementationofthebankingsecrecyprovisions.Sincethen,UkrainehasmadeanumberoflegislativechangesandhastakenmeasurestoprovideprofessionaltrainingtoLEAssothattheyfullyunderstandtheproceduresandtherequirementstoobtainacourtorder.

88. Criterion9.1–Art.12(2)to(9)AML/CFTLawandpartsofSLdetailedbelowestablishfinancialsecrecy and data protection requirements and include a range of provisions to prevent theseobligationsfrominhibitingtheimplementationoftheFATFRs.

89. SL:

a. Banking: Art.62(1)(5)(9) Law on Banks oblige banks to disclose information on entitiesandpersonsattherequestoftheFIUconcerningfinancialtransactions.

b. Insurance:Art.40(3)Law“Oninsurance”providesthatinformationonentitiesandpersonscontaining“anyinsurancesecrets”shallbesubmittedtotheFIUaspertheAML/CFTLaw.

c. Creditunions:Art.21(5)Law“Oncreditunions”providesfortheconfidentialityofaccountholders information. Restrictions on provision of information by a credit union shall notapplyincasesestablishedbytheAML/CFTLaw.

d. Notaries:PursuanttoArt.8Law“Onnotaryoffice”,submissionofinformationbyanotarytotheFIUinaccordancewiththeAML/CFTLawshallnotbeaviolationofnotarysecret.

e. Lawyers:AsperArt.22Law“Onlawyersandlawyeractivity”,submissionofinformationtothe FIU as provided by the AML/CFT Law shall not be a violation of attorney‐clientprivilege.

f. Auditactivity:Art.19(1)(8)Law“Onauditactivity”obligesauditorstosubmitinformationtotheFIUasestablishedandprovidedbytheAML/CFTLaw.Provisionofinformationbyanauditor(auditcompany)totheFIUshallnotbeaviolationofcommercialsecret.

g. Accounting:AccordingtoArt.8Law“OnaccountingandfinancialstatementsinUkraine”,achief accountantor apersonperforming financial accounting shall submit information totheFIUasestablishedandprovidedbytheAML/CFTLaw.

90. NocontradictionwasnotedinobligationsforREsbetweentheAML/CFTLawandtheSL.

WeightingandConclusion

91. UkrainemeetsC.9.1.R.9isratedC.

Recommendation10–Customerduediligence

92. In the2009MER,Ukrainewas ratedPCwith thepreviousR.5.Deficiencieswere identifiedwith respect tomostof the criteria, ranging from the absenceof theobligation toundertakeCDDmeasureswhencarryingoutoccasionaltransactionsthatarewiretransferstodeficiencieslinkedtothedefinitionofbeneficialownership.Sincethen,UkrainehasaddressedanumberofgapsthroughtheenactmentofanewAML/CFTLaw.

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93. Criterion10.1–AccordingtoArt.64(1)Lawonbanks,banksareprohibitedfromopeningandoperatinganonymous(numbered)accountsoraccountsinobviouslyfictitiousnames.

94. Furthermore, according to Section ІІІ(13)(3) Provision on performing custody businessapprovedbythedecision№735oftheNCSSofUkraine,anyaccountinsecuritiesofanydepositororanyclientshallnotbeanonymous.

95. Criterion10.2–

a) Under Art. 9(3)(2) AML/CFT Law, REs shall identify and verify their clients (clients’representative) in case of establishing any business relations with them. As for theidentification and the verification of the BO, Art. 9(18) requires the REs to identify andverifythepersononwhosebehalforinstructionsthefinancialoperationisundertaken,andestablishthebeneficiary.

b) andc)Pursuant toArt.9(3)(6)AML/CFTLaw,REs shall identify their clients in casesofexecutingfinancialtransactionsintheamountof150,000UAH(~EUR4,917.46)orgreater,whether such financial transaction is executed as a single transaction or as severalconnected financial transactions,money transfers (including internationalones)madebyan individual, individual entrepreneurwithout opening an account in the amountwhichequals or exceeds 15,000 UAH (~EUR 490), or the amount which is equivalent to thespecified amount, including in foreign currency, precious metals, other assets, units ofvalue,butislessthan150,000UAH(~EUR4,917.46)

d) According to Art. 9(3) AML/CFT Law, client identification and verification shall beconducted in case of any doubt as to the information supplied orwhere the informationgivesrisktoasuspicion;thesamerequirementisreiteratedinthesectoral legislationforbanks(Part2ofArt.64oftheLawonbanks)

e) Art. 9(4) AML/CFT Law provides the obligation of REs to conduct detailed clientverification in case of doubt or suspicion about accuracy or completeness of clientinformationprovided.

Other CDD measures are undertaken as part of client examination process duringidentifyingand/orservicingtheclient.TheseprovisionsdonothowevercoverthefullsetofCDDmeasures, such as understanding the purpose and intended nature of the businessrelationshipandperformingon‐goingduediligenceofthebusinessrelationship.

96. Criterion10.3–Pursuant toArt.9(1)AML/CFTLaw,REsshall ‐ conductclient identificationandverification.Verificationmustbebasedonofficialdocumentsorcertifiedcopiesofdocumentsprovidedby theclient (orby theclient’s representative).Thisprovisionappliesequally tonaturalandlegalpersons.;

97. Criterion10.4–Art.9(18)AML/CFTLawprovidestheobligationofREstoidentifyandverifyapersononwhosebehalforbywhoseorderthefinancialtransactionshallbeexecuted,andidentifythebeneficiary.Art.9(19)AML/CFTLawfurtherrequiresthataREusesavailableofficialdocumentstocheckthatanypersonpurportingtoactonbehalfofthecustomerissoauthorised.

98. Art. 6(2) further requires that a RE identifies and verifies the identity of its client and theclient’srepresentative.Art.1(35)goesontodefineseparatelya“representativeoftheclient”asan“individual [natural person]who legally has the right to perform certain actions on behalf of theclient”.

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99. Criterion 10.5 – Art. 69(218) of the AML/CFT Law requires REs to identify and verify theperson by whose order the financial transaction shall be executed, and identify the beneficiary.VerificationisdefinedunderArt.1(1)(3)as“verifyingintheclient’spresencethattheclient(andtheclient's representative)matches the identificationdata received from it”. Art. 9(7)AML/CFT Law,goes on to require the client and the client's representatives to “submit the informationwhich isrequired to identify, verify, examine the client, clarify the information on the client. In order toestablishtheUBO(controller)”.Art.9(7)iswrittentocompeltheclient,oranypersonactingontheclientsbehalftoprovidesuchinformationwhenrequestedtodosobyaREunderArt.6(2).

100. Art.1(21)oftheAML/CFTLawdefinesan“UBO(controller)”as:

“theUBO(controller)‐anindividualwhoregardlessofformalownershipmayexercisedecisiveinfluenceonmanagementoreconomicactivityofalegalpersoneitherdirectlyorthroughotherpersons,whichiscarriedout, inparticular,throughimplementingrightsofownershiporuseofallassetsortheirsignificantPart,therightsofdecisiveinfluenceonformingthestructure,votingresults,aswellastakingactionswhichenabletodeterminethetermsandconditionsofbusiness,givebindinginstructionsorperformthefunctionsofamanagementbody,orwhichcanexerciseinfluence throughdirector indirect (throughanother individualor legalperson)possessionbyonepersonaloneortogetherwithassociatedindividualsand/orlegalpersonsashareinthelegalpersonof25ormorepercentofthesharecapitalorvotingrightsinsuchlegalperson.

101. Besides,theUBO(controller)maynotbethepersonwhohastheformalrightto25ormorepercent of the share capital or voting rights of a legal person, but is an agent, nominal holder(nominalowner)orisonlyamediatorinrelationtosuchright;”

102. TheUkrainian definition of BO includes the natural person or persons (as individuals)whoultimatelyownscontrolsacustomer.Italsoincludesthosepersonswhoexerciseultimateeffectiveinfluenceonmanagementoreconomicactivity(control)overalegalpersonorarrangement.Thisisapplicable to a person exercising the control directly or indirectly, formally or informally. ThisappearstomeetthedefinitionofaBOintheFATFrecommendations.

103. Criterion10.6–UndertheAML/CFTLawREsarerequiredtoundertakea“studyoftheclient”.While the requirements appear comprehensive, this regulation does not require that REs“understandthenatureandthepurposeofthebusinessrelationship”.SectoralRegulationsineffectforthoselicencedandauthorisedbytheNSSMC,NBUandNCSRFSMfurtherrequirethatthe“intentofthebusinessrelations”isunderstood.

104. Criterion 10.7 Art. 6(2)(2) AML/CFT Law obliges REs to conduct client identification andverification,clientexaminationandclarifyingtheinformationheldontheclient.Theserequirementsextend fully to the “client’s representatives”. However, this provision does not fully cover therequirementtoscrutinisethetransactions.Inrespectoftheclientsratedasposingahigherrisk,Art.6(5)(2)(e)mandatesthattheinformationisreviewedandupdatedatleastonceperyear.NBUReg.No. 417 and No. 388, include information to the “analysis of the financial transactions” whichextendsthisrequirementtoallclientsregardlessofrisk.ThisfurtherprovidesarequirementforREstoscrutinisecustomertransactionsforconsistencywiththatcustomersactivities,howevertheNBUresolutiononlyappliestothoseentitiessupervisedbytheNBU.

105. Criterion10.8 – As noted in the analysis of the C. 10.5, Art. 9(7)AML/CFT Law contains anobligation to for the REs to establish the identity of any final beneficiary and to understand theownershipstructureofsuchclients.Thesamerequirementisfoundinsectorallegislation(par.53oftheNBURes.№417).However,asnotedinC.10.6,thereisnorequirementforREsnotlicencedand

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authorised by the NSSMC, NBU and NCSRFSM to understand the nature and the purpose of thecustomer’sbusiness.

106. Criterion 10.9 – Art. 9(9)(3) and Art.9(10)(2) AML/CFT Law requires that REs obtainidentificationdata(oflegalpersonswhoareresidentinUkraine)whichincludesinteralia;

a. theentity’sfullnameandidentificationcodeaccordingtotheUnifiedStateRegisteroflegalpersons(whichissufficienttoprovetheperson’slegalformanditsexistenceseeR.24fordetails);

b. informationonthemanagementbodies,detailsofabankingaccount,andcurrentaccountnumber, the identification information of the personswho have the right tomanage theaccountsand/orpropertyandsufficientinformationwhichallowsforthedeterminationoftheUBOs;and

c. thelocationoftheentity.107. WhereaREisseekingtheidentificationandverificationofnon‐residents,theREsmustobtainidentificationdatawhichincludesinteralia;

d. Theentity’sfullname,accountnumber,acopyofacertifiedextractfromthetrade,bankingorcourtregisterorcertifiedregistrationcertificateoftheauthorisedbodyofaforeignstateonregistrationoftherelevantentity;

e. informationonthemanagementbodies,detailsofabankingaccount,andcurrentaccountnumber, the identification information of the personswho have the right tomanage theaccountsand/orpropertyandsufficientinformationwhichallowsforthedeterminationoftheUBOs;

f. placeorlocationoftheentity’sbusiness

108. Theserequirementsdonot,however,applyto legalarrangements.There isnoevidencethatlegalarrangementsformamaterialpartofcustomersoftheprivatesector.

109. Criterion10.10–FortheanalysisofthedefinitionofBO,seeC.10.5.

110. For the general requirements on identification and verification of the BO please refer to C.10.5.

a) Art.9(9‐10)AML/CFTLaw,requiresREstorequestfromthelegalpersons(whethertheyareresidenttoUkraineorno)informationwhichallowstheREtoestablishtheUBO.

b) andc)Pursuanttoart.9(9)(3)AML/CFTLaw,duringtheidentificationandverificationofresidents the REs should establish for a resident and non‐resident legal person theidentificationinformationconcerningexecutivebody,personswhoareentitledtomanageaccountsand/orproperty.ThedefinitionofBO(pleaseseeanalysisunder10.5)includesinteraliapersonswhoperformthefunctionsofamanagementbody.

111. Criterion10.11–

a) According to Art. 9(10) AML/CFT Law, REs should find additional information on thetrustees of Trusts. The law further requires that additional information is sought on the“trusters””,howevertheterm“trusters”isnotdefinedandhasnocontemporarymeaning.However,thelawdoesnot:

b) requireREstoidentifythesettlor,theprotectorandthebeneficiariesofthetrustnoranypersonwhomayexerciseultimateeffectivecontrolovertheTrust.

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c) Forothertypesof legalarrangementsthebanksareobligedtoobtaininformationonandestablishtheUBOsofclient,beneficiariesoffinancialtransactionsunderpar.22oftheNBURes.№417.

112. Criterion10.12–AccordingtoArt.9(11)AML/CFTLaw,to identifythebeneficiaryof“lifeinsurance contracts/policies, insurers (reinsurers), insurance (reinsurance) brokers” are requiredto:

a) establishthelastname,thefirstnameandpatronymic(ifapplicable)forthebeneficiarieswhoarenamedinthecontractorpolicy;

b) gathersufficientinformationonbeneficiariesfortheREtobesatisfiedthatthebeneficiarycan be identified when the insurance payment is made. This is intended for thebeneficiaries who are identified through their characteristics or category (for example,husband,wifeorchildrenatthetimeoftheinsuredevent)orbyothermeans(e.g.,bywill);

c) The above‐mentioned Article also obliges insurers (to carry out identification andverificationofthebeneficiariesoflifeinsurancecontracts,whentheinsurancepaymentismade.

113. Criterion10.13(Met)–REsarerequiredtoidentifyandverifytheidentityofallbeneficiariesatthetimeofpay‐outirrespectiveoftherisktheypose,sincethedefinitionofbeneficiaries(underArt.1(1)(6)AML/CFTLaw)extendstotheirbeneficialowners..

114. Criterion10.14 – Under Art. 9(3) identification and verification of clients is required “whenbusinessrelationsareestablished”(subjecttospecificexemptions).Identificationandverificationofclients is also requiredwhena suspicion is formedby theREorwhen the financial transaction issubject to the financialmonitoringcontrols, (money transfers equal tooroverUAH15000(~EUR491.75)andwhenaone‐timefinancialtransactionequaltooroverUAH150,000)(~EUR4,917.46).ThereisnoprovisionundertheAML/CFTLawfordeferringtheidentificationorverificationoftheclient.

115. Thespecific“exemptions”referredtoare:

1) insurancecontractsother than life insurance,underwhichtheclient isan individual,andthe total insurancepaymentdoesnotexceedUAH5,000, (~EUR163.92)or itsamount isequivalenttothespecifiedamount,includinginforeigncurrency;

2) the business relations which arise on the basis of the agreements on participating inlotteries provided the size of the bet of the player does not exceed UAH 5,000 (~EUR163.92);

3) thepaymentorganisation,participantormemberofthepaymentsystem,bank,branchofaforeign bank conducting financial operations without opening an account in the amountwhichis lessthanUAH150,000(~EUR4,917.46)or intheamountwhichisequivalenttothespecifiedamount,includinginforeigncurrency,preciousmetals,otherassets,andunitsofvalue);

116. While these activities are “exempted”, such activities do not, in fact fall under the FATFdefinitionsofFIsorDNFBPs.

117. Lettersa),b)andc)–Notapplicable

118. Criterion10.15(Notapplicable)–

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119. Criterion10.16–AccordingtoCls.62theNBURes.№388and№417,theREshouldapplyCDDrequirements toexistingclientsonthebasisof theirassessmentof therisk that theclientpresentwhile taking into account the measures that have been previously undertaken. The REs are alsorequiredtoupdatethattheinformationthattheyreceiveonariskbasisoveraperiodnotexceeding3years,and1yearinhigherriskcases.

120. Criterion10.17–PursuanttoArt.6(5)ofAML/CFTLaw,theREsareobligatedtoperformEDDonhigher risk clients. There are also additional, specific provisionswhichmust be compliedwithrelatingtoforeignfinancialinstitutionswithwhichcorrespondentbankingrelationsandnational&foreignPEPs.Thesamerequirementscanbefoundinthesectorallegislationonbanks(Cls.60oftheNBURes.№417)andNBFIs(Cls.45ofRegulationonexerciseoffinancialmonitoringofNBFIs)

121. Criterion10.18–Art.9oftheAML/CFTlawprovidesforregulatorsandsupervisorstoallowREs to apply “simplified identification” inprescribed circumstances.At thedateof the evaluation,onlytheNBUhadexercisedthispowerunderCls.58oftheNBURes.No.417.Cls.58requiresthatbanksapply“simplifiedidentification”onthefollowingclients:

1) Ukrainianstateauthorities;

2) international agenciesororganisations inwhichUkraineparticipatesunder internationaltreatiesofUkraineratifiedbytheVerkhovnaRadaofUkraine;

3) institutions,bodies,officesoragenciesoftheEuropeanUnion;

4) diplomaticmissionsofforeignstatesaccreditedinUkraineinprescribedmanner.

122. Cls.59detailstheidentificationrequirementsforthesebodies,theonlyconcessionpertainstotheidentificationoftheUBO.Underthedefinitionof“UBO”underArt.1(21)oftheAML/CFTlaw,thereisunlikelytobeanypersonwhowouldmeetthedefinitionofUBOofthesebodies.ThereforeitwouldappearthatCls.58providemoreofaclarificationofidentificationrequirementsratherthan“simplifiedduediligence”intendedunderrecommendation10.18.

123. Furthermore,pursuant toArt.9(3)of theAML/CFT law, it isnotobligatory tocarryout theclientidentificationandverificationincasesof:

1) insurancecontractsotherthanlifeinsurance,underwhichtheclientisanindividual,andthe total insurancepaymentdoesnotexceedUAH5,000, (~EUR163.92)or itsamount isequivalenttothespecifiedamount,includinginforeigncurrency;

2) the business relations which arise on the basis of the agreements on participating inlotteries provided the size of the bet of the player does not exceed UAH 5,000 (~EUR163.92);

3) thepaymentorganisation,participantormemberofthepaymentsystem,bank,branchofaforeignbankconductingfinancialoperationswithoutopeninganaccountintheamountwhichis lessthanUAH150,000(~EUR4,917.46)or intheamountwhichisequivalenttothespecifiedamount,includinginforeigncurrency,preciousmetals,otherassets,andunitsofvalue);

4) oftransactionsbetweenbanksregisteredinUkraine.

124. Moreover,these“concessions”aredisappliedincaseswhenthebankmayhaveasuspicionofML/FT,and/orwhentherearehigh‐risksituations,asprovidedinCLs.47,49,50‐51,53,55,64–65,72.

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125. Criterion10.19–UnderArt.10AML/CFTLaw,incaseswhereitisimpossibletoidentify/verifythe client or determine theUBOs, theREs are obliged to refuse to (1) establish or keep businessrelationshipsandto(2)makeanSTR.

Criterion 10.20 – There is no specific legislative provisions that would allow REs to file an STRwithout identifying a customerwhomight be tipped off during the identification and verificationprocess.

WeightingandConclusion

126. Ukraine meets c.10.1, 10.3‐10.5, 10.9, 10.10, 10.12‐ 10.14, 10.17 to 10.18 and 10.19, andmostlymeetsc.10.2,10.6to10.8,anditdoesnotmeet10.11and10.20.

127. The CDD requirements for natural and legal persons appear comprehensive and compliantwiththerecommendations.Thereremainweaknessesaroundtheapplicationofsuchprovisionstolegal arrangements. Other deficiencies have been in respect of those not bound by the NBUregulations in respect of a legal requirement to analyse financial transactions and also for CDDrequirementstobeappliedtoexistingcustomers.R.10isratedLC.

Recommendation11–Record‐keeping

128. Inthe2009MER,UkrainewasratedLCwithformerR.10.ThemaindeficienciesincludedtheabsenceofrequirementforNBFIstomaintainrecordsoftheidentificationdataforatleast5yearsfollowing the termination of the account or business relationship; and of the requirement thattransaction records should be sufficient to permit reconstruction of individual transactions. Theobligation to keep documents is a narrow interpretation of the FATF standards, which requiremaintenanceofallnecessary“recordsontransactions”.Since2009,UkraineaddressedthesegapsbyrevisingtheAML/CFTLawandtheapplicationofthebankinglegislationprovisions.ThelistofdatathatshouldbegatheredbothbybanksandNBFIsissufficienttoreconstructindividualtransactions.Atthesametime,theAML/CFTlawstillusestheterm“documents”andnot“necessaryrecords”.

129. Criterion11.1–UnderArt.6(2)(15)AML/CFTlaw,REsshouldkeep“officialdocuments,otherdocuments(includingtheelectronicdocuments)andtheircopiesfornolessthanfiveyearsafterthetransaction is completed, the account is closed and business relations are terminated.” ThisobligationisrepeatedintheSL(Cls.55(14)(13,14)ofNBURes.417,Cls.6,7,41oftheRegulationontheimplementationoffinancialmonitoringoftheNBUforNBFIs)

130. Criterion11.2–UnderArt.6AML/CFTLaw(andasreiterated inSL),REsareresponsible forkeeping documents and their copies for at least 5 years after the transaction is completed, theaccountisclosedandbusinessrelationsareterminated.Thedocumentsinclude:

a. customeridentificationmaterials;

b. recordsonclientswhoaredenied;services,

c. customer analysis materials (including the results of any analysis to verify the client orconductdetailexaminationoftheclient);and

d. documentsthatpertaintobusinessrelations.

131. Criterion 11.3 – Art.6 (2) AML/CFT Law requires REs to retain all the necessary data andrecordsonfinancialtransactionswhicharesufficienttotracetheprogressofsuchoperation,nolessthanfiveyearsafterthetransactioniscompleted.

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132. Criterion11.4 –Art. 6(2)(16) AML/CFT Law details the type of information that REs shouldsendtothelawenforcementagencies.The“swift”provisionisdefinedbytimeframesspecifiedpertypeof data.UnderArt. 6(16)AML/CFTLaw,REsmust ensure free access to the respective statefinancial monitoring entities (FMEs), the FIU and LEAs. LEAs may receive documents andinformation constitutinga commercial secret frombanksas and in theamountestablishedby theLawonBanks.

WeightingandConclusion

133. Ukrainemeetsallcriteria.R.11isratedC.

Recommendation12–Politicallyexposedpersons

134. In the 2009 MER, Ukraine was rated NC with the previous R.6. The assessors noted theabsenceofaclearandexplicitdefinitionofPEPsin linewiththeFATFglossaryandofenforceablerequirementsforFIsto(1)putinplaceappropriateriskmanagementsystems(RMSs)todeterminewhether a potential customer is a PEP; (2) obtain senior management approval for establishingbusinessrelationshipswithPEPs;(3)takereasonablemeasurestoestablishthesourceofwealthandfundsofPEPs;and(4)conductenhancedongoingmonitoringonabusinessrelationshipwithaPEP.

135. Criterion12.1–Art.1(19)AML/CFTlawdefines foreignPEPsas“individualswhoperformorperformedprominentpublicfunctionsinforeigncountriesduringthelast3years,namely:headofstateorgovernment,ministersandtheirdeputies;deputiesoftheParliamentmembersoftheCourt,ConstitutionalCourtorother judicialbodieswhosedecisionsarenot subject to appeal, except forappealunderexceptionalcircumstances;chairmenandmembersofmanagementboardsofcentralbanks; special ambassadors and plenipotentiaries, persons charged by appointment, and heads ofcentral military management bodies; leaders of the administrative, management or supervisorybodies of state enterprises,which are of strategic importance; leaders of governing bodies of thepoliticalpartiesrepresentedintheparliament.”

136. TheFATFdefinesPEPsas“individualswhoareorhavebeenentrustedwithprominentpublicfunctions…”.While R.12 does not specify a time period during which an individual must remaindefinedasaPEPfollowingthesteppingdownfromprominentpublicfunction,FATFguidancepointstowards a more RBA and (specifically) not on prescribed time limits. The prescribed limitationperiodsof3yearsunderArt.1(19)AML/CFTLawisinconsistentwiththisapproach.

a) UnderArt.6(4)AML/CFTLaw,REsareobligedtotreatnationalandforeignPEPs,theircloseorrelatedpersonsandlegalpersonsinwhichaPEPorapersonactingonhisbehalfisthe UBO as high risk. As per Art.6(5) AML/CFT Law, REs must apply additional CDDmeasures to such clients. As for the internal procedures for determining PEPs, underArt.6(3)AML/CFTLaw,thereisageneralrequirementfortheREstoindependentlyassesstherisksof its clients subject to the riskcriteria identifiedby theFIUandotheragenciesengaged in the AML/CFT supervision. In the case of banks, the description of the RMSadditionallycanbefoundinCh.II(17)ofNBURes.417.Inaddition,withthesupportoftheIMF, the FIU has developed Guidelines (which are not enforceable) for detection andidentificationofPEPsandprovidingmonitoringof their financial transactions.There is alist of information resources that contain list of domestic PEPs in Ukraine. There is nolegislativeorotherbindingrequirementonotherREstoimplementsimilarRMS.

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b) TheREisrequiredtoobtainthepermissionoftheheadoftheREtoestablishbusinessrelations with PEPs pursuant to Art.6(5)(2)(b) AML/CFT Law. The same obligation isreflectedinbankinglegislation(Ch.V(48)ofNBURes.417).

c) TheREsareobligedtotakemeasurestodeterminethesourceoffundsofPEPsinorderto “confirm the origin of their assets and the rights to such assets” under Art.6(5)(2)(c)AML/CFT Law. The same requirement is reiterated in Ch. V(50) of NBU Res. 417. Thisappearstoincludearequirementtoestablishthesourceofwealthofthecustomer

d) REsareobligedtoconduct“primary financialmonitoring”of the financial transactionsfor and to update the informationheld on the customer at least once a year pursuant toArt.6(5)(2)(d)and(e).

137. Criterion12.2–Art.1(26)AML/CFTlawdefinesanationalPEPastheindividualswhoperformorperformedspecialpublic functions inUkraineduringthe last3years68.The3year limitation isinconsistentwiththeFATFapproach.Measuresdescribedunderb)–d)ofC.12.1canbeappliedtoforeignanddomesticPEPsandpersonswithpoliticalfunctionsinIOs.

138. Criterion12.3‐UnderArt.6(5)AML/CFTLaw,requirementsregardingPEPsalsoapplytotheirclose or related persons. The related persons are defined as the persons with whom the familymembersofthenationalandforeignpublicfiguresandthefigureswhoperformpoliticalfunctionsinIOshavebusinessorpersonalrelations,aswellasthelegalpersonswhoseUBOsaresuchfiguresortheirfamilymembersorthepersonswithwhomsuchfigureshavebusinessorpersonalrelations.

139. Criterion 12.4 – Art.6(5)(2) AML/CFT Law requires that REs take measures to establishwhetherthebeneficiaryunderalifeinsurancepolicyisaPEP.WhereaPEPisidentified,adetailedverification of the client holding the insurance policy is performed. Following the results of suchverification,thedecisionismadewhethertomakeaSARtotheFIU.

WeightingandConclusion

140. Ukraine meets C.12.2 to 12.4 and partly meets C.12.1. The definition of a PEP under theAML/CFT lawmeets the FATF standards and applies to both foreign and domestic persons. ThematerialweaknesswiththePEPdefinitionunderUkrainianlegislationisthelimitationperiodof3years,afterwhichpersonisdeclassifiedasaPEP.R.12isratedLC.

68 President, PrimeMinister,members of the CoM; first deputies and deputies ofMinisters, heads of othercentralexecutivebodies, their firstdeputiesanddeputies;people’sdeputies;Chairmanandmembersof theBoardoftheNBU,membersoftheBoardoftheNBU;headsandcourtsoftheConstitutionalCourt,theCourt,andhigherspecialisedcourts;membersoftheHighCouncilofJustice;AttorneyGeneralandhisdeputies;headoftheSSUandhisdeputies;ChairmanoftheAntimonopolyCommitteeanditsdeputies;Headandmembersofthe Accounting Chamber; members of the National Council on Television and Radio Broadcasting; specialambassadorsandplenipotentiaries;HeadofGeneralStaff‐Commander‐in‐Chiefofthearmedforces,headsofarmy,airforces,navalforces;thestateofficialswhosepostsarereferredtothefirstcategoryofposts;leadersofadministrative,managerialor supervisorybodiesof stateandpublicenterpriseswhich theCoMrefers tothose of strategic importance; heads of governing bodies of political parties andmembers of their centralstatutorybodies”.

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Recommendation13–Correspondentbanking

141. In the2009MER,Ukrainewas ratedPCwithR.7.Gaps related to thegatheringof sufficientinformation on a respondent institution; ascertainment of such institution’s AML/CFT system’sadequacy;andseniormanagementapprovalforestablishingnewcorrespondentrelationships.

142. Criterion13.1 – Pursuant toArt.6 (5)AML/CFTLaw,REs are required to take the followingadditionalmeasureswithrespecttoforeignrespondentFIs:

a. ensure that information on their reputation is collected and determine if the respondentwassubjecttoanysupervisorymeasures(sanctions)withrespecttoitsAML/CFTactivities;

b. establishthetypeofmeasuresthattherespondenthasinplacetopreventandcounteractML/FT and on the basis of the information received, determine whether the AML/CFTmeasuresappliedbytherespondentaresufficientandeffective;

c. obtaintheapprovalofthechiefexecutiveofficerbeforeopeningtherespondentaccount;

d. pursuant to par.52, correspondent accounts for non‐resident banks and in non‐residentbanksshallbeopenedwiththepermissionofthemanageroftheexecutivebodyofthebank/managerofaforeignbankbranch.

143. Criterion13.2–(NotApplicable)Legislationdoesnotprovideforpayable‐throughaccounts.

144. Criterion13.3 – Pursuant to Art.64 Law on Banks, banksmay not establish correspondencerelationship with shell banks or banks and other non‐resident FIs that maintain correspondencerelationswithshellbanks.PursuanttoArt.7of theLawonPaymentSystemsandMoneyTransferonly banks may establish or maintain accounts. Therefore, other FIs may not maintaincorrespondentbankingrelationshipswithotherbanks.

WeightingandConclusion

145. Ukrainemeetsallthecriteria.C.13.2isnotapplicable.R.13isratedC.

Recommendation14–Moneyorvaluetransferservices

146. Inthe2009MER,UkrainewasratedPCwithSR.VI.Themaindeficiencieswerethefollowing:no requirement for MVTS operators to maintain a current list of their agents; same preventivemeasuresdeficienciesasforbanks;nostatisticsonsanctionsimposedonMVTS.

147. Criterion14.1–UnderArt.7(27)oftheLaw“OntheNBU”,theNBUmayissuelicensestoNBFIsapplyingtoparticipateinthepaymentsystemstotransferfundswithoutopeningaccounts.TheNBUcanalsorevokethose licenses.Also,Reg.281of theNBUBoardon“Approvalof theProcedureforIssuingGeneral Licenses onPerforming ForeignExchangeTransactions toBanks andBranchesofForeign Banks” (15.08.2011), CL. 1.2 states that NBFIs and the national postal operator have therighttocarryoutoperationsunderArt.4oftheLaw“OnfinancialservicesandstateReg.offinancialservices markets”. Where the business involves currency transactions, the activity may only beundertakenafterobtainingagenerallicenseinaccordancewithCL.2ofArt.5ofCoMDecree15‐93(19.02.93)“OnthesystemofcurrencyReg.andcurrencycontrol”.

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148. Criterion14.2–UnderArt.164CodeonAdministrativeOffences,engagement inaneconomicactivity without state registration or license entails a fine. There is, however, no mechanism orprocesstoidentifyMVTSoperatorsthatcarryoutactivitieswithoutalicence.

149. Criterion14.3 –Pursuant toArt.14(1)(1)AML/CFTLaw, theNBU is theAML/CFTstateReg.and supervisor for the resident non‐bank FIs that provideMVTS. This regime does not extend topostaloperatorsintermsofthemtransferringmoneyortobranchesofforeignbanksandothertobanksastheyaresubjecttootherlicencingrequirementsforthoseactivities.

150. Criterion 14.4 – Agents for MVTS providers are not subject to registration or licensing.According toNBURes.386“On theapprovalof regulations inorderofmaintaining theregisterofcommercialagents(commercialrepresentatives)ofbanks”theNBUshallmaintainthatregisterandmayestablishrequirementsthereto.

151. Criterion14.5–According toNBURes.42“OnResolving the IssuesofAcceptingCash for itsFurtherTransfer”non‐bankingMVTSarenotpermittedtoappointagents.

WeightingandConclusion

152. C.14.1,C.14.3,C.14.4andC.14.5aremet,whileC.14.2ismostlymet.R.14isratedLC.

Recommendation15–Newtechnologies

153. In the 2009MER, Ukrainewas rated PCwith former R.8, as FIswere not required to havepolicies and procedures in place to address any specific risks associated with non‐face‐to‐facebusinessrelationshipsortransactions.

154. Criterion15.1–UnderArt.6(23)AML/CFTLaw,REsmustmanagetherisksassociatedwiththeintroductionanduseofnewandexistinginformationproducts,businesspracticesortechnologies,includingthoseallowingfinancialoperationswithoutdirectcontactwiththeclient.

155. Criterion15.2–‐ThereisnoexplicitrequirementforREstoundertakeriskassessmentspriorto launching of new products, practices or technologies. Art.1 (44) AML/CFT Law defines riskmanagementas“measureswhichPFMentitiestaketocreateandensurethefunctioningoftheRMS,which provides, among other things, determining (detecting), assessing (measuring), monitoring,andcontrollingriskstomitigatethem”.

WeightingandConclusion

156. Ukrainemeets C.15.1 and does not fullymeet C.15.2. REs are required to have general riskmanagement policies in place which extend to technological systems, however there is norequirement to undertake an assessment of the risks when new systems are launched orimplemented.R.15isratedLC.

Recommendation16–Wiretransfers

157. Inits2009MER,UkrainewasratedPCwithSR.VII.Themaindeficiencieswere:Order211onUkrposhta(UkrainianStateEnterpriseofposts)didnotmeettheFATFrequirements;therewasnoexplicit requirement for FIs to adopt effective risk‐based procedures for identifying and handlingwiretransfersnotaccompaniedbycompleteoriginatorinformation;competentauthoritiesdidnot

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have the necessary powers to effectivelymonitor NBFIs andUkrposhtawith the requirements ofNBURes.348orthenecessarymechanismstoimposesanctionsforspecificbreachestoRes.348.

158. Criterion16.1–According toArt.9 (14)AML/CFTLaw,REsmustensure thatall transfersofEUR502(orequivalent)ormoreareaccompaniedwiththefollowinginformation:

a)informationonthepayer

i)forindividuals‐lastname,firstnameand(ifany)patronymic;numberoftheaccountfromwhich money is drawn or, if no account is available, unique registration number of thefinancialtransactionwhichenablestotrackthetransaction;placeofresidence(orplaceofstayfor residentsorplaceof temporarystay fornon‐residents).Alternatively, thenumberof thetaxpayer’s registration card or the identification number according to the state registry ofindividualswhopaytaxesandmakeothersuchpaymentsmaybeprovided.IncaseswherethepersondoesnothaveanIDtaxnumber,REscanrequestthepassportseriesandnumber.

ii) for legal persons – name, location, USR identification code, number of the account fromwhich money is drawn or, if no account is available, unique registration number of thefinancialtransaction;

b)informationontherecipient:

i) for individuals ‐ last name, first name, and (if any)patronymic, numberof the account towhichthemoneyiscredited,andifnoaccountisavailable,uniqueregistrationnumberofthefinancialtransaction;

ii)forlegalpersons‐fullname,numberoftheaccounttowhichthemoneyiscredited,andifnoaccountisavailable,uniqueregistrationnumberofthefinancialtransaction.

159. Criterion16.2(NotApplicable)

160. Criterion 16.3 – There are no requirements for cross‐border wire transfers below theapplicabledeminimisthreshold.However,thethresholdwhichappliesinUkraineislowerthantheoneprescribedinC.16.1andappliestobothdomesticandcross‐borderwiretransfers.

161. Criterion16.4–UnderNBURes.43(CL.s1and2)theNBUrequiresbanksandNBFIstoverifytheinformationontheinitiator/recipientincasesofML/FTsuspiciononthetransaction.

162. Criterion16.5 –UnderArt.9(1&3)AML/CFTLawaREmust identify andverify the client ortheirrepresentative,basedonofficialdocumentsfromtheclient(ortheirrepresentative)orcertifiedcopies thereof. Identification and verification apply to transfers (including international) betweenEUR502and5020(orequivalent)madebyanindividualorindividualentrepreneur.

163. Criterion 16.6 – Under Art.9(14) AML/CFT Law, REs must ensure that all transfers whichequalsorexceedsEUR502,orequivalent,areaccompaniedwiththe“uniqueregistrationnumber”ofthefinancialtransactionwhichenablestrackingofthetransaction.Inaddition,Art.9(15)statesthatidentification or verification of the client need not be performed a) if the financial transaction isperformedbythepersonswhohavepreviouslybeenidentifiedorverified,andb)iftransactionsareperformedbetweenbanksregisteredinUkraine.

164. Criterion 16.7 – Art.6 (2) and (15) AML/CFT Law stipulate that REs must keep documents(includingelectronic),whichidentifytheclients(andtheirrepresentatives),andthepersonswhosetransactions have been denied. REs must retain these records no less than 5 years after thetransactioniscompleted,theaccountclosed,andbusinessrelationotherwiseterminated.

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165. Criterion16.8 – There is no explicit prohibition on executingwire transferswhere C.16.1‐7cannotbemet.However,ifaREisunabletocomplywiththerelevantlegalrequirements,itcannotproceed with a wire transfer. In particular, NBU Res. 43 (Ch. II, Cls. 1 and 2) requires thattransactionsnotcontainingrelevantinformationunderC.16.1‐7besuspendedordenied.

166. In addition, Instruction 22 (Ch. II, Cls. 2.5) on theRegulations onnon‐cashpayments in thenationalcurrencyrequiresbankstoreturn,withoutexecution,settlementdocumentsifinformationisnotprovidedandnosupportingdocumentssubmitted.Furthermore,NBURes.216(Cls.3.7‐3.8)ontheexecutionofbankremittancedocuments,providesthatauthorisedREsareentitledtoreturnthepaymentorderinforeigncurrencyorpreciousmetalstothepayerifthepayerdoesnotprovidedocumentsandinformationneededtodeterminetheinformation.

167. At the same time, Art.10 AML/CFT Law states that REs must refuse to establish or keepbusiness relationships or perform a financial transaction, where the identification and/orverification of the client is impossible. This includes where the RE has reason to doubt theinformationsubmittedorthatthepersonactsontheirownbehalf.

168. Criterion16.9–Art.9(14)(1)&(2)requiresanyREsundertakingwiretransferstoensurethatall originator and beneficiary information is present. This would appear to bind intermediariesequallyandapplywheresuchinformationaccompaniesacross‐borderwiretransfer.

169. Criterion 16.10 – – There are no specific requirements in the AML/CFT Law dealing withtechnicallimitationsofotherMVTS.Art.9(14)requiresthattheinformationdetailedunderC.16.1isprovidedwithallwiretransfers.Theprimafacieeffectofthisisthatanywiretransferwhichdoesnot contain all of the required originator and beneficiary informationwould have to be rejected.Transaction recordsmust be retained for 5 years from the date of the transactionwhether suchlimitationsarepresentornot.

170. Criteria16.11&16.12 –Thelegalframeworkforthemonitoring,rejectionandsuspensionoffinancial transactions is establishedunderArt.9,10and15AML/CFTLaw.Theobligations forFIsappeartoapplyequallywhethertheFIisactingasprincipalorasintermediary.

171. Art.9(14)AML/CFTLawrequiresthatallREsensurethattransfersequaltooroverEUR502contain the information detailed under C.16.1. Where the information on the originator orbeneficiaryisnotpresent,theMVTS(actingasintermediary)isrequiredtorejectthepaymentandmakeadisclosuretotheFIU.

172. Inaddition,NBURes.43 (Ch. II,Cls.1, sub‐Cls.3) requiresbanks toestablishprocedures forensuring implementationofAMLriskmanagementprocedurestheobligationtorefuseorsuspendtransfers, which contain limited information about the originator or the beneficiary. The sameobligations are found in the 2016 NBU Statute on the implementation of financial monitoring ofNBFIs(Sec.II,Cls.17).

173. Criteria16.13&16.14–

174. According to Art.9(14) AML/CFT Law the initial FMEs are required to ensure that all thetransferswhichequalsorexceedsEUR502(orequivalent)areaccompaniedwithinformationaboutthe payer and the recipient, including their account details, and a unique account number for afinancialtransaction.However,thelawdoesnotexplicitlyrequirebeneficiaryFIstotakereasonablemeasures, which may include post‐event monitoring or real‐time monitoring where feasible, toidentifycross‐borderwiretransfersthatlackrequiredoriginatororbeneficiaryinformation.

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175. Criterion16.15–SeetheanalysisforC.16.11and16.12above.Art.9(14)AML/CFTLawappliestobeneficiaryandintermediaryinstitutionsequally.

176. Criterion16.16–PursuanttoArt.5AML/CFTLaw,MVTSprovidersaredefinedasREs,towhichallrequirementsoftheAML/CFTLawapply.

177. Criterion16.17–

a)TheReg.doesspecificallyimposemeasurestobetakenwhenthepaymentserviceprovideractsbothastheoriginatingandbeneficiaryentityofthetransfer.However,the2016NBUStatuteontheimplementationof financialmonitoringofNBFIs(Sec.II,Cls.17)stipulatesthattheinternaldocuments of NBFIs must adhere to the requirements for verification of information on theoriginator/recipient.Precisely,incaseofsuspicionthatatransactioniscarriedoutwiththeaimofML,FTorPF,FIsshouldproviderelevantinformationtotherelevantSA.

b) There is no direct requirement to file a STR in any other country. However, given theprincipleofterritorialityofAML/CFTLaws,whenapaymentserviceproviderisestablishedin several countries, performs a money transfer between two of its entities, and thetransactionprovestobesuspicious,itmayberequiredtosubmitaSTRtotheFIUineachofthesecountriespursuanttotheirrespectivedomesticlaws.

178. Criterion 16.18 – Art.17 AML/CFT Law provides detailed procedures for the suspension offinancial transactions with certain features. Art.17(8) states that the lists of persons involved interroristactivityorsubjecttointernationalsanctionsismadeavailabletoFIsbytheFIUandFIsandtheFIUare responsible for compliancewith the typesandconditionsof enforcementof sanctionsreferredtointhelists.Inaddition,NBURes.417,(sec.VIII),definestheprocedureofsuspensionoffinancial transactions and execution of decisions (orders) of specially authorised agencies. Inparticular, banksmust suspend financial transaction(s), where a party or beneficiary is a personincludedinalistofdesignatedpersonsinvolvedinterroristactivity,andisobligedtousesoftwarethatprovidesautomaticdetectionandsuspensionofthefinancialtransaction(s).

WeightingandConclusion

179. UkrainemeetsC.16.1andC.16.3‐16.18..R.16isratedC.

Recommendation17–Relianceonthirdparties

180. In its 2009MER,Ukrainewas ratedNAwith the previousR.9. As the lawdid not explicitlyprohibittheuseofthirdparties,itwasrecommendedtointroducesuchaprohibitioninlaw.

181. Criterion17.1 (NotApplicable)–Art.9(5)AML/CFTLawprovidesthattheprocedureforREsauthorisingthirdparties to identifyandverify theclientmaybedeterminedbyRegulationsof thestateFMEs.TodatenosuchRegulationshavebeendevelopedby thesupervisors. Art.9(5)canbereadasstatingthat,withoutRegulations,anyrelianceonthirdpartieswouldbefrustrated.

182. Criterion17.2and17.3(NotApplicable)

WeightingandConclusion

183. Ukrainedoesnotallowfortherelianceonthirdparties.R.17isratedN/A.

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Recommendation18–Internalcontrolsandforeignbranchesandsubsidiaries

184. In its 2009 MER, Ukraine was rated PC with the previous R.15 and 22. Gaps were thefollowing:nolegalrequirementorpracticeforNBFIscomplianceofficerstobeatmanagementlevel;nolegalrequirementnorpracticeforNBFIstomaintainanadequatelyresourcedandindependentauditfunctiontotestcompliancewithAML/CFTprocedures,policiesandcontrols;lowawarenessofNBFIsofrolesandresponsibilitiesoftheinternalauditfunction;noadequaterequirementforFIstoput in place screening procedures to ensure high standards when hiring employees or to payparticular attention to their subsidiaries and branches in countrieswhich do not or insufficientlyapply the FATF Recommendations; and no requirement to ensure implementation of the higherAML/CFTstandardbytheirforeignsubsidiariesandbranches.

Criterion 18.1 – Under Art.6(1) AML/CFT Law, REs “develop, implement and constantly update”subject to the rules of financialmonitoring, financialmonitoring programmes and other financialmonitoring internal documents; and designate an employee responsible of the implementation oftheseprocedures(“responsibleofficer”).

a. AsperArt.7(1&2)theresponsibleofficerisappointedatthemanagementleveloftheRE.b. Art.6(10) requires that state FMEs, which supervise REs, should set qualification

requirementstotherespectiveresponsibleemployees;andrequirementsforREstocheckwhethercandidates topostsof responsibleofficersmeetsuchqualificationrequirements.Atthesametime,theRegs.ofthestateFMEsmaysetrequirementsonthe“irreproachablebusinessreputation”(asdefinedbyArt.1AML/CFTLaw)oftheresponsibleofficer.

c. Art 6(2)(20) AML/CFT Law obliges REs to takemeasures to ensure that the responsibleofficerreceivedappropriateAML/CFTtrainingwithin3monthsofappointment.REsmustensurethattheresponsibleofficerundertakestrainingatleastevery3years.

d. Art.6(2),(19)AML/CFTLawrequiresthatREscarryoutanauditoftheiractivitiesagainsttherequirementsoftheAML/CFTLaw.Alternatively,REsmaycommissionanindependentaudit (except for banking activities). In addition, Art.7(6) stipulates that the responsibleofficeractsindependently,reportsonlytotheheadoftheRE,andmustinformtheheadofthe RE at least monthly of any financial transactions found to be subject to financialmonitoring,andofresponsestaken.

185. Criterion18.2–

a) Art.6(1)AML/CFTLawrequiresfinancialgroupswhosemembersincludeREs,developandadopt common rules of financial monitoring, including the procedures for usinginformationwithinthegroupforthepurposeof financialmonitoring.SuchrulescoverallREs,whichformpartofthefinancialgroup.

b) TheAML/CFT Law requires the appointment of a responsible employee under C.18.1(a),butitisnotclearfromtheLawhowmuchauthoritythatemployeehasovertheGroup’sREslocated outside Ukraine. This is particularly noteworthywhere the parent RE is outsideUkraineanddoesnothaveanequivalentroleoftheresponsibleemployeeatgrouplevel.

c) Art.6(2)(14)requiresthatthedetailsofanyinformationsubmittedtotheFIUisnotdisclosedtoathirdpartyoutsidetheREitself(thisincludesaprohibitionofsharingdetailsofSTRsmadewithinthe group). While this covers details of information submitted to the FIU, the disclosure ofaggregated statistical information between group entities for AML/CFT purposes (such asnumbersofSTRssubmittedinagivenperiod)doesnotseemcovered.

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186. Criterion18.3–Art.6(7)AML/CFTLawprovidesthattherequirementsoftheLaw,areappliedby the RE, its affiliates, other separated units and subsidiaries, including the ones located in thestates inwhich the FATFRecommendations do not apply or apply insufficientlywithin the limitsdeterminedbythelegislationofsuchState.Inaddition,REswithaffiliates,otherseparateunitsandsubsidiaries located in such states, are obliged to assess themeasures taken in such countries tocombatML/FT.Ifsuchmeasuresarenotallowedbythelawofthehostcountry,theREisobligedtoinformthesupervisoroftherespectiveprecautionarymeasureswhichitwilltaketolimittherisksofidentified.Theymustalsotakeappropriateprecautionarymeasuresto:conductin‐depthverificationof theclient toestablishbusinessrelationswith individualsorcompaniesofsuchcountries;notifythe FIU on the financial transactions with the clients of the respective states; warn therepresentativesofthenon‐financialsectorthattransactionswithindividualsorlegalpersonsintherespectivecountriesmaycontaintheriskoflaunderingillegallyderivedincomeorFTorPF.

WeightingandConclusion

187. Ukraine meets C.18.1 and 18.3 and partially meets C.18.2. The AML/CFT law requires thatadequateinternalcontrolsareestablishedbyREsandthesearetestedbyaninternalauditfunction.Howevertheconfidentialityandsecrecyrulesinhibiteffectivegroup‐levelcomplianceandsharingofAML/CFTinformation.R.18isratedLC.

Recommendation19–Higher‐riskcountries

188. Inits2009MER,UkrainewasratedNCwiththepreviousR.21.Themaindeficiencieswere:noclearrequirementforFIstogivespecialattentiontoallbusinessrelationshipandtransactionswithpersons fromor in countrieswhichdonotor insufficientlyapply theFATFRecommendations;noexplicit requirement that the examination of the background and purpose of the financialtransactions with such countries should be extended as far as possible; and no enhancedmechanismstoapplyfullsetofcountermeasures.

189. Criteria19.1&19.2–Art.6(4)AML/CFTLawrequiresREstoapplyEDDwherehigherrisksareidentified.Art.6(4)requiresthefollowingclientstobeconsideredashigherrisk:theclientsresidentinstateswhichdonotapplyoradequatelyapplytheFATFRecommendations(orrecommendationsofotherinternationalbodieswithAML/CFTresponsibilities;foreignFIs(exceptforFIsregisteredinthe EU and FATF Jurisdictions with which correspondent relations are established; national andforeign PEPs; and clients included in lists of persons related to terrorist activity, or on whichinternational sanctions have been imposed. Although these provisions do not explicitly refer tocounter‐measures, they are sufficiently broadly drafted to permit the imposition of counter‐measures.

190. Criterion19.3–FIUDecree139(01.10.2012)approvedthe2012FATFPublicStatement“Onthe list of countries (territories) that do not or improperly fulfil the recommendations ofinternational intergovernmental organisations engaged in AML/CFT”, under which state FMEsdevelopprocedures forapplyingpreventivemeasures in relation to suchstates. Inparticular,REsmustapplypreventivemeasures:

a) whenbranches,representativeofficesorsubsidiariesofREsarecreatedinsuchcountries;

b) warnREsofthenon‐financialsectorthatanytransactionswithindividualsorlegalpersonsintherespectivestatemayhaveariskoflaunderingcriminalproceedsorFTorPF;and

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c) limitbusinessrelationsorfinancialtransactionswithsuchstateorpersonsinsuchstates.However, the authorities did not provide specific exampleswhere such procedures tookplace.

WeightingandConclusion

191. Ukrainemeetsallcriteria.R.19isratedC.

Recommendation20–Reportingofsuspicioustransaction

192. In its 2009 MER, Ukraine was rated PC with the previous R.13 and SR.IV. The technicaldeficiencieswere: thereportingregimecouldnotberegardedassuspicion‐basedand in linewiththe specifics of different sectors; no STR requirement applied in cases possibly involving insidertrading and market manipulation; all types of attempted transactions were not fully covered;shortcominginthecriminalisationofFTlimitsthereportingobligation;andnoSTRrequirementinlaworReg.foralltypesofattemptedtransactions.

193. Criterion 20.1 – Art.6(2) AML/CFT Law obliges REs to ensure that financial transactions“subjecttofinancialmonitoring”,aredetected,duringoraftertheyareconductedandreportedonthedayofthesuspicionarising.Art.6(2)alsoincludesanobligationtoreportshouldtheclientrefuseto provide CDD.As per theAML/CFT Law,REsmust notify the FIU of the following categories oftransactions(Art.6(2)(6)):

a. financial transactions subject to “mandatory financial monitoring” – i.e. thresholdtransactions that present one or more objective risk indicators provided by Art.15AML/CFT Law. Under Art. 6(2)(6)(a) AML/CFT Law, these should be notified to the FIUwithin three working days from the day of their registration or attempt of theirimplementation;

b. financial transactions subject to “internal financial monitoring” – i.e suspicion‐based, aswell as informationon their suspicions in relation toactivitiesofpersonsor theirassets,providedthereisreasontobelievethattheyareconnectedwithacrimedefinedbytheCC;such information should be reported to the FIU on the day of suspicion or attempt toconduct the financial transactions, but no later than the followingworking day from thedateofregistrationofsuchfinancialtransactions;and

c. financialtransactionswherethereisreasontosuspectthattheyarerelatedto,orintendedforFTorPF;theyshouldbereportedtotheFIUonthedayoftheirdiscovery,butnolaterthanthefollowingworkingdayfromthedateofregistrationofsuchfinancialtransactions.LEAsshouldbeinformedofsuchfinancialtransactionsandtheirparticipants.

194. Criterion20.2–NothresholdisspecifiedintheAML/CFTLawforthesuspicioustransactionsthat should be notified to the FIU. While reporting ML attempted transactions is an expressrequirementunder(a)and(b)ofArt.6(2)(6)AML/CFTLaw,thereisnosuchexplicitobligationonFT related suspicious transactions however (c) refers to financial transactions that are related orintendedforFTwhichisinterpretedascoveringFTattemptedsuspicioustransactions.

WeightingandConclusion

195. Ukrainemeetsallcriteria.R.20isratedC.

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Recommendation21–Tipping‐offandconfidentiality

196. In its 2009MER, Ukrainewas rated LCwith the previous R.14. The AML/CFT Law did notexplicitly provide protection of entities if they acted in a “good faith” and did not know whatunderlying criminal activitywas involved, and regardless ofwhether illegal activity occurred. FIswerenotcoveredbythetippingoffprohibition.

197. Criterion21.1–Art.12(3)AML/CFTLawstipulatesthatREs,theirofficersandotheremployeesdo not bear disciplinary, administrative, criminal and civil liability for submitting information onfinancial transactionswhich are subject to financialmonitoring and any other informationwhichmay be associated with ML, FT or PF. Disclosures are made to the FIU and confer protectionprovided they actwithin the limits of theAML/CFTLaw, evenwhere such actions cause harm tolegalpersonsorindividuals,andotheractionsrelatedtoimplementingtheAML/CFTLaw.

198. Criterion21.2–PursuanttoArt.12(11)AML/CFTLawtheemployeesofREs,stateFMEsandotherstatebodieswhichprovidetheFIUwithanyinformationonanyfinancialtransactionanditsparticipantsare“forbiddentoinformthepersonswhotakepartinimplementingsuchtransactions,and any third parties.” Moreover, the Law introduces a prohibition of disclosure that an STR orrelated information is being filed with the FIU, to employees of REs, state bodies, local self‐government bodies, officials, and to employees of economic entities, enterprises, institutions andorganisationsirrespectiveoftheirownershipform,whicharenotREs,whoreceiverequestsoftheFIUconcerninginformationonanyfinancialtransaction,and/orprovideresponsetosuchrequests.

199. SanctionsforbreachingthedisclosureprohibitionarecoveredbytheCodeonAdministrativeOffences(Art.1669)andCC(Art.2091).SanctionsavailableincludefinesfromEUR101to502andotherpenalties.

WeightingandConclusion

200. Ukrainemeetsallcriteria.R.21isratedC.

Recommendation22–DNFBPs:Customerduediligence

201. Inthe2009MER,UkrainewasratedNCwiththepreviousR.12.Theassessorsidentifiedawiderange of deficiencies regarding CDD measures in place for different types of DNFBPs. The newAML/CFTlawaddressedanumberofgaps.

202. Criterion22.1–

(a) Under Art.15(1) AML/CFT Law, casinos would be required to identify and verify theidentityofaclientiftheamountofafinancialtransactionequalsandsurpassesEUR1004.

(b) Under Art.8(2) AML/CFT Law, real estate agents involved in a transaction regarding thesaleandpurchaseofrealestateareobligedtocomplywiththeCDDrequirements.

(c) Under Art.8(3) and 15(1) AML/CFT Law, dealers in precious metals and stones mustcomplywiththeCDDrequirementiftheyengageinacashtransactionequaloraboveEUR5020.

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(d) According to Art.8(1) AML/CFT Law, lawyers, law offices and associations, notaries, andpersonswhoprovidelegalservicesaswellasauditors,auditfirms,economicentitieswhichprovide accounting services provided such services are used in clients’ financialtransactions must identify and verify the client’s identify if preparing or carrying outtransactions for theirclientrelated to the followingactivities:purchasingandsellingrealestate;managingtheclient’sassets;managingabankaccountorasecurityaccount;raisingfundstoformlegalpersons,ensuretheiractivitiesandmanagethem;forminglegalpersons,ensuring that they operate (including audit) or manage them, as well as purchase legalpersons(corporaterights).

(e) TheAML/CFTLawdoesnotcoverbusinesseswhichundertakethefollowingactivities:

‐ actingas(orarrangingforanotherpersontoactas)adirectororsecretaryofacompany,apartnerofapartnership,orasimilarpositioninrelationtootherlegalpersons;

‐ providing a registered office, business address or accommodation, correspondence oradministrativeaddressforacompany,partnershiporanyotherlegalpersonorarrangement;

‐ acting as (or arranging for another person to act as) a trustee of an express trust orperformingtheequivalentfunctionforanotherformoflegalarrangements;

‐ acting (or arranging for another person to act) as a nominee shareholder for anotherperson.

203. Ukrainian Law does not provide for the creation of legal arrangements but there is noprohibitiononUkrainianpersonsorbusinessesfromactinginUkraineastrusteeofatrustformedabroad.

204. Criterion22.2–Art.6(2)(15)AML/CFTlawappliestobusinesseslistedunderC.22.1.SeeR.11foradescriptionofrecord‐keepingrequirements.

205. Criterion22.3–SeeR.12 for adetaileddescriptionofmeasures takenbyUkraine to complywiththePEPsrequirementsandtheidentifiedgaps.

206. Criterion22.4–AccordingtoArt.6(2)(23)AML/CFTLaw,theREisobligedtomanagetherisksassociatedwiththeintroductionoruseofnewandexistinginformationproducts,businesspracticesor technologies, includingthosethatprovide financial transactionswithoutdirectcontactwith theclient.SeeR.15 foradetailedanalysisof themeasurestakenbytheUAsanddeficiencies linkedtonewtechnologiesrequirements.

207. Criterion22.5 (NA)– SeeR.17 for adetailedanalysisof themeasures takenby theUAsanddeficiencieslinkedtothird‐partiesrequirements.

WeightingandConclusion

208. Ukrainemeets22.2,mostlymeetsC.22.1,22.4and22.5.C.22.3ispartlymet.R.22isratedLC.

Recommendation23–DNFBPs:Othermeasures

209. In the2009MER,Ukrainewas ratedNCwith thepreviousR.16. Itwasnoted that the samedeficienciesinthepreviousR.15and21inrespectofFIsapplyequallytoDNFBPs.Furthermore,thecomplianceandauditfunctionsofDNFBPswerenotinplace.Sincethen,theUkraineadoptedanewAML/CFTlawandthedeficienciesintheR.15&21wereaddressedinArt.6and8.

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210. Criterion 23.1 – DNFBPs are required to report suspicious transactions based on the sameprovisionsoftheAML/CFTLawasFIs.TheAML/CFTLaw(Art.8(5))containsalegalprivilege‐basedexemption to thereportingobligationby lawyers, lawyersofficesandassociations, the individualsprovidinglegalservices,auditors,accountingfirms,economicentitiesprovidingaccountingserviceswhichdoesnotappeartoundulyorunreasonablyobstructtherequirementofalegalprofessionaltosubmitanSTRandsoisinlinewiththeFATFstandards.

211. Criteria23.2(R.18),22.3(R.19)&22.4(R.21)–SeeR.18,R.19andR.21.

WeightingandConclusion

212. Ukrainemostlymeetsallcriteria.R.23isratedLC.

Recommendation24–Transparencyandbeneficialownershipoflegalpersons

213. Inits2009MER,UkrainewasratedPCwiththepreviousR.33.ItwasnotedthattheexistingsystemdidnotachieveadequatetransparencyofBOandcontroloflegalpersons.Relativeeasewithwhich fictitious companies could be established hindered AML/CFT efforts, while there wereconcernsonthetimelyaccesstoadequate,accurateandcurrentinformationcontainedintheUSR.

214. Criterion24.1–GuidanceonhowtocreatealegalpersonundertheCivilCodeofUkrainecanbe found on theMoJwebsite. The legal frameworkwhich governs the different types, forms andbasic featuresof legalpersons inUkraine isdescribed inpar.61 to71of theMER.TheCivilCode(Art.87)setsouttheprocessforthecreationof legalpersons. Inaddition,theLawonRegistrationprovides that the information on the UBO (controller) of legal persons and their founder issubmittedtotheUSR.

215. Criterion24.2 – The authorities are required to assess the risks posedby each type of legalperson (CoMRes. 717) and have done so in the context of the NRA. However, the NRA has onlyconsidered the risks posed by legal persons more generally rather than those formed underUkrainianLaworthosedifferenttypesoflegalpersonspermittedbytheCivilCode.

216. Criterion24.3–AccordingtotheCivilCode(Art.87)legalpersonsshallbedeemedascreatedfrom the date of their state registration. The required information for the registration covers therequirementsunderthiscriterion.TheinformationcontainedintheUSRisopenandpublic(exceptforregistrationcardaccountnumbersoftaxpayersandpassportdata).ThereisanexceptiontotheaboveforstateagenciesandlocalgovernmentsasentitiesestablishedbytheLaw“OnRegistration”(seeC.24.4) and certain public associations such as lawyers’ associations, chambersof commerce,condominiumassociationsorreligiousorganisations.

217. Criterion24.4–MoJRes.578/5(12.04.2012)outlinesthetypicaldocumentstobemaintainedby legalpersons,which include:(a)constituentdocuments(constituentactof foundingagreementprovisions) and changes to them; (b) list of founders/participants (register of shareholders); (c)extractfromtheUSR(onthecompany,proofofincorporation,legalform,address,listofdirectors,etc); and (d)otherdocuments that includeBO information.The information is storedby the legalpersonwithinthecountry.Thisrequirementappliestoalllegalpersons.

218. In addition, according to the Law “On the Depository System of Ukraine” (06.07.2012)(Art.1(16))theemitterofregisteredsecuritiesmaintainsBOinformationofshareholders,aswellasitmaintainsaregisterofthenumberofsharesheldbyeachshareholderandthecategoriesofshares

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(including the nature of the associated voting rights). In this case, the designated depositaryinstitutionistheNBU.

219. Criteria 24.5 & 24.7 – The Law “On Registration” (Art.10), states that all documents andinformationthathavebeenenteredintotheUSRarevalidandcanbeusedinadisputewithathirdparty.However,thelawdoesnotprovideforanyspecificmechanismorprocedurefortheregistrartoverifyandupdateonatimelybasistheinformationreferredtounderC.24.3and24.4.

220. ItshouldbenotedthattheSFSundertakesvalidationandverificationonthoselegalpersonsthatitconsiderstoposeahigherriskfortaxpurposes.Thisverificationisundertakenonarelativelyexpeditiousbasis.Thereremainsnoverificationprocessforlegalpersonswhicharenothigherrisk.

221. Criterion24.6–Art.64CommercialCodeobligeslegalpersons,exceptforstateandmunicipalenterprises, to establish theirUBOs (controllers), regularlyupdate and store informationon themand submit it to the USR in cases and in an amount provided by law. The Law “On PublicAssociations”,Art.9(2),stipulatesthattheinformationontheBOandtheirfounderissubmittedtotheUSR(subject to thoseexceptionsnotedunderC.24.3). Inaddition, theAML/CFTLaw,Art.9(9),(3)requiresREstoestablishtheinformationdetailedunderC.10.9and10forlegalpersons.

222. Criterion24.8–AlthoughtheCommercialCodeandLaw“Onpublicassociations”providestherequirementforthedesignationoftheUBO,thereisnospecificprovisionthatrequiresoneormorenatural persons resident in Ukraine or for the appointment of an accountable DNFBP to beresponsible formaintaining BO and be accountable to the authorities. The Law “On Registration”stipulates that failure of a legal person to submit UBO information to the USR results inadministrative liability under the Code on Administrative Offences (Art.166). These sanctioningpowersarelimitedtobeingappliedagainstthelegalpersonandnotagainstanyindividualsdirectly,howeverwherealegalpersonhasbeenshowntohavecommittedanoffenceundertheCommercialCode,theentity’sofficers(directors)mayalsofaceliabilityinapersonalcapacity.

223. Criterion 24.9 – The Law “On Registration “, Art.7, provides that the USR software shouldprovidestorageofinformationonlegalpersons,otherorganisationsandindividuals‐entrepreneursfora timeframeof75years from thedateof state registration,of the terminationof legalperson,otherorganisationorterminationofbusinessactivityofphysicalperson‐entrepreneur.Inaddition,REs are obliged to keep official documents, other documents (including electronic documentscreatedbythePFME),theircopiesastoidentifyingthepersons(clients,representativesofclients),aswellasthepersonswhoaredeniedbythePFMEtoconductfinancialtransactions.REsareobligedto examine the client, clarify informationon the client, aswell as all documents,whichpertain tobusiness relations (conducting financial transactions)with the client (including the results of anyanalysisasmeasuresare taken toverify theclientorconductdetailexaminationof theclient),nolessthanfiveyearsafterthetransactioniscompleted,theaccountisclosed,andbusinessrelationsareterminated.ThenormativelegalactofthestateFMEwhichaccordingtothisLaw,performsthestate reg. and supervision functions over the PFMEmay provide for longer terms of keeping thedocuments(Art.6AML/CFTLaw,Cls.2,sub‐Cls.15).Also,theLaw“OnRestoringDebtor’sSolvencyor Declaring it Bankrupt”, Art.41, states that the liquidator stores the documents of bankruptcy,whichaccordingtolegaldocumentsaresubjecttocompulsorystorageforaperiodnotlessthanfiveyearsfromtheindicateddateofbankruptcy.

224. Criterion24.10–Competentauthoritieshaveaccesstoinformationonlegalpersonsinordertoexercisetheirpowersasdefinedbylaw.AccesstobasicandUBOinformationisprovidedexclusivelyelectronically, freeof chargeand in accordancewith theprocedureofproviding information from

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theUSR(Law“OnRegistration,Art.11,par.7).Moreover,theFIUisentitledtorequestandreceiveadditionalinformationfromREsasdeterminedbytheAML/CFTLaw,Art.20(par.6).

225. Criterion 24.11 – Ukraine does not have legal persons able to issue bearer shares, whileaccordingtotheLaw“Onsecuritiesandstockmarket”shareshaveonlyabook‐entryform.UnderSCDecision 804 (24.06.2014) joint‐stock companieswere obliged to transfer issued certified sharesintoregisteredbook‐entryshares.

226. Criterion24.12–ThelegislationofUkrainedoesnotprovidefornominalactivity(legalpersonsable to have nominee shares and nominee directors) and has no concept of nominal recipient.However,thereisnothinginUkrainianlawwhichpreventsapersonactingasanomineeforanother.ThebroaddefinitionofUBOappearstolookthroughmostsimplenomineetypearrangements.

227. Criterion24.13–Asalreadynoted,undertheLaw“OnRegistration”,failureofalegalpersontosubmit information on its UBO to the USR entails administrative liability under Art.166 Code onAdministrative Offences. Sanctions available include fines between EUR 101 and 502 as well asadministrativepenalties.Sanctionsatthisleveldonotappeartobedissuasiveinnature.Art.205CCprovides that submission of false information and deliberate submission of such registrationdocuments that contain false informationby legal personsor natural persons‐entrepreneurs shallentail criminal liability. The Code on Administrative Offences (CAO), Art.92, provides foradministrativeliabilityincaseofnegligentstorage,damage,illegaldestruction,concealment,illegaltransfer to anotherperson archival documents, andviolationof theprocedure for access to thesedocuments.

228. Criterion24.14–

a) Asalreadynoted,underArt.9Law“OnRegistration”UBOinformation issubmittedto theUSR, and this information isopenandpublic through theportalof electronic services. Inaddition, theUSRprovidesat the timeof request relevant informationon the issuanceofpermitsand licenses,aswellasthe issuedpermitsand licenses fortheconclusionofcivilcontracts,includingontheavailabilityofrecordsofstateregistrationoftheterminationofthelegalpersonorastateofsuspension,stateofregistrationofthesuspensionorstateofthecessationofbusinessofanindividual‐entrepreneur,location,activities,centralorlocalexecutiveauthority,tothejurisdictionofwhichthestate‐ownedenterpriseorstateshareintheauthorisedcapitalofalegalperson.

b) &c)Art.23AML/CFTLawauthorises theauthorities toprovide internationalcooperationwithforeignagenciestotheextentofexperienceandinformationexchangeonAML/CFT,inaccordancewithtreatiessignedbyUkraine,ontheprincipleofreciprocityoruponitsowninitiative.TheissuesnotedunderR.31withrespecttoaccessbyLEAstoinformationmayhaveanimpactontheirabilitytoprovideinternationalcooperationrapidly.

229. Criterion 24.15 – The FIU sends feedback forms with foreign FIUs on the quality of theinformationprovided,itsuseaswellasontheresultsoftheanalysiscarriedoutonthebasisoftheinformationreceivedincaseoftherequestofsuchFIU.

WeightingandConclusion

230. UkrainemeetsC.24.1,24.3,24.4,24.6,24.11and24.15.C.24.224.5and24.7arepartlymet.C.24.8,24.9,24.10,24.12,24.13and24.14beingmostlymet.Ukrainemeetsormostlymeetsmostofthe criterion under R.24. Although the SFS undertakes validation and verification on those legal

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personsthatitconsiderstoposeahigherriskfortaxpurposes,materialdeficienciesexistinrespectto the verification of legal and beneficial ownership information held on the USR and to itssanctioningpowersinrespectofrecalcitrantlegalpersons.R.24isratedLC.

Recommendation25–Transparencyandbeneficialownershipoflegalarrangements

231. Inits2009MER,UkrainewasratedNot‐ApplicablewiththepreviousR.34.

232. Criterion25.1 –According toArt.1(41)AML/CFTLaw, a trust is anon‐resident legal personwhichrunsitsoperationsonfiduciarytermswherethe“attorney”actsfortheaccountofandintheinterestsof theprincipal, and isobliged to take certain legalactions for reward.The legislationofUkrainedoesnotprovidefortheestablishmentandoperationoflegalarrangementsinthecountry.Ukrainian Lawdoesnot prevent persons resident in the country from acting as trustee of a trustformedunder the laws of another jurisdiction. There is nothing inUkrainian lawwhich requiresprofessional trusteesbased inUkrainefrommaintainingthe informationreferredunderC.25.1(a)and(b).UkraineisnotasignatorytotheHagueConventiononLawsApplicabletoTrustsandtheirRecognition.

233. Criterion25.2–Thereisnosuchrequirement.

234. Criterion25.3–Thereisnoexplicitrequirementontrusteestodisclosetheirstatus.However,according to Art.9 AML/CFT Law, REs should identify and verify the client or the client’srepresentative.Withrespecttotrusts,duringthe identificationandverification,“REsshall identifythetrustees.”Moreover,Art.9(18and19)stipulatesthatiftheclientactsasarepresentativeoronbehalf of anotherperson, theRE is obliged, to identify andverify thepersononwhosebehalf thefinancialoperation is effected,andestablish thebeneficiary. In the casewhere the clientactsas arepresentative,theREusesavailableofficialdocumentstochecktheauthorityofsuchperson.REsarealsoobligedtorefusetoestablishorkeepbusinessrelationshipsorfromperformingafinancialtransactionwheretheidentificationand/orverificationoftheclient(includingtheestablishmentofthedatawhichenabletodeterminetheUBOs)isimpossibleortheREhasreasontodoubtthatthepersonactsonitsownbehalf.

235. Criterion 25.4 – There are no legal impediments preventing professional trustees fromprovidinginformationreferredtounderthiscriterion.

236. Criterion25.5–LEAsareempowered torequestany informationnecessary for investigationwithin the competence determined by legislative acts. However, as noted under R. 31, certainonerousconditionsapplywhereLEAsapplyforacourtordertoobtainaccesstoinformation.

237. Criterion25.6–seeC.24.14.

238. Criterion25.7–While Ukraine does not recognise trustswithin the jurisdiction, there is noprohibitionontheprovisionoftrustservicesfromwithinUkraine.

239. Criterion25.8 –While Ukraine does not recognise trustswithin the jurisdiction, there is noprohibitionontheprovisionoftrustservicesfromwithinUkraine.

WeightingandConclusion

240. UkrainemostlymeetsC.25.3to25.6,anddoesnotmeetC.25.1,C.25.2,25.7and25.8.ThelegalsystemofUkrainedoesnotrecognisetrustsandisnotasignatorytotheHagueConvention.Aweak

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definition of legal arrangements and the parties to such an arrangement mean that there arematerialdeficienciesinR.25.R.25isratedPC.

Recommendation26–Regulationandsupervisionoffinancialinstitutions

241. In2009UkrainewasratedPCwiththepreviousR.23.Theassessorsnotedvariousdeficienciesrelated to fit andproper criteria, risk‐basedapproach (RBA) toAML/CFTandadequateAML/CFTframeworkforAML/CFTsupervisionoverforeignexchangeofficesandpaymentsystems.

242. Byway of context, the AML/CFT supervisors and sectors they supervise are as follows: theNBU supervises banks, non‐bank remitters and currency exchange bureau; the SC supervisesinvestmentsectorentities; theMOIsupervisesthepostoffice;andtheNCsupervisestheotherFIscovered by the framework. Licensing responsibility is the same except that the NBU and the NClicenceremittersandcurrencyexchangebureaux.ThetableunderCh.1articulatestheposition.

243. Criterion 26.1 – Art. 14 of the AML/CFT Law specifies the authorities responsible for theAML/CFTsupervisionandthesectorsforwhichtheyareresponsible.Inaddition,Art.63oftheLawonBanksprovidestheNBUwithauthoritytoconductAML/CFTsupervisionforbanks.

244. Criterion 26.2 – Art. 17 of the Law on Banks provides that entities intending to carry outbankingactivitymustberegisteredbytheNBU.Italsospecifiestheinformationtobeprovided.Inaddition,therequirementsunderArt.30onwardsandArt.69oncapital;corporategovernance,riskmanagement, bank management and internal control; meetings of shareholders; obligations toreport to theNBU; banking activitiesmean that shell banks cannot be established or operated inUkraine.

245. Res. 297 of August 2002 (Art. 1.2) requires non‐banking FIs and postal operators to belicensed to undertake currency transactions while NBU Res. 281 of August 2011 requires banksundertakingcurrencytransactionstobelicensed.SeeC.26.3foranalysis.Art.10(10)(3)oftheLawon Payment Systems and Money Transfer in Ukraine provides that NBFIs can perform moneytransferservicesonlywithalicenceissuedbytheNBU.

246. Art. 16 of the Lawon Securities and StockMarkets provides that professional stockmarketactivities69shallbeconductedsolelyonthebasisofalicenceissuedbytheSC.

247. Under Art. 34 of the Law on Financial Services and State Regulation of Financial ServicesMarketstheNCissueslicencesforthefollowingactivitiesofFIs:1)Insuranceactivities;2)Activitiesin providing accumulationpensionprovision services; 3) Provision of loans from raised funds; 4)Provisionofanyfinancialservicesinvolvingdirectorindirectraisingofindividuals’financialassets.

248. Criterion26.3‐Par.11to13ofArt.14(2)oftheAML/CFTLawcontainprovisionsonpreventingthecontrolormanagementofFIsbycriminals.Theyrequiresupervisoryauthoritiestotakemeasures:tocheckthat the business reputation ofmanagers, owners and BOs is irreproachable; to prevent personswithunspentcriminalrecords frommanagingFIs;andto takemeasures topreventmonitoringentities frombeingfundedwithmoneywhosesourcecannotbeconfirmedonthebasisofofficialdocuments.AssociatesofcriminalsarenotexplicitlyaddressedbytheAML/CFTLaw.

69Inthestockmarket,thefollowingtypesofprofessionalactivitiesshallbeconducted:· activities on securities trading; activities on management of assets of institutional investors; depositoryactivities;andactivities on organisation of trading in the stock market.

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249. Inaddition,therearerelevantprovisionsinsomesectorspecificlegislation(seebelow).

250. Par.14and15ofArt.34oftheLawonBanksprovidethattheNBUcanpreventapersonfromacquiringorincreasingaqualifyingholding(triggeredat10%,25%,50%and75%)inabank.legalpersonsintendingtoacquireorincreaseaqualifyingholdingmustprovidedocumentsspecifiedbytheNBUonthebusinessreputationofthelegalperson,itsexecutiveboardandsupervisorycouncilmembers,andallentitiesthroughwhichbeneficialownershiporcontroloftheholdingislikelytobeundertaken.Inaddition,informationonthefinancialstandingoftheentity:documentsverifyingtheidentityofthelegalpersonanditsBOsandcontrollers;togetherwithinformationonthepatternofownershipmustbeprovided.Individualsintendingtoacquireorincreaseaqualifyingholdingmustalsoprovide informationon their business reputation andon thebusiness reputationof a personthroughwhichownershipislikelytobeexercise,sourceoffundsandassociates.ThiswouldappeartoaddressthepotentialgapintheAML/CFTLawinrelationtoassociatesinrelationtoindividualswhoarepotential legalandBOsbutnotthegapinrelationtoassociatesofmanagement(althoughinformationrequiredundertheNBUReg.306tobeprovidedbytheseniormanagementcoversbasicdetails of the associated persons). Persons can be prevented from acquiring or increasing aqualifyingholding,includingwheretheirbusinessreputationdoesnotmeettherequirementsoftheNBUandwherethetransparencyrequirementsoftheNBUarenotsatisfied.

251. Art. 42 of the Law on Banks (supported by section 3 of NBU Reg. 306) states that bankmanagers(definedastheChairman,his/herdeputiesandothermembersofthebank’scouncil,theChairman,his/herdeputiesandothermembersof theboardof thebank, thechiefaccountantandhis/her deputies and the managers of separate subdivisions of the bank) must have anirreproachablebusinessreputation.TheChairmanof theboardandthechiefaccountantmayonlytake office after consent has been given by the NBU. The appointments of the other officialsdescribedabovemustbenotifiedtotheNBUwithinonedayoftheappointmentandfullinformationon the nominated officials’ business reputationmust be provided to the NBUwith onemonth ofappointment.Basedontheresultsof theanalysisconducted, theNBUhastherighttodemandtheremoval and the replacement of any of the bank officials if his professional skills and businessreputationdonotmeet the requirementsof the law. InadditionSection8ofReg.417of theNBUincludesaprocedureofapprovaloftheappointmentanddismissalofthebank’scomplianceofficer.Therearesimilarprovisionsforthechiefinternalauditor.

252. Art.2(para14)ofsectionIofNBURes.306providesexamplesofwhattheNBUcanconsidertobe an absence of an impeccable business reputation. Art.4 of section II requires notice andinformation to be provided to theNBU on the potential acquisition of or increase in a qualifyingholdingandreviewbytheNBU.ApplicationscanberefusedunderArt.34oftheLawonBanks.

253. TheNBU issues licences to non‐bankFIs and thepost office underNBUReg. 297of August2002toundertakecurrencytransactions.UnderArt.2.1and2.2ofCh2and6entitiesmustapplyforandreceivealicencefromtheNBUbeforeengagingincurrencytransactions.Theinformationtobeprovided to the NBU includes information on the legal and BOs which meet the 10% threshold(qualifyingowners)althoughtheNBUmayalsoaskforinformationonthetenlargestparticipantsinthe ownership structure. The NBU can require to be provided with information to verify theownershipstructure.Theownershipstructuremustbetransparent70.TheNBUmayrefusetoissuea

70 The UAs have developed amendments to NBU Regulation 297, which are currently being discussed within the NBU. The intention is for the amendments to be made before the end of 2017.

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licence where legal owners and BOs do not comply with Ukrainian legislation. It may revoke alicencewheretheownershipstructureisnon‐transparent.However,therearenospecificprovisionsintheRegulationonthefitnessandproprietyoflegalorBOs.

254. Full (updated) information needs to be provided each year as at 1 January and within 10businessdaysafteranychange.

255. Theprimaryregulatorsfornon‐bankFIsaretheNSSMC(forsecuritiesmarkets), theNC(forotherfinancialservicesmarkets),andMoIforthepostoffice.

256. As for the licensing requirements procedures in relation to senior officials of theMSBs, theNBUappliesthesameproceduresasdescribedaboveforbanks.

257. SCDecision817ofMay2016containstheproceduretobefollowedforalicencetobeissuedbytheSC.ThebusinessreputationofindividualswhodirectlyorindirectlyownaqualifyingholdingintheFI,themanagerchiefaccountant,headofaseparatesubdivisionofthefinancialinstitutionandalsomustbeirreproachable.Factorswhichdictatethatabusinessreputationisnotirreproachable,bywayofexample,include:apersonwithacriminalrecordforacquisitivecrimesthatisnotspentand information that a person is included in the list of persons related to terrorist activity or towhom international sanctions have been applied. Themanager, chief accountant and the head ofeachseparatesubdivisionofthefinancialinstitutionmustmeetprofessionalrequirementssetbytheSC.Notallmanagementiscoveredbytheseprovisions.

258. In addition, SCDecision 394 ofMarch 2012 sets a framework for acquiring or increasing aqualifyingholdinginprofessionalparticipantsofthestockmarket(excludingbanks)byanypersonwhowoulddirectlyorindirectlyownorcontrol10,25,50and75percentofalicensee.Thisappliesbothbeforelicensehasbeenissuedandaqualifyingholdinginprofessionalparticipantsofthestockmarket is increasedafter issuing the license. Informationon thebusiness reputationofdirectandindirectcontrollersmustbeprovided.ExamplesofdocumentationrequiredbytheDecisionincludedocumentstoidentifyanindividual/legalperson;documentsonbusinessreputation;acertificateonthe absence or presence of convictions which have not been spent; documents on the level andsourceoffunds.AdequateinformationmustbeprovidedbeforetheissueofalicencebytheSC.

259. The SC’s requirements for members of the executive body and supervisory board of thelicensee,togetherwiththechiefaccountantandtheheadofinternalaudit,arealsoestablishedbySCDecision394. Inparticular, theirbusinessreputationduring the last twoyearsmustmeeta listofrequirements,includinganabsenceofacriminalrecord;anabsenceofadministrativeresponsibilityforviolationofthelegislationonthestockmarketmorethantwotimesduringayear(thisdoesnotappear to be a strongprovision); person is not included in the list of persons related to terroristactivity or towhom international sanctionswere applied. The provisions apply only to an overlyselectionofmanagementandthelimitationofbusinessreputationtoatwoyearperiodislimiting

260. GovernmentDecree913ofDecember2016containstheproceduretobefollowedforalicenceto be issued by the NC. The business reputation of individuals who directly or indirectly own aqualifyingholdingintheFI,themanagerandchiefaccountantofthefinancialinstitutionmustbeinline with the professional requirements. Factors which dictate that the quality the businessreputationbywayofexample,include:apersonwithacriminalrecordforacquisitivecrimesthatisnotspentandinformationthatapersonisincludedinthelistofpersonsrelatedtoterroristactivityor towhom international sanctions have been applied. Information has not been provided to theevaluationteamastowhetherandwhentheNCmustbenotifiedoftheappointmentofaBO,LOormanagerafteralicencehasbeenissued.

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261. Criterion26.4–

(a) According toArt. 9of theLawonBanks consolidated supervisionof thebankinggroupmustbecarriedoutbytheNBUtoensurethestabilityofthebankingsystemandmitigationof the risks (including ML/FT risks) faced by a bank as a result of participation in thebankinggroup;supervisionmustbeachievedbyregulation,monitoringandcontrolofrisksinthebankinggroupinaccordancewiththeprocedureestablishedbytheNBU.UnderArt.2oftheLawonBanks,thedefinitionofthebankinggroupincludescompanies,thatareFIs,orforwhichfinancialservicesisapredominantactivity.Par.144to146ofNBURes.417ofJune2105alsoprovidesforcommonAML/CFTstandardstobeappliedbybankinggroupsinUkraine.Similarprovisionsarenot included in thesectoral legislationadministeredbytheSCforthesecuritiessectorandtheNCfortheinsurancesector.However,theNBU(forbanks),theSCandtheNCarerequiredtoconductconsolidatedsupervisionunderArt.16ofLaw1792‐VIIIonfinancialservicesandstateregulationoffinancialservicesmarkets.Thisarticle requires consolidated supervision to ensure stability of the financial systemincludingML/FTrisks facedbyaFIdueto itsparticipation in thegroup.UkrainehasnotbeensubjecttoindependentratedassessmentsoftheBaselCommitteePrinciples,theIAISPrinciplesortheIOSCOPrinciplesandResponsibilities.

(b) SeeC.26.1 forthedesignationofsupervisors.Thissub‐criterionappliestotheNBFI inrelationtoMSBsandtheSCandtheNCfor thesupervisionofnon‐principles institutions.Par. 2 of Art. 14 of the AML/CFT Law requires supervision (onsite and offsite) to beundertaken by the designated supervisors and for the supervisors to take intoconsideration their risk assessment of individual institutions (but not necessarily thesectorialML/FTrisks).FortheNBFIssupervisedbytheNBUtheriskcriteria inNBURes.197mentionedbelowareapplicable.FortheSCandtheNCthereappeartobenospecific,detailed provisions covering RBAs to offsite supervision but there are a series ofsupervisory Orders and Resolutions which apply risk criteria for the purposes of onsitesupervision. These criteria are prescriptive, not completely ML/FT risk‐based forsupervisoryauthoritiescannotrecalibratetheirapproachesunlessthecurrentlegislationisrevised(seeC.26.5).

262. Criterion26.5 ‐NBURes.191ofMarch2016 includes the riskassessmentmethodologyandmatrix used by theNBU for banks. The following risk criteria underNBURes. 197 are taken intoaccountwhen forming the annual inspection plan, namely (a)whether the three year periodwillexpire;(b)thefactthataccountshavenotbeenopenedwithintwelvemonthsofalicencefromtheNBU;(c)theML/FTriskofeachbankidentifiedbytheNBU;(d)bankswhereriskactivities(notonlyML/FT risk activities) have been identified in previous inspections; (e) bankswhich have foreignStateownershiporwheresanctionsbyinternationalbodiesthreatentheinterestsofcreditorssuchas depositors and/or the stability of the banking system; (f) information on potential AML/CFTbreacheshasbeenreceived.TheNBUhasdiscretiononhowitweightsthestatutoryfactorsand ithasbeenabletoweightthefactorstotakeamainlyML/FTRBA.ForbanksRes.191allowsforthediversity andnumber of banks, the discretion they are allowedunder theRBA andbankpolicies,internalcontrolsandprocedurestobeconsidered.Atthetimeoftheon‐sitevisitthediversityandnumberofbanks,thediscretiontheyareallowedundertheRBAandbankpolicies,internalcontrolsandprocedureswerenotincludedinanylegislationorprocedureforNBFIs.Inaddition,underNBURes.197 fromJuly2011allbanksandmoneytransferbusinessesmustbesubject to inspectionatleast every three years (unscheduled inspections can also be conducted). Under NBU Res. 338

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similar provisions are included for currency exchange offices. Par. 11 of Res. 197 provides forunscheduledonsiteinspectionstobeundertaken.TheNBUconsiderstheML/FTrisksidentifiedintheNRA.TheNBUusesan“offsitetechnologicalcard”whichenablesaRBAtooffsitesupervisionforbanksandNBFIs.

263. Inrelation tonon‐bankFIs theNBUDeputyGovernor issuedadocument inDecember2016which states that theML/FT risk of individual NBFIs should be assessed bymeans of indicatorsincludedinariskmatrix,namelystructuralrisk(originofcapital,linksbetweenUBOsandPEPsortheir connected persons, and transparency of ownership structure); geographical risk; volume oftransactions;andwhetherornotanynegativeinformationhasbeenreceivedonthenon‐bankFIs,UBOs or managers. The evaluation team has not been provided with information on technicalstandards for the intensity of inspectionsundertaken forNBFIs.Nevertheless inpractice theNBUoperatesamainlyAML/CFTrisk‐basedapproachforNBFIs.

264. SC Res. 617 ofMay 2016 defines criteria for the SC to assess the risk of its licensees. Riskcategorisation is based on the type of activities undertaken (security brokers with depositoryoperationsbeinghighrisk),theperiodoftimethemonitoringentityhasbeeninbusiness(lessthantwo years being high risk); AML/CFT breaches (infringements taking place during the last threeyearsbeinghighrisk);transactionswithnon‐residentsregisteredinoffshorezones(transactionsofUAH150,000(~EUR4917.46)orabovebeinghighrisk);transactionswithnon‐residentswhohaveaplace of registration in specified countries; and securities transactions beyond the bounds of theorganiseroftrade(transactionsofUAH1billionor(whereUAHarenotused)USD1billionormorebeinghighrisk).Highriskentitiesmustbevisitedannually,mediumriskentitiesinspectednomorethan once every three years and low risk entities nomore than every five years. The inspectionfrequency isspecified inSCProcedure1038of July2015.Overall, this isnotawhollyRBA for thepurposesofC.26.5.

265. NCRes.2481ofOctober2015containscriteriaforassessingtheriskofREsandthefrequencyforinspections.Riskispredicatedontheperiodoftimethebusinesshasbeeninexistence(lessthantwoyearsbeinghighrisk),breachesofAML/CFTrequirements(twodetectedviolationsbeinghighrisk) andwritten information onpotentialAML/CFTbreaches (five possible violations beinghighrisk). Inspections tohigh riskentitiesmustbe carriedoutonlyoncea year.Mediumand lowriskentitiesmustbeinspectednomorethaneverytwoyearsorthreeyearsrespectively.Onlyoneofthecriteria needs to be met for an entity to be classified as high risk. Unscheduled inspections arepermittedbyNCReg.26(August2003).71OverallthisisapartialAML/CFTRBAforthepurposesofC.26.5.

266. ForMoI, theevaluation teamhasbeenadvised that the statutory risk criteria for classifyinglicenseesbyriskaretheperiodofoperationofthebusiness,whethertherehavebeenanyAML/CFTbreaches and the number of branches/subsidiaries. High risk entities are subject to onsite 71UnscheduledinspectionsmaybeconductedbytheNCSRFSM,ifatleastoneofthefollowinggroundsexists:writtennotificationofsignsofviolationoftherequirementsoftheAML/CFTlegislation;uponexecutionofthecourtdecisionsanduponlawenforcementagenciesrequest;incaseofviolationoftheAML/CFTlegislationduringthecurrentactivityasaresultoftheoff‐siteinspections;revealingbytheNCSRFSMnewdocuments(conditions)thathavenotbeen(couldnotbe)knownduringthescheduledinspectionandthatmayaffectthefindingsofthescheduledinspection(par.1.6.oftheProcedureforconducting the AML/CFT inspections, approved by the NC’s Reg. No.26 (05.08.2003) registered in theMoJdated15.08.2003№716/8037.

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inspectionseveryyearwithmediumandlowriskentitiesbeingsubjecttoinspectionseverytwoandthree years respectively. The teamhasnotbeenprovidedwith the legislationbut this is a partialAML/CFTRBAforthepurposesofC.26.5.

267. WiththeexceptionfortheNBUforbanks,thereisnospecificlegislationoraprocedurewhichspecifiesthatthepolicies,internalcontrolsandproceduresofanentitymustbetakenintoaccountwhen assessing the ML/FT risk of an entity (albeit the effects of absence or failure of policies,internalcontrolsandproceduresthrough,forexample,AML/CFTbreachesaretakenintoaccount).

268. Exceptforbanks,thereisnolegislationorprocedurerelatingtotheintensityofinspection.

269. Criterion26.6‐

270. ThetechnicalstandardsreferredtoinC.26.4and25.5requireriskclassificationofREstobeundertakenbysupervisoryauthorities.Anumberofthestatutesincludetheperiodofoperationoftheentityasafactortobetakenintoaccount.Thismeansthatunderthesestatutes,theincreasingtime frame forwhich an entity has been conducting business can in itself cause a change in riskrating.However,onlytheNBU,issubjecttoaspecificrequirementtoreconsiderariskclassification,asaresultofArt.7ofNBURes.191andaninternalproceduredevelopedunderthearticle.TheNBUanalysestheriskratingofeachbankonaquarterlybasisandoperatesamainlyML/FTrisk‐basedapproach.ThereisnolegislativeprovisionwithcontainsthesameprocesstoreviewofassessmentofML/FTriskprofileofotherentitiessupervisedbytheNBU.72

271. Under NBU Board Decision 407 the NBU’s AML Department receives information quarterlyfromtheNBU’sSupervisionDepartmentonenforcementmeasuresundertaken.Theseenforcementmeasures (both the number and severity of breaches) are included in the NBU’s review of theassessmentofriskforeachbank.Therisksofnon‐compliancebytheNBUforotherentitiesandbyothersupervisorsarepartlyconsidered to theextent that informationonbreachescommitted (orpotentially committed in the case of the NC) has been received but this limited consideration isreliant on receiving information from third parties or the supervisor undertaking an onsiteinspection.Also,forsupervisorsotherthantheNBUandtheSC,theriskclassificationisdefinedbythenumberofbreaches,whichdoesnottakeaccountoftheirseverity.

272. UnderNBUReg.191theNBUreceivesinformationonstructuralandbusinessrisksquarterly,whichmeans thatmajor events or developments in themanagement and operations of the FI orgroupcanbeandaretakenintoconsiderationforreviewingtheassessmentofrisk.OtherSAsdonotreconsidertheriskprofileofaREwhentherearemajoreventsordevelopmentsinthemanagementand operations of the FI or group – the statutory framework under which they operate isprescriptive(seeC.26.5)anddoesnotallowforsuchconsideration.

WeightingandConclusion

273. UkrainemeetsC.26.1and26.2,mostlymeetsC.26.3,26.4and26.5andpartlymeetsC.26.6.ThereisnorequirementbysupervisorstoreviewertheassessmentoftheML/FTriskprofileofaFI,exceptwithrespecttobanks.R.26isratedLC.

72SincetheevaluationteamvisitedUkraine,theNBUhasreviseditsapproachtowhollyML/TFrisk‐based.

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Recommendation27–Powersofsupervisors

274. Inthe2009MER,UkrainewasratedPCwiththepreviousR.29.Theratingwasbasedon(1)the absence of explicit scope of the AML/CFT supervision and enforcement powers over foreignexchangeoffices,(2)thefactthatsanctionsdonotincludethepossibilityforremovalfromofficeofdirectorsandseniormanagers(apartfrombanks);(3) insufficientmaximumfinesagainstFIs;and(4)absenceofaclearprovisionthatwouldestablishsampletestingasasupervisorypractice.Sincethen,UkraineaddressedthedeficienciesbymakingchangesintheAML/CFTLawandrelevantSL.

275. Criterion27.1 – The power for supervisory authorities to supervise compliance by FIswithAML/CFTrequirementsiscontainedinArt.14AML/CFTLaw,whichalsospecifiesthatsupervisorsmaydemandcompliancebyREswithAML/CFTlegislation.Inaddition,Art.63and67LawonBanksgivepowertotheNBUtoinspectbanks’compliancewithAML/CFTlegislation.

276. Criterion27.2–Art.14(2)AML/CFTLawempowerssupervisorstoconductinspectionsinthemanner established by sectoral legislation. NBU Res. 197 and 193 of March 2016 provide aframeworkfortheinspectionprocess.Inaddition,NBURes.194providesaframeworkforthematicinspectionswhichfocusonPEPs.

277. Criterion 27.3 –Under Art.14(3) and (4) AML/CFT Law SAs have the right to requestinformation,documentsandcopiesofdocumentsfromREsandotherstateauthorities.

278. Criterion27.4–Allfinancialsupervisors,exceptfortheNBU,areauthorisedunderArt.24(8)AML/CFT Law to sanction REs for failure to comply with the provisions of the law. Art.24(3‐6)AML/CFTLawstipulatesthesanctionsforfailureofREstocomplywiththelaw.Theseincludefines,temporarysuspensionofanofficialoftheRE(butonlyuntilaAML/CFTfailurehasbeenaddressed),revocation of a licence (but only for any two repeated failures, no matter what the level of thefailure)andothermeasuresprovidedforinsectorallegislation.

279. BanksaresubjecttosanctionsstipulatedintheLawonBanksandRes.oftheNBU.UnderArt.73LawonBanks,theNBU,toanextentcommensuratewiththeviolationortheseriousnessofthethreatsposed,has thepower to apply sanctions forAML/CFTbreaches. Sanctions includewrittenwarnings;callinggeneralmeetingsofshareholders,orthebank’ssupervisorycouncil;enteringintoawritten agreement with a bank (an enforceable undertaking) to take corrective actions and/orenhancetheefficiencyandadequacyofbank’sRMS;suspenddividendsorthedistributionofcapital;increase economic ratios; restrict, suspend or terminate transactions carried out by the bank;impose fines; temporarily suspendbankofficialsuntil thebank theyhave taken corrective action;revokealicenceforforeignexchangeoperations;declarethebanktobeaproblembank;andrevokethebankinglicenceandliquidatethebank.NBURes.346(August2012)containsproceduresfortheimpositionofsanctionsbytheNBU.

280. InrelationtoNBFIstheNBUalsohassanctioningpowersunderNBURes.316.UnderArt.5ofsection Iof theRes. thesepowersare limited to fines (tiedbyArt.1ofsection IIof theRes. to thelevels in theAML/CFTLaw); cancellationof a licence for specialactivities;anddismissalof theFIhead.

281. Eachofthesupervisorsisauthorisedtoimposesanctions,includingpowertoimposefinesandwithdraw licences/registrations. However, as indicate din R.35, overall the powers are partlyproportionateanddissuasive.

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WeightingandConclusion

282. There are adequate powers for supervisors to supervise and monitor all FIs, includingpowerstoconducton‐site inspections,compeltheproductionofdocumentsandimposesanctions.However,sanctioningpowersarelimitedassanctionsarenotproportionateanddissuasive.R.27isratedLC.

Recommendation28–RegulationandsupervisionofDNFBPs

283. In the2009MER,UkrainewasratedNCwith thepreviousR.24.Themaindeficiencieswererelatedtothesupervisoryandregulatoryregimeofthegamblingindustry,theinadequateresourcesof the MoF to perform AML/CFT supervision and the fact that the requirements outlined in theUkrainianlegislationdidnotcoverallcategoriesofDNFBPs.

292. Criterion28.1 –UnderArt.2 of theProhibitionofGamblingBusinessLaw, gambling, casinosandvirtualcasinosareprohibitedinUkraine.

293. Criteria28.2and28.3–Art.14AML/CFTLawspecifiestheauthoritiesresponsibleforAML/CFTsupervisionandthesectors forwhichtheyresponsible.Art.14(2)requiressupervision(onsiteandoffsite) to be undertaken by the designated supervisors in the manner established by sectorallegislation.Table2and thesectiononDNFBPs inCh.1 indicate thenumberofDNFBPspresent inUkraineandsummariseregistrationandsupervisorycoverage.

294. Criterion28.4–

a) Art. 6(2)(13) andArt.14(2) AML/CFT Law requires supervision to be undertaken by thedesignatedsupervisors in themannerestablishedbysectoral legislation.UnderArt.14(3)SAs may receive information, documents and copies of documents from REs. UnderArt.14(4)SAshavethepowertorequireinformationtoREs. Inaddition,MoFOrder1168(July 2015) specifies a procedure for the FIU in requiring information from REs. Asindicated in R.35 the powers to require information and documents are not backed byrobustsanctions,whichcouldhaveaneffectontheabilitytomonitorcompliance.AlsoseeC.28.5(a)forthesupervisionframeworkestablishedbysupervisoryOrders.

b) Par.11 to13ofArt.14(2)AML/CFTLawcontainprovisionsonpreventing the control ormanagement of FIs by criminals. They require SAs to take measures: to check that thebusinessreputationofmanagers,ownersandBOsisirreproachable;preventpersonswithunspentcriminalrecordsfrommanagingDNFBPs;andpreventREsfrombeingfundedwithmoneywhosesourcecannotbeconfirmedonthebasisofofficialdocuments.Therearenolegislative provisions regarding associates of criminals. There is no additional legislationwhich applies to accountants, DPMS or real estate brokers. Under Art.10 Auditing Law,auditorsmust be registered by the Chamber of Auditors andmust not have an unspentcriminalpenalty,orhavereceivedanadministrativepenaltyforacorruptionoffencewithinthe last year. The Chambermay revoke registration underArt.22 of the law and has thepower to issue warnings and suspend registration for a year, the latter power beingpotentiallyapplicableinrelationtoArt.10.Theseprovisionsarerelativelylimited.Art.6BarLawrequiresthatapersoncannotbeanadvocateifhe/shehasanunspentconvictionforgraveormediumgraveoffences,beensuspendedfrompractisinglawintheprevioustwoyearsorbeendismissedfromthepositionofjudge,publicprosecutor,investigator,notary,civil servant, or service in local government for breaking an oath or for committing a

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corruptionoffencewithinthelastthreeyears.Advocatesarealsosubjecttorulesonethicswhichrequirethemtofollowhighethicalstandardsofbehaviourbutotherthanexpectingcompliance with legislation do not contain other provisions relevant to this. Theseprovisionsarerelativelylimited.Art.3and5NotariesLawprovidethatapractisingnotarycannothaveaconvictionandmustadheretothenotarialrulesonprofessionalethics.Theseprovisionsarerelativelylimited.

c) TheprovisionsofArt.24AML/CFTLawdescribedinC.27.4andtheframeworkdescribedinR.35 are applicable. In addition, MoF Order 465 establishes a high level protocol to befollowedbytheFIUwhenapplyingadministrativesanctions.

295. Criterion28.5–

(a) TherearenospecificprovisionscoveringrisksensitiveapproachestooffsitesupervisionbutaseriesofsupervisoryOrderswithriskcriteriaforthepurposesofonsitesupervision.ThesecriteriaareprescriptiveandtheSAscannotrecalibratetheirapproachesunlesslegislationisrevised.Thereisnolegislationorprocedurerelatingtotheintensityof inspection.MoFOrder17(January2016)requirestheMoFtocategorisetheriskofeachentityitsupervises(including auditors, accountants and DPMS) by virtue of the time they have been inoperation(lessthan3yearsforhighrisk),AML/CFTbreaches(2ormorebreachesforhighrisk)andtheexistenceofbranchoperations(morethan3forhighrisk).Allcriteriamustbemetfortheclassificationtobehighrisk.Highriskentitiesmustbeinspectednotmoreoftenthanannuallywithmediumandlowriskentitiesbeingsubjecttoinspectionnotmoreoftenthan every 2 and 3 years respectively. There is a provision for adhoc inspections underMoFOrder436andMoFOrder489.Overall,thisisapartiallyrisksensitiveapproach.MoFOrder 18 (March 2016) requires the FIU to categorise each real estate broker’s risk byvirtueof the timetheyhavebeen inoperation(less than3years forhighrisk),AML/CFTbreaches(2ormorebreachesforhighrisk)andexistenceofbranchoperations(morethan3forhighrisk).Allcriteriamustbemettoqualifyashighrisk.Highriskentitiesmustbeinspected not more often than annually; medium and low risk entities are subject toinspectionnotmoreoftenthanevery2and3yearsrespectively.Thereisnoprovisionforadhocinspections.Thisisapartiallyrisksensitiveapproach.AsfortheMoJ,thecriteriaforhigh risk are undertaking business for less than two years, the existence of AML/CFTbreaches within the last three years and the undertaking of more than 15 transactionssubjecttotheAML/CFTLawwithinasixmonthperiod.Onlyoneoftheriskcriterianeedsto be satisfied for a RE to be considered as high risk. High risk REsmust be subject toinspectionsnotmore thanonce a year andmediumand low riskREsmustbe subject toonsite inspectionsnotmorethantwoandthreeyearsrespectively.Thereappearstobeaprocedure on ad hoc inspections under MoJ Order 673/5(II)(7). This is a partially risksensitiveapproach.

(b) There is no legislation or procedure expressly requiring SAs to take into account thedegree of discretion allowed to REs under the RBA, when assessing the adequacy ofAML/CFTinternalcontrols,policiesandprocedures.

WeightingandConclusion

296. Overall,thesupervisoryframeworkforDNFBPsisnotcompliantwiththerequirements.R.28isratedPC.

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Recommendation29‐Financialintelligenceunits

297. Inthe2009MER,UkrainewasratedCwiththeserequirements.

298. Criterion29.1 –TheFIUwas createdbyPresidentialDecree1199 (10.12.2001) andbecamefullyoperationalin2003.PowersanddutiesoftheFIUincludethereceiptandanalysisoffinancialtransactions subject to financial monitoring and information dissemination to LEAs (Art.18AML/CFTLaw).

299. Criterion 29.2 ‐ The FIU receives (1) STRs and reports on transactions subject to internalfinancial monitoring submitted under Art.6 (2)(6) (b) & (c) AML/CFT Law; and (2) any otherinformation, suchas threshold transaction reports submittedpursuant toArt.6(2)(6)(a)AML/CFTLaw.

300. Criterion29.3–

a) The FIU may request and receive additional information from REs (Art.20(6) AML/CFTLaw). At the request of the FIU, REs are required to provide (a) FT or PF‐relatedinformation and information that may be related to the suspension of a financialtransaction (be it ML/FT or PF related) within 1 working day after the receipt of therequest(Art.6(2)(9)(a)AML/CFTLaw);(b)anyotherinformation(notcoveredunder(a))within 5 working days from the receipt of the request or within a period agreed in aprescribedmannerwiththeFIU(Art.6(2)(9)(b)AML/CFT);(c)anyadditionalinformationnecessarytofulfiltherequestofaforeignFIU,includinginformationwithrestrictedaccesswithin5workingdays fromthereceiptof therequestorwithinaperiodagreedwiththeFIU(Art.6(2)(10)AML/CFT);and(d)informationrelatedtotransactionmonitoringcarriedoutasaresultofamonitoringorderbytheFIU(Art.6(2)(11)AML/CFTLaw).

b) The FIU may request any information (including copies of documents) from any stateauthority,otherthantheNBU(Art.18(2)(2)AML/CFTLaw).Inaddition,theauthoritiesareobliged to provide the FIU with access to their information resources and databases(Art.12(6)AML/CFTLaw).Inordertoimplementthisprovision,aunifiedstateinformationsystemwassetup,whichgrantstheFIUdirectaccessto14stateauthoritydatabases(Res.299,14.05.2015).TheFIUexchanges informationwiththeNBUonthebasisofabilateralagreement.

301. Criterion 29.4 – The FIU conducts operational analysis of financial operations (Art.18(1)(1)AML/CFTLaw);analysisofmethodsandfinancialschemesofML/FT(Art.18(2)(7)AML/CFTLaw);strategic analysis (Art.18(2)(8)AML/CFTLaw); and typological research in theareaofML/FT/FP(Art.18(2)(11)AML/CFTLaw).

302. Criterion29.5‐TheFIUdisseminatesitsanalysis’sresults(“generalisedmaterials”)andotherinformationtoLEandintelligenceauthoritiesspontaneouslywheretherearereasonablegroundstobelieve that a financial operation is related to ML, FT and FP, or a reasonable suspicion that afinancialoperationorcustomerisassociatedwithothercrimes.Thedisseminationprocedureissetintwoministerialorders73,whichalsoregulatetheconfidentialityofinformation.

303. Criterion29.6–TheFIUhasadoptedvarioussecuritymeasures:

73Orderof02.12.2013№1026/1184/739/484registeredintheMoJon23.12.2013under№217024702andOrderof01.12.2015№1112/426/678/1533registeredintheMoJon17.12.2015under№1583/28028.

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(a) TherearefiveFIUorders74dealingwiththehandling,storage,protectionof,andaccesstoinformationcontainedintheFIU’sITsystem–ComplexInformationSecuritySystem(CISS),whichcanonlybeaccessedbyFIUstaff;

(b) The CISS clearly defines user roles for access to information. The FIUmaintains a list ofemployees permitted to handle specific categories of information. The Reg. on FIUInformation Systems includes compulsory training for users of ITC bases, treatment andprotectionofITsystemsandliabilityforanybreachesrelatedtothehandlingofclassifiedinformation.

(c) The offices of the FIU are subject to a security regime. A procedure is in place for staffaccess to theoffices.Access to facilities is controlledby avideo surveillance system.Theofficesareequippedwithsecurityalarms.PhysicalaccesstotheFIUisrestrictedtopersonsholdingspecialentrypasseswhichareprovidedbylawenforcementagenciesandlicensedsecuritycompanies.Securitypoliciesareimplementedandcontrolledbytherulesofaccesstoinformationresourcesandtheirinformation.

304. Criterion29.7–TheFIUisoperationallyindependentandautonomous:

(a) There are no legislative provisionswhich hinder the FIU from carrying out its functionsfreely. Under the AML/CFT law, the FIU has the power to receive process, analyse anddisseminateinformationautonomously.OnthebasisofCoMRes.537,theFIUisthecentralexecutive body, whose activities are directed and co‐ordinated by the CoM through theMoF.

(b) The FIU has the power to conclude interagency agreements with relevant authorities ofother countries (Art.20(1)(9) AML/CFT Law). The FIU may engage independently withdomestic competent authorities and does so on a regular basis (Art. 18(2)(3) AML/CFTLaw).

(c) TheFIUisnotlocatedwithinanexistingstructureofanotherauthority.

(d) TheFIUmaynotbeusedforparty,grouporpersonalinterests.Duringtheiremployment,officers andemployeesare required to suspend theirmembership inparties,movementsandotherpublicassociationswithpoliticalaims.TheHeadofFIUcannotbeamemberofapolitical party, movement and other public associations with political aims. (Art. 19AML/CFTLaw)ThenumberofpublicofficersandemployeesoftheFIUisapprovedbytheCoMRes.537.ThestructureandbudgetoftheFIUisapprovedbyitsHeadinconsultationwiththeMoF.TheFIUisaLEofpubliclaw,whichhasasealbearingtheStateEmblemofUkraineanditsname,aswellasitsownheadedpapers,andaccountsintheTreasury.

305. Criterion29.8‐TheFIUhasbeenamemberoftheEgmontGroupsince2004.

WeightingandConclusion

306. AllC.aremet.R.29isratedcompliant. 

74Orderof03.10.2011№186,orderof27.01.2011№11,orderofFIUon24.11.2015,orderof15.10.2010№189andorderof24.12.2013№155.

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Recommendation30–Responsibilitiesoflawenforcementandinvestigativeauthorities

307. In the 2009 MER, Ukraine was rated PC with the previous R.27. Deficiencies were alleffectiveness‐related: the practical implementation of the procedures for ML/FT investigationsraised concerns, particularly the risk of duplication of efforts by LEAs; as did corruption; andstatisticsshowedadeclineinthenumberofcriminalcasesinitiatedandsubmittedtothecourt.

308. Criterion 30.1 – The NP, NABU, SFS, SSU and SBI are responsible for the investigation of(associated) POs (Art.216(1)‐(7) CPC) and of ML offences related to POs falling within theircompetence(Art.216(8)CPC).TheSSUisresponsiblefortheinvestigationofFToffences(Art.216(2)CPC).Allpre‐trialinvestigationsaresupervisedtheProsecutorGeneral’sOfficeofUkraine(PGO).

309. Criterion30.2–LEAsreferredtounderC.30.1mustpursueaparallelfinancialinvestigationinthecontextofacriminalinvestigationintoML,FTandPOs(Art.170(1)(2)CPC).

310. Criterion30.3–TheAROisempoweredtoidentifyandtraceassets.Inaddition,duringapre‐trial investigation, LEAs referred to under C.30.1 may use the powers granted under theirconstitutive lawstoidentifyandtraceproperty.LEAsmayprovisionallyseizepropertyiftherearereasonable grounds to believe that such property (1) was used (or intended to be used) as aninstrumentalitytocommitacrime;(2)istheobjectofacrime;(3)derivesfromthecommissionofacrime;or(4) isproperty intowhichsuchproceedshavebeenconverted into,whether in fullor inpart(Art.167CPC).Propertyshallcontinuetobeseizeduntilsuchtimeasaninvestigatingjudgeoracourtissuesanorderfortheattachmentofpropertyduringatrial(Art.170(2)CPC).Inurgentcases,theDirectorofNABUmay,withtheapprovalofthePGOU,ordertheattachmentofpropertyorfundsin accounts held by FIs during criminal proceedings of offences fallingwithinNABU competence.Within24hoursofissuingtheorder,theDirectorshallfileamotionfortheattachmentofpropertywithaninvestigatingjudgeoracourt(Art.170(2)CPC).

311. Criterion 30.4 (Not applicable) – The authorities which are authorised to conduct financialinvestigationsofPOsarethosereferredtounderC.30.1.

312. Criterion 30.5 – NABU, which is the authority responsible for the investigation of ML/FToffences arising fromcorruption, has sufficientpowers to identify, trace, and initiate freezing andseizingofassetsasindicatedunderC.30.3.

WeightingandConclusion

313. Allcriteriaaremet.R.30isratedC. 

Recommendation31‐Powersoflawenforcementandinvestigativeauthorities

314. Inthe2009MER,UkrainewasratedLCwiththepreviousR.28.Atthetime,LEAsfacedsomechallengesinobtainingallthenecessaryinformationforuseinML/FTinvestigations.

315. Criterion31.1 – Ch.15 (Provisional Access to Objects and Documents) and 20 (Investigative(Identification,Search)Actions)oftheCPCprovidethelegalframeworkforLEAstoobtainaccesstodocumentsandinformationforuseininvestigationsandprosecutions.

(a) Uponarulingbyaninvestigative judgeoracourt,LEAsmayobtainprovisionalaccessto,examine andmake copies of any object or document (Art.159(1)(1), CPC). This includesaccess toelectronic informationandmobile communication systems (Art.159(1)(2)CPC).

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Access to objects and documentsmay not exceed 30 days (Art.164(7) CPC). Informationprotectedbybanking,commercialornotarialsecrecymayonlybeobtainedwheretheLEAproves that (1) the information can be used as evidence; and (2) it would be otherwiseimpossible to prove the circumstances of the casewithout such information (Art.160(6)CPC).TheauthoritiesconfirmedthatLEAsarenotrequiredtoprovideextensiveevidencetothecourtorinvestigativejudgetosatisfytheseconditions75.

(b) LEAsmay,uponarulingofan investigating judge,searchpersonsandpremises todetectinformation regarding the circumstances surrounding the commissionof aCO,detect thetools used to commit an offence, identify proceeds deriving from a CO and establish thelocationofawantedperson.TheconditionsforissuingasearchorderandtheprovisionsonthemannerinwhichthesearchistobeconductedarefoundinArt.234‐237oftheCPC.

(c) LEAsmay summon a person to testify in criminal proceedings (Art.133, 224‐227 of theCPC).

(d) LEAs are empowered to collect evidence through the application of investigative searchactions(Art.93(2)oftheCPC).LEAs,uponarulingofaninvestigatingjudgeorcourt,mayseizeanyobjectsordocumentswhere theLEAproves that (1)sufficientgroundsexist tobelieve that there is a real likelihood that objects and documents may be altered ordestroyedand(2)accesstoobjectsanddocumentsmayonlybesecuredupontheirseizure(Art.163(7)oftheCPC).

316. Criterion31.2 ‐ LEAshave awide range of investigative techniques at their disposal for theinvestigation ofML, associatedPOs andFT. These are set out underCh.21 of theCPC,which alsoregulates the manner in which covert investigative operations are to be carried out. Covertoperations may only be conducted in criminal proceedings concerning grave or especially gravecrimes.

(a) LEAsmayconductanumberofcovertoperations, includingsurveillanceofan individual,objectorplace, surveillanceofbankaccounts76, inspectionofpublicly inaccessibleplaces,controloverthecommissionofacrimeetc.(Art.260‐275oftheCPC).

(b) The CPC provides various tools for the interception of communications: audio and videomonitoring(Art.260oftheCPC),seizureandinspectionofcorrespondence(Art.261‐262oftheCPC)andinterceptionoftelecommunications(Art.263oftheCPC).

(c) LEAsmaycollectinformationstoredinelectronicinformationsystems(Art.264oftheCPC).

(d) LEAsmayconductcontrolleddeliveries(Art.271oftheCPC).

317. Criterion31.3–(a)TheSFSmaintainsaregisterofaccountsofalltaxpayers.LEAsmayrequestinformationfromtheregisterunderArt.93oftheCPC.(b)Beforemakinganorderforprovisionalseizure,thecourtorinvestigatingjudgeisrequiredtosummonthepersonagainstwhomsuchorderismade(Art.163(1)oftheCPC).Thismaybecircumventediftheprosecutionprovesthattherearesufficientgroundstobelievethatarealthreatexiststhattheobjectsordocumentsmaybealteredordestroyed.

75Statisticswereprovidedtodemonstratethatarequestforprovisionalaccessisrarelyturneddownbythecourtorinvestigativejudge.76MayonlybeappliedbyNABU(Art.2691)

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318. Criterion31.4–LEAsmayaskallrelevantinformationfromtheFIU(Art.170(2)oftheCPC).

WeightingandConclusion

319. UkrainemeetsallthecriteriaunderR.31.R.31isratedC. 

Recommendation32–CashCouriers

320. Inthe2009MER,UkrainewasratedPCwiththepreviousSR.IX.Thefollowingtechnicalgapswere identified: all BNIs not covered by the NBU Res. and the related explanatory form of theCustoms Authority (CA); no power to stop or restrain cash or BNIs; absence of dissuasive andeffective administrative fines for false or non‐declarations; impact of shortcomings identified inrelationtoR.3andSR.III;andinadequatehumanandfinancialresourcesandstafftraining.

321. Criterion32.1–UkraineimplementedawrittendeclarationsystemwhichisregulatedbyNBURes.148on“TransportationofCashandInvestmentMetalsAcrossUkraine’sCustomsBorder”.TheResolutionappliestooutgoingandincomingtransportationofcash,whichincludesbanknotesandcoins inUkrainianor foreign currencyand travellers’ cheques, andpreciousmetals (Sec.1 and2).Other forms of BNIs, such as cheques, promissory notes andmoney orders, are not covered. TheResolutionalsoappliestocashtransferredbymail(Sec.3)butnotcargo.

322. Criterion32.2–Ukraineappliesthefollowingthresholds:

Physicalcross‐bordertransportationofcashbytravellers

Residents&non‐residentsnaturalpersons <10,000EUR Incoming/outgoing Nodeclarationrequired

Residentnaturalpersons >10,000EUR Incoming/outgoing

Fullcustomsdeclarationrequired Provisionofwithdrawalreceiptby

bankrequiredforamountsaboveEUR10.000

Non‐residentnaturalpersons >10.000EUR

Incoming Fullcustomsdeclarationrequired

Outgoing

FullcustomsdeclarationrequiredforamountsthatexceedtheamountdeclaredbytheindividualatthecustomsofficeuponarrivalinUkraine

Resident/non‐residentlegalpersons,throughan

authorisedrepresentativeAnyamount Incoming/outgoing Fullcustomsdeclarationrequired

Physicalcross‐bordertransportationofcashthroughmail

Naturalandlegalpersons <300EUR Incoming/outgoing Fullcustomsdeclarationrequired

Naturalandlegalpersons >300EUR Incoming/outgoing Prohibited – amount returned tosender

323. Criterion32.3–ThisC.isnotapplicable.

324. Criterion32.4–TheCAdoesnothaveaspecificpowertorequestandobtaininformationfromthecarrierwithregard to theoriginor intendeduseof thecurrencyorBNIs,upondiscoveryofafalseornon‐declaration.TheauthoritiesrefertoArt.54CustomsCode,whichsetsoutthepoweroftheCA,interalia,toverifytheaccuracyofacustomsdeclaration77.WhilethisArt.includesthepower

77Art.54referstothevaluationofgoodsdeclaredattheborder.ThedefinitionofgoodsunderArt.57includescurrencyvaluables.

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torequestadditionaldocumentsordatafromthedeclarant,itonlyappliestothosesituationswhereadeclarationismadeanddoesnotspecificallyempowertheCAtorequestinformationwithregardtotheoriginorintendeduseofthecurrencyorBNIs.

325. Criterion32.5–Failuretodeclarecashorprovisionofinaccurateinformationintheprescribedformentailsanadministrativepenaltyconsistingofafineamountingtothevalueofthecashwhichwas not declared or falsely declared and the confiscation of such cash (Art.472 and 483 of theCustoms Code). In addition, the smuggling of large amounts of cash across the border is a COpunishablebyimprisonmentforatermofthreetosevenyears(Art.201oftheCC).

326. Criterion32.6–TheFIUhasdirectelectronicaccesstoallcashdeclarationsstoredwithintheCA’sdatabase(Art.20(1)(5)AML/CFTLaw).Inaddition,theCAisrequiredtosubmitinformationtothe FIU where cash is physically transported across the border without a declaration beingsubmittedorwhereafalsedeclarationismade(Art.12(5)AML/CFTLaw).

327. Criterion32.7–TheCA,theSBS,theSSUandtheNPco‐ordinatetheiroperationsonanongoingbasis.A jointorderwas signedby theafore‐mentionedauthorities togetherwith theMFA, theFISandtheMinistryofSocialPolicytoregulateinter‐agencyinformation‐sharingonthemonitoringofpersons, vehicles and cargo crossing the border (Order 284\287\214\150\64\175\266\75,3.04.2008).

328. Criterion32.8–Currencymaybetemporarilyseizedwherethereisafalse/non‐declarationorwherecurrency ismovedacross theborder inbreachof anyothercriminaloffence (includingMLandFT).ThispowermaybeappliedwherethereisasuspicionofML/FTorpredicateoffences(Arts.511,471and196CustomsCode).

329. Criterion 32.9 – The CA shall ensure that international cooperation is provided to othercountries in relation to the state’s customsaffairs (Art.543CustomsCode). In linewithSFSOrder645 (28.08.2015), the CAmaintains the following information on the transportation of cash: theamountofcashbeingtransported, thecurrencyof thecash, thedateof the transportationofcash,whethercashisbeingimportedorexported,thecountryoforiginordestinationandpersonaldataofthepersontransportingthecash,includingthedateofbirthandidentificationorpassportnumber.

330. Criterion32.10–InformationrelatingtostatecustomsaffairsobtainedbytheCAmayonlybeusedforcustomspurposesandmaynotbedisclosedsaveassetoutintheCodeandotherlawsofUkraine (Art.11,56CustomsCode).Penalties are envisaged for breachof confidentiality (Art. 419CustomsCode).Theconfidentialityrequirementsdonotrestricttradepaymentsbetweencountriesforgoodsandservicesandthefreedomofcapital.

331. Criterion32.11–PersonswholaunderfundsorfinanceterrorismthroughthetransportationofcasharesubjecttothesanctionssetoutinArt.209,Art.2585andarticlescriminalisingpredicateactivityintheCC.SpecialconfiscationunderArt.961CCapplies.

WeightingandConclusion

332. UkrainemeetsmostofthecriteriaunderR.32.However,thedeclarationsystemdoesnotapplyto certain forms of BNIs and there are no rules concerning cash and BNIs transported by cargo.Moreover,theCAdoesnothaveaspecificpowertorequestandobtaininformationfromthecarrierwithregardtotheoriginorintendeduseofthecurrencyorBNIs,upondiscoveryofafalseornon‐declaration.R.32isratedLC.

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Recommendation33–Statistics

333. Inthe2009MER,UkrainewasratedPCwiththeformerR.32.Itwasnotedthatthecollectivesystemperformancereviewandstrategicco‐ordinationwasnotdevelopedenoughandcompetentauthoritiesdidnotmaintaincomprehensiveannualstatisticsonthenumberofcasesandamountsofproperty frozen, seized and confiscated related to ML, FT and criminal proceeds, cross‐bordercurrencyandBNIstransactionreportsaswellasMLAandextraditionrequests.

334. Criterion 33.1 ‐ Under Art.18(3) AML/CFT Law, the FIU is required tomaintain records onfinancialoperationssubjecttofinancialmonitoring.

(a) The FIU has a system to maintain statistics routinely on ML and FT STRs received anddisseminated.ThisisfacilitatedbytherequirementsinArt.13AML/CFTLawfortheFIUtoregistereach STR and in Art.18 to process and analyse STRs. Statistics aremaintained for each reportingsector and include features contained in STRs, such as use of cash.Art.18AML/CFT LawandFIUOrderNo.37 (March 2014) also provide formaintenance by the FIU of statistics on actions takenfollowingthereceiptofSTRs,namelytheresultsofpre‐trial investigation;courtdecisionstakeninrelationtocriminalproceedings,andthenumberofpersonswhohavecommittedcriminaloffencesorsuspectedofcommittingandconvictedofcrimes.

(b)EachLEAhasasystemformaintainingstatisticsonMLandFTinvestigationsalthoughthebasisfor the statistics is specific to each LEA, meaning that the statistics as between LEAS are notconsistent. The GPO maintains a register of pretrial investigations although the system is notreliable;thereasonforinclusionofinformationbyprosecutorsontheregisterisoftennotprovidedor,whenprovided,isbasedonpracticalconsiderations.Linkedwiththis,thenatureofthecrimeisnotclearfromtheregister.UnderStateCourtAdministrationOrdersNo.55(June2006),158and153(November2012),theSJAmaintainsstatisticsonallMLandFTprosecutionsandconvictions

(c) Under form 1‐I the SJA is required to keep information on confiscated assets. However, theauthoritieswerenotinapositiontoprovidestatisticsonFTconfiscations.

(d)WithregardtoMLA,statisticsaremaintainedbyNABU,thePGOUandtheMOJonrequestsmadeandreceived.TheMLAstatisticsfor2013and2014havebeendestroyed,meaningthattheavailablestatistics are not comprehensive.With regard to other international requests for cooperation: theFIU,theSFS,theNBU,theSCandtheNCmaintainstatisticsonrequestsmadeandreceived;whilethePGOUandtheNABUdonothaveasystemandstatisticsarenotmaintained.

WeightingandConclusion

335. Manyofthestatisticsprovidedtotheevaluationteamwerenotconsistent.Differingfiguresinvariousareaswerereceivedbytheevaluationteam.R.33isratedPC.

Recommendation34–Guidanceandfeedback

336. Inthe2009MERUkrainewasratedLCwiththepreviousR.25.TheML/FTguidanceprovidedbycertainsupervisorstotheirrespectivesectorswasregardedasinsufficient.

337. Criterion34.1–

Feedback:

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338. Pursuant toArt.18(2)and(16)AML/CFTLaw, theFIUmustprovide feedback toREson theoutcomesrelatingtoSTRs.MoFOrder695(July2013)setstheprocedureforprovidinginformationto REs on the existence of a preliminary investigation, the closure of a case after pre‐trialinvestigationanddecisionstakenbycourts.

Guidance:

339. Under Art.14(2)(2) AML/CFT Law SAs must provide methodological, procedural and otherhelp to REs (including providing explanations on implementation of the law). IO3 includesinformationontheguidanceandfeedbackprovided.

340. The FIU has published the following guidelines on its website:Organisation of financialmonitoring/Guidance on organisation of financial monitoring; Questions‐answers;Typologies/Manualsandguidance;Informationcooperation/STRforms.

341. The NBU, SC, NC, MoF, MoI, the FIU, and the MoJ have each undertaken training of REs(providing guidance and feedback), themethod depending on their preferred approach, includingworkshops, webinars or roundtables. These SAs have also met with associations and providedtrainingtoREsonsiteincludeinformationontheirwebsitesandrespondtoqueriesbyREs.TheFIUhostsatrainingcentreanditandallSAspromoteattendancebyREsfortrainingatthecentre(whichincludesguidanceandfeedback).TypologiesarepublishedbytheFIUandtheSC.

WeightingandConclusion

342. R.34isratedC.

Recommendation35–Sanctions

343. Inthe2009MER,UkrainewasratedPCwiththepreviousR.17.TheassessorsnotedthatthepecuniarysanctionsundertheAML/CFTlawswerenotdissuasiveandproportionatetotheseverityofasituation.Furthermore,theAML/CFTLawsandthesectorallawsprovidedfordifferentamountof fines,whichcouldcreateuncertaintyontheamountof finesthatcouldbe imposed.Therewerealso concerns linked to the efficiency of the sanctioning regime; the absence of appropriatesanctioningregimeforforeignexchangeofficesandmoneytransferproviders;andtheimpossibilitytowithdrawabanklicenseunlessthebanksufferedasignificantlossofassetsandincome.ThenewAML/CFTLawandamendmentstotheLawonBankshaveaddressedsomegaps.

344. Criterion35.1–Art.24(3‐6)AML/CFTLawstipulatethesanctionsforfailureofREsotherthanbankstocomplywiththelaw.Theseincludefines,temporarysuspensionofanofficialoftheRE(butonly until a AML/CFT failure has been addressed), revocation of a licence (but only for any tworepeated failures,nomatterwhat the level of the failure) andothermeasuresprovided for in thesectoral legislation. The par. also specifies that supervisorsmay demand compliance by REswithAML/CFTlegislation.

345. SupervisorySanctions:UnderArt.24(3)AML/CFTLaw,incaseoffailuretoperform(improperperformance) by any RE of the requirement of the Law and any other AML/CFT legislation, thefollowingfinescanbeimposed:

‐failure to complywith requirementson identification, verification,KYCprocedures in casessetforthinlaws–uptoEUR295(forREsotherthanlegalpersons–uptoEUR59);

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‐failuretouncover,or lateuncoveringof,and inadequateregistrationprocedureof, financialoperations subject to financialmonitoring in accordancewith laws –EUR472(forREs otherthanlegalpersons–EUR59);

‐failure to submit, late submission of, inadequate procedure of information submission,inaccurate information submission to the FIU – up to EUR 1179(for REs other than legalpersons–uptoEUR118);

‐ failure tocomplywith theprocedureofsuspensionofa financialoperation(s)–up toEUR1179(forREsotherthanlegalpersons–uptoEUR118);

‐ failure to submit, submission of incomplete, inaccurate information/documents (includingSTRs), submission of copies of documents with some details illegible, that may have beenrequestedbyastateFMEandrequiredfortheperformanceof its functionsofstateReg.andsupervision in accordance with the AML/CFT Law, or for the loss of documents (includinginformationaboutaccountsandassets)–uptoEUR1179(forREsotherthanlegalpersons–uptoEUR118);

‐failure to carry out responsibilities set forth in the AML/CFT Law and/or AML/CFTRegulationsandnotdescribedinparagraphsabove–uptoEUR177(forREsotherthanlegalpersons–EUR59).

346. UnderArt.24(8),fortwoormorefailuresbyREstocomplywiththerequirementsofthelaworRegulations,themostseverepenaltywillbeimposed.

347. The level of fines has limited proportionality and dissuasiveness. The power to revoke alicenceinthat lawisoverlyrestrictive.Theoverallsanctions’ frameworkintheAML/CFTLawhaslimitedproportionalityanddissuasiveness.However,theNBUhasadditionalpowers,seebelow.

348. Art.24doesnotapplytobanksas,underArt.24(7),banksaresubjecttosanctionsstipulatedinthe Law on Banks and NBU Res. No.346. Under Art.73 Law on Banks, the NBU, to an extentcommensuratewiththeextentoftheviolationortheseriousnessofthethreatsposed,hastherighttoapplysanctionsforAML/CFTbreaches.Theseincludeawrittenwarning;callinggeneralmeetingsof shareholders or of the bank’s supervisory council or board; entering into awritten agreementwithabank(anenforceableundertaking)totakecorrectiveactionsand/ortoenhancetheefficiencyand adequacy of the bank’s RMSs; suspend dividends or the distribution of capital; increaseeconomic ratios; restrict, suspendor terminate transactionscarriedoutby thebank; impose fines(upto1%ofthebank’sstatutorycapital);;revokealicenceforforeignexchangeoperations;declarethebankasaproblembank;andrevokethebankinglicenceandliquidatethebank(subjecttoArt.77which states that the licence may be revoked if the bank has committed repeated breaches ofAML/CFTlegislation).

349. OverallthepowersofsanctionsavailablefortheNBUonbanksarenotwhollyproportionateand dissuasive, as a result of the limitation to 1% of the bank’s statutory capital and the bank’sabilitytopaythepenalty.

350. NBU Res. 346 and 316 contain procedures for the imposition of sanctions by the NBU forbanksandNBFIsrespectively.

351. In relation to NBFIs the NBU also has sanctions powers under NBU Res. 316 (May 2015).UnderArt.5ofsectionIoftheresolutionthesepowersarelimitedtofines(tiedbyArt.1ofsectionIIof theresolutiontothe levels intheAML/CFTLaw);cancellationofa licence;anddismissalof the

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headoftheFI.Thesepowershavelimitedproportionalityanddissuasiveness;themaximumleveloffinesisnotsufficientlyhighandthepowersofdismissalarelimited.

352. Code of Administrative Offences: Sanctions in this Code are available to supervisoryauthoritiesandtheFIU.Art.1669CodeofAdministrativeOffencesprovidessanctionsforbreachesoflegislation related to preventing and countering legalisation (laundering) of proceeds of crime,financing of terrorism, including failure to submit information, late submission of information,submissionoffalseinformationanddisclosureofthefactthatinformation(includingSTRs)hasbeensubmittedtotheFIU.ThefinerangesfromEUR57toEUR284incometax‐free.TheArt.mightnotincludeallrelevantdocuments.Theleveloffineisnotproportionateordissuasive.Inaddition,thesanctionsforfailuretoprovideinformation(asdescribedabove)canbeappliedundertheAML/CFTLaw.

353. CC:Art.2091CCapplies towilfulviolationsof legislationrelatedtoAML/CFT,where there isfailure to submit transactional information, submission of late or inaccurate information ontransactionsanddisclosureofthefactthatinformation(includingSTRs)hasbeensubmittedtotheFIUbutonlyinthecircumstancesthattheactionscausedsubstantialharmtotherights,freedomsorinterests of individual citizens, individual legal persons or State or public interests. There is nodefinitionof theconceptof “substantialharm”, itwouldbe interpretedby thecourtsonacasebycasebasis.Thepenaltyalsoappliesonlytotransactionalinformation.ItcanbeafineofEUR570to2840, which is not proportionate or dissuasive given the seriousness of the offence. Overall, therangeofsanctionshaslimitedproportionalityanddissuasiveness.

NPOs

354. SeeC.8.4(b).

TFS

355. Sanctions for violationsof the requirements forUNsanctions regimes also fall underArt.24AML/CFTLaw.ARE(otherthanbanks)whichisalegalpersoncanbesubjecttoafineofEUR1179forafailuretosuspendthetransactionofadesignatedperson.Thishaslimitedproportionalityanddissuasiveness.

356. Bankswhichfail tosuspendfinancialoperationsinrelationtoTFSare liabletothepenaltiesspecifiedunderArt.73LawonBanks(seeabove).NBURes.316(May2015)appliestonon‐bankFIs.

357. Art.2091CC(seeabove)alsoappliesinrelationtoTFS.

358. Criterion35.2–

359. Onlyoneof thepowersavailableunderArt.24AML/CFTLawapplies to individualsworkingwithin REs (other than banks), namely the power in Art.24(6) to suspend an official temporarilyuntiltheAML/CFTbreachisrectified.(IndividualswhoareREsaresubjecttothefinesspecifiedinthe table in C.35.1.) This power is too narrow and, overall, the provisions have limitedproportionalityanddissuasiveness.

UnderArt.73LawonBankstheNBUhasthepowertosuspendanindividualtemporarilyfromofficeuntil he/she takes corrective action. In addition under Art.42 of the Law on Banks the NBUmaydemand the replacement of any of the bank managers if his professional skills and businessreputationdonotmeettherequirementsofthatlaw.

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360. UnderArt.1669(1)CAO(seeabove)anofficialoftheREissubjecttoafinerangingfromEUR57toEUR284tax‐free.Thisleveloffinehaslimitedproportionalityordissuasiveness.Inaddition,Art. 18834provides administrative liability for officials ofREs for failure to complywith any legalrequirementsoftheSAsissubjecttoafinerangingfromEUR37toEUR114.Thisleveloffinehaslimitedproportionalityanddissuasiveness.

361. Directors and senior management of REs violating AML/CFT legislation are also subject tocriminal liability under Art.2091 of the CC. The penalty can be a fine of EUR 570 to EUR 2840;prohibitionfromholdingspecifiedpositions;andprohibitionfromengaginginspecifiedactivitiesforup to three years. These penalties have limited proportionality and dissuasiveness given theseriousnessoftheoffence.

362. Overall,therangeofsanctionshaslimitedproportionalityordissuasiveness.

NPOs

363. SeeC.8.4(b).

TFS

364. The provisions mentioned above on the AML/CFT Law and the Law on Banks in the firstparagraphsofthisC.35.2alsoapplyinrelationtoindividualsinrelationtoTFS.ThefinancialpenaltyavailableforindividualsundertheAML/CFTLawisEUR118.

365. Inaddition,underpart1ofArt.1669CAOfinescanbeimposedonofficialsofREs, individualentrepreneurs,membersofaliquidationcommittee,liquidatorsandauthorisedpersonsattheDGFforviolationoftheproceduretosuspendfinancialtransactions.Thefinecanbeonehundredtotwohundredtimestheindividualincometaxexemptionlimit(i.e.fromEUR57toEUR284).Thepenaltyisnotproportionateordissuasive.

Art.2091oftheCC(seeabove)alsoappliesinrelationtoTFS.

Thelevelsoffineandoverallpenaltieshavelimitedproportionalityanddissuasiveness.

WeightingandConclusion

366. Overall,sanctionsforAML/CFTbreacheshavelimitedproportionalityanddissuasiveness.Thesanctionsapplicabletodirectorsandseniormanagersaretoonarrow.R.35isratedPC.

Recommendation36–Internationalinstruments

367. Inthe2009MER,UkrainewasratedPCandNCforR.35andSR.I.TheMERnotedgapsintheimplementation of the Vienna, Palermo and FT Conventions. The rating on R.35 was due toshortcomingsinMLcriminalisation,anduncertaintiesandshortcomingsintheprovisionalmeasuresandconfiscationregimesanddeficienciesinliabilityforlegalpersons.TheratingonSR.Iwasbasedon inconsistency with the TFC and UNSCRs 1267 and 1373. Since then, Ukraine has madeconsiderable progress towards closer alignment of the ML and FT offences with internationalstandards andwith confiscation and provisionalmeasures, including the introduction of criminalliabilityforlegalpersons.

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368. Criterion36.1–Ukrainehassignedandratifiedthefollowinginstruments:

Title SignatureDate RatificationdateViennaConvention 16.03.1989 28.08.1991PalermoConvention 12.12.2000 21.04.200478TerroristFinancingConvention 08.06.2000 06.09.2002MeridaConvention 11.12.2003 02.12.2009369. Additionally, Ukraine has become a party to both the Council of Europe’s 2005 WarsawConventionand2001ConventiononCybercrime.

370. Criterion 36.2 ‐ Some of the major provisions of the Vienna, Palermo, Merida and FTConventionshavenowbeen implemented indomestic legislation.However, the implementationoftheConventionsisstillsubjecttothegapsdescribedunderR.3,4and5.Legislationcoversmostofthe articles set out in footnote 64 in theMethodology onR.36.However provisions in theViennaConvention(VC),notablyArt.10and15,donotseemtobeimplementedindomesticlegislation.MLArequestscanberefusedwheretherequestpertainstoanongoingUkrainianpre‐trial investigationortrial.Art.559oftheCCalsoallowsforthepostponingofinternationallegalassistanceifexecutionwould obstruct domestic investigations or proceedings, though there appears to be no provisionreflecting Art.7 (17) VC and Art.18 (25 and 26) Palermo Convention (PC) allowing in suchcircumstances for a determination of whether (some) assistance can still be given at the timerequested, subject to such conditions as the requested party deems necessary. It is also unclearwhethertherehasbeenanyconsideration,asrequiredbyArt.541(c)MeridaConvention(MC)ofdomesticmeasurestoallowconfiscationintheabsenceofacriminalconvictionorwhetherMLAcanbeprovidedinthesecircumstances.

371. UkraineimprovedthelevelofcompliancewiththePCbyintroducingcriminalliabilityforlegalpersons in Art.963 CC. At the same time, legal persons cannot be subject to criminal liability forsettingupacriminalorganisationorobstructionofjusticeasrequiredbyArt.5,10and23PC.

372. ThelevelofcompliancewiththeTFChasimprovedsincetheintroductionofArt.2585oftheCCas an autonomous offence of FT. At the same timewhile Ukraine has ratified themajority of thetreaties listed in theAnnex to theTFC, ithasnot ratified the2010ProtocolSupplementary to theConventionfortheSuppressionofUnlawfulSeizureofAircraft,the2005ProtocoltotheConventionfor the Suppression of Unlawful Acts against the Safety of Maritime Navigation and the 2010ConventionontheSuppressionofUnlawfulActsRelatingtoInternationalCivilAviation.

Weightingandconclusion

373. AfewoftheprovisionsoftheVC,PCandMChavenotbeenimplemented.Themainconcerniswhether any continuingweaknesses relating to theprosecutiondomestically ofMLandFT createdifficultiesininternationalcooperation.R.36isratedLC.

Recommendation37‐Mutuallegalassistance

374. Inthe2009MER,UkrainewasratedPCwithR.36andSR.V.TheassessorsnotedtheabsenceofdetailedproceduresfortheprovisionofvarioustypesofMLA,includingtimeframesforresponsestoMLA requests. Furthermore, a number of countries had indicated that the quality of materialsreceivedwaslow.Since2009,UkrainehasmadesubstantialprogressbyadoptinganewCPCwhich 78Withreservationsanddeclarationstopar.6ofArt.13andpar.bofArt.2.

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contains a more comprehensive framework and elaborates further detailed procedures for theprovisionofvarioustypesofMLAaswellasrelatedguidanceforallstaffworkingonthesematters.SuchproceduresstipulatedetailedtimeframesforresponsestoMLArequests.

375. Criterion37.1–Thelegalbasisforprovidingawiderangeoflegalassistanceincriminalcasesrelated toML, associated predicate offences and FT is found in Ch. IX CPC and the ITs signed byUkraine, includingtheEuropeanConventiononMutualAssistanceinCriminalMatters anditstwoadditionalprotocols.MLAmayalsobegrantedonthebasisofreciprocity.AccordingtoArt.561,anyprocedural actprovided for in theCPCor an international treatymaybe conducted inUkraine toexecuteaMLArequest.TheUAsadvised that,whilenotallmandatoryobligations in ratifiedMLAinstrumentsarenecessarilyreplicatedinUkrainianlaw,Art.19Law“OninternationalagreementsofUkraine” stipulates that ratified treaties arepart of thenational legislation and are applied in themannerprovidedforinthenationallegislation.UnderArt.558CPC,MLAistobeprovidedwithin1month from the date of the receipt of the request, unless the MLA request involves complex orlengthy procedural actions. This is particularly relevant to MLA requests which are subject toapprovalbyaprosecutor (e.g. examinationof an individual)or thecourt (e.g. seizureofproperty,search, interferencewithprivate communications, surveillance, covertobtainingof samples).MLAmay not be provided in relation to some cross‐border smuggling offences, which have beendecriminalised. Smuggling under Art.201 CC now applies to cultural values, a range of dangerousmaterials and explosive substances, weapons and ammunition. While smuggling of drugs etc.remains an offence under Art.305 CC, the smuggling of other goods to which duties apply areadministrativeoffences.

376. Criterion 37.2 – The authorities responsible for processingMLA requests are (1) the PGOUduring a pre‐trial investigation; (2) the NABU during the pre‐trial investigation of financial andcorruptionoffencesfallingwithinitsremit;(3)theMoJduringacourttrial;or(4)anyotherbody,wheretheCPCoraninternationaltreatyspecifiesotherwise(Art.545CPC).

377. ThePGOUandtheMoJ,asCentralAuthorities,arerequiredtorefermaterialprovidedbywayofMLAinNABUcasestoNABUwithin3days.Theprovisionswhichregulatethetransmissionandexecution of requests for MLA can be found in Art.548, 551 and 552 CPC. MLA requests aremonitoredthroughanelectroniccasemanagementsystemwhichismaintainedbytheInternationalLegalCooperationandEuropeanIntegrationUnitoftheProsecutor’sOffice.ThereisasimilarsystemwithintheMoJ.AsimilarsystemisoperatedbytheNABU.TheauthoritiesindicatethatthereisnosystemofprioritisationofMLArequests.

378. Criterion37.3–Art.562statesthatiftheproceduralactintheCPCrequirespermissionfromaprosecutor or a court, a MLA request related to that procedural act may only be executed uponpermissionbeinggranted,even if the lawsof therequestingpartydonotspecifysuchacondition.Theevaluationteamdoesnotconsiderthistobeunreasonableorundulyrestrictive.

379. Criterion37.4‐TherefusalofassistanceonthesolegroundthattheoffenceisalsoconsideredtoinvolvefiscalmattersisnotprovidedforintheCPC.Furthermore,Ukraineisapartytothe1978Additional Protocol to the European Convention on Mutual Assistance in Criminal Matters. Art.1Protocol explicitly removes this ground for refusal of assistance. Secrecy and confidentialityrequirementsarenotgroundsforrefusalforMLA.

380. Criterion37.5 ‐PursuanttoArt.558(par.1part1), theUAsdealingwithMLArequestsmusttakethenecessarymeasurestoensuretheconfidentialityoftherequest.Inaddition,inaccordancewithArt.556CPC,attherequestoftheforeignauthority, theUAsmaytakeadditionalmeasuresto

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maintainconfidential (1) the fact that therequesthasbeenmade; (2) thecontentsof therequest;and(3)theinformationobtainedasaresultoftheMLArequest.

381. Criterion37.6–UnderITsratifiedbyParliament,MLAisgrantedevenintheabsenceofdualcriminality. However, as per Art.557 of the CPC, in the absence of an international treaty, dualcriminalityisrequiredregardlessofwhethertherequestinvolvescoerciveactions.

382. Criterion37.7‐Thedualcriminalityprincipledoesnotrequiretheoffencetobeplacedinthesamecategoryorbedenominatedbythesameterminologybybothcountries.

383. Criterion37.8‐AccordingtoArt.561oftheCPC,anyproceduralactionsonUkrainianterritoryprovidedby intheCPCor inan international treatymaybeappliedtoaMLArequestas indicatedunderR.31.

WeightingandConclusion

384. Most of the criteria for this recommendation aremet ormostlymet. There is a clear legalfoundation for MLA. There appear to be no clear prioritisation procedures. The other weaknessrelates to MLA where there is no international treaty relationship between Ukraine and therequesting State. In such circumstancesMLA for non‐coercive actions remains dependent ondualcriminality.R.37isratedLC.

Recommendation38–Mutuallegalassistance:freezingandconfiscation

385. In the 2009MER, Ukrainewas rated LC for R.38. Gapswere noted in identifying, freezing,seizingandconfiscatingrelevantpropertywhichaffecttheabilityofexecutingsuchactionsforMLA.

386. Criterion 38.1 – At the request of a foreign country, the authorities shall detect and arrestassets,moneyandvaluablesobtainedasproceedsfromcrime(includingML,predicateoffencesandFT) and assets that belong to the suspect, accused or convicted person (Art.568(1) CPC). Thearrestedpropertymaybe confiscated following a final convictionbya court in the countryof therequesting party (Art.568(3)(2) CPC). Art.23(8) AML/CFT Law provides that “Ukraine recognisescourtverdicts(decisions),decisionsofothercompetentforeignagencieswhichhavecomeintoforcein respect of persons that have derived proceeds from crime, and in respect of confiscation ofproceeds of crime or equivalent property located within Ukraine”. Authorities indicate thatinstrumentalitiesusedinor(orintendedforusein)ML,predicateoffencesandFTcouldbeseizedand confiscated on the basis of Art.568 CPC, which provides that “Any procedural actions asprovided for in this Code or international treatymay be conducted in the territory of Ukraine toexecutearequestfor international legalassistance”,andArt.100(9)oftheCPC,whichprovidesfortheconfiscationofinstrumentalities(andpropertyincorrespondingvalueofinstrumentalities).

387. As previously noted, Art.558 of the CPC stipulates that the time frame for processing andexecuting a foreign request should not exceed onemonth,whichmay be extended if the requestinvolvescomplexandlengthyproceedings.

388. Criterion 38.2 ‐ The UAs consider that assistance with confiscation orders abroad can beprovidedinsomecircumstancesintheabsenceofaconviction,solongastherequestisbasedonacourt decision on confiscation rendered as part of criminal proceedings: Art.568(3) of the CPCprovidesthatassetsdetectedonthebasisofaforeignrequestforassistancemaybeconfiscatedonthebasisof“asentenceoranyotherdecisionmadebythecourtoftherequestingPartywhichhas

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enteredintolegalforce”.TheUAsalsoindicatethat,underArt.602(8)oftheCPC,whichprovidesforthe“recognitionandenforcementofasentencedeliveredbyacourtofforeignStateinpartofacivilclaim shall be disposed as prescribed in the Code of Civil Procedure”, assistance could also beprovided in relation tonon‐criminalnon‐convictionbasedconfiscationproceedings.Thisnotbeentestedinpractice.

389. Criterion38.3–

(a) The UAs stated that the arrangements for co‐ordinating seizure and confiscation actionswithothercountriesarecontainedinITssignedbyUkraine.Art.571oftheCPCprovidesthelegalbasisforthesettingupofjointinvestigativegroupstoconductpre‐trialinvestigationsofcriminaloffencescommitted in the territoryof several states orwhere the interests of such states is affected. JointinvestigativegroupsareentitledtoconducttheproceduralactionssetoutintheCPC,includingtheseizureofassets.(b)Art.568(2)oftheCPCrequirestheauthoritiestopreservetheassetswhichareseizedonbehalfofarequestingcountryuntilsuchtimeasacourtdecisionistakenwithrespecttosuchassets.TheNationalAgencyfordetection,investigationandmanagementofassetsissaidtoberesponsiblenowforthemanagement/preservationofassets. TheAgencyhadbeenestablishedbutnotyetfullyoperationalatthetimeoftheon‐sitevisit(seeC.4.4).

390. Criterion38.4–AsperArt.23(8)AML/CFTLaw,confiscatedproceedsof crimeorequivalentpropertymay,underarespectivetreatyofUkraine,betransferred, infullor inpart, totheforeigncountrywhosecourtorothercompetentagencyhasmadetheconfiscationverdict(decision).UnderArt.568(6)of theCPC, at the requestof theCentralAuthorityofUkraine, the courtmaydecide totransferproperty(ormonetaryequivalent)confiscatedintheframeworkofMLAtotherequestingparty:

1) ascompensationforvictimsofdamagecausedbytheoffense(oncetherequestingpartyhasprovidedtheUAswithafinalcourtjudgement);

2) asallowedbyinternationalagreementsregulatingthedistributionofconfiscatedpropertyoritsmonetaryequivalent,towhichUkraineisaparty.,TheUAshaveprovidedexamplesofbilateral treaties including clauses allowing asset sharing, e.g. “uponmutually acceptableterms”or“inaccordancewith[theParties’]domesticlaw,unlessotherwiseagreedbetweentheParties”.Althoughsuchclausesdonotseemtohavebeenimplemented,theUAsreportthat ad hoc agreements on asset sharing were established and implemented with theNetherlands(2014),onthebasisofaconfiscationdecisionmadebyaDutchcourt.

WeightingandConclusion

391. AllofC.aremetormostlymet.R.38isratedLC.

Recommendation39–Extradition

392. Inthe2009MER,UkrainewasratedLCwiththeserequirements.Theassessorsfoundcertainlegalimpedimentswhichrestrictedtheprovisionofextradition‐relatedassistance.ItwasfoundthatthelimitationsinMLcriminalisationofimpactedonUkraine’sabilitytoextraditepersonssoughtforML.Itwasalsonotedthattheeffectivenessoftheextraditionsystemcouldnotbefullyassessed.

393. Criterion39.1–

(a) Ukraine isabletoprovideextraditiononthebasisofbilateralormultilateralagreements.UkrainebecameapartytotheEuropeanConventiononExtraditionof1957andits1stand

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2nd Protocols. Extradition can also be provided on an ad hoc basis on the principle ofreciprocitypursuanttoCh.44CPC.BothMLandFTareextraditableoffencessincebothMLandFTarepunishedbyimprisonmentformorethan1year,whichisanecessaryconditiontoconsiderarequestforextradition.HowevercontinuingconcernsoutlinedunderR.3andR.5abouttheambitoftheMLandFToffencesmaymeanthatnotallaspectsofMLandFT,as they are understood internationally, may be the subject of successful extraditionproceedings.

(b) The PGO is responsible for extradition of suspects accused during the preliminaryinvestigation.TheMoJisresponsiblefortheextraditionofdefendantsconvictedincriminalproceedings during court proceedings or for execution of sentence (Art.574 of the CPC).Monitoringofexecutionrequestsonextradition isconductedusingthespeciallydesignedsystemofelectronicaccountingandcontrolmaintainedbythedivisionofinternationalandlegalcooperationandEuropeanintegrationofthePGO.TheevaluatorswereadvisedthatasimilarsystemexistsintheMoJ.Thereappeartobenoclearprioritisationprocedures.Thetimely execution of extradition requests is ensured by Statute. There is a procedure forprovisionalarrestfor40dayspendingarrivalofaformalrequestforextradition.AccordingtoArt.584oftheCPC,aftertheformalrequestforextraditionfromacompetentauthorityofaforeignstatehasbeenreceived,anextraditionarrestwarrantismade,whichcannotlastmorethan12months.Thereafter,underArt.587oftheCPC,anexaminationisundertakenby the Central Authority of Ukraine within 60 days to ensure that there are nocircumstancesthatpreventextradition.Art.590oftheCCstipulatesthatadecisionisthentakenbytheCentralAuthorityofUkrainesurrender.Ifwithintendaystheextraditionisnotappealed to thecourt theactualdeliveryof thatperson to thecompetentauthoritiesofaforeign country (part three of Art.590 of the CC) is organised. Any appeal is undertakenwithinfivedaysofitsreceiptbythecourt.

(c) TheConstitutionand,asnoted,theCPCsetlimitstoextraditionwhichdonotappeartobeunreasonable or unduly restrictive. Under Art.573 of the CPC, extradition may only becarriedout fortheoffencesthatarepunishableby12monthsormoreimprisonmentandwhereaprisonsentencetobeenforcedisatleast4months.

394. Aperson in relation towhomUkraine has granted refugee status, the status of a person inneed of additional protection or temporary protection cannot be extradited. A person cannot beextraditedtoaforeigncountrywherehisorherhealth,lifeorfreedomwillbethreatenedbasedonrace,creed(religion),ethnicity,citizenship(nationality),membershipofaparticularsocialgrouporpoliticalopinion,exceptinthecasesprovidedbyITsofUkraine.

395. Criterion39.2 ‐AccordingtoArt.25Constitution,Ukraineshallnotextradite itsowncitizens.Art.10oftheCCalsoincludesstatelesspersonspermanentlyresidinginUkraine.

396. Art.589(3)oftheCPCstipulatesthatarefusaltoextraditeapersonongroundsofcitizenship,refugee status or for any other reason, does not exclude criminal proceedings in Ukraine. At therequest of the foreign competent authority, the PGO shall initiate a pre‐trial investigation withrespecttothepersonsubjecttotheextraditionrequest.Howevertheprovisiondoesnot,onitsface,requirethePGtoassumeproceedingswithoutunduedelay.

397. Criterion39.3–UnderArt.589(2)oftheCPC,arequestforextraditioncanbedeniediftheactforwhichextraditionisrequestedisnotacrimeinUkraine.However,thelawdoesnotrequirethe

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offence tobewithin the samecategoryor tobedenominatedby the same terminology so longasbothcountriescriminalisetheconductunderlyingtheoffence.

398. Criterion39.4‐PursuanttoArt.588oftheCPC,asimplifiedprocedureforextraditionissubjectto the written consent of the defendant. In case of consent, the investigating judge sends theapplicationtotheCAU,whichevaluatestherequestwithinthreedaysanddetermineswhetherthesimplifiedproceduremaybeapplied.Once theapproval for the simplifiedprocedure is granted itcannoteventuallybewithdrawn.

WeightingandConclusion

399. ConcernsremainaboutthereachoftheMLandFToffencesandtheirimpactonextradition.There appear to be no clear prioritisation procedures. There is also a question as to whether arefusal to extradite on grounds of nationality would (at the request of the country seekingextradition)besubmittedtothecompetentauthoritieswithoutduedelay,asthelegislationissilentonthispoint.R.39isratedLC.

Recommendation40–Otherformsofinternationalcooperation

400. In 2009MER, Ukrainewas rated LCwith requirements that now fall under R.40. TheMERnotedgapsinthelegalframeworktoenableexchangeofinformationspontaneously.

401. Criterion40.1–Allcompetentauthoritieshavemechanismsinplacethatallowthemtorapidlyprovide the widest range of international cooperation in relation to ML, associated predicateoffences andFT, both spontaneously andupon request. Thesemechanisms aredescribed inmoredetailunderC.40.9to40.19.

402. Criterion 40.2 – All competent authorities have a legal basis for providing co‐operation(AML/CFTLaw:Art.22(1)ongeneralpower toco‐operate,Art.23(1)on theFIUandArt.23(6)onsupervisors and LEAs; supplemented by relevant provisions in sectorial laws). There is nothingwhichhinders thecompetentauthorities fromusingthemostefficientmeansofco‐operation.Thefollowingclearandsecuregatewaysareused for theexchangeof information: theEgmontSecureWeb(FIU);InterpolandEuropol(theNP);I‐SECOM(NABU).ByRegulation,theSSUmustexchangeinformationwithforeignpartnersusingmeansofcommunicationthatcomplywiththetechnicalandcryptographic protection of information, but no specific information has been provided on theconcrete arrangements established for that purpose. There do not appear to be systems for theprioritisationordeadlinesfortheexecutionofrequestsintheareaofinformalcooperation.TheFIUprovidessecurityandconfidentialityofthereceivedinformationundertheprinciplesoftheEgmontGroup. NBU Reg. 246 regulates the creation, processing and storage of documents that containinformation subject to restricted access, including information received in the process ofinternational cooperation. NC ensures the protection of information received in internationalcooperation in accordance with the requirements of Standard instruction on the procedure ofregistration, storage, use and destruction of documents and other media storages that containproprietaryinformation.

403. Criterion 40.3 – Although the FIU does not need to enter into bilateral or multilateralagreementstoco‐operatewithitscounterparts,ithassignedMoUswith73counterpartstofacilitateco‐operation. TheNBU is authorised to cooperatewith its foreign counterparts and other foreigncompetent authorities on the basis of reciprocity and international bilateral and multilateral

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agreements(17internationalagreementsoncooperationhavebeensigned).TheNABU,NSSMC,NC,PGOUandSFShavealsoconcludedagreementswithforeigncounterparts.

404. Criterion 40.4 ‐ Being a member of Egmont Group, the FIU provides feedback in a timelymannertoforeigncounterpartsfromwhichtheyhavereceivedassistance,ontheuseandusefulnessof the information obtained, in accordance with CL. 19 of the Egmont Group Principles forInformationExchange.Regarding theothercompetentauthorities,Ukraineindicatesthatthereareno specific legal provisions regulating explicitly the provision of feedback to the authority fromwhich assistance was sought and providing this in a timely manner. However, there are noprovisions which would pose an obstacle to doing so. This has happened in practice (e.g. OFAC,SeriousFraudOfficeoftheUK).

405. Criterion 40.5 – There are no prohibitions or restrictive conditions which apply to theprovisionofexchangeofinformationorassistance.Thelegalbasesfortheexchangeofinformationdo not preclude the competent authorities from responding to a request on the grounds that itinvolves fiscalmatters. Financial and other secrecy requirements do not restrict the exchange ofinformation with foreign counterparts. Sector‐specific legislation expressly provides thatinformationsubjecttosecrecymaybeexchangedbythesupervisorswiththeirforeigncounterparts(LawonBanksArt.62(22)).Itisunclearwhetheraninquiry,investigationorproceedingunderwayinUkrainewouldbeareasonforrefusingcooperationbeyondMLA.Theauthoritiesmayexchangeinformation with their foreign counterparts irrespective of whether the nature or status of therequestingpartyisdifferent.

406. Criterion40.6–AsregardstheFIU,Art.12(12)AML/CFTLawandtheprinciplesoftheEgmontgroupestablishthemechanismsforsafeguardingtheinformationexchangedandensuringthatitisused only for the purpose for, and by the authorities, for which the information was sought orprovided.ThedisclosureinanywayofFIUsecretinformationentailsresponsibilityunderthelaworbycourtorder.Anydisseminationofinformationtootheragenciesorthirdparties,oranyuseofthisinformationforadministrative,investigative,prosecutorialand judicialpurposesshouldbesubjectto prior authorisation requested FIU. Bilateral agreements on banking supervision and/or AMLbetween the NBU and foreign authorities include a Cls. aimed at ensuring that the informationreceived by either party cannot be transferred to third parties without the prior consent of thedisclosing party. The general requirements and mechanisms of protecting classified informationexchangedininternationalcooperationcanalsobefoundinArt.222oftheCPC.

407. Criterion40.7–See40.2and40.6.

408. Criterion40.8–TheUAsindicatethat,basedonthegeneralprovisionscontainedinArt.22and23AML/CFTLawandauthority‐specific legislation,competentauthoritiescanconduct inquiriesattherequestofandexchangeanyinformationobtaineddomesticallywithforeigncounterparts..

409. Criterion40.9–UnderArt.23AML/CFTLaw,theFIUcancooperatewithrelevantauthoritiesofforeigncountriesforthepurposeofpreventingandfightingML,FTandPF.

410. Criterion40.10 –TheFIUshould, ifpossible,provide feedback to foreigncounterparts,uponrequestandwheneverpossible,ontheuseoftheinformationprovided,aswellasontheoutcomeofthe analysis conducted, based on the information provided. Moreover, as a member of EgmontGroup,theFIUprovidessuchfeedbackinaccordancewithCls.19oftheEgmontgroupPrinciplesforInformationExchange.

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411. Criterion40.11–Art.23(3)AML/CFTLawempowerstheFIU,forthepurposeofrespondingtoa foreign counterpart’s request, to obtain information from government agencies, enterprises,institutions,organisationsandPFMEs(i.e.REs).ThiscoversthecategoriesofinformationreferredtoinC.40.11.Moreover,asamemberof theEgmontGroup, theUkrainianFIUcanexchangerelevantinformationinaccordancewithCls.22oftheEgmontGroupPrinciplesforInformationExchange.

412. Criterion 40.12 – Art.23 AML/CFT Law provides the general legal basis on which financialsupervisors provide international cooperation on matters of AML/CFT, in accordance with ITsendorsedbyUkraineorupontheirinitiative.ThelegalbasisisfurtherdetailedinArt.62(13)LawonBanksfortheNBUandArt.32oftheLaw“OnStateRegulationofFinancialServicesMarkets”fortheNC.Inbothcases,theprinciplesofreciprocityorcooperationinaccordancewithanITapply. .TheUAs report that, on those bases, the NBU, the NC and the SC all have entered into internationalagreementstoprovidecooperation,includingforAML/CFTsupervisionpurposes.

413. Criterion 40.13 – Art.62 (13) Law on Banks provides the NBU has the right to shareinformation obtained in the context of its supervisory activities with the banking supervisionauthorityofanothercountryandtoreceivesuchinformationfromthebankingsupervisionbodyofanothercountry.The informationprovided(received)maybeusedexclusively forthepurposesofbanking supervision or the prevention of ML or FT. Art.32 of the Law “On State Regulation ofFinancialServicesMarkets”allows theNC, “on issues lyingwithin itscompetence”, toprovideandobtain, ona reciprocalbasis, informationon the supervisionof financialmarkets and institutions,“whichdoesnotconstituteastatesecretanddoesnotresultinthedisclosureofatradesecret”,aswellasinformationon“separatefinancialinstitutionsasstipulatedbyrelevantinternationaltreaties”.TheUAsindicatethattheSCcanalsoprovidedomesticallyavailableinformationtoforeigncounterpartsonthebasisofArt.22and23AML/CFTLawandrelevantbilateralagreements.

414. Criterion 40.14 – There is no restriction on the exchange of information mentioned underC.40.14byfinancialsupervisors.

415. Criterion40.15–TheUAsindicatethatthelegalbasesdescribedunderC.40.8allowfinancialsupervisorstoconductinquiriesonbehalfofforeigncounterparts.

416. Criterion40.16–TheNBUhasprovidedexamplesofagreementsrequiringpriorauthorisationof the requested party for the dissemination of information exchanged, unless the requestingsupervisorisundertheobligationtodiscloseorreportsuchinformation.SimilarinformationhasnotbeenprovidedbytheNCandtheSC.

417. Criterion40.17–ThePGOUisempoweredtoexchange informationforpre‐trialpurposesonML, associated predicate offences or FT, including the information on identification, tracking ofincome and assets from crime. Such exchanges of information (if it does not contain secretsprotectedby law) can occur duringdirect contact representatives of official agencies. In addition,exchangeofrelevantinformationmaytakeplaceviaEurojustchannels.TheNABUcooperateswithinitscompetenceaccordingtothelegislationofUkraineandITsofUkraine.

418. Criterion40.18 – Cf. C.40.8 for the information on the legal basis underwhich theLEAs canconductinquiriesandobtaininformationonbehalfofforeigncounterparts.Asfortheinternationalregimesandpracticesthatgoverncooperationinthelegalsphere,UkrainesignedagreementswithInterpol,EuropolandEurojust.NABUoperatesincompliancewiththeseagreements.

419. Criterion40.19‐PursuanttoArt.571oftheCPC,jointinvestigativeteamsmaybecreatedintheeventofapre‐trialinvestigationofcriminaloffencescommittedintheterritoryofseveralstatesor

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incasetheinterestsofthesestatesareviolated.ThePGOconsidersanddecidesontheestablishmentof joint investigative teams at the request of bodies conducting pre‐trial investigations, Ukraine’sProsecutorandthecompetentauthoritiesof foreignstates.Themembersof the joint investigationteam directly interact with each other, agree on the main lines of pre‐trial investigation, legalproceedings,exchangetheinformation.Coordinationoftheiractivitiesshallbeensuredbythepartywhich initiated the creation of the joint investigation team or one of itsmembers. Investigations(measures of inquiry) and other procedural actions are performed by the members of the jointinvestigationteamoftheStateinwhichsuchactionsareconducted.

420. Criterion40.20–PursuanttoArt.23(6)AML/CFTLaw,financialmonitoringagenciesandLEAsareallowedtopursueinternationalcooperationwith“respectiveforeignagencies”,whichseemstolimit cooperation to counterparts only. However, the UAs report instances in which the PGOUrequested and received assistance through cooperation channels that involved both the domesticandforeignFIUs.

WeightingandConclusion

421. UkrainehasmetormostlymetallcriteriabutoneundertheRecommendation.Conditionsforthedisseminationof informationreceivedbyall financial supervisorscouldbe furtherclarifiedbytheUAs.R.40isratedLC.

 

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CompliancewithFATFRecommendations 

Recommendation  Rating  Factor(s) underlying the rating 

1. Assessing risks & applying arisk‐basedapproach

LC

The action plan requiring all authorities to apply a RBA to theiractivitiesisstillindraftform. There is no specific requirement to apply enhanced measures tomanage and mitigate the higher risks identified in the NRA orincorporateinformationonthoserisksintoriskassessments. ThesimplifiedmeasuresconcessionshavenotbeendeterminedonthebasisofalowerriskandconsistencywiththeNRA. ThereisnorequirementforREstoidentify,assessandunderstandML/FTrisksrelatingtodistributionchannels.

2. National cooperationandcoordination C

3. Moneylaunderingoffence

LC

Notallrequiredpredicateoffencesarecompletelycovered(partialdecriminalisation of smuggling, and financing of some terrorismoffences in theannex to theTFCarenot clearlypredicateoffences toML.

4. Confiscation and provisionalmeasures LC Valueconfiscationdoesnotapplytoinstrumentalities.

Asyetthereisnosystematicmanagementofrestrainedproperty.5. Terroristfinancingoffence PC FToffencedoesnot clearly coverdirect and indirect provisionor

collectionoffunds. FTOffencesbasedonArt.2(1)(a)TFCwouldrequireanadditionalpurposiveelement. Someoffencescontainedintheconventionsandprotocolslistedintheannexarenotclearlysubjecttoprosecution. International organisations which are not legal persons are notcoveredundertheFToffence. Incomplete criminalisation of all financing of travel for terroristpurposesunderUNSCR2178.

6. Targeted financial sanctionsrelatedtoterrorism&FT

PC Mechanismsto identify,designateandde‐list targets,andrespondtorequestsfrompartnergovernmentsareinsufficient. Allnecessarycategoriesofassetsarenotcovered. The freezing obligation does not apply to all natural and legalpersonsinthecountry. The freezing obligation does not extend to all the funds or otherassetsreferredtounderC.6.2(b)(i)to(iv). Thereisnoexplicitprohibitionovernationals,oranypersonsandentities, except for REs, to refrain from making any funds or otherassets, economic resources, or financial or other related services,availableforthebenefitofdesignatedpersonsandentities.

7. Targeted financial sanctionsrelatedtoproliferation

PC Thefreezingobligationdoesnotcoverallnaturalandlegalpersons. The freezing obligation does not apply to all required types offunds. There is no provision that prohibits making funds or assetsavailabletodesignatedpersonsorentities. Itisunclearwhethersufficientguidanceisprovided. There are no publicly known procedures to submit de‐listingrequests. TherightsofbonafidethirdpartiesdonotseemtobeinplacewithregardtoIran. There are no adequate provisions on contracts, agreements orobligations that arose prior to the date on which accounts becamesubjecttoTFS.

8. Non‐profitorganisations LC No detailed analysis of NPO risks has been conducted and it isunclearwhethermeasuresareappropriatetotherisks.

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Recommendation  Rating  Factor(s) underlying the rating 

ThereisnospecificmechanismforreportingsuspectedFT‐relatedactivityintheNPOsector,apartfromselectreportingchannelsthatcanfacilitateinformation‐sharingamongrelevantauthorities. LittleguidanceisprovidedtoNPOsordonors.

9. Financial institution secrecylaws C

10. Customerduediligence

LC

ThereisnorequirementforREsnotlicencedandauthorisedbytheNSSMC,NBU orNC to understand the nature and the purpose of thecustomer’sbusiness. REs are not required to understand the nature of the customer’sbusinessand itsownershipandcontrolstructurewithregard to legalarrangements. ThelawdoesnotrequireREstoidentifythesettlor,protectorandbeneficiaries of or any person who may exercise ultimate effectivecontrolovertheTrust. Nospecific legislativeprovisionallowsREs to fileanSTRwithoutidentifying a customer who might be tipped off during theidentificationandverification.

11. Recordkeeping C12. Politicallyexposedpersons LC The limitation periods of 3 years following the end of PEPs

functionsisinconsistentwiththeFATFapproach.

13. Correspondentbanking C14. Money or value transferservices

LC ThereisnomechanismorprocesstoidentifyMVTSoperatorsthatcarryoutactivitieswithoutalicence.

15. Newtechnologies LC There is no explicit requirement for REs to undertake riskassessments prior to launching of new products, practices ortechnologies.

16. Wiretransfers C17. Relianceonthirdparties N/A18. Internal controls and foreignbranchesandsubsidiaries

LC It is unclear how much authority the responsible employee hasovertheGroup’sREslocatedoutsideUkraine. Disclosure of wider information between group entities forAML/CFTpurposedoesnotseemcovered.

19. Higher‐riskcountries C20. Reporting of suspicioustransaction

C

21. Tipping‐off andconfidentiality

C

22. DNFBPs: Customer duediligence

LC Mostdeficienciesnoted inCDD requirements forFIs are valid forDFNBPs,especiallythegapnotedunderR.12.

23. DNFBPs:Othermeasures LC MostdeficienciesnotedunderR.18‐21arevalidforDFNBPs.24. Transparency and beneficialownershipoflegalpersons

LC TherisksposedbylegalpersonsformedunderUkrainianLaworofthosedifferenttypesoflegalpersonspermittedbytheCivilCodehavenotbeenreviewed. Thereisnorequirementfornaturalperson(s)resident inUkraineor theappointmentof aDNFBP tobe responsible formaintainingBOinformationandbeingaccountabletotheauthorities. ThelawdoesnotprovideforanyspecificmechanismorproceduretoverifyandupdateonatimelybasistheinformationreferredtounderC.24.3and24.4. WhereinformationisrequiredfromREs,therearecertainonerous

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CompliancewithFATFRecommendations 

Recommendation  Rating  Factor(s) underlying the rating 

conditionsunderwhich,LEAsmayobtaininformationthroughacourtorder. There is no legal provision which prevents a person acting as anomineeforanother. Thesanctions’leveldoesnotappeartobedissuasiveinnature.

25. Transparency and beneficialownershipoflegalarrangements

PC There is no information onwhether relevant information is keptaccurateanduptodate. There is no requirement to keep information, pursuant to thisRecommendation,accurateandasuptodateaspossible,andupdatedonatimelybasis. Trusteesarenotlegallyliableforanybreachoftheirobligations;orsubject to proportionate and dissuasive sanctions, whether criminal,civiloradministrative,forfailingtocomply. There are proportionate and dissuasive sanctions, whethercriminal, civil or administrative, for failing to grant to competentauthoritiestimelyaccesstoinformationregardingthetrust.

26. Regulationandsupervisionoffinancialinstitutions

LC NotallmanagementpositionsaresubjecttofitandpropertestingincertainFIs. Fornoncore‐principles financial institutions, thediscretionof thesupervisorstoclassifyFIsaccordingtoriskisnarrow. Norequirementbysupervisors toreviewer theassessmentof theML/FTriskprofileofaFI,exceptwithrespecttobanks.

27. Powersofsupervisors LC Sanctioningpowerslimitedassanctionsarenotproportionateanddissuasive.

28. RegulationandsupervisionofDNFBPs

PC Limited measures to prevent associates of criminals fromcontrollingormanagingDNFBPs. Sanctionsframeworkisnotsufficientlyrobust. Norequirementscoveringrisk‐sensitiveapproachestoon‐siteandoff‐sitesupervision. No requirements for SAs to take into account the degree ofdiscretionallowedtoDNFBPsundertheRBA.

29. Financialintelligenceunits C30. Responsibilities of lawenforcement and investigativeauthorities

C

31.Powersoflawenforcementandinvestigativeauthorities

C

32.Cashcouriers LC ThedeclarationsystemdoesnotapplytocertainformsofBNIs. TherearenorulesconcerningcashandBNIstransportedbycargo. The CA does not have a specific power to request and obtaininformationwithregardtotheoriginorintendeduseofthecurrencyorBNIs,upondiscoveryofafalseornon‐declaration.

33.Statistics PC Many of the statistics provided to the evaluation team were notconsistent. Differing figures in various areas were received by theevaluationteam.

34.Guidanceandfeedback C35. Sanctions PC Sanctions for AML/CFT breaches are not proportionate and

dissuasive. Sanctionsfordirectorsandseniormanagementsaretoonarrow.

36. Internationalinstruments LC The implementationof theConventions isstill subject to thegapsdescribedunderR.3,4and5.

37. Mutuallegalassistance LC It is unclear whether there are casemanagement systems in the

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Recommendation  Rating  Factor(s) underlying the rating 

MoJ.Inany casetherearenoclearprioritisationprocedures. Where there is no international treaty between Ukraine and therequestingState,MLA fornon‐coerciveactionsremainsdependentondualcriminality.

38. Mutual legal assistance:freezingandconfiscation

LC Lack of clarity on the confiscation of instrumentalities, valueconfiscationandlaunderedpropertyonbehalfofothercountries.

39. Extradition LC GapsinMLandFToffenceshaveanegativeimpactonextradition. Thereappeartobenoclearprioritisationprocedures. It is unclear whether a refusal to extradite on grounds ofnationalitywould(attherequestofthecountryseekingextradition)besubmittedtothecompetentauthoritieswithoutduedelay.

40. Other forms of internationalcooperation

LC Theredonotappeartobespecificsystemsfortheprioritisationoftheexecutionofrequestsintheareaofinformalcooperation. It is unclear whether an inquiry, investigation or proceedingunderway in Ukraine would be a reason for refusing non‐MLAcooperation. LackofclarityontheconditionsofdisseminationofinformationbytheNCandtheSC.

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GLOSSARYOFACRONYMSAML/CFT Anti‐MoneyLaundering/CombatingFinancingofTerrorismARO AssetRecoveryOfficeBNIs BearerNegotiableInstrumentsBOs BeneficialOwnersCA CustomsAuthorityCAO CodeonAdministrativeOffencesCC CriminalCodeofUkraineCDD CustomerDueDiligenceCPC CodeofCriminalProcedureofUkraineCRM Compliance‐RiskManagementDGF DepositGuaranteeFundDNFBPs DesignatedNon‐FinancialBusinessesandProfessionsDPMS DealersinPreciousMetalsandStonesEDD EnhancedDueDiligenceEU EuropeanUnionFATF FinancialActionTaskForceFIs FinancialInstitutionsFIU StateFinancialMonitoringServiceofUkraineFMEs FinancialMonitoringEntitiesITs InternationalTreatiesLawonBanks LawonBanksandBankingActivityLawonLicensing LawonLicensingofEconomicActivitiesLEAs LawEnforcementAgenciesMEDT MinistryofEconomicDevelopmentandTradeofUkraineMER MutualEvaluationReportMFA MinistryofForeignAffairsMIA MinistryofInternalAffairsML MoneyLaunderingMLA MutualLegalAssistanceMoF MinistryofFinanceofUkraineMVTS MoneyorValueTransferServicesNABU NationalAnti‐CorruptionBureauofUkraineNBFIs Non‐BankingFinancialInstitutionsNBU NationalBankofUkraine

217

216   

NC National Commission for State Regulation of FinancialServicesMarketsofUkraine

NGOs Non‐GovernmentalOrganisationsNP NationalPoliceofUkraineNPOs Non‐ProfitOrganisationsNRA NationalRiskAssessmentNSSMC NationalSecuritiesandStockMarketCommissionPEPs PoliticallyExposedPersonsPF ProliferationFinancingPFMEs PrimaryFinancialMonitoringEntitiesPGOU ProsecutorGeneral’sOfficeofUkraineRBA Risk‐BasedApproachREs ReportingEntitiesRMSs RiskManagementSystemsSAR SuspiciousActivityReportSAs SupervisoryAuthoritiesSBI StateBureauofInvestigationSC SecuritiesCommissionSFS StatefiscalServiceofUkraineSJA StateJudicialAdministrationofUkraineSL SectoralLegislationSROs SupervisoryRegulationsandOrdersSSU SecurityServiceofUkraineSTR SuspiciousTransactionReportTF TerroristFinancingTFC TerroristFinancingConventionTFS TargetedfinancialsanctionsUAs UkrainianAuthoritiesUBO UltimateBeneficiaryOwnerVC ViennaConventionWG WorkingGroupWMDs WeaponsofMassDestruction

218

Anti-money laundering and counter-terrorist financing measures

UkraineFifth Round Mutual Evaluation Report

This report provides a summary of the AML/CFT measures in place in Ukraine as at the date of the on-site visit (27 March to 8 April 2017). It analyses the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Ukraine’s AML/CFT system, and provides recommendations on how the system could be strengthened.

© MONEYVAL

www.coe.int/MONEYVAL

December 2017

219

RATINGS

OF

COUNTRIES(asof30.01.2018)

Country Report Type

Report Date

Assessment body/bodies ІО1 ІО2 ІО3 ІО4 ІО5 ІО6 ІО7 ІО8 ІО9 ІО10 ІО11

Armenia MER Jan.16 MONEYVAL ME SE ME SE SE ME LE LE SE SE SE Andorra MER Sep.17 MONEYVAL SE SE ME ME ME SE ME ME SE ME ME Australia MER Apr.15 FATF/APG SE HE ME ME ME SE ME ME SE ME SE Austria MER+FUR Dec.17 FATF ME SE ME ME ME LE LE ME SE ME SE Austria MER Sep.16 FATF ME SE ME ME ME LE LE ME SE ME SE Austria FUR Dec.17 FATF ME SE ME ME ME LE LE ME SE ME SE

Bahamas MER Aug.17 CFATF LE ME ME ME ME ME LE LE LE LE LE Bangladesh MER Nov.16 APG ME SE ME LE LE ME LE LE SE ME SE

Belgium MER Apr.16 FATF SE SE ME ME ME SE ME ME SE ME ME Bhutan MER Nov.16 APG LE ME LE LE LE LE LE LE ME LE LE

Botswana MER May.17 ESAAMLG LE ME LE LE LE ME LE LE LE LE LE Canada MER Sep.16 IMF/FATF/APG SE SE SE ME LE ME ME ME SE SE ME

Cambodia MER Sep.17 APG ME ME LE LE LE LE LE LE SE ME LE Costa Rica MER+FUR Oct.17 GAFILAT ME SE ME ME LE ME ME ME ME LE LE Costa Rica MER Dec.15 GAFILAT ME SE ME ME LE ME ME ME ME LE LE Costa Rica FUR1 Oct.16 GAFILAT ME SE ME ME LE ME ME ME ME LE LE Costa Rica FUR2 Oct.17 GAFILAT ME SE ME ME LE ME ME ME ME LE LE

Cuba MER+FUR Oct.17 GAFILAT ME ME SE ME SE ME ME SE SE SE ME Cuba MER Dec.15 GAFILAT ME ME SE ME SE ME ME SE SE SE ME Cuba FUR Oct.17 GAFILAT ME ME SE ME SE ME ME SE SE SE ME

Denmark MER Aug.17 FATF ME SE LE LE ME ME ME ME SE ME SE Ethiopia MER Jun.15 ESAAMLG/WB LE ME LE LE ME LE LE LE LE LE LE

Fiji MER+FUR Oct.17 APG ME ME ME ME LE ME ME LE LE LE LE Fiji MER Nov.16 APG ME ME ME ME LE ME ME LE LE LE LE Fiji FUR Oct.17 APG ME ME ME ME LE ME ME LE LE LE LE

Guatemala MER Feb.17 CFATF/GAFILAT ME SE ME ME ME SE SE SE ME ME ME Honduras MER Jan.17 GAFILAT ME SE ME ME LE ME ME HE SE ME LE Hungary MER Jan.17 MONEYVAL LE SE ME ME LE SE LE LE ME ME ME Ireland MER Sep.17 FATF SE SE SE ME ME SE ME ME ME ME SE

Isle of Man MER Feb.17 MONEYVAL SE SE ME ME ME LE LE LE ME ME ME Italy MER Feb.16 IMF/FATF SE SE ME ME SE SE SE SE SE ME SE

Jamaica MER Jan.17 CFATF ME ME ME LE LE ME LE SE LE LE LE Macao, China MER Dec.17 APG ME SE SE ME SE SE LE LE ME SE SE

Malaysia MER Sep.15 APG/FATF SE ME SE ME ME SE ME ME ME SE ME Mexico MER Jan.18 IMF/FATF/GAFILAT SE SE ME LE ME ME LE LE ME SE SE

Nicaragua MER Oct.17 GAFILAT ME ME LE ME LE LE ME SE ME ME LE Mongolia MER Sep.17 APG LE ME LE LE LE LE LE ME LE LE LE Norway MER Dec.14 FATF ME SE ME ME ME ME ME ME SE ME ME Panama MER Jan.18 GAFILAT LE ME ME ME LE LE ME ME ME SE SE Portugal MER Dec.17 FATF SE SE ME ME ME ME SE ME SE SE SE Samoa MER+FUR Oct.17 APG ME SE LE ME ME LE LE ME ME ME LE Samoa MER Oct.15 APG ME SE LE ME ME LE LE ME ME ME LE Samoa FUR Oct.17 APG ME SE LE ME ME LE LE ME ME ME LE Serbia MER Jun.16 MONEYVAL ME ME ME ME ME ME LE ME ME LE LE

Singapore MER Sep.16 FATF/APG SE SE ME ME ME SE ME ME LE ME SE Slovenia MER Aug.17 MONEYVAL ME SE ME ME ME ME ME ME ME ME ME

Spain MER Dec.14 FATF SE SE SE ME SE HE SE SE SE ME ME Sri Lanka MER Oct.15 APG ME LE LE LE LE LE LE LE SE LE LE Sweden MER Apr.17 FATF ME HE ME ME ME ME SE SE SE ME SE

Switzerland MER Dec.16 FATF SE ME ME ME ME SE SE SE SE SE SE Thailand MER Dec.17 APG SE SE ME LE LE SE ME SE ME ME LE

Trinidad and Tobago MER Jun.16 CFATF ME ME ME ME ME ME LE LE LE LE LE Tunisia MER+FUR Dec.17 MENAFATF ME ME LE LE LE ME ME ME LE LE LE Tunisia MER Jun.16 MENAFATF/ WB ME ME LE LE LE ME ME ME LE LE LE Tunisia FUR Dec.17 MENAFATF ME ME LE LE LE ME ME ME LE LE LE Uganda MER Sep.16 ESAAMLG LE LE LE LE LE LE LE LE LE LE LE Ukraine MER Jan.18 MONEYVAL SE ME ME ME ME SE LE ME ME ME ME

United States MER Dec.16 FATF/APG SE SE ME ME LE SE SE HE HE HE HE Vanuatu MER+FUR Nov.17 APG LE LE LE LE LE LE LE LE LE LE LE Vanuatu MER Oct.15 APG LE LE LE LE LE LE LE LE LE LE LE Vanuatu FUR Nov.17 APG LE LE LE LE LE LE LE LE LE LE LE

Zimbabwe MER Jan.17 ESAAMLG LE LE LE LE LE LE LE LE ME ME LE

220

Country Report Type

Report Date

Assessment body/bodies R.1 R.2 R.3 R.4 R.5 R.6 R.7 R.8 R.9 R.10 R.11

Armenia MER Jan.16 MONEYVAL PC LC LC LC LC LC PC LC C LC C Andorra MER Sep.17 MONEYVAL LC PC PC C LC LC C PC LC LC LC Australia MER Apr.15 FATF/APG PC LC C C LC C C NC C PC LC Austria MER+FUR Dec.17 FATF LC LC LC C C PC PC PC C C C Austria MER Sep.16 FATF PC PC LC C C PC PC PC LC LC C Austria FUR Dec.17 FATF LC LC LC C C PC PC PC C C C

Bahamas MER Aug.17 CFATF PC PC C C LC NC PC PC C PC LC Bangladesh MER Nov.16 APG PC LC LC LC LC C LC LC PC LC C

Belgium MER Apr.16 FATF LC LC C C LC PC PC PC C LC C Bhutan MER Nov.16 APG NC PC PC PC NC NC NC PC LC C C

Botswana MER May.17 ESAAMLG NC PC PC PC NC NC NC NC NC NC NCCanada MER Sep.16 IMF/FATF/APG LC C C LC LC LC LC C C LC LC

Cambodia MER Sep.17 APG PC PC LC LC LC LC NC PC C LC LC Costa Rica MER+FUR Oct.17 GAFILAT LC C C LC C LC C PC C LC C Costa Rica MER Dec.15 GAFILAT PC PC LC LC PC PC NC NC C LC C Costa Rica FUR1 Oct.16 GAFILAT LC C C LC C PC PC NC C LC C Costa Rica FUR2 Oct.17 GAFILAT LC C C LC C LC C PC C LC C

Cuba MER+FUR Oct.17 GAFILAT LC C LC LC C C LC PC C LC C Cuba MER Dec.15 GAFILAT LC C LC LC C C LC PC C LC C Cuba FUR Oct.17 GAFILAT LC C LC LC C C LC PC C LC C

Denmark MER Aug.17 FATF PC PC LC LC C PC PC PC LC PC LC Ethiopia MER Jun.15 ESAAMLG/WB NC PC LC LC LC NC NC PC C LC C

Fiji MER+FUR Oct.17 APG LC PC LC C C PC PC PC C LC C Fiji MER Nov.16 APG PC PC LC C PC NC NC PC C PC PCFiji FUR Oct.17 APG LC PC LC C C PC PC PC C LC C

Guatemala MER Feb.17 CFATF/GAFILAT LC C LC LC PC PC PC LC C LC C Honduras MER Jan.17 GAFILAT PC LC LC C LC LC PC LC C LC C Hungary MER Jan.17 MONEYVAL PC PC LC C PC PC PC PC C PC LC Ireland MER Sep.17 FATF LC LC C C LC PC PC PC C LC LC

Isle of Man MER Feb.17 MONEYVAL LC C C LC LC LC LC LC C LC LC Italy MER Feb.16 IMF/FATF LC LC LC C C LC PC LC C LC C

Jamaica MER Jan.17 CFATF PC PC LC LC LC NC PC NC C PC PCMacao, China MER Dec.17 APG LC LC LC C LC C C LC C C C

Malaysia MER Sep.15 APG/FATF LC C LC LC LC C PC LC LC C LC Mexico MER Jan.18 IMF/FATF/GAFILAT LC LC C LC LC C C PC C PC LC

Nicaragua MER Oct.17 GAFILAT PC LC LC LC PC LC NC PC LC PC PCMongolia MER Sep.17 APG PC PC LC LC LC PC NC PC LC LC C Norway MER Dec.14 FATF PC PC C LC LC PC PC LC LC PC LC Panama MER Jan.18 GAFILAT LC LC PC C LC LC LC LC C LC LC Portugal MER Dec.17 FATF LC LC LC C LC C C PC LC LC C Samoa MER+FUR Oct.17 APG PC LC PC LC PC PC NC PC C PC C Samoa MER Oct.15 APG PC PC PC LC PC PC NC PC C PC C Samoa FUR Oct.17 APG PC LC PC LC PC PC NC PC C PC C Serbia MER Jun.16 MONEYVAL PC LC LC LC LC PC NC PC LC PC LC

Singapore MER Sep.16 FATF/APG LC C LC C LC LC LC LC C C C Slovenia MER Aug.17 MONEYVAL PC LC LC LC PC PC PC PC LC LC C

Spain MER Dec.14 FATF C LC LC C LC PC PC LC C LC C Sri Lanka MER Oct.15 APG PC PC LC PC C LC NC PC LC NC LC Sweden MER Apr.17 FATF LC PC LC LC LC PC PC LC LC LC C

Switzerland MER Dec.16 FATF LC LC LC LC LC LC C PC C PC C Thailand MER Dec.17 APG PC LC LC LC LC LC NC PC LC LC LC

Trinidad and Tobago MER Jun.16 CFATF PC LC LC LC C PC NC NC C LC C Tunisia MER+FUR Dec.17 MENAFATF LC PC C LC LC PC NC PC C LC C Tunisia MER Jun.16 MENAFATF/WB PC PC C LC C PC NC LC C PC C Tunisia FUR Dec.17 MENAFATF LC PC C LC LC PC NC PC C LC C Uganda MER Sep.16 ESAAMLG NC PC PC LC NC NC NC NC C PC NCUkraine MER Jan.18 MONEYVAL LC C LC LC PC PC PC LC C LC C

United States MER Dec.16 FATF/APG PC C LC LC C LC LC LC C PC LC Vanuatu MER+FUR Nov.17 APG NC NC NC PC PC PC NC NC LC PC LC Vanuatu MER Oct.15 APG NC NC NC PC PC PC NC NC LC PC LC Vanuatu FUR Nov.17 APG NC NC NC PC PC PC NC NC LC PC LC

Zimbabwe MER Jan.17 ESAAMLG PC LC C PC C C NC NC C PC C

221

Country Report

Type Report Date

Assessment body/bodies R.12 R.13 R.14 R.15 R.16 R.17 R.18 R.19 R.20 R.21 R.22

Armenia MER Jan.16 MONEYVAL PC C C C C C C C C C LCAndorra MER Sep.17 MONEYVAL PC LC LC PC PC LC LC C LC LC PCAustralia MER Apr.15 FATF/APG LC NC LC LC PC PC PC PC C C NCAustria MER+FUR Dec.17 FATF C LC C C C LC C C C C LCAustria MER Sep.16 FATF PC LC C PC PC LC PC C C C PCAustria FUR Dec.17 FATF C LC C C C LC C C C C LC

Bahamas MER Aug.17 CFATF PC C C PC LC PC PC PC C C PCBangladesh MER Nov.16 APG LC LC LC C PC LC PC PC C C LC

Belgium MER Apr.16 FATF PC PC LC LC PC PC PC LC C C LCBhutan MER Nov.16 APG C C PC C LC LC LC LC PC NC C

Botswana MER May.17 ESAAMLG NC NC NC NC NC NA PC NC PC NC NCCanada MER Sep.16 IMF/FATF/APG NC LC C NC PC PC LC C PC LC NC

Cambodia MER Sep.17 APG PC PC LC C PC LC PC PC LC LC PCCosta Rica MER+FUR Oct.17 GAFILAT LC LC C C LC PC LC C C C PCCosta Rica MER Dec.15 GAFILAT LC LC C NC PC NC LC PC PC LC PCCosta Rica FUR1 Oct.16 GAFILAT LC LC C C LC PC LC C C C PCCosta Rica FUR2 Oct.17 GAFILAT LC LC C C LC PC LC C C C PC

Cuba MER+FUR Oct.17 GAFILAT C C C C C C C C C C LCCuba MER Dec.15 GAFILAT C C LC C C C C C C C LCCuba FUR Oct.17 GAFILAT C C C C C C C C C C LC

Denmark MER Aug.17 FATF PC PC LC PC PC PC PC LC C C PCEthiopia MER Jun.15 ESAAMLG/WB C C PC LC C C LC PC C LC LC

Fiji MER+FUR Oct.17 APG PC C C PC LC LC LC NC LC LC PCFiji MER Nov.16 APG PC C C PC PC PC PC NC LC LC NCFiji FUR Oct.17 APG PC C C PC LC LC LC NC LC LC PC

Guatemala MER Feb.17 CFATF/GAFILAT LC C PC PC PC PC C C LC C PCHonduras MER Jan.17 GAFILAT LC C C C PC PC LC C C C LCHungary MER Jan.17 MONEYVAL PC PC LC PC PC LC PC PC C LC PCIreland MER Sep.17 FATF PC PC LC PC PC LC PC NC C C PC

Isle of Man MER Feb.17 MONEYVAL LC C LC C PC LC LC C C LC LCItaly MER Feb.16 IMF/FATF LC PC C LC PC LC LC C LC LC LC

Jamaica MER Jan.17 CFATF PC C PC C LC PC PC PC C PC PCMacao, China MER Dec.17 APG C C C C LC C C C C C PC

Malaysia MER Sep.15 APG/FATF LC LC C C C LC C C C C LCMexico MER Jan.18 IMF/FATF/GAFILAT PC LC LC PC PC PC PC LC PC LC PC

Nicaragua MER Oct.17 GAFILAT PC C PC PC LC LC LC LC PC PC NCMongolia MER Sep.17 APG LC LC PC LC LC NC LC PC LC PC NCNorway MER Dec.14 FATF PC PC LC PC PC PC PC LC C LC PCPanama MER Jan.18 GAFILAT C C PC C LC LC C PC PC C LCPortugal MER Dec.17 FATF LC PC C LC PC LC LC LC LC C PCSamoa MER+FUR Oct.17 APG PC PC C PC PC PC LC NC LC C PCSamoa MER Oct.15 APG PC PC C PC PC PC LC NC LC C PCSamoa FUR Oct.17 APG PC PC C PC PC PC LC NC LC C PCSerbia MER Jun.16 MONEYVAL PC PC LC LC PC C PC PC C C PC

Singapore MER Sep.16 FATF/APG C C LC C C C C LC LC C PCSlovenia MER Aug.17 MONEYVAL PC PC C C PC LC LC LC C C LC

Spain MER Dec.14 FATF C C C C PC LC C C C C LCSri Lanka MER Oct.15 APG NC NC NC PC NC NC PC NC C C NCSweden MER Apr.17 FATF LC LC C C PC PC PC LC C C LC

Switzerland MER Dec.16 FATF LC LC C LC PC LC LC PC LC LC PCThailand MER Dec.17 APG LC PC LC LC PC C LC PC PC LC NC

Trinidad and Tobago MER Jun.16 CFATF C C C C LC C C PC C LC LCTunisia MER+FUR Dec.17 MENAFATF LC LC LC LC LC LC LC LC C C PCTunisia MER Jun.16 MENAFATF/ WB PC LC LC PC NC PC PC PC C C PCTunisia FUR Dec.17 MENAFATF LC LC LC LC LC LC LC LC C C PCUganda MER Sep.16 ESAAMLG NC C PC NC NC NC NC NC NC C PCUkraine MER Jan.18 MONEYVAL LC C LC LC C NA LC C C C LC

United States MER Dec.16 FATF/APG PC LC LC LC PC LC LC LC PC C NCVanuatu MER+FUR Nov.17 APG LC LC PC LC NC NC NC PC LC LC PCVanuatu MER Oct.15 APG LC LC PC LC NC NC NC PC LC LC PCVanuatu FUR Nov.17 APG LC LC PC LC NC NC NC PC LC LC PC

Zimbabwe MER Jan.17 ESAAMLG PC LC PC NC PC LC PC NC C C PC

222

Country Report

Type Report Date

Assessment body/bodies R.23 R.24 R.25 R.26 R.27 R.28 R.29 R.30 R.31 R.32 R.33

Armenia MER Jan.16 MONEYVAL C LC LC LC C PC C LC PC C C Andorra MER Sep.17 MONEYVAL PC LC PC PC LC PC LC C PC PC LC Australia MER Apr.15 FATF/APG NC PC NC PC PC NC C LC LC LC LC Austria MER+FUR Dec.17 FATF LC PC PC C C LC LC C LC LC PC Austria MER Sep.16 FATF LC PC PC C C LC PC C LC LC PC Austria FUR Dec.17 FATF LC PC PC C C LC LC C LC LC PC

Bahamas MER Aug.17 CFATF PC PC PC PC PC PC C PC LC PC PC Bangladesh MER Nov.16 APG LC PC PC PC LC PC LC C LC LC PC

Belgium MER Apr.16 FATF LC LC LC PC LC PC C C C C PC Bhutan MER Nov.16 APG PC PC LC PC C NC NC PC PC PC PC

Botswana MER May.17 ESAAMLG PC NC NC NC LC NC NC PC PC PC NC Canada MER Sep.16 IMF/FATF/APG NC PC NC LC C PC PC C LC LC C

Cambodia MER Sep.17 APG LC PC PC PC LC PC LC LC LC LC PC Costa Rica MER+FUR Oct.17 GAFILAT PC LC LC LC LC NC PC LC LC C LC Costa Rica MER Dec.15 GAFILAT PC PC PC LC LC NC PC LC LC C LC Costa Rica FUR1 Oct.16 GAFILAT PC PC PC LC LC NC PC LC LC C LC Costa Rica FUR2 Oct.17 GAFILAT PC LC LC LC LC NC PC LC LC C LC

Cuba MER+FUR Oct.17 GAFILAT LC LC C LC LC PC LC LC PC C LC Cuba MER Dec.15 GAFILAT LC LC C LC LC PC LC LC PC C LC Cuba FUR Oct.17 GAFILAT LC LC C LC LC PC LC LC PC C LC

Denmark MER Aug.17 FATF LC PC PC PC LC LC LC C LC LC PC Ethiopia MER Jun.15 ESAAMLG/WB LC PC NA LC C PC LC LC LC PC PC

Fiji MER+FUR Oct.17 APG PC PC PC LC LC PC C C LC LC PC Fiji MER Nov.16 APG PC PC PC LC LC PC C C LC LC PC Fiji FUR Oct.17 APG PC PC PC LC LC PC C C LC LC PC

Guatemala MER Feb.17 CFATF/GAFILAT PC LC LC C LC PC C C C C C Honduras MER Jan.17 GAFILAT PC NC LC LC C PC LC C C C PC Hungary MER Jan.17 MONEYVAL PC PC PC LC LC PC C C LC PC PC Ireland MER Sep.17 FATF LC LC PC LC C LC PC C LC PC PC

Isle of Man MER Feb.17 MONEYVAL PC PC PC LC LC LC LC C C LC LC Italy MER Feb.16 IMF/FATF LC LC LC LC LC LC LC C C LC LC

Jamaica MER Jan.17 CFATF PC PC PC PC PC PC LC LC LC LC PC Macao, China MER Dec.17 APG PC LC LC C C LC C LC C NC LC

Malaysia MER Sep.15 APG/FATF LC PC PC C C LC C C C LC C Mexico MER Jan.18 IMF/FATF/GAFILAT NC PC LC LC LC PC C LC LC PC PC

Nicaragua MER Oct.17 GAFILAT NC NC NC PC LC NC C C LC LC LC Mongolia MER Sep.17 APG NC PC PC PC LC NC PC C C PC PC Norway MER Dec.14 FATF LC PC PC PC LC PC LC C LC C PC Panama MER Jan.18 GAFILAT LC NC PC LC LC LC C PC LC LC PC Portugal MER Dec.17 FATF LC PC PC LC C LC LC C C LC LC Samoa MER+FUR Oct.17 APG PC PC PC PC PC PC LC C LC LC LC Samoa MER Oct.15 APG PC PC PC PC PC PC LC C LC LC LC Samoa FUR Oct.17 APG PC PC PC PC PC PC LC C LC LC LC Serbia MER Jun.16 MONEYVAL PC LC PC PC LC PC LC LC LC LC LC

Singapore MER Sep.16 FATF/APG PC PC PC LC C PC C C C C LC Slovenia MER Aug.17 MONEYVAL LC LC LC PC C PC C C LC PC LC

Spain MER Dec.14 FATF C LC LC LC C LC C C C C C Sri Lanka MER Oct.15 APG PC NC NC PC C NC PC C LC PC PC Sweden MER Apr.17 FATF LC PC PC PC LC LC LC C LC PC LC

Switzerland MER Dec.16 FATF PC LC LC LC LC LC C C LC LC PC Thailand MER Dec.17 APG PC PC PC PC LC PC LC C LC PC LC

Trinidad and Tobago MER Jun.16 CFATF LC PC PC PC LC PC LC C LC PC PC Tunisia MER+FUR Dec.17 MENAFATF PC PC PC PC LC PC LC C PC LC PC Tunisia MER Jun.16 MENAFATF/ WB PC PC NC NC LC PC LC C PC LC PC Tunisia FUR Dec.17 MENAFATF PC PC PC PC LC PC LC C PC LC PC Uganda MER Sep.16 ESAAMLG PC NC NC NC NC NC PC PC PC NC NC Ukraine MER Jan.18 MONEYVAL LC LC PC LC LC PC C C C LC PC

United States MER Dec.16 FATF/APG NC NC PC LC C NC C C LC C LC Vanuatu MER+FUR Nov.17 APG PC NC NC LC PC LC LC C PC LC NC Vanuatu MER Oct.15 APG PC NC NC PC PC PC LC C PC LC NC Vanuatu FUR Nov.17 APG PC NC NC LC PC LC LC C PC LC NC

Zimbabwe MER Jan.17 ESAAMLG PC NC NC PC LC PC PC C LC LC PC

223

Country Report Type

Report Date

Assessment body/bodies R.34 R.35 R.36 R.37 R.38 R.39 R.40

Armenia MER Jan.16 MONEYVAL C LC LC LC LC LC C Andorra MER Sep.17 MONEYVAL PC LC PC LC LC LC LC Australia MER Apr.15 FATF/APG LC PC LC C C C C Austria MER+FUR Dec.17 FATF LC C LC LC LC C LC Austria MER Sep.16 FATF LC C LC LC LC C LC Austria FUR Dec.17 FATF LC C LC LC LC C LC

Bahamas MER Aug.17 CFATF LC PC LC LC LC LC LC Bangladesh MER Nov.16 APG PC PC LC LC LC LC LC

Belgium MER Apr.16 FATF LC LC C LC LC LC LC Bhutan MER Nov.16 APG PC PC PC NC NC LC PC

Botswana MER May.17 ESAAMLG PC NC PC LC PC PC PC Canada MER Sep.16 IMF/FATF/APG LC LC C LC LC C LC

Cambodia MER Sep.17 APG PC PC LC PC PC LC PC Costa Rica MER+FUR Oct.17 GAFILAT LC PC C C LC C C Costa Rica MER Dec.15 GAFILAT LC PC C C LC C C Costa Rica FUR1 Oct.16 GAFILAT LC PC C C LC C C Costa Rica FUR2 Oct.17 GAFILAT LC PC C C LC C C

Cuba MER+FUR Oct.17 GAFILAT LC PC LC LC LC LC LC Cuba MER Dec.15 GAFILAT LC PC LC LC LC LC LC Cuba FUR Oct.17 GAFILAT LC PC LC LC LC LC LC

Denmark MER Aug.17 FATF PC PC LC LC LC LC LC Ethiopia MER Jun.15 ESAAMLG/WB PC LC PC LC LC LC NC

Fiji MER+FUR Oct.17 APG LC LC PC LC C PC LC Fiji MER Nov.16 APG LC PC PC LC C PC LC Fiji FUR Oct.17 APG LC LC PC LC C PC LC

Guatemala MER Feb.17 CFATF/GAFILAT C PC C LC LC LC LC Honduras MER Jan.17 GAFILAT NC PC LC LC LC LC LC Hungary MER Jan.17 MONEYVAL PC PC LC LC LC LC LC Ireland MER Sep.17 FATF LC LC C C LC C LC

Isle of Man MER Feb.17 MONEYVAL LC PC LC LC LC C LC Italy MER Feb.16 IMF/FATF LC PC C LC LC C LC

Jamaica MER Jan.17 CFATF LC PC LC C LC C PC Macao, China MER Dec.17 APG C C LC C LC LC LC

Malaysia MER Sep.15 APG/FATF LC LC LC LC LC LC LC Mexico MER Jan.18 IMF/FATF/GAFILAT LC LC LC PC PC LC LC

Nicaragua MER Oct.17 GAFILAT LC PC LC LC LC LC LC Mongolia MER Sep.17 APG PC PC C C LC LC LC Norway MER Dec.14 FATF LC PC C LC LC LC LC Panama MER Jan.18 GAFILAT C LC C LC LC LC LC Portugal MER Dec.17 FATF LC LC C LC C C LC Samoa MER+FUR Oct.17 APG PC PC PC LC LC LC LC Samoa MER Oct.15 APG PC PC PC LC LC LC LC Samoa FUR Oct.17 APG PC PC PC LC LC LC LC Serbia MER Jun.16 MONEYVAL LC PC LC LC LC LC PC

Singapore MER Sep.16 FATF/APG LC PC C LC LC LC LC Slovenia MER Aug.17 MONEYVAL C C LC LC LC LC LC

Spain MER Dec.14 FATF C C C C C LC C Sri Lanka MER Oct.15 APG PC PC LC PC PC LC PC Sweden MER Apr.17 FATF LC LC C LC LC C C

Switzerland MER Dec.16 FATF LC PC LC LC LC LC PC Thailand MER Dec.17 APG LC PC LC LC C LC LC

Trinidad and Tobago MER Jun.16 CFATF C PC LC PC PC LC PC Tunisia MER+FUR Dec.17 MENAFATF PC LC LC C PC C LC Tunisia MER Jun.16 MENAFATF/ WB NC LC PC C PC C LC Tunisia FUR Dec.17 MENAFATF PC LC LC C PC C LC Uganda MER Sep.16 ESAAMLG PC PC C PC PC NC PC Ukraine MER Jan.18 MONEYVAL C PC LC LC LC LC LC

United States MER Dec.16 FATF/APG LC LC LC LC LC LC C Vanuatu MER+FUR Nov.17 APG PC PC PC PC NC PC NC Vanuatu MER Oct.15 APG PC PC PC PC NC PC NC Vanuatu FUR Nov.17 APG PC PC PC PC NC PC NC

Zimbabwe MER Jan.17 ESAAMLG PC LC C C LC C LC

224

EVALUATIONSCALE

Effectiveness

TechnicalCompliance

HE Highlevelofeffectiveness C CompliantSE Substantiallevelofeffectiveness LC LargelycompliantME Moderatelevelofeffectiveness PC PartiallycompliantLE Lowlevelofeffectiveness NC Non‐compliant

NA Notapplicable

225

226

COMMITTEE OF EXPERTS ON THE EVALUATION OF ANTI-MONEY LAUNDERING MEASURES AND THE FINANCING OF TERRORISM (MONEYVAL)

MONEYVAL(2017)20

Anti-money laundering and counter-terrorist financing measures

UkraineFifth Round Mutual Evaluation Report

December 2017

Dear colleagues !

On December 7, 2017, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) approved the 5th round mutual evaluation Report of Ukraine. On January 30, 2018, the Report was published on MONEYVAL’s web-site (https://rm.coe.int/fifth-round-mutual-evaluation-report-on-ukraine/1680782396).

The approval of the Report was preceded by a hard work of MONEYVAL’s experts, in particular the evaluation team of Ukraine, including a scientific expert from the United Kingdom of Great Britain and Northern Ireland, and the representatives of such countries as the State of Israel, the Principality of Liechtenstein, the United States of America, the Isle of Man, Guernsey, as well as the representatives of MONEYVAL Secretariat. In the process of preparation, the draft report has been reviewed by the representatives of the Republic of Armenia, Hungary and FATF Secretariat.

The adjustment of the Report was also promoted by a number of unprecedented complex organizational and practical measures which have been taken and coordinated by the State Financial Monitoring Service of Ukraine during the whole evaluation process which lasted more than a year and started in August 2016.

The State Financial Monitoring Service of Ukraine has been a national coordinator of the 5th round mutual evaluation of Ukraine and its significant efforts have been focused on completeness of information and analytical support of international experts, as well as on coordination of joint actions with state authorities of Ukraine in this area.

In full, the report confirmed that Ukraine is a reliable jurisdiction in the AML/CFT area which does not require the special control measures of MONEYVAL and FATF.

The mentioned result assures an unconditional progress in the development of the national AML/CFT system and confirms the growing effectiveness of actions of all its participants.

As a result of evaluation, MONEYVAL confirmed a significant level of operational and institutional development of the national financial intelligence unit – the State Financial Monitoring Service of Ukraine following all ratings.

In addition, the Report focuses on the significant level of inter-agency coordination, the quality of the first National Risk Assessment, the organization of international cooperation, as well as high level of regulatory and supervisory activities, in particular over the banking sector and the securities market.

Consequently, the MONEYVAL has recommended a number of constructive recommendations to the work of the national financial monitoring system which pertain all evaluated areas of activities.

The State Financial Monitoring Service of Ukraine will continue to take effective actions in the context of further development of internal cooperation and cooperation with the MONEYVAL and all international community.

Head of the State Financial Monitoring Service of Ukraine Igor Cherkaskyi

An unofficial translation of the report in Ukrainian has been made by the State Financial Monitoring Service of Ukraine. The publication of the report was made with the assistance of the EU Anti-Corruption Initiative in Ukraine (EUACI).

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