The National Bank provided recommendations to banks on preventing the financing of terrorism

The National Bank provided recommendations to banks on preventing the financing of terrorism

The National Bank provided banks and financial institutions with recommendations on identifying "business fragmentation" schemes – tax evasion through the distribution of company activities between individual entrepreneurs (IEs).

This was reported by the regulator’s press service.

According to the recommendations provided by the NBU, banks and financial institutions can enhance their systems for countering money laundering, terrorist financing, and the proliferation of weapons of mass destruction.

The National Bank highlighted the main indicators that may suggest a connection between legal entities and IEs involved in such schemes:

• the submission by the same person of documents for opening accounts for a company and several IEs, often simultaneously;
• shared registration address for the company and IEs;
• common locations for the sale of goods or services, such as the same store or website;
• shared owners, representatives, accountants, or proxies for the company and IEs;
• lack of necessary resources by IEs to independently conduct business, particularly in cooperation with the company.

Additional signs of connection may include:

• significant inflows to IE accounts from the company or other group members;
• payments by the company for IE services whose value is difficult to assess (e.g., rent, marketing, advertising, information services);
• provision of financial assistance by the company to IEs;
• significant financial transactions in the accounts of newly established IEs;
• execution of transactions by IEs over a short period (two to three months) in amounts nearly reaching the annual income limit for the chosen tax group;
• sequential execution of similar financial transactions by multiple IEs;
• use of a single payment terminal by multiple group members.

If analysis reveals that clients are part of a group with potential evasion schemes, financial institutions have grounds to suspect that the entity’s activities are aimed at tax evasion.

"In such a case, institutions should report the identified transactions to the State Financial Monitoring Service and assess future business relationships considering the identified risks," the NBU reported.