Ukrainian people ultimately deserve the membership of the EU based on their way of life and strong determination to European values. Ukraine, as a state, has been on track to meet the criteria for EU membership since 2016, starting with the execution of the EU-Ukraine Association Agreement and foreseeing a deep harmonization of Ukrainian political, legal and economic institutions with EU standards. Still, not all obligations that Ukraine took over in its Association Agreement have been fulfilled. However, the war illegally started by Russia has shifted the Ukrainian reality and the will to get full EU membership to an immense degree. The illegal aggression also led to the fact that Ukraine is being backed by the support of the majority of the EU member states in its effort to become a full member of the EU. Already, other EU candidates understood that Ukraine has obtained a historic chance that was not given to all of them. The injustice of the Russian invasion initiated an unstoppable process of support by the EU institutions and its members, which already has historic dimensions too. As an outcome of the fast track integration process, the Ukrainian reality and culture concerning the rule of law and legal enforcement will and must shift within the EU integration process ahead of all of us.
On 17 June 2022, the EU Commission issued an Opinion on Ukraine's application for membership of the European Union ("EU Opinion") that was submitted by the president of Ukraine on 28 February 2022. The EU Opinion recommends to the EU Council that Ukraine "is given the perspective to become a member of the European Union". On 23 June 2022, Ukraine was awarded with the status of candidate for EU membership. However, EU membership remains a merit-based track and the EU Opinion names seven obligations that Ukraine must fulfil to respect the awarded status. At least four of these obligations aim for a higher level of regulatory compliance and a move for much stronger enforcement activities. Ukraine is, for example, obliged to:
- Implement the legislation governing the selection procedure for the judges of the Constitutional Court of Ukraine (CSU) based on their integrity and professional skills
- Strengthen the fight against corruption through proactive and effective investigations of corruption crimes — complete the appointment of a new head of the Specialized Anti-Corruption Prosecutor's Office (SAPO) and the appointment of a new director of the National Anti-Corruption Bureau of Ukraine (NABU)
- Ensure compliance of the national legislation with the international Financial Action Task Force (FATF) standards and adopt a strategic plan on the necessary law enforcement reform
- Implement the Anti-Oligarch law in a legally sound manner, also taking into account the forthcoming opinion of the Venice Commission.
The EU Opinion already boosted the requested implementation procedures. The Ukrainian Parliament and government planned the amendment and implementation of the required legislation rapidly. We can track the trend by a number of the draft laws registered in the parliament and other changes during the last four months:
- 4 May 2022 — the parliament prepared a draft law increasing the sanction for illegal enrichment by public officials up to life imprisonment with the confiscation of property and banning of holding official positions
- 1 June 2022 — NABU finished the selection procedure for the members of the Social Control Council at NABU
- 2 June 2022 — the SAPO election commission initiated another meeting to consider the appointment of a new SAPO head
- 20 June 2022 — the parliament adopted the Draft Law 2035-IX amending the Law of Ukraine on the Principles of the State Anti-Corruption Policy for 2021-2025
Why these are requirements of the EU Commission
The CSU judges' selection procedure is crucial, asthe decision of this authority caused a temporary weakening of the NABU and National Agency on Corruption Prevention powers to initiate and conduct investigations against alleged corruption crimes in 2021. The state has to ensure that the judges of the CSU are impartial, independent and selected on the principles of professional skills and full integrity. The judges' selection according to EU standards will allow Ukraine to have a CSU that is not instrumentalized by puppeteers and interest groups sitting in the background.
The new appointment of the NABU and SAPO executives aims for a reset and restart of a stronger and more effective enforcement practice than what currently exists. The Higher Anti-Corruption Court, since April 2019, confronted with several-thousand corruption cases to decide on, hasso far only issued 72 verdicts with 39 final convictions. The focus on the enforcement practice is necessary to strengthen and to speed up the effectiveness of all anti-corruption enforcement branches. There is definitely a lot room for improvement.
The compliance with the FATF standards and effective enforcement strategy is a vital obligation in the field of battling money-laundering and associated organized crimes. The EU Commission seeks a much more growing number of completed criminal investigations by the Ukrainian regulators and investigators. Ukraine has already adopted internal regulations requiring the subjects of financial monitoring (e.g., financial institutions, attorney offices, auditors) to conduct a thorough due diligence of their clients and an origin of their funds and financial operations. However, the investigations in practice are still very far away from European standards. This is also reflected by the current practices of the banking sector of Ukraine. A good economic practice still needs to be established.
The Anti-Oligarch law aims to crush and minimize to a high extend the still overwhelming influence of oligarchs in Ukraine. This will hit certain existing monopolies and increase the level of potential free competition on the Ukrainian market instead of keeping the monopolization of big and lucrative industry sectors in the hands of a few. The building of a stage for competitors from the EU is clearly one of the biggest financial interests of the EU. In this regard, it will be difficult to do some window dressing instead of implementing real reforms and cutting the power of certain monopolies. In this regard, we expect the EU Commission to also focus on the anti-monopoly enforcement activities of Ukrainian regulators.
What Ukrainian business should start preparing for
There are no doubts that the Ukrainian government will implement the necessary changes in a swift manner. In addition, the enforcement authorities will increase efforts towards the investigation of corruption crimes. The EU Commission will focus its efforts to increasingly set a stage for European competitors in the Ukrainian market by cutting off oligarchic structures from all levels of Ukrainian society.
In these circumstances, it is very important that the private and public businesses are "up to speed" with the enhanced requirements and the upcoming European standards to be implemented. The future Ukrainian market will bring a much more consumer-friendly and European-regulated environment, with more competition and regulatory enforcement activities.
The government will play its role as regulator issuing compliance requirements according to the EU standards and it will start working on the enforcement side. However, the EU Opinion also shows that the EU Commission will look at the reality in practice and not only on the written law on paper. A big shift in enforcement is inevitable. EU institutions are also expected to provide Ukraine with some EU delegations and individuals with large experience in enforcement activities in the EU countries to work side-by-side with Ukrainian prosecutors and regulators for several years.
The EU Commission and the EU members will not reveal the steps outlined above and those necessary to take in Ukraine for free. They will not soften their approach to assess the enforcement activities in Ukraine. However, they will probably send masses of inspectors and educators with relevant experience to allow the most efficient transformation of Ukrainian reality.
These Ukrainian businesses, which want to stay in business and compete on the European market, have to speed up their game regarding EU compliance and need to start preparing for a time in which European market standards really exist in Ukraine. Time is not on your side. This time will arrive faster than anyone wanted or expected. So, get prepared.