“Can Ukraine effectively face challenges in the fight against “dirty” money?”, — write: epravda.com.ua
In 2021, the world was shaken by one of the loudest financial sensations – “Pandora Papers”. The International Consortium of Investigative Journalists (ICIJ) released documents that exposed the shadow side of the global economy: hidden fortunes, offshore schemes and billions moving outside official financial controls. This financial scam exposed the hidden wealth of world leaders, politicians and businessmen, showing how, thanks to shadowy mechanisms, huge sums evade taxation and fall out of sight of public financial systems. The consequences of these actions destroy economies, weaken states and require a global response. Ukraine in a whirlwind of struggle The situation in Ukraine is no less impressive. In 2021, State Financial Monitoring identified suspicious financial transactions worth 135 billion hryvnias. As a result, 1,170 materials were sent to law enforcement agencies, most of which related to serious financial crimes. In 2023, the dynamics changed and the number of such materials decreased to 870, and the total amount of questionable transactions decreased to 85 billion hryvnias.Advertisement: Read also: BEPS rules: income should be taxed where it is generated In 2024, we see an even greater drop in detections money laundering attempts – 53 billion hryvnias and 780 case materials sent to law enforcement agencies. The indicators seem alarming, but the problem is even deeper: from February 24, 2022, residents and non-residents of Ukraine withdrew 3 billion euros to the European Union alone. Advertisement: Is the legislation ready for such challenges? The Pandora Papers case highlighted an important truth: failure to act in the area of anti-money laundering can have catastrophic consequences for national economies. Ukraine, with its efforts in the field of combating financial crimes, is faced with the question: is its legal system able to effectively face the challenges that arise in the fight against “dirty” money? The first step in this fight is to understand the extent of the threat. The next step is to determine the role of legislation as the main tool in combating financial crimes. It depends on this whether Ukraine will be able to ensure the stability and protection of its financial system. Laws must work for the state budget! Every taxpayer, regardless of whether he represents the public or private sector, is a kind of investor of Ukraine. It is their funds that ensure the formation and implementation of the legal policy of the state. And like any investor, they are interested in the key question: how much and when will he “earn” on these investments? However, is it possible to evaluate the effectiveness of such “investments” in the fight against money laundering through the activities of the legislative, executive and judicial authorities? Array of legislation: quantity versus quality The anti-money laundering system in Ukraine is built on the basis of Law No. 361-IX (“On prevention and countermeasures against legalization (laundering) of income…”), which has undergone 24 changes since 2019 and is associated with 415 regulatory acts . In total, about 439 regulatory documents operate in this area, which creates a complex system that requires a high level of coherence and adaptation to modern challenges. The effectiveness of the executive power: the numbers speak for themselves. The data of the State Financial Monitoring Service shown above demonstrate a significant number of detected suspicious financial transactions, but the real effectiveness of state bodies in this process remains in question. According to the statistics of the General Prosecutor’s Office, in the period 2015–2018, 865 criminal offenses under Art. 209 CCUs, but only 191 proceedings reached the court with an indictment (22%). This indicates significant gaps in bringing cases to completion. According to the High Anti-Corruption Court, out of 12 considered cases in the field of legalization (laundering) of property, more than half (58.33%) of the decisions of the courts of the first or appellate instance were canceled by the court of cassation. Such a situation calls into question the quality of legislation in terms of its predictability and compliance with the standards of the European Court of Human Rights. An investment with no return? For the taxpayer, who invests in the operation of this system, the main thing remains uncertain: what economic and social effect do the laws have? How much money was actually returned to the budget? What amount of illegal property was confiscated for the benefit of the state? The effectiveness of legal policy cannot be measured only by the number of laws passed or cases initiated. Its real value is determined by the real impact on the economy, society and trust in state institutions. Laws that do not bring tangible results run the risk of becoming a formal reporting tool rather than an effective fighting mechanism. It is important that each law works as part of a single system that benefits society, ensures justice and strengthens the economic security of Ukraine. Purpose and result: why do laws need measurable indicators? The modern system of legislation regulating the prevention and fight against money laundering should act on the principle of checks and balances. Law No. 361-IX should prevent crimes by acting as a prevention tool, and the Criminal Code should be used as a last resort when deterrence mechanisms are not effective enough. On paper, the system looks quite logical, but in reality its success can only be measured by specific indicators. Currently, two indicators are defined as part of task #7 of the UN Sustainable Development Goals #16: Number of identified risks as a result of the National Risk Assessment. Ukraine’s position in the Basel Anti-Money Laundering Index rating, which assesses the risks of money laundering and terrorist financing. However, these indicators only partially reflect the real effectiveness of the legislation, since there is no direct connection between them and the goals of Law No. 361-IX. The key to the success of any law is the ability to measure its impact. The idea of end-to-end evaluation of the effectiveness of laws is based on the American methodology of economic analysis of law, which proposes to reduce costs as much as possible and at the same time increase economic or social benefits. Although this approach has not yet been properly implemented in Ukraine, it has significant potential for solving complex tasks in the field of rulemaking and post-legislative control. In order to make the fight against “dirty” funds more transparent and effective, it is proposed to add six new indicators: Number of criminal proceedings under Articles 209, 209¹, 306 of the Criminal Code of Ukraine. The number of court verdicts under these articles. The total amount of confiscated funds or assets transferred to state revenue. Amount of voluntarily declared funds (with adjustment of incentives in the Tax Code). The scope and cost of training programs at the National School of Judges and the Training Center for Prosecutors in the field of financial crime prevention. The amount of international aid received by Ukraine to combat money laundering, with details by donors and creditors. These indicators create a balance between two principles: “whip” and “pie”. They make it possible to assess not only quantitative, but also qualitative aspects of the fight against financial crimes. Why is this important? 1. Data as the basis of policy. The introduction of a system of measurable indicators will allow making informed decisions based on analytical data. 2. Identification of weak points. Analysis of indicators will help to find gaps in legislation and law enforcement: in pre-trial investigation when collecting evidence; at the court investigation when the defendant’s guilt is proven; in the execution of the court sentence and the confiscation of the assets of the convicted person. 3. International cooperation. The expansion of the system of indicators opens up new opportunities for project areas of cooperation for the CMU and the World Bank Group within the framework of the signed Memorandum of Understanding. Measurability as the key to success Without clear criteria for evaluating performance, we risk turning the fight against money laundering into a blind one. Laws are not the ultimate goal of reform, but a tool that should ensure a real economic and social result. The war against financial crimes can only be won under the conditions of a systemic approach, transparency and accountability.