An opulent palace near near Yalta, Crimea, Ukraine. Source: Wikimedia Commons.
When protestors stormed the presidential palace in the capital of Ukraine last weekend, they uncovered a tastelessly opulent lifestyle reminiscent of a Soviet-era autocrat. And when they took possession of the president's private residence, they found "hundreds of documents" floating in the nearby Dnieper River which provided powerful evidence of a "life of bribery and vanity spending."
But perhaps the worst news for the now-deposed president Viktor Yanukovych, who is widely believed to have fled across the border to Russia, is that he's going to have a hard time finding banks willing to accept his regime's ill-gotten gains. On Tuesday, the U.S. Treasury Department's Financial Crimes Enforcement Network warned financial institutions to "take reasonable, risk-based steps regarding the potential suspicious movement of assets related to Viktor Yanukovych departing Kyiv and abdicating his responsibilities."
Known as FinCEN, the division's mission is to "safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities." To this end, it issued the following subtle reminder to American financial companies:
FinCEN is reminding U.S. financial institutions that they are required to apply enhanced scrutiny to private banking accounts held by or on behalf of senior foreign political figures and to monitor transactions that could potentially represent misappropriated or diverted state assets, the proceeds of bribery or other illegal payments, or other public corruption proceeds.
Financial institutions should be aware of the possible impact that public reports of high-level corruption by senior members of the Yanukovych administration and other illicit activity by members of the administration may have on patterns of financial activity when assessing risks related to particular customers and transactions.
This advisory is focused on potentially suspicious transactions involving senior members of the Yanukovych administration or those acting for or on their behalf, and is not intended to call into question the maintenance of normal relationships between financial institutions in the United States and Ukraine.
While this may seem obvious, it's shocking how often banks around the world run afoul of rules like these. In 2012, for example, British banking giant HSBC (HSBC -0.55%) was fined $1.9 billion for becoming the "preferred financial institution" for international drug cartels. "We accept responsibility for our past mistakes," said HSBC CEO Stuart Gulliver.
Sen. Levin
And just this week, a new Senate report estimates Switzerland-based Credit Suisse Group (CS) may have helped upwards of 20,000 American taxpayers evade billions in U.S. taxes. "We're critical of the lack of action on the part of our tax authorities as well, of course, principally, as the secrecy approach that Switzerland uses in denying the names to us so we can go after the tax evaders," said Senator Carl Levin on Tuesday.
Suffice it to say, in light of the heightened regulatory environment that banks are now facing, it seems unlikely that any U.S.-based bank would knowingly contradict FinCEN's mandate. Institutions like JPMorgan Chase, Bank of America, and Citigroup are just now polishing off their liability dating back to the financial crisis. Would they want to ignite yet another media firestorm? Probably not. But if one or more did so with respect to ill-gotten gains from Ukraine, then investors shouldn't hesitate to take the cue and move onto greener pastures.
