Aim is to punish financial crimes withheavy fines, but jail still possible.
The move to decriminalize economic crimes – which took effect on Jan. 17 after lawmakers late last year adopted relevant legislation – has been hailed as a step toward international standards for Ukraine. Yet twists in the new laws could spell prolonged jail time for offenders unable to cough up cash for fines in a timely manner.
The rule of thumb in international practice is that monetary wrongs should be punished with monetary fines. A buck for a buck, if you will.
This was one of the motives behind recent changes to legislation decriminalizing a number of economic crimes that carried heavy prison terms in pre-existing legislation that dated back to Soviet days. Other factors motivating the changes included overcrowded prison cells and a need to fill up the budget coffers.
But tax truancy or negligence can still lead to sweeping streets or seeing the world through bars.
The decision to reclassify economic crime as administrative offenses marks an important shift in Ukraine’s business environment. According to a recent report by the Kyiv office of international auditing and accounting giant PwC, prison terms are no longer foreseen for such activities as tax evasion, faking bankruptcy or smuggling. On the flip side, fines have been increased considerably.
For example, while previously customs violations could lead to fines of around Hr 17,000, now they will equal 100 percent of the value of the goods (200 percent for repeat offenses), the report indicates. This implies that they could run up into the millions. Fines for tax underpayments have also risen considerably.
The fact that there seems to be no upper limit to the fines is very worrying for businesses. Indeed, a clause specifies that fines for serious offenses (above Hr 51,000) are to be equal to the income gained or damages caused.
This could mean that a company that was supposed to receive a payment from abroad but did not include it in its tax report, will be fined for taxes due and the sum of the transaction.
Yet it remains to be seen how the clause will be used in practice, explained Oksana Voznyuk, partner at AstapovLawyers, a Ukrainian law group which has expanded into the Russian market.
Moreover, the possibility of going to jail has not been removed, but rather simply delayed and limited to those unable to pay the fine. Thus, minor offenses can be turned into community service, at an exchange rate of Hr 17 per hour, though no more than two years.
Graver incidents can only lead to a prison term, with the current limit being set at 12 years. This concerns all unpaid fines above Hr 51,000, for which a day in prison will be worth Hr 130, once again with certain maximum periods.
“I don’t think it’s very good, because if you have money, you can pay. But if the person doesn’t have money and the fine is significant there is no other way but to be imprisoned,” Voznyuk said.
Meanwhile, some legal areas are still haunted by ghosts from the Soviet past. Customs regulations, for example, foresee the possibility of confiscating the means of transport used to smuggle goods.
This may seem logical at first glance, but does not stand longer scrutiny. Shipping companies, for example, handle thousands, if not millions, of containers. Even the most effective port authorities are unable to control more than 3 percent of cargo flowing through. Yet according to Ukrainian legislation, a giant vessel could be confiscated because its operators missed a single dodgy package.
While logistics companies say the rule is rarely used in practice, the Association of Ukrainian Carriers continues to criticize and lobby for the repeal of the rule, saying it presents an unnecessary burden for business.
Indeed, for international transporters, the potential risk will likely weigh in on the choice of a transit route. A country that promotes itself abroad as a strategic bridge between Europe and Asia should clearly look into this.
Nonetheless, some changes are purely positive. Ukrainian citizens, for example, will no longer face prison sentences for opening a bank account abroad without prior permission from the National Bank of Ukraine (the punishment is now limited to fines).
Thousands of Ukrainian students studying abroad, who routinely use local bank accounts to receive stipends and grants, are no doubt relieved.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].
