Business and law enforcement

Top 5 Tips: How to protect business from the risks posed by Ukrainian law enforcement activities

Business and law enforcement
About the author: Denys Bugay is a Partner and Head of the White-Collar Crime Practice at VB PARTNERS
Denys Bugay
Tuesday, 10 March 2020 14:45

During each new Ukrainian election cycle, the various candidates typically promise to reduce the pressure on business. The electorate is told that law enforcement officials will focus on fighting crime rather than searching office complexes. Every new president promises to liquidate the economic unit of Ukraine’s State Security Service, and emphasizes that security organs will  be restricted to issues of national security. Other popular but empty promises include commitments to liquidate the tax police in its current format and transform it from a law enforcement agency into an analytical service.

In recent years, the authorities have sought to diminish the appetite for corruption within law enforcement agencies by adopting two packages of laws dubbed “Stop-Mask-Show” I and II in reference to the balaclava-clad raids on business premises they are attempting to limit. While this legislation has had a positive effect on relations between law enforcement officials and the business community, The overriding goal of a fundamental change in the relationship has not been achieved. Instead, some investigators, prosecutors, and judges continue to misapply these laws and use criminal proceedings to pressure businesses. With little hope on the horizon of any dramatic improvements, businesses operating in Ukraine need to shape their outlook on the understanding that law enforcement officials may interfere in their activities. With this in mind, there are a number of measures that can help reduce the potential impact of law enforcement on business.   


1. Determine Potential Risks: A sensible business model includes efforts to determine the risk of unwanted entanglements with law enforcement agencies. Past experience and analysis of law enforcement practice can provide valuable insight. The actions of investigators tend to be standardized. Key areas of interest are easy to identify, regardless of the authority. These include cash transactions, operations with fictitious companies with no clear business purpose, outsourcing of staff, and so on. Businesses should seek to analyze their processes from the outside and through the eyes of an investigator in order to highlight any potential issues. This analysis should be used to adjust business models in order to reduce criminal risks.   


2. Seek Expert Assistance: Companies should be wary of relying exclusively on in-house resources to address issues with law enforcement. An experienced lawyer not only understands the psychology of investigators, but also knows their methods and can plan suitable next steps ahead of time. They also possess the requisite psychological resilience and immunity to aggressive investigators. My personal experience shows that an ability to remain calm and demonstrate a lack of emotional reaction is an important factor allowing you to focus on the key issues. This can help to shape winning strategies and neutralize adverse impacts.  


3. Do Not Wait Passively: If you are subject to a ruling or otherwise informed of an investigation, do not wait for your “guests” to arrive. Instead, begin your own proactive investigation. Professional analysis of the initial stages of an investigation will allow you to forecast its future direction with 99% accuracy. Lawyers can analyze any inquiries in detail. They can identify the range of issues involved, examining open sources and court rulings to determine the nature and scope of the investigation. Other steps include compiling lists of contractors potentially involved in the investigation, along with a register of relevant documents and an overview of employees who may be questioned. This work will allow businesses to identify possible questions for company management. Forewarned is forearmed. If you expect a fire to start, it would be wise to make sure you have a fire extinguisher nearby.   


4. Expect Expertize: The professionalism of Ukrainian law enforcement agencies is on the rise and their ability to understand complex business processes should not be underestimated. In recent years, every law enforcement agency has formed its own highly efficient economic units. Investigators, prosecutors and detectives have all significantly enhanced their practical skills and knowledge. They have learned how to conduct in-depth analysis and gather evidence while engaging professional economic experts, appraisers, and auditors. The National Anti-Corruption Bureau of Ukraine (NABU) even has its own financial forensics specialists. Similar progress has also been made in terms of international cooperation between Ukrainian law enforcement agencies and other countries.    


5. Investigations Without Borders: Modern criminal investigations have no boundaries. There is no banking secrecy. Accessing all of a company’s foreign transactions is now only a matter of time and effort. In previous years, investigations often ground to a halt when a foreign company or an account with a foreign bank was detected in the transaction chain. This is no longer an obstacle and merely means an additional three months of work. Foreign partners share information on Ukrainian parties, including information received from units monitoring the financial activity of banks. The concept of banking secrecy has ceased to exist, and European prosecutors face no restrictions disclosing such information.Criminal risks are an integral part of the Ukrainian business environment. Much like other factors such as fluctuating exchange rates, these risks must be kept in mind and can arise at any time. Businesses should do their homework and seek professional legal guidance if they want to avoid becoming caught up in unwelcome criminal investigations.

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