with contributing author Lana Sinichkina
The history of criminal liability of legal entities in Ukraine is quite entertaining. The first attempt to bring this idea to life was made in 2009 with the adoption of the Law On Liability of Legal Entities for Corruption Offences (the “Law”). It was supposed to come into force right in the beginning of 2010. However, closer to year end, legislators decided that Ukraine was not ready yet for such a development and postponed the Law until April. Then until January 2011. And then, 10 days before January, it was decided that Ukraine was not ready at all. The Law was cancelled, but managed to stay in force for five days due to delays in publication procedure.
A more successful attempt was made in May 2013 and resulted in the adoption of the Euro-Integration Laws Package. Among those laws was one introducing changes to the Criminal Code establishing criminal liability of legal entities. The situation with its coming into force was opposite to the one described above: the law was supposed to take effect in September 2014, but made it much faster, arriving in late April almost unannounced. The reason for such haste was that the state required an instrument (or at least the appearance of one) for the punishment of legal entities engaged in unlawful activities in Crimea.
We believe the story above shows a pattern – the approach for the introduction of such a significant change in regulation wasn’t always weighed or well thought-out. And it should be no surprise that the essence has suffered.
Who is Liable Now and On What Grounds
So, starting from April of this year, any private legal entity can be held criminally liable (in certain cases public legal entities can also be brought to criminal liability). The exceptional grounds for that are listed in the Criminal Code. And while certain grounds are related to unlawful activities against state security and territorial integrity (read: against invasion of Crimea), the rest are related to the compliance sphere and thus the topic of our interest.
We were going to expand on mentioned grounds and tell about the law’s exclusions and limitations, but let’s instead take an imaginary company, Good Faith LLC, and assess the law from a practical angle.
The first major defect of the new regulation is that Good Faith LLC does not need to participate in any unlawful actions to face a risk of criminal liability. If a representative of Good Faith LLC is convicted of money laundering or bribing a private or public official (the “Crimes”), and it is proven that the representative acted in the name and for the benefit of Good Faith LLC, the latter may be brought to liability. Even if no such authorizations were actually given, the company is automatically guilty. We believe that such conditions should stimulate Good Faith LLC to look deeper into its business processes.
Necessary Measures to Prevent Corruption
Good Faith LLC can be also held liable if (1) it failed to enforce the anti-corruption measures established by legislation or its charter and (2) such failure resulted in commission of one or the Crimes. And now the time has come for Good Faith LLC to be puzzled, because currently no legislative act establishes anti-corruption measures to be enforced by private companies. Therefore, unless Good Faith LLC established anti-corruption measures to be implemented in its charter, the analyzed ground is unenforceable.
Sadly, even if Good Faith LLC puts a lot of effort into implementing various anti-corruption procedures, it won’t be taken into account when making a decision about the company’s liability. So Good Faith LLC may think that it’s not worth the effort. Without a doubt, the leniency clause such as in the UK Bribery Act (which releases the company from liability if it proves that it had in place adequate procedures to prevent employees from unlawful conduct) would help Good Faith LLC to reconsider and undertake implementation of effective anti-corruption procedures.
If despite all efforts, someone was bribed by Good Faith LLC’s representative, the company may face a fine in the amount of twice the obtained illegal benefit. If no illegal benefit was obtained or its amount is impossible to determine, the fine could reach up to UAH 1.275 million. The Criminal Code does not provide clear guidance on when the illegal benefit is considered as obtained by the company. Most probably it will be a question of a proof – in case money was wired to Good Faith LLC accounts, kept on its premises or in any other way was under the company’s control, the company is left with almost no chances to get out.
The Bottom Line
The criminal liability of legal entities has been a reality in Ukraine for almost half a year. But has anything changed? Most probably the reviewed changes did not stimulate Good Faith LLC to adopt anti-corruption programs. In our opinion, the law’s has completely failed in its role as a deterrent. What about its enforcement? Well… nothing. Open registries of court decisions show that not a single case on a legal entity’s criminal liability was considered by Ukrainian courts. So enforcement practice also has not become a deterrent. Thus, we believe that the answer to the question in the title of this article is quite obvious.
Some may claim that not enough time has passed and that the state has had other problems that had to be prioritized over fighting corruption in the private sector. But we believe that the main problem with the analyzed law is that it wasn’t initially intended to resolve pressing problems in the compliance sphere. It was rather a façade that allowed Ukraine to broadcast the message to the international community that it is complying with its obligations. Therefore, our imaginary Good Faith LLC shouldn’t worry too much – the risks of facing criminal liability are quite remote. The situation may change, though, if the government implements its latest anti-corruption initiatives. These initiatives are a good subject to discuss in the next article.