On October 26, 2022 the representatives of the public sector met with the representatives of the working group on National Risk Assessment 2022 (hereinafter referred to as NRA-22), which was organized by the Centre for Democracy and Rule of Law within the Ukraine Civil Society Sectoral Support Activity.

The purpose of the event was to:

• Support and deepen the dialogue between the State Financial Monitoring Service of Ukraine (SFMSU), the working group on the NRA 22 and the public sector.
• Present the Recommendations for Ukraine on countering money laundering and terrorist financing, developed on the basis of the Tbilisi Principles (speaker Mariia Heletii, Deputy Project Manager of the Ukraine Civil Society Sectoral Support Activity, ISAR “Ednannia”)
• Present the List of NPO Risk Mitigation Factors and make recommendations for improving the risk-oriented approach to NPO assessment (speaker Mariia Poloz, CEDEM lawyer)
• Agree on cooperation on independent sectoral risk assessment of NPOs in AML/CFT.

The meeting participants included representatives of the State Financial Monitoring Service, the Ministry of Finance, the Ministry of Justice, the National Bank of Ukraine, the State Tax Service, the Security Service of Ukraine, the National Commission for Securities and Stock Markets, and civil society organizations.

During the meeting, the parties had an open dialogue on the role of the public sector in ensuring the stability of the financial system of Ukraine, further cooperation and mutual understanding between the State Financial Monitoring Service, other members of the working group on NRA 22 and the public sector with the aim of changing the perception of CSOs as organizations at risk for money laundering and financing of terrorism by state regulators.

RISK FACTORS FOR THE USE OF NPOs FOR MONEY LAUNDERING/TERRORISM FINANCING
(according to the National Risk Assessment Methodology (2021))
FACTORS RELEVANT FOR NPOs* Funding sources: International: Significant amounts of individuals’ funds Foreign public figures (Politically Exposed Persons, PEP) National: National PEPs Individuals Anonymous sources Donors with a religious or ideological focus NPOs operating in areas with active terrorist threats NPOs which are largely controlled by PEP Geographic risk: Donors from jurisdictions with weak AML/CFT management and control for NPOs Donors in jurisdictions where there is significant financial and ideological support for terrorists Suppliers of materials to NPOs from high-risk jurisdictions or jurisdiction prone to criminal activity, such as drug trafficking, official corruption, smuggling, etc. Supplier owned by PEP Supplier on the list of countries engaged in terrorism NPOs from countries subject to embargoes, sanctions, etc. NPOs from countries that do not or do not adequately implement the AML/CFT recommendations of international organizations NPOs operating in areas with active terrorist activity	FACTORS IRRELEVANT FOR NPOs* Funding sources: International: State-owned and private foundations Corporations National: Corporations Donors without clear humanitarian goals Foreign donors with a complex global logistics network Product/service risk: Use of cooperative and community groups Transfer through a bank account Use of travel vouchers Direct electronic transfer to beneficiaries Industry risk: Healthcare Humanitarian aid Social service Education Housing Sports and recreation Representation of interests Religion Gender, human rights and governance Anti-corruption activity Sanitation
*In the opinion of experts, they may pose a risk, and therefore we offer factors to mitigate this risk. **The experts believe that these factors do not meet FATF requirements or do not pose a risk in the context of CSOs.
The infographics was created as part of the Project Ukraine Civil Society Sectoral Support Activity implemented by the Initiative Center to Support Social Action “Ednannia” in partnership with the Ukrainian Center for Independent Political Research (UCIPR) and Centre for Democracy and Rule of Law (CEDEM) with the sincere support of the American people through United States Agency for International Development.

 

In particular, it was agreed to engage the public sector to work on the next National Risk Assessment and to work on the bylaws and regulatory legal acts related to the determination of ultimate beneficial owners. CSOs are ready to get involved in finalizing the NRA Assessment Methodology for the next period (tentatively 2023-2024). In addition, representatives of the Ministry of Finance proposed deeper cooperation with CSOs in the development of solutions in the implementation of primary financial monitoring. 

According to Mariia Heletii, crisis situations require governments and financial institutions to respond quickly to simplify, sometimes even loosen, certain regulations so that civil society organizations can receive their money, not prohibited money that could reach their target groups.

Therefore, a qualitative risk assessment is very important, and it is very important to consult with the non-profit sector when conducting the assessment in order to properly understand these risks. We are ready to help to determine what kinds of risks exist in Ukraine.

“According to FATF recommendations non-profit organizations are not automatically high-risk, primary reporting entities need to apply a risk-oriented approach and assess each organization separately. Because if we deem all NGOs or charitable organizations to be risky, we may scare off virtuous benefactors,” stressed Mariia Poloz, adding that transparency and accountability are the most important factors in reducing the risks that an organization may be used for money laundering or terrorist financing.

Maksym Latsyba, Head of the UCIPR Civil Society Development Program, noted: the position that “the activity and reporting of NGOs and charitable organizations is not sufficiently regulated” is very surprising. After all, in Ukraine there are laws on public associations, on charitable organizations, on volunteering, tax legislation, which fully regulate the activities of these organizations. As for reporting, NGOs submit reports on their income and expenses once a year, our funds are kept in banks that control their movement.

“It may seem to some people that the preparation of a national risk assessment report is some kind of theoretical or scientific work, but for us, NGOs, it turns into considerable complications and problems, and it is much more difficult for us to carry out our activities, it has become much more difficult for commercial banks to service the activities of NGOs and foundations. And while earlier we used to confirm the signature of the head and accountant of the NGO once every 3 years, now we do it once a year. Such consequences are caused by incomplete understanding by government representatives of the way NGOs and charitable foundations operate,” he stressed.

It would be more correct to define certain risk criteria, instead of declaring the entire sector as risky, summarized Viacheslav Bykov, Executive Director of Tabletochki Charitable Foundation. “We want to make ourselves visible so that government agencies will understand that we are not a separate specific sector. NGOs and charitable organizations are inherently risk-free. We emphasize that more specific risk criteria should be developed. We would very much like to avoid what is going on now, when individual organizational and legal forms are determined to be risky based on the results of a national risk assessment. That is, charitable organizations. Charitable foundations, public associations – we define them all as risky instead of defining certain criteria,” he noted.

The event was organized as part of the Project Ukraine Civil Society Sectoral Support Activity implemented by the Initiative Center to Support Social Action “Ednannia” in partnership with the Ukrainian Center for Independent Political Research (UCIPR) and Centre for Democracy and Rule of Law (CEDEM) with the sincere support of the American people through United States Agency for International Development.