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BP TO INVEST $6.75 BILLION IN RUSSIAN/UKRAINIAN OIL SECTOR. British Petroleum and the Russian financial-industrial concerns Alfa Group and Access/Renova have announced the biggest business partnership in Russia's postcommunist history, RTR and other Russian news agencies reported on 12 February. The partners will create a new company that will merge all the oil-sector assets of the three participants on the territory of Russia and Ukraine. According to the deal, 50 percent of the still-unnamed new company will belong to BP, and 50 percent will belong to the Russian partners. Alfa Group and Access/Renova control oil majors Tyumen Oil Company (TNK) and Sidanko. The new company will be the third-largest player in the Russian oil sector, following Yukos and LUKoil. BP will invest $3 billion in cash and $3.75 billion in BP shares in the venture. Alfa Group CEO Mikhail Fridman said the deal would not have been possible without the support of the Russian government. He said the new company will serve as "a locomotive to pull the Russian economy," nns.ru reported. Speaking to reporters during his trip to Paris, President Putin said the deal demonstrates the growing attractiveness of the Russian economy. VY
END NOTE: KYIV HIT BY INTERNATIONAL SANCTIONS FOR MONEY LAUNDERING xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
KYIV EVACUATES DIPLOMATS FROM BAGHDAD. All diplomats of the Ukrainian Embassy in Baghdad except from charge d'affaires Valentyn Novikov have been evacuated, Interfax reported on 11 February, quoting Foreign Ministry spokesman Serhiy Borodenkov. Borodenkov added that Novikov is currently in Kyiv for consultations, after which he will fly back to Iraq. "The temporary charge d'affaires himself will decide when he has to leave that country," Borodenkov added with regard to when the Ukrainian mission might be closed entirely. He disclosed that there are currently 231 Ukrainian citizens in Iraq. Borodenkov noted that the Foreign Ministry has not yet released a statement recommending that Ukrainian citizens leave Iraq. JM
UKRAINE'S CHIEF BANKER SAYS IMPACT OF FATF SANCTIONS 'INSIGNIFICANT.' National Bank head Serhiy Tyhypko told journalists on 11 February that recent sanctions recommended by the Financial Action Task Force (FATF) on Money Laundering (see "End Note" below) have had an "insignificant" effect on Ukraine's banking system, UNIAN reported. Tyhypko added that the sanctions affected "only" 40 of the country's 153 banks. He did not elaborate. Referring to an FATF conference expected to begin on 12 February in Paris, Tyhypko said a decision not to expand FATF sanctions against Ukraine would be perceived by Kyiv as "positive." JM
UKRAINIAN PRESIDENT WANTS TAX AMNESTY FOR SHADOW PROFITS. President Leonid Kuchma is in favor of applying a tax amnesty to legalize hidden revenues that were "not [obtained] in a criminal way," Interfax reported on 12 February, quoting presidential administration deputy head Pavlo Haydutskyy. Haydutskyy said such revenues in Ukraine are estimated at 35 billion hryvnyas ($6.5 billion). He said a tax amnesty does not contradict the "basic principles" of combating money laundering and would not be opposed by the FATF. He added that Kuchma ordered the government and the National Bank to work out by 1 March a plan for implementing such an amnesty. JM
MOLDOVAN OPPOSITION CRITICIZES PRESIDENT'S CALLS FOR NEW CONSTITUTION... Popular Party Christian Democratic (PPCD) Deputy Chairman Vlad Cubreacov told RFE/RL's Romania-Moldova Service on 11 February that President Vladimir Voronin's proposal to develop a new constitution in cooperation with the Transdniester authorities is a "dangerous step" (see "RFE/RL Newsline," 11 February 2003). Cubreacov said Voronin coordinated the proposal with Russian President Vladimir Putin and, while adding nothing new to the OSCE draft on Moldova's federalization, the initiative is aimed at transforming Moldova into a "Russian protectorate" because it would grant Russian troops a permanent status on Moldovan territory. Former Premier Dumitru Braghis, leader of the Braghis Alliance, said he is inclined to view the proposal positively, provided that the new constitution is approved by the people in a referendum, rather than by parliament, Infotag reported. Braghis also deplored the fact that Voronin consulted with Putin and Ukrainian President Leonid Kuchma regarding the proposal before discussing the matter with opposition parties at home. MS
KYIV HIT BY INTERNATIONAL SANCTIONS FOR MONEY LAUNDERING
In December, a normally inconspicuous organization called the Financial Action Task Force on Money Laundering (FATF) hit the headlines of news agencies reporting on Ukraine. The FATF recommended that its members apply "countermeasures" to Ukraine in response to the country's failure "to enact anti-money-laundering legislation that meets international standards." It was yet another mighty blow to Ukraine's tarnished international image, following the much-publicized and unsolved case of the killing of independent journalist Heorhiy Gongadze (2000) and the U.S. allegations (2002) that Kyiv sold early-warning radar systems to Baghdad in contravention of UN sanctions.
The FATF is an independent international body with headquarters in Paris. It has 29 member countries and governments -- including the United States, the United Kingdom, Australia, Canada, France, Germany, Hong Kong, China, and Japan -- and two international organizations: the European Commission and the Gulf Cooperation Council. South Africa and Russia have observer status in the FATF.
After reviewing Ukraine's anti-money-laundering regime in June 2001, the FATF placed Ukraine on its blacklist of "noncooperative countries and territories" that fail to adopt and/or apply efficient legal measures to combat money laundering. The FATF has only blacklisted two other states -- Nauru and Nigeria -- for their failure to deal efficiently with money laundering. The FATF also applied Recommendation 21 from its set of 40 recommendations constituting the "basic framework for anti-money-laundering efforts." Recommendation 21 advises that the financial institutions of FATF members "give special attention to business relations and transactions" of persons and companies from blacklisted ("noncooperative") countries. It also calls for the examination and recording of transactions that "have no apparent economic or visible lawful purpose" in order to make the findings available to auditing and law-enforcement bodies.
Having found the "Law of Ukraine on the Prevention and Counteraction of the Legalization (Laundering) of Proceeds from Crime" enacted on 7 December insufficient, the FATF on 20 December recommended that its members apply additional "countermeasures" against that country. In particular, these additional countermeasures call on FATF members to apply "stringent requirements" for identifying clients before establishing business relationships with individuals or companies from Ukraine; to enhance reporting mechanisms regarding financial transactions with Ukrainian clients; to be more considerate in establishing subsidiaries, branches, and representative offices of Ukrainian banks in FATF countries; and to warn non-financial-sector businesses that transactions with Ukrainian entities might run the risk of money laundering.
According to media reports, the United States and Canada in mid-January were the first countries to heed the FATF recommendations with regard to Ukraine. Other FATF members reportedly followed suit. It remains to be seen what impact the FATF sanctions have on Ukraine's financial and business sector (see Ukraine item above). According to an estimate by the Kyiv-based weekly "Zerkalo nedeli" on 25 January, foreign banks have suspended some $300 million worth of transactions with Ukrainian clients, while checking to see who is paying with what money. However, apart from such immediate barriers erected by the FATF to Ukrainian businesses, it seems that the FATF recommendations will also have long-term consequences by gravely eroding the trustworthiness of global financial circles in Ukrainian financial and business partners even beyond the date when the FATF decides to strike Ukraine off its blacklist.
It is noteworthy that Kyiv, knowing for more than a year that it is considered internationally to be "noncooperative" in combating money laundering, reacted to this disgraceful categorization only after the FATF called for harsher international sanctions. In January and February, the Verkhovna Rada hastily passed a number of bills introducing amendments to the anti-money-laundering law, the Criminal Code, and banking laws intended to curb money laundering in line with FATF requirements. In particular, the legislature reduced the minimum sum subject to financial monitoring to 80,000 hryvnyas ($15,000). Another major legislative change prohibited banks from opening anonymous bank accounts and obliged them to identify customers who perform banking operations that exceed 50,000 hryvnyas and do not involve bank accounts. In addition, Interfax reported on 7 February that President Leonid Kuchma recently signed a decree on "strengthening the fight against organized crime and corruption."
According to some Ukrainian commentators, the international focus on financial transactions involving Ukrainian individuals and financial institutions might influence the 2004 presidential campaign in Ukraine to the extent that it will be much more difficult to use campaign slush funds -- which are purportedly used on an increasingly extensive scale with each election campaign -- from offshore banks. Therefore, those observers argue, the role of covert funds from Russia will become dominant in the 2004 election. Some have even implied that the ruling regime might use the newly adopted anti-money-laundering legislation as a convenient tool to harass those businessmen who support a challenger to the presidential candidate proposed by the "party of power."
This week, the FATF is holding a conference at which its experts are expected to discuss whether Ukraine's fresh anti-money-laundering legislation meets international standards. Although some Ukrainian government officials have declared that the country's legislature did everything necessary to meet the FATF requirements, it is rather unlikely that the organization will automatically withdraw its recommendations of a tougher course toward Ukraine by international financial institutions. Ukraine has repeatedly proven to the world community in the past that writing laws is one thing and obeying them is another.