“A red flag” for Financial Intelligent Unit: why detained Ukrainian PEP was able to launder money in Spain?
Stepan Chernovetkyi, son of the former Mayor of Kyiv (businessman, banker) Leonid Chernovetkyi was detained on July 12, 2016 in Platja d’Aro (Spain) in a house bough for laundered money where he was living.
Spanish media report that he lived in a house which was bought for laundered money. The detention became possible after the special police operation against Chernovetskyi’s associates. It was carried out in a posh Japanese restaurant in Barcelona owned by the Armenian businessmen Arman Mailan. 11 persons involved in money laundering were detained during the investigation. Apart from Mr. Chernovetkyi 3 other Ukrainians were also detained in this case.
Stepan Chernovetskyi’s started working in the banking structure of his father Pravex Bank back in 1996 as a Customers Department manager. By 2006 he became the Head of the Supervisory board of this institution. In June 2008 Chernovetskyi’s family sold Pravex to the Italian investor Intesa Sanpaolo for USD 750 mln.
After that Chernovetsyi Jr. became a Member of the Kyiv City Council for a year (2008-2009) and was elected as a representative of his father’s political party.
According to international AML standards Leonid Chernovetkyi should be considered as Foreign Politically Exposed Person for the Spanish Financial Intelligence Unit (FIU) representatives which means that an enhanced level of scrutiny to the transactions performed by him or his associates should be carried out not only by the FIU, but by all representatives of the financial sector of Spain.
Apparently Stepan Chernovetkyi is a close associate of the Ukrainian highest rank ex-politician – his father was not only the Mayor of Ukraine capital, Kyiv – but also an MP for almost 10 years (1996-2006). In December 2015 Leonid Chernovetskyi stated about his intention to transfer the management of the business to his son Stepan to fully devote himself to politics and take part in the upcoming parliamentary elections in Georgia. Chernovetskyi Jr. got Investment company Chernovetskyi Investment Group (CIG) from his father.
For now Leonid Chernovetskyi is a leader of political party the Christian Liberal party of Ukraine and considered as PEP according to the Ukrainian legislation and FATF standards.
Presumably now Spanish banks and other financial Institution are performing checks of their clients’ databases in order to establish any connections with Chernovetskyi. But the situation could be much better if they would be using some extra information like the database of Ukrainian PEPs where some additional information about Leonid and Stepan could be found.
The main reason of the mentioned database creation is an amazingly high level of corruption with heavy involvement of the Ukrainian officials and in particular – involvement of ex-politicians under sanctions of the EU, US and other countries responsible for the tragedy which happened on Maidan back in 2014 who are still controlling businesses and enterprises in Ukraine and using international financial system to launder their ill-gotten assets.
If we look into situation globally, the main conclusion which could be made is that the whole system of AML aspect regarding the Ukrainian ex and current officials, their family members and associates is working with great deficiencies in the EU. There are numerous examples of using of the EU financial system in order to launder money acquired in Ukraine by the PEPs, and the situation will not get any better until all interested parties like FIUs and Compliance departments of the banks will not be paying enough attention to the high risk clients from our country and to the funds originated from Ukraine in general.
As a response to these challenge Ukrainian activists have launched in early 2016 publicly available Register of Politically Exposed Persons – pep.org.ua, an exclusive public online database designed to help to withstand money laundering from the state Ukrainian budget through international banks. Register should help international financial institutions to understand whether their current and potential clients from Ukraine are so called politically exposed persons (PEPs) or their close associates whose transactions should be checked with an enhanced due diligence according to the FATF recommendations. The Register already contains over 12 000 records of individuals and 3,000 of legal entities, 6300 of PEPs records, 5600 of PEPs close associates, as well as PEP’s family members.
The Register contains information about PEPs, their connections with other PEPs, different institutions and relatives. The database contains two types of PEP’s profiles – basic and extended. Both contain documentary confirmed information from authorized sources about PEP: full name and career in basic profile; business, family relations, connections with other PEPs and facts which indicating a reputation of a person – whether it appears in criminal proceedings, has a criminal record, is implicated in high-profile corruption scandals and so on – in extended profile.
In 2016 the Financial Monitoring Service of Ukraine included the PEP Register to their recommended list of sources for identifying and due diligence of the National Public Figures (Domestic Politically Exposed Persons). For now the Register is working in the test mode and is available in Ukrainian and English.