The recently adopted Ukrainian law “On Ensuring the Rights of Citizens and Legal Regime on the Temporarily Occupied Territories” (the “Occupied Territories Law”), which created a special legal regime in the Autonomous Republic of Crimea and the City of Sevastopol annexed by the Russian Federation, has accelerated the introduction of the criminal liability of legal entities.
On 23 May 2013, the Ukrainian Parliament adopted the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine to Implement the Action Plan for the European Union Liberalisation of the Visa Regime for Ukraine Regarding Liability of Legal Entities)” N314-VII. Among other things this law introduced the previously non-existent concept of corporate criminal liability into Ukrainian legislation (the “Corporate Criminal Liability Law”). The Corporate Criminal Liability Law was initially scheduled to become effective on 1 September 2014. However, pursuant to the transitional provisions of the Occupied Territories Law, the Corporate Criminal Liability Law was enacted on 27 April 2014 - the same day that the occupied Territories Law came in to force.
The accelerated introduction of the Corporate Criminal Liability Law highlights its importance not only as a part of the current transparency and anti-corruption initiative in Ukraine, but also of the desire to accelerate the reform of Ukrainian legislation in anticipation of the signing and ratification of the Association Agreement with the EU.
In the past, the Ukrainian Parliament has made several (unsuccessful) attempts to impose criminal liability on legal entities for offences. Most recently was in 2009, when the Parliament adopted the Law of Ukraine “On Responsibility of Legal Entities for Committal of Corruption Offences” which was repealed after it had only been in force for a few days.
The Corporate Criminal Liability Law provides that a legal entity can be held criminally liable for the actions of its representative as authorised by contract, law or constituent documents when acting on its behalf, in its interest, by its order or in conspiracy with the legal entity or otherwise. The relevant actions which could attract criminal liability include:
- the legalisation (“laundering”) of income received from crime (Art. 209 of the Criminal Code);
- the use of proceeds from illicit trafficking of narcotic drugs, psychotropic substances and/or their analogues and precursors, toxic or potent substances or toxic/potent drugs (Art. 306 of the Criminal Code);
- bribery of a private legal entity’s official; bribery of a person who provides a public service (i.e., a notary, auditor, evaluator etc.); offering or giving unlawful advantage to public service officials; abuse of power (Parts 1 and 2 of Art. 368-3, part 1, 2 of Art. 368-4, p. 369, 369-2 of the Criminal Code:);
- an act of terrorism and/or involvement in the commission of a terrorist act; public incitement to commit a terrorist act, the creation of a terrorist group or terrorist organisation, facilitation of an act of terrorism commission; financing of terrorism (Art. 258-258-5 the Criminal Code); and
- crimes such as: actions aimed at the forcible change or overthrow of the constitutional order or the seizure of state power, violation of territorial integrity and sovereignty of Ukraine; sabotage; illegal confinement or kidnapping; hostage-taking; violation of the law on referendum; creation of illegal paramilitary armed groups; stealing or otherwise illegally appropriating firearms; fascism; war propaganda, war planning or preparation; genocide; mercenary business; and crimes against persons and institutions under international protection (Art. 109, 110, 113, 146, 147, 160, 260, 262, 436, 437, 438, 442, 444, 447 of the Criminal Code).
Legal entities held liable for any of the offences listed above may be punished by the court with the following:
- confiscation of property; and
- (forced) liquidation.
Fines and liquidation may be ordered by the court as stand-alone penalties, whereas confiscation of property may only be ordered in conjunction with forced liquidation. The court may order a particular legal entity to be liquidated for the commission of a number of serious crimes such as kidnapping, acts against the sovereignty territorial integrity of the State, acts of terrorism, engaging in war etc. In other cases, a fine will be imposed as the default penalty.
Furthermore, the law provides for full compensation to be paid by legal entities to victims of damage the entity caused, in addition to the return of any unfair advantage the legal entity obtained or intended to obtain through their criminal activity.
Criminal sanctions for corruption and money-laundering may be applied by the court to both public and privately owned legal entities, with the exception of government agencies, local government bodies, organisations established by (local) government that are fully funded by the state budget, local budgets, state social insurance, the Deposit Guarantee Fund of natural persons or international organisations. However, criminal sanctions for crimes against the sovereignty and territorial integrity of Ukraine may be imposed on all legal entities, including foreign companies and international organisations.
Civil liability of foreign state-owned companies
The Corporate Criminal Liability Law also introduces the civil liability of legal entities controlled by a foreign state or foreign government agencies for damage caused by the foreign state or a government agency. This will even include cases where said legal entity was not directly involved in the criminal activity.
By introducing of criminal liability for legal entities, Ukraine aims to align domestic legislation with international standards in this area and facilitate Ukraine’s compliance with its obligations according to certain international treaties, as well as the recommendations of such international organisations as the Group of States against Corruption and Committee of Experts on the Evaluation of Anti-Money Laundering Measures.
The Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine to Implement the Action Plan for the European Union liberalization of the Visa Regime for Ukraine, Regarding Liability of Legal Entities)” N314-VII dated 23 May 2013
The Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Regarding State Anti-Corruption Policy to Implement the Action Plan for the European Union liberalization of the Visa Regime for Ukraine)” N1261-18 dated 13 May 2014