FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF MER Recommendations
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Weakness in Government Legislation to combat Money Laundering
Ukraine is not on the FATF List of Countries that have been identified as having strategic AML deficiencies.
Compliance with FATF Recommendations
The last follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Ukraine was undertaken by the Financial Action Task Force (FATF) in 2020. According to that Evaluation, Ukraine was deemed Compliant for 11 and Largely Compliant for 22 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 2 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.
US Department of State Money Laundering assessment (INCSR)
Ukraine is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Money laundering remains a significant problem in Ukraine. The authorities made little progress in 2019, though the passage of new AML legislation is pending.
Corruption is the primary source of laundered funds. Launderers register as ultimate beneficial owners under aliases and integrate laundered money into legal businesses. Ineffective state institutions and an ineffective criminal justice system continue to allow criminal proceeds to go undetected. Although authorities are aware of the seriousness of the problem and are implementing measures to address it, law enforcement rarely targets large-scale corruptionrelated money laundering.
The ongoing major reform of the Ukrainian prosecution authority appears to be a major step toward effective criminal enforcement. While the National Anti-corruption Bureau (NABU), working with the Office of the Prosecutor General (OPG) and Specialized Anti-corruption Prosecution Office (SAPO), has made significant progress in pursuing cases against high-ranking officials in a relatively short period of time, the newly-established High Anti-Corruption Court is only beginning to consider the cases.
The EU and US have imposed sanctions against a number of persons and business entities, mainly Russian, relating to the crisis in Ukraine. This list is regularly updated.
May 2015 - OFAC publishes FAQs relating to Ukraine-/Russia-related Sanctions
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 33
World Governance Indicator – Control of Corruption 26
A combination of rampant corruption, market volatility and political instability in Ukraine represents major business risks for foreign investors. Bribery and facilitation payments are widespread among Ukrainian public officials, severely complicating business registration and trade procedures for international companies. Public procurement also suffers from pervasive corruption, burdensome regulations and favoritism, severely impeding fair competition. Corruption, extortion, bribery of foreign public officials, abuse of office and facilitation payments are criminalized under the Criminal Code, and official corruption - including conflicts of interest, asset disclosure and gifts and hospitality - is also covered under Ukraine's legislative framework. Ukraine’s anti-corruption laws encompass corrupt misconduct in both the private and the public sectors. The Law On Prevention of Corruption introduces measures for monitoring the effective implementation of anti-corruption provisions. However, a weak judicial system limits the enforcement of Ukraine's anti-corruption laws. For further information - GAN Integrity Business Anti-Corruption Portal
OECD - Ukraine must enforce its new anti-corruption strategy and legislation
16/04/2015 - Widespread corruption was one of the main reasons that led to the change of the political regime in Ukraine in 2014. The new administration pledged to fight corruption, a challenging task in the current context of the economic crisis and military conflict in the East of the country. It has made a major breakthrough in anti-corruption policy, legal and institutional reforms. But it has so far failed to deliver convincing results beyond legal reforms. Ukraine must enforce its new anti-corruption legislation, and bring corrupt officials to justice without delay, says the new OECD report.
The report commends Ukraine for the recent adoption of the anti-corruption strategy and for the reform of its criminal legislation that brought the country into compliance with international anti-corruption standards. It also welcomes the decision to create two anti-corruption bodies - the Corruption Prevention Agency and the National Anti-Corruption Bureau. The report highlights the major role that the civil society played in the reform process.
However, these encouraging steps have not yet been supported by strong enforcement actions. The report raises major concerns about the lack of prosecutions of corrupt members of the former regime, especially those whose assets have been frozen in OECD countries and of corruption spreading in the new government. The report recommends that Ukraine should:
Adopt the action plan for the national anti-corruption strategy that will have clear indicators for measuring performance and ensure that the monitoring of its implementation is based on corruption surveys and inputs by the civil society;
Ensure the independence of the National Anti-Corruption Bureau and provide it with all necessary resources to investigate high level corruption crimes;
Establish the Corruption Prevention Agency without delay and build its capacity for effective prevention of corruption in the public administration, in particular by setting up the electronic asset disclosure system for public officials;
Pursue without further delay the reform of civil service in line with the European standards for public administration in order to ensure its professionalism and integrity;
Boost the reform of the judiciary and take measures to ensure the independence and integrity of judges, in particular by revising relevant constitutional provisions;
Introduce legislation on transparent financing of political parties and electoral campaigns, including direct public financing, to limit the influence of private interests over politics and reinforce rules on integrity and corruption prevention for political officials.
Take effective measures to boost the potential of business to contribute to the economic recovery of the country by freeing it from “corruption tax”, political dependencies and dominance of oligarchs.
The report also highlights significant improvement of the legislation regulating conflicts of interest, achievements in determining the strategic directions of the Public Financial Control and Audit reform, major improvements in the legislative frameworks in public procurement and in access to public information. It calls on the government of Ukraine to focus its efforts on the practical implementation of these new legal provisions.
Ukraine and the OECD signed a Memorandum of Understanding in October 2014 identifying areas for stronger cooperation, including anti-corruption.
After Russia, the Ukrainian republic was the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied unique equipment, such as, large diameter pipes and vertical drilling apparatus, and raw materials to industrial and mining sites in other regions of the former USSR.
Shortly after independence in August 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Outside institutions - particularly the IMF –encouraged Ukraine to quicken the pace and scope of reforms to foster economic growth. Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy. But more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework. From 2000 until mid-2008, Ukraine's economy was buoyant despite political turmoil between the prime minister and president.
Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Ukraine depends on imports to meet about three-fourths of its annual oil and natural gas requirements and 100% of its nuclear fuel needs. In January 2009, after a two-week dispute that saw gas supplies cut off to Europe, Ukraine agreed to 10-year gas supply and transit contracts with Russia that brought gas prices to "world" levels. The strict terms of the contracts further hobbled Ukraine's cash-strapped state gas company, Naftohaz. The economy contracted nearly 15% in 2009, among the worst economic performances in the world. In April 2010, Ukraine negotiated a price discount on Russian gas imports in exchange for extending Russia's lease on its naval base in Crimea.
Ukraine’s oligarch-dominated economy grew slowly from 2010 to 2014. After former President YANUKOVYCH fled the country during the Revolution of Dignity, the international community began efforts to stabilize the Ukrainian economy, including a March 2014 IMF assistance package of $14-18 billion. Ukraine has made significant progress on reforms designed to make the country a prosperous, democratic, and transparent country.
Russia’s occupation of Crimea in March 2014 and on-going aggression in eastern Ukraine have hurt economic growth. With the loss of a major portion of Ukraine’s heavy industry in Donbas and ongoing violence, Ukraine’s economy contracted by 6.8% in 2014 and by an estimated 10.5% in 2015. Ukraine and Russia have engaged in a trade war with sharply reduced trade between the countries by the end of 2015. The EU-Ukraine Deep and Comprehensive Free Trade Area finally started up on 1 January 2016, and is expected to help Ukraine integrate its economy with Europe by opening up markets and harmonizing regulations.
Agriculture - products:
grain, sugar beets, sunflower seeds, vegetables; beef, milk
coal, electric power, ferrous and nonferrous metals, machinery and transport equipment, chemicals, food processing
Exports - commodities:
ferrous and nonferrous metals, fuel and petroleum products, chemicals, machinery and transport equipment, foodstuffs
Exports - partners:
Russia 12.7%, Turkey 7.3%, China 6.3%, Egypt 5.5%, Italy 5.2%, Poland 5.2% (2015)
Imports - commodities:
energy, machinery and equipment, chemicals
Imports - partners:
Russia 20%, Germany 10.4%, China 10.1%, Belarus 6.5%, Poland 6.2%, Hungary 4.2% (2015)
Investment Climate - US State Department
Ukraine continues to undergo historic transformation since the 2014 Revolution of Dignity. As the 2016 Investment Climate Statement goes to press, Ukraine once again finds itself at a crossroads. While many analysts calculate that the economic crisis has bottomed out, hard-fought macro-economic stabilization is at risk if the government does not follow through on tough reforms. In 2016 the Ukrainian Government will have to navigate a number of significant challenges, including an expected reset of both the ruling coalition in the parliament (Verkhovna Rada) and the government, a resurgence of fighting in the east, implementation of the Minsk agreements, negotiation of energy supplies to fuel the economy, continued economic and military aggression from Russia, and, above all, rooting out endemic corruption that has hindered Ukraine’s prosperity for decades. An active, core group of MPs in Ukraine’s pro-European, pro-reform parliament and a Cabinet that includes technocratic experts have demonstrated the country’s strong desire to fundamentally change the way business has been done here since independence – to form a “New Ukraine” and push forward the necessary security, political, and financial reforms. The task ahead is daunting, and Ukraine continues to look to the United States for continued support in many spheres.
Positive and Negative Aspects of Ukraine’s Investment Climate
The Ukrainian economy is showing signs of stabilization in 2016, but the government continues to struggle with structural problems. Ukraine’s currency, the hryvnia, has depreciated nearly 65 percent against the dollar since May 2014. To prevent capital outflows, the GoU has implemented currency controls that have hampered international trade and investment. As an agricultural powerhouse, Ukraine produces sufficient basic foodstuffs domestically (albeit with foreign-sourced inputs like seeds), but relies on imports for most consumer goods, gasoline, automobiles, and clothing. Inflation, which spiked in early 2015 and is projected to moderate to between 12 and 25 percent by the end of 2016, has eroded already stagnant wages and created hardships for the average Ukrainian. Meanwhile, Russia’s ban on Ukrainian dairy, chocolate, fruits, and vegetables has hurt Ukrainian exports. In fact, Russia has fallen behind the EU as Ukraine’s largest export destination in recent years; exports to Russia now make up only 11 percent of Ukraine's total exports and only two percent of food exports. On top of an aging infrastructure system already in need of repair, the conflict has wrought significant damage to freight rail, ports, mines, and industrial facilities (historically centered in the Donetsk and Luhansk regions) and has severely curtailed Ukraine’s heavy industry exports, a key source of precious foreign currency and middle-class jobs. As part of Ukraine’s Association Agreement with the EU, the Deep and Comprehensive Free Trade Area or DCFTA came into effect on January 1. Ukraine successfully negotiated last summer with its creditors to restructure its external debt and subsequently has seen its credit rating improve.
The United States provided two $1 billion loan guarantees, the first in May 2014 and the second in May 2015. A further $1 billion is under discussion, contingent on continuing reform progress. In March 2015, the International Monetary Fund approved a new, four-year, $17.5 billion program for Ukraine – one of its largest programs. Ukraine, however, must continue to meet the IMF’s stringent targets, including gradual elimination of subsidies on residential heating and electricity, reforming state-owned enterprises, maintaining a balanced budget, and pension reform. Many of these necessary steps are unpopular with the public, particularly when combined with the eroded purchasing power and rising unemployment during the past two years. Energy sector reform is ongoing, with key pieces of legislation being passed or drafted by the Rada.
Ukraine’s Key Sectors
Ukraine is the world’s third-largest grain producer (behind the United States and the European Union) and has been a profitable country for foreign investors. Domestically-oriented sectors like banking and construction have traditionally attracted foreign direct investment more than export-oriented manufacturing. Within the manufacturing sector, metallurgy and food processing have attracted investors ahead of machine building and the chemical industry. Even with ongoing reforms to reign in corruption and burdensome regulation, Ukraine is still seen as a difficult place to do business. However, many major U.S. companies are represented here, particularly in the agriculture, consumer goods, and technology sectors.
In spite of the country’s recent political turbulence, Ukraine deserves special mention regarding its IT service and software R&D sector – this sector has demonstrated double-digit growth year-over-year. U.S. technology firms conduct R&D activities in Ukraine and an array of local IT outsourcing companies of all types and sizes serve clients worldwide. The export volume of Ukraine’s software development industry reached at least $2.5 billion in 2015 and is considered the number-three export sector. This sector of Ukraine’s economy shows great potential due to the country’s large, skilled workforce.
Key Watch Items: Crimea and Donbas
Investors should note that the situation in both Crimea (unlawfully annexed by Russia in the spring of 2014), and in occupied territories of Donbas remains dire. The investment climate in both of these areas continues to be poor, characterized by a lack of governance, transparency, and stability. American companies are prohibited from participating in certain transactions in Crimea, which is subject to sanctions under Executive Order 13685 dated December 19, 2014. Media reports suggest that Crimean “authorities” do not respect property rights and have “nationalized” and/or confiscated a sweeping array of business assets. Businesses that do operate there report difficult conditions for their personnel as local “authorities” attempt to enforce foreign law and require the adoption of Russian documentation. The situation in the Donbas (portions of Luhansk and Donetsk oblasts) controlled by Russian-backed separatists continues to be volatile. Those businesses remaining in this zone have reported work stoppages, illegal “taxation,” and the kidnapping of company personnel, all at the hands of the Russian-backed separatists. Banks have ceased operations in the region, and the Ukrainian Government is unable to provide basic services. In addition, road and rail systems in the region are damaged from the conflict, leaving businesses without the means to receive inputs or move product. Finally, significant portions of the Donbas controlled by Russian-backed separatists and most of Crimea experience frequent, extended power outages.
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