Ukraine’s business ombudsman, Lithuanian-born Algirdas Semeta, is getting results.
He and the body he heads, the Business Ombudsman Council, as of May 1 had launched investigations involving 60 percent of the 799 complaints they received since starting investigations in May 2015. Of these, 341 cases have been resolved; in some cases state officials were dismissed.
“For me the most important thing is implementation, because what I think Ukraine lacks is actual implementation in many areas,” Semeta told the Kyiv Post during an interview at his office in Kyiv’s Podil district on May 11. “I insist on the thorough implementation of our recommendations, and we don’t stop monitoring until we see that the recommendations we make are implemented.”
The council has already overseen cases involving a total sum of Hr 3.5 billion ($140 million). This included ensuring that value-added tax refunds are paid out and canceling unjustified fines by tax authorities.
Tipping point
Semeta says there are two key indicators that will show whether Ukraine’s business climate is finally tipping from bad to better – tax administration and law enforcement.
“If significant improvements are made in these two areas, we’ll be able to say that Ukraine has made significant progress in improving its business climate,” Semeta said.
But if no progress is made in these two areas, advances in other areas will be cancelled out, he warned. “Even if the National Anti-Corruption Bureau and anti-corruption prosecutor do a perfect job, if a case fails in the courts, it means that nothing is happening,” Semeta said.
The Lithuanian has experience. Before becoming ombudsman, Semeta worked as European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud. He was also Lithuania’s finance minister from 2008-2009.
“When I was a European commissioner I studied a lot of materials about developments in Ukraine, so I was familiar with what’s going on in Ukraine,” Semeta said. “What happens in Ukraine will actually have an influence on the future development of Europe, and I think even globally. I think it’s extremely important that Ukraine becomes a success story.”
While it’s too early to say how the story will turn out, Semeta is hopeful.
“I wouldn’t be too pessimistic about what’s going on in this country – you have to look at the number of reforms and the scope of reforms that have already been implemented,” Semeta said. “They really do look impressive – for any standard democratic country it would be a lot.”
However, after neglecting corruption and institution-building for 25 years of independence, Ukraine has so much to change.
Quick fixes
One quick fix would be to set up a clear system of internal but independent controls that would effectively monitor the work of tax inspectors and administrators.
“If they do something wrong, this internal structure would step in and impose disciplinary sanctions,” Semeta said. The current disciplinary structure is not independent of the tax administration.
Another step would be to cut the number of civil servants in state fiscal services. Ukraine still has more than 35,000 tax inspectors, even after their numbers were cut by a third by former Finance Minister Natalie Jaresko.
“By creating efficient procedures and hiring some new staff they would be able to achieve the same or even better results than they do now,” he said.
Criminalization of business
Semeta also aims to level the playing field between business and the authorities. All too often, businesses in Ukraine find themselves under criminal prosecution, facing heavy fines and confiscation of equipment, stopping work.
“What we propose is that the fiscal service should not open a criminal investigation until the administrative appeals process is finished,” Semeta said, adding that financial penalties are often disproportionate to the seriousness of violations.
“The criminalization of business is a really serious problem in this country.”
The council proposes to include independent experts in the appeals process.
Right to a defense
Semeta also wants the threshold at which a criminal case can be opened to be increased – right now it is only about $29,000.
And businesses that do end up fighting a criminal case should have more ability to defend themselves. For one thing, video recordings of searches of business premises should be admissible as evidence, although there is a lot of resistance to this coming from law enforcement agencies.
“Another simple proposal is not to allow the withdrawal of computers from businesses,” Semeta said.
In one case, a medium-sized company was accused of unlawfully dismissing an employee.
“During the criminal proceedings, investigators arrested and withdrew all of the company’s computers,” Semeta said. “But there are much more intelligent ways to satisfy the needs of the law enforcement agencies and at the same time not disrupt the activity of a business.”
Another case involved the two or three owners of a small business, a shop, who came into conflict with the local authorities. Officials installed a traffic barrier to block entry to the business.
“This was done completely without justification, and it appeared that local officials were simply acting in the interests of their own businesses,” Semeta said.
Helping the little guy
His team is particularly attentive to small businesses, as large ones usually have the means to hire a lawyer and defend themselves. In fact, most complaints come from small and medium businesses: only 20 percent come from large ones.
Most of the complaints regarding abuse of monopoly are connect with oblenergos, or regional power companies.
“Generally speaking, access to electricity is a big issue,” Semeta said. “Every region I go to, businesses complain that this is a really huge problem.”
Other complaints have involved major state-owned enterprises such as water supply company Kharkiv Vodokonal, railway monopoly Ukrzaliznytsia and Kyiv’s Boryspil International Airport.
New relationship
On the plus side, the council has signed a memorandum of cooperation with State Fiscal Services. Since then, more than 70 percent of the ombudsman’s recommendations have been followed by the agency.
But problems remain with tax administration. Semeta’s team complied a report on flaws and proposed solutions. But only a few recommendations have been implemented.
The Business Ombudsman Council will next lobby Finance Minister Oleksandr Danylyuk. “We will push him hard to really renew work on the tax code, with a particular emphasis on tax administration,” Semeta said.
Future plans
The council is funded by Denmark, Finland, Germany, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States. But Semeta hopes that the Ukrainian state and business will become donors as well.
The budget of the Business Ombudsman Council is 1.5 million euros ($1.67 million) per year. So far there are 15 people on Semeta’s team, but the plan is to hire seven more. One of the council’s big advantages over the state is the ability to pay living wages. Semeta would not say how much his employees are paid, but said that the sums are compatible with Ukrainian private sector salaries.
While the work is demanding, Semeta said he wants to stay on in the job after his first two-year term is up. And he hopes that eventually Ukraine will even be in a position to teach its neighbors a thing or two about how to combat corruption.
