By Ihor Siusel and Vladyslav Kurylko (Baker McKenzie Ukraine)

I. Corporate liability deriving from criminal activity

1. Nature of the liability and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)

According to the Criminal Code of Ukraine, corporations may become subject to criminal sanctions in the case a crime is committed (crimes are listed in item 2), by their executives or authorised persons (on behalf of and/or in company’s interest) or in the case of a failure by an authorised corporate officer to duly fulfil its duties to prevent corruption within the company which resulted in the commission of corruption-related crimes.

The notion of “authorised persons,” apart from corporate executives, encompasses any person who can act on behalf of an entity based on legislative provisions, an entity’s constituent instruments (e.g., company’s charter) or a separate agreement (e.g., an agency agreement, representation, etc.).

A crime is committed “in the interest of the company” if it resulted in or led to the receipt of illegal benefits by the company, as well as if the crime was committed in order to avoid liability prescribed by law.

2. Type of crimes offences from which, according to the legislature, corporate liability may arise

The Criminal Code of Ukraine provides that the following crimes, if committed by corporate executives/authorised persons at the behest and in the interest of the company, can result in criminal sanctions to the company:

• money laundering
• use of funds derived from illegal drugs distribution
• 316 Baker & McKenzie
• corruption-related crimes (e.g., bribery of public officials, commercial bribery, bribery in respect of public services providers, etc.)
• crimes concerning national security and state sovereignty
• abduction of people, taking hostages
• election/referendum bribery
• propaganda of war, war crimes, crimes against humanity, mercenariness
• commission by corporate’s executives/authorised persons on behalf of the company of terrorism-related crimes

3. Identification of companies and entities to which liability may apply

Criminal sanctions generally can be applied by a court to any legal entity, except for state bodies, municipalities, entities created by them and which are 100 percent funded by state/local budgets, social security funds, and Bank Deposits Guarantee Fund, as well as international organisations.

4. Corporate liability for crimes committed abroad by its representatives or subsidiaries

Crimes committed by a corporation’s executives/authorised persons abroad and which are subject to prosecution by Ukrainian authorities may entail the imposition of criminal sanctions on the entities as well. Ukrainian criminal law also establishes liability for bribery in respect of foreign public officials (e.g., members of legislative and executive bodies, judiciary, international courts and tribunals, etc.).

5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

Change in owners of participatory interest in a company or its shareholders does not, per se, relieve the company from criminal sanctions and the company would remain subject to criminal sanctions irrespective of any such change.

II. Applicable sanctions

1. Type of sanctions applicable to the company

The criminal sanctions that can be imposed by court on a company include:

(a) financial fines, up to twice the amount of illegally derived profits. If no profits were received by the company or they cannot be determined, then the fine may amount up to maximum of 75,000 statutory non-taxable minimum incomes (approximately USD58,7551);

(b) confiscation of company’s property;

(c) disgorgement of profits and reimbursement of caused damages; and

(d) liquidation of a company.

When determining the form of sanctions and their scope, the court will take into consideration the severity of the crimes committed by the company’s officers, the type and severity of the damage caused, the amount of illegal profit acquired by the company as the result of such crimes, etc.

2. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

Failure by the company’s officers, who are responsible for the prevention of corruption, to implement respective measures which led to commission of corrupt actions may result in the company becoming subject to criminal sanctions (as listed in item 1 of Section II).

Under the Code of Administrative Offences of Ukraine, a failure by the responsible officers or employees of the company to take action on combating corruption in the case of discovery of corrupt actions entails the imposition of a fine up to 250 statutory non-taxable minimum incomes (approximately USD196.30) or if the same offence has been committed again within the year following the first offence – up to 400 statutory non-taxable minimum incomes (approximately USD314).

III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)

Adoption of the anti-corruption program, as well as management’s good faith efforts in its implementation may help mitigate the risk of application of criminal sanctions to the legal entity, even though it does not constitute a universal defence from such sanctions.

2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

Ukrainian anti-corruption laws do not provide for any specific strict structure or scope of an anti-corruption program. At the same time, such program may cover, inter alia, the following issues:

• list of anti-corruption procedures, applied within the company
• ethical rules for employees
• powers and authority of company’s compliance officer
• protection of whistle-blowers
• means of disciplinary liability for employees failing to comply with the anti-corruption program

Such anti-corruption program is subject to open discussion between the management and the employees before its adoption and must be made available to all employees. It is also important that the duty of the company’s employees and officers to comply with the requirements of such program be included in all labour contracts and company’s internal labour regulations.

3. Monitoring: independent person or body to control / supervise, with the purpose of verifying the correct application of the “model”. Mode of operation of such person or body

The company’s director or its shareholders, when adopting the anti-corruption program, must appoint a compliance officer who will be responsible for the program’s implementation and supervision. Under Ukrainian law, a person qualifying for a compliance officer’s post should possess high moral and professional qualities, have full capacity and no conflict of interest. A person who has a criminal record or who was dismissed from state or municipal bodies for oath-breaking or the commission of a corruption-related offence (within three years from such dismissal) may not be appointed as a company’s compliance officer.

IV. Judicial proceedings to determine corporate liability

1. Court competent to decide the liability of and penalties applicable to the company

As a general rule, common courts, within which territorial jurisdiction a crime, listed in item 2 of Section I, was committed, possess jurisdiction over cases concerning the imposition of criminal sanctions on legal entities.

2. Possibility of the application of interim measures

For companies that are potentially subject to the confiscation of property, the arrest over a company’s assets may be imposed as a form of interim measure during the course of criminal proceedings.

3. Plea bargains and related effects on the corporate liability

Ukrainian law distinguishes between settlement agreements and plea bargains. With regard to proceedings instituted against a company as a result of the commission by its officers of the above listed crimes, the law directly prohibits both settlement agreements and plea bargains in respect of such company’s officers.

4. Imposition of sanctions against the company

Sanctions may be imposed by the competent court, along with rendering of the guilty verdict to the company’s officer, which will further be subject to compulsory enforcement.

5. Permanence of corporate liability if the crime is extinguished

Under Ukrainian criminal law, criminal sanctions may be permanently applied to a legal entity along with rendering of the guilty verdict to the company’s officer within the time limits provided by law, irrespective of the extinguishment of the committed crimes.

V. Corporate liability in multinational groups

1. Liability of parent companies located abroad in the case of offences committed by directors, managers or representatives of the local company

The issue is not covered by Ukrainian law.

2. Basis of liability and applicable sanctions

The issue is not covered by Ukrainian law.

VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1. Significant case law, if any

The legislative provisions on criminal sanctions, which may be applied to legal entities, have been introduced recently and for this reason, no sufficient court practice has been formed in this regard yet.

2. Proposed or contemplated new legislation

Ukrainian criminal law and anti-corruption regulations, especially, are swiftly developing, in alignment with the EU rules. Legislative developments on the liability of ultimate beneficial owners, direct criminal liability of legal entities, combating of money laundering and financing of terrorism are subjects of deliberation within legislative authorities and the professional community.

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¹ Hereinafter, all USD equivalents of UAH-denominated amounts are calculated based on official exchange rate of the National Bank of Ukraine as of 22 June 2015.