Viche 2016 5

5, 2016

Need for Legislative Changes in the Mechanism of Ensuring the Effectiveness of the Investigation of Legalization of Proceeds from Crime

Need for regulatory improvement and setting of European standards on anti-money laundering is identified on the basis of current legislation, statistics, investigative and judicial practices. In particular, it is proposed to set in the law: the duty of the lawyer to report about the elements of crime that became known during the rendering of legal assistance; check of inheritance; shifting the burden of proof to the person in the crimes related to corruption and money laundering; limitation of cash flow and careful regulation of foreign currency exchange.r
Keywords: legalization, confiscation, verification of inheritance.r

In the majority of cases the criminal offences are committed with the purpose to receive profits. Legalization of proceeds from crime is related to the crimes of different gravity and consequences, functioning of offshore zones, refined schemes of tax dodging, which influence negatively on the development of both national economy and the global international system of economy. According to the UNO, in the offshore zones USD 32 trillion is discovered on bank accounts, from which USD 11.5 trillion belong to the private individuals. It gives grounds to draw conclusion that annual non­payment tax is around USD 250 milliard. This amount, by the way, exceeds by five times the amount of money required for decreasing the poverty in the world by three times [7].

The Law On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime, Terrorist Financing and Financing of Mass Destruction Weapons [5] adopted by the Verkhovna Rada of Ukraine extended the authorities of law enforcement, but at the same time it did not decrease the sharpness of discussions between research workers and practical experts in relation to some its regulations [1; 2; 3].

The processes of globalization require complex settlement of this problem, that it is connected, in its turn, with the unbiased estimation of the situation, determination of the sphere and volume of international cooperation, mechanisms of co­operation of law enforcement authorities, adaptation of the best world practices in this sphere to the national legal systems.

The agreement on association between Ukraine and the European Union foresees the collaboration of contractual parties with the purpose of prevention and fight against legalization (laundering) of money and terrorist financing. In this regard it was decided to strengthen bilateral and international co­operation in this sphere, in particular collaboration at the operative level. The parties contracted to provide implementation of the proper international standards, in particular the standards of the Group on the development of Financial Action Task Force on Money Laundering and Terrorist Financing (FATF), and the standards equivalent to those which are accepted by the European Union (article 20) [9].

Ukraine showed the capability of its law enforcement authorities to discover, investigate and prevent the mentioned criminal offences. Thus, according to the data of the General Prosecutor office, in 2015 there were 58 pre­trial criminal investigations under article 209 of the CC of Ukraine On Legalization (Laundering) of Proceeds from Crime. Among them there were 7 crimes committed in finance and credit sphere, 4 in the field of bank activity, 1 in the fuel and energy complex. UAH 9,991,054.00 of the legalized money and property were detected. Distress was levied on UAH 2,790,390.00 [6]. Indisputably, the results of investigation to a great extent depend on human factors such as knowledge of current legislation, awareness regarding the possibility of collaboration with the law enforcement authorities of other states, ability to set out leads and to organize successfully their verification through investigative (search) activities, etc. However, the attention should be paid to that the analysis of investigation practice finds out possibilities of improvement of indexes of investigation under certain unbiased conditions, in particular improvement of current legislation.

In accordance with p. h of p. 2 of art. 5 of the Law On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime, Terrorist Financing and Financing of Mass Destruction Weapons the subjects of the primary financial monitoring are: notaries; advocates; advocate bureaus and associations; auditors; auditing firms; companies which render services in accountancy; companies which render legal services (except for persons which render services in terms of labour legal relations). At this the legislator mentioned the elements of the activity of specially defined subjects of the primary financial monitoring. In accordance with article 8 of the mentioned law, the performance of duties of subject of the primary financial monitoring is carried out in case it is involved in a financial operation for its client in relation to: purchase and sell of the real estate; management of assets of client; management of a bank account or securities accounts; attracting of funds for creation of the legal entities, maintenance of their activity and their management; creation of the legal entities, maintenance of their activity (including audit) or their management, as well as purchase and sell of legal entities (corporate rights). In connection with the above said there is a scientific discussion in relation to the bringing into correspondence of two concepts: the concept of a duty of an advocate, as of a subject of the primary financial monitoring, to inform about the elements of the mentioned crime, and the concept of the advocate secret.

It is known that the advocate secret is any information which came to the notice of an advocate, an associate to an advocate, a probationer of an advocate, a person who is in labour relationship with an advocate, about a client, and also the questions regarding which a client approached an advocate, an advocate bureau, an advocate association, content of pieces of advice, consultations, elucidations provided by an advocate, documents completed by an advocate, information which is kept on data storage devices, and other documents and information received by an advocate during performance of advocate work.

The answer to the question regarding the bringing into correspondence of the concept on a duty of an advocate to report about the elements of the indicated crime and the concept of an advocate secret is contained in p. 6 of art. 22 of the Law On Advocacy and Advocate Activity where it is stated that presentation by an advocate in accordance with the established procedure and in cases foreseen by the Law On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime, Terrorist Financing and Financing of Mass Destruction Weapons of the information to the central organ of executive power, which performs the public policy in the field of prevention and counteraction to legalization (laundering) of the proceeds from crime, terrorist financing and financing of mass destruction weapons, is not the violation of advocate secret [4]. It should have helped the law enforcement authorities to react on time and effectively on the reports of the advocates when they find out the elements of crime.

However, such hypothetical conclusion is not confirmed by practice. Above all, because of the peculiarity of the normative regulation of the activity of an advocate set in p. 5 of art. 8 of the Law, where, in particular, it is foreseen that advocates, advocate bureaus and associations, persons, which render legal services, cannot reveal to the specially authorized organ about their suspicion, if the proper information came to their notice under circumstances which are the subject of their professional secret, or have a privilege on the keeping of official secret, and also in the cases when they carry out the duties in relation to defense of a client, representation of his interests in judicial bodies and in the cases of pre­trial settlement of disputes [5]. Obvious is a fact that an advocate is under an obligation to report about the suspicion only in the cases when it appeared not in terms of rendering legal assistance. Taking into account the legislative warnings in relation to the managers and senior officials of specially defined subjects of the primary financial monitoring who in the case of violation of requirements of law bear responsibility as set forth by the law, the advocates make agreements on rendering legal services in all cases in order to minimize the risks of bringing them to the responsibility for a non­disclosure of the elements of doubtful operations of a client to the law enforcement authorities.

The European experience of investigation practice differs from the Ukrainian one. Example of opening of a criminal proceeding by the financial intelligence unit of Great Britain according to the report of an advocate is a case of Spanish toreador, which showed the directness of requirements and effectiveness of the European law. Toreador from Barcelona, having the considerable fortune from his long­term labour activity, decided to leave for London and have permanent residence there. After he sold out the real estate, he transferred funds to the bank account opened on his name in London, whereupon appealed to the advocate for assistance in acquisition of the real estate. The agreement on rendering legal services was concluded with the advocate, the subject of the agreement was the legal advice in terms of purchase of the real estate. The advocate, being the subject of the primary financial monitoring, firstly, found out whether his client has the proper money, secondly, he obliged the client to give the written confirmation of the proper financial assets on his account (extract from the bank account was given); thirdly, asked about the official sources of money. His client reported that he was a toreador and had high fee earnings, that is why his fortune is legal. According to the recommendation of the advocate, the toreador was forced to confirm his profits documentarily (status of toreador, level of fees for fights, cost of purchased and then sold real estate in Barcelona, etc.). The advocate, having received the mentioned documents, formed the dossier of the client and passed it to the financial intelligence unit based on the suspicion on attempt to make legalization of proceeds from crime. His suspicion was grounded on that Spain ratified the European Convention for the Protection of Pet Animals; however, it did not forbid the mentioned type of entertainments on its territory [8, p. 11]. Consequently, in accordance with the European law, the fees of toreador are funds received in a criminal way from the cruelty to animals, that is predicate crime. An attempt to purchase the real estate in London was determined as an endeavor to legalize the proceeds from crime.

As such practice testifies, the report of information by an advocate in relation to suspicion about an attempt to make a doubtful operation, even if it came to his notice during the rendering of legal assistance to a client, is the effectual and effective method of exposure of elements of a crime on the stage of attempt, tracing the location of funds and considerable economy of judicial time and organizational resources.

At the same time the practice of the European countries induces to bring in an amendment to the current legislation of Ukraine in relation to the verification of inheritance in order to investigate the legality of sources of its origin. In case of exposure of the elements of the illegal enriching, legalization of proceeds from crime, the defined assets are subject to confiscation even at the presence of legal inheritors. The example of efficiency of such mechanism is the experience of the Netherlands, where the financial intelligence units are granted with such right. For example, the inhabitant of Amsterdam under a testament got from an uncle an inheritance in the amount of EUR 896 thousand. Notary, as a subject of the primary financial monitoring, after having registered the inheritance for the client, revealed to the authorized organs about his suspicion, which was based on that inherit­leaver worked as a tailor and, according to official declarations, had small profits, however accumulated the significant amount of money which could be illegal. According to the legislation of the Netherlands, an inheritor himself, at the presence of doubts in relation to the legality of origin of inheritance, had to appeal independently with a query about the verification of sources of its origin. However, he, without regard to that he was warned of it by the notary, did not take advantage of this right. The law enforcement authorities of Amsterdam, while conducting the verification, found out that the inheritor once was a witness in the criminal case in relation to the traffic of drugs. He was clear of suspicion, and consequently, there was no accusatory sentence in relation to him. But because of the absence of official sources of origin of the present assets, non­conformity of their size to official declarations about profits for previous years, the conclusion about the criminal origin of the indicated sum of inheritance was made. As long as the inheritor consciously ignored his right to the verification of inheritance, and during interrogations could not even make a version in relation to the possible origin of such amount of money on the account of his relative, the criminal proceeding in relation to the attempt to legalize proceeds from crime was opened against him. According to the court decision, the punishment in the form of EUR 40 thousand was appointed, and the inheritance, which was received in the criminal way, was confiscated in behalf of the state [8, p. 19].

Criminalization of the illegal enriching requires taking into the account of recommendations of international experts in relation to the expedience of consideration of the possibility of shifting the burden of proof to the person who is under an obligation to explain the origin of the found out assets.

Logical and detailed recommendations of the experts of the European Council, fundamental experience of employees of the financial intelligence units of the European states should be comprehensively analyzed and concertedly implemented into the current legislation of Ukraine.

The main reason for the non­use of positive experience of the European investigation practice, legal methods for determination, investigation and prevention of legalization of proceeds from crime, to our opinion, is that it was produced in the societies where the law is a priori a value, and in our society it faces the subjective nihilism. In the western civilization the sense of justice is a background for obligatory implementation of the regulation of law. Consequently, the legal realized awareness is a formula for efficiency of the fight against dirty money.


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Deputy Prosecutor of Dnipropetrovsk region,
Senior Counselor of Justice