Under scrutiny. Why are Ukrainians required to transfer funds using IBAN instead of card numbers?

IBAN Transfers: What Makes Them Unique and Do They Help Combat Schemes?

The National Bank previously announced that restrictions on card transfers should impact schemes involving cards, commonly referred to as drops. Igor Yasko, a lawyer and managing partner at Winner Law Firm, states that this indeed affects the activity of scheme users, as the IBAN provides banks and financial monitoring entities with more tools for oversight.

"IBAN payments contain more information about both the sender and the recipient: their details, taxpayer identification number (TIN), and the purpose of the payment. This complicates the use of 'drops'—straw men for transferring suspicious funds. When it comes to transfers between cards (p2p), tracking and justifying the source of funds becomes more challenging," comments Igor Yasko.

Tax consultant Alexandra Tomashevskaya agrees, noting that the risk of fraud is also lower when the transfer is made to an IBAN. "When transferring via IBAN details, the account holder sees the first and last name of the recipient, allowing them to file a request for a refund, fully aware of who the recipient is. In other words, payments from account to account via IBAN are more secure," the expert states.

Therefore, using IBAN is essential for banks to obtain complete information about both the sender and the recipient: essentially, the system immediately has a full dossier on those involved in the banking transaction.

"An IBAN payment can be compared to an X-ray of the transfer—it reveals the entire internal structure of the operation. Banks receive not just an account number but a complete set of data. This level of transparency provides banks with powerful control tools and, evidently, enhances transparency, making it harder to use so-called 'drop accounts' for dubious transactions," explained Yakov Voronin, a lawyer and managing partner of Yakov Voronin Law Firm.

He also noted: schemes involving straw men become excessively risky when using IBAN. "In 2024, banks have already severed ties with over 80,000 clients due to involvement in 'drop' schemes—and this is before the new regulations. The percentage risk of account blockages for all participants in the scheme using IBAN is at its highest. IBAN acts as a filter—it doesn't prohibit transfers but makes them as transparent as possible for various forms of oversight," the lawyer emphasized.

Taxes and Payments: Will IBAN Allow Tax Authorities to Access All Transfer Information?

The tax authorities will not learn about any IBAN operations, but they will receive information about those identified as suspicious by the bank.

"The tax authorities can potentially analyze transfers made via IBAN as additional income for individuals, especially if the payments are regular or substantial," notes Igor Yasko. According to current legislation, any income for individuals not exempt from taxation is subject to personal income tax (PIT) and military tax. If an individual has not declared such income, the tax authorities may initiate an audit and impose tax liabilities.

In his view, the presence of a TIN in payment documents (provided the transfer is via IBAN) simplifies the work of tax authorities in identifying potentially undeclared income. However, the issue is that currently, the tax authorities do not have direct access to the banking operations of individuals. In other words, the tax authorities will not learn about any transactions, but they will receive information on those flagged by the bank as suspicious.

Almost any IBAN transfer could come under scrutiny; however, in practice, regular large incoming amounts attract attention.

"So, for every thousand hryvnias of 'unclear' income, the legislation requires paying 230 hryvnias in taxes. And if the amounts are significant, the burden increases accordingly. So far, the burden is somewhat lower—19.5%, meaning 190 UAH in taxes for every 1000 UAH," says Yakov Voronin.

Thus, experts interviewed by the publication note that many who previously received significant amounts on cards (or sent them) will have to "cleanse" themselves—declare incomes or conduct transactions through their own individual entrepreneurship or legal entity. If this is not done, experts warn, they will have to negotiate with the tax authorities and, most likely, pay the taxes assessed by the tax service.

"It is important to understand that the mere fact of receiving funds via IBAN is not grounds for tax assessment; the economic essence of the transaction and its purpose are what truly matter," believes Yakov Voronin.

Nevertheless, experts do not currently see any indications of heightened risks regarding tax authorities' scrutiny of card transfers among Ukrainians. At least, this applies to most transactions that are not deemed suspicious. Therefore, citizens will continue to use transfers both to card numbers and IBANs. "Transferring funds to another person's card is not prohibited, and pursuing all citizens of Ukraine simply for conducting legal transactions through their accounts is both difficult and costly for tax authorities," concluded Alexandra Tomashevskaya.