The decision by the National Bank of Ukraine that natural persons must present their passports every time they exchange currency (NBU resolution No. 278. – Ed.) came as a complete surprise to me, just as it did to many other Ukrainians. Even more surprising was the reference the bank made to the Cabinet of Ministers decree on a currency regulation system and currency control to justify its new requirement. In fact, the NBU has no business establishing the citizenship of people wishing to exchange currency! I was the author of this decree and do not recall anything of the kind. It should not make the slightest difference to the National Bank what the residency of a person is who wants to exchange his money. I agree that there may be special nuances with regard to legal persons. But not individuals! The NBU probably wants to be on the safe side in case currency speculations, among other things, emerge, but it has done so in a highly awkward way, scaring citizens with an absolutely unnecessary form of control. Belarusian authorities have banned purchase and sale of hard currency, and demand spikes on the currency market have recently been observed in Russia. Recalling the currency fluctuations of 2008-2009 in Ukraine, our men decided to make a preventive strike – and missed badly.
Here is another explanation provided by the NBU: the novelty is linked to FATF recommendations. Some countries indeed require establishing the identity of a person exchanging currency. For example, you cannot exchange even 10 euros in Spain or Portugal without presenting a valid ID. But why did the governments and banks in these countries take this step? In Spain, it was an attempt to stop drug trafficking across Gibraltar. Moreover, every currency exchange point in these countries has equipment that permits feeding clients’ data into the computer from which it goes to a central server. The information accumulated is kept secret and banks have no access to it at all. Most exchange booths in Ukraine operate on agency agreements. These are limited companies, not banks, and in many cases they are not equipped with computers. Any personal ID system is out of the question in conditions like this.
I did an experiment the other day by asking my driver to exchange a 50-euro bill using his driver’s license, but not his passport. They turned him down everywhere, but eventually he found a way to do it in a booth where he often exchanges currency for his own needs. However, they did not issue a receipt for him. Thus, if the currency exchange margin used to go to banks, which paid taxes (at least some benefit to the state), now it goes into the cashier’s pocket. So who is doing worse now after the NBU’s novelty?
From a purely theoretical viewpoint, it can be surmised that the government wants to expose tax evasion or calculate citizens’ incomes via indirect indicators. But again, take a walk by the currency exchange points in downtown Kyiv. You will see happy old women ready to provide their passports for currency transactions. These women can't get buckwheat anymore (and it is more expensive now) but now they can earn some money on currency exchanges. Now imagine how the authorities will collect information if one and the same individual exchanges dollars or euros in 20 different exchange booths that have no computers. Moreover, neither the Tax Code, nor any other law mentions any administrative – not to mention criminal – responsibility for exchanging large sums of hard currency. Of course, information about a one-million-dollar transaction, if documented, may find its way to controlling agencies. Suppose that the person in question will then be kept under surveillance. If he is a drug dealer, he will be arrested and sent to prison. And rightly so! But if you are an entrepreneur and operate in the shadow, and they come to you asking inconvenient questions (Where’s the money from?), why can’t you calmly reply that you have inherited it?
In general, the NBU’s near-scandalous decision is like flogging a dead horse. It can indeed pose a threat to the owners of large or medium-sized businesses that receive revenue in foreign currency and are not too eager to share with the government and people close to it. Politicians disloyal to the government may find themselves in real jeopardy – a rank-and-file policeman may catch some regional council member who receives a fairly modest salary in hryvnias while he is exchanging thousands of euros, and “well-wishers” will immediately start digging for dirt. But citizens who do not exchange large sums should not be too concerned.
THE NBU’S ARGUMENTS
According to the NBU, the total of foreign currency kept in cash in Ukraine outside the banking system amounts to USD 70 billion. Olena Shcherbakova, director of the NBU Chief Department of Monetary and Credit Policy, says that the balance of payments shows that this indicator steadily increased in 2008-2010, which points to the growth of the shadow sector. The NBU claims that tighter currency exchange regulations are aimed at fighting this negative trend.