State registrars in the context of financial monitoring in Ukraine

Abstract

This research paper presents a comprehensive study of the institutional status and functional role of state registrars within the national system for preventing and combating the laundering of proceeds from criminal activities. The relevance of the topic stems from the need to transform the activities of registrars from a technical process of recording legal facts into an effective tool of preventive financial monitoring. The author highlights the existence of an ‘institutional vacuum’ whereby state registrars, whilst being on the ‘front line’ of control during the establishment of business entities, are not, de jure, granted the status of primary financial monitoring entities, which limits their ability to detect signs of fictitious business at the pre-transaction stage.

The paper provides a thorough analysis of the current regulatory framework, in particular the Law of Ukraine “On Prevention and Counteraction to Legalisation (Laundering) of Criminal Proceeds, Terrorist Financing and Financing of Proliferation of Weapons of Mass Destruction” and legislation in the field of state registration. A causal link has been established between the inadequacy of procedures for identifying high-risk individuals and the growth of the shadow economy. Based on an analysis of practical case studies and data from open sources (in particular, the Opendatabot platform), the paper highlights schemes involving the use of ‘nominee services’, the mass registration of business entities under a single individual, and ‘business fragmentation’ for the purpose of minimisation of the tax burden.

Particular attention has been paid to a critical analysis of the provisions of the National Revenue Strategy for 2024–2030, specifically regarding the potential introduction of value added tax for individual entrepreneurs. The risks that such changes would pose to small businesses have also been assessed. The academic novelty of the research lies in the development of specific proposals for amending Ukrainian legislation with the aim of granting state registrars the status of primary financial monitoring entities and integrating their activities with the databases of the State Tax Service and the National Bank of Ukraine.

The author argues that the introduction of a risk-based approach at the stage of state registration will shift the focus of control from the banking sector to the stage of establishing business operations, thereby ensuring transparency in the business environment and enhancing the country’s economic security. Recommendations have been formulated regarding the creation of a unified digital platform for interaction between the Ministry of Justice of Ukraine, tax authorities and the banking sector to enable the rapid identification of ‘shell companies’ and prevent the exploitation of vulnerable groups of population in unlawful financial schemes.