The National Bank of Ukraine has imposed restrictions on outgoing transfers from one bank card to another, also known as peer-to-peer (P2P) transactions. An individual’s transactions cannot exceed 150,000 hryvnia per month ($3,700) on all bank accounts opened with one bank.
The restrictions do not apply to volunteers with legitimate status and to individuals whose income exceeds 150,000 hryvnia ($3,700) per month, provided that such income can be legitimately proven to the bank.
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The central bank’s statement said that this measure would be temporary and would last for six months.
98 percent of customers would not experience any such restrictions because their monthly transfers were within the specified amounts, the NBU press release said.
How P2P transactions are linked to tax evasion in Ukraine
The easing of restrictions has been discussed since May 2024 and is currently a key measure for the central bank in the fight against “breakdowns”.
Drops are people who share their bank account details, PIN codes and even their web banking access with third parties in return for rewards for using the cards for transactions. Such transactions do not represent real income – cards are used as a transit vehicle for allocating illegal income.
A typical portrait of such a drop is a man aged 18 to 34, who may be a student, an internally displaced person from the front, a person without a job or an economically weak part of the population, the cyber police statement said.
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In Ukraine, an individual must pay 18 percent income tax and 1.5 percent military tax on most income.
However, no taxes are levied on card transactions. For this reason, they can be used to transfer unauthorized income that is not mentioned in any financial or tax return, thus creating a shadow economy.
“The scale of the problem of using ‘drops’ is difficult to estimate due to the imitation of the usual behavior of a natural person, but in general there are tens of thousands of ‘dormant’ and already active accounts in the system,” the NBU statement said.
The branches may make their services available to third parties on a one-time or regular basis and issue their cards for use.
The Central Bank reported terminating business relations with 80,000 clients of “several of the largest banks” because they acted as “drops.” The National Bank estimates that Ukraine’s budget deficit is up to 1 billion hryvnia ($24.4 million) in tax revenues per month, the NBU told Ukrinform.
For example, drops are often used by illegal online casinos to pay for drugs and excisable products that are not subject to excise duty.
Why Ukrainian volunteers are exempt from restrictions
The Ukrainian volunteers were dissatisfied with the announcement of the restrictions and so several discussions took place in the Ukrainian Central Bank on the design of future norms.
The reason for this is that volunteers receive donations through card transactions and provide huge sums of money needed for initiatives against the Russian invasion of Ukraine.
According to a study by Deloitte Ukraine, 92 percent of Ukrainians donate to the army frequently or regularly, with the majority donating 50 to 200 hryvnia (about $1 to $5) per week.
But volunteers provide donations to equip the military with power plants, pickup trucks and drones – the total amount of money collected by individual volunteers can amount to several thousand or even a million hryvnias.
For this reason, they feared that the NBU’s restrictions would jeopardize Ukrainians’ ability to help the army. The central bank responded by exempting volunteers from the restrictions.
To ensure that the measures cannot be circumvented, the regulator has set five criteria for volunteers. Although the National Bank does not take these criteria seriously, Forbes Ukraine has revealed details.
A person must be registered as a volunteer and donations must be their usual banking activities. The cardholder must provide a letter from a government agency/military unit/charitable foundation about cooperation in fundraising, as well as information about the amount, conditions and purpose of donations. Information from social media and the internet must provide proof that the volunteers have used the funds allocated to them to meet the needs of the army.
P2P transaction restrictions are not the end
The National Bank announced further measures to combat tax evasion through card transactions.
This includes the adoption of Law No. 11043, which increases fines for violations of the payment laws and provides legitimate rules for transferring data on the drops to the Ukrainian cyber police. The NBU will also propose changes to the payment laws in general to introduce more restrictive and punitive measures against the drop systems.
The central bank will also create a data source for banks with customers whose cards were used in the drop programs.
Increased requirements will be placed on banks and non-banks to ensure that payments do not violate the rules. The financial sector will also develop indicators, rules and models to detect atypical customer behavior that could indicate a drop scheme.
“This move will not completely stop the shadow payment system, but it will make drop networks more expensive to operate by splitting transactions and attracting more drops,” Yurii Haidai, an economist at the Center for Economic Strategy, quoted fellow economist Yurii Haidai as saying in his blog.
Haidai believes that restrictions on outgoing transfers will not be enough to combat the scheme and that the NBU will impose restrictions on incoming transfers. These measures could hit tax evasion among online merchants if online stores use card payments instead of legally confirming the purchase.
