Ukraine: “Anti-oligarchs law” raises issues for banks to consider by May 7, 2022

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On November 5, 2021 the President of Ukraine signed the Law of Ukraine “On Prevention of Threats to National Security Related to the Excessive Influence of Persons who have Significant Economic and Political Weight in Public Life (Oligarchs)” (the Law).

With effectiveness from May 7, 2022, the Law sets out a legal framework addressing the status of oligarchs in Ukraine.

Who are “oligarchs” under the Law?

A person, who meet any three of the following criteria may be declared “oligarch” by the decision of the National Security and Defence Council of Ukraine (NSDCU):

1. A person takes part in political life (as defined by any of the following):

  • a person occupies top-level public service positions in Ukraine (e.g. the President of Ukraine, members of the Parliament, members of the Government etc.) (top-level public servant); and/or
  • a person is a close person or related person of the top-level public servant; and/or
  • a person occupies managerial position in political parties; and/or
  • a person finances political party’s activity, political agitations or political demonstrations.

2. A person has significant influence on mass media (as defined by any of the following):

  • a person is the owner, UBO or controller of mass-media (MM principal); and/or
  • a person, who transferred the MM principal status after November 7, 2021 to its related person or to a person, who doesn’t have a perfect business reputation (as provided by the Law).

3. A person is the UBO of the company, which has the natural monopoly status or dominant position on the market as set out in the Law of Ukraine “On Economic Competition Protection” and maintains or increases that position for more than one year in a row.

4. The total assets of a person (both personally and through the business where the person is the UBO), exceeds 1 million subsistence minimums established for able-bodied persons on January 1 of the respective year (in 2021 - approx. US$84 million).

Information on persons declared as oligarchs will be listed in a special register (“Oligarch Register”), which will also be run by the NSDCU. So far, there is no information whether that register will be public. 

If a person who was included in the Oligarch Register does not meet any two of the above-mentioned criteria, the NSDCU may pass a decision to remove such person from it. The Law is silent on the consequences of removal, but it can be reasonably assumed that removing a person from the Oligarch Register should automatically terminate the “oligarch status” and the respective limitations and reporting requirements outlined below should no longer apply. 

Limitations and reporting requirements applicable to oligarchs under the Law

According to the Law, the following limitations and reporting requirements will apply to “oligarchs” from May 7, 2022:

  1. Oligarchs will be prohibited from financing political party activities in Ukraine, political agitations or political demonstrations.
  2. Oligarchs will be prohibited from participating (directly or indirectly) in large-scale privatization tenders (i.e., the face-value of the privatization object exceeds UAH 250 million (approx. US$9 million)).
  3. Oligarchs will be required to submit declarations under the Law of Ukraine “On Prevention of Corruption”.
  4. Top-level public servants will be required to disclose all their contacts with oligarchs.

Oligarchs and anti-corruption laws

The Law, among other things, brings oligarchs under the regulatory umbrella of the Law of Ukraine “On the Prevention of Corruption”, requiring them to comply with various anti-corruption limitations and requirements, similar to Ukrainian public servants.

Liability for violation of the Law

The Law does not provide for any liability for violating the above limitations, but we may not exclude that such liability will be introduced further down the road.

Key considerations for banks when dealing with oligarchs

The Law is silent on whether banks are required to monitor compliance of financial transactions with the respective limitations outlined in the Law. As the Law is new, many of its provisions are yet to be crystalized in secondary legislation that should be enacted as provided by the Law by May 7, 2022. That may trigger a need for banks to reconsider their KYC policies, as well as other internal policies, in order to properly address risks when dealing with oligarchs. 

Source: Law of Ukraine “On Prevention of Threats to National Security Related to the Excessive Influence of Persons who have Significant Economic and Political Weight in Public Life (Oligarchs)” No. 1780-IX dated September 23, 2021

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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