Tracking down Ukraine’s illicit asset trail

Do Viktor Yanukovych, his family and cronies have illicit assets in Switzerland? Reuters

Switzerland may have acted swiftly to freeze the accounts of Viktor Yanukovych and his cronies, but the image of the country could yet be severely dented if any of the funds turn out to be criminal, according to two money laundering experts.

The exiled former President of Ukraine and his minions stole $70 billion (CHF61.5 billion) from state coffers, says new Prime Minister Arseniy Yatsenyuk. The question remains: how much of those assets currently lies in Swiss banks?

The Swiss government has taken no chances by blocking the accounts of Yanukovych and 19 of his associates on February 28.

“Apart from the banks themselves, presumably nobody knows exactly how much Ukrainian money is in Switzerland, said Gretta Fenner, executive director of the independent watchdog Basel Institute on Governance. “I personally have the feeling that there is not as much here as in less cooperative jurisdictions, particularly in the Middle East.”

The media has speculated about an increased flow of assets from Ukraine to Swiss banks in the last days of the Yanukovych regime. But Thomas Sutter, spokesman for the Swiss Bankers Association, would neither confirm or deny the reports.

“The Swiss Financial Market Supervisory Authority (FINMA) has established clear rules concerning duty of care for banks and other financial institutions,” he said.

Just because the government has acted, it does not necessarily mean that any Ukrainian money in Switzerland stems from corruption, Sutter added. “Not the banks are involved in corruption, but the financial flows from  transactions based in Ukraine,” Sutter said. “We place great emphasis on international treaties and clarity of evidence.”

Ukranian assets blocked

On February 28 the Swiss government ordered banks to freeze accounts relating to ousted Ukrainian President Viktor Yanukovych and his associates.

Such politically exposed persons (PEPs) typically played a key role in the country’s political, economic or financial infrastructure.

The freeze forbids banks from accepting any more assets from such people or from paying out money to them.

Banks also have a duty to report any suspicious transaction involving these people to the Swiss anti-money laundering office.

Such duty of care does not only apply to dictators but can also be enforced on to elected politicians.

Due diligence

Fenner also believes that Swiss banks have been careful in their due diligence, not least because it is in their interests to be seen to be scrupulous. “I know from my contacts that Swiss banks have been looking very carefully at this, not just in the last few days but ever since the situation in Ukraine started turning sour,” she said.

Olivier Longchamp, a tax expert at the pressure group Berne Declaration, is more skeptical. “If a bank knows that money is illegal, it must not accept it,” he said. “But crucially, no financial institution has ever been punished for this activity in Switzerland.”

Other critics have complained that Switzerland waited until Yanukovych stepped down from power before acting, particularly as the former Ukrainian premier’s dubious activities were being openly debated for about a year.

Switzerland does have the power to freeze assets even without a request from a successor regime, George Farago, spokesman for the Swiss foreign ministry, confirmed.

“[But] assets are only frozen once a politically exposed person (PEPs) is no longer in power,” he said. “Otherwise the chances of legal assistance from the country involved, and a return of assets, are slim.”

“Switzerland has signaled that it is no haven for illicit funds,” added Farrago. “This is a positive step.”

Illicit flows?

Both Fenner and Longchamp also acknowledge that Switzerland acted swiftly as the first government to block the funds of individuals. Although the European Union had acted eight days earlier to block Ukrainian assets, it has yet to come up with a list of PEPs related to those funds.

One obstacle to the fight against illicit money flows by governments, banks and other organisations is that there is no uniform method for compiling PEP lists. To this end, the Basel Institute on Governance, together with the Wolfsberg Group of 11 of the biggest banks in the world, is campaigning for an internationally recognised system for drawing up such lists.

But still nobody knows how much illicit money from Ukrainian PEPs is in Switzerland. “If any funds do get uncovered it will show that the intention of only accepting clean money into the Swiss financial centre is not followed up in practice,” Longchamp said. “And then the damage to Switzerland’s reputation would be huge.”

Fenner agrees, but believes that Switzerland is doing more than some jurisdictions in the fight against money laundering. “Other countries are sitting on billions and doing nothing, which is a bit frustrating,” she said, calling on more international pressure to be placed on Middle Eastern and Asian states as well as British dependencies.

But still the Swiss authorities should do more on their part to crack down on the problem, Fenner added. “FINMA could get tougher on the banks,” she said. “Penalties of CHF60,000, which Credit Suisse and UBS had to pay in the case of the [former Egyptian President Hosni] Mubarak funds, do not hurt anyone.”

In addition, the international community should better coordinate its moves against perpetrators. “In the EU there are apparently some countries that resisted the freezing of funds and that hurts the international effort.”

(translated from German by Matthew Allen)