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Enforcement agencies and corporate liability
What government agencies are principally responsible for the enforcement of civil and criminal laws and regulations applicable to businesses?
Government agencies controlling legal compliance by business include law enforcement agencies (police, prosecutor’s offices, tax authorities), the National Anti-Corruption Bureau, the Antimonopoly Committee, the National Securities and the Stock Market Commission.
Scope of agency authority
What is the scope of each agency’s enforcement authority? Can the agencies pursue actions against corporate employees as well as the company itself? Do they typically do this?
The above-mentioned state authorities have the entire list of standard legal and criminal tools at their disposal, which could damage businesses and their employees: access to information and documents, arresting of products or assets on accounts, searches, publicising the facts of prosecution against businesses, removing of leadership and others. These actions are conducted during pretrial investigation before the matter is referred to the court, and could seriously harm a company.
Can multiple government entities simultaneously investigate the same target business? Must they coordinate their investigations? May they share information obtained from the target and on what terms?
Yes. For this purpose, the criminal prosecution of a business is initiated under various articles, each controlled by an appropriate investigative authority. This is common when they want to maximise problems for a business because officials, to further their own interests, can make decisions aimed at creating problems for a business, and then can insist on bribes to case their behaviour. They should not coordinate their actions, but can do that in an informal and unregistered format. They may share information when one authority requests information and presents a public access determination.
In what fora can civil charges be brought? In what fora can criminal charges be brought?
It is common practice for Ukraine, when law enforcement authorities qualify regular commercial contract relation as criminal violation: embezzlement of property, damages, fraud with financial resources and more.
In Ukraine, business is usually accused by the state authorities in committing criminal offences. Such accusations include: deliberate violation of the requirements of legislation on preventing and counteracting the legalisation (laundering) of proceeds from crime or terrorism financing; using funds received from illicit trafficking of drugs, psychotropic substances, their analogues, precursors, poisonous or potent substances, or poisonous or potent drugs; bribery of an official of a private law legal entity irrespective of the form of incorporation; bribery of a person providing public services; an offer, a promise or an unlawful benefit to an official, undue influence.
Corporate criminal liability
Is there a legal concept of corporate criminal liability? How does the government prove that a corporation is criminally liable for the acts of its officers, directors or employees?
Ukraine law introduced the liability of legal entities or corporate legal liability. Criminal law measures are applied to them in criminal proceedings: penalties, expropriation or liquidation. Grounds for applying such measures include committing offences on a corporation’s behalf by a corporation employee or a person who, pursuant to the laws, the company’s official documents or an agreement, is authorised to act on a corporation’s behalf. The offences by which a company can create the conditions for, or obtain, an improper benefit or avoid statutory liability include:
- legalisation of income;
- use of funds received from illicit trafficking of drugs;
- bribing an employee of a business established by order of the state authorities; or
- bribing a public official.
Must the government evaluate any particular factors in deciding whether to bring criminal charges against a corporation?
Any actions of a restrictive nature (retrieval of document, searches, seizure of property, access to communication networks, telephones) occur only in the event when sufficient grounds and evidence base are available to believe that the laws of Ukraine are violated. At the same time, owing to the courts’ lack of independence and the colossal pressure on them as the only control filter of compliance with preconditions, the courts do not function effectively. Accordingly, law enforcement authorities can violate the rights of businesses, while hiding behind the sanctions of the courts. Thus, instead of justifying requests for a search or extracting bank secrecy for a firm, a particular judge is pressed into an unjust decision.
Initiation of an investigation
What requirements must be met before a government entity can commence a civil or criminal investigation?
Since it concerns only criminal practice, pretrial investigation commences after an investigator or a prosecutor receives a statement of offence or after they independently become aware that an offence has been committed. Such information can be received by them from both open sources (in the media or internet resources) and the company’s official internal documents. Information about an offence is entered into the Unified Register of Pretrial Investigations, where a note on the commencement of investigation is also made.
What events commonly trigger a government investigation? Do different enforcement entities have different triggering events?
According to legislation, to commence an investigation, it is enough to obtain information about an offence committed from any source. Unfortunately, quite often such investigations can be used by law enforcement agencies to achieve their own goals or they are ordered by the company’s competitors. The cases do not even make it to court, since there is not enough evidence, but during the investigation the company cannot function properly and perform its contractual obligations owing to searches, questioning or other investigative measures.
Each law enforcement agency has its own jurisdiction by perpetrators or offence category, but owing to insufficient legislative regulation and division of powers, different bodies sometimes simultaneously investigate the same fact.
What protections are whistle-blowers entitled to?
A person involved in performing covert operations is protected by the state. To prevent a threat to life, health or property of a person and his or her close relatives in connection with performing activities on detecting a grave offence or exposing an organised criminal group, the law enforcement agencies are required to take special measures to ensure security: changing information about such a person, his or her place of residence, work and study, etc.
However, in our practice there was a case when an unknown person testified against the client and none of the participants of the case knew who he (or she) was. After a while, information about the person became available owing to an error by the investigator, who submitted the transcript of the witness to the court for general review, the final page of which contained the original family name of the witness.
At what stage will a government entity typically publicly acknowledge an investigation? How may a business under investigation seek anonymity or otherwise protect its reputation?
Information about the commencement of an investigation is also indicated in the Unified Register of Pretrial Investigations, where information about an offence is entered. However, access to this Register is restricted to representatives of law enforcement agencies who are responsible for investigating such offences. The public is usually made aware of such information after a notice of suspicion is served. Alternatively, if during the investigation the law enforcement agencies achieve certain desired results, they hold public briefing meetings, which are broadcast via a variety of media.
Unfortunately, businesses are not permitted to keep this information secret. Furthermore, even if a business has not yet been found guilty by judicial decision, the law enforcement agencies will treat it as an offender.
In the event of dissemination of information that degrades a business’ reputation, the court may be requested to refute the information, regardless of who has disseminated it.
Evidence gathering and investigative techniques
Is there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?
Operational measures sanctioned by the courts can be taken against businesses over six months. When the defence is properly constructed, the business may learn of this before the official hearing. For this purpose, the defendants execute the lawyer monitoring activity concerning the information in official registers, rulings made by the courts on particular business, requests received by bank institutions, and information to be requested from business partners.
What investigative techniques are used during the covert phase?
During the covert phase, agencies can access bank accounts and correspondent transactions, data on official reports to tax and other authorities, seize data provided by the business for state licensing purposes, secret access to telecommunication networks, servers, email addresses of employees. They also obtain information via the communication channels of corporate leaders and employees. The practice of inserting sleepers into a business is common for the purpose of data collection directly within the office. This allows unlawful activity to be documented most effectively. With the knowledge of such risks, business entities should take a number of measures in respect of their legal safety.
After a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?
First, the business should obtain information from the state authority concerning the particular investigator, how long the investigation is to last and under what mandate it is being carried out. It can obtain this information via the normal legal channels. Next, it should prepare an action plan and demand the cessation of any action carried out without the participation of a lawyer.
Evidence and materials
Must the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?
As a general rule, regardless of whether there is an investigation or not, a company must keep all the documents concerning its activities for three to 75 years.
Normally, these are accounts and underlying records, originals of commercial and financial documents, contracts, invoices, acceptance certificates and other documents justifying the deals. For instance, such documents could be requested by the tax authorities when they have any concerns with regard to the transactions of the particular business.
Documents that are generated in the course of correspondence with investigators should be kept properly and without date line in order to have an opportunity to refer them in the event of possible recurrence after closure of the case or occurrence of new concerns from the part of other authorities.
During the course of an investigation, what materials - for example, documents, records, recorded communications - can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?
State authorities are entitled to request the documents evidencing an offence. The legislation defines one restriction - they should be relevant to a case and confirm or refute the facts constituting the grounds of raised suspicions. Documents are provided solely on the basis of the court ruling. There are no any additional restrictions for requests.
On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?
The main ground for obtaining corporate documents is a judgment. Such a judgment must contain a specific list of documents with necessary data. If a business is required to provide documents not specified in a judgment, it has the right not to comply with such a demand or provide them for familiarisation.
Documents are deemed untouchable after they had been handed over to the lawyer for execution of protective assistance, legal analysis, determination of attorney-client position, obtaining of expert conclusions, including those concerning the legality of the requests for such documents. In this instance, the documents could not be claimed despite a special court ruling.
As regards cooperation with an attorney, the content of advice, counselling, attorney’s clarifications, documents drawn up by an attorney, information stored on electronic media and other documents and information obtained by him or her in the course of practising law, is an attorney-client privilege and is not subject to disclosure according to the law, with no exceptions. The attorney ensures that it is impossible to access or disclose documents in breach of attorney-client privilege.
May the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?
As the grounds for any investigation are documents and witness testimonies, clearly any investigative body will seek the required testimonies from employees. In view of this practice, any business should set up specialist juridical workshops where employees are trained for just such circumstances.
A person refusing to testify personally may not be made liable. Since the court justifies its decision on the grounds of testimonies stated in the courtroom, the defendant may insist on receiving such testimonies by the judge.
If the authorities cannot induce anyone to provide testimonies, they may obtain them by recruiting employees and forcing them to make allegations under the threat of criminal liability, bribery or extortion, and installation of hidden surveillance devices in their permanent residence.
Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?
In general, cooperation with an attorney is useful as a preventive measure. Considering that in Ukraine a business can become a target for law enforcement agencies and not always because of having actually committed any illegal act, it is important for business representatives to prepare themselves in advance for possible criminal risks.
If an investigation has already been commenced against a business, an attorney must participate starting from the stage of calling business representatives for questioning as witnesses. The participation of an attorney in any investigation has a positive impact on the building of a future defensive position and when appealing against illegal actions committed by representatives of the pretrial investigation bodies. Putting up a defence using an attorney is important to avoid unexpected situations during a search and protect rights being violated in court proceedings. It is a common trend in Ukraine for business to cooperate with attorneys at law, as quite often the investigated cases are muti-layered and defendants simultaneously or they are investigated at several sites or even in different cities. Moreover, it is a team of attorneys who work out a defence strategy to ensure effective and comprehensive defence under such circumstances.
Where the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?
Prompt communication or receipt of such information may serve as the basis for constructing a common defence position when defending businesses. However, the laws of Ukraine do not provide for this kind of exchange of information between companies. Furthermore, such a communication could be regarded as disclosure of pretrial investigation information. Only an investigator and a prosecutor may determine the content and scope of pretrial investigation data that may be made publicly available and become known to a certain group of people or the general public, including the other participants in criminal proceedings. Thus, businesses can be held criminally liable for disclosing information beyond the extent permitted.
Entities can share information via their lawyers. We recommend avoiding exchanging information directly, so it cannot be qualified as an attempt to impede an investigation or cover up the crime.
At what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?
Once a pretrial investigation commences the business notifies the special body - the Securities Commission - of the damage, whereupon the body notifies the investors. If a business fails to provide such a notification, it is deemed that deliberately false information has been provided. When such circumstances cause significant material damage to investors the business has to pay penalties, otherwise the officials who failed to duly notify of ongoing criminal proceedings are deprived of the right to occupy certain offices or may even receive a jail sentence.
At the same time, the parties that have entered into an investment agreement and have not agreed on changes to the terms thereof, must continue to comply with such an agreement, even in circumstances where this may worsen the situation of parties or restrict their rights.
Notification before investigation
Is there a mechanism by which a target business can cooperate with the investigation? Can a target notify the government of potential wrongdoing before a government investigation has started?
We do not recommend cooperating with investigative agencies. In practice, law enforcement agencies can abuse their procedural rights by attempting to force business representatives or owners to cooperate, by any means, to commit acts that would not interfere with the investigation and provide the necessary testimony or documents without relevant judgment.
As for taxation matters, business entities have the right to a tax compromise by settling the amount and any accruals, which would result in the closure of the criminal prosecution. Such parties can make a prior deal with the investigators on the minimum level of liability in exchange for sensitive information or a confession of guilt. Usually such a deal improves the lot of a particular participant of the business while considerably worsening the situation for other partners on which data are sought.
Voluntary disclosure programmes
Do the principal government enforcement entities have formal voluntary disclosure programmes that can qualify a business for amnesty or reduced sanctions?
Ukraine’s current legislation does not provide for any programmes that would qualify a business for amnesty or reduced sanctions.
As for taxation matters, business entities have the right to a compromise on tax by settling the amount and accruals, which will result in the closure of the criminal prosecution. Such parties can make a deal with investigators in advance on the minimum level of liability in exchange for sensitive information or a guilty plea.
Timing of cooperation
Can a target business commence cooperation at any stage of the investigation?
Certainly, but prior to referring a matter to the court. However, the law enforcement agencies, and not the business, would be the ones to benefit more from such cooperation.
What is a target business generally required to do to fulfil its obligation to cooperate?
The business is required to admission a guilt in the alleged crime and cooperation with investigators in respect of testimonies and providing information about other counter parties.
When a target business is cooperating, what can it require of its employees? Can it pay attorneys’ fees for its employees? Can the government entity consider whether a business is paying employees’ (or former employees’) attorneys’ fees in evaluating a target’s cooperation?
Providing evidence is the personal duty of every employee. When the head of the business asks his or her employees to provide testimonies, they must comply. Nobody is permitted to influence a witness regarding the subject matter of his or her testimony.
Payment of lawyer’s fees may not be considered in terms of the assessment of cooperation of the target business.
What considerations are relevant to an individual employee’s decision whether to cooperate with a government investigation in this context? What legal protections, if any, does an employee have?
Although cooperation between a business and its representatives with law enforcement agencies is not provided for by current legislation, any corporate employee may, nevertheless, show willingness to cooperate. Alternatively, employees may be forced to cooperate under threat of prosecution or disclosure of compromising materials about them. However, no such cooperation will be official.
To protect an employee who is cooperating with law enforcement officers, security measures, for example, not to disclose personal data and identity, can be arranged. It should also be noted that, according to Ukrainian legislation, if an employee cooperates with an investigation into the prevention and combat of corruption, he or she cannot be fired, forced to resign, subjected to disciplinary action or other adverse influence measures by his or her manager.
How does cooperation affect the target business’s ability to assert that certain documents and communications are privileged in other contexts, such as related civil litigation?
Given that cooperation of the business with law enforcement agencies is not provided for by current legislation, but such cooperation may take place as a provision of necessary testimony and documents by a business within criminal proceedings, it does not necessarily guarantee that such documents will not be used to commence other proceedings, including criminal ones.
What mechanisms are available to resolve a government investigation?
During the investigation, a business and its attorney may review investigation materials and participate in investigative and other procedural acts, during which they may ask questions, submit their observations and objections concerning the procedure of actions, and familiarise themselves with the records of investigative actions. As a representative of the business, an attorney is entitled to initiate questioning of defence witnesses, obtain evidence or verify existing evidence, and conduct expert research to establish circumstances crucial to criminal proceedings.
However, there are instances when law enforcement officers fail to send information in response to an appeal filed by a business attorney. It constitutes the grounds for an attorney to file complaints with higher authorities or court on a decision or inaction of pretrial investigation agencies.
Admission of wrongdoing
Is an admission of wrongdoing by the target business required? Can that admission be used against the target in other contexts, such as related civil litigation?
A business may admit wrongdoing by making a deal with the prosecution. However, the deal is possible only with the written consent of all those who had suffered damage. If a business wishes to admit its guilt but there is no written consent from the injured party, such a deal cannot be made.
However, should such a deal be made, there is no guarantee that no new investigations against such a business will be commenced based on the testimony provided.
What civil penalties can be imposed on businesses?
Considering that in Ukraine businesses are frequently accused by the state authorities of committing criminal offences, the amount of the penalty depends on the seriousness of the offence.
Furthermore, the Antimonopoly Committee of Ukraine, as the state authority, is entitled to impose penalties on businesses for failing to comply or untimely compliance with its decisions to terminate violations of antitrust and competition legislation, restoration of original state or change of agreements contradicting antitrust and competition laws.
A business can also be fined for violation of taxation and currency exchange regulations.
What criminal penalties can be imposed on businesses?
Penalties (criminal law measures) such as fines, seizure of property and liquidation can be imposed on businesses. Should they be imposed, the degree of an offence, the extent to which a criminal intent was implemented, extent of damages caused, nature and amount of unlawful benefits, which had been or could be received by the business, and measures taken by the business to prevent an offence are taken into consideration.
What is the applicable sentencing regime for businesses?
Judgments concerning business are mandatory and punitive.
What does an admission of wrongdoing mean for the business’s future participation in particular ventures or industries?
If a the business makes a deal on admitting its guilt or when it is convicted by the court will mean that the business is capable of committing an offence and is convicted thereof. In the future, it will have adverse reputational risks, will not be able to cooperate with certain partners pursuant to their compliance policy. If a business is guilty of committing crimes for profit, it is prohibited from taking part in government procurement and receiving government orders.
Businesses and their representatives may be further prohibited from carrying out certain activities.
UPDATES & TRENDS
Updates & Trends
Updates and trends
In light of presidential and parliamentary elections in 2019, government investigations can be used as political instruments. First, to pressurise and discredit political opponents by disclosing existing or fictional facts in connection with investigations. Second, to put pressure on a business to obtain financial support for electoral campaigns.
New law enforcement agencies, which are also authorised to conduct investigations against business, are due to begin operations. Their current number and overlapping powers lead to conflicts between law enforcement agencies, which is reflected in the parallel pressure on business by each body. This trend may intensify after the new bodies commence of the work of.
The trend to accuse businesses of financing terrorism, organising schemes for the systematic embezzlement of budget funds and for not paying taxes under the guise of organised crime against the state, regardless of the veracity of such circumstances, may increase.