EAU Newsletter “Money laundering problem in Ukraine and Europe”

The tragic events of 09.11.2001 in the U.S.A. made the world community to realize more clearly than ever the vulnerability of the world order to the organized crime and terrorism. The globalization processes made more urgent the international cooperation in the struggle against criminal acts of transnational character. 

The fight against money laundering takes on special significance, since it counteracts legalization of the proceeds from crime. The scale of money laundering across the globe is striking. According to the International Monetary Fund reports the total amount of laundered money worldwide is 2-5% of the world gross domestic product. According to the statistics in 2006 the absolutely measured amount of money laundering ranged between 1 and 1.5 trillion US dollars which was approximately the equivalent of the GDP of such country as Spain.

Money laundering is a significant threat to the security of the EU financial system and the stability of the European social system. Nowadays there are a number of documents in the EC designed to assist the countries to develop effective measures against “laundered” money and to coordinate their international efforts. Nevertheless, the criminals are in constant search of new ways of money laundering. The countries with growing economic potential and developing financial centers, but with poor monitoring, like Ukraine, are in the focus of a special interest of criminals dealing with money laundering.

We should keep in mind three basic reasons highlighting the importance of fight against “laundered” money in Ukraine. Firstly, the fight against money laundering in Ukraine will allow detecting the crimes committed for gaining the proceeds of crime on a world-wide scale (corruption, drug business, fraud, tax evasion, and other types of organized crime). Secondly, the fight against money laundering will support combating international corruption which is now undermining the efforts of Ukraine to establish democratic political institutions and stable economic system. Thirdly, it is expected that the fight against this type of the economic crime will help to secure the integrity of Ukrainian and European financial systems from the negative influence of the criminal capital.

The globalization of economic processes entail that the legalization of the proceeds from crime in Ukraine has the direct impact on the economic and financial security of the European Union countries. For the European Union the money laundering problem lies in the transferring to European banks of the money connected with corruption, drug business, prostitution, weapons and human trafficking, as well as the money stolen by the leaders of the poorest countries from their people. Thus, the money laundering problems exist both in Europe and Ukraine. But these problems are completely different.

Coordination of EU countries and Ukraine’s efforts, technical and methodological assistance by European countries for Ukraine will contribute to strengthening the Ukrainian fight against legalization of proceeds from crime. Europe efficient legislation in this field, however the Legal System of Ukraine is yet to go a difficult way of development. Experience of European countries in suppressing of criminal schemes of money laundering may also prove useful for Ukraine. Intense cooperation between the EU and Ukraine on this matter will serve to protect European countries from Ukrainian criminal groups dealing in “laundering” of proceeds from crime penetrating Europe.

Ukrainian Legislation, approved at the end of 2002 in order to fight money laundering, gained positive results – in 2005 FATF ceased monitoring Ukraine, this International Organization monitors countries taking an active part in legalization of illegal incomes.

Ukraine’s entry into the WTO together with the forthcoming signing of the “Strengthened Agreement” between Ukraine and the European Union shall considerably simplify conditions for the economic and trade contacts among representatives of Ukrainian and European business. It is quite possible that liberalization of relations between Ukraine and the European Union can create new favorable conditions for money laundering.

To prevent money laundering, the Ukrainian Government approved the respective regulatory legal act – “Plan of measures to fight money laundering for the year of 2007”. This act contains several novelties as compared with the analogous one dated 2006. One of them is the Government order regarding financial service market controlling and regulatory bodies to investigate whether such widespread securities as savings (deposit) certificates and bank endorsed bills of exchange can be used for money laundering. Nevertheless, Ukraine is to rely upon more serious attention on the part of European Union to this matter.

It is pleasant to emphasize that European Union admits importance to continue Ukraine’s measures to fight dirty money laundering. In 2007 the European Committee for Ukraine allocated UAH5.3 millions to finance the money laundering fight. It is planned to be the second project in fight against money laundering and terrorism financing in Ukraine. The MOLI-UA-2 project is financed by the European Committee and introduced by the European Council. The goal of the project is to help Ukrainian bodies of executive power to improve steps to fight money laundering and terrorism financing. The MOLI-UA-2 project will contribute to bringing the Ukrainian legislation concerning the fight against money laundering and terrorism financing in accordance with the international norms and standards, improving professional skills of leading institutions engaged in the national fight against money laundering and terrorism financing as well as developing organizational and technical infrastructure of the national system in the fight against money laundering and terrorism financing.

Not only cooperation of EU and Ukraine authorities but also social control improvement in the fight to legalize criminally obtained incomes is important to strengthen the Ukrainian and European Union financial and economic security. This will require both increase of financing of measures in the state sector and strengthening of public role in fight against money laundering in Ukraine. For this purpose, the following steps are considered necessary to be undertaken:

- Development, approval of the joint social control system in the field of fight against dirty money laundering in Ukraine. Finding of stable sources to finance such project;
- Creation and constant support of the negative public opinion concerning the process of legalization of “dirty” money;
- Augmentation of grants for scientific and research work in this field;
- Creation of a system of constant monitoring of the processes and efficient information exchange between Ukraine and the European Union.