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Attorney, PhD, Managing Partner of AVER LEX
Attorney, Senior Partner of AVER LEX
Business Crime in Ukraine
Over the last year, the authorities have been continually reporting on improvements in the investment climate in Ukraine, have held a number of ”dialogs with business” and been implementing initiatives aimed at reducing the pressure of law-enforcement agencies on entrepreneurs. In other words, the state is carrying out an active PR campaign, the main viewer of which is the investor, both foreign and domestic.
The Cabinet of Ministers has drawn up a list of 35 priority draft laws, aimed at mitigating the influence of existing issues that impede the economy’s development. They include complicated regulations, pressure on business, lack of innovation support, barriers to access to public resources, etc. It is said that these draft laws provide for waiver of enforcement methods when dealing with business.
Such active work on the promotion of Ukraine in the Doing Business international rating was begun amid a large number of groundless searches and seizures at enterprises, authorization for which is often a formality, and the blocking of VAT invoices at enterprises by the State Fiscal Service.
Prime Minister Volodymyr Groisman has emphasized that at Government and Presidential levels the decision to protect business is spoken about all the time, but the message comes across badly at local level.
This statement is evidenced by comparing the number of petitions filed with courts regarding searches and seizures: thus, in 2012 this number was 2,645 (10,152 — regarding temporary access to things and documents) and in 2017 — 118,884 petitions (257,744 — regarding temporary access). There is no statistical data on the legality of searches and seizures. However, according to data from the Judiciary of Ukraine web portal, the number of complaints about actions taken by investigators and the prosecutor’s office within the past year comes to 90,000.
To implement the above business protection policy, a number of changes were introduced in 2017 to criminal procedure legislation aimed at creating more comfortable conditions for business by guaranteeing its additional protection from arbitrary treatment by law-enforcement officers.
Among the entire list of changes, the following may be highlighted:
A person in respect of which (including his/her property) procedural actions are taken and who is not a party to criminal proceedings, is granted the right to file petitions for carrying out criminal proceedings within a reasonable period of time to challenge, in particular, violations of such period. That is, if a businessman is not a defendant in a case (has no procedural status), but during an investigation a search is conducted and his/her property is seized, this provision gives him/her the opportunity to return the property.
Mandatory video recording of search, as well as during the examination of petitions by the investigating judge, except for resolving an issue of conducting covert surveillance (search activity), has been introduced. In this case, a video recording provided by an investigator, a prosecutor is an integral part of search record.
The recording of an investigative procedure, a search, provides additional guarantees of protection of persons under search from arbitrary treatment by law-enforcement officers.
Video recording is an integral part of search record, and should it not be conducted, such an investigative procedure is recognized as illegal, can be challenged, and evidence obtained in such a way cannot be recognized as admissible.
Thus, should there be no video recording during a search, all the grounds exist to recognize it as illegal and return the property seized.
It is, however, clear that if a true reason for search is putting pressure on business, law-enforcement officers have no intention to refer the case concerned to court, and therefore there will be no video recording, and no due process of law during a search.
The defense is granted the right to record a search on video by itself. At the same time, such persons are warned about their obligation not to disclose information of a pre-trial investigation without written permission of an investigator, a prosecutor, as well as the liability for disclosure of such information.
However, this right applies to an exclusive scope of persons — the “defense”, i.e., persons who have certain procedural status in criminal proceedings. At the same time, the specified provision does not apply to persons and their attorneys who have no appropriate status within criminal proceedings.
Therefore, this norm is de facto “dead” for business, since most companies under search and their officers usually obtain corresponding status after a search.
The prosecution is obliged to justify the need to seize the originals of documents or copies thereof. Furthermore, it is prohibited to seize electronic information systems, and it is provided for prosecution’s obligation to make copies of necessary information without seizing the equipment on which it is stored by involving a specialist.
Properly made copies of such information are conferred the same status as the originals to ensure their evidential value, which will also allow for a greater protection of interests of business entities which suffer de facto blocking of their activities due to groundless seizure of computer and server equipment within criminal proceedings.
Normally, they intend to seize the very original documents. Now, seizure of originals is possible only where the originals are specifically required. For instance, for conducting an expert examination.
Despite this, in most cases law-enforcement officers say that commissioning of expert examinations is being planned, that is why it will be easy for them to overcome the specified norm.
In turn, the Business Ombudsman Council (a Government consultative and advisory body representing and protecting the inte-
rests of business in state authorities) reports a small number of complaints against law-enforcement officers concerning violations of the new law, but emphasises that innovations are in effect only for a short period. According to the Business Ombudsman’s report, the number of complaints against the actions of the Prosecutor-General’s Office increased dramatically in Q1 2018. It is worth mentioning that on 5 October 2017, the Prosecutor-General’s Office of Ukraine took a “step towards business”, which consisted of the signing by a department head, in the presence of the Business Ombudsman and representatives of the business associations council, of a “letter-orientation on preventing infringement of rights of business entities”.
The State Fiscal Service of Ukraine, whose officials, while not being law-enforcement officers, also often abuse their powers by blocking tax returns, which makes it impossible for a company to
operate properly and entails the groundless charge of large penalties, is the leader by challenged actions.
Furthermore, tax officers, working in a regular fashion, have recently conducted a number of high-profile searches and seizures at large business entities. Just before searches and seizures, the management of a large Ukrainian logistics company complained about employees of the internal security of DFS (State Fiscal Service) of Ukraine, who interfered in the work of the international shipment customs clearance sector. Back then, law-enforcement officers,
without any explanation and sanction, inspected each and every shipment and took photos and recorded videos.
All these issues are actively discussed at state level and attempts are being made to solve them. Thus, over the past year, establishment of a new body to investigate business-related crimes (for instance, tax avoidance) is being discussed. A new agency is to take over the powers of the Tax Police, an economic unit of the National Police, Prosecutor-General’s Office and Security Service of Ukraine. However, a modern, corruption-free body is obviously far from being established, since legislators have no idea whether this body should be a law-enforcement or analytical one. That is, whether a newly established body will be able to conduct search and seizure, interrogate suspected persons and monitor telephone conversations, or will only have to collect and analyze information about taxpayers and transfer information to investigators of the police and the Prosecutor-General’s Office.
Consequently, construction of a modern law-enforcement system aimed at protecting legitimate business rights is currently proclaimed in Ukraine, but local level institutions often ignore this process and continue to operate in a regular fashion. Should a company have no qualified counsel assistance, servers, original documents and other company’s property may be seized in violation of all newly accepted norms, the permission for which was not given by court. It is not unusual for law-enforcement officers to abuse their powers by making numerous calls for company management or unreasonably large number of document inquiry. The reason for such actions may be soliciting by law-enforcement officers of a company’s employees to give an improper advantage (corrupt practices), have a competitor “destroyed”, or the usual meeting of a set of so-called performance “indicators”.
Therefore, despite the bold statements made by Government officials, holding of numerous business protection conferences and introduction of novelties to legislation, the law-enforcement system continues to function as before, and it takes a long time to make achievements proclaimed “from above” happen at local level.