Financial sector education is rarely headline news. However, it is a vital component in the overall economic reforms needed for Ukraine to successfully join the European Union. Moreover, Ukraine does not have a sterling reputation when it comes to money laundering and the handling of large sums from donor organisations and countries. When it comes to teaching government officials about how to fight money laundering and sanctions busting, the system needs to be created.

To help with this, the Restoring Ukraine Together project brought in Ilze Znotina as an expert. As head of the Latvian government’s Financial Intelligence Unit, Ms. Znotina headed Latvia’s successful efforts to turn around its legislation and enforcement – as well as its reputation – regarding money laundering. She spoke with us regarding Ukraine’s efforts in anti-money laundering education and how Latvia’s experience can help.

Nataliia Forsiuk: Ilze, thank you so much for taking the time for this interview. To begin with please tell us about your professional background, and especially about you as a member of the Latvian delegation to FATF, and then about the current global trends and challenges in this area.

Ilze Znotina: Thank you for having me for this interview. I have over 25 years of experience as a professional lawyer. My expertise lies in practising law, representing clients in court, and leveraging my legal knowledge. My career initially revolved around private-sector work. However, five years ago, I made the transition to the public sector, when Latvia confronted a major money laundering scandal involving our third-largest bank, which had been accused by the Financial Crimes Enforcement Network of being involved in money laundering operations from CIS countries to the West.

Simultaneously, alongside this banking scandal, Latvia was undergoing a Moneyval assessment, a process similar to one that Ukraine had experienced a year earlier, and with rather positive results. Unfortunately, Latvia was expecting unfavourable ratings regarding its effectiveness in combating money laundering and countering the financing of terrorism.

For several years prior to this, as a partner in Deloitte’s Legal and forensic practice, one of the "big4 " companies, I led a team that assisted the government in preparing the banking sectoral risk assessment and afterwards – the national risk assessment, which naturally made me a participant in the Moneyval assessment as well.

I foresaw that Latvia would likely face significant challenges ahead. As someone accustomed to representing clients and addressing issues, I believed it was time to contribute my skills and knowledge to my country. I decided to enter the competition to become the head of Latvia's Financial Intelligence Unit.

To my surprise, I not only secured the position of head of the Financial Intelligence Unit but also became the head of the delegation to Moneyval on my very first day at FIU. Just a month later, I found myself representing Latvia at the Moneyval plenary session in Strasbourg.

Unfortunately, during that period, there wasn't much I could do to improve Latvia's ratings in the AML/CFT system. It became evident that Latvia was likely to receive negative ratings.

Our task was to avoid being grey listed by FATF, which meant that within a year, we had to demonstrate to Moneyval and FATF, by the end of 2019, that Latvia had effectively reformed its system, preventing inclusion in the FATF Grey List. Remarkably, we accomplished this goal.

I was also appointed to lead the working group responsible for reforming Latvia's AML/CFT system, overseeing the involvement of over 50 different agencies and numerous private sector representatives. Our mission was to implement all the recommended actions from Moneyval by amending laws, changing cultures and mindsets.

In December 2019, we received an extremely positive follow-up assessment report from Moneyval, announcing that Latvia was the first European country and the second in the world to fully implement all 40 recommendations at least to a largely compliant extent.

In 2020, FATF confirmed that we had effectively executed all the Moneyval recommended actions, ensuring that we would not be grey listed.

This success was a significant achievement for Latvia and our team, and it underscored the idea that with dedication, a country can swiftly and effectively reform its systems, transforming from obscurity to prominence. 

Nataliia Forsiuk: Did you have to change a lot of legal acts or introduce new ones?

Ilze Znotina: Yes, it involved both legislative amendments and implementation efforts. As you may recall, we had two parallel processes. First, the Moneyval process concluded in December 2019, with the announcement that we were the first Moneyval and European country to implement all 40 recommendations.

This necessitated a significant number of legislative amendments and the creation of guidelines, best practice papers etc. Essentially, all the written documentation required for submission to Moneyval to demonstrate our system's technical compliance had to be prepared.

Simultaneously, there was the ICRG (International Co-operation Review Group) process, which aimed to assess our effectiveness improvements to prevent our greylisting. This process required us to implement over 60 recommended actions outlined in the 2018 Moneyval assessment.

Our task was not only to show that these recommendations were implemented nationwide but also that they were effective in combating criminal activity, preventing illicit funds from entering the country, facilitating transparent financial processes and operations of companies, and bringing about substantial changes in how certain elements of the AML/CFT system functioned. This amounted to a profound cultural and attitudinal shift. Some individuals were unable to adapt to this transformation, leading to personnel changes.

Many new individuals joined the process, and the Financial Intelligence Unit (FIU), for example, grew from 32 to almost 70 members. FIU became the central authority, with most of the newcomers hailing from the private sector. In essence, we had to dismantle the existing system to construct a more effective one that functioned entirely differently from the past. 

Nataliia Forsiuk: In this project you are supporting the request of Ukraine's agency for financial monitoring to develop an architecture for the learning management system for the national certification program.

Why is a learning management system important, and is this the same as the national certification program itself?

Ilze Znotina: It may not be directly about the certification program itself. Moneyval and FATF typically don't provide highly detailed and specific recommendations. I am personally a FATF assessor, and we are advised not to issue overly specific recommendations.

The focus was not necessarily on a certification program, but rather on improving the training system. This was made abundantly clear in 2017 when Moneyval emphasised that Ukraine needed a more structured training system. It was reiterated over 100 times in various paragraphs. Even though Ukraine has the FIU Academy and the Financial Monitoring Agency, it doesn't guarantee a well-structured training system or that all reporting entities possess the necessary knowledge to effectively fulfil their responsibilities in preventing money laundering in the country.

So, the challenge for Ukraine is to demonstrate to Moneyval assessors, who will likely assess Ukraine soon, that they have taken steps over the past 7 to 10 years since the last Moneyval assessment to implement these recommendations.

The issue isn't just about organising training, which is relatively straightforward. It involves finding speakers on various topics, inviting a group of people, and considering it done, a method many countries employ. However, this approach lacks strategic structure and long-term vision.

What Ukraine is currently contemplating is something quite unique, and I haven't seen it anywhere else in the world. I'm genuinely excited about this initiative and applaud Ukraine's efforts to establish a sustainable, long-term system that not only provides training but also fosters a cultural shift. This initiative aims to transform not only those involved in prevention, such as banks, notaries, lawyers, and real estate agents but also supervisors, regulators, investigators, prosecutors, and others connected to AML/CFT issues.

So, when we discuss this national training and certification system that Ukraine aims to establish, it holds the potential to elevate the knowledge and skills of everyone involved, including individuals, companies, and agencies. It's not only a way to demonstrate to Moneyval that they are effectively implementing past recommendations but also an opportunity to enhance communication, collaboration, and effectiveness among various stakeholders within the system.

Collaboration is the key to combating financial crime effectively. When stakeholders collaborate, communicate, and understand one another better, a country can successfully mitigate the impact of financial crime, as historical experience has shown.

Nataliia Forsiuk: You mentioned the idea of different stakeholders in the report that you've been developing on this training for anti-money laundering specialists. You have three parts in it – the public sector, the private sector, and the sanction system. What is the logic behind this and what are some fundamental differences between these groups of stakeholders?

Ilze Znotina: Certainly. While we often speak about all the stakeholders involved in the AML/CFT system as a unified group, it's crucial to recognize that within this broad category, there are several distinct subgroups. We divided them into the public sector and private sector in relation to AML/CFT training, tailoring the training and certification programs to the specific needs of each group. However, we do not have the same division for the sanctions system as it is quite new for all involved globally at the moment, although it would be recommendable.

Let's begin with the private sector. Typically, the private sector has been receiving training on AML/CFT matters for quite some time, spanning for more than 20 years. They are aware that regulators will conduct audits and scrutinise their adherence to training requirements. FATF mandates training within the private sector, allowing regulators to assess the training received by entities like banks, lawyers, notaries, and precious metal traders. Regulators evaluate how well this training is applied in their day-to-day operations. Numerous service providers, including Ukraine’s FIU Academy, offer training to the private sector.

In contrast, the public sector encompasses a diverse range of stakeholders. This includes regulators or supervisors like the National Bank of Ukraine and other supervisors responsible for different reporting entities. Additionally, there are investigators handling criminal offences involving money laundering, analysts at the financial intelligence unit, prosecutors, judges, and representatives from ministries who draft legislative proposals, amendments, and guidance. Unfortunately, in most countries, if not all, the public sector receives less training and has their knowledge less assessed, despite being the primary drivers of the AML/CFT system.

The public sector curriculum and syllabus differ significantly from those of the private sector, aiming for a higher level of depth and intensity. This is because the public sector covers various areas, including legislation, investigations, supervision, and adjudication, which are fundamental to building an effective AML/CFT system.

Now, moving to the sanctions aspect, it's essential to note that sanctions laws apply to everyone, irrespective of their industry or role. Unlike AML/CFT laws, which obligate only specific groups of companies or individuals, sanctions laws require compliance from all sectors and individuals. This aspect makes understanding and implementing sanctions laws critical for every stakeholder. Sanctions have become an especially crucial topic, given Russia's invasion of Ukraine. They are now among the hottest issues in the AML/CFT and compliance world.

The success of sanctions is pivotal for Ukraine's victory in the ongoing war. Ukrainian officials and the private sector need to set an example and understand the nuances of sanctions, as they are the ones directly affected by the situation on the ground. It's important that Ukraine leads by implementing sanctions effectively, which also aligns with the fight against money laundering. Sanctions and sanctions evasion share similarities with money laundering, so training on sanctions inadvertently covers aspects of AML/CFT as well.

In summary, the division into these three parts – public sector, private sector, and sanctions – is crucial because each has distinct needs, and all three components are vital. Some of these parts are particularly resource-intensive and time-consuming, as Ukraine is pioneering the establishment of such programs globally, particularly in the case of the sanctions and public sector training programs.

Please see the continuation of this interview at Part 2.

This publication was funded  by the European Union. Its contents are the sole responsibility of  the autor and do not necessarily reflect the views of the European Union.