Active reform of the law-enforcement sector and the liberal atmosphere in the country has led to a reduction in pressure on business by law enforcement agencies, in comparison with previous years.
The Prosecutor's Office has lost the function of general supervision. Previously, that function was a powerful lever of corruption and means of pressure on business. In most cases, the general supervision function was used to create barriers to legitimate activity of legal entities.
Bankruptcy of a large number of banks was a significant factor for increased activity of the investigating authorities. State of insolvent banks assets, their transactions, proper use of refinancing funds issued by the National Bank were under the scrutiny of law enforcement bodies. Some debtors of insolvent banks were trying to get away from their commitments, taking advantage of the situation. In such cases, legal methods were used not always and that triggered a series of criminal investigations.
Against the background of reduction of direct abuses, we note increase in professionalism of Ukrainian investigators majoring in the field of economic crimes.
What should paid attention to by owners and top management of business companies to avoid risks of criminal investigations while exercising their legitimate entrepreneurial activity?
Here, I will mention the most common mistakes made by owners and management of companies.
Execution of contracts and other transactions in violation of the law.
When concluding a transaction, even a minor violation of the law can be interpreted by the investigator as the intent to commit a crime (e.g. theft, misappropriation).
It should be noted that such a situation may occur in two cases. The first case: when one of the parties to the contract has declared, acting not always in good faith, about commitment of a crime as a result of such transaction. The second case: the damage has been caused to the State.
Often, law enforcement officers commence inquiry and active investigations before confirmation of the real damage caused. As a rule, they do not examine the causal link between the breach of such legislation and the damage. They use expertise as a proof for damages.
It happens the most in cases where "the State" represented by a state-owned enterprise, is a party to the contract.
Also, such a situation is possible in disputes with banks. For example, during execution of a loan agreement, bank informally "turns the blind eye" on the borrower’s minor violations in provision of the pledge. But the formally permitted violations will become grounds for the bank’s criminal prosecution of the borrower, if the borrower has stopped repayment of the loan.
Failure to comply with corporate procedures. Actions beyond competence.
The tradition of doing business in Ukraine does not provide much attention to issues of corporate decision-making needed to complete transactions. Often, management decisions are made "on trust", with the subsequent execution of appropriate corporate documents, and sometimes even without it.
Such features of business practices are quite common, and by themselves, they do not entail any negative consequences until the conflict situation has not arisen. As described above, such risk is realized if a person, interested in the revision of the contract, has appeared. Typically, such a person is a party to the transaction, which has decided to "settle", that is to review, the contentious relationship with the help of criminal procedural methods.
In this case, it comes to taking management decisions (to make a deal) without proper authorization. This fact, by itself, is not a crime, but the investigating authorities in this country tend to consider such action as a constituting element of theft or misappropriation.
The most dangerous by their consequences for the top management of the company, is the case where the conflict "the owner - top manager" is available. In such situation, the owner (shareholder) may deny any oral permission and argue that all the actions of management have been carried out without the owner's will.
One should be treated with great care to execute a decision to make a deal or other corporate decision "post factum". Modern tools of forensic examinations allow to determine the time of signing the document and stamping a seal on it within a period of few days. Such actions as putting down "past" dates on documents, could be qualified as a forgery.
In this case, we do not recommend you trying to pretend that the documents have been signed six months or a year ago, but use the instrument of post-approval - a situation where of the higher governing body of the company (General Meeting or Supervisory Board) confirms the management decision, which has been adopted earlier.
Transactions with the state.
It should be noted that according to the existing law enforcement practice, even honest business with "state" has an extremely high risk of criminal prosecution. In the opinion of Ukrainian law enforcement agencies, all transactions involving public interest are corrupted and unlawful.
The State Financial Inspectorate, which main function is checking effectiveness of use of the state resources and assets, "accompanies" actively the investigators in such cases. Often ill-founded conclusions of the Inspectorate give start to criminal investigations; they are, according to investigation officers’ opinion, irrefutable proof of illegal actions.
Investigations regarding actions of government officials and management of public companies beat as boomerang by their counterparties, private companies.
If you do not want to give up doing business with public companies, you have to pay the maximum attention to the legal purity of such transactions, and you have to lay down costs for lawyers and other legal costs in the future price of the transaction.
Dealing with companies with fictitious
We should distinguish between two types of companies with fictitious.
The first type is a so-called “classical” fictitious company. Companies which are established in order to ensure tax evasion, in other words –“tax holes”. Using the “services” of such company is fraught with not only the tax consequences, but also criminal ones. Electronic accounting systems of tax service make possible to see transactions with such companies, in fact online. Therefore, summons for questioning by results of work with such company is just a matter of time.
The second type is more "complex". Business of the company and a deal itself are real, but the form of such a business of your partner is fictitious. In Ukraine, there is still a practice of registration of company in the name of real owner’s relatives or appointment of a person, who does not actually manage, to be a formal director.
Reasons for this registration are different, beginning from traditions and unwillingness to "show" a real owner to attempt to avoid corruption charges, if an owner has to do with power. And again, in spite of the reality of this business, such company can also be classified as fictitious.
How to avoid the risk of being accused of working with such a company? How not to take the risk of inferiority of "shape" of your contractor’s business?
You should demand higher clearance of transactions with your business partners.
To achieve director’s personal involvement in a deal, rather than through representatives. Additionally, to obtain a written consent to a deal/transaction given by the owner of the company or the Supervisory Board (if any). The purpose of such actions is to prove that the decision on the deal is made by the director, as well as the availability of the business purpose of such an deal/transaction and its economic feasibility.
Summing up the past few years, we highlight the following trends in the WCC:
- Pressure/impact on the business by law enforcement agencies has declined. The level of professionalism of criminal investigations in the field of economic crimes has increased;
- Reforms of law enforcement agencies do not provide their own results. The practice of unlawful interference of law enforcement agencies in the business remains.
( based on the materials of "Ukrainian Law Firms. A Handbook for Foreign Clients" )