In June 2009 Ukraine made a big step in tackling corruption: three new anticorruption laws were adopted by the Ukraine Parliament and signed by the president.
The laws include the following:
- "On Basics in Prevention of and Countermeasures against Corruption," No. 1506-VI, dated 11 June 2009 (Corruption Prevention Law);
- "On Responsibility of Legal Entities for Committing Corruption Offenses," No. 1507-VI, dated 11 June 2009 (Legal Entities Corruption Law); and
- "On Amending Some Legislative Acts of Ukraine Regarding Responsibility for Committing Corruption Offenses," No. 1508-VI, dated 11 June 2009 (Amending Law).
All three laws (collectively, the Anticorruption Laws) go into effect 1 January 2010. They are intended to establish the legal and organizational framework for preventing and fighting corruption and minimizing or eliminating the consequences of corruption. The Anticorruption Laws expand upon these basic principles with respect to certain categories of government employees including judges, members of parliament, individuals holding state and municipal positions, officials of commercial legal entities and other individuals.
Accountability of Commercial Legal Entities for Corruption Offenses
The Anticorruption Laws introduce for the first time in the history of independent Ukraine the responsibility of commercial legal entities for corruption offenses committed by their officials. The Legal Entities Corruption Law was adopted on the basis of the United Nations Convention against Corruption, dated 31 October 2003 (Resolution 58/4).
According to the Legal Entities Corruption Law, a legal entity is accountable for any crime committed on its behalf and in its interests by a manager, founder, participant or other authorized person as stipulated by the following articles (collectively, the Corruption Crimes) of the Criminal Code of Ukraine: 209 (Legalization [Laundering] of Income Obtained by Illegal Means), Parts 1 and 2 of Articles 235-4 and 235-5; 364 (Abuse of Power or Official Position); 365 (Exceeding Authority or Official Position); 368 (Receiving a Bribe); 369 (Giving a Bribe); and 376 (Intervention in the Activity of Court Organs).
The following types of penalties may be handed down to the legal entities:
- A penalty of 1,000 (UAH 17,000, or US$2,180) to 15,000 (UAH 225,000, or US$32,700) nontaxable minimums of an individual’s income;
- Prohibition against certain activity. A court may prohibit a legal entity from conducting any business activity stipulated in its charter for a period of three months to three years;
- Seizure by the state of property and income (or their equivalent) obtained by a legal entity as a result of Corruption Crimes committed by its officials; and
- Liquidation of a legal entity.
Items 2 and 4 may be applied as the main penalties, and items 1 and 3 may be applied as the main or additional penalties.
Penalization of officials of legal entities for committing Corruption Crimes is stipulated by the Criminal Code and includes (i) a fine and/or (ii) confinement for a term of two to 15 years, with forfeiture of the right to hold certain positions or to perform certain activities for up to three years with or without seizure of property.
Prohibition Against Financing State Bodies
The Corruption Prevention Law provides that individuals and legal entities are prohibited from financing state or municipal bodies and may not give them financial and nonfinancial assistance, perform works for free, provide services, or transfer money and other property other than in cases stipulated by Ukraine’s laws and international treaties.
Gifts to Public Officials
The Corruption Prevention Law prohibits public officials from obtaining personal illegal rewards (gifts) unless such gifts correspond to a generally recognized concept of hospitality and the cost of such gifts does not exceed the amount of one tax social benefit (as of 2009, UAH 302.5, or US$38).
Restrictions Introduced by Law
The Corruption Prevention Law also establishes restrictions with respect to legal entities held responsible for a corruption offense. Such legal entities may not obtain funds or property from state or municipal bodies during the five years following the court decision regarding the corruption offense. Unfortunately, the law does not specify what constitutes "obtaining funds and property" from state or municipal bodies. Our initial assessment is that such legal entities will not be able to participate in state or municipal budget programs/projects or lease state or municipal land/property during the five-year term. In addition, legal entities will have to be included in the Unified State Register of Persons Who Committed Corruption Offenses.
Normative acts and decisions adopted as a result of a corruption offense may be (i) cancelled by a body or official authorized to adopt such acts and decisions or (ii) recognized as illegal in a court proceeding. Any transaction concluded as a result of a corruption offense is invalid.
Newly Introduced Administrative and Criminal Corruption Offenses
The Amending Law stipulates terms by which the administrative penalty may be applied and introduces a new chapter – 15-B, "Administrative Corruption Offenses" – to the Code on Administrative Offenses of Ukraine. Among the new articles on administrative corruption offenses are Obtaining Illegal Reward, (Administrative) Bribery, Illegal Assistance to Individuals or Legal Entities, and Illegally Obtaining a Gift.
In addition, the Corruption Prevention Law introduces Part VII-A, "Crimes in the Sphere of Official Activity in Legal Entities of Private Law and Professional Activity Related to Provision of Public Services," to the Criminal Code of Ukraine. New articles describing the responsibility of officials of commercial legal entities include Abuse of Position, Exceeding Authority, Commercial Bribery, Illegal Enrichment, Proposing or Giving a Bribe, Abuse of Influence and others.
Foreign Corrupt Practices Act
In addition to the Anticorruption Laws, the US Foreign Corrupt Practices Act of 1977 (FCPA) continues to apply to individuals, firms, officers, directors, employees, agents and stockholders acting of behalf of a firm outside the US territory with a direct connection to the United States who "corruptly [act] in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value" to "any foreign official … to assist … in obtaining or retaining business."
US companies or non-US companies registered on a US stock exchange must be diligent when acquiring or founding Ukraine-based companies because of potential successor/owner liability for corrupt practices. They must also be careful about using intermediaries and third party agents for the distribution of products and watchful of the action of their joint venture partners in Ukraine, considering the broad reach of the FCPA. The FCPA, through its books and records and internal controls provisions, extends liability to US parent companies for accounting oversights of their majority-owned Ukraine-based subsidiaries, as knowledge of improper conduct may be imputed to the parent.