Special Confiscation: Emerging New Business Risk?

In this post I would like to brief you on the (1) history of special confiscation in Ukraine and (2) assess business risks connected to it.

(1) After the Revolution of Dignity the Ukrainian government took an obligation to implement new anti-corruption measures in order to get tranche from the International Monetary Fund. One of these measures was providing of the special provisions regarding the recovery of stolen assets. It means that Ukraine should establish a special procedure of property confiscation (special confiscation). The international community promised to help Ukraine with extraordinary assistance and support towards the recovery of stolen assets.

The European Union, Switzerland, Liechtenstein and the United States imposed personal sanctions on ex - top political leaders of Ukraine, which allowed their assets abroad to be frozen. As a result, this gave Ukrainian law enforcement agencies time to prepare grounds for their seizure and recovering.

As per Ukrainian Criminal Code special confiscation is a pre-verdict compulsory uncompensated seizure, by the court to state ownership, of money, valuables and other property in the course of investigation of such crimes as receipt of unfair benefit, abuse of power or official position, abuse of influence and few other crimes.

Unfortunately, this procedure initiated against former top officials is under risk because Ukrainian law enforcement agencies appear to be not capable to properly prove any guilt and, as a result, until today we do not have accusable sentence for them. From January to July Ukrainian law enforcement agencies officially recovered as much as UAH 7,865, or less than EUR 314, in proceeds from corruption crimes.

(2) As per Ukraine’s commitment, in order to liberalize EU visa regime for Ukrainians, our Parliament promised to adopt an effective law which should have helped Ukrainian law enforcement agencies to recover stolen assets. However, the proposed bill by the Cabinet of Ministers is not only useless to achieve its purpose, it creates a huge risk window for the business.  To give you a sense of what I am talking about, the bill introduces possibility of special confiscation, for example, for such crimes as: violation of copyright and related rights (art. 176);  smuggling (art. 201); illegal use of a trademark for goods and services, company name, qualified indications of origin (art. 229); illegal hunting (art. 248); smuggling of narcotics, psychotropic substances, their analogues or precursors or counterfeit medicines (art. 305), and more. Without any deep analysis such strong and unreasonable powers can harm the business significantly, given the fact of reported continuation of the illegal practices of law enforcement authorities.  

In case of adoption the law will allow for the government to appropriate all assets of the company whose general manager is suspected in any of the crimes discussed above. For this, standard prosecutor application and judge’s ruling is required. Given the current context and prior practices I feel that the law may be used to harass the business.

According to reality of Ukraine, where fixed failure of the judicial, prosecutorial reforms, it is astonishing that Ukrainian government decided to propose a strong and powerful instrument in the hands of corrupt prosecutors and judges.

To deepen the understanding, here is the hypothesis. A Ukrainian company (LTD ABC) decided to import biological products from Germany and supplied them to customs office in Ukraine where customs officers found some mistakes in a document and reported about possible crime to Ukrainian law enforcement agencies. Competitors found out about these mistakes and, using illegal scheme, agreed with the prosecutor to accuse the head of LTD ABC and use special confiscation of all these products. As a result, the general manager of the company is under investigation, all products are confiscated, and competitor is free in his action to can buy these products on public bids at a reduced price. It is a very simple screenplay with the use of this dangerous legal instrument special confiscation.

Another issue in the bill which dragged my attention is that special confiscation can be used to minor and moderate severity crimes. This would mean introducing manifestly excessive criminal repression for people and business. If the Parliament adopts this draft law, it may lead to unjustified mass violations of property rights of individuals and legal persons not actually involved in committing the crime.

Lastly, the government simply forgot to provide a procedural status and rights for people and legal individuals concerning which special confiscation to be used.

Analyzing these facts and actions by the Cabinet of Ministers, we can say that it deserves “D” for its homework because without guarantees for business, without balance between government’s and person's interests in carrying out the procedure of special confiscation, there cannot be a democratic country.

 

Zlata Symonenko is an attorney assistant at a leading law firm practicing law in the area of white collar crimes. She consults inter alia on issues of corruption crimes, including money laundering, smuggling, tax evasion and fraud, as well as crimes against government services and state and municipal authorities. She develops and executes defense strategies for protection of her clients against illegal activities of public authorities.

In addition to her legal practice, Zlata as an expert is involved in drafting amendments and supplements to the Criminal Procedural Code of Ukraine and other laws.

Zlata graduated from Taras Shevchenko National University ofKyiv, law faculty.