“A legal entity may appear in a trial with the status of a person to whom the measures of criminal law are applied should its authorized representatives commit any criminal offense” — Angelika Sitsko, partner at Gvozdiy & Oberkovych Law Firm warns.
What recent changes in criminal law of Ukraine would you single out as the most significant?
Things have been eventful in Ukraine of late. It started back in 2012, when the country expressed its desire to radically change its criminal procedural law by openly declaring that it wishes to abolish Soviet fundamentals when state interests were above human rights and the interests of persons involved in criminal proceedings.
The country adopted a new Criminal Procedure Code (CPC), which definitely had to change the approaches to investigation and to provide general European principles of criminal proceedings which, among other things, include inviolability of property rights, adversarial fair legal process, enforcement of the right to challenge procedural decisions, acts or omissions and the setting of reasonable time limits for investigation and trial.
The provisions of the new code are aimed not only at protecting the interests of an individual, but also at protecting the interests of a legal entity if it is involved in criminal proceedings.
And so, after two and a half years the provisions of the adopted Code are implemented in practice. However, the question of what exactly has changed in terms of the interests of a legal entity, remains topical. Business people are interested what should a legal entity know in criminal proceedings and what risks the CPC of Ukraine poses for their activities.
What are the most typical issues of criminal law that businesses in Ukraine are concerned about?
Until now only an individual was a subject of criminal responsibility in Ukraine. But a legal entity may also appear in a trial with the status of a person to whom the measures of criminal law are applied should its authorized representatives commit any criminal offense, the exhaustive list of which is set out by the Criminal Code of Ukraine (propaganda of war, conduct of aggressive war, sale or transportation of weapons of mass destruction, corruption offenses for the benefit of a legal entity, etc.).
In criminal proceedings a legal entity may act as a claimant, and if the criminal offense caused any material damage even as a victim. Furthermore, the legal entity may be a civil plaintiff or civil defendant.
In addition to involvement as a direct participant, the legal entity may be involved indirectly. Typically, this takes place when the legal entity carries certain information and has in its possession any evidence required for the investigation. It is not excluded that as part of criminal proceedings against certain contractors, law-enforcement officers may also check the legality of activities of other legal entities. There are a number of cases when law officers unlawfully interfere with the activities of legal entities under the cover of existing criminal proceedings which have no relation to such legal entity.
The current Code provided legal entities with a sufficient tool to protect their interests in criminal proceedings. Yet, such instruments should be wisely used with the participation of professional advisers, as the specifics of the criminal proceedings are significantly different from other processes, whether civil, economic or administrative, in which the legal entity is frequently involved. In addition, the criminal process associated with more stringent measures to enforce criminal proceedings that may adversely affect the entity’s economic activity.
How often does a legal entity act as a victim in Ukraine?
Quite often business owners who vested the company’s top management with absolute trust barely control their activities. As a result, unscrupulous managers may abuse such trust and use the company’s assets for their own enrichment.
To do this, managers register companies in the name of the controlled entities, to which, by virtue of fictitious sale operations, the funds are withdrawn from the company and valuable movable and immovable property is transferred to the ownership virtually on a free-of-charge basis.
Managers may also attract controlled companies - intermediaries through which current assets shall be purchased at a price significantly higher than the current market price.
There are cases of banal theft, resulting in the disappearance of significant amounts of property.
What measures would you recommend to prevent this?
Naturally, it is wise to prevent any possible theft by introducing continuous monitoring, first of all by involving “compliance” specialists.
But what should be done if the theft did actually take place and the owner found out about this? It is clear that most people would file a statement with law-enforcement officers and rely on their professionalism in holding the perpetrators liable and returning the lost assets.
At first glance this is the case and the company makes its way in the right direction. However, this is only in terms of filing the statement with law-enforcement officers. The company must realize that such categories of cases always have both, a perpetrator and a victim, with their different views of events. And each of these parties shall provide convincing arguments to confirm the positions that are voiced. If one party is active, and the other is inactive in pursuing its interests, as practice shows, the active participant will prevail. Thus, in most proceedings with the economic component, actus reus depends directly on the subjective attitude of the victim to events (fraud, appropriation of another's property through abuse of office, etc.). In addition, in some cases, law-enforcement officers have no authority to return the property, as this can only be done only by a court of law. For example, in the case of illegal transfer of title to immovable property to a front company, the former owner has to prove in court the illegality of the transfer of title, accompanied by the committing of penal acts by a hired employee.
As noted above, a legal entity suffering material damage caused by a criminal offense may receive the status of a victim. The key here is the “possibility”, and not the obligation. Failure to carry out certain actions to obtain this status may lead the legal entity to not being involved in criminal proceedings and deprive it from the possibility to affect its further continuation.
A legal entity that is a victim may be represented by its proxy, which may be its director, or any other person authorized by law or the company’s documents, an employee of the legal entity by virtue of a power of attorney, and a person who has the right to defend it in criminal proceedings, namely an attorney-at-law. No other persons may take part in the proceedings.
After obtaining the status of a victim the legal entity shall be able to have its own status in the case, request that law-enforcement officers perform procedural and investigative actions and to collect evidence independently, including the initiation of expert examinations and presentation of evidence collected personally to the prosecutor.
A legal entity that is a victim takes part in the proceedings with the right to appeal court rulings.
Does a legal entity have any right to join other persons’ criminal proceedings?
Until this time in Ukraine there is an established illegal practice of law-enforcement officers to collect information on the legal entities in the course of existing criminal proceedings.
We refer to the cases where law-enforcement bodies are sending requests to a legal entity, and sometimes also injunctions requesting information and evidences in criminal proceedings, which has no relation to activities of this legal entity.
Legal entities providing the required information and pieces of evidence on such dubious requests in future may become a subject of different inspections of economic activities, the findings of which become the grounds for registering criminal proceedings concerning activities of the entity being inspected.
Unfortunately, in Ukraine the law-enforcement officers do not always have an independent position. As we can see from the public register of court judgments, a large amount of findings made by inspectors are not accepted by a court. The rendering of a court judgment, however, takes more than one month, and throughout this period of time the company is involved in criminal procedures: searches, examinations, repeated calls of employees for questioning, seizure, etc.
The importance of professional legal advice is of major importance for the legal entity, which is party to criminal proceedings, and essential for the proper defense of its best interests.
A legal entity’s assets may be temporarily seized as part of the criminal proceedings of "other persons", and this may complicate its activity. This happens when, for example, a part of a warehouse is leased, and the owner is in legal trouble. Law-enforcement officers who came with a search warrant may temporarily seize the assets/warehouse, even without identifying the legal owners. The court may, in its turn, also arrest the property without even calling in the owner, which is absolutely permitted by the current CPC.
As a result, access to the property will become impossible, and the operations related to circulation of the seized property may be paralyzed. Adequate knowledge of criminal procedural law in such cases is vital.
When can a legal entity act as a subject of criminal law measures?
As mentioned previously, a legal entity may receive the status of a participant in criminal proceedings if certain offenses are committed by the specifically defined subjects. Despite the fact that an individual remains the subject of criminal liability, such penalties as a fine, confiscation of assets and liquidation may be applied against a legal entity too.
A fine and mandatory winding up may be applied against legal entities only as principal measures of criminal law, and confiscation of property only as supplementary measures. In applying measures of criminal law the legal entity shall be obliged to compensate in full for the losses and damages caused and the received amount of undue benefits that is obtained, or could be obtained, by the legal entity.
At the same time, the court shall apply a fine that is double the sum of the illegally obtained undue benefits.
The lawmaker allows a legal entity to actively defend its rights through a representative, including a licensed attorney-at-law.
To sum up the above, it should be mentioned that at the moment legal entities can hardly operate without adequate legal support. Only awareness of their rights and timely measures to protect their best interests can prevent unlawful acts against legal entities from both employees and law-enforcement officers.
By Angelika Sitsko, Partner, Gvozdiy & Oberkovych Law Firm