New Business Crime Trends in Ukraine
The government has been continuing to implement the earlier-proclaimed policy related to harmonizing Ukrainian legislation with European standards and creating anti-corruption legislation. For the last few years, amendments to the Criminal Code, the Criminal Procedure Code, as well as other laws and regulations have been initiated to reduce pressure on business and improve the investment climate.
Despite the government taking such actions, the risks to doing business in Ukraine remain quite significant. This situation stems from the business sector (including foreign investors) lacking confidence in the Ukrainian judicial system and the system of law-enforcement agencies, and from the high level of corruption within the government. Notwithstanding positive changes in Ukrainian legislation, including decriminalization of certain types of offences, the risk of the government pressing on business remains significant. It is no secret that one of the main instruments of exerting pressure on business in Ukraine is via the actions by law-enforcement agencies in conducting pre-trial investigations within criminal proceedings.
As before, such pressure is exerted mostly within the investigation of so-called economic crimes, which enables the use of a wide array of procedural mechanisms to expeditiously block business operations and create the maximum number of problems for a business. Among the main economic crimes that are on radar of law-enforcement agencies, we would distinguish between traditional-type crimes (tax evasion, fraud, etc.) and new-type crimes, such as cybercrimes, crimes against national security.
We would not focus specifically on crimes related to violations of tax legislation and fraud, since one could easily find numerous publications addressing such crimes and there is a well-established practice of investigating them.
However, we would like to briefly highlight new “trends” in business crimes and their specific aspects based on the cases we have advised on.
Substantive articles on cybercrimes can be found mostly in Section XVI of Special Part of the Criminal Code of Ukraine, among which we would distinguish between the Articles addressing (i) unauthorized interference with the operations of electronic computing machines (computers), automated systems, computer or telecommunication networks (Article 361); (ii) creation of malicious software or hardware for use, distribution or sale, as well as their distribution or sale (Article 361-1); (iii) unauthorized sale or distribution of sensitive information stored on electronic computing machines (computers), in automated systems, computer networks or relevant media (Article 361-2).
Due to the most recent legislative changes, investigations under Article 203-2 of the Criminal Code of Ukraine (illegal actions on arranging for and holding games of chance and/or lotteries) grow in popularity, including investigations related to e-gambling resources.
It is also important to note that quite often Article 190 of the Criminal Code of Ukraine (Fraud) is the basis for opening criminal proceedings against IT companies or information/technology service providers.
Actually, IT companies suffer from claims by law-enforcement authorities, which include claims suggesting illegal collection of personal data or use of malicious software.
Customarily, the Regional Criminal Investigations Department or the Central Investigations Department of the National Police of Ukraine acts as a pre-trial investigation authority; however, an investigation team normally includes representatives of the Cyber Police Department and the Security Service Department for Counterintelligence Protection of State Interests in the Sphere of Information Security (Ukrainian acronym: DCIB SBU).
We know from past experience that quite often actions by these authorities create main problems for both IT companies and companies that are not necessarily technology providers. Quite often, the investigation involves searching both the company’s premises and the offices of its owners and top officers, while returning the seized property can be a time-consuming process.
Crimes against the fundamentals of national security
For this category of crimes, the situation is aggravated, since crimes under Section I of Special Part of the Criminal Code of Ukraine are classified as serious and especially serious, which increases the risks to business exponentially.
For example, in 2014 the Criminal Code of Ukraine was supplemented by Article 1102, which establishes criminal liability for financing actions taken to forcibly change or overthrow the constitutionally established state order, or to seize the powers of the government, or to change the boundaries or state border of Ukraine.
As a result, any business that is related in any manner to the temporarily-occupied territories is exposed to significant risks. Lately, law-enforcement agencies have been focusing more and more often on such activities, even where they do not violate Ukrainian law in any manner.
Actually, any economic activity in the temporarily-occupied territories has been the subject of deliberate attention by the law-enforcement authorities, especially by the Security Service of Ukraine.
The said Article establishes criminal liability in the following instances:
— financing of actions committed to change the borders of the territory or the state border of Ukraine in violation of the procedure established by the Constitution of Ukraine (Article 1102(1) of the Criminal Code of Ukraine);
— financing of actions committed to forcibly change or overthrow the constitutionally established state order, or to seize the powers of the government (Article 1102(2) of the Criminal Code of Ukraine).
The term “financing of actions” includes a fairly wide array of any economic activities; therefore the choice of this term does not seem successful. In particular, in the said Articles actions committed for financial or material support are the subject of financing. Thus, virtually any payment or delivery of goods or services to the territory of, for example, the Autonomous Republic of Crimea, would potentially be qualified by the law enforcement agencies under Article 1102 of the Criminal Code of Ukraine
However, in a real-case scenario any economic activity, whether undertaken by persons staying in the territory not controlled by Ukraine or by persons acting from Ukraine-controlled territory or other countries, is often qualified by law-enforcement authorities under Article 1102 of the Criminal Code. One of the main arguments for such qualification is that the making of any mandatory payments (taxes, mandatory charges, duties) as well as delivery of goods or services, for example, to the occupied territory of the Autonomous Republic of Crimea through an intermediary, are, in fact, material support of the unlawfully established public authorities and are used for these purposes.
By analogy, such actions could also be qualified under Article 109 and Article 110 of the Criminal Code of Ukraine, each of them establishing the criminal liability for actions aimed to forcibly change or overthrow the constitutionally established state order or to violate the territorial supremacy and integrity of Ukraine.
Thus, law-enforcement agencies increasingly “establish” signs of criminal offences committed by large investment and IT companies in order to focus their work around the economic activities of companies, which in turn leads to a deterioration of the investment climate in Ukraine and the allocation of a separate category of crimes called “business crime”.
Sergiy Smirnov is a partner at Sayenko Kharenko
Zlata Simonenko is a counsel at Sayenko Kharenko