Alexander Pavlov:
Welcome to the conference hall of the Investment Company Sigma Bleyzer. We have an interesting topic for you today, a topic that is interesting in any country, but especially so in Ukraine. Our topic today is how to protect foreign investors in Ukraine and what legal support is available from professionals. My name is Alexander Pavlov, head of the Ukraine-Israel Business Council.
On my right is Alex Frishberg, head of the law firm Frishberg & Partners, who organized this roundtable. He is also the author of numerous publications, one of which is "Doing Business in Ukraine". To his immediate right are two gentlemen who represent the Ukrainian Foundation of Advocates, Sergei Vepritskyi, the chairman of this Foundation, the chief editor of the legal publication "Protection of Rights" and a television host, and Anatoly Polyakh, who is an honored lawyer of Ukraine, candidate of legal sciences and advocate.
Why is this Foundation different from other associations? They are not legal theorists – they are practitioners. They have spent a large part of their lives in the law enforcement bodies, in the Prosecutor's Office, in courts, etc. And now, with great pleasure, I will turn over the microphone to Alex Frishberg.
Introduction by Alex Frishberg:
Thank you, Mr. Pavlov, for having us here. I am also grateful to Morgan Williams of the U.S.-Ukraine Business Council for his assistance with organizing this roundtable.
It's funny how things change. Just a few years ago, foreign companies flooded into Ukraine and they drove up the prices of everything – real estate, factories, M&A, etc. Now, just a few years later, Ukraine is considered to be a high-risk country with a difficult business environment. Unfortunately, this is a fair assessment largely due to systematic government corruption and bureaucracy.
As a result, potential foreign investors are staying away, in part, because they have their own financial problems at home. Nevertheless, Ukraine is scaring potential foreign investors away. Meanwhile, foreign companies, which are currently doing business in Ukraine, are encountering more and more problems with the tax inspection and corporate raiders. This is just to mention only a couple of serious problems.
So what do you do when the tax inspection comes to shut you down? In the past, tax inspection visits were very common whenever a foreign company requested from the government a refund of value added tax (VAT). The complaining company would be shut down until such time as it declined to receive the requested VAT refund. The situation has changed today because tax inspection visits are much more common due to the need for the government to fill its budget. Now, substantial fines are assessed whether the company is guilty of any violations or not.
Who would you call when local authorities come to your office to review your records or confiscate your computers for days or even weeks? This is one of the issues we will discuss today.
Another problem is corporate raiding. In the United States, raiding is known as hostile takeover. In Ukraine, this takes on a whole new dimension. It is like Chicago in the 1930s and works basically like this: your competitor (the raider) pays the judge a bribe to issue a wrong legal decision. Then the raider hires a team of people (with or without weapons), who will come to your office to enforce the illegal court decision. By the time you hire your own defense team (lawyers) to reverse the erroneous court decision, your company no longer belongs to you; it has a new owner.
For example, in May of 2011, at least four entities in the Ukrainian food and beverages market were raided. They are "Khlibzavod", Nemiroff Holdings, "Lesnoy Kiev" and Kirsanovskiy Sugar Factory. In just one month, four large enterprises were raided. In all of these cases, the only available remedy for foreign companies is to hire a lawyer to file a claim in a Ukrainian court of law...and pray for the best. Unfortunately, the Ukrainian judicial system is notorious for its unpredictable and illogical decisions. When the first court hands down the wrong decision, you need to appeal to the second court. More time passes. If the second court hands down the wrong decision, you go to the third court. More time passes. By this time, you surely will have lost all control over your company.
So the question we are going to discuss is how does a foreign company defend its interests in Ukrainian courts? As a starting point, whenever you go to Ukrainian courts, a foreign client has three basic options. The first is to go before the court and argue the case on its merits without using any connections or influence. This means no bribes, no calling high-level contacts at the Cabinet of Ministers or the President's Administration. The second approach is to use the services of experienced professionals to present your best legal arguments before the judge. Again, this option involves no bribery. The third option is simply to bribe the judge. These are the only realistic three options you have when you go to a Ukrainian court to defend your interests.
To some companies, the last option involving bribery sounds like the easiest and fastest alternative for a good reason – because it used to be quite efficient. In my opinion, however, this is the worst option for several reasons. First of all, it is illegal. Second of all, it is just not fair. Thirdly, it is unreliable because the bribe will be accepted, but the verdict may not be given in your favor. Fourth, once you are known to give bribes, you will be forever on the hook and you will always need to give bribes. Fifth, exposure of your activities could lead to a scandal for you and your company, as well as loss of your company's reputation. For many reasons, bribery is the single worst option.
Next option of arguing the case on its merits means going into court naked, without local knowledge, bribes, or influence. This approach works well in civilized countries like the U.S., but in Ukraine it could take a lot of money and years of time because you can continue losing and paying lawyers' hourly rates without getting any fair results in the end. There are several well-known cases – for example, Gala Radio, which didn't get any justice for a number of years before its issue went before a European court. There was also a case with Telenor, which could not win at several court levels in Ukraine. And, last but not least, there is the case of Vanco, a U.S. Company that specializes in deep oil drilling. It had a large project in Ukraine until Yulia Tymoshenko stepped in. After that, no matter what Vanco tried to do in Ukrainian courts, nothing seemed to work...until recently.
Option number 2 is the middle ground, which usually involves retaining lawyers with necessary background and experience. For instance, in the past such lawyers were prosecutors themselves or have 20-25 years of law enforcement background as lawyers and advocates. When you hire professionals with this type of background, they will minimize the risks of delay or blatant corruption. Of course, as the Vanco case exemplifies, nobody can provide any guarantees about the fairness of Ukrainian courts because it often depends upon who you are up against. For that reason, it is often useful to run a background check since you don't really know who actually stands behind most companies or litigations. This information is part of due diligence that helps you assess your risks and decide whether the case is worth trying at all and, if so, to select the most advantageous venue. In any case, you should know who you are up against in any kind of confrontation. So option number 2 is the best option, but it has to be tailored to the clients' specific situation.
After reviewing these options, the issue becomes how to find the right lawyer to handle your particular case. If you know foreign law firms in Kiev, you know that most of them do not do litigation. At the same time, the best Ukrainian litigators, who have spent years in this field, do not speak English and, therefore, have problems communicating with foreign clients. To fill this unique niche in the Ukrainian legal market, which until now didn't really need filling because there wasn't the same degree of severity of problems as now, Frishberg & Partners has formed a strategic alliance with the Kiev Foundation of Advocates of Ukraine because they are just the type of professionals I described.
We were going to have one of our senior litigation lawyers, Vladimir Lukovich, talk about our litigation experience and explain exactly how we managed to win so many cases for our foreigner clients over the years. Unfortunately, Mr. Lukovich is ill. So, instead of leaving his seat empty, I took the liberty of inviting another lawyer, Ms. Anna Lelyuk, from a different law firm, called "Family Law Group." Ms. Leyluk has handled a number of cases in family court; most of them dealing with surrogacy, divorce and separation of property, child custody cases and alimony. All of these cases involve going to court in Ukraine to settle disputes of foreigners.
First, however, we will have Anatoly Polyakh, who will speak about corporate and criminal litigation. Then, Sergei Vepritskyi will discuss what he does in the field of criminal law because when the tax inspection visits, sooner or later criminal charges may arise. Last, but not least, Ms. Leyluk will tell us what she does in the family law setting. Again, we are talking from the viewpoint of representing foreigners in Ukrainian courts.
And so without further delay, I will pass the microphone over to Mr. Polyakh.
Anatoly Polyakh:
Good afternoon, ladies and gentlemen. I am the head of the Kiev branch of the Foundation of Advocates of Ukraine. You will find our informational materials on your chairs and throughout the room, which contain detailed description of our activities. In my presentation, I would like to tell you about an important product – our client subscription agreement.
In accordance with Ukrainian legislation, an advocate may participate in any case only when he has a signed agreement with the client. When there is an emergency situation, not all people have retained an advocate and, thus, they cannot make use of qualified legal assistance. For this purpose, we have a client subscription agreement. This agreement is entered into by and between the Foundation of Advocates of Ukraine and a client for an entire year (or from the date of signature until December 31st of the current year). This agreement allows an advocate to respond to a client's call at any time of day for any emergency situation and to participate in the defense of such client's rights under the Ukrainian Constitution and legislation.
With such an agreement in place, the client may, at any time, day or night on weekdays, weekends and holidays, call one of our advocates and receive consultation right away in any critical situation. The client knows that he already has an available lawyer, who can come to him at any time or to whom he can explain a problem being faced. Our advocates, due to their experience and competence, will be able to provide quality legal assistance in a timely manner.
Another advantage of the client subscription agreement is that our Foundation has over 500 advocates in various branches of law. Pursuant to the client subscription agreement, we can immediately provide an advocate with the proper qualifications to assist. The Kiev branch of our Foundation has over 50 advocates in various branches of law. Even so, due to the extensive infrastructure of the Foundation of Advocates of Ukraine, other advocates and specialists from other regions of Ukraine can come to Kiev or any other Ukrainian city to provide legal assistance.
The client subscription agreement provides that each client will receive a framed certificate like the one I'm holding. I can't say that this certificate is an absolute guarantee from the corrupt acts of government and law enforcement officials that may visit your office. However, to some extent it will serve as a "red card" or warning that these officials should not exceed certain boundaries in their actions. It may seem like a simple, framed certificate to you, but in my practice such frame on your wall has its own positive results and influence to those who know what it means.
In addition, each client, who signs a client subscription agreement, will receive a plastic card or voucher (this is reflected in the agreement). This plastic voucher contains the rights of citizens under Article 63 of the Constitution of Ukraine, which allows the client to refrain from giving evidence against themselves or their family members or providing documents that can incriminate the client. This is similar to the 5th Amendment in the US Constitution. The client has the right to provide information only in the presence of his lawyer. Importantly, this plastic card contains the number of our advocates. Whenever there is a potentially problematic situation with Ukrainian state officials, including the tax inspection or law enforcement agencies, and these officials see this client voucher, then they understand that the client in question is under the protection of the Ukrainian Foundation of Advocates. Once the advocate is called, the state officials will in most cases refrain from undertaking any illegal acts.
The client subscription agreement also includes a sticker for your automobile, which contains the requisites of the client's advocate and the agreement number and date. This is also helpful in situations when the traffic police or other law enforcement officers stop your car. The sticker doesn't give the client the right to violate the law, but it gives the client the right to show the government representatives that the client knows he has the right to call his advocate to come to the scene and assist the client during any situation.
The actual cost of the one-year subscription is equivalent to 250 Euros. After signing, the work of the advocate in each situation is compensated according to the fee schedule attached to the client subscription agreement. In all cases, the compensation amount must be agreed upon before the advocate acts. Did I miss anything, Sergei?
Sergei Vepritskyi:
Not really. I would only add a few words about the Foundation of Advocates of Ukraine. As Sergei previously stated, our Foundation has more than 500 advocates nationwide. They are specialists in all aspects of Ukrainian litigation; civil, criminal, administrative, you name it. Anatoly just described for you the new product we are offering, which is a subscription service for our clients to have access to a lawyer or advocate on a 24-hour, on-call basis. This is based on a one-time, pre-paid fee for the duration of a year.
The Foundation of Advocates of Ukraine is the only advocates' organization that has its own television program. We have our own newspaper and information portal on the Internet. We have our own mass media channels through which we can expose corrupt government actions – naturally, without any censorship. But I'm sure you are interested in the question and answer part of this presentation, so I will spare you the long and boring presentation about our triumphs and tribulations.
Anna Leyluk:
Hello, as Alex mentioned, I work with Family Law Group, a boutique law firm which represents foreigners' interests in Ukrainian family court cases. The clients who approach us usually have conflicts that have already reached the so-called "boiling point". Our goal is to resolve these disputes in favor of the foreign clients which retain us.
Family disputes can arise out of various situations and sometimes they can be settled out of court by negotiations between the parties. If amicable negotiations break down, the parties can resolve their issues only in a court of law. When it comes to dividing property (assets, real estate) between couples in a court of law, we first propose to our clients to try and avoid
disputes by concluding either a prenuptial agreement or a marriage contract, which will govern all sensitive issues in the future. These agreements can be signed prior to the marriage or after the marriage and they govern how the property will be split in case of divorce.
When it comes to resolving problems of parental rights (child custody, child support payments, etc.), we suggest that our clients enter into child maintenance agreements. This document can set alimony payments for children and the participation of parents in raising the children (e.g., custody rights). If the couple that entered into this agreement decides to terminate their marriage in the future, once they have these agreements in place, the lawyer who represents the interests of one of the spouses will have a much easier time in getting a quick court decision on termination of the marriage. This is because all of the interests of the parties have already been considered and resolved before the divorce arises.
If a family dispute cannot be resolved with negotiations and compromises, then we will go to court to defend our clients' rights. The main categories of disputes, which affect foreigners, are divorce proceedings, property division, child custody, determination of where the child can live, termination of parental rights altogether, child support payments and spousal alimony. We also have seen many cases when a child is kidnapped by one of the parents.
Whenever we go to court to adjudicate these cases, our foreign clients do not need to be present because we represent our clients' interests on the basis of a power of attorney, which can either be issued by a Ukrainian notary (if the foreigner visits Ukraine) or certified by a Ukrainian consulate in the foreigner's home country (with either legalization or Apostille).
Surrogacy issues are also very common in Ukraine, but these cases rarely go to court because of the contractual arrangements between the parties. I must add that family law cases, as opposed to other court cases involving large amounts of money or imprisonment, virtually see no corruption or bribery on the court level. It is probably because regular people with family problems often don't have enough money to share with the judges, so corruption is not an everyday occurrence, which is a fortunate trend in my profession. Thank you.
Alex Frishberg:
Well, now that we are finished with the presentations, we can move on to the question and answer part of the roundtable. We are actually very lucky to have a person amongst us from one of the companies, which did have significant problems with litigation. It would be a pleasure to hear a few words from Jim Bown, who works with Vanco, regarding his litigation experience in Ukraine. As you know, Vanco is a U.S. deep oil drilling company, which was granted a very large Black Sea platform when Yulia Tymoshenko was still the Prime Minister. The project was lawfully allocated and Vanco relied upon this legal allocation. However, Ms. Tymoshenko decided that the project should have been subdivided and the project came to a halt.
In context, this was a political decision at the highest level of government. In this particular case, it was difficult to hire litigators that would be able to reverse this unfortunate result. Now that Ms. Tymoshenko is in prison, however, the situation has dramatically changed. I was hoping that Jim could share with us a few words about his experience with Ukrainian litigation when high-level government is your opponent.
Jim Bown:
Good morning everyone. Alex, you summed it up nicely. We were blocked, not by the highest levels of government, but by one person. There was no legal or commercial basis for our project to be blocked. It was properly and legally set up. There was a legally binding and valid contract. However, Ms. Tymoshenko decided that the project wasn't going to go through to fruition. The signs for this arose in November of 2007.
By May/June of 2008 we had tried everything we could and it was clear that the only solution was international arbitration as we were allowed to do under our contract. By that time, the Ukrainian government had improperly backed out of the contract. As a businessman, I used to wonder why international arbitration cases took so long. Having now been involved in the middle of this arbitration, I know it takes long because there is a lot of work to do. Things go backwards and forwards on a three-month cycle.
We were confident that we would win the arbitration because the government had no real case or real defense. However, it took until the first quarter of 2010 to get to the point where we were very close to the issuance of the award. Then, the government changed and the Yanukovich-inspired government came into power and Ms. Tymoshenko faded away a little bit. We had said all the way through that we wanted to talk and not to arbitrate. But Ms. Tymoshenko would not talk to us. When she "went away", the government offered to talk.
We mutually agreed to postpone the issuance of the arbitral award and we began to negotiate. The negotiations, considering that they were amicable, were not terribly easy because we wanted protection built into any settlement. The government was having difficulties with this. Remember, when you are dealing with the Ukrainian government, it is easier for them to say "no" than to say "yes". If they say "no", no one remembers who said "no"; but if they said "yes", there's usually a note made of it. Some of these guys had an eye to the future; so, there was some nervousness.
Eventually, we got to a point of settlement. The next step was for the government to approve the settlement agreement. We agreed that the government would approve first and, thereafter, Vanco's shareholders would approve it.
While the arbitration was on-going, there was activity in the local courts here in Ukraine. There were, I think, three cases in the local courts. We were winning all of these cases. Again, there was no real case for Ukrainian government to defend.
Now, we are in a situation where the government, in the 3rd or 4th quarter of last year [2011], approved the terms of the settlement agreement after all of this time. It is now Vanco's shareholders' turn, but the documentary requirements are very stringent and complicated. Each of the shareholders must provide a signed, notarized and Apostillized copies of just about everything. So, we are in the middle of that process. Hopefully, in the next three months or so we will be able complete the documentation, sign the settlement agreement and get on with what we really wanted to do – explore the deep waters of the Black Sea.
In terms of the litigation and the process, my recommendation for people with problems, and it might seem trite, is enormous patience. Unfortunately, you will need deep pockets. Our legal costs in this case can be measured in the millions, but the government's was even more.
Once the settlement agreement is signed, the parties will jointly go back to Stockholm and seek the issue of the consent award. There will be no winners or losers, and we will pay our own costs. The slate will be wiped clean and, with the government's support, we can begin our project. The first year of the project will be a 60 million dollar budget (seismic evaluation) and the second budget year will be an evaluation of the data collected. The third year will see us drill two deep oil wells, each of which will cost more than 120 million dollars with no asset value. So, if there is nothing at the bottom, we will plug it and sail away. We are ready to go! So, patience, persistence, courage and a bit of money is needed, but it can be done in Ukraine.
Question:
Was your Embassy involved in the process? How did they react to the problem and what did they do eventually to help you? This was not a business problem, but a political problem.
Jim Bown:
Vanco Energy Company is a U.S. company. William Taylor was the US Ambassador at that time. When we started the arbitration and the Environmental Minister suspended our permit in April of 2008 and the Cabinet of Ministers in May of 2008 issued a Resolution unilaterally backing out of the project, Mr. Taylor and me went into see the Environmental Minister. Mr. Taylor sure gave him a hard time! We had consistent, high-level support from the US Embassy. I have nothing but praise for what the Embassy did. Of course, they could only take the matter so far. They couldn't deal with the arbitration process, but they created an environment in Ukraine, showing the Administration that what they were doing did not have the approval of the West. In addition to patience, appeal to your relevant Embassy.
Question:
Has the present Ukrainian government approached Vanco to help them in a criminal case they may initiate against Yulia Tymoshenko for undermining Ukrainian energy independence by not allowing you to explore and drill?
Jim Bown:
No.
Alex Frishberg:
Thank you very much, Jim, for explaining your company's the arbitration process in the context of the whole political background. It was very educational. Any other questions or comments?
Question:
I am Michael Vitsenko with the US Ukraine Business Council. I would like to make a comment about corporate raiding or hostile takeovers. We still want people to invest in Ukraine and we promote Ukraine as
a place to do business. One of our members wrote an interesting experience about corporate raiding. Their confectionary plant was taken over by raiders about one and a half years ago. They have filed at least 3,000 different cases in various Ukrainian jurisdictions. They have written a publication about their experience, which is available in Ukrainian and English. The case is about a Zhitomir company owned by a New York-based company. This case really teaches that it is extremely important to do due diligence. While lawyers' fees for due diligence can be expensive, it is still important to spend money up front before you get into a conflict. Once you get into litigation, your costs will be multiplied by dozens compared to what you would have spent on due diligence before the conflict if due diligence was not done.
Alex Frishberg:
That is an excellent point about raiding and due diligence. Actually, Mr. Vepritskyi has quite a lot of experience not only in employing anti-raiding techniques but in the consequences when due diligence is not done ahead of time.
Sergei Vepritskyi:
If you will allow me, I will briefly try to explain the essence of raiding. Any corporate raiding has two components. The first component is the legal component, which is usually based upon an erroneous legal
decision or the lawyers' failure to properly draft all documents during company formation. These mistakes are used by experienced lawyers, together with corrupt judges, to obtain a falsified court decision.
The second component, based on the results of the first component, is the take over of the company by force. Accordingly, the anti-raiding process also has to be divided into two components, which must be simultaneously implemented - the legal and physical defense of the raided company. The Foundation of Advocates of Ukraine provides both legal and physical defense. We have enough specialists in the legal arena to undertake these matters. Within our structure we also have a licensed security company, which works strictly within the limits of the law.
However, in order to avoid these problems in the first place, all legal and corporate documents must be drafted in the proper manner. Since you are in Ukraine and there is the danger of corporate raiding, you should calculate this risk before you undertake your business.
Here is a good example of subsequent problems when a business is improperly established in the initial stages. In Kharkov, the company Philip Morris established its company and began to build its tobacco factory. Our Foundation was asked to draft the original documents at the land allocation stage. We suggested a fairly simple but important step of ordering an expert conclusion concerning the soil prior to submitting the land allocation request. Many specialists were against our suggestion, but we emphatically insisted upon the testing of the soil since it could become a liability to the project.
A few years later, a sad situation occurred: the Prosecutor's Office initiated a criminal case regarding the allocation of the land, claiming that the lands were intended for agricultural purposes. The claim stated that the tobacco factory was built on "black earth", which is the most fertile soil in Ukraine and Europe. There were suggestions that the entire factory should be destroyed and lands returned to agricultural zoning. I make this example specially to stress that legal documents must be carefully and properly drafted in the initial stages of business in order to avoid such future claims. This may initially seem expensive, but it is much more reliable and secure.
I'd also like to mention a few words about the Foundation's department of legal investigation and information. Information is very important in defending against corporate raiding. You should try to prevent raiding from the very beginning by knowing your weaknesses and preparing to counteract against the attackers. In our experience, raiding and anti-raiding actions need to be based on what our clients are doing and this requires disclosure by the client of their actions.
Also, information is important in that if you missed the court order that allows corporate raiders to act, then your company will probably be raided. At the court order stage, information is not only gathered about corrupt abilities of your opponent but also about their strengths in defending themselves. For example, who is on their side or who is their protector. You can also gather information about your opponent's weaknesses. Thus, your legal protector should know as much information about the raider as possible in order to protect you in the legal arena. Information allows your legal team to prepare against raider attacks.
Alex Frishberg:
I have a question on the behalf of our audience: what happens when the tax inspection knocks on your door and locks your office to inspect your documents? What happens when they seize your documents and your computers? What are your rights? What should you do?
Sergei Vepritskyi:
Unfortunately, when the tax inspection comes to inspect an enterprise, it often does not do so to protect the interests of the government. Instead, they often come as a prelude to an upcoming raid or to simply to receive bribes. In other words, they were either sent by your competitors to gather information for a future raid or they just came to fill their pockets. This is why we recommend, unfortunately, that when the tax inspection visits, you should react as if it was a tsunami or natural disaster. When natural disasters strike, you need to call in for a rescue party. We are those rescuers. We know what to do in those cases. I'll let Mr. Polyakh tell you in greater detail.
Anatoly Polyakh:
Sure, I'll give you a real-life example. About one month ago, one of our foreign clients called and explained that state officials paid a visit to his company and wanted to confiscate all of the computers. These state officials showed the relevant documents with the corresponding grounds for seizure. His Ukrainian employees were at a loss of what to do because it was the tax inspection. This is just the type of emergency situations which fall under our client subscription agreement.
It just so happened that we had three advocates in our office, so we decided to send all three of them to the client's office. Because of our client subscription agreement, our advocates had the right to produce an order to participate in the tax inspection's investigation. By the way, we had separate agreements with the client and the client's company. When our advocates arrived, the head of the inspection did not want to let us into the client's office despite our legal explanations. It seems that we came at a very inopportune moment for the tax inspection, as they hadn't yet seized the computers.
When we showed the tax inspectors our identification and legal papers, the tax inspectors had no choice but to let us in. The blocking of a duly authorized advocate to participate in this inspection would have been a criminal action. Having entered the office, our advocates divided themselves amongst the employees and the tax inspection officials. We firstly reviewed the documents on the basis of which the tax inspection visited. We saw that the documents contained completely different actions from what they were actually demanding, so we verbally expressed our complaint to the tax inspectors, very politely. One of the employees actually overheard a telephone conversation between one of the tax inspectors and their office. He said that three advocates had come to the office with legally correct complaints and demands and asked for instructions. In the end, the tax inspectors gathered the bare minimum amount of documents required for their documented issue (which happened to be quite insignificant to our client) and left the premises.
When our client flew into Ukraine from abroad, he said that confiscation of the computers would have raised far more issues and problems from the tax authorities. This is a distinct example of how local officials can undertake illegal actions under the guise of other legally proper actions. The timely intervention of experienced advocates can resolve these issues quickly and efficiently. Interestingly, it turned out that a criminal case was subsequently opened against our client's company and we successfully defended our client's interests in court by getting the case dismissed. Timing is vital in life, including calling a lawyer in time in your time of need.
Question:
Let's say you sue a state organization of Ukraine in [international] arbitration and win the arbitration case. What happens next?
Anatoly Polyakh:
Legally speaking, international arbitration decisions are mandatory for enforcement in Ukraine. However, this enforcement will also require a lot of time and energy. This is because a Ukrainian court must first recognize the arbitration decision. Each case must be analyzed individually, depending on the state organization and the case matter. Unfortunately, there may be political obstacles involved in the enforcement, which may prove difficult to overcome.
Comment:
In international law, the Ukrainian court should procedurally consider the enforcement, and not consider the entire case on the basis of the facts or merits. In Ukraine, the courts consider such decisions on the basis of
the facts. And, therefore, the court (especially if closely related to a political figure) will always rule in favor of the government. Some problems simply can't be resolved in Ukraine.
Alexander Pavlov:
The Ukraine-Israel Business Council and the US-Ukraine Business Council both work with American and Israeli companies. Lately, we have been approached by a number of people, who have violated their permissible length of stay in Ukraine. We understand that the preparation for the Euro Championship 2012 is on-going and there will be an increased flow of foreigners crossing the borders of Ukraine. Accordingly, the border authorities are increasing their efforts to curb illegal border crossings. If, in the past, the border authorities didn't pay much attention to foreigners crossing the border, now there is increased scrutiny of foreign visitors, taking into account the new unified system of border control with new technological possibilities, and the border patrol is checking all foreigners' length of stay in Ukraine and enforcing the applicable fines.
We are talking about what Sergei basically mentioned earlier. The employer has not properly prepared the documents, which give the right to the employee to stay in Ukraine over 90 days. There is a period of 90 days when certain foreigners can be located on the territory of Ukraine without a visa. There are different types of visas, like in any country, which allow for stays of over 90 days. There is also the possibility to extend a foreigner's stay in Ukraine for an additional 90 days. The other steps, such as temporary residency permits, are lengthy and complicated processes. So, some large international companies have been sending employees to Ukraine on tourist or short-term visas, but in reality the employees are staying in Ukraine to work for more than 90 days. At some stage, the employees wish to exit Ukraine and they are stopped in Borispol Airport, fined and blocked from entering Ukraine for a certain period. How can they do their work?
The legal procedure for executing work permits, work visas and residency permits is not very expensive. However, in these cases, the work potential of foreign-owned representative offices and companies is suffering. We also believe that it is important to look into these procedures ahead of time; otherwise, the employer will suffer.
Anatoly Polyakh:
Yes, this is a problem. The issue of extending a foreigner's stay in Ukraine is provided under the legislation of Ukraine. It is regulated by the Law "On the Legal Status of Foreigners and Stateless Persons in Ukraine", the rules for obtaining visas for entering and staying on the territory of Ukraine and the instructions for
extending a foreigner's stay in Ukraine. Most foreigners have the right to stay in Ukraine for 90 days within a 180-day period. Extensions are available for those who study or officially work in Ukraine within the Ministry of Internal Affairs. The problems arise from the lack of care and actions from the side of Ukrainian officials and the foreigners who believe that these rules should not apply to them or don't care about these rules. There is always a solution, but each case must be look at on an individual basis. If such issues arise, a foreigner can always request legal assistance.
Scott E. Brown:
Actually, the immigration laws are pretty clear and concise. If you plan your time accordingly, you should be able to meet all of the requirements of the immigration laws. There are two common problems that arise. OVIR, who issues the temporary residency permits, is very slow in providing these permits and doesn't resolve problems related to travel plans for foreign employees, whose work includes a lot of business trips to and from Ukraine. They are basically stuck in Ukraine until the temporary residency permit is issued by OVIR. There is no acceleration process for anyone – no exceptions. Once you get a visa D, which is required to get a temporary residency permit, you must fulfill all immigration requirements within 45 days without leaving the country. This can leave you stranded in Ukraine for 2 to 3 weeks with no opportunity to travel.
The second common problem is the requirement to provide a lease agreement certified by ZhEK. You need the presence of the landlord and the landlord's family must consent to a foreigner's registration in the apartment. Another recent problem is the problem that the law specifically states that spouses and dependents can also receive long-term visas and temporary residency permits. However, OVIR hasn't been able to organize itself internally to issue temporary residency permits to spouses, despite the letter of the law. This is becoming a huge problem for many foreigners.
Comment:
The thing is that it is not only about the law it is about the lack of procedures. The laws have been changed and everything is supposed to be easy. However, the Ministry of Internal Affairs doesn't have any procedures and it takes them six months to get the procedures ready. In the meantime, you are forced to violate the immigration rules and you risk be barred from the country.
Comment:
You are saying that the current procedures are sufficiently complex. But, there are similar rules in other countries that are just as complex and require legislative changes.
Comment:
The fact is that there are no procedures. Back in September, a new visa law was passed, which provided that dependents can also apply for and receive visas type "D" (long-term visa required for temporary residency). Some of the Ukrainian consulates know this and agree. Others remark that they don't have the requisite internal instructions. Even if you get a visa type "D" for your spouse or dependents, OVIR is refusing to do anything to issue temporary residency permits. So, your spouse may as well throw out that visa because OVIR refuses to issue the temporary residency permit on that basis and the visa is a single-entry only visa and expires after 45 days. Because OVIR has no procedural instructions, your spouse has nowhere to turn for legal assistance.
Comment:
I will try to give a brief comment. Yes, this is a terrible situation. You are saying there are laws, but no supporting legislative acts to implement the laws. So, isn't it a fact that the laws don't work. Why do we need supporting legislative acts if the laws aren't effective? This is a case of people knowing that the failure
to fulfill the law will not lead to any negative consequences, but the failure to fulfill the supporting legislative acts will lead to fines, penalties, etc. This is what Ukraine needs to fight against!
Comment:
20 years ago, Ukraine didn't know about these problems. What other countries have experienced over 200 years, we are experiencing over 20 years. In a few years, these problems will be a thing of the past.
Alex Frishberg:
I see that our time has run out, so on that optimistic note I would like to thank all of you for coming here today. Please stay for the reception that follows this presentation; that's when you can ask our speakers anything you want to know about the hard realities of successful litigation in Ukraine. And if you should ever need qualified legal assistance, please feel free to contact us at office@frishberg.com.ua. Thanks again, and we look forward to hearing from you!
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