Authors: Nazar Kulchytskyy, Andriana Kulchytska, Andrii Sliusar, Markiyan Bem
Published: Lexology, July 2021
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What government agencies are principally responsible for the enforcement of civil and criminal laws and regulations applicable to businesses?
There are currently a significant number of government agencies responsible for investigating offences allegedly committed by businesses. These include the National Anti-Corruption Bureau of Ukraine, the Antimonopoly Committee of Ukraine, the National Police of Ukraine, the State Financial Monitoring Service, the Prosecutor General’s Office and the State Fiscal Service of Ukraine. In September 2021 this list will add the Bureau of Economic Security of Ukraine, which will take over all criminal investigations from the State Fiscal Service.
What is the scope of each agency’s enforcement authority? Can the agencies pursue actions against corporate employees as well as the company itself? Do they typically do this?
The authority of the Anti-Corruption Bureau of Ukraine includes the investigation of corruption offences committed by high-level officials, public prosecutors and law enforcement officers, as well as judges and officials of large state-owned enterprises.
The State Fiscal Service of Ukraine monitors compliance with the Tax Code of Ukraine and the Customs Code of Ukraine, conducts audits for this purpose, and imposes penalties (up to 75 per cent of the underpaid tax) if any violations are revealed. Considering that the gravest violations of the Tax Code of Ukraine and the Customs Code of Ukraine entail criminal liability, this agency is also in charge of investigating such crimes. Furthermore, the tax audit of a company may be conducted at the same time as the criminal proceedings against the company’s officials.
The National Police of Ukraine investigates all types of economic, financial and banking crimes that are not covered by the competence of other law enforcement agencies.
After September 2021 a new state agency, the Bureau of Economic Security of Ukraine, will take over all criminal investigations from the State Fiscal Service of Ukraine as well as some of the economic and financial investigations from the National Police of Ukraine.
The Prosecutor General’s Office supervises compliance with the Criminal Procedure Code of Ukraine by the above entities. It also supports the prosecution of criminal cases in court on behalf of the state.
The Antimonopoly Committee of Ukraine investigates cases involving the violation of legislation on the protection of economic competition (the Law of Ukraine on Protection of Economic Competition and the Law of Ukraine on Protection from Unfair Competition). Following the investigation of such cases and if any offence is revealed, the Antimonopoly Committee of Ukraine has the authority to impose significant penalties (including up to 10 per cent of annual revenue from sales of products) and to take enforcement measures against offenders (securities blocking, a compulsory demerger of business entities, etc).
The State Financial Monitoring Service collects and analyses information to identify transactions that may be related to the legalisation (laundering) of the proceeds of crime, terrorist financing or financing of the proliferation of weapons of mass destruction. If any such transactions are discovered, relevant summaries are provided to law enforcement agencies.
The above government agencies may pursue actions against both companies’ officials and, if necessary, the companies themselves. Thus, antitrust, tax and customs inspections are normally conducted in respect of businesses, not their officials. As regards the investigation of criminal offences, the situation is different. The Criminal Code of Ukraine provides for the possibility to take criminal law measures against companies. This is possible where certain offences are committed by companies’ officials. For example, this concerns corruption-related offences or offences concerning the financing of terrorists, etc. However, although there is such a possibility, criminal prosecution is nowadays pursued against individuals (ie, company’s officials) only.
Can multiple government entities simultaneously investigate the same target business? Must they coordinate their investigations? May they share information obtained from the target and on what terms?
As far as criminal proceedings are concerned, the Criminal Procedure Code of Ukraine prohibits simultaneous investigations of the same crime by several government entities. To avoid such situations, a prosecutor’s office is in place in Ukraine to supervise compliance with the Criminal Code of Ukraine by all pretrial investigation agencies. If investigations are duplicated, it is the prosecutor’s office that should decide which agency will take charge of the investigation.
However, at the same time as or before the criminal proceedings, government agencies such as the Antimonopoly Committee of Ukraine or the State Fiscal Service of Ukraine may carry out inspections for compliance with antitrust laws (the Law of Ukraine on Protection of Economic Competition and the Law of Ukraine on Protection from Unfair Competition) or the Tax Code of Ukraine and penalise companies for any violations revealed.
Different government agencies may cooperate to share information, including inspection results. Such information exchange is usually made upon information or document requests.
In what fora can civil charges be brought? In what fora can criminal charges be brought?
Criminal charges are brought in courts of general jurisdiction: the first instance court, the court of appeal and the Supreme Court. The only exception is high-level corruption cases that are within the jurisdiction of the High Anti-Corruption Court of Ukraine as a court of first instance, the Appeal Chamber of the High Anti-Corruption Court of Ukraine and the Supreme Court.
The State Fiscal Service of Ukraine and the Antimonopoly Committee of Ukraine may independently decide whether a company should be held administratively liable. Their decisions may be appealed against to administrative and commercial courts that are competent to set aside the decisions.
Additionally, the public prosecutor’s office may file an action in a commercial court to invalidate transactions.
Is there a legal concept of corporate criminal liability? How does the government prove that a corporation is criminally liable for the acts of its officers, directors or employees?
The Criminal Code of Ukraine provides for a possibility to take criminal law measures against corporations, such as penalties, forfeiture of property or liquidation of a corporation.
Such measures may be taken against corporations if their authorised officials commit one or more crimes that are separately defined in the Criminal Code of Ukraine. These include the laundering of proceeds from crime such as corruption crimes, terrorist crimes, etc.
For this purpose, the prosecution must prove that the crime was committed by the authorised official on behalf of or (depending on the type of crime) in the interests of the corporation.
Such measures may also be taken against a corporation where the prosecution proves that laundering of the proceeds from a crime or a crime of corruption was committed as a result of the corporation’s failure to ensure that its authorised officials fulfil their duties on the prevention of corruption.
Must the government evaluate any particular factors in deciding whether to bring criminal charges against a corporation?
Whether or not a corporation should be held criminally liable is decided solely depending on:
• whether a crime was committed by the corporation’s authorised person on behalf of or (depending on the type of crime) in the interests of the corporation; or
• whether a crime was committed by the corporation’s authorised person as a result of the corporation’s failure to ensure that its authorised officials fulfil their duties as to prevention of corruption.
If any one of the above conditions is met, a corporation shall be subject to criminal law measures.
What requirements must be met before a government entity can commence a civil or criminal investigation?
A criminal investigation should be commenced within 24 hours in each case where an investigating officer or a public prosecutor receives a crime statement or report, or where they discover a crime themselves. The Criminal Procedure Code of Ukraine does not establish any additional requirements for the commencement of an investigation.
The Criminal Code of Ukraine does not have an extraterritorial effect and, therefore, an investigation may be commenced into offences committed in the territory of Ukraine only.
The Antimonopoly Committee of Ukraine may commence an investigation into the violation of antitrust laws (the Law of Ukraine on Protection of Economic Competition and the Law of Ukraine on Protection from Unfair Competition) following the receipt of a respective complaint or at its own initiative. Before commencing the investigation, the Committee shall examine the complaint and, if any signs of violation are discovered, commence the investigation.
Proceedings for violation of the Customs Code of Ukraine and the Tax Code of Ukraine are commenced after competent authorities receive the respective third party’s statements or after the violation is discovered by the competent authority itself. Any proceedings for violation of the Customs Code of Ukraine and the Tax Code of Ukraine may become criminal proceedings if the value of the item involved in the offence exceeds a threshold set by the aforementioned codes.
What events commonly trigger a government investigation? Do different enforcement entities have different triggering events?
A criminal investigation is usually triggered by a statement and report of interested parties or parliament members, high-profile media releases, information from other government authorities (eg, a tax inspectorate, a customs office or a financial monitoring service).
A takeover of criminal proceedings from foreign states is also a ground for a criminal investigation.
The investigations by the Antimonopoly Committee of Ukraine, tax and customs authorities may also be triggered by media reports, requests from individuals and parliament members, information from other government authorities.
What protections are whistle-blowers entitled to?
The Law of Ukraine on Prevention of Corruption provides state protections to whistle-blowers and their close persons. The state must establish protected anonymous communication channels through which whistle-blowers may anonymously report corruption offences. The channels are, however, in the process of establishment and are put in place in some spheres only. The whistle-blower or his or her close persons may not be dismissed or held liable in disciplinary proceedings. The whistle-blowers may use all types of free legal aid. The whistle-blower is entitled to a monetary reward amounting to 10 per cent of the value of the item involved in the corruption crime that was revealed by him or her or of the amount of the damages caused to the state. If the whistleblowers’ or their close persons’ life, dwelling, health and property are threatened, they may be subject to safety measures (personal protection; protection of residence and property; issuance of special individual protection devices; replacement of documents; change of appearance, place of work or study; relocation to another place of residence).
At what stage will a government entity typically publicly acknowledge an investigation? How may a business under investigation seek anonymity or otherwise protect its reputation?
Government authorities do not publicly report on all investigations. However, if the investigation concerns high-profile matters or certain investigative actions have captured public attention, the government authority may report on such an investigation in a press release. Such reports usually contain no business-sensitive information and mention no names of any particular companies.
Court decisions issued in the course of an investigation are published and freely available in an electronic register, while not disclosing the personal data of individuals. Data of legal entities are not concealed in court decisions. Such decisions often attract the attention of the media and are likely to be newsworthy.
The domestic legislation contains no tools ensuring the full anonymity of businesses in the course of criminal proceedings. Occasionally, the context of investigation-related information reported by the state or data contained in a published court decision still permits the identification of a particular business with which the investigation is concerned. It is sometimes also the case that data is directly disclosed. Filing a civil action to protect business reputation while a criminal investigation is pending is not an effective remedy. In such cases, reputation is better protected using public relations tools rather than legal ones.
Is there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?
The investigation may be carried out without notice of its commencement provided to the target business. Provided that investigating officers do not search the target business’s premises and do not send inquiries to the target business nor summon witnesses to give evidence, the business is likely to learn about the investigation from published court decisions. Additionally, the Criminal Procedure Code of Ukraine entitles the law enforcement agencies to carry out covert investigative (detective) actions, of which target businesses may become aware only after the pre-trial investigation is terminated. These measures may be sanctioned by a judge (in certain cases by a prosecutor) for a period of up to 18 months.
What investigative techniques are used during the covert phase?
If the investigation is conducted covertly (without notifying the target business) within the framework of the criminal proceedings, the investigating authority may use all investigative techniques provided by the Criminal Procedure Code of Ukraine.
However, there are also nearly 15 types of covert investigative (detective) actions. The majority of them include interception of information from transport telecommunications networks, control over the commission of a crime, monitoring of bank accounts and surveillance of a person or location. Such investigation action shall be conducted exclusively in criminal proceedings in respect of grave crimes or crimes of special gravity.
Within administrative proceedings, the investigating authority may covertly (without notifying the target business) approach counterparties, government agencies and other persons to obtain information on the target business’s activities. No covert investigative (detective) actions are conducted within administrative proceedings.
After a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?
If the target business becomes aware of the investigation pending against it within criminal proceedings, it may file a motion with the investigating officer requesting access to the case file. However, if none of the business’s employees is officially accused within the criminal proceedings, a business may still submit such a motion, but the investigating officer will have full discretion in deciding whether to grant it.
Furthermore, the target business may launch an internal investigation to develop a better understanding of the facts of the case. However, such investigation is not required by law.
Must the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?
The target business is obliged to preserve all important information associated with its activities (accounting, staff, tax documents) for a certain period of time to meet statutory requirements. Failure to comply with such requirements entails liability.
Within criminal proceedings, target businesses are not required to preserve investigation-related documents.
During the course of an investigation, what materials - for example, documents, records, recorded communications - can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?
Within criminal proceedings, the investigating authority may require the target business to provide any documents whatsoever. However, a court’s sanction is required to obtain access to information comprising a trade secret or bank information. Courts usually allow law enforcement agencies to obtain access to necessary materials.
As regards administrative proceedings, government agencies may request any documents necessary for the investigation. A court’s sanction is required to obtain access to confidential information.
Additionally, in both administrative and criminal proceedings, the Law of Ukraine on the Bar and Advocates' Activity and the Criminal Procedure Code of Ukraine prohibit access to communications covered by attorney–client privilege.
On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?
In criminal proceedings, businesses from which documents are sought are mostly not summoned to court to express their position on granting access to those documents. Corporate documents are not confidential and access to them may be granted by the court. An in-house lawyer’s advice is also not confidential. Thus, such lawyers are often accused of complicity in the crime.
As regards the administrative proceedings, the situation is different. In tax matters, businesses provide documents voluntarily. Although they can refuse to grant access, such refusal might have adverse consequences for businesses, as such documents will be automatically perceived by the authorities as missing. In such cases, the courts will normally support the tax authorities. In cases considered by the Antimonopoly Committee of Ukraine, documents are also provided voluntarily. If a business refuses to provide documents, they may be forcibly withdrawn under a decision of a commercial court, an order of the state commissioner or head of the territorial branch of the Antimonopoly Committee of Ukraine. The advice of an in-house lawyer and corporate documents are not confidential in administrative proceedings.
May the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?
If a business employee has the status of a witness, he or she must give testimony. Refusal to give testimony entails liability. In addition, a business employee is not exempt from testifying against his or her employer. The investigating authority, in its turn, may conceal such an employee’s testimony from the business until the case is brought to court. Moreover, an employee has a right not to give self-incriminating statements or to give testimony against his or her family members.
Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?
Employees are free to choose whether to obtain their own legal counsel, defend themselves in person or to be assisted by a public defender. The domestic law does not prohibit the employees from having a lawyer provided by the employer. This lawyer may represent the employee unless this leads to an actual or potential conflict of interest.
Where the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?
Within the criminal proceedings, a business has a right to share all information it has. The Criminal Procedure Code of Ukraine and the Criminal Code of Ukraine prohibit the sharing of solely the information obtained directly from the investigating authorities. Disclosing such information entails criminal liability.
There is no such prohibition within the framework of administrative proceedings.
At what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?
The law does not require businesses to give notice of an ongoing criminal or administrative investigation. However, companies may include such an obligation in their own articles of association.
Is there a mechanism by which a target business can cooperate with the investigation? Can a target notify the government of potential wrongdoing before a government investigation has started?
There is no statutory procedure for cooperation between a business and investigating bodies.
However, if a target business reports a crime before a formal investigation is launched, this fact may be taken into account when the decision is taken whether to apply criminal law measures against the company. Such notification may, in principle, be considered proof that the crime has not been committed in the name or in the interest of the company. This, in turn, exempts the company from being held criminally liable. However, there is so far no practice to this effect.
Do the principal government enforcement entities have formal voluntary disclosure programmes that can qualify a business for amnesty or reduced sanctions?
The domestic law does not provide for programmes that, if applied to business, would qualify it for amnesty or reduced sanctions.
Instead, whenever criminal law measures are applied against a business, the court takes into account, among other things, the measures taken by businesses to prevent the crime and gravity of the crime. It cannot be ruled out that these factors may affect the gravity of the sentence. However, there has so far been no practice to this effect.
Furthermore, as a general rule, an authorised official of the company who has committed a criminal offence cannot strike a bargain with the investigating body.
Can a target business commence cooperation at any stage of the investigation?
The target business can commence cooperation at any stage of criminal proceedings. However, the assessment of such cooperation and its consequences lies with the discretion of law enforcement agencies and judicial bodies.
What is a target business generally required to do to fulfil its obligation to cooperate?
Currently, domestic law does not provide for obligations to cooperate with investigating bodies. The law is silent about the procedure and consequences of such cooperation.
The antitrust laws (the Law of Ukraine on Protection of Economic Competition and the Law of Ukraine on Protection from Unfair Competition) and the Tax Code of Ukraine require companies to give explanations relating to violations of the law, as well as all documents necessary for carrying out the inspections.
When a target business is cooperating, what can it require of its employees? Can it pay attorneys’ fees for its employees? Can the government entity consider whether a business is paying employees’ (or former employees’) attorneys’ fees in evaluating a target’s cooperation?
The law does not specifically regulate the relationship between a business and its employees when the business starts cooperating with investigating officers.
Moreover, the domestic law does not regulate whether a business can pay attorneys' fees for its employees as well as whether this issue should be taken into account by law enforcement agencies.
Companies are free to decide whether to pay attorneys’ fees for their (former) employees. Nevertheless, if the company decides to do so, this fact does not in any way affect the investigating bodies’ assessment of the level of the company’s cooperation.
What considerations are relevant to an individual employee’s decision whether to cooperate with a government investigation in this context? What legal protections, if any, does an employee have?
Depending on the procedural status of the employee in criminal proceedings, investigating authorities may interrogate him or her as a witness or as a suspect. In such a case, general provisions of the Criminal Procedure Code of Ukraine relating to the interrogation of witnesses and suspects apply.
Thus, a witness might be held criminally liable for giving knowingly false testimony and for refusing to give testimony. However, a witness may refuse to give testimony about himself or herself if such testimony could be grounds for his or her prosecution.
If an employee is interrogated as a suspect, he or she may at any time refuse to testify without any consequences.
The employee’s refusal to cooperate with investigating bodies is not listed among the grounds for a disciplinary action or dismissal under domestic law.
How does cooperation affect the target business’s ability to assert that certain documents and communications are privileged in other contexts, such as related civil litigation?
Documents or materials produced during the pretrial investigation, together with information relating to cooperation of the business with the law enforcement agencies, are covered by the secrecy of the investigation. Access to such documents or materials is restricted until the pretrial investigation is completed.
However, the company’s cooperation does not affect the access to its documents for the purposes of other related proceedings.
What mechanisms are available to resolve a government investigation?
The mechanisms to resolve a criminal investigation of individuals include a reconciliation agreement with the victim and a plea agreement with the public prosecutor. The domestic law provides for no mechanisms to resolve a criminal investigation of legal entities and investigations into administrative offences.
Is an admission of wrongdoing by the target business required? Can that admission be used against the target in other contexts, such as related civil litigation?
It is necessary to admit the wrongdoing only if a plea agreement is to be reached between the suspect or accused and the public prosecutor. If the agreement has not been reached, the fact of its initiation and the statements made to reach it may not be treated as an admission of guilt.
The domestic law does not provide that a legal entity may admit wrongdoing.
If an individual admits wrongdoing during criminal and administrative investigations, the court may consider this admission as a mitigating factor when sentencing.
If an entity recognises an antitrust violation, the Antimonopoly Committee of Ukraine may consider this as a mitigating circumstance upon imposing the penalty.
A court’s verdict in criminal proceedings or decision in an administrative case, pointing out to the admission of wrongdoing, has prejudicial effect in civil and administrative proceedings in relation to the established facts that the person concerned has committed certain actions.
What civil penalties can be imposed on businesses?
A violation of the antitrust laws (the Law of Ukraine on Protection of Economic Competition and the Law of Ukraine on Protection from Unfair Competition) may result in a fine, forced demerger (if the business entity has a monopoly (dominant) position), and the responsible persons being brought to administrative liability. Persons who have suffered damage as a result of antitrust violations may apply to a commercial court for compensation.
A violation of the Customs Code of Ukraine may give rise to penalties such as a warning, fine and confiscation of goods. Fines or penalties may be imposed on businesses for violating the Tax Code of Ukraine.
A public prosecutor or a victim who has suffered pecuniary or nonpecuniary damage may file a civil claim to have the damage caused by the criminal offence compensated. Such a civil claim may be brought directly in criminal proceedings (then the criminal court considers it at the same time as the indictment) or after the end of criminal proceedings (then another court considers it in separate civil proceedings). A legal entity against which criminal law measures have been taken is obligated to compensate for the damages in full.
What criminal penalties can be imposed on businesses?
Individuals may be subject to penalties such as fines, a deprivation of the right to occupy certain positions or engage in certain activities, community service, correctional labour, confiscation of property, arrest, restraint of liberty, imprisonment for a determinate term and life imprisonment.
Legal entities may be subject to such criminal law measures as fines, confiscation of property and liquidation.
Both individuals and legal entities may be subject to special confiscation measures, consisting of seizing in favour of the state the means, tools and property obtained as a result of committing a crime. Special confiscation may also be applied to third parties’ property.
What is the applicable sentencing regime for businesses?
The procedure for sentencing and applying criminal law measures to legal entities are defined in the Criminal Code of Ukraine. A court imposes punishment within the limits set forth for a specific crime. A court has discretion solely to choose a type of punishment (if the sanction of the article sets out several alternative punishments) and determine the size of such punishment within the limits set forth in the article (eg, amount of the fine, period of imprisonment).
A judge may impose a milder punishment on an individual than the one established by the sanction of the article for the relevant crime or release him or her from serving sentence with a probation period (save for convictions for corruption crimes). To render such decisions, a court considers the character of an offender and mitigating circumstances that reduce the severity of the crime or indicate that he or she may be reformed without serving the punishment.
What does an admission of wrongdoing mean for the business’s future participation in particular ventures or industries?
If criminal law measures have been imposed on a legal entity for committing a corruption crime or business managers are brought to criminal liability for corruption or mercenary crimes, this prevents the business from participating subsequently in public procurements.
If an individual has been brought to criminal liability, this may be relevant to his or her further participation in other ventures or industries, provided that the imposed sentence deprives him or her of the right to hold certain positions or engage in certain activities.
However, all of these penalties may be applied irrespective of whether the person has admitted to the wrongdoing.
Are there any emerging trends or hot topics that may affect government investigations in your jurisdiction in the foreseeable future?
• constant changes in competence of different law enforcement agencies.
• the emergence of new law enforcement authorities.
• frequent amendments to the Criminal Code of Ukraine and the Criminal Procedure Code of Ukraine; • the introduction of corporate criminal liability.
The main trending event is the formation of a new state authority, the Bureau of Economic Security of Ukraine, which is due to begin operation in September 2021. This new authority will take over all criminal investigations from the State Fiscal Service of Ukraine and some of the economic and financial investigations from the National Police of Ukraine, thus becoming the main investigative body for almost all economic crimes. In addition, the new authority will be granted direct access to a wide range of information databases administrated by state or local governments.
The Bureau of Economic Security will also have access to information from the State Financial Monitoring Service, the National Securities and Stock Market Commission, the Antimonopoly Committee, the State Property Fund, public financial control bodies, and tax and customs authorities. Moreover, banks will disclose information containing banking secrets at the written request of the Bureau of Economic Security without the need for a court decision. The Central Securities Depository, the National Bank of Ukraine and depository institutions will disclose any information contained in the securities depository accounting system in the same manner.
What emergency legislation, relief programmes and other initiatives specific to your practice area has your state implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?
The most important changes in our practice were the extension of procedural time limits, which ended in August 2020, and the introduction of certain tax benefits during the quarantine. These tax benefits are still in place as at June 2021 and will continue until the end of the quarantine.