Practice Areas Review: Business Crime

Innovations for Special Confiscation

Bogdan BILENKO

Bogdan BILENKO

Senior Associate, Antika Law Firm

PROfile

ANTIKA

Address:
12 Khreschatyk Street,
2nd Floor, Kiev, 01001
Tel.:
+38 044 390 0920
Fax:
+38 044 390 0921

Antika Law Firm was founded in 2010. The firm provides legal services to national and international companies that do business in Ukraine and abroad. 

Main areas of practice: antitrust, litigation and arbitration, criminal defense for business, construction & real estate, subsoil use, energy & energy efficiency, project financing, corporate/M&A, legal expertise.

The firm has been recognized by authoritative international and Ukrainian guides such as The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, and is recommended in the area of antitrust, dispute resolution, corporate/M&A, banking, finance and capital markets, real estate, land, subsoil use, energy, energy efficiency and energy savings.

Antika’s team includes 15 lawyers, who have significant experience in various fields of legal practice.

Our lawyers are professionals with broad experience and skills to provide comprehensive and creative solutions. We follow traditions in law. Meanwhile, having a good understanding of today’s challenging business requirements and a deep knowledge of the legal environment we bring an innovative, creative and practical problem-solving approach to all of our work.

The firm’s main principles are high quality and timely legal services, strict confidentiality and a bespoke approach to every client’s project.

Antika serves Ukrainian and international companies doing business in telecommunications, heavy machinery, chemical and food industries, pharmaceuticals, automotive, construction, real estate and complex development, energy, oil and gas, subsoil use, wholesale and retail, media and sports, banks and financial services market.

The firm also advises the World Bank, EBRD, NEFCO, KfW, USAID on energy efficiency, utility and other infrastructure projects in Ukraine.

The firm is a member of the Ukrainian Chamber of Commerce and Industry, the American Chamber of Commerce in Ukraine, the Canada-Ukraine Chamber of Commerce, the European Business Association, and the International Turkish Ukrainian Businessmen Association.

 

On 28 February 2016 the On Changes to the Criminal and Criminal Procedural Codes of Ukraine concerning Carrying Out of the Recommendations Contained in the Sixth Report of the European Commission on Ukraine’s Implementation the Action Plan to Liberalize EU Visa Regime for Ukraine Regarding Improving Procedures for Seizure and Institute of Special Confiscation Act of Ukraine No.1019-VIII came into force.

In this regard it should be noted that such a measure of criminal law as special confiscation is relatively new for Ukrainian legislation. It appeared in the Criminal Code in December 2013 and originally was applied to a small, clearly-defined list of criminal offenses: trafficking, terrorism, drug trafficking, money laundering, corruption-related crimes and so on.

The Act of 18 February 2016 No.1019-VIII significantly expanded the list of cases for applying special confiscation. From now on it may be applied to any criminal offense committed intentionally and for which imprisonment or a fine of more than 3,000 non-taxable minimum incomes of citizens is provided. In addition, the new version of Article 96-1 of the Criminal Code of Ukraine (Special confiscation)identified a number of criminal offenses with punishment of less severity, in which case special confiscation can also be applied: crimes under part one of Article 150 and Article 154 (Child slavery and forcing into carnal knowledge), parts two and three of Article 159-1 (Breach of the order of financing of political parties), part one of Article 190 (Fraud), Article 192 (Causing property damage by fraud or breach of trust), part one of Articles 204 (Illegal manufacture, possession, sale or transportation with intent to sell excisable goods), 209-1 (Wilful violation of the law on prevention of legalization (laundering) of proceeds from crime or terrorist financing), 210 (Misuse of public funds), part one and part two of Articles 212, Article 212-1 (Evasion of taxes and social security tax for obligatory state social insurance), part one of Articles 222 (Financial fraud), 229 (Illegal use of a trademark for goods and services, trade name), 239-1 (Illegal appropriation of land surface), 239-2 (Illegal appropriation of water fund lands in big amount), part two of Article 244 (Violation of the law on the continental shelf of Ukraine), part one of Articles 248 (Illegal hunting), 249 (Illegal fisheries or animal trading or any other sea hunting industry), parts one and two of Article 300 (Import, manufacture or distribution of works that promote violence, cruelty, and discrimination), part one of Articles 301 (Import, manufacture, sale and distribution of pornographic materials), Article 302 (Establishing or maintaining brothels), Articles 310, 311, 313, 318, 319 (Operations involving narcotic drugs), Articles 362, 363, part one of Article 363-1, (Unauthorized actions with information processed in computer networks, inappropriate use of computer networks, computer networks operation obstruction), 364-1 (Abuse of power by an official of a legal entity of any type), 365-2 (Abuse of power by persons providing public services) of the Criminal Code.

Thus, due to the expansion of special confiscation on a wide range of penal offenses, business entities and business representatives are, in case of getting within eyesight of law-enforcement agencies, now also at risk of special confiscation being applied.

In this connection no less an important innovation is introduction of a new order regarding the use of special confiscation in respect of third parties (persons who have not committed a criminal offense, but who are owners of property that is subject to special confiscation).

Prior to the recent changes in this part of the Criminal Code, the property of third parties could be seized in the procedure of the special confiscation only if: (1) corrupt assets were received or acquired by a third party from a suspect, accused person, convicted person for free or in exchange for an amount significantly below market value; (2) the third party knew or should have known that the purpose of transfer of the property is to avoid confiscation or special confiscation.

Now, in accordance with part 4 of Article 96-2 of the Criminal Code of Ukraine, money, valuables, including funds held on bank accounts or deposited in banks or other financial institutions, other property are subject to special confiscation from a third party if he or she acquired such property from a suspect, accused person, person prosecuted for committing a socially dangerous act at an age from which no criminal responsibility is provided, or in a state of insanity or other person for free, at the market price or at a price higher or lower than the market value, and knew or should have known, that such property meets any of the criteria mentioned in paragraphs 1-4 of this Article.

Thus, the new version of Article 96-2 of the Criminal Code of Ukraine significantly expanded the applicability of special confiscation to third parties. While earlier cases of special confiscation to third parties were more or less specific (obviously undervalued the value of property or transfer of property to prevent seizure), but now, regardless of the assessment of property, it will be subject to special confiscation if the purchaser of the property could or had to guess that this property: (a) was obtained by the purchaser as a result of the offense and/or is an income from such property; (b) was destined or used for inducement of a person to commit a crime, financing and/or material support of the crime or reward for having it done; (c) was the subject of a crime, except one that has to be returned to the owner (rightful owner), and when it is not determined — becomes the property of the state; (d) was found, produced, adapted or used as a tool or instrument of a crime, except one that has to be returned to the owner (rightful owner), who did not know and could not know about their illegal use.

Thus, now the presence of a fictitious purpose of property transfer (as before) is not a prerequisite for the use of special confiscation.

Consequently, the new order of special confiscation of property from third parties will, to a much greater extent than before, depend on the subjective assessment of the case circumstances by representatives of the law-enforcement and judicial authorities (i.e. on the evaluation whether the new property owner could or could not know about the unlawful origin of the property or its illegal use by the previous owner), which is a direct threat to the speculation and abuse of powers in deciding the matter.

According to paragraph 2 of part 4 of Article 96-2 of the Criminal Code of Ukraine, the circumstances of acquiring controversial property which is subject to special confiscation by a third party should be established in the courts on the basis of sufficient evidence. Thus, in accordance with parts 2 and 3 of Article 96-1 of the Criminal Code of Ukraine, special confiscation is applied by virtue of a judgment of conviction; judicial decision of absolute discharge; judicial decision of invo- luntary treatment; judicial decision of the application of compulsory educational measures. In cases when the object of special confiscation is property withdrawn from civil circulation, it can be applied on the basis of: judicial decision of terminating the criminal proceedings on other grounds than absolute discharge; judicial decision settled by the ninth part of Article 100 of the Criminal Procedure Code of Ukraine, at the request of the investigator or prosecutor if criminal proceedings are closed by them.

Consequently, these provisions of the law are aimed at guaranteeing a possibility to a bona fide purchaser of property to prove in court the absence of grounds for removal of his property in the order of special confiscation.

However, until the issue is resolved in essence, the property of a third party may remain  under arrest for a long time during the pre-trial investigation in criminal proceedings. Under part 1 of Article 170 of the Criminal Procedure Code of Ukraine, the seizure is temporary, till cancellation in the order established in the Code, deprivation of the right by a decision of an investigating judge or a court of law on alienation, disposal and/or use of property for which there is a set of grounds or reasonable suspicion to believe that it is evidence of a crime, subject to special confiscation from the suspect, accused, convicted, third party, confiscation from the legal entity, for ensuring civil action, the recovery from the legal entity of unduly received benefits, possible confiscation of property. However, Article 170 of the Criminal Procedure Code of Ukraine was supplemented with a new third part, according to which protection of evidence for arrest is imposed on the property of any individual or legal entity if there are sufficient grounds to believe that it meets the criteria set out in Article 98 of the Code (is an instrument of a criminal offense, keeps tracks of it or contains other information that can be used as evidence, items that were the object of criminal illegal activities, money, valuables and other items acquired by criminal means or illegally obtained by a legal entity as a result of a criminal offense). According to this new approach the scope of persons whose property may be seized is, in effect, expanded. This once again makes  property owners depend directly on the subjective decisions of law-enforcement officials who will, at their discretion, decide on the number of persons whose property may be seized.

The Act of Ukraine of 18 February 2016 No.1019-VIII supplemented the Criminal Procedure Code of Ukraine with a new Article 64-2, whereby the third party in respect of whose property the issue of arrest (third person) is decided is a party to the criminal proceedings. The status of a third party in criminal proceedings shall be obtained by any individual or legal entity upon recourse of the prosecutor to the court with a request for the arrest of its property. A third person has rights and obligations under the Criminal Procedure Code of Ukraine for the suspect, in the part related to the seizure. The representative of a third party — legal entity may be a lawyer, head of legal entity or employee of a legal person per procuration.

In accordance with Articles 64-2 and 174 of the Criminal Code of Ukraine the third person, using the rights of the suspect, the accused may appeal against the seizure of their property to the investigating judge — during pre-trial investigation or trial — during the proceedings. In case of refusal to cancel the arrest, it will continue to be in force until the final decision in the criminal proceedings.

Thus, changes in the criminal law of Ukraine on the grounds and procedure of special confiscation, on the one hand, formalize participation in this process of property owners who are participants in criminal proceedings will be able to use re- levant procedural rights and protect their interests more effectively. On the other hand, the lack of a clear definition of grounds for use of special confiscation of property of third parties puts bona fide purchasers of property in a very risky position, since the current version of the law the issue on use of special confiscation will depend solely on the court’s subjective assessment of circumstances of the disputed property acquisition.