№5 • OCTOBER 2009 www.LP.ua

THE TOPIC OF PUBLICATION: RESPONSIBILITY OF OFFICIALS

Prepared by «LAVRYNOVYCH & PARTNERS» Law Firm The information contained herein is not a legal advice or clarification of the current legislation. The sole purpose of this information is to inform, but not to recommend or advise. If you need legal assistance or to be advised on the issues addressed in this brochure, please contact your legal counsel.

Roman BLAZHKO, аssociate

In this year’s July, within the

so-called «anti-corruption set

of laws» the Law of Ukraine

«On Amending Certain Leg-

islative Acts on Responsibil-

ity for Corruption Offences»

(the «the Law No 1508») came

into force. The law becomes

applicable on January 01,

2010 and provides for a range

of amendments regarding

responsibility of Ukrainian

companies’ management for

offences (crimes) committed

during performing their pro-

fessional functions.

Surprisingly, the Law No 1508

mitigates criminal responsibility

for some offences committed

by officials of companies be-

longing to the private sector of

the economy (legal entities of

private law). Whereas until re-

cently the officials of companies

belonging to the private sector

of the economy incurred the

criminal responsibility for official

malfeasances pursuant to the

same Articles of the Special Part

of the Criminal Code of Ukraine

(«the Criminal Code») that the

officials of state or municipal au-

thorities or companies belonging

to the state or municipal sector

of the economy, nowadays,

the Special Part of the Criminal

Code is supplemented with the

new Chapter VII-А («The Official

Malfeasances Committed in Le-

gal Entities of Private Law and

in the Sphere of Professional

Activity Connected with Ren-

dering Public Services»), which

stipulates milder punishment for

official malfeasances commit-

ted by the officials of companies

belonging to the private sector

of the economy. For instance,

the new Chapter of the Special

Part of the Criminal Code con-

tains Article 235-1 («Abuse of

Official Authorities») which is an

analogue of Article 364 («Abuse

of Power or Position»); Article

235-2 («Excess of Official Au-

thority») which is an analogue of

Article 365 («Excess of Power or

Official Authority»); Article 235-

4 («Commercial Subornation»)

which is an analogue of both

Article 368 («Bribe-Taking») and

Article 369 («Bribe-Giving»).

To illustrate the mitigation of

the criminal responsibility for

official malfeasances commit-

ted by the officials of companies

belonging to the private sector

of the economy, one can use

an example of abuse of power

or position. Section 1 of Article

364 of the Criminal Code which

will be applicable untill Decem-

ber 31, 2009 provides for the

said category of officials found

guilty of abuse of position (with

no aggravating circumstances)

the maximum main punish-

ment of restraint of liberty for

three years, while section 1 of

Article 235-1 of the Criminal

Code which will be applicable

starting from January 01, 2010

stipulates restraint of liberty for a

term of two years.

It worth mentioning that pursu-

ant to amendments made to the

Code of Criminal Procedure of

Ukraine (hereinafter – the «Code

of Criminal Procedure») crimi-

nal proceedings on crimes envis-

aged by Article 235-1 («Abuse

of Official Authorities») and

Article 235-2 («Excess of Of-

ficial Authority») of the Criminal

Code, provided that those crimes

caused damage solely to inter-

ests of the company belonging

to the private sector of economy,

may be instituted exclusively

upon either an application or

consent of its owner (co-owner).

(Please, read the page №2)

Nataliya PALIY, associate

On June 11, 2009 the Law of Ukraine «On the Liability of Le-

gal Entities for Commitment of Corruption Offences» (the

Law) was adopted. It takes effect from the date of its publica-

tion and enters into force on January 1, 2010.

The Law establishes the liability of legal entities for committing

crimes on behalf of and in the interest of such legal entity by either

its head, founder, member or other authorized person alone or

as an accomplice. The crimes encompassed by the Law are fol-

lowing: the legalization (money-laundering) of profits, obtained ille-

gally, commercial bribery, bribery of a person who provides public

services, misuse of powers or an official position, abuse of power

or official authorities, obtaining a bribe, offering or giving bribes,

interference in judiciary activity.

It should be emphasized that as the sentence accusing the head

of a legal entity, its founder, other authorized person or member

is announced, the prosecutor should instigate court proceedings

against such legal entity. The legal entity might be ordered to pay

a fine, stop particular activities, seizure of property or be liquidated.

Obviously, the liability of legal entities for corruption offences

can eliminate such situations when, for instance, front director

performs illegal instructions of owners and is criminally respon-

sible for these actions, while the legal entity and its owners only

receive profit.

However, we can also suggest other situations where the Law

will not protect interests of shareholders, employees or other in-

terested persons, particularly, in cases when a director commits

corruption without their consent. Hence in this case shareholders

would be liable for their person’s actions but in fact with their own

property.

Thus, despite of the positive and negative features of the Law,

it is essential to mention some points of practical application of

its provisions. A question arises concerning point 2 of section 1

of Article 13 of the Law, under which the participation of a repre-

sentative in the court proceeding where the liquidation of the legal

entity is sought, should be mandatory. The Law does not contain

provisions that would make possible further proceedings in case

of the absence of such representative.

According to section 8 of Article 21 of the Law, the decision of

the Court of Appeal in the case is final. Thus, on the one hand, the

impossibility of cassation speeds up the final settlement of such

cases but, on the other hand, it disables legal entities from protec-

tion of their rights.

Moreover, Article 2 of the Law states the liability of legal entities

only in case of committing a certain crime by relevant subjects

on behalf of and in the interest of the legal entity. It is imperative

to keep in mind that a connection between the interests of the

legal entity and criminal actions committed by its head, founder,

member or other authorized person is an essential component of

making the legal entity responsible. The court should decide this

issue by its Ruling (section 2 of Article 2 of the Law). It is neces-

sary to draw attention to the inherent difficulty of establishing such

connection.

In addition, it is problematic to suggest, in practice, how a court

will determine the balance of severity of penalties because the law

does not answer the abovementioned question. Article 8 of the

Law contains only a provision under which a court, while apply-

ing penalties for each offence separately, determines the ultimate

remedy for the number of corruption crimes by the way of absorp-

tion of less severe penalties by more severe ones. We can as-

sume that the answer will be found by the court practice.

UNEXPECTED LOYALTY OF THE ANTI-CORRUPTION LAW

FRANKPLEDGE

‘‘ The Law No 1508 mitigates criminal responsibility for some official malfeasances committed by officials of companies belonging to the private sector of the economy ’’

INTERESTING details

Prepared by «LAVRYNOVYCH & PARTNERS» Law Firm

№5 • OCTOBER 20092

THE TOPIC OF NEXT PUBLICATION: BANKRUPTCY

LEGAL MONITOR RESPONSIBILITY OF OFFICIALS

The information contained herein is not a legal advice or clarification of the current legislation. The sole purpose of this information is to inform, but not to recommend or advise. If you need legal assistance or to be advised on the issues addressed in this brochure, please contact your legal counsel.

(Begining on the page №1)

Therefore, the institution of

criminal proceedings against

the officials of the company

belonging to the private sec-

tor of the economy for abuse

of official authority or excess

of official authority resulted in

damage suffered only by that

company is subordinated to

its owners’ (shareholders, par-

ticipants) consent. In the other

words, the enactment of the

Law No 1508 is believed to

eliminate the situation where a

company’s management incurs

criminal responsibility for dam-

age caused to this company by

means of abuse of official au-

thority or excess of official au-

thority without the willingness of

its owners.

Regrettably, the legisla-

tors did not prove to be wordy

enough while amending the

Code of Criminal Procedure

and failed to amend Article 6 of

this code setting aside circum-

stances excluding criminal pro-

ceedings (circumstances under

which new criminal proceedings

can not be instituted and crimi-

nal proceeding already instituted

are subject to termination). As a

result, one may encounter prob-

lems with regard to the termina-

tion of criminal proceedings in-

stituted, by one or other reason,

without the required consent of

the company’s owners. It might

be the case if criminal proceed-

ings were instituted before the

Law No 1508 becomes appli-

cable or at the moment when it

was impossible to ascertain that

damage had been caused exclu-

sively to the given company.

Furthermore, it should be not-

ed that the wording «upon ap-

plication (consent) of the owner

(co-owner)» used by the legisla-

tors while amending the Code

of Criminal Procedure does not

have a leg to stand on. This am-

biguous wording leads to non-

clarity as to how to proceed in

the event that several owners

(shareholders, participants) hold

interest in the company: whether

the institution of criminal pro-

ceedings requires the consent

from all co-owners, the consent

from at least one co-owner (irre-

spective of the amount of inter-

est he holds) or consent grant-

ed in the form of the general

meeting of co-owners’ decision

adopted in accordance with the

established rules.

In sum, the amendments

made by the Law No 1508 pro-

vide for the mitigation of crimi-

nal burden put on businesses,

which in the light of the ambigu-

ity of the Ukrainian legislation

in accordance with which each

other act of the management of

a company may be qualified as

official malfeasances ought to

have a positive influence on the

development of domestic enter-

prises. The greatest importance

must be given to the provision

allowing the institution of crimi-

nal proceedings subject to the

consent of the company’s own-

ers, which creates additional

possibilities for companies with

reference to the protection of

their management from unjusti-

fied attacks of law enforcement

agencies. Unfortunately, the

level of legal technique em-

ployed by the legislators is far

away from ideal, which might

complicate the implementation

of the favorable legal provisions

into practice.

QUESTION-ANSWERThe ironic name. In

XIX century the bribes were

ironically called «the letter of

recommendation signed by

prince Hovansky» (see Mykola

V. Hohol «Dead souls»). The

reason is that starting 1818

prince Hovansky was the chief of

the state paper money bank who

signed all the paper moneys. It

should be noted that currently

the name «individual license

of NBU» is used with the same

meaning.

The scope of the «market». Pursuant to the

information of the World Bank

bribery around the world is

estimated at about $1 trillion.

Law making activity. In 1992 in Vatican the «World catechism»

was issued that prescribed tax evasion as a sin, along with fraud related to

business, falsifying checks, fraudulent accounting, corporate embezzlement,

bribery and corruption.

The first law. As the first law the regulation contained in the Moses’

Book of Exodus may be considered: Do not accept the gifts because the gifts

make blind those who can see.

«To stay with a nose». The famous proverb comes from the word

«nose» which is the abridged name for the polite form of the bribe – «prynis»

(means «to bring»). In case the bribetaker did not accept the «nose» it should

not be expected for the successful settlement.

Topical regulation. In Virginia, the Code of 1930 has a statute

which prohibits corrupt practices or bribery by any person other than political

candidate.

Address for your questions:

question@LP.ua

Elena TRAPEZNIKOVA, аssociate

Recent changes in Ukrainian legislation, aimed at

improvement of the mechanisms of struggle against

such dangerous social phenomenon as corruption,

include a great number of provisions, which raise

questions. We have tried to provide below our short

answers to some of the questions.

Which sanctions may be imposed on legal entities

after the Law of Ukraine «On Liability of Legal Entities

for Commitment of Corruption Offences» (hereinafter –

the Law) will enter into force?

According to the provisions of the new Law, private legal

entities can be punished by a court in the following ways: a

fine, prohibition to perform certain kind of activity; seizure of

property; liquidation of a legal entity. Prohibition to perform

certain kind of activity and liquidation of a legal entity can

be imposed only as a primary punishment, while a fine

and seizure of property can be imposed as a primary and

additional punishment. A fine can be set by a court from

1000 up to 15000 minimum revenues of citizens not levied

by tax.

Does the Law of Ukraine «On Liability of Legal

Entities for Commitment of Corruption Offences»

envisage any term over which a legal entity can be

punished for commitment of a corruption offence?

Yes. A penalty can not be applied to a legal entity in case it

has passed more than a year from the day of coming into

effect of the accusatory sentence regarding commitment

by the head of the legal entity, its founder, other authorized

person in the name and on behalf of such legal entity, any

of the crimes, envisaged by Article 209, part 1 or 2 of Article

2354, Articles 2355, 364, 365, 368, 369 and 376 of the

Criminal Code of Ukraine (hereinafter – CC), or from the

day of coming into effect of the resolution or ruling to close

the criminal case on certain legal grounds envisaged by the

Law. The court proceedings regarding legal entities can

also be initiated in case of rejection of initiation of criminal

proceedings in certain cases, envisaged by the Law.

Which status is given to auditors, notaries, experts,

appraisers, arbiters and other persons rendering

professional public services according to new anti-

corruption legislation?

The new Section VII-А «The Crimes in the Sphere of Official

Activities of the Private Legal Entities and Professional

Activities Related to the Rendering of Public Services»,

which was included to the CC, envisages certain legally

defined crimes connected to professional activities related to

the rendering public services by auditors, notaries, experts,

appraisers and other persons. In particular, taking into

consideration the specificity of the status of such persons

and the peculiarity of their professional activity, from now on

the CC envisages separate articles «Abuse of authority by

persons rendering public services» (Article 2353 of the CC),

«Bribery of a person rendering public services» (Article

2355 of the CC). The mentioned Section VII-А of the CC is

entering into force on January 1, 2010.

Is it possible to state that new anti-corruption

legislation envisages the minimal amount of a bribe or

an object of commercial bribery?

Is it possible to institute administrative proceedings

against officials of the subjects of economic activity for

corrupt practices?

Is a private legal entity obliged to dismiss an official,

that was made answerable for commitment of an

administrative corruption offence?

‘‘ The wording «upon application (consent) of the owner (co-owner)» used by the legislators while amending the Code of Criminal Procedure does not have a leg to stand on? ’’

«Individual license of NBU» signed by head of NBU