New Legislation That Supervisory Boards of Ukrainian Entities Now Need to Know

Roman Hekalyuk

New Legislation That Supervisory Boards of Ukrainian Entities Now Need to Know

Just recently, on October 18, 2019, an amendment to Law of Ukraine “On Prevention of Corruption” came into force. This amendment claims to improve effectiveness of institutional corruption prevention mechanism.

 In this post I would like to provide my analysis on how such amendment affects supervisory board members of business entities with more than 50% shares owned by the state (supervisory board members).  

I. First of all, supervisory board members became subject to limitations of persons authorized to perform state duties. According to the amendment the “persons who are the members of supervisory board of a business entity, which authorized capital includes more than 50 percent of state-owned shares (participatory interest)”, are regarded as “persons authorized to perform the functions of the state or local self-government”. It means that such supervisory board members now received a set of prohibitions, restrictions and obligations established by the Law “On Prevention of Corruption”, the Code of Ukraine on Administrative Offenses, and the Criminal Code of Ukraine, in particular:

(1) The Law of Ukraine “On Prevention of Corruption”:

Article 23. “Restrictions on Receiving Gifts”;

Article 24. “Prevention of Receiving Undue Benefit or Gift”;

Article 28. “Prevention and Settlement of Conflict of Interest”;

Article 36. “Prevention of Conflict of Interest in Case a Person Owns Enterprises or Corporate Rights (Except for Independent Members)”;

Article 37. “Requirements for the Conduct of Persons”;

Article 38. “Compliance with the Requirements of Law and Ethical Standards of Behavior”;

Article 40. “Political Neutrality”;

Article 41. “Impartiality”;

Article 42. “Competence and Efficiency”;

Article 43. “Non-disclosure of Information”;

Article 44. “Abstention from Performing Unlawful Decisions or Orders”;

Article 45. “Submission of Declarations by Persons Authorized to Perform the Functions of State or Local Self-Government (Except for Independent Members of the Supervisory Boards Who Are Non-residents)”;

Article 51. “Monitoring the Way of Life of Subjects of Declaration (Except for Independent Members of the Supervisory Boards Who Are Non-residents);

Article 52. “Additional Measures of Financial Control (Except for Independent Members of the Supervisory Boards Who Are Non-residents)”;

Article 60. “Requirements for Transparency and Access to Information”;

Article 65. “Liability for Corruption or Corruption-Related Offenses”.

(2) Code of Ukraine on Administrative Offenses:

Article 172-5. “Violation of Restrictions on Receiving Gifts Stipulated by Law”;

Article 172-6. “Violation of Financial Control Requirements (Except for Independent Members of the Supervisory Boards Who Are Non-residents)”;

Article 172-7. “Violation of Requirements for the Prevention and Settlement of Conflict of Interest”;

Article 172-8. “The Unlawful Use of Information Made Known to a Person in Connection with the Exercise of Official or Other Authorities Stipulated by Law”;

Article 172-9. “Non-implementation of Anti-corruption Measures”.

(3) Criminal Code of Ukraine:

Article 366-1. “Declaration of False Information”.

Example 1. A supervisory board member fails to inform of a real conflict of interest or acts in a state of real conflict of interest while exercising his/her authorities, he/she is subject to administrative liability in the form of a fine and permanent entry in the register of persons who have been held liable for committing a corruption offense or a corruption-related offense.

Example 2: A supervisory board member receives a valuable gift from a business partner (who is not his/her close person) or another person interested in the loyalty of such a member of the supervisory board, the member of the supervisory board violates the restrictions on receiving gifts stipulated by Article 23 of the Law of Ukraine “On Prevention of Corruption” and must be held liable under Article 172-5 of the Code of Ukraine on Administrative Offenses.

II. Secondly, there remained some relief for independent members of supervisory boards, especially for those who are “non-residents”.  To remind, Ukrainian legislation distinguishes the following categories of officers: “a member of supervisory board” and “an independent member of supervisory board”. The differences are the following:

 (1)  the requirements of the article 36 “Prevention of Conflict of Interests in Case a Person Owns Enterprises or Corporate Rights” of the Law of Ukraine “On Prevention of Corruption” do not cover “independent members of supervisory boards”, and

(2) “independent members of supervisory boards” who are “non-residents are not subject to Section VII “Financial Control” of the Law of Ukraine “On Prevention of Corruption”. It means that such officers do not have obligations to:

- to submit a declaration of a person authorized to perform the functions of the state or local self-government;

- to inform the National Agency on Corruption Prevention about opening a foreign currency account at a non-resident bank;

- to inform of significant changes in the property.

To sum up, I highly encourage supervisory board members in entities with more than 50% of state-owned shares (participatory interest) to postpone all their urgent matters and immediately review the Law of Ukraine “On Prevention of Corruption” in order not to fall behind the expected standard of performance.

I trust this review is helpful for all Periscopers and until next time.

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Roman Hekalyuk heads Economic and Stuff Security Office in one of major state enterprise of Ukraine. Formerly Roman headed the Division on Corruption Detection and Prevention in one of the Ministries of Ukraine.

He got a Law, Finance and Public Administration degrees from Ukrainian higher educational institutions.

Roman is a Member of the Management Board of the Public Organization “National Anti-Corruption Compliance Association”.