By the Order of
the SCFM of Ukraine
of July „04”, 2008
ð. ¹ 157
To the entities of initial financial monitoring „Risks management as regards to
laundering of proceeds from crime and terrorist financing”
Methodical recommendations „Risks management as regards to laundering of
proceeds from crime and terrorist financing” were elaborated with the aim of assistance to the entities of
initial financial monitoring (hereinafter
referred to as EIFM) concerning
definition of criteria of classification and types of persons, which are characterized by heightened level
of probability of conducting by them of financial transactions for legalization
of proceeds from crime and terrorist financing, and criteria for risk assessment of conducting by client of such
were elaborated at execution of requirements of the Law of Ukraine «On Prevention and Counteraction to
Legalization (Laundering) of Proceeds from Crime», Order of the State Department for Financial Monitoring of the
Ministry of Finance of Ukraine of April 24, 2003 ¹ 40 «On
approval of requirements to organization of financial monitoring by the
entities of initial financial monitoring in the area of prevention and
counteraction to introduction into legal turnover of proceeds from crime and
terrorist financing» and taking
into account modern standards of FATF, standards of Basel Committee on banking supervision and Directive 2005/60/ªÑ of the European Parliament and of
the Council on the prevention
of the use of the financial system for the purpose of money laundering terrorist
In these recommendations
the terms are used in the following meaning:
Risks – danger (threat, vulnerable places) in the activities of the EIFM, which can be used with the aim of
laundering of proceeds from crime and terrorist financing.
Risks management is purposeful influence of the EIFM on
risks, which consists of their
determination, assessment and
elaboration and implementation of measures, directed on their diminution.
Risk assessment (level of risk) measures level of
probability of laundering of proceeds from crime or terrorist financing (very high, high, medium, low).
Feature of risk constitutes indexes according to which risk can be assessed.
Category is a group of persons, products,
countries, which has common
Criteria of risk are measures of risk assessment, which are based on features, which are
included into classification of risks.
of risk-based approach concerning laundering of proceeds from crime and
With the aim of diminution of possible
losses (worsening of image, business reputation, material losses) the
EIFM has to ensure risks management concerning legalization of criminal
proceeds and terrorist financing and to include relevant procedures to the
rules of financial monitoring conduct and programs of its execution.
Risk-based approach doesn’t change or
mitigate requirements of current legislation in the AML/CTF area, but is directed on detection of those persons, which try to legalize criminal proceeds or
finance terrorist through EIFM, and
to prevent their activities.
The mentioned approach has the following
Permits to the EIFM to detect clients, whose risk of money laundering or terrorist
financing is high, before them
conduct financial transactions, and
to refuse them in servicing, that
is to prevent in the operative manner to laundering of criminal proceeds or
Enlarges the list of features of legalization of
criminal proceeds and terrorist financing and permits to supplement in the
operative manner and to optimize this list on the basis of experience, obtained
by the EIFM;
Permits to systemize the process of clients
studying and research of their activities, in result of what all clients of the EIFM are subject to analysis in
accordance with the level of their risk;
Ensures that the EIFM possesses great volume of
information on activities of certain client, which can be related to laundering of criminal proceeds or terrorist
Ensures avoiding provision of information to the
EIFM, which is not related to
money laundering or terrorist financing;
Can be used for counteraction to other crimes,
including financial machinations, participant
of which is the EIFM.
Applying of risk indexes
ensures strategy of risks management, which obliges the EIFM to realize measures as regards to additional
control and examination of client.
3. Classification of risk features according to categories
Risks of money laundering
and terrorist financing can be detected with the help of different features, which can be classified according to
categories. The most wide-spread categories of features of risk are the following: threats
of countries, type
of client, type of
product (goods, financial transactions or services). The importance of these features of risk (separately or all together) in general risk assessment, can defer depending the sphere of activities of the EIFM and
circumstances under which financial transactions are carried out. Thus, the IEFM has to take decisions independently concerning importance of this or that feature of risk.
Risk assessment shall be executes according to criteria, which is composed both of some features of categories or their aggregate.
The result of general risk assessment by the EIFM, (which is based on analysis according to determined criteria on the basis of features of risk under their categories), is definition of level of risk.
Definition of risk by EIFM shall be ensured both on the stage of establishment of business relations with client, and in the
process of their development until their termination.
The EIFM shall elaborate accurate procedures of work with clients, including description of types of clients, which are characterized by heightened level
of risk for the EIFM. During elaboration of procedures the following indexes shall be studied as: general profile of activities of client; country of origin and registration of him and products, which he proposes; social status or relations with agencies of state power; accounts, related to it, business activity and other indexes, which can be used for
definition of features of risk.
3.1 Threats of the countries
Features, which testify the fact that threats of country constitute heightened level of risk (very high, high), include countries (territories), which are known as the ones which:
Do not observe generally accepted standards in counteraction to legalization (laundering) of proceeds from crime;
Do not fulfill FATF Recommendations;
Are offshore zones;
Do not take part in international cooperation in
the AML/CTF area;
Have sufficient level of corruption and crime;
Have legislation, which do not envisage
disclosure or provision of information concerning financial transactions, including, to competent agencies;
Constitute countries, where military acts take
Are manufacturers and/or supplies of drag
Are suppliers of weapons;
Are countries, as regards to which the UNO
imposes sanctions or embargo;
Are producers, dealers or intermediaries in
trade with weapons;
On the state level support terrorist (extremist) movements.
3.2.Type of client
The basis for
classification of persons, which
are characterized by heightened level of risk, can be presented by their types.
The clients, whose
activities can constitute the heightened level of risk, shall include, in particular, the following types of persons, which:
1. are (were) politically
exposed persons, or persons,
related to them;
Politically exposed persons are senior officials of state, which provide forming and realization of
state policy, in particular, heads
of states and governments, heads
of central agencies of state power, persons, who are heads of political parties, heads of state enterprises (organizations), which
have strategic meaning for economy and security of state;
Persons, related to politically exposed
persons, are members of families and close relatives of politically exposed
a) husband or
b) children or
their husbands or wives;
clients – nonresidents;
clients, which work only through
4. are new
clients, period of activities of
which do not exceed three months from the day of their state registration;
5. are nonprofit organizations (except for the organizations, which act under the aegis of famous
6. are non-financial organizations, but execute monetary transfers, transactions
with payment of checks with cash, etc.;
7. are gambling institutions (casino, totalizators and other gambling institutions);
8. legal persons, conducting
any kinds of lotteries;
9. do not have big funds turnover,
but operate with sufficient amount of cash in certain transactions;
10. execute intermediary and
representative activities, acting
on behalf of their clients;
11. have organization or relations, structure and nature of which is complicates the process of identification
of the real owner or beneficiary;
12. are joint-stock ventures, which executed emission of bearer securities;
13. are manufacturers and/or sellers of weapons;
14. are included into the list of
persons, related to terrorist activities, which is formed and approved by the SCFM of Ukraine;
15. conduct monetary transactions (for example, offices of funds transfer, foreign exchange offices, funds transfer agents, bank notes traders and other institutions,
which provide money transfer services;
16. are natural persons, age and/or physical state of which can testify the impossibility of active
17. are clients
as regards to which there are suspicions concerning reliability of documents,
submitted by them or previously submitted identification data;
18. do not
correspond to requirements of ratings of financial reliability (stability) of insurers and re-insurers-nonresidents, which is established by
the State Commission for Financial Services Markets Regulation;
counteragents of clients, which are residents of countries,
which constitute heightened level of risk (very high, high);
counteragents of clients, which
are travel agencies and provide hotel services.
3.3. Type of products (goods, financial
transactions and services)
General risk assessment
shall as well include risk level assessment according to the type of products (goods, financial transactions and services), which are proposed by client. The process of risk assessment, related to products can include the following features:
International correspondent bank services, including such transactions, as commercial payments for indirect clients (for example, for bank-intermediary);
International commercial bank services;
Services, which include trading with and supply of bank notes and
Services, which per se provide anonymity, or envisage passing of borders, (for example, bank services on-line, services with cards, international
transfers and services to private investment companies and trusts);
complicated, unusually big transactions;
financial transactions, which do not correspond to activities of legal person, which are prescribed by its statutory
financial transactions with unusual schemes of
transactions, which do not have obvious economic
sense or obvious legal purpose;
transactions, the nature of which provides grounds for consideration that they are
aimed at avoidance of procedures of obligatory financial monitoring or
identification, envisaged by Law;
transfer of monetary funds at anonymous
(numbered) account abroad and arrival of monetary funds from anonymous
(numbered) account from abroad;
purchase (sale) of checks, travel checks or other similar payment
measures for cash;
transfer of funds (or drawn out of funds from account), if it was preceded by adding at this account of cash funds at
amount, which is equal or exceeds 80 000 UAH, during the same or
previous operational day;
adding to account of funds in cash form with
their further transfer during the same or the following operational day to
opening of account with adding of funds for the
benefit of third person;
transfer by the person, upon the absence of external economic contract, of funds abroad;
exchange of bank notes, especially of foreign currency, for bank notes of another face-value;
financial transactions with bearer securities,
not allocated in depositaries;
occurrence of insured accident in short term
after conclusion of agreement of insurance;
acquisition of the right of property on the
securities holding, the aggregate
fair value of which exceeds 80000 UAH, according to the agreements of donation of
Transactions with promissory notes, including with bearer endorsements or blank
External economic transactions;
Receipt of financial assistance from
nonresidents or provision of financial assistance to nonresidents;
Transactions with cash or measures, which are
equivalents to cash;
Transaction with securities with cash
settlements for huge amount;
Sale and purchase without participation of
securities trader of securities holding, the aggregate value of which is equal or exceeds 80000 UAH;
Sale and purchase of weapons;
Transactions with drug substances and raw
Carrying out of settlements under external
economic contract, which doesn’t
envisage actual supply of goods, products and services for the customs
territory of Ukraine;
Execution of transactions with assets, which are allocated (issued, registered, submitted, or used) or will be allocated (will be issued, registered, submitted, executed and used), in result of conducting
transactions out of borders of the customs territory of Ukraine, in case, when external economic contract was not provided.
4. Additional preventive measures
concerning clients with heightened risk level
Elaboration and execution by the EIFM of measures, directed on reduce of determined risks, envisages taking by the EIFM of additional preventive measures to the clients with heightened risk level,
which can include the following:
Establishment of requirements for provision by the client of additional documents for his identification, other than those, which are prescribed for the clients with low risk level;
Definition of the aim and nature of business relations with client;
Examination of person of client and persons, which own, control or direct activities of these clients;
Collection of sufficient information about such clients, their reputation, as well as about the fact if decision was taken by court as regards to this client concerning the facts of counteraction to legalization (laundering) of proceeds from crime and terrorist financing;
Taking measures for determination of sources of origin of funds of client;
Assessment of effectiveness of control measures, which are taken by the client – nonresident in the area of AML/CTF;
Monitoring and permanent updating of information on essence of client’s activities and his
Monitoring of financial transactions of client during certain period of time;
Analysis of compliance of financial transactions, conducted by the client, with available information about essence of his activities and his financial state;
Provision of execution of first direct contact with the client;
Provision of written permission of leadership for establishment of business relations with clients with high risk level.
Studying of grounds and purpose of concluding agreements for conducting of financial transactions, which do not
have obvious economic aim;
Suspension of conducting of financial
transaction of client;
Refuse to establish or continue business
relations with client.
Use by the EIFM of preventive measures can
be executed as well in other cases, except for the abovementioned risk features.
Description and the list of preventive
measures concerning clients with heightened risk level shall contain in the
Rules for conducting of financial monitoring by EIFM.
of risk assessment
Risk assessment can be executed by the
EIFM with use of different methods (in particular, scenario, score methods, etc.).
Criteria of risk assessment shall be
defined by the EIFM independently, taking into consideration peculiarities of conducting of his
activities and certain conditions and circumstances of execution of certain
financial transactions. Criteria can be based both on separate risk feature and on aggregate of features and on forecasts, which
are based on analysis of activities of separate client.
Criteria of risk is condition, according to which EIFM defines the level of legalization of criminal proceeds or terrorist financing.
Scenario method of analyses is characterized by description or definition of conditions, according to which certain events are developed and assessed, thus scenario envisages description of consecution of certain
events during certain period of time.
In case of risk assessment in the quality of scenario it is possible to use typologies of money laundering and terrorist financing, which are annually elaborated and issued by FATF and the SCFM of
Ukraine, and detected by the EIFM
In scenario the list of criteria shall be envisaged, as well as indexes, risk features and
consequence of possible actions and their interrelations.
Examples of such scenarios are as follows.
Example 1 (with use of score method of risk
Nonresident - natural person arrived to Ukraine from Bahrain and stays in hotel. The hotel insured his responsibility before the clients in insurance company for damage, which can be inflicted to their lives, health and property during their stay in hotel, executed payment to this insurance company of insurance premium at
the account in bank „À”. In three days insured accident occurred (property of citizen of Bahrain were stolen). The citizen of Bahrain didn’t wait for payment of compensation by
insurance company and returned to his motherland. In a month insurance company in a month insurance company transferred through bank „À” insurance compensation at amount 500 thousand US dollars to Bahrain with the aim of payment to the
citizen of Bahrain.
The entity of initial financial monitoring – bank „À” classified risk features under the following categories: types of threats of countries (territories), types of clients and types of products (goods, financial transactions and services), related to
his activities, and defined
criteria of risk assessment with use of score method.
Meaning of given scores for risk criteria the bank „À” defined as
low risk level – 1 points;
medium risk level – 2 points;
high risk level – 3 points;
very high risk level – 4 points.
of aggregate risk assessment in points, taking into account defined criteria
of risks features
Assessment under criterion
of insured accident in short term after conclusion of agreement
Aggregate risk assessment is defined by
the EIFM as weighted average: (4 + 1 + 4)/3 = 3
Risk assessment as 3 points within defined by bank „À” meanings of criteria testifies about the
high level of risk.
To reduce such risks bank „À” envisaged conducting of the following
Prescribed requirements for provision by client
of additional information in the form of questionnaire about the client and his
Defined the aim and nature of business relations
of client with beneficiary;
Examined persons, which own, control and direct
activities of client;
Collected information about reputation of client;
Took measures for definition of sources of
origin of funds of client;
Conducted monitoring of financial transactions
of client during 3 months.
In result bank „À” defined that in a month after payment of insurance compensation to
the citizen of Bahrain, insurance company – resident of Ukraine received investments from him.
Example 2 (with use of scenario method of risk
Securities trader according to the order
of the client acquired from the seller bearer shares at the low price. In three months the client ordered to sell these shares to the securities trader at the price, which sufficiently exceeds the value of their
purchase. Funds, received for these securities, were transferred at the account
of securities trader in bank „B”.
The EIFM for risk assessment described the algorithm of consequence of the abovementioned events and defined the risk criterion, which is based on the following features:
Type of product (bearer shares);
Acquisition of securities –
fair and market value differ one from another greatly;
Short term (3 month) of sale and
purchase of these shares.
the mentioned example the EIFM used in the quality of scenario typology of legalization
of proceeds from crime, which was
elaborated and issued by the SCFM of Ukraine (manual „Combating money
laundering: legal, organizational
and practical aspects” Sergiy Hurzhiy, O.L. Kopylenko, Yaroslav Yanushevych and others. Ê.: Parliamentary publishing house, 2005. – 216 p.)
Legalization of criminal proceeds is carried out by means of speculative transactions with securities (so called „garbage shares”).
Example 3 (with use of scenario method of risk assessment).
Bank „Â” provided credit with per cents to the natural person – the entity of entrepreneurial activities. This person provided to the legal person – the entity of external economic activities material assistance (without %). The mentioned legal person settled for provision of legal services with legal company. Natural person – the entity of entrepreneurial activities returned his credit ahead of schedule.
Bank „Â”, having conducted monitoring of financial transactions, conducted by the client, detected that natural person – the entity of entrepreneurial activities returned his credit ahead of schedule. Upon further analysis the bank defined that the founder of legal person – the entity of external economic activities – was citizen of Ukraine and politically exposed person. Natural person – the entity of entrepreneurial activities is son of founder of legal person – the entity of external economic activities, and in legal person the founder is the person, which was the wife of founder of legal person
– the entity of external economic
In the mentioned example the EIFM in the quality of scenario used independently detected scheme.
The EIFM for risk assessment described the algorithm of consequence of the abovementioned events and defined criterion of risk, which is based on the following features:
Type of client (one of participants of financial transaction is the entity of external economic activities – was the citizen of Ukraine and
politically exposed person, the
other two participants of transaction were linked with the mentioned person);
Ahead of schedule return of credit.
of studying and internal audit
All processes of risk management, including features, criteria and methods of risk assessment, shall be reflected in the rules and programs, elaborated and
implemented in the EIFM.
For the entities to provide effective
approach to the process of risk management, it shall be included into the program of internal audit of EIFM.
With the aim of professional development
of employees of EIFM and appropriate use by them of procedure and tools of
risks management, they have to
pass regular studying. At that the EIFM shall use with certain
periodicity different methods of studying as regards to risks management.
As well the EIFM shall with certain periodicity review approaches, methods and effectiveness of internal audit, established on risk assessment, and in case of necessity to change them.
Director of the Department
for interaction and methodical
provision of financial monitoring system