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There Are no Guarantees that Banking Secrecy Will Remain Secrecy


Oleksandr Vygovskyy, Attorney at Ilyashev & Partners Law Firm
Source: The Forbes

The Law on Amendments to the Budget Code of Ukraine, No. 3629, sets forth a provision on the citizens’ right of access to banking secrecy. It is assumed that the Ministry of Finance and other agencies will be able to gain full and unrestricted access to information, which includes banking secrecy, and to personal data of citizens “during monitoring of pensions, aid, benefits, subsidies and other social benefits” in overseeing implementation of the budget legislation. Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm, comments on the amendments signed by the President.

Amendments to Art. 62 of the Law of Ukraine “On Banks and Banking Activity” suggest extension of the list of government agencies, which previously were granted the right to receive the information containing banking secrecy from banks. Now such right will be vested with the central body of executive power that provides the formation of the state financial policy, but only as part of the budget process, and only for the purpose of verification and validation of the information submitted by individuals for charging and receiving social benefits, allowances, subsidies, pensions, salaries and other budget payments. Such body can be provided with the information on bank accounts opened in the name of the specified persons and their families, transactions and balances on such accounts.

If we compare these powers with the rights of other agencies referred to in Art. 62 of the Law, they are perhaps the most wide (e.g. agencies of prosecution, police, the National Anti-Corruption Bureau and the Security Service of Ukraine may require only details of transactions on the accounts of specific legal entities or individual entrepreneurs in a given period of time).

Surely, it is hardly possible to ensure that the information will be used solely for the purpose of verification (and will not, e.g. be transferred to the tax authorities, which currently can only request information about the availability of bank accounts). The use of criminal sanctions under the Criminal Code of Ukraine for the illegal disclosure of banking secrecy is highly improbable in this case.

The notion of banking secrecy protects interests of a client of the bank, and, as a general rule, prohibits access of third parties (including the state and public agencies) to confidential information about a client of the bank and his/her transactions. On the other hand, most countries envisage at the legislative level exceptional cases and procedure for such access to banking secrecy in the public interest.

Effective regulation of legal relations in the sphere of banking secrecy implies an exhaustive list of: a) information subject to the regime of banking secrecy, which may be disclosed at the request of a specific governmental body; b) bodies which may hypothetically submit the relevant requests to banking institutions; c) situations when such bodies may submit the relevant requests; d) formal requirements to requests.

On the one hand, such measures should ensure social assistance to those who really need it, permit to avoid payments to improper recipients and reduce corruption in the system of pension and social security. On the other hand, the Ministry of Finance is vested with the outlying powers, in a very broad scope, which can result in serious abuses.

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