Changes to the Rules of Financial Monitoring during Martial Law

The Verkhovna Rada of Ukraine amended the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Financing of the Proliferation of Weapons of Mass Destruction”, which establishes new rules for financial monitoring by banks during martial law. These changes have already entered into force.

In particular, starting from March 17, 2022, for the period before the termination or abolition of martial law in Ukraine, banks shall not take measures to establish the sources of funds when they are deposited by an individual client in cash to their current account in the amount equal to or exceeding UAH 400 thousand, if such a client has not provided the relevant documents or information on the origin of funds at the request of the bank.

At the same time, banks are prohibited from carrying out expenditure transactions (in particular, issuing funds in cash, transferring them) to the accounts of individual clients with funds contributed by them in cash, except in cases of transferring such funds to special accounts opened by the National Bank of Ukraine for assistance to the Armed Forces of Ukraine, for humanitarian assistance to Ukrainians affected by the actions of the aggressor state, as well as for the purchase of military bonds.

After the termination or abolition of martial law, the bank will have the right to carry out relevant expenditure operations after taking all measures provided by the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering)” of Proceeds…”, Regulation on Carrying Out Financial Monitoring by Banks, approved by the Resolution of the Board of the NBU of May 19, 2020 No. 65, as well as the bank’s internal rules for establishing the sources of such funds.

Thus, we draw your attention to the fact that these innovations do not abolish the requirements of financial monitoring, but only provide for the possibility of their application by banks after the termination or abolition of martial law with certain reservations.

For instance, in case of suspicion that the client’s cash is an asset related to terrorism, proliferation and financing of weapons of mass destruction, the bank must immediately, without prior notice to the client, freeze these assets and notify the Security Service of Ukraine.

Only after receiving a notification from the Security Service of Ukraine that the bank’s suspicion has not been confirmed, the bank shall unfreeze the assets no later than the next business day from the date of receipt of the notification, of which the bank reports to the SSU.

In this case, the freezing of assets can not be grounds for civil liability of the bank, its officials and other employees (compensation for damages, non-pecuniary damage, etc.), if they acted within the tasks, responsibilities and in the manner prescribed by law.

The bank is obliged to provide the State Financial Monitoring Service of Ukraine with information on the assets of clients that were frozen during the martial law within 30 days after the termination or abolition of martial law.

Therefore, in case of depositing cash in the bank’s cash desk for transfer to a bank account in the amount corresponding to or exceeding the threshold amount of the financial transaction check, we recommend to prepare documents confirming the official income of the person in the amount corresponding to the financial transaction amount (extracts/certificates of wages, declarations of property and income, declarations of the entrepreneur for previous periods, etc.) or other sources of funds (for example, receiving funds under a contract of sale, gift, contract for services or works, etc.) in advance.