Within the execution of periodic messages of the President of Kazakhstan on cardinal improvement of national business, the ministries and their subordinate bodies continually declare about the measures on simplification of business conduct. We highly appreciate the results achieved by the government but at the same time we consider that the application of the Law “On Counteracting the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism” (hereinafter – the “Law”) by the banks is not in line with the governmental trend on the support of business.
Temporal freezing of companies’ funds ‘for the period of internal check’ became a regular practice in all the banks and in every region of Kazakhstan. These checks cause blocking of a bank account for several days while the counterparty of a company is waiting for due fulfillment of duties by the partner. In practice, the vast majority of such freezing operations are finished by the actual execution of transactions which were requested from the banks by business-entities. To our best knowledge, there are much more cases when the banks continue to service the clients and apologize for temporary inconvenience rather than actual detection of criminal transactions. Since the actions of the banks are admissible by the Law, there is no responsibility for such temporary blockage. Due to that, it can be assumed that current situation originates more obstructions for business rather than support to the government in its very important task to counteract the laundering of proceeds from crimes and the financing of terrorism. Besides, those actions of the banks have negative impact on the investment climate of Kazakhstan as foreign companies are highly sensitive to the timing of fulfillment of financial contractual duties.
Some clients of Linkage&Mind have the questions: what is the reason of this situation and how the freezing of account can be prevented?
In order to find the answers it is required to review certain provisions of the Law.
Article 4 of the Law stipulates that withdrawal from bank account, payment to bank account and cash withdrawal on the amount exceeding KZT 10,000,000 are subject to financial monitoring.
Mandatory grounds for financial monitoring are also as follows:
a) complex, uncommonly major or devoid of economical sense transaction
b) transaction which may cause suspicion that it is aimed at legalization of criminal funds.
The experience shows that significant part of business meets the criteria aforesaid and, consequently, faces with the freezing of cash operations.
In order to clarify the attributes of suspicion transaction, the Government issued special Decree No.1484 as of November 23, 2012 where one hundred eleven (111) features are indicated.
Besides, article 5 of the Law provides that under financial monitoring shall be put transactions which have the features ‘coincident to typologies, schemes and methods’ of money laundering.
Obviously, workers of the bank shall have an exclusive competence in order to, on one hand, protect the country and society from the money laundering and, on the other hand, to provide business with the rights and freedoms which have been declared by the authorities to achieve another important tasks: to fill in state budget by taxes, to develop economy and to increase the welfare level of citizens.
For this reason, the legislation sets certain requirements to the experience and training of banks’ employees by different types of courses. We are truly aware that the market of Kazakhstan includes many offers on conducting such trainings with one-day duration and by the companies which are not specialized in money laundering.
It is supposed that the banks shall pursue a policy of selective hiring of staff responsible for financial monitoring and of appropriate training of such staff. We guess, current courses are aimed mainly on the formal admission of the banks’ employees to the job rather than their qualitative perception of all risks related to money laundering as well as to causing damage to honest entrepreneurs.
Considering that significant part of suspicious transactions after their check appear common business conduct, we believe that current problem with freezing accounts is based on the following reasons:
- poor quality of training of responsible bank employees;
- insufficient requirements of law to the organizations performing trainings;
- absence of due state control of the level of experience and training of bank employees.
One of potential methods to prevent negative consequences from blocking the funds can be beforehand written application to the bank with the indication of transactions planned, with the attachment of the documents related and with the request to consider this transaction in advance.
Another step to simplify business conduct in terms of avoiding unreasonable financial monitoring can be written application of associations and unions to the National business chamber of Kazakhstan with the request to re-consider legislation on money laundering and, in particular, in relation to experience and training of persons responsible for the application of this legislation.
We hope that the practice of today on freezing companies’ bank accounts will be refined in a little while in order to improve investment climate and establish proper conditions for business conduct.