LEGAL FOCUS: Step by step guide to anti-corruption compliance in Ukraine

Companies should make sure they are in step with Ukraine’s expanding anti-corruption policies

LEGAL FOCUS: Step by step guide to anti-corruption compliance in Ukraine
About the author: Illya Tkachuk is a Counsel with Jeantet Ukraine. He advises clients on corporate and M&A issues.
Illya Tkachuk
Sunday, 05 March 2017 23:38

Corruption has always been a delicate issue for foreign investors operating in Ukraine. According to the Transparency International Corruption Perceptions Index 2016, Ukraine currently ranks 131 out of 176 countries. Even though in the last three years Ukraine has somewhat improved its position (moving up four places in the ranking), corruption remains one of the main constraints for foreign investors looking to enter the Ukrainian market.

Anti-corruption measures have been central to the broad-based reform efforts introduced in Ukraine following the 2013-14 Euromaidan Revolution. In line with a series of GRECO recommendations, Ukraine adopted a batch of fundamental laws in 2014 designed to help combat corruption (Anti-Corruption Laws). The same year saw the creation of the National Anti-Corruption Bureau, a body that aims to ensure implementation of the country’s Anti-Corruption Laws and to lead the fight against corruption in Ukraine.

Progress, albeit on a very small scale, is evident in the fight against corruption. In practical terms, it is important to note that business requirements are changing at a much faster pace than other aspects of the country’s anti-corruption efforts. The need to avoid breaching anti-corruption regulations is self-evident. Indeed, many major international groups have had expensive lessons in the importance of anti-corruption compliance thanks to the likes of the US Foreign Corrupt Practice Act (FCPA) and the UK Bribery Act. In the current climate, foreign investors need to be extra-confident that their Ukrainian projects will not expose them or their wider business interests to any anti-corruption risks. Businesses looking to improve their anti-corruption compliance in Ukraine can take a number of practical steps.


Step 1: Compliance Policies

It is common for international investors and multinationals to have anti-corruption policies at the Group level, whereas in Ukraine having anti-corruption policies is more of an exception than a rule. It is worth noting that according to Ukraine’s Anti-Corruption Laws, the obligation to have anti-corruption policies only applies to certain categories of companies. This includes state and municipal enterprises, companies with an average number of more than 50 employees throughout the year and gross income of more than UAH 70 million, and companies where state owns more than 50% of the capital. Companies participating in public tenders with a value exceeding UAH 20 million are also obliged to introduce anti-corruption policies.

For most private-owned companies in Ukraine, having an anti-corruption policy in place is merely a recommendation and not obligatory. Existing anti-corruption laws do not prohibit the application of international anti-corruption policies within Ukrainian companies. However, in order to implement existing international measures, such policies must be in line with Ukraine’s Anti-Corruption Laws. They should be translated into the Ukrainian language and approved as the internal policies of the Ukrainian companies in question.

If a company operating in Ukraine is looking to adopt an anti-corruption policy, it is well worth considering the introduction of a two-tier monitoring system. In practical terms, this means one system for managers and a separate policy for other employees. This approach allows companies to structure a more independent and impartial reporting mechanism. Any system developed specifically for managers can cover specific cases of gross violation that could then serve as grounds for their dismissal. The introduction of corresponding provisions into employment agreements will also be beneficial for the company as a device for safeguarding against corrupt practices.

Another important anti-corruption theme for companies operating in Ukraine is gift policy. Unlike most European countries, it is still common in today’s Ukraine to give holiday gifts to professional contacts or offer presents on a variety of other occasions. For large companies with wide networks of local offices and agents, it is extremely important to have clear rules with regard to gifts and other hospitality expenses. Such practices may well be innocuous, but clear guidelines are an important tool to help avoid misunderstandings.


Step 2: Training Employees

Practice shows that the existence of well-crafted anti-corruption policies does not ensure that all employees will follow the approved rules and regulations. Some breaches are due to simple negligence. In most cases, infringements result from a lack of knowledge or poor understanding of negative consequences. This makes it even more important to conduct regular anti-corruption training sessions to educate employees.


Step 3: Compliance Officer

It is vital to appoint responsible persons to oversee compliance with anti-corruption rules. Ideally, there should be a compliance officer at the Group level controlling the managers, and a local officer dealing with other employees and reporting directly to the Group Compliance Department. In many cases, companies have either a compliance officer at the Group level or a local person. However, in the former case, a foreign officer will not be able to supervise local employees, check Ukrainian language documents, and appreciate local nuances. In the latter case, there is a risk that the local compliance officer will be overly dependent on local managers.


Step 4. Anti-Corruption Due Diligence

Companies operating in Ukraine should carefully choose their contractors, consultants, suppliers, service providers and other partners. This verification process may vary from a simple reputation check on the market to more comprehensive third party due diligence. The exact type of audit depends on the preliminary estimation of the risks involved. For example, the risk level is much higher for a contractor providing construction services than for a taxi company.

Compliance with anti-corruption regulation is an important element of doing business in Ukraine for both local players and international groups. For Ukrainian businesses, it is important to understand the benefits compliance brings. This is particularly true when it comes to dealing with international partners and financial institutions. For international groups, it is important to adapt global policies to local peculiarities in order to ensure their proper implementation in Ukraine.

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