The attorney qualifies as the subject of the financial monitoring in case of his/her involvement in financial operations based on an agreement with the client – the decision of the BCU
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In response to an attorney Chyshynsky R.V.`s request the Bar Council of Ukraine (hereinafter – the BCU) has provided clarifications on some questions of fulfilment of obligations by an attorney as a subject of primary financial monitoring.
The relevant decision of the BCU №51 dated July 3, 2021, has been published on the online page of the Ukrainian National Bar Association (hereinafter – the UNBA).
Thus, the document states that the issue of qualifying attorneys as subjects of financial monitoring is regulated by the Law of Ukraine "On prevention and counteraction to legalization (laundering) of proceeds from crime, financing of terrorism and financing of proliferation of weapons of mass destruction” (hereinafter – the Law).
In particular, according to Article 6 of the Law, an attorney is a specially designated subject of financial monitoring and, accordingly, the attorney shall ensure the organization and conduct of primary financial monitoring, which will properly identify suspicious financial transactions (activities) and notify the State Financial Monitoring Service of Ukraine, as well as to prevent the use of its services for clients to conduct financial transactions for illegal purposes (paragraphs 2, 4, 5, 8 of Part 2 of Article 8 of the Law).
Under clause 1 of part 1 of Article 10 of the Law, the requirements of the Law apply to attorneys in exceptional cases, namely when attorneys` bureaus, attorneys associations, and attorneys practicing law individually, acting on behalf of a client, participate in any financial transaction and/or help the client to plan or carry out the operation on:
- buying and selling real estate, or property management when financing housing construction;
- buying and selling of the business entities and corporate rights; - management of funds, securities, or other assets of the client;
- opening and/or managing a bank account or securities account;
- raising funds those are necessary for the creation of legal entities and funds, ensuring their activities, or managing them;
- creation, provision of activity, or management of legal entities, funds, trusts, or other similar legal entities.
If an attorney does not participate in the preparation and provision of the abovementioned transactions, the requirement to register with the State Financial Monitoring Service of Ukraine and comply with all other requirements of the law does not occur.
According to part 3 of Article 10 of the Law, the attorneys` bureaus, attorneys association, attorneys who practice law individually, can abstain from the performance of the duties of proper due diligence of the client and has a right not to inform the specially authorized body about attorneys` suspicions in case of providing services for the protection of the client, representation of his interests in judicial bodies and in pre-trial dispute resolution, or providing consultations on protection and representation of the client.
Simultaneously, it is important to mention, that for the proper performance of the duties of the specially authorized subject to the financial monitoring, the attorney shall use the risk-oriented approach - identifying (assessing), evaluating (re-evaluating), and understanding the risks of money laundering, terrorist financing and/or financing the proliferation of weapons of mass destruction, as well as taking appropriate risk management measures in a manner and to an extent that minimizes such risks depending on their level.
Also, the attorney is obliged to deliver the proper audit of the existing and new clients, which includes the following activities:
- Identification and verification of the client (his representative);
- identification of the ultimate beneficial owner of the client or its absence, including obtaining the ownership structure to understand it, and data that allow identifying the ultimate beneficial owner, and taking measures to verify his identity (if any);
- identification (understanding) of the aim and the nature of the future business relationship or financial transaction;
- conducting monitoring of business relations and financial transactions of the client regularly, which shall be carried out in the process of such relations concerning the compliance of such financial transactions with the subject of primary financial monitoring information about the client, its activities, and risks (including, if necessary, about the source of funds related to financial transactions);
- ensuring the relevance of received and existing documents, data, and information about the client.
Given the above provisions of the law, it is important to note that the performance of the duties of a specially designated subject of financial monitoring by the attorneys is impossible without establishing a business relationship with the person. In particular, Article 26 of the Law of Ukraine "On the Bar and Legal Practice " stipulates that advocacy is carried out on the basis of an agreement on the provision of legal assistance.
Therefore, an attorney can become a specially designated subject to financial monitoring and shall perform the duties established by law only when several conditions are met:
- a contract on legal assistance has been concluded between him and the client;
- the client's request relates the specific transactions (paragraph 1, part 1 of Article 10 of the Law);
- the exceptions provided by the Law do not apply (Part 3 of Article 10 of the Law).
In addition, in the BCU`s decision it is emphasized that to comply with the provision of the Law « On prevention and counteraction to legalization (laundering) of proceeds from crime, financing of terrorism and financing of proliferation of weapons of mass destruction», an attorney as a subject of financial monitoring does not have right to submit to the authorized bodies of state power the information provided by the specified law concerning the person who is not his client.
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