Authority and power vested in politically exposed persons in order for them to exercise functions of the state, are the source of corruption risks and that of laundering dirty money. Politically exposed persons must be subject to special rules of financial operations control, which would enable timely discovery of legalization of funds acquired as the result of corruption acts, namely acceptance of bribes, embezzlement, unlawful acquisition of property or non-earmarked use of funds, abuse of office etc.
Administrator of the Register, Anti-corruption Action Centre NGO, when identifying the politically exposed persons, is guided by the norms of national and international law, recommendations of international organizations and Service of Financial Monitoring of Ukraine, such as:
- Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime, Terrorism Financing and Financing of Proliferation of Weapons of Mass Destruction”
- Methodical recommendations of identifying politically exposed persons and ensuring financial monitoring of their financial operations of January 26, 2016.
- 12th Recommendation of FATF – International group to combat money laundering (Financial Action Task Force on Money Laundering) (hereinafter – the Recommendation)
- Fourth Anti-Money Laundering Directive
- Wolfsberg Group recommendations
In case of collisions/contradictions of the norms of national and international law, Anti-corruption Action Centre NGO is to be guided foremost by the FATF Recommendations, which, notwithstanding their advisory nature for the actors of primary financial monitoring in Ukraine, the country committed to implementing when signing Ukraine-European Union Association Agreement (Articles 20 and 127 of the Agreement).
The Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime, Terrorism Financing and Financing of Proliferation of Weapons of Mass Destruction” (hereinafter – the Law), specifies the following categories of politically exposed persons:
1. national politically exposed persons;
2. foreign politically exposed persons;
3. politically exposed persons, having political functions in international organizations;
4. associated persons of politically exposed persons;
5. close persons of politically exposed persons.
National politically exposed persons, according to the Law, are defined as individuals exercising or havingexercised in the last three years specific public functions in Ukraine, namely:
● President of Ukraine;
● Prime Minister of Ukraine;
● Members of the Cabinet of Ministers of Ukraine;
● First deputies and deputies to the ministers;
● Heads of other central bodies of executive power, their first deputies and deputies;
● Members of Parliament of Ukraine;
● Head and members of the Board of the National Bank of Ukraine;
● Members of the Council of the National Bank of Ukraine;
● Heads and judges of the Constitutional Court of Ukraine, Supreme Court of Ukraine and high specialized courts;
● Members of the High Council of Justice;
● Members of the High Qualification Commission of Judges of Ukraine;
● Members of the Qualifications and Disciplinary Commission of Public Prosecutors;
● Prosecutor General and deputies;
● Chief of the Security Service of Ukraine and deputies;
● Director of the National Anti-corruption Bureau of Ukraine and deputies;
● Head of the Anti-Monopoly Committee of Ukraine and deputies;
● Head and members of the Accounting Chamber;
● Members of the National Council of Television and Radio Broadcasting of Ukraine;
● Ambassadors Extraordinary and Plenipotentiary;
● Chief of the General Staff – Commander-in-Chief of the Ukrainian Armed Forces;
● Chiefs of the Ukrainian Ground Forces, Ukrainian Air Force and Ukrainian Navy;
● Civil servants holding “A”- category posts;
● Heads of oblast local central agencies of executive power;
● Heads of Prosecutor’s Office bodies;
● Heads of oblast local bodies of the Security Service of Ukraine;
● Heads and judges of the courts of appeal;
● Heads of administrative, managerial and supervisory bodies of state companies, economic societies, having over 50 percent of state share in their authorized capital;
● Heads of governing bodies of political parties and members of their central statute bodies.
Positions of civil servants belonging to “A” category (highest rank of civil service):
●State Secretary of the Cabinet of Ministers of Ukraine with deputies and state secretaries of ministries;
●Heads of central bodies of executive power non-members of the Cabinet of Ministers of Ukraine and their deputies;
●Heads of staff of the Constitutional Court of Ukraine, Supreme Court, Higher specialized courts and their deputies, heads of secretariats of the High Council of Justice, High Qualifications Commission of Judges and their deputies, Head of the State Court Administration of Ukraine and their deputies;
●Heads of state service in other state bodies having jurisdiction over the whole territory of Ukraine.
Heads of subsidiary companies:
The pep.org.ua list also includes heads of administrative, managerial or supervisory bodies of subsidiaries of state enterprises, companies having over 50% share of the state in their authorized capital. These persons are identified as politically exposed persons based on the legal opinion of the Supreme Court of Ukraine on case No. 21-452а14, when the board of justices of the Administrative Court Chamber reached the conclusion that since the founder of the subsidiary is a public joint stock company, whose 100 percent of shares are owned by the state, then subsidiary company is an inherently public company as well, as it operates based on the state property, transferred possession by the founder for economic management.
Heads of large municipal enterprises:
According to the Law, heads of municipal enterprises are not politically exposed persons, unlike heads of the state companies.
Recommendation 12 of FATF (paragraph 38) defines Public function (politically exposed person) as a physical entity vested with prominent public function. What constitutes a prominent public function domestically depends on the particular organizational framework of government or international organization concerned, and the powers and responsibilities associated with particular public functions and other factors that are considered as part of the risk assessment. For example, prominent public functions may exist at the federal, state or provincial, and/or municipal levels.
Recommendation 12 of FATF (Paragraph 41) states that in order to determine PEPs there is another approach, which would be to describe generally the types of responsibilities that are sufficiently prominent (e.g., final approval over government procurement processes, responsibility for budgetary spending).
In view of the above, in the Register we publish information about a number of persons who are not politicaly exposed persons according to the Law, but perform prominent public functions:
● Seniormanagers of large municipal enterprises
● Heads of branches of large state enterprises and companies with a state share of more than 50 percent
● Majors of big cities
● Chairman of the Board of the Social Insurance Fund of Ukraine
● Managing Director of the Deposit Guarantee Fund for Individuals and his Deputies
● Commissioner of the Verkhovna Rada of Ukraine for Human Rights
● Secretary of the National Security and Defense Council
● Members of the Central Election Commission
From the economic significance standpoint, access to managing budget funds, certain municipal enterprises are comparable to the state ones by their importance. Therefore, heads of some administrative, managerial or supervisory bodies are included in the pep.org.ua database as national politically exposed persons.
For instance, KP “ZhytloInvestBud-Ukb” is a municipal enterprise under jurisdiction of Department of Development and Housing provision of Kyiv City Council executive body (Kyiv City State Administration). The function of the enterprise is organization of planning, construction, reconstruction, capital repairs, commissioning and alienation of residential and non-residential buildings, raising funds from physical and legal entities for housing and real estate development. In 2017, KP “ZhytloInvestBud-Ukb” concluded 2,058,832,041.52 UAH public procurement agreements, including those for building schools and kindergartens, reconstruction of social infrastructure objects, social housing development. Funds for construction of these objects are allocated from the local budget.
Municipal corporation “KyivAvtoDor” was created under the decision of Kyiv City Council of March 3, 2002. The corporation is under jurisdiction of executive body of Kyiv City Council (Kyiv City State Administration). The corporation provides technical supervision, maintenance and repairs of roads as well as road and transport facilities on them, street lighting network. In 2017, the corporation concluded 2,221,505,825.07 UAH of public procurement agreements. Those were agreements for capital repairs of streets and avenues of Kyiv city, pathways between houses, territories around houses, development of projects estimating documentation and the expert examination of construction projects. Along with KyivAvtoDor the same functions are delegated to subsidiaries PJSC “DAK “Roads of Ukraine”, the heads of which are also politically exposed persons.
Municipal company “Kyiv Underground” is an enterprise managing the capital city underground system, which provides 50% of the total city passenger transportation in Kyiv. In 2017, Kyiv Underground concluded 373,510,321.88 UAH worth public procurement agreements.
Therefore, municipally owned companies, similar to the aforementioned ones, can be characterized as:
1) having important public functions on the city level in Kyiv, which is the capital of Ukraine;
2) are financed from Kyiv city budget, which is partially financed from the state budget;
3) manage budget costs which significantly surpass those managed by most state companies.
Thus, considering criterion of “prominent public functions” and corruption risks associated with these posts, we consider heads of large municipal companies of Kyiv City to be national politically exposed persons and include their data to pep.org.ua.
Heads of branches of large state enterprises and companies with a state share of more than 50 percent:
The Register includes Heads of branches of large state enterprises and companies with a state share of more than 50 percent in case the aggregate value of assets of the enterprise according to the latest financial statements exceeds 2 billion UAH, and a branch has the right to make procurements on its own.
Mayors of big cities:
Wolfsberg Group Recommendations include characteristics of certain prominent public functions, which can be useful as indicators of importance or prominence and can be employed to determine whether a person can be identified as a politically exposed person. As an example of function which can be ground for giving the status of a politically exposed person, the status of city mayor, governor, leader of federal region..
Therefore, even though city mayors are not politically exposed persons under the Law, in pep.org.ua data base mayors of cities with a status of oblast centres are identified as politically exposed persons, considering “prominent public functions” of these persons, high corruption risks associated with their post and their influence on making decisions considering local budget funds allocation.
Chairman of the Board of the Social Insurance Fund of Ukraine
In compliance with the Article 4 of the Law of Ukraine "On Compulsory State Social Insurance", the Social Insurance Fund of Ukraine is the body that manages and controls the compulsory state social insurance against accidents in case of temporary incapacity for work and medical insurance, carries out the accumulation of insurance premiums, controls the usage of these funds. The Social Insurance Fund is a non-profit self-governing organization. The management is carried out on a parity basis by the state, representatives of insured persons, and employers.
At the same time, the sources of Fund formation are mostly insurance premiums of insurers and insured persons. The amount of insurance premiums and the obligation to pay them are established by the Law of Ukraine "On the Collection and Registration of a Single Contribution to Obligatory State Social Insurance" in a mandatory manner. Persons who pay insurance premiums can not refuse to pay. Incorrect accounting of obligations to pay insurance premiums, non-payment of these premiums or not full payment is punishably by financial sanctions and administrative fines.
The right to impose and enforce financial sanctions and administrative fines for the violations listed above belongs to the Social Insurance Fund.
The budget of the Fund is approved by the Cabinet of Ministers of Ukraine.
One of the main tasks of the Fund is the implementation of state policy in the areas of social insurance against industrial accidents and occupational diseases that caused disability for work, due to temporary incapacity for work, and medical insurance.
Therefore, we believe that functions of the Fund are essentially functions of a state body, and the Chairman of the Fund has impact and sufficient authority to be classified as a politically exposed person on an equal basis with the heads of central executive authorities.
Managing Director of the Deposit Guarantee Fund for Individuals and his Deputies
The Deposit Guarantee Fund operates under the Law of Ukraine "On the System of Guaranteeing Individual’s Deposits".
In compliance with the Article 19 of the Law of Ukraine "On the System of Guaranteeing Individuals' Deposits". Sources of fund formation are fees from participants of the Fund, funds from the State Budget of Ukraine (including domestic governmnet loan bonds), and other sources. Every year (2016, 2017, 2018) the Law of Ukraine "On the State Budget of Ukraine" provides the capacity of issuing domestic governmnet loan bonds to finance the Fund.
The functions of the Fund are implementation of the procedure for the withdrawal of insolvent banks from the market, including implementation of temporary administration and liquidation of banks, organization of the sale of all or a part of the assets and liabilities of insolvent bank, sale of insolvent bank or the establishment and sale of a transitional bank.
It is worth noting that some banks, management, liquidation, sale of assets of which are implemented by the Fund, have significant debts to the National Bank of Ukraine. Some of these banks were brought to a state, where it was necessary to implement the temporary administration of the Fund, by unfair actions of bank officials.
It depends on the representatives of the Deposit Guarantee Fund whether facts of abuse by the officials of the banks transferred to the Fund's management will be recorded; whether action will be taken on dissolution, recognition of null and void contracts, with the help of which funds were illegally withdrawn from banks; how effectively will the sale of property of banks under the control of the Fund be organized. It depends how much of funds of the deposits of individuals and other creditors (including the National Bank of Ukraine) will be repaid, how much of the State Budget of Ukraine will be spent on it.
As of February 2018, the Deposit Guarantee Fund provides the liquidation of 92 banks, two of them has temporary administration (according to the website of the Deposit Guarantee Fund). Participants of the deposit guarantee system are 83 banks. In such a situation, we believe that the management of the Deposit Guarantee Fund has a significant impact on the economic situation in the country, management of budget funds and shall be recognized as a national politically exposed person.
Commissioner of the Verkhovna Rada of Ukraine for Human Rights:
The existence of the position of Commissioner of the Verkhovna Rada of Ukraine on Human Rights is stipulated by the Constitution of Ukraine, and the legal status of this person is regulated by the Law of Ukraine "On the Commissioner of the Verkhovna Rada of Ukraine on Human Rights". The Commissioner's operations are ensured by the secretariat, head of which is a politically exposed person. Since the Commissioner of the Verkhovna Rada of Ukraine fore Human Rights has more powers than his/her Head of Secretariat, it is reasonable to include the Commissioner for Human Rights to the category of public figures.
Secretary of the National Security and Defense Council:
The functions of the National Security and Defense Council of Ukraine include:
1) making suggestions to the President of Ukraine on the implementation of the principles of domestic and foreign policy in the field of national security and defense;
2) coordination and control over the activity of executive authorities in the field of national security and defense in times of peace;
3) coordination and control over the activities of executive authorities in the field of national security and defense in case of a martial law or state of emergency , and in case of crises threatening the national security of Ukraine.
In compliance with Articles 2and 5 of the Law of Ukraine "On Sanctions", the decision of the National Security and Defense Council is the legal basis for application of sanctions by Ukraine. The decision on the application, cancellation, and amendment of sanctions is made by the National Security and Defense Council of Ukraine, and shall be enacted by a Decree of the President of Ukraine.
For example, the Resolution of the National Security and Defense Council dated April 28, 2017 imposed sanctions on 1228 individuals and 468 legal entities.
The Secretary of the National Security and Defense Council of Ukraine is appointed to the position and dismissed from it by the President of Ukraine and is directly subordinated to him. He/she provides the organization of work and implementation of decisions of the National Security and Defense Council of Ukraine.
In view of the above, we consider that the powers of the Secretary of the National Security and Defense Council of Ukraine are very important to consider him a national politically exposed person, despite the lack of a direct indication in the Law.
Members of the Central Election Commission
The Central Election Commission is a permanently acting collegiate state body that has the authority to organize the preparation and conduct the elections of the President of Ukraine, Members of Parliament of Ukraine and local councilors .
The Commission heads the system of election commissions and referendum commissions that are formed to organize the preparation and conduct of the elections of the President of Ukraine, people's deputies of Ukraine, an all-Ukrainian referendum.
The Law of Ukraine "On the Central Election Commission" stipulates that the CEC registers the candidates for the position of President of Ukraine, their trustees; appeals to the High Administrative Court of Ukraine regarding the cancellation of the registration of a candidate for the position of President of Ukraine; registers candidates for the pisition of Member of Parliament of Ukraine; decides to cancel the registration of candidates for the pisition of Member of Parliament of Ukraine; organizes the preparation and conducts an all-Ukrainian referendum; registers initiative groups from an all-Ukrainian referendum; establishes the results of elections and referendum and officially promulgates them.
Liquidators and heads liquidation commissions:
The pep.org.ua list also includes in the category of national politically exposed persons liquidators and headsliquidation commissions of the state companies and economic societies with the state share of over 50 percent in the liquidation period. During the liquidation period, liquidator or liquidation commission de facto manages the company. For instance, part 4 of Article 105 of the Civil Code of Ukraine states that commission on legal entity liquidation (reorganization commission, liquidation commission) or liquidation since the moment of appointment has authority to manage the legal entity. Head of commission, its members or liquidator of a legal entity represent the latter in relations with third parties and act in court on the behalf of the liquidated legal entity.
Family members and close persons
The national law uses the term “close persons” in reference to the closest relatives of politically exposed persons, under the Law of Ukraine “On Corruption Prevention”. However, Recommendation 12 of FATF and Fourth Anti-Money Laundering Directive use the term “Family members”.
Close persons – the term “close persons” (of a politically exposed person) is used in the meaning provided by the law of Ukraine “Corruption Prevention ”, i.e., people who live together, share common household and have rights and obligations in common with the entity mentioned in part one of the Article 3 of the Law (except persons, whose common rights and obligations with the entity have no familial nature), including persons that live together without being married, as well as – independent of specified conditions – husband, wife, father, mother, step-father, stepmother, son, daughter, stepson, stepdaughter, brother, sister, grandfather, grandmother, great-grandfather, great-grandmother, grandson, granddaughter, great-grandson, great-granddaughter, son-in-law, daughter-in-law, father-in-law, mother-in-law, adopter or adoptee, guardian or care-taker, person under wardship or care of the said individual.
The Law has no mention of the term “family members” of a national politically exposed person and its differentiation from the term “close person” of a national politically exposed person.
In paragraph 48 of Recommendation 12 of FATF it is stated, that the number of persons belonging to the family depend on cultural characteristics of a certain country, it may include narrow circle of persons (spouses, their parents, children, siblings), as well as the broader one, including cousins or even clans.
Paragraph 10 of Article 3 of the Fourth Anti-Money Laundering Directive states that the term family members of politically exposed persons includes the following: the spouse, (or a person considered to be equivalent to a spouse), parents, children and spouses of children (or other persons considered to be equivalent to a spouse).
Therefore, Anti-corruption Action Centre NGO, when working on content for the Register (pep.org.ua), is guided by the norms of international law and uses the term “Family member”.
The “Family members” category includes:
● spouse (or any individual residing with politically exposed person and having common family without registering marriage);
● father/ mother (stepfather/ stepmother);
● son/ daughter (stepson/ stepdaughter);
● son/daughter-in-law of a politically exposed person;
● siblings of a politically exposed person;
It is worth mentioning that the term “Family members” in Recommendation 12 of FATF and Fourth Anti-Money Laundering Directive is more narrow than the term “Close persons”, used in the Law. We include the persons not belonging to family members, but being close persons, under the Law of Ukraine, belong to connected persons (grandparents, grandchildren, cousins etc). Therefore, information on these individuals can be found on pep.org.ua.
Associates – individuals having business or personal connections with family members of national or foreign politically exposed persons and those having political functions in international organizations, as well as legal entities, that have politically exposed persons, their family members or individuals having business or personal connections as final beneficiary owners (controllers).
Financial Monitoring Service in Methodical guidelines recommends to interpret “business connections” as connections having documental proof (namely, by title deeds) between politically exposed persons and/or their family members and individuals or legal entities in the context of:
● right of property – joint ownership, use or managing of assets belonging to family members of politically exposed persons (e.g., an individual owns a share of joint partial or common property, such as facilities, equipment, transport, other movable property or real estate etc. in a company owned by a family member of a politically exposed person or their close relative. Also, this property right is confirmed with an appropriate document);
● control, i.e., ability to significantly influence economic activity of a company, exerted through, namely, property right realization,use of all the assets or a significant part of them, the right to significantly influence composition, voting results and making decision making process of managing bodies of a company, as well as legal actions enabling determination of economic activity conditions, giving binding orders or functioning as a managing body of a company;
● holding executive positions in managing bodies of a company;
● representation: (а) representation based on an administrative act; (b) representation based on law, (representation by law); (c) representation based on agreement (voluntary or agreed representation); (d) commercial representation;
● business partnership.
Just one out of the above criteria is not necessarily an indicator of close business connections. This criterion is evaluated by an analyst individually along with all other apparent indicators/criteria of connection.
What constitutes “personal connections” is recommended to interpret connections that evolve between politically exposed persons and/or their family members, and individuals, for instance, such as the right to use assets of politically exposed persons’ family members notwithstanding formal ownership (e.g., it is known that an individual resides with a family member of a politically exposed person or their accommodation is paid for by family members of a politically exposed person etc.)
Recommendation 12 of FATF (paragraph 49) gives the following examples of personal connections: (known) (sexual) partners outside the family unit (e.g. girlfriends, boyfriends, mistresses); prominent members of the same political party, civil organisation, labour or employee union. In the case of personal relationships, the social, economic and cultural context may also play a role in determining how close those relationships generally are.
In the relationship category the following types of connections are reflected:
- partners outside the family unit (girlfriend, boyfriend, mistress)
- former husband / wife;
- godfather/godmother of the child
- personal assistant
- close friends
- great-grandparents/ great-grandchildren
Concerning the term of being considered a politically exposed person:
When including a person in this category, we use the list of positions identified in paragraph 25 of part 25 of Article 1 of the Law. The same paragraph also states that any individual is considered to be a PEP if they had held one of the specified positions in the last three years.
According to Recommendation 12 of FATF (paragraphs 44, 45), when determining whether an individual is a PEP or has connections to a politically exposed person, it is better to consider not the timeframe, but the risk level associated with the current status of a person. Namely, it is necessary to consider whether a person has kept their influence level and connections, whether their current activity is connected with the previous public functions. Risk level of family members and persons connected with a PEP is correlated with the risk level retained by a politically exposed person. That is why we do not delete information on individuals fromthe database after three years have passed, but their profile is in a different colour in order to show the possible lower risk associated with such person for financial monitoring purposes.
In cases we
believe that the risk associated with the status of
a person has preserved - the profile is not displayed in a different color, but we indicate the fact of expiring of three-year term. The user can
find the dismissal date from the
last position specified in the profile.
We believe that the risk associated with the status of a national politically exposed person has preserved, if:
- a person is indicated in the sanction lists of Ukraine, the USA, the EU or a Member State of the European Union;
- a person is the subject of an international or all-Ukrainian manhunt, has the status of a suspect or accused in a criminal proceedings in Ukraine or abroad;
- a person who owns a large business that he/she has created or developed during his/her tenure in public office. Business uses state resources, permissions and licenses, participation in public procurement, takes a monopoly position;
- a person that hold the position of Minister of Mykola Azarov government from 2013 till February 2014.
Information about deceased politically exposed persons (if we have information about their deaths) is also displayed in the Register:
 Although the Glossary definition includes some examples of what is meant by prominent public function, the precise level of seniority which triggers the PEPs requirements is not specified, and the list of examples provided is not exhaustive. This is because what constitutes a prominent public function domestically depends on the size (e.g. number of inhabitants, size of the budget), particular organisational framework of government or international organisation concerned, and the powers and responsibilities associated with particular public functions and other factors that are considered as part of the risk assessment under Recommendation 1. For example, prominent public functions may exist at the federal, state or provincial, and/or municipal levels. Jurisdictions may use the risk assessment in Recommendation 1 to identify the specific levels and types of PEPs which pose a higher risk.
 Another approach would be to describe generally the types of responsibilities that are sufficiently prominent (e.g., final approval over government procurement processes, responsibility for budgetary spending over a certain amount, decision making powers over government subsidies and grants).
 In addition, the following may also be considered to fall within the definition but, equally, may be excluded in countries or organisations where the risk of corruption or abuse is considered to be relatively low e.g. where there is low record of corruption or where the individual does not have significant influence or the ability to control or divert funds.
• City mayors and governors or leaders of federal regions
 For family members, this includes such relevant factors as the influence that particular types of family members generally have, and how broad the circle of close family members and dependents tends to be. For example, in some cultures, the number of family members who are considered to be close or who have influence may be quite small (e.g., parents, siblings, spouses/partners, and children). In other cultures, grandparents and grandchildren might also be included, while in others, the circle of family members may be broader, and extend to cousins or even clans.
 For close associates, examples include the following types of relationships: (known) (sexual) partners outside the family unit (e.g. girlfriends, boyfriends, mistresses); prominent members of the same political party, civil organisation, labour or employee union as the PEP; business partners or associates, especially those that share (beneficial) ownership of legal entities with the PEP, or who are otherwise connected (e.g., through joint membership of a company board). In the case of personal relationships, the social, economic and cultural context may also play a role in determining how close those relationships generally are.
 44. Recommendation 12 also defines a PEP as being someone who has been (but may no longer be) entrusted with a prominent public function. The language of Recommendation 12 is consistent with a possible open ended approach (i.e., “once a PEP – could always remain a PEP”). The handling of a client who is no longer entrusted with a prominent public function should be based on an assessment of risk and not on prescribed time limits.
45. The risk based approach requires that financial institutions and DNFBPs assess the ML/TF risk of a PEP who is no longer entrusted with a prominent public function, and take effective action to mitigate this risk. Possible risk factors are: the level of (informal) influence that the individual could still exercise; the seniority of the position that the individual held as a PEP; or whether the individual’s previous and current function are linked in any way (e.g., formally by appointment of the PEPs successor, or informally by the fact that the PEP continues to deal with the same substantive matters).