Ukrainian Banks Will Detect Shell Companies: New Changes in Financial Monitoring


On April 2, the NBU amended the Regulation on the implementation of financial monitoring by banks.
The changes are related to the fact that foreign non-resident legal entities now have an opportunity to open accounts in Ukrainian banks. Extension of these rights required additional control measures from the side of the banking system entities.
From this moment, banks will identify shell companies among non-resident legal entities using financial monitoring.
Under the new order, a “shell company” is a non-resident legal entity that does not carry out actual economic activity in the country of registration (there are no sufficient assets and/or employees to carry out the corresponding type of economic activity) and/or its ownership structure does not allow to find real beneficiary owners (controllers).

On the one hand, new powers of the NBU and banks are going to reduce the risk of money laundering and withdrawal with the use of foreign companies, on the other hand – will cause significant inconvenience for potential clients of banks.
Henceforward, a bank has to analyze the following documents and/or other information in order to prevent the use of its services for money laundering:
1) documents explaining the essence of the economic activity of a non-resident legal entity;
2) financial statements confirmed by an independent external audit which reveals the essence and content of financial transactions carried out by a client – a non-resident legal entity – and allows to establish the correspondence of profit (income) and turnover to its economic activity;
3) confirming the actual movement of goods, the provision of services, and the performance during conducting its economic activity;
4) confirming the economic activity of the main contractors of a non-resident legal entity;
5) confirming the payment of income tax by a non-resident legal entity;
6) confirming the hiring of a person under the terms of an employment contract (a contract for hiring staff or a contract for providing outsourcing services) by a non-resident legal entity, if their duties are organizing and ensuring the implementation of economic activity. The compliance of such duties with the type of activity of a non-resident legal entity, as well as volumes of its financial operations are taken into account;
7) confirming the availability of production/office buildings and other assets which a non-resident legal entity uses in the relevant type of economic activity (a legal document or a lease agreement for the premises/equipment).
The list of documents/information specified in the Regulation is not exhaustive. Banks have the right to independently determine the scope and list of necessary documents/information which is sufficient to confirm that a non-resident legal entity is not a shell company, taking into account risk-oriented approaches.
If necessary documents are not provided at all or not provided in full by a non-resident, a bank will be obliged to mark this company as one with an unacceptably high-risk level and take measures up to the termination of any business relationship with this company. In addition, the interests of the resident bank customers who have co-operated with this company (as counterparties) may also be affected, as the bank takes measures defined in paragraph 60 of Section V of the Regulation in relation to clients which are counterparties to a non-resident legal entity can’t confirm it is not a shell company. The bank will perform a thorough check of such counterparties and take other measures in the order to identify, verify and study the bank’s clients and compliance-risk management programs.

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