THE TOPIC OF PUBLICATION: RESPONSIBILITY OF OFFICIALS №5 • OCTOBER 2009
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FRANKPLEDGE Nataliya PALIY, associate
On June 11, 2009 the Law of Ukraine «On the Liability of Legal Entities for Commitment of Corruption Offences» (the Law) was adopted. It takes effect from the date of its publication and enters into force on January 1, 2010.
UNEXPECTED LOYALTY OF THE ANTI-CORRUPTION LAW
Roman BLAZHKO, аssociate
In this year’s July, within the so-called «anti-corruption set of laws» the Law of Ukraine «On Amending Certain Legislative Acts on Responsibility 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 professional functions. Surprisingly, the Law No 1508 mitigates criminal responsibility for some offences committed by officials of companies belonging to the private sector of the economy (legal entities of
private law). Whereas until recently 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 authorities 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 Legal Entities of Private Law and in the Sphere of Professional Activity Connected with Rendering Public Services»), which stipulates milder punishment for official malfeasances committed 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 contains Article 235-1 («Abuse of Official Authorities») which is an analogue of Article 364 («Abuse
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of Power or Position»); Article 235-2 («Excess of Official Authority») which is an analogue of Article 365 («Excess of Power or Official Authority»); Article 2354 («Commercial Subornation») which is an analogue of both Article 368 («Bribe-Taking») and Article 369 («Bribe-Giving»).
The Law No 1508 mitigates criminal responsibility for some official malfeasances committed by officials of companies belonging to the private sector of the economy
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To illustrate the mitigation of the criminal responsibility for official malfeasances committed 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 December 31, 2009 provides for the said category of officials found guilty of abuse of position (with no aggravating circumstances) the maximum main punishment 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 pursuant to amendments made to the Code of Criminal Procedure of Ukraine (hereinafter – the «Code of Criminal Procedure») criminal proceedings on crimes envisaged by Article 235-1 («Abuse of Official Authorities») and Article 235-2 («Excess of Official Authority») of the Criminal Code, provided that those crimes caused damage solely to interests 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)
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.
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 following: the legalization (money-laundering) of profits, obtained illegally, 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 responsible 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 interested 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 representative 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 protection 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 necessary 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 applying penalties for each offence separately, determines the ultimate remedy for the number of corruption crimes by the way of absorption of less severe penalties by more severe ones. We can assume that the answer will be found by the court practice.
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LEGAL MONITOR
№5 • OCTOBER 2009
(Begining on the page №1) Therefore, the institution of criminal proceedings against the officials of the company belonging to the private sector 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, participants) 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 damage caused to this company by means of abuse of official authority or excess of official au-
thority without the willingness of its owners. Regrettably, the legislators 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 circumstances excluding criminal proceedings (circumstances under
RESPONSIBILITY OF OFFICIALS
which new criminal proceedings can not be instituted and criminal proceeding already instituted are subject to termination). As a result, one may encounter problems with regard to the termination of criminal proceedings instituted, by one or other reason, without the required consent of the company’s owners. It might
be the case if criminal proceedings were instituted before the Law No 1508 becomes applicable or at the moment when it was impossible to ascertain that damage had been caused exclusively to the given company.
wording ‘‘«uponTheapplication (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?
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Furthermore, it should be noted that 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. This ambiguous wording leads to nonclarity as to how to proceed in the event that several owners (shareholders, participants) hold interest in the company: whether the institution of criminal proceedings requires the consent
QUESTION-ANSWER 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
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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 anticorruption 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?
INTERESTING details The 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.
«Individual license of NBU» signed by head of NBU
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.
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from all co-owners, the consent from at least one co-owner (irrespective of the amount of interest he holds) or consent granted 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 provide for the mitigation of criminal burden put on businesses, which in the light of the ambiguity 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 enterprises. The greatest importance must be given to the provision allowing the institution of criminal proceedings subject to the consent of the company’s owners, which creates additional possibilities for companies with reference to the protection of their management from unjustified attacks of law enforcement agencies. Unfortunately, the level of legal technique employed by the legislators is far away from ideal, which might complicate the implementation of the favorable legal provisions into practice.
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.