Originally published in The Ukrainian Journal of Business Law

Corruption is known as the Achilles heel of the Ukrainian economy. Transparency International1 defined Ukraine as ranking in last place among "newly independent countries" in accordance with the Global Corruption Barometer 20092 annual review.

Such a situation is a clear obstacle to future sustainable economic growth and significantly debases the international image of Ukraine. It is not a stumbling block on the path towards deepening relations and cooperation with the EU, especially in respect of negotiations as to the EU-Ukraine Association Agreement and its integral part — the Deep and Comprehensive Free Trade Agreement, but also a significant barrier to foreign investment. Hence, fighting corruption is a top priority for Ukraine.

The first step in this respect was undertaken on 11 June 2009 by the Ukrainian Parliament when it adopted new Ukrainian anticorruption legislation pursuant to international obligations undertaken under the United Nations Convention against Corruption, the Council of Europe Criminal Law Convention on Corruption and the Additional Protocol thereto. This article provides a general overview of recent legislative developments. We do not intend to analyze the applicable provisions and their effect on fighting and/ or preventing corruption, but only to draw attention to the major amendments introduced.

Legislative Framework

As of today the anti-corruption sphere in Ukraine is governed by the following laws (a) the On Fighting Corruption Act of Ukraine3 stipulating provisions against corruption and (b) the Criminal Code of Ukraine4 (the Criminal Code) envisaging provisions against bribery5. It goes without saying that the legal framework remained incomplete, in particular in preventing corruption and the implementation of legislation remains a critical problem.

The new anti-corruption legislation is aimed at overcoming the above problems. It consists of the following legislative acts:

  1. The On Principles of Corruption Prevention and Counteraction Act of Ukraine No.1506-VI of 11 June 2010 (the Act No.1506) canceling the On Fighting Corruption Act of Ukraine;
  2. The On Liability of Legal Entities for Commitment of Corruption Offences Act of Ukraine, No.1507-VI of 11 June 2010 (the Act No.1507);
  3. The On Amending Certain Legal Acts of Ukraine Regarding Liability for Corruption Offences Act of Ukraine, No.1508-VI of 11 June 2010 (the Act No1508).

Besides, on 8 December 2009 the Cabinet of Ministers of Ukraine adopted 14 by-laws under the said new laws e.g. the Anticorruption Policy Concept, the Methodology of Carrying out the Expert Examination of the Legal Regulatory Acts, the Order of Collection and Disclosure of the Information on Legal Entities Brought to Liability for the Corruption Offences, etc.

Coming into Force

It was originally envisaged that the new anti-corruption laws would come into force on 1 January 2010. However, further on 23 December 2009 the Ukrainian Parliament postponed their coming into force until 1 April 20106.

The Definition of "Corruption"

Firstly, it should be noted that the new anti-corruption laws substantially broadened the definition of "corruption" i.e.:

  1. New anti-corruption laws shall apply not only to persons, performing state functions, but also to any persons authorized to conduct official powers and use related opportunities, even while acting in the private sphere;
  2. An act of corruption shall take place not only if the said persons obtain unlawful benefit, but also if they just accept a promise or an offer of such benefit for themselves or for other persons; (iii) Unlawful benefit shall include not only material valuables (e.g. property, money, advantages, discounts, material services, etc.) as was the case earlier, but also intangible valuables.

Persons to be Brought to Liability for Corruption Offences

Moreover, the said laws significantly amended the list of persons to be brought to liability for corruption offences. The following persons, among others, were added to the existing list:

  1. Officials of public legal entities receiving wages from the state or local budget;
  2. Members of the district/ territorial and polling electoral commissions;
  3. Persons providing public services: auditors, notaries, experts, surveyors/appraisers, insolvency officers/court-appointed managers, independent intermediaries or members of labor arbitration, arbitrators, etc.;
  4. Officials of foreign countries and international organizations;
  5. Persons occupying positions connected with performance of organizational/distributional and administrative/business related obligations in legal entities and private entrepreneurs;
  6. Legal entities in cases set out by legislation.

Corruption Offences

The new anti-corruption laws provide for an essentially wider list of corruption offences, e.g. unlawful assistance in appointment to a position of a person that does not possess any advantages over other candidates for such position; unlawful acceptance of presents, etc.

Moreover, individuals and legal entities are both directly prohibited from financing state bodies and bodies of local self-administration, including providing either financial or intangible assistance.

Notably the newly provided limitations as to carrying out of state functions or functions of bodies of local self-administration shall apply additionally within 2 years from their dismissal or termination of their activity, if the obligations of these persons in new posts in the private sphere are directly connected with their state functions or functions of bodies of local self-administration carried out by such persons in their previous positions.

In addition, the anti-corruption laws introduce an anticorruption expert examination of drafts of legal regulatory acts e.g. all draft laws, acts of the President of Ukraine and the Cabinet of Ministers of Ukraine shall be subject to such examination on a mandatory basis.

Liability for Corruption Offences

The new anti-corruption laws essentially extend the list of administrative offences and crimes in the corruption field. Specifically, Act No.1508 introduced into the Code of Ukraine on Administrative Offences a new section called Corruption administrative offences providing for administrative liability for 13 additional administrative offences in the corruption field. As far as the applicable administrative liability is concerned, the main penalty provided is a fine amounting to between 10 and 500 non-taxable minimum individual incomes7 depending on the particular offence. In addition, seizure of unlawful benefit and/or profits gained may be applied for certain offences.

Moreover, Act No.1508 also (a) introduced into the Criminal Code a new section entitled "Crimes in the sphere of official activities in private legal entities and professional activities related to public services provision" providing for 5 additional crimes in the corruption field, (b) revised wording of provisions on certain crimes (e.g. offer or giving a bribe), (c) introduced a number of new crimes to other sections of the Criminal Code (e.g. unlawful enrichment, undue influence). Act No.1508 provides for penalties to be applied for the said crimes: (a) a fine amounting to up to 1,500 nontaxable minimum individual incomes8; (b) correctional labor of up to 3 years; (c) detention for up to 6 months; (d) judicial restraint for up to 7 years; (e) imprisonment for up to 10 years. Additionally, deprivation of the right to hold certain posts or conduct certain activities for up to 4 years and seizure of property can be imposed.

Besides, under the said Act persons brought to criminal or administrative liability for corruption offences shall be dismissed from their relevant posts after the respective court decision comes into effect. Notably the said requirement shall apply to private legal entities too.

Liability of Legal Entities for Corruption Offences

One of the most essential amendments provided for by Act No.1507 is introduction of special liability of legal entities (except for public legal entities maintained at the expense of the state or local budget and international organizations) for committing on their behalf and in their interests by a chief, a founder, a shareholder or other authorized persons such crimes as (a) legalization (laundering) profits earned in a criminal manner, (b) commercial bribery, (c) bribery of persons providing public services, (d) abuse of authority or official misconduct, (e) exceeding authority, (f) taking a bribe, (g) offer or giving a bribe, (h) interfering in the work of judicial bodies.

The following penalties can be imposed on legal entities: (a) a fine amounting from 1,000 to 15,000 nontaxable minimum individual incomes9; (b) a ban on conducting certain activities for a period of 3 month to 3 years; (c) seizure of property and profits gained as a result of the said crimes; (d) liquidation of a legal entity.

Consequences of Corruption Offences

Act No.1507 envisages the following additional consequences for committing corruption offences:

  1. Legal entities brought to liability for corruption offences may be prohibited for a period of 5 years to receive funds and property from the state or bodies of local self-government, public legal entities and legal entities financed from the state or local budget as well as carry out activities in the name of the state or any other activities related to provision of state services on a contractual basis;
  2. Information on persons brought to account for committing corruption offences shall be included in the Unified State Register of Persons who Have Committed Corruption Offences;
  3. Legal regulatory acts and decisions adopted as a result of corruption offences may be cancelled or recognized as unlawful by a court;
  4. Agreements concluded as result of corruption offences shall be deemed as null and void;
  5. Damages and losses caused to the state by individuals and/or legal entities as a result of corruption offences shall be indemnified and property acquired unlawfully shall be seized.

Long Way To Go...

It is notable that adoption of the new anti-corruption laws was considered as quite controversial. There are a number of initiatives in Parliament to suspend the said anti-corruption laws for a longer period as some MPs believe that that the new anti-corruption legislation has numerous shortfalls, is inconsistent and inaccurate and does not comply with the Constitution of Ukraine or international treaties. Moreover, there are currently a number of draft laws registered in Parliament setting out significant changes to the new anti-corruption legislation10. In the main, the said amendments relate to the list of the persons to be brought to liability for corruption offences, liability for corruption offences, certain limitations, etc.

Additionally, on 27 November 2009 the Supreme Court of Ukraine adopted a ruling to address the issue of the constitutionality of the said new anti-corruption laws before the Constitutional Court of Ukraine. However, the latter has not yet adopted any decision in this respect.

Therefore, as of today it is hardly possible to predict whether the new anti-corruption legislation will come fully into force on 1 April 2010.

Footnotes

1. A global civil society organization leading the fight against corruption.

2. http://www.transparency.org/news_room/in_focus/2009/gcb2009; http://ubr.ua/fullnews/rus/ushenko_prosit_timoshenko_uvolit_lucenko-31606/

3. No. 356/95-BP of 5 October 1995.

4. No. 2341-III of 5 April 2001.

5. In addition it is necessary to take into account provisions of other numerous laws and by-laws, such as the On State Service Act of Ukraine No. 3723-XII of 16 December 1993, the On Service in Local Self- Government Agencies Act of Ukraine No. 2493-III of 7 June 2001, the General Rules of Behavior of State Servants approved by the Order of the Main Department of State Service in Ukraine, No. 58 of 23 October 2000, disciplinary regulations setting forth certain peculiarities of responsibility for corruption, etc.

6. By the On Amending Some Laws of Ukraine on Corruption Prevention and Counteraction Act of Ukraine, No.1787-VI of 23 December 2009.

7. Approximately from EUR 20 to EUR 740.

8. Approximately up to EUR 2,200.

9. Approximately from EUR 1,500 to EUR 22,000

10. E.g. the draft laws were registered with the Parliament under No. 5379 of 26 November 2009, No. 5465 of 23 December 2009, No. 5466 of 23 December 2009, No. 5468 of 23 December 2009, No. 5470 of 23 December 2009, No. 5508 of 31 December 2009, No. 5508-1 of 13 January 2010, etc.

Nataliya Y. Mykolska is a senior associate with Vasil Kisil & Partners

Anzhela M. Makhinova is an associate with Vasil Kisil & Partners

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