investigation challenges and political interest in Ukrainian law
and the Ukrainian legal framework
1. What trends, in terms of activity or focus, have you seen in the prosecution of business crimes in your jurisdiction in the last 12 months?
Business crimes in Ukraine are regulated by section 7 of the criminal code, articles 199–235. It should also be noted that not so long ago Ukraine passed the law on decriminalisation of economic crime, which envisages the imposition of sanctions in the form of a fine for committing a number of economic crimes, instead of the sentence of imprisonment. In case of failure to pay the fine within the time limit set by a court decision, it may be replaced by a court with another penalty.
This law also cancelled criminal responsibility for certain acts in the sphere of economic activity, and translates these actions into plain administrative offences, so that they are no longer classified as criminal offences. Therefore, the following actions are no longer classified as criminal offences: violations of the order classes of economic activities and the activities of financial services; engaging in forbidden types of economic activities; illegal opening or use of foreign currency accounts outside Ukraine; fictitious bankruptcy; deception of buyers and customers; illegal actions regarding privatisation issues; and introducing into circulation, or selling, products that do not meet the required standards.
The number of murders and kidnappings has increased in Ukraine during the recent period. We most often represent the interests of injured parties and our practice is closely linked to the representation of victims. We must mention the observance of the increase in the number of unlawful seizures of enterprises and frauds with respect to both domestic and foreign investors. This is facilitated by an imperfect judicial system according to the ratings and an increase in the uncontrolled proliferation of weapons, provoked by military actions in eastern Ukraine. Many demobilised fighters are returning to their homes from the ATO zone with illegal weapons in their hands, which are then resold at inflated prices, and this impacts the general increase in all crime rates in Ukraine. Since the beginning of the conflict in ATO, Ukraine has lost around 240 million dollars from business crimes in the Donetsk and Luhansk regions.
Unfortunately, due to the recent unsuccessful police and prosecution office reform, crime is only logged (recorded), but not followed by any investigation. This in fact leaves us, as lawyers, to personally conduct the investigation, acting for the victims of fraud and other crimes. Frankly speaking, we have become accustomed to this mode of operation and we ensure that we provide a wide array of information for the investigation by making requests and providing evidence collected. It is often said that lawyers have to support prosecution while representing victims in the courts, essentially replacing the prosecution, because of the insufficient level of skill provided by the prosecutor office.
We also have to represent the interests of our fellow lawyers, as currently mass searches in the offices of lawyers are being conducted, which violate the basic principles of advocacy. Unfortunately, increased pressure is being put on businesses by law enforcement officers who continue to perform the orders of individuals in business circles close to the president and the other power structures.
In this regard, we expect that many Ukrainian businesspersons will be forced to leave Ukraine and seek political asylum in other countries.
As before, the most effective way of defending a client's interests is through the courts despite the fact that selective justice is part of Ukrainian reality. We have to challenge a big enough volume of proceedings made by investigators directly in the examining court.
2. Are enforcement agencies particularly focused on any specific industries or crimes?
Unfortunately, at this time, law enforcement officers rarely investigate business crimes such as a fraud and embezzlement because they are focused on other crimes related to killings and injuries.
We also consider the data collected by researchers in the Global Economic Crime Survey 2016concerning Ukraine, which is included in the list of top 15 countries who believe their local law enforcement agencies are not adequately resourced to combat economic crime. Ukraine is positioned 7th with 57% of respondents agreeing to this statement.
Crimes committed in most cases are classified as following: misappropriation of assets; bribery and corruption; manipulation of financial reporting; unfair competition; cybercrime; violation of intellectual property rights; tax fraud; insider trading; and money laundering.
3. Are enforcement agencies more or less focused on pursuing cases against corporations or individuals?
Usually this occurs in spite of political interest; cases where businesses are being put under pressure by law enforcers are not singular. Sometimes law enforcement officials act out their competency, especially regarding the tax police. This issue is closely related to crony capitalism in Ukraine. According to the daily chart of “The Economist”, billionaire wealth as a % of GDP has the index of 7.8 in Ukraine and crony-sector wealth makes up 6.7 of this number.
It should be mentioned separately that violations made by the newly established bodies in the form of NABU (National Anti-Corruption Bureau of Ukraine) led to unlawful interference with the advocacy. These events, during the last half of the year, concerned the advocates and made them talk about numerous instances of abuse of procedural rights by law enforcement authorities. Such practice roughly violates client-attorney privilege and international standards and guarantees of advocacy.
Such practice can be opposed by examining documents and storing them in different jurisdictions.
4. Does the legal framework concerning the prosecution of business crimes allow for extraterritorial enforcement? Are such matters being pursued?
We are currently investigating crimes associated with the misappropriation of funds from Ukrainian banks to companies in the Baltic region, Cyprus, the US and the UK. We successfully cooperate with agencies such as MOKAS (Unit for Combating Money Laundering), FBI (Federal Bureau of Investigation), SOCA (Serious Organised Crime Agency), SFO (Serious Fraud Office), Prosecutor’s Offices and others. Furthermore, we use mechanisms such as worldwide freezing and piercing the corporate veil, discovery orders and other type of injunctions. Moreover, we find ways to investigate crimes related to attempted murder, working with the jurisdictions to which there is no mutual legal assistance agreement such as with the US or Lichtenstein. The main difference with practices outside Ukraine is the possibility of using court cases for trials of civil and criminal fraud which is different to Ukrainian system where fraud can be only criminal.
5. What judicial or legislative developments have impacted the prosecution of business crimes in your jurisdiction in the last 12 months? Are there any significant proposals for reform of the legal framework that governs business crimes in your jurisdiction?
Among the reforms, the introduction of the institute of special confiscation and conviction in absentia should be noted. The introduction of such measures requires a special regime of judicial investigation in cases where such confiscation is provided for third parties, which are not the subject of crime. Therefore, we believe this violates the basic principles of the European Convention on Human Rights.
Unfortunately, reforms held during the last five to seven years have not been able to contribute to objective investigation of cases and to determine before prosecution and investigation the real problem, such as the feasibility of the investigation, satisfaction to compensate for the damage and return the lost funds or assets, as well as crime prevention.
The judicial system still bears signs of a repressive nature. In most cases of crime, the prosecution asks to keep the suspect in custody for the duration of the investigation and the release bail, especially in political affairs, is often motivated to be incommensurable compared to the position of the person and the criminal investigation on the assumption that he has committed the crime. It should be noted that the law enforcement authorities often make public statements accusing those or other persons without waiting for a judicial investigation. Such practice, in our opinion, contradicts the European practice that respects the presumption of innocence.
According to the Corruption Perceptions Index of 2015, Ukraine is placed at the 130th position with a score of 27. Furthermore, the data collected by the World Justice Project Research in 2014, which places Ukraine just before China with an index 0.45 regarding the protection of fundamental rights, speaks for itself. Additional surveys suggest that corruption practices are still widespread in Ukraine. This sad statistic evidences the difficult conditions in which Ukrainian advocates have to work in defending clients' rights and upholding the rule of law.
Recently, when Arseniy Yatsenyuk was Prime Minister, he shared his opinion on who should investigate business crimes in Ukraine, he noted the need for allocation of jurisdiction between law enforcement agencies, in particular the transfer of the investigation of economic crime to a separate single body by creating economic police, which would take over functions from the national police.
6. How common is it for enforcement agencies in your jurisdiction to exchange information and cooperate internationally with other agencies? What are the consequences of cross-border cooperation on prosecutions of entities and individuals in your jurisdiction?
Since the beginning of the conflict, Ukraine and Russia virtually stopped cooperation and the exchange of information. It is very important to note in connection with the fact that the economic, family and partnership relations between the citizens of both countries never ceased and unfortunately, the criminals frequently use this.
It should also be noted that the European law enforcement offices find it hard to request information directly from Ukrainian law enforcers due to their reluctance to cooperate and, as I have often had to hear from the heads of law enforcement agencies from different European countries and international organisations, there is need to verify the information coming from the Ukrainian side.
Mainly the requests coming from Ukraine lack objectivity and Ukrainian law enforcement agencies do not always comply with the formalities for the execution of requests for mutual legal assistance. The circumstances of the request are generally not clearly set out and do not match the information sought.
Sometimes the requested information has no relevant connections with the case materials. This is further complicated by the lack of foreign language speaking law enforcers and their knowledge of such processes.
Ukraine withdrew from the CIS agreement on the exchange of information in the fight against crime in 2015 for political reasons. The Commonwealth of Independent countries consists of nine full members and two associate states and all of them have significant ties between each other. As mentioned previously, often there are cases that criminals operate on the territory of multiple CIS states and such decision of the government created an obstruction for cooperation between law enforcement agencies.
On the other hand, in 2015, in the process of implementation of the visa liberalisation action plan with the European Union, Ukraine received access to INTERPOL databases. Such connection to INTERPOL databases means that Ukraine has now become part of a single Criminal Information System. The benefit of this includes the ability to take part in fighting cross-border crimes and fighting terrorism, money laundering, corruption, arms trade, and human trafficking. There is hope that our law enforcement officers will use the opportunity to exchange information with other police forces around the world with regards to international criminal networks in addition to the ability to extradite wanted Ukrainians from any other country in the world.
7. What unique challenges do entities or individuals face when enforcement agencies in your jurisdiction initiate an investigation?
At the moment the main challenge is the lack of investigation. It is hard to say more on this matter. Of course, the professional level of the staff is much lower than in previous years. Fictional reform in police and prosecutors’ offices had cut out many professionals from law enforcement agencies. At present, current staff of the above-mentioned offices consists of university graduates who underwent intensive training courses during the reform. Such courses were carried out in haste and this has directly affected the level of professionalism of the new staff. It should also be added that the lack of professional experience of the staff plays a huge role in the process of investigation.
In our experience, we can say that senior management tend to conduct business crimes more often than regular employees, and in most cases this is ignored by the law enforcement officers, even when it is well known to the public. However, this is only apparent in those cases where political interest is absent. One of the challenges of modern investigation is that the current government stimulates an investigation if there is any political benefit such as the elimination of political opponents or of their financial supporters or creating a positive image of the current government, by creating fictional trials and investigations that create an image of successful reform activity for the population. Ukraine still has more than half of its economy in the black market, which makes individuals and companies operating in such a way unable to report business crimes or try to satisfy their claims by the rule of law as it would lead to their schemes being uncovered. Also, although the trust of the public to law enforcement offices such as the national police has generally increased since the reform, this trend is not supported regarding courts, especially the supreme economic court of Ukraine, where most of the judges were not affected by the reform. Although recently judges were subject to investigations and some were indicted, no real proceedings were held against them.
Comparing the government statistics from previous years, the rate of business crime has been decreasing; however, it is hard to agree on this matter. The number of clients seeking advocates services on business crime matters is increasing. We increasingly have to advise not only Ukrainian clients, but international clients as well, due to the specific character of Ukrainian law and law enforcement officers, as well as the judicial system.
I also want to stress attention on the low level of the judicial system in Ukraine. It should be noted that Ukraine still suffers from a corrupted judicial system, where decisions are based on kick-backs and the protection of interests of oligarchs and individuals close to leading politicians.
8. Do enforcement agencies in your jurisdiction provide incentives for individuals or entities to self-report a business crime or otherwise provide assistance to the government? If so, what factors should individuals or entities consider when assessing whether to self-report a business crime or cooperate with a government investigation?
We provide clients with the procedure of compliance according to the FCPA and Bribery Act in cases connected to the UK and the US. It should also be noted that our clients ask us to provide investigation of possible criminal risks in the case of acquisition of a company's assets or entry into any transaction. We also conduct an internal investigation, which allows us to identify potential crime risks inside the company. We have experience in representing companies in the case of crimes as victims of actions from both top management and individual employees.
Law enforcement officers in Ukraine do not stimulate such activity due to their conservatism but, in our opinion, it would be beneficial for crime prevention.
However, we should mention that the practice of denunciations is increasing, although currently there is no official point of view from the government on such practice. There are, however, signs of such practice between rival companies, individuals and interested parties and activists.
9. Do enforcement agencies in your jurisdiction use non-prosecution agreements ("NPA") or deferred prosecution agreements ("DPA")? If so, how do such agreements work in practice and what can entities or individuals do to reach an NPA or a DPA with enforcement agencies? If not, do you believe it is likely that such agreements will become part of the legal framework in the next five years.
NPAs are not used in our legal system. However, there is an agreement on the recognition of guilt and an agreement of settlement with victims of crime on penalties and sentences. In our legal system, there is a practice of deferral of punishment with a trial period without concluding the convicted person in custody, which is very similar to the methods of mediation in the UK and the US.
In my opinion, mediation and similar tools must become instruments that will allow an agreement to be reached with the accused and expands the tools to achieve such agreements by the prosecutor's office and will contribute to the investigation being reasonable and finding ways to return the assets and the payment of the damage.
In these difficult conditions we try to work and claim, in practice, the establishment of the rule of law and justice.