Russian invasion on Ukraine from 24 February 2022 has brought far-reaching consequences for lives of ordinary people, for international politics and for businesses. This unprecedented act of aggression was met with strong response from the international community. Words of condemnation were quickly followed by introducing some more tangible solutions – economic sanctions imposed on Russia itself and persons companies and institutions known to be Vladimir Putin’s close co-operators. International companies cut their ties with Russian businesses and limited the number of products imported from there.
Russian aggression can be of particular significance for the obliged institutions within the meaning of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 (hereinafter: AML Directive) implemented in Poland in an Act from 1st March 2018 on Counteracting Money-Laundering and Financing of Terrorism (hereinafter: AML Act).
Russian invasion in the view of Polish criminal law
Why should war in Ukraine have any significance for anti-money laundering law? Because the entities who finance Russian aggression are financing terrorism within the meaning of AML Act. In Article 165a of the Polish Criminal Code, financing of terrorism is defined as gathering, transferring or offering assets with the intention of financing a terrorist offence or making one’s property available to an organised group or association with a view to committing an offence referred to in that provision, to a person who participates in such a group or association or to a person who intends to commit such an offence.
A terrorist offence is defined in Article 115 § 20 of the Polish Criminal Code
- as an offence punishable by a maximum term of imprisonment of at least 5 years, committed with the aim of:
- seriously intimidating a number of persons,
- forcing a public authority of a state or an authority of an international organisation to undertake or abandon a specific action,
- causing serious disturbances in the system or economy a country or an international organisation
- as well as a threat to commit such an act.
One of the examples of such terrorist offence is war of aggression, according to Article 117 of the Polish Criminal Code, a crime punishable by a minimum of 12 years of imprisonment. Undoubtedly, war of aggression is aimed at intimidating a number of persons and causes serious disturbances in political and economic system not only of a country which has been attacked but in some cases of the entire world.
This is why financing Russian invasion can be qualified as terrorist financing.
What the obliged institutions should do to avoid being involved in the process of financing war?
Obliged institutions have certain duties in order to reduce the risk that their customer or a person being in control of their customer conducts includes that institution in a transaction the result of which will be a transfer of assets to a perpetrator of a terrorist offence.
The basic precautions that need to be taken while commencing business relationship or concluding a transactions are defined in the AML Act as financial security measures. They must be adequate for the level of risk connected to the transaction or business relationship that the obliged institution might be involved in money laundering or financing of terrorism. How the risk is assessed depends on a particular institution, but the AML Act gives some directives on what to take into account. Factors such as home country of a client, overly complicated control structure, connection to commodities such as precious metals or works of art must be taken into consideration.
The first step which should be taken is verification of the identity of the customer or the beneficial owner of the customer (the latter option will be necessary in case of legal persons or entities not having legal personality to whom the law confers legal capacity). A beneficial owner is a natural person who has de facto control over business activities of a client.
If the level of risk justifies it, the obliged institution may also inquire about the source of assets used in the transaction or business relationship.
How to know if the client is on the sanctions list?
At the stage of client verification, the obliged institution will usually obtain information on one’s name, country of birth and citizenship. This data may enable an obliged institution to check whether concluding a contract with such client poses risk of terrorist financing.
Where to get information about the entities subject to international sanctions? In Poland such list is available at the website of the General Inspector for Financial Information (hereinafter: GIIF) which is a part of Bulletin of Public Information. This website contains information on sanctions imposed by the United Nations, by the EU (on the basis of an EU regulation) and the USA.
These lists do not include information on restrictive measures imposed by the EU on the basis of the decision of the EU Council No 2022/429 from 15 March amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.
Although the decisions mentioned above do not statue a direct obligation on the individuals (they are addressed to the EU member states), the fact that a particular person is subject to EU restrictive measure in connection with providing support for the war of aggression is a good reason to treat this person as a client posing high or even unacceptable risk of terrorist financing. This is why the EU decisions should be taken into account during the process of client verification according to the provisions of AML Act.
Russia as a high-risk country?
AML Act defines a high-risk country as a country identified on the basis of information from reliable sources, including reports of evaluations of national anti-money laundering and counter-terrorist financing systems carried out by the Financial Action Task Force (FATF) and its affiliated bodies or organisations, as not having an effective anti-money laundering or counter-terrorist financing regime or as having significant deficiencies in its anti-money laundering or counter-terrorist financing regime.
At first glance, Russia does not fit in this definition, as the problem is not that this country fails to implement effective measures to prevent financing terrorism. It actively organizes and finances the war of aggression which is – as mentioned before – a terrorist offence. However, if the fact that a country does nothing to prevent financing terrorism is a reason to take special precautions while contracting with its citizens. The fact that a country is directly involved in a terrorist offence should be even better reason to take such precautions. This is why Russia may be treated as a high-risk third country.
What to do if a client is on a sanction list or is financially involved in Russian invasion?
If during the client verification the obliged institution found out that its client is on the sanctions list or that an institution has strong grounds to believe they may be involved in financing a terrorist offence, there are certain actions which need to be taken.
In case of a person listed on sanctions list mentioned in Article 118 of the AML Act (the list published on the website of GIIF), the obliged institution has the duty to freeze the assets owned, held or controlled, by this person, as well as the benefits derived from them. They also have to refrain from making assets available to or for the benefit of these persons, in particular by not granting loans, consumer credit or mortgage credit, making donations, or making payments for goods or services.
When an obliged institution establishes, that the client, their beneficial owner or the transaction itself is connected to a high-risk third country, the institution needs to take additional measures to mitigate the risk. These measures must include at least one of the following:
- taking additional actions within the framework of the applied enhanced financial security measures;
- introduction of intensified information or transaction reporting obligations;
- limiting the scope of economic relations or transactions.
If the institution has a strong reason to believe, that the transaction or business relationship may be connected to money laundering or financing of terrorism, they need to submit a notification about it to GIIF within two days from the day when the institution confirmed there is a reasonable suspicion of such crime. The institution has an obligation to withhold the suspicious transaction for up to 96 hours unless the General Inspector for Financial Information decides otherwise. The Inspector may order the institution to withhold the transaction for further periods of time if it confirms that the suspicion is justified.
This is how the businesses may play an important role in the prevention of the Russian invasion on Ukraine.
By Mariusz Purgal, Counsel, and Magdalena Wielgosz, Junior Associate, Konieczny Wierzbicki
