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The concept of “financial monitoring” is not new for business and citizens. But they started talking about
him especially actively in April 2020, when the new Law “On Prevention and Counteraction to
Legalization (Laundering) of Criminally Obtained Incomes, Financing of Terrorism and Financing the
Proliferation of Weapons of Mass Destruction” came into force. He is also the Law “On Financial
Monitoring”.
From the name of the Law it might seem that financial monitoring concerns only those who are engaged
in something illegal. But in fact, any company or individual can face a financial monetary, for example,
when it receives a large amount of money in the account or buys expensive real estate.
So, for your own peace of mind, it is better to understand how financial monitoring is organized and
according to what rules it works. We will talk about this further.
The financial monitoring system operates at the state and primary level. At the state level, the National
Bank, the State Service for Financial Monitoring, the Ministry of Justice, the National Commission for
Securities and the Stock Market, and the Ministry of Finance are involved in this. And at the primary
level, financial monitors are carried out by the subjects of primary financial monitoring (SPFM) -
organizations and persons who are somehow connected with monetary transactions.
SPFM constantly monitor the financial transactions of the client - individuals, businesses, non-profit
organizations. If the SPFM detects risky or suspicious payments, then an additional check is carried out.
And they transfer information about such transactions to authorized state bodies.
Threshold operations are considered high-risk and are subject to mandatory verification if they meet at
least one of these criteria:
A transaction involving publicly significant persons or people associated with them. For example,
not only the transaction of the MP, but also his wife or children is monitored.
Money transfer abroad, including to offshore zones.
Financial transaction with cash.
The state in which the recipient / sender or his bank is located does not comply with
international recommendations on combating money laundering and terrorist financing.
Suspicious transactions
An operation worth less than UAH 400,000 can also be monitored if the SPFM sees signs of risk in it.
Customer behavior, characteristics of an individual transaction, or financial activity in general can
become a reason for verification.
the entrepreneur or company representative cannot clearly explain what the company is doing;
uncharacteristic activity on the account, for example, the volume of transactions has
unreasonably increased;
a company or individual regularly receives or transfers money abroad for no apparent purpose;
the business receives money from counterparties with whom it has no confirmed business
cooperation;
suspicious cash transactions: for example, a lot of small cash transfers arrive in a business
account within a short time, and then the legal entity withdraws the total amount to a third
party's account.
This is just a small part of the signs by which a financial transaction may raise questions from the SPFM.
In general, there are more than 70 such criteria, all of them are described in a separate resolution of the
NBU.
The first group is the subjects who must fully comply with all the procedures and requirements of the
finmon. These include:
banks, pawnshops, insurance companies, credit associations and other financial institutions;
payment system operators: the requirements for them, as for SPFM, will take effect from
August 2022;
exchanges;
stock market participants;
postal operators that provide financial services or conduct foreign exchange transactions;
service providers that are associated with virtual assets;
legal entities that are not financial institutions, but have the right to provide individual financial
services.
accountants, tax consultants - both sole proprietorship and legal entities who provide such
services;
persons who are engaged in audit activities;
attorneys, law firms and associations;
notaries;
intermediaries in real estate purchase and sale transactions, as well as persons who provide
consulting services in this area;
business entities who sell and buy precious metals, precious stones and products from them for
cash;
organizers of lotteries / gambling.
For this category of SPFM, the legislation provides for simplified options for conducting financial
monitoring.
1. Identify (know your customer procedure) and verify the client. These stages can take place both
in person and remotely: it depends on the volume of financial transactions.
2. Determine the ultimate beneficial owner in the case of corporate clients. To do this, use the
data provided by the client himself, as well as information from other sources.
3. Establish the purpose of the financial transaction.
4. Constantly monitor the financial activity of the client.
5. Always have up-to-date information about the client: documents, contact and personal data.
Register transactions that are subject to financial monitoring, and transfer information about
them to authorized state bodies.
Store data on the results of financial monitoring and due diligence in case the information is
needed by government agencies. The data must be retained for 5 years after the termination of
the business relationship with the client or the completion of a one-time financial transaction.
As we wrote above, specially authorized SPFMs can carry out simplified financial monitoring. They do
not need to keep a register of transactions, store data archives and monitor client activities on an
ongoing basis. In addition, lawyers, lawyers and notaries have the right not to share information about a
client with the State Financial Monitoring Service if they act as defenders or representatives in court or
in pre-trial settlements.
Identification and verification is carried out before the start of cooperation. To do this, individuals are
usually asked for passport data, TIN, contacts, information about where the person lives / is registered.
Individual entrepreneurs must also provide a registration number and date of registration in the State
Register and bank account details.
In order to pass the KYC check, legal entities need to be informed: company name, location, registration
number in the State Register and the date of registration, bank details, an extract from the State
Register (USR), ownership structure. In addition, in order to identify the ultimate beneficiary, the SPFM
can use not only data from the Register and the structure, but also information from other documents,
official and unofficial sources.
As for the ultimate beneficiaries, by July 11, 2022, the business must submit data on the ownership
structure and beneficial owners to the state registrar. After the registrar is convinced that the data is
reliable, the information will be entered into the USR. If the SPFM during the client check notices that
the data provided does not match the information in the State Register, then the SPFM will have to
report this to the State Financial Monitoring Service.
Copies of passport / ID-card and TIN of all officials with the right to sign.
Help on opening a bank account.
Extract from the USR or certificate of state registration of a legal entity.
A copy of the statute, minutes and order on the appointment of the head.
Ownership structure.
Also, any merchant must fill out a financial monitoring questionnaire, undergo video verification and
describe what the company or he does as an individual entrepreneur.
Financial monitoring affects both citizens and businesses. The ordinary payer is faced with financial
monetary measures on rare occasions. Basically, when he makes large purchases or conducts cash
transactions that exceed UAH 5,000. And everyday transactions, like payments in stores, paying for
communal services or transfers from card to card, do not raise questions for SPFM.
Business, on the other hand, has to deal with this procedure more often. In addition to the fact that a
legal entity can fall under financial monitoring, it can also act as a checking party - SPFM. In this case, the
company needs to establish an internal financial monitoring service, check its clients, track risky and
suspicious transactions, and report them to the State Financial Monitoring Service.
Finmon can sometimes cause inconvenience to both businesses and citizens. But at the same time, you
need to understand that financial monitoring of legal entities, individuals and non-profit organizations is
a necessary control tool that is used throughout the civilized world. It assists in the fight against
corruption and money laundering, which generally protects the financial system and makes it more
transparent.