The NBU Obliged Banks to Monitor Cyclical Currency Transactions
On September 12, 2023, the National Bank of Ukraine (NBU) adopted changes regarding the procedure for the analysis and verification of documents and information on currency transactions by authorized institutions. The NBU introduced a new concept - cyclical currency transactions - into its Resolution No. 8 dated January 2, 2019.
Cyclical currency transactions
are defined as a set of currency transactions that are carried out between the accounts of a resident business entity and a non-resident legal entity opened in Ukrainian banks.
The changes are likely aimed at fighting various ways of circumventing the established restrictions on the outflow of funds from Ukraine, including through operations with securities, real estate objects and title thereto, etc. In particular, currently, the payments from the current accounts of non-residents - legal entities (except for investment accounts) to the accounts of resident business entities are one of the reasons for a more in-depth verification of such transactions by local financial institutions.
The criteria for cyclical currency transactions are as follows (provided that they are all present at the same time):
the number of currency transactions exceeds 3;
currency transactions are repeated several times in a period of up to 30 calendar days;
currency transactions are carried out for the same or approximately the same amounts;
within the scope of carrying out a set of currency transactions, the same person is the initiator and recipient of the payment;
carrying out such set of currency transactions results in a purchase/sale of an asset, granting/repayment of financial assistance, formation/repayment of debt according to any deed/agreement concluded between the parties thereto.
It is also important to note that the NBU granted financial institutions the right to additionally set other criteria of cyclical transactions at their own discretion.
Previously, banks and other authorized financial institutions of Ukraine were responsible for identifying signs of fragmentation of currency transactions and their additional analysis and verification.
Now, banks will also detect and analyze cyclical currency transactions, which may in the long run carry adverse risks for clients of financial institutions, from delaying transactions to blocking or closing accounts. In particular, according to the appendix to Resolution No. 8, carrying out a cyclical currency transaction may require not only the submission of additional documentation to the bank, but also -
disclosure of the sources of origin of the funds that are the subject of such a transaction
ownership structure and content of the activities of all parties involved
justification of the economic sense of such a currency transaction, which in practice usually creates considerable problems
If the servicing financial institution has questions or comments about the client's operations, in particular, suspicions about their cyclicality, it is worth seeking advice from a legal advisor or the compliance department.
This legal alert is for informational purposes only and does not constitute legal advice.