Since independence, the Ukrainian state and business people have been introduced to the rules of the market game. Our politicians are now faced with the choice between constructing clearly formulated, comprehensible rules of the game, acceptable to both business and the state, or experimenting with an “original” collection of semi-market relationships. So far, regrettably, all efforts to readjust the Ukrainian economy, to protect it from questionable domestic political decisions, originate from outside our borders. At first, Ukraine’s strategic partners made such efforts, later international financial institutions. At present, this role is played by the FATF.
There is something many of these experts just can’t understand. People in Western countries generally fail to appreciate our humor. Here is an example. Once I was unfortunate enough to play a videotape with a monologue by our stand-up comedian, Roman Kartsev, for a British friend of mine, a rather well educated individual with a law degree. The monologue was titled “The Citizen and the State.” Among other things, Kartsev says, “The state is robbing the people and the people, in turn, are stealing things from the state...” My British friend was puzzled and, seeing the expression on his face, I turned off the VCR and spent half an hour explaining why we consider the topic funny and openly discuss it, rather than cry over it every day.
SANCTIONS BY DEFAULT
Last week, in addition to the United States, Canada and Great Britain also decided to levy financial sanctions on Ukraine (immediately after FATF issued the recommendation, in retaliation for Ukraine being uncooperative in combating money laundering). Unlike the Ukrainian public and business circles, the bad news was nothing new to Foreign Minister Anatoly Zlenko. The Foreign Ministry’s press release read that they had immediately made efforts to “minimize the negative consequences of the enactment,” although did not specify any of those efforts. Instead, it had it that the Foreign Minister “does not take this situation lightly” and that he “plans a series of telephone conversations with his foreign colleagues” shortly to “inform about the fulfillment by Ukraine of the FATF recommendations and requirements, and secure their support in canceling the sanctions against Ukraine.”
The Ukrainian Foreign Ministry began to “study the situation” in December and must have been so busy it had no time to notify the public of its findings. Meanwhile, such information, if provided on time, would have been quite instrumental for financial planning and foreign trade. In fact, this information would be worth its weight in gold.
The British, German, Canadian, and US embassies informed that the total money turnover involving Ukraine is to be suspected of money laundering. The British Exchequer recommended that all business entities take precautions when dealing with Ukrainian counterparts, individual as well as corporate (e.g., revising the procedures of opening bank accounts, double-checking the identity of Ukrainian businesses, etc.). The National Criminal Intelligence Service (NCIS) was to be notified of all financial transactions involving Ukraine (except in the presence of convincing proof that a given transaction was legitimate). People’s deputy Serhiy Teriokhyn says that six other FATF countries took similar precautions.
BEST EXPECT THE WORST
Different analysts offer different views on the sanctions against Ukraine and their consequences, largely due to lack of information — and the latter has become apparent.
Another FATF meeting is scheduled for February 12-14 in Paris. The agenda includes Ukraine. The Ukrainian delegation will present a number of legislative enactments aimed at meeting FATF requirements on a very broad scale. A positive solution to the Ukrainian problem would automatically lift the financial sanctions. A Ukrainian delegation headed by Minister Khoroshkovsky will have an offensive reconnaissance mission while on an official visit to the United States (January 27 — February 3). One can only hope that the powers that be will inform about the results (good or bad) of these missions in detail and without any censorship. Otherwise, the FATF verdict in February will make life very difficult for at least the domestic exporters and importers.
However, Ukrainian businesses would be better off to expect the worst even now. After all, one cannot overlook the underlying political situation. The critical lack of confidence in Ukrainian-US relationships may well set the tone of the forthcoming FATF resolution on Ukraine. This assumption is indirectly supported by the fact that countries — whose stand, according to some sources, proved conclusive at the FATF meeting in December — announced the sanctions against Ukraine. The fact remains that our politicians cannot blame anyone for Ukraine becoming the second country exposed to these sanctions (after Nauru a year ago). FATF Executive Secretary Patrick Moulette told the BBC that his organization was not driven by political considerations when making decisions. Every such decision is based on expert findings and FATF experts have nothing to do with politics, abiding solely by technical and legal criteria. Besides, Ukraine never complained about the findings.
Incidentally, Oleksiy Berezhny, Chairman of the State Monitoring Department, was fired precisely because he had failed to prove the findings wrong. It is still unknown who will head the Ukrainian delegation in Paris. Valery Diyesperov is temporarily in charge of financial reconnaissance.
The economic aspect of the sanctions is rather confusing, although every sanction is formulated in detail. They promise Ukraine nothing except more expensive financial services on the Western markets, a less attractive foreign inland investment image, and fresh export-import problems. Actually, the situation may turn out even worse than portrayed by ranking Ukrainian bureaucrats. It will be easier for European and US bankers to stop correspondent transactions involving Ukraine than to have to deal with the “financial” intelligence services at home or bring their reputation into question and expose their businesses to penalties.
On the other hand, all this would have been easily accomplished had the Ukrainian economy been “virtual” like Nauru’s. Those stressing that the FATF has no experience of levying sanctions on countries such as Ukraine have a point there. Just as it is true that there are not many countries like our Ukraine. According to the National Bank, Ukrainian correspondent accounts have not been closed en masse in the West. For the time being, bankers point to the first symptoms of sanctions (with local financial services getting more expensive). Also, EBRD, Deutsche Bank, Morgan Case Bank, and other prestigious banks have made it clear that they do not believe it necessary to levy additional sanctions on Ukraine.
All things considered, these sanctions will continue to be nominal albeit politically unpleasant, at least till February.
GOOD EVIL
The Day has on more than one occasion pointed out that Ukraine had met all FATF requirements at the legislative level on the eve of the December meeting. This included changes in the criminal, procedural criminal code, and of the laws against money laundering and on banks and banking.
Levied FATF sanctions for the first time since proclaiming independence made Ukraine face a number of problems that this country has actually brought to fruition. Legislative innovations aimed against money laundering were from the outset doomed to a long and painful process of maturation. It is common knowledge that money considered dirty by the FATF — money stolen from the budget, received from unlawful prostitution, human and arms trafficking, etc. — are not laundered in Ukraine. In fact, this country, where half the businesses pay no taxes and bureaucrats receive grafts and take bribes at all levels, where political influence makes money that is then spent to acquire political influence, where the economy largely depends on dubious finance sources, should be grateful to the FATF. Among other things, we should thank it for its sanctions that became a factor that even the richest and most famous here proved unprepared to handle. Cynically speaking, Ukraine has been once again asked to brush its teeth from abroad. This time, however, the problem is more serious than VAT compensations. In fact, some believe that the current situation has aspects other than the negative ones. For one thing, from now on Ukrainian politicians will find it hard to launder their money anywhere in the West. There will also be ways to deal with corruption in the foreign trade sector. Also, our politicians just might finally realize the truth of the old adage about doing as the Romans do when in Rome. And then Ukraine, having taken “Communion” without “Confession,” would finally repent and live a different life.
The Financial Monitoring State Department’s cadre and budget dependence on the Ministry of Finance’s leadership will no longer be an excuse to cover up suspicious transactions allegedly serving the national interests. Bureaucrats will no longer trade in classified information stemming from financial monitoring. No more ambiguity about foreign loans and budget hryvnias. No more top-level corruption and bribe- taking at all the other bureaucratic levels. There will be only one answer to the question whether or not to refer tax-evading money to terrorist finance sources. In other words, the law will establish the distinction between machinations and tax evasion, and a reasonable tax reform will finally commence in Ukraine.
Businesses will not be afraid of the money-laundering law being ambiguous on how to tell cocaine from unlawful grain sale proceeds. Articles 207 and 212 of the Criminal Code (e.g., tax evasion) will not be used to throw behind bars half the business people on charges of illegal arms sales contrary to the UN regulations. Banks will no longer suffer raids by the “financial intelligence service.” Low-paid citizens will buy cars and apartments without fearing anyone challenging their purchases as suspicious transactions.
In a word, contrary to what Roman Kartsev, the stand-up comedian, says, the state and the people will finally realize that they cannot exist one without the other; they will start building partnership relationships, as is the case with civilized countries. Otherwise Ukrainian politics will eventually crash with the economy.
