Providing gifts when doing business is an appropriate way to show respect or gratitude and to build stronger business relationships. Public perception of gifts differs depending on a particular country or region, however, under certain conditions gifts might cause concerns notwithstanding distinctions in hospitality concepts. In particular, gifts to public officials (especially, those, making decisions that affect company business), require careful consideration to ensure their compliance with anti-corruption requirements.
Ukrainian law, like advanced anti-bribery jurisdictions (the USA and the UK), distinguishes between a gift and unjustified benefit, allowing the former and punishing for the latter. Similarly, to FCPA, Ukrainian legislation “does not prohibit gift-giving; but prohibits the payments of bribes, including those disguised as gifts” (Resource Guide to the U.S. Foreign Corrupt Practices Act by U.S. Department of Justice and U.S. Securities and Exchange Commission (the “FCPA Guide”). To comply with anti-bribery rules when providing gifts to public officials, a distinction between a gift and unjustified benefit has to be made.
The Law of Ukraine “On Preventing Corruption” defines a gift as “money or other property, advantages, preferences, services, intangible assets given or received free of charge or at the price lower than the minimum market price”. Unjustified benefit is defined as “money or other property, advantages, benefits, preferences, services, intangible assets, any other gains of intangible or non-monetary character that are being offered, promised, given or received without a lawful ground”.
Both definitions look alike, except for the following distinctions:
For a gift to be qualified as unjustified benefit, it should be given or received without a lawful ground (e.g., in order to impact the decision or behavior of a public official in favor of the company);
A gift might be given or received, while unjustified benefits might be offered, promised, given or received (e.g., offer or promise of an exotic trip to public official for certain actions is unjustified benefit, even if such trip did not take place);
A gift is of monetary nature only, while unjustified benefit might be of non-monetary form as well (e.g., a positive article in a newspaper, a job offer for a relative, etc.)
Interestingly, notwithstanding weak enforcement in Ukraine, number of unjustified benefit charges is quite high. State Court Administration of Ukraine reported that during first half of 2015 in the courts of first instance, 975 individuals have been prosecuted under Article 368 of the Criminal Code of Ukraine (acceptance of offer, promise or receiving of unjustified benefit by a public official) and 184 individuals - under Article 369 of the Criminal Code of Ukraine (offer, promise or provision of unjustified benefit to a public official). Total number of convicted individuals under Article 368 of the Criminal Code was 203 persons and under Article 369 of the Criminal Code - 76 persons.
Depending on the value, intent and circumstances, a gift to a public official might be treated as unjustified benefit and, therefore, expose a company or individual to liability for corruption. Such approach of Ukrainian legislator corresponds with the FCPA “gift test” requiring a gift (i) to be lawful or (ii) to be a reasonable bona fide business expenditure.
As the major distinction between a gift and unjustified benefit is unlawful ground of the latter, one of the legal tests for establishing whether a gift could be treated an unjustified benefit is legitimacy of giving or receiving such a gift. Moreover, intent matters not only for unjustified benefit been given or received, but also been promised or offered. According to Roman philosopher Seneca “a gift consists not in what is done or given, but in the intention of the giver or doer”. Therefore, it should be a responsibility of an individual or a legal entity to ensure that gifts to public official are not been given, offered or promised to improperly influence his/her conduct.
To be acceptable for public officials, gifts should correspond to generally acceptable hospitality concept in Ukraine. According to Methodic Recommendations of the Ministry of Justice of Ukraine “Preventing and Fighting Corruption in State and Municipal Bodies”, such gifts “include modest business gifts (souvenirs) and acts of hospitality (invitation for coffee or dinner) in order to establish good business relations and improve working relations”. However, the value of such gifts should not exceed one minimum salary as of the date gift acceptance (currently UAH 1218) - for a one-time gift; and two minimum subsistence levels for capable of working individuals as of 1 January of the year when the gifts were accepted (currently UAH 2436) - for gifts provided during a year.
Ukrainian legislation prohibits requesting or receiving gifts by public officials (i) in connection with fulfillment of functions of the state or municipalities; or (ii) from subordinates. Furthermore, according to Methodic Recommendations of the Ministry of Justice of Ukraine, in order for a gift to be acceptable for public official, it (i) should not be permanent; (ii) should not influence the decision making of such official and should not create an impression that such gifts might influence the decision making of such official. Even a symbolic gift of minimal value might be treated as unjustified benefit, if been presented in order to influence conduct of a public official. For instance, a pack of candies during office inspection, or a pen during a process of permit or license obtaining or prolongations might be qualified as unjustified benefit.
Additional safeguards related to provision of gifts to public officials (i.e. authorization requirements, reporting procedures, limitations, exemptions, etc.) might be determined by the anti-corruption policy of a legal entity. In particular, the FCPA Guide emphasizes that “as part of an effective compliance program, a company should have clear and easily accessible guidelines and processes in place for gift-giving by the company’s directors, officers, employees, and agents. Though not necessarily appropriate for every business, many larger companies have automated gift-giving clearance processes and have set clear monetary thresholds for gifts along with annual limitations, with limited exceptions for gifts approved by appropriate management. Clear guidelines and processes can be an effective and efficient means for controlling gift-giving, deterring improper gifts, and protecting corporate assets.”
Volodymyr Grabchak is a legal counsel with an international FMCG company, responsible, inter alia for anti-corruption compliance issues in Ukraine and Moldova. He got his law degree in Ukraine and LL.M. degree in the Netherlands.
Volodymyr is attorney at law admitted to Ukrainian Bar and a member of the International Bar Association (IBA).