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News 25 March 2019

We Are Watching You! A New Module for Seeking Links Between Public Officers and Business

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We Are Watching You! A New Module for Seeking Links Between Public Officers and Business

YouControl has released a new tool “Related persons” that helps detect the involvement of domestic politically exposed persons in business. Participants of the press conference “Links Between Domestic Politically Exposed Persons and Business” have answered the questions what this tool is and why it is important.

While developing a new module in the system, YouControl analysts detected more than 8,3 thous. companies related to domestic politically exposed persons. The list includes state and private enterprises mentioned in the declarations and additionally detected with the help of the new tool of the YouControl system “Related persons”. This fact, as well as the benefits of the development for various fields, were discussed at the press conference“Links Between Domestic Politically Exposed Persons and Business”. The event was attended by representatives of YouControl, the Independent Association of the Banks of Ukraine and representatives of OTP-Bank and Oschadbank.

Domestic Politically Exposed Persons – Who Are They?

The list of domestic politically exposed persons is contained in the Law “On Prevention and Counteraction of the Legitimization (Laundering) of the Proceeds of Crime, Financing of Terrorism and Financing of Proliferation of Weapons of Mass Destruction”. According to the Law, it includes natural persons who perform or have been performing certain public functions in Ukraine for the last three years. For example, they occupy the positions of the President or the Prime Minister of Ukraine, members of the Cabinet of Ministers and their deputies, the Prosecutor General, the Head and deputies of the Security Service of Ukraine, People’s Deputies of Ukraine, senior management of the National Bank of Ukraine, etc. The list of domestic politically exposed persons also includes the Chairpersons and judges of the Constitutional and Supreme Courts of Ukraine, the high specialized courts, etc. In addition to such high positions, they can be heads of central executive bodies or enterprises with a state share of over 50%. The full list of positions, which includes several dozens of them, can be found in the Law.

At the same time, according to the YouControl analyst and compliance officer Yurii Tomin, this Law has certain gaps. In particular, the real and formal heads of an enterprise may differ. In addition, acting heads, chief accountants and heads of legal departments, though being endowed with significant powers, are not considered to be domestic politically exposed persons. And one of the main problems consists in the fact that Ukraine does not have a single state register of names with positions of domestic politically exposed persons, that would be updated according to changes.

Where Is the Information From?

The new tool of the YouControl analytical system allows to see information about domestic politically exposed persons. It is collected from the following main sources:

•  the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations;

•  the Unified State Register of Declarations of the National Agency on Corruption Prevention;

•  the database of the Stock Market Infrastructure Development Agency of Ukraine (SMIDA).

Data of the new module will be updated daily and automatically. In addition to links with domestic politically exposed persons and their relatives, it will also show links with other reporting entities related to the company. At the same time, an algorithm is launched which allows to detect these links even with the business which was “forgotten” by public officers in their declarations. All these data are available both in the YouControl system and through an API.

Information about the links of a company with a domestic politically exposed person in a new section “Related persons”

Links Between Business and the Authorities: For Who and What For?

According to Sergi Milman, the CEO and founder of YouControl, links between domestic politically exposed persons and business can cause serious social and economic damage.

“The problem has several aspects. The first one is corruption in tenders, when officials, related to a supplier, lobby for the interests of a particular company. As a result, we have poor quality of services because of the lack of real competition or these services may not be provided at all. The second example is when a senior official lobbies for the interests of a particular player in the market. As a result, we can see the use of powerful administrative resources or even the involvement of law enforcement agencies in order to provide “competitive advantages”. And the third one is when the links with domestic politically exposed persons lead to a decrease in the stability of the banking system. This happens because of the fact that companies, which take loans and are linked to senior officials, due to the powers and influence of the latter are not always ready to repay debts”, ‒ Sergi Milman explained.

All these problems can be prevented, if the information about the links between domestic politically exposed persons and certain companies or entire financial and industrial groups is available. Such knowledge will help identify risks and refuse in time to cooperate with potentially defaulting companies, or consciously make the opposite decision, having prepared for possible problems in advance. And in general, such information may increase the level of transparency of Ukrainian business environment.

“A transparent business environment is impossible if anyone has “superbonuses”, ‒ the CEO and founder of YouControl emphasized.

The Tool for Detecting Links Solves the Problem of Banks

At the same time, one of the main segments, where the tool “Related persons” can be useful, is banking

“In accordance with the legislation and regulatory documents of the National Bank of Ukraine, starting from 2014 banks have to identify politically exposed persons and persons related to them and provide information on the cooperation with them. The NBU and the State Financial Monitoring Service keep strict watch for these issues while checking banks, they always pay attention to the system of checking and identifying such persons”, ‒ Iryna Vakhnytska, a coordinator of the Regulatory Policy and Compliance Committee of the Independent Association of the Banks of Ukraine, explained.

According to her, at present banks need information on domestic politically exposed persons. Upon the request of representatives of the banking sector, the Independent Association of the Banks of Ukraine studied the market and found out that there was a lot of information, but it was scattered and out-of-date. Thus a tool that allows to collect and analyze data on links between business and domestic politically exposed persons can be a solution to the problem of most banks.

“Banks try to use different methods of identifying domestic politically exposed persons, but there is no single base yet, so the sources need to be searched for on one’s own. It is a long and problematic process. We need to detect links before the establishment of business relations, otherwise it could lead to fines and further problems. Thus we badly need the database that updates online, collects information from various state sources and data from which can be received by one click. We hope that the new tool from YouControl will help us work easier and faster, and we will have the proof that this or that legal entity is connected with domestic politically exposed persons or their relatives”, ‒ Inna Dolhova, the Deputy Head of the Department of Financial Monitoring of OTP-Bank, stated.

At present the first version of the tool has been released. In the future the improvement of its algorithms and the increase in the number of sources are planned.

Look whether your counterparty has links with public officers!!

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