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27.12.2023

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

Lawyers, law offices and bar associations become specially defined subjects of primary financial monitoring only when they accompany certain transactions. Therefore, they should ensure the organization and conduct of primary financial monitoring.

The relevant provisions are contained in the Law “On prevention and counteraction of legalization (laundering) of proceeds obtained through crime, financing of terrorism and financing of proliferation of weapons of mass destruction”.

It is about the exclusive list of operations, defined by p. 1 hour 1 Art. 10 of the Law:

  • purchase and sale of real estate or property management when financing housing construction;
  • purchase and sale of business entities and corporate rights;
  • management of the client’s funds, securities or other assets;
  • opening and/or managing a bank or securities account;
  • attracting funds necessary for the creation of legal entities and funds, ensuring their activities or managing them;
  • creation, operation or management of legal entities, foundations, trusts or other similar legal entities.

Procedures established by law obligate customers to identify suspicious financial transactions and report them to the State Financial Monitoring Service of Ukraine. Thus, the state prevents the use of a lawyer’s services by his clients when conducting criminal financial transactions.

At the same time, it should be taken into account that the lawyer, bureau and association according to part. 3 Art. 10 of the law are not obliged to fulfill the obligations established by the legislation on financial monitoring in the following cases:

  • provision of client protection services;
  • if the person has the status of a lawyer, but works under an employment contract at an enterprise, institution, organization in the position of a legal adviser (except for the situation when a person concludes a contract on the provision of legal assistance with his employer as a lawyer);
  • representation of the client’s interests in judicial bodies and in cases of pre-trial settlement of disputes;
  • providing advice on client protection and representation.

When performing the duties of the subject of primary financial monitoring, the lawyer must apply a risk-oriented approach, taking into account the updated Risk Criteria for the legalization (laundering) of proceeds obtained through crime, the financing of terrorism and the financing of the proliferation of weapons of mass destruction, approved by the Order of the Ministry of Finance dated 28.12. in 2022.

When assessing risks, lawyers need to analyze the following criteria:

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

Law firm or association in accordance with the requirements of Art. 9 of the Law, it is necessary to appoint a responsible employee and develop internal documents on financial monitoring – Rules and Program, which will regulate in detail the procedure for performing duties according to the legislation on financial monitoring. If the lawyer performs legal activities individually, these requirements of the law do not apply to him.

You can learn more about all this by watching the webinar “Financial monitoring during advocacy through the prism of RAU decisions.”

State regulation in this area and supervision of the activities of law offices, bar associations and lawyers 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 of Legalization (Laundering) of Criminal Proceeds, Financing of Terrorism, and Financing of the Proliferation of Weapons of Mass Destruction in the Activities of Subjects of Primary Financial Monitoring, State Regulation and Supervision of Their Activities Ministry of Finance, Ministry of Justice, Ministry of Digital Transformation (Decision #662 ).

In accordance with this Procedure and other legislation on financial monitoring, lawyers, bureaus and associations are obliged to timely and fully submit (form, 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 extracts from documents related to the fulfillment by lawyers, AB and AO of the requirements of the legislation in the field of financial monitoring and required by the Ministry of Justice for their supervision.

It should also be borne in mind that the Ministry of Justice issued an order on June 17, 2022 No. 2522/5 “Some issues of the formation of administrative reporting by the Ministry of Justice of Ukraine as a subject of state financial monitoring in the field of prevention and countermeasures against the legalization (laundering) of proceeds obtained through crime, the financing of terrorism and the financing of the proliferation of weapons of mass destruction”, which approved the reporting form N 1-finmon (annual) and Instructions for filling out and submitting this reporting form.

Detailed recommendations for filling out 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 during the meeting on December 15, 2023.

The material was prepared by Valentin Gvozdiy, deputy head of NAAU, RAU

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