Crux (#04 April 2016)

Enlightened Legislative Drafting 

Over the last month many legislative initiatives were submitted to parliamentary committees for consideration. Our traditional commentary section looks at some of the latest legislative changes and a large number of proposed draft acts that require thorough analysis. The carefully collected comments may, as usual, shed some light.

The Ukrainian Parliament ratified The Social Security (Minimum Standards) Convention No.102 Draft Act No.0091. How can this document affect work arrangements and labor provisions and the rights protection of salaried workers?

Volga Sheyko, associate, Asters

It is noteworthy that the Ukrainian Parliament ratified The Social Security (Minimum Standards) Convention partially, i.e. it will not affect, for example, the pension system. In my opinion, it might be related to the possible future introduction of the accumulative pension system in Ukraine. The ratification of the Convention by itself does not guarantee either judicial protection in the health service or the expansion of categories of citizens that are subject to the provisions of this Convention.

On the one hand, the ratification of such document is an important and correct step for Ukraine because we have joined a significant international treaty and we will use it as provisions of law. On the other hand, if you look at the list of the countries that have joined this Convention, you will not find the US, Singapore or other countries with the highest levels of social security. In addition, it is easy to answer the question of the possible impact of the Convention (signed as far back as in 1952!) on the level of social security in Ukraine, proceeding from the text of the Explanatory Note to the draft on ratification of this Convention in the Ukrainian Parliament. Namely, clause No. 4 of this Explanatory Note states that “the implementation of this Convention will not require any additional funding from the State Budget of Ukraine”.

The last act on visa-free EU travel, namely on electronic declaration of officials’ assets and income, was passed in the Ukrainian Parliament on 15 March. How can it influence the fight against corruption? What has been left unnoticed and needs additional revision?

Sergiy Gryshko, partner, head of dispute resolution, Redcliffe Partners

The fact, that following hot debate and much resistance from certain MPs, the Ukrainian Parliament passed the Act of Ukraine No. 1022-VII (the Electronic Declarations Act) is of immense importance. Contrary to popular belief, the Electronic Declarations Act does not introduce the electronic declaration of state officials’ incomes, but repeals the delay in implementing it and introduces some important new rules.

In particular, the Electronic Declarations Act obliges top ranking state officials to file online declarations for 2015 even if they have already filed such declarations in paper form. Online declaration exists in most developed countries as it contributes to the transparency and accountability of state officials. The idea is that more transparency equals less corruption.

In the same vein, the Electronic Declarations Act empowers the National Corruption Prevention Agency to make use of any information regardless of its source, including news reports and individual complaints, to verify the accuracy of officials’ declarations. Previously, it was not totally clear whether newspaper articles, for example, could be relied upon by the National Corruption Prevention Agency, when checking the declarations of officials.

The aim of the Electronic Declarations Act is to create a more transparent environment in which corrupt officials will be less comfortable. It will also help law-enforcement agencies to identify and target those officials who have made fortunes out of their positions. It is probable that online declarations would be of interest not only to the Ukrainian Anti-corruption Bureau but also to the US Federal Bureau of Investigation, which is in charge of investigating overseas corruption offences under the US Foreign Corrupt Practices Act, a piece of federal legislation which prohibits the bribing of foreign officials and politicians by US companies and their subsidiaries. Hopefully, the era of more active enforcement is upon us.

The Cabinet of Ministers of Ukraine approved the Draft Act On the Establishment of a Business Ombudsman. What rights should be established for a Business Ombudsman? How can the introduction of this institute affect the investment attractiveness of Ukraine?

Sergii Androshchuk, senior associate, AstapovLawyers International Law Group

The Business Ombudsman is a “bridge” between business and government that promotes the protection of enterprise entities during the implementation of constitutional law on entrepreneurial activity, as well as protection from corruption and other forms of unfair behavior in the field of management.

The Council of Business Ombudsman has been in operation since November 2014, and its activities are determined by Decree No. 691 from 26 November 2014 of the Cabinet of Ministers of Ukraine On the Formation of the Council of the Business Ombudsman. In the preamble basic principles of the activity are determined, including: transparency of activity of bodies of state power, reducing the level of corruption and the prevention of unfair behavior regarding subjects of entrepreneurship. These principles are from broader wording also defined in the Draft Act On Business Ombudsman (draft).

After approval of the project the activity of the Business Ombudsman will be regulated at the legislative level. Unlike a Resolution, a project will allow the Business Ombudsman to act as a more effective advocate on behalf of business, have access to information and more comprehensive dialogue with the competent authorities. This will also make the acts of the Business Ombudsman mandatory not only for the authorities but for other persons.

Business refers to a Business Ombudsman with specific issues regarding abuse by the authorities, technical barriers that hinder business activities, illegal acts, actions of government bodies, etc. To acquire a critical mass of applications on a particular issue, the Business Ombudsman can initiate dialogue with government authorities and make changes in the relevant regulations. Now statistics show that with the advent of the Business Ombudsman a certain number of issues began to be addressed in the legal field.

By way of conclusion we can say that the Business Ombudsman is an institution that is interested in improving the investment climate in Ukraine, and in creating a business environment made up of fair rules. Information, including about the activities of the Business Ombudsman, can be an indicator for interested investors to carry out its activity on the territory of Ukraine.

Draft Act On Financial Police, No.4228 provides the establishment of Financial Police and liquidation of the Tax Police. What means on exposure, suppression and investigation of crimes in the formation and use of state financial resources, and in the field of economic security, can the new authority receive?

 

Vyacheslav Krahlevych, partner, FCLEX Law Firm

The Draft Act provides for the creation of a new law-enforcement agency called the Financial Police. It is a body whose function will be to investigate and solve crimes in the domain of formation and use of state financial resources and economic security.

The document defines the legal status and the powers of the body, etc.

In fact, the draft provides for the liquidation of the tax police, and for the creation of the Financial Police. That is, for the Implementation of the all-national concept of reformation of the State Fiscal Service of Ukraine, as of public service bodies without the law-enforcement function.

In my view, the proposed concept will not bring the desired results because such reform could lead to trivial changes of signage only, without the necessary reform of law-enforcement in this area.

So, along with the National Police, NABU, Security Service of Ukraine, Prosecutor’s Office, one more agency will be created, which will be authorized to investigate the same offenses as their counterparts. In addition, the activities of the said law-enforcement agency will, according to the text of the draft law, be coordinated by a non-sectoral (not law-enforcement) state institution, namely the Ministry of Finance.

So, I want to draw the attention of our legislators to the need to quickly create a single body that will carry out operational investigative activities and pre-trial investigation in Ukraine, that will involve respective units, whose activities will be focused on investigating and solving crimes in the sphere of financial resources of the state and economic security.

Otherwise, it will be a trivial change of names without any real fundamental change in the fight against criminal and administrative offenses in this area.

Draft Act No. 4203 envisages introduction of a criminal liability for circumvention from the distribution of impartial cases by the automation system of document control in courts. Does it solve the problem and allow the corruption element to be eliminated? Which additional mechanisms could be used to bring the automation system of document control into line with international standards?

Andrii Hvozdetskyi, associate, Spenser & Kauffmann

This draft proposes to criminalize bringing a lawsuit with several identical claims containing formal defects, in order to select loyal judges for the proceedings.

In my opinion, the respective amendments do not solve the problem. This does not apply to the issue of corruption, but it is the very disposition of the Criminal Code. When we speak about inaction by an office-holder of a court as actus reus, the following is important. While taking the original claim without evidence of payment of court fees or sending copies to the other party, the court office department carries out an act of incompleteness of claim. Thus, employees of the court office department are not committing criminal acts and are not the subjects of a crime. Another option is the actions of others (plaintiffs). While bringing several lawsuits, parties can add or modify the list of defendants or third parties, add other claims or circumstances. In this case, lawsuits will not be the same. Therefore, it will be impossible to prove the responsibility of the claimant or his representative for avoiding objective distribution of cases.

In addition, the same claims can be filed by different representatives of a legal entity. In fact, each representative will file only one suit, and there is no prescribed liability of legal entities by this clause.

In general, automatic distribution of cases is not a normal practice around the world. In many countries there are special bodies such as judge-administrator, who is authorized to distribute cases to other judges due to their specialization, workload and so on. In Ukraine, the switch from case distribution by chief judges to automatic procedure is another attempt to combat corruption by replacing people with machines. Responsibility for the violation, not the removal of causes and determinants, means not to remove the foundation, but to build a superstructure. This approach contradicts the logics of any problem-solving — the state is trying to introduce a mechanism to punish others for using legal loopholes which it created.

Draft Act No. 4057 On Amending the Criminal Procedure Code of Ukraine (in case of special aspects of recovery recourses to the state before adjudgment) puts the special confiscation procedure in place. Will the present initiative fight corruption effectively? What problems can arise in the course of practical application?

Vitaliy Serdyuk, Partner, AVER LEX Attorneys at law
Victoria Kirina, Attorney of Criminal Law Department, AVER LEX Attorneys at law

Draft Act No. 4057 in the version adopted by the Verkhovna Rada in the first reading (as well as numerous attempts to expand the basis for implementation of the procedure of special pre-trial investigation) should be considered not as an instrument to fight corruption, but as the negative tendency to “legalize” usage of the criminal process as mechanisms for eliminating political and business opponents.

Thus, while developing and adopting draft act No.4057 the principle of presumption of innocence and the principle of inviolability of private property were grossly ignored.

The potential target of the draft mentioned above are not only suspects whose guilt has not been proved in a prescribed manner, but also third persons (including bona fide purchasers) who have to prove the legal origin of the property in order to maintain it.

Taking into consideration the criminal proceedings in which such a procedure could be implemented (Article 191, 255, 368 of the Criminal Code of Ukraine) as well as the ingenuity of law-enforcement officials in building a version of the “involvement of third persons in the criminal scheme” without any evidence to confirm such version, a wide range of individuals could potentially be the subject of such a procedure.

The motion of the prosecutor on forfeiture execution without a court sentence may be considered in the absence of the defense and (or) a third person (his/her representative) as the owner of the property.

Moreover, it leaves an open question as to how a person whose property was withdrawn could protect his (her) violated rights in case when the acquittal is received after one year from the date when the so-called confiscation without court sentence was applied.

We support the opinion of our colleagues who believe that such a procedure could be justified in exceptional cases only within a real (not declarative) independent judiciary and impartiality of the law-enforcement system. That is, in conditions that are far from the Ukrainian reality. At the same time, the burden of proof of the illegality of the origins of the property while considering the question of its confiscation without a court sentence must be entrusted to the prosecution (not to the owner) in any case.

The main purpose of Draft Act No. 2897 On Amendments to Certain Legislative Acts of Ukraine on Introduction of Criminal Offenses is fulfillment of state policy on humanization of criminal liability. How can it affect the legal practice and work of criminal defense attorneys?

Sergey Protasov, senior associate, attorney at law, Trusted Advisors

Draft Act No. 2897 is a logical extension and an integral part of the reform of the law-enforcement authorities. It amends the Criminal Code, Criminal Procedure Code, the Customs Code of Ukraine and the Code of Ukraine on Administrative Offences.

A systematic analysis of the proposed changes suggests that the draft introduces significant changes to the existing institutions of criminal law and procedure as regards the classification of offenses punishable under criminal law, the introduction of new definitions for the classification of criminal offenses and crimes, the introduction of a simplified procedure of investigation of criminal offenses, partial decriminalization of certain unintentional crimes, introduction of two systems of criminal penalties — for committing crimes and offences and differentiated system of fines, which would be multiple “penalty” rates, and more.

From a practical standpoint the conclusions on draft No. 2897 can be made only after a period of application of the proposed changes, but it is clear that these changes almost blur the line between administrative and criminal offenses, abolish the concept of administrative violation, and will reduce the burden on the investigators which, to some extent, will increase the efficiency of their work, and introduce new mechanisms of freeing from criminal responsibility, which is actively used by defenders.

How can Draft Act No.4216 On Amending Certain Legislative Acts regarding Reaction for Unlawful Takeover and Despoilment of Commercial Entities affect corporate relations and the investment climate in Ukraine?

Pavlo Shovak, associate, Avellum

The Draft aims to restore the VAT position of agricultural producers, which they had prior to the last tax reform, and to provide equal VAT refund treatment for taxpayers.

As of 1 January 2016 the VAT payable under the special VAT regime for agricultural producers must be allocated between the taxpayer and the state in the proportions specified in the Tax Code. The draft proposes to reintroduce the right of special VAT payers to retain the entire amount of VAT payable on qualified transactions. In other words, it aims to return agricultural producers to the tax position as it was prior to 1 January 2016.

The draft also proposes to merge two Registers of Claims for VAT Refund. The first register includes claims of VAT payers compliant with criteria for automatic VAT refund (however, the wording “automatic VAT refund” is not used) and the second one includes claims of other VAT payers. Technically, there are no differences in the principles of functioning of the registers or some priorities between them. However, it is understood that claims from the first register are satisfied on a first-priority basis. Therefore, the merging of the registers may be viewed as the equalization of VAT payers in rights for VAT refund.

Subscribe
The Ukrainian Journal of Business Law

Subscribe to The Ukrainian Journal of Business Law right now and enjoy the most relevant issues on doing business in Ukraine on your device or in print.

All this for just USD 9.99 a month.

 

Subscribe now