The reaction in the legal and business community was mixed, but some lawyers criticized the contradictory nature of the law. Businesspeople are concerned about how the law will be enforced.

In passing the bill, Ukraine did not invent the wheel in introducing criminal liability for legal entities. The United States and many European countries have similar laws, including the United Kingdom. Some countries of the former Soviet bloc have also introduced them.

But in Ukraine, there are many fears associated with its introduction – fears of the unknown at this moment. According to the law, a company faces criminal liability for any of the following offenses:

laundering of illegally gained income;

use of funds resulting from illegal trafficking of narcotic drugs, psychotropic substances, precursors, poisonous or potent substances, or poisonous or potent medicines;

bribery of officials of other legal entities or persons providing public services, such as auditors, appraisers, notaries, arbitrators, etc.; and 

offer or delivery of improper advantages to an official and undue influence.

The crime must be committed for the benefit of the legal entity by allowing it to obtain undue advantages or evade legal liability – such as bribes to win a tender or to end a government inspection without sanctions.  

Such crimes currently envision a financial penalty of Hr 85,000 to Hr 1.275 million.

For serious crimes, such as involvement with terrorism, the law calls for the company to be liquidated under a court order and its property confiscated. However, the law exempts governmental authorities and bodies, social insurance funds and international organizations. 

Currently, only the person who directly commits the above-mentioned crimes is held liable. In a year, both the individual and the company will be brought to liability. For example, a director can be taken to prison and the company can be additionally fined for giving a bribe to win a tender. 

Risks for companies 

The law provides for penalties for this type of crime. In addition, crimes connected with terrorism entail liquidation and forfeiture of assets to the state. As a form of liability of legal entities, a penalty is envisaged by Ukrainian legislation. Thus, from our point of view there were no special reasons for introducing criminal liability specifically for these crimes. Instead, this liability could have been perfectly defined as administrative.

There is also another important risk. The law allows for seizure of the company’s property for the duration of the criminal proceeding, that is, before a court rules on the merits of the claim. This means that the company will not be able to comply with their obligations, such as paying wages and taxes during what could be open-ended investigations. Such a circumstance begs the question of how a company can cope with such accusations and stay in business. A court may acquit the company, but the firm may go broke before the final judgment is passed. 

Purpose of passing this law

The formal reason for passing this law is to comply with recommendations of the Council of Europe Group of States against Corruption known as GRECO, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) and a number of international treaties dedicated to fighting corruption and terrorism. 

However, none of them requires the specific introduction of criminal liabilities for legal entities. On the contrary, those recommendations allow for some flexibility on the issue of liability of legal entities, leaving it up to the principles of law of a particular country.

Traditionally, Ukrainian criminal law provides for liability of persons only if they are found guilty. Criminal liability for companies contradicts the principles of Ukrainian criminal law, particularly, the principle of personal and fault-based liability.

This bill received a bad review in a parliamentary committee as one that could “negatively affect Ukraine’s economy, namely, the reduction of investments, outflow of foreign capital and ‘shadowization’ of the economy.” The committee also concluded that there is a risk of it being used for criminal repression.

Galyna Zagorodnyuk is the legal director at DLA Piper Ukraine law firm.