ALERT: Anticipating the Big Break Through in Combating Corruption
On 11 September 2019 the Parliament of Ukraine adopted the draft law No.1031 “On Amendments to Certain Laws of Ukraine Relating to Expropriation of Illegal Assets from Persons Authorised to Execute Functions of State” on its first reading.
The draft law was identified by the President of Ukraine as urgent. The Bill may still be subject to some changes following the second or third reading in the Parliament.
The draft law provides the amendments to the following laws of Ukraine: Criminal Code of Ukraine, Code of Criminal Process of Ukraine, Civil Code of Ukraine, Code of Civil Process of Ukraine, Code of Labour Laws, On National Anticorruption Bureau of Ukraine, On Public Prosecution Service of Ukraine.
Although the proposed amendments are very narrow compared to other current draft laws in Ukrainian Parliament, this particular draft law is crucial for the international image of Ukraine and aims to be a strong signal to international business and investors. Moreover, this draft law is a requirement of the United Nations Convention against Corruption (2003).
1.1. The main change will occur in Criminal Code of Ukraine in which a new article, 368-5, about criminal liability for illegal enrichment, will be added. Illegal enrichment is considered to be the acquisition of assets made by a person authorised to execute functions of state where the value of assets is more than 14.5 million UAH (the sum is subject to change by the Tax Code of Ukraine) greater than such person’s official income. Interestingly, the legislation does not specify the relevant period of income that should be used when assessing a public servant’s assets. This issue could be addressed during the next readings in Parliament or by court practice. The punishment for illegal enrichment under the draft law is 5 to 10 years imprisonment with a restriction to work in particular areas for 3 years.
1.2. This article is not a brand new in the context of Ukraine’s criminal legislation. Before February 2019 this principal of illegal enrichment was included in provision 368-2 in the Criminal Code of Ukraine. However, the Constitutional Court of Ukraine made a decision that article 368-2 about illegal enrichment breached the Constitution of Ukraine in terms of the presumption of innocence. The old version of illegal enrichment interpreted illegal assets as holdings that cannot be proved as acquired legally (in the current draft law this phrase is removed).
To sum up, currently Ukraine does not have an effective mechanism to claim illegal assets from persons found guilty or suspected of corruption. The President of Ukraine defined this draft law as urgent and important for combating corruption in Ukraine.
2.1. Thus the proposed amendments identify assets as any monetary funds (cash, bank savings), corporate rights, property and cryptocurrencies (it shows that Ukraine applies Recommendations of The Financial Action Task Force (FATF, 2012) and last findings in the EU legislation (the 5th Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, 2018).
2.2. The draft law introduces the mechanism for the state to claim illegal assets even before the accused is found guilty. Owners of illegal assets may be sued in a civil process before criminal conviction. For such a purpose the General Prosecutor’s Office of Ukraine is empowered to file a civil suit to the Supreme Anticorruption Court of Ukraine on recognition of assets as illegally acquired and apply for their return to the state.
2.3. Moreover, the draft law grants the power to the Public Prosecution Service of Ukraine to file a civil claim for assets acquired four years before the date this draft law will become a Law and enter into force. Furthermore, public prosecutors may sue owners of illegal assets if the value of holdings is more than 960 thousand UAH.
To summarise, the draft law No.1031 introduces criminal liability for illegal enrichment and civil liability for acquisition of illegal assets (for both liabilities the legislation proposes a minimum threshold). The establishment of criminal liability for illegal enrichment is a crucial step in combating money laundering and a requirement of the international community. Such amendments will support the investment climate in Ukraine, reducing circumstances of impunity for corrupt acts.
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