Financial monitoring: when a lawyer must submit reports to the Ministry of Justice

Attorneys, law firms and law associations become specially designated subjects of initial financial monitoring only when they support certain transactions. Therefore, they must ensure the organization and conduct of initial financial monitoring.

Relevant provisions are contained in the Law «On Prevention and Counteraction to Legalization (Laundering) of Proceeds of Crime, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction».

This refers to the exclusive list of transactions set forth in clause 1 of part 1 of Article 10 of the Law:

• purchase and sale of real estate or property management in the financing of housing construction;
• purchase and sale of business entities and corporate rights;
• management of funds, securities or other assets of the client;
• opening and/or managing a bank or securities account;
• raising funds necessary for the establishment of legal entities and funds, ensuring their operation or management;
• Establishment, operation or management of legal entities, funds, trusts or other similar legal entities.

Procedures established by law oblige us to identify suspicious financial transactions of clients and report them to the State Financial Monitoring Service of Ukraine. In this way, the state prevents the use of attorneys' services by their clients in conducting criminal financial transactions.

At the same time, it should be borne in mind that according to part 3 of Article 10 of the Law, lawyers, bureaus and associations are not obliged to fulfill the duties established by the legislation on financial monitoring in the following cases:

• providing services for the protection of the client;
• if a person has the status of an attorney, but works under an employment contract at an enterprise, institution, or organization as a legal adviser (except when a person enters into a legal aid agreement with his or her employer as an attorney);
• representation of the client's interests in the judicial authorities and in cases of pre-trial settlement of disputes;
• providing advice on defense and representation of the client.

When performing the duties of a primary financial monitoring entity, an attorney-at-law must apply a risk-based approach, taking into account the updated Risk Criteria for Legalization (Laundering) of Proceeds of Crime, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction, approved by the Order of the Ministry of Finance dated 28.12.2022.

When assessing risks, attorneys should analyze the following criteria:

1. by type of client;
2. related to the geographical location of the client's state of residence (stay, registration) or the institution through which he or she transfers (receives) assets;
3. by the type (type) of service (product) and by the method (channel) of providing or receiving the service (product).

In accordance with the requirements of Art. 9 of the Law, a law firm or association must appoint a responsible employee and develop internal documents on financial monitoring - Rules and Program, which regulate in detail the procedure for fulfilling obligations under the financial monitoring legislation. If an attorney is practicing law individually, these particular requirements of the law do not apply to him or her.

You can learn more about all of this by watching the webinar «Financial Monitoring in the Practice of Law through the Prism of the BCU's Decisions».

State regulation in this area and supervision over the activities of law firms, law firms and attorneys is carried out by the Ministry of Justice of Ukraine. On June 16, 2023, the Cabinet of Ministers approved the Procedure for Supervision in the Field of Prevention and Counteraction to Legalization (Laundering) of Proceeds of Crime, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction over the Activities of Primary Financial Monitoring Entities, State Regulation and Supervision of which is carried out by the Ministry of Finance, the Ministry of Justice, and the Ministry of Digital Transformation (Resolution No. 662).

Pursuant to this Procedure and other legislation on financial monitoring, attorneys, bureaus and associations are obliged to timely and fully submit (execute, certify), in accordance with the procedure established by the Ministry of Justice, at the request of the Ministry of Justice, reliable information and/or documents (conclusions, decisions, etc.), copies of documents or excerpts from documents relating to the compliance of attorneys, bureaus and associations with the requirements of the legislation in the field of financial monitoring and necessary for the Ministry of Justice to exercise its supervision.

It should also be borne in mind that on June 17, 2022, the Ministry of Justice issued Order No. 2522/5 «Some Issues of Formation of Administrative Reporting by the Ministry of Justice of Ukraine as a Subject of State Financial Monitoring in the Field of Prevention and Counteraction to Legalization (Laundering) of Proceeds of Crime, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction», which approved the reporting form No. 1-finmon (annual) and the Instructions for filling out and submitting this reporting form.

Detailed recommendations for completing and submitting this reporting form N 1-finmon by lawyers, bureaus and associations that are subjects of primary financial monitoring are contained in the information letter approved by the Bar Council of Ukraine at its meeting on December 15, 2023.

The material was prepared by Valentyn Gvozdiy, the Vice President of UNBA, BCU.