Politically exposed persons: where are we six months later?

The Law on Politically Exposed Persons (“PEPs”), adopted in October 2023, caused active discussions in Ukrainian society. In particular, the document canceled the three-year limit for PEP status, and also established a fine for subjects of primary financial monitoring (SPFM) in the amount of up to 100,000 tax-free minimums for abusing strict financial monitoring in relation to PEPs.

Recently, the Centre for Finance and Security (CFS) at the Royal United Services Institute (RUSI) and BRDO organised a round table event to discuss issues related to the implementation of the Law. The event was attended by government officials, representatives of civil society, the private sector, the banking sector, as well as PEPs themselves.

“During a full-scale war, Russia is more than ever actively investing resources in disinformation and further destabilization of the political situation in Ukraine. The resonance in the media and social networks shows that the topic of PEPs is important and acute for Ukrainians. And therefore, it can become another tool in the hands of the enemy in the information struggle against us, another reason for the polarization of society,” explains the relevance of the event Oleksii Dorogan, CEO of BRDO.

We can avoid this, but we have to discuss the problematic aspects of the situation and figure out ways to solve them. How often do PEPs and their family members experience derisking and unjustified denials? What are the practical difficulties of working with PEPs that SPFMs face? Should Ukrainians considering entering the civil service be afraid of PEP status and the associated pressure? All these questions require public and thorough answers.

The event was opened by Oksana Ignatenko, expert of the project “Supervising and monitoring of reconstruction funds of Ukraine” (SMURF). In her introductory presentation, she proposed to take 2017 as the starting point for the discussion, as Ukraine was then assessed during the fifth round of country assessments for compliance with the standards of the Financial Action Task Force (FATF).

At that time, Ukraine received a downgraded rating from the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), due to the imperfection of the legislation regarding PEPs. Although there was an attempt in 2019 to improve the process by passing a new law, in 2022 we went back to the three-year limit on PEPs monitoring. Designed to correct this, the Law adopted in 2023 meets FATF standards, is consistent with the fourth EU directive on the prevention of money laundering and was positively noted in the annual report of the European Commission among other 7 Ukrainian reforms.

“However, this does not guarantee that according to the results of the sixth round, which will take place in 2026, Ukraine will improve its rating. MONEYVAL evaluates not the fact that a country has introduced a certain standard, but the effectiveness of its application”, Oksana noted. “Whether the practical implementation of the Law will be successful is still unclear.”

Olga Vasylevska-Smagliuk, the Deputy Head of the Parliament Committee on Finance, Tax and Customs Policy, who joined the round table, does not see any obstacles to the implementation of the new norms regarding PEPs. “Since the Law commenced, the National Bank has received only 49 appeals regarding its provisions, and only 7 of them related to derisking. The vast majority of questions were not caused by financial monitoring of PEPs, but by the procedure for granting PEP status to a public figure. Dissatisfaction with the Law, which swept through social networks in October 2023, was much larger than the number of difficulties that PEPs actually faced,” explains Olga.

Mykhailo Koltsov, YouControl compliance expert, World Bank Group external consultant on data analysis and cyber security, told what the situation is from the point of view of SPFM during the event. In his opinion, the first key challenge for financial monitoring entities is the difficulty of primary identification of PEPs. “As of now, there is no comprehensive analytical system that would collect individual pieces of information about a public person and, on their basis, grant or deny him PEP status. Determining the status is especially difficult when it comes to relatives and persons connected with PEP,” Mykhailo notes. “Therefore, PEP monitoring is unnecessarily resource-intensive.” The second challenge is the lack of communication between the SPFM and the state regulator regarding the criteria for proper verification of PEPs, the lack of generally accepted practices of monitoring rigour.

Full recording of the event can be found here:

Recording of the previous event on “How to improve the process of monitoring politically significant persons (PEPs)?”:

Take the survey and share your thoughts on the situation of PEPs: