Lifetime financial monitoring of officials: A step too far?

Since 2019, a law temporarily operated in Ukraine, according to which the status of PEP (Politically Exposed Persons – a person who holds an important public or political office and is the object of special financial monitoring of the banking system) was for life. This had negative consequences.

The overload of financial monitoring systems was constantly growing. After all, the number of objects of close attention increased with each new politician or official. Even if a person served one day in office and left for political reasons, he or she would receive a lifetime "red" risk group status. And while this is a rationalization with high-level officials, a huge number of low-ranking PEPs do not need lifetime scrutiny (much less long after leaving office) because they potentially have nothing to do with government money laundering schemes.

In addition, PEPs have lifelong problems in all areas of legitimate financial relationships, from insurance and home purchases to marriage and the birth of heirs. A politician or an official, as well as his family and business partners get lifelong headaches in banking institutions, refusals in loans or money transfers, inability to open a business, difficulties in buying a car or an apartment, registering marriage and inheritance. In Ukraine there are known cases when a bank simply informs such a client that it refuses further cooperation.

In the long term, this means an outflow of motivated specialists in competitions for public office, as well as from politics. It opens a wide space for old political faces with well-established methods of circumventing financial monitoring through cash, false accounts or undercover draftsmen.

Last year, the president signed amendments to Law No. 2736 "On Prevention and Counteraction to Money Laundering..." reducing the PEP's verification status from life to three years after the end of term of office.

As things stand, the IMF is demanding the return of lifetime financial monitoring, requiring Ukraine to do so by the end of September.

In my opinion, the best option is to differentiate PEPs according to the level of responsibility of their position. For example, the so-called traffic light principle. Say, if a person is an official in the civil service or a minister, s/he gets a "red" status – the pickiest financial monitoring – during his/her work and for 3, 5 or 10 years after leaving the position. With a further change of status to "yellow" and, subsequently, to "green".

If it concerns a party organizer with no representation in parliament or an official far removed from potential illegal financial transactions, the status can be initially "yellow" with a change to "green" within three years after leaving office. Of course, this should also work in reverse – if a party enters the parliament, the status of representatives changes to red.

This approach will allow Ukraine to fulfill the IMF requirements and structural beacons not formally, but in essence — genuinely preventing money laundering and preserving the efficiency of the system. In addition, this is in line with international practice — "risk coefficients" with an appropriate duration of status have been developed by FATF and are in effect in a large number of leading countries.

Taras Kotov

Head of the Public Control Council of the Economic Security Bureau of Ukraine, member of ACAMS