Practice Areas Review: Compliance

Corporate Internal Anti-Corruption Investigations in Ukraine

Alesya PAVLYNSKA

Alesya PAVLYNSKA

Senior Associate, Arzinger

Kateryna GUPALO

Kateryna GUPALO

Attorney-at-law, Partner, Arzinger

Mariia BARANOVYCH

Mariia BARANOVYCH

Attorney-at-law, Senior Associate, Arzinger

PROfile

Arzinger

Address:
Eurasia Business Centre, 75 Zhylyanska Street,
5th Floor, Kiev, 01032
Tel.:
+380 44 390 5533
Fax:
+380 44 390 5540

Arzinger is an independent law firm headquartered in Kiev with regional offices in Western and Southern Ukraine. For over 10 years now Arzinger has been among the leaders of the legal business, providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s many clients.

Arzinger follows high standards of legal services and is an advantageous partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, litigation and arbitration, IPR, tax, banking & finance, PPP, public procurement, labor law, regulatory, private equity/investments, capital markets and IPOs. We serve clients operating in financial services, energy, mining and natural resources, pharmaceuticals, food & beverages, investment banking and corporate finance, telecommunications, retail & leisure, hospitality, aviation and automotive, agriculture, insurance, and infrastructure & transport industries.

Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 60 seasoned legal professionals led by 5 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognised by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters.

The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations. The following are among Arzinger’s many clients: Adecco, ADM Ukraine, AGI, Alcon, Altcom, Alfa Bank, BNP Paribas, Bunge, Commerzbank AG, Credit Agricole, Credit Suisse, CSAV, Deutsche Bank AG, EKF, Erste Bank, EBRD, Euralis, Ferrero, First Ukrainian International Bank, GLD, IFC, IKEA, ING, Leroy Merlin, Medcom, Nestle, OTP Bank, Peugeot Citroen, Porsche Holding  (Volkswagen Group), Prominvestbank, Puratos, Raiffeisen Bank Aval, Raiffeisen Bank International, Raiffeisen Leasing Aval, Sandoz , Sineat, Softline, Takeda, Turkcell, UkrSibbank, UniCredit Bank, Vienna Insurance Group, Yandex, Venbest, Rosneft, Ministry of Justice of Ukraine and others.

With a view to providing its clients with high-quality services Arzinger has established successfully-operating French, Austrian and German Desks in the firm, which efficiently serve French and German speaking clients in Ukraine as well as Ukrainian and Russian companies operating on international markets.

 

Recent Developments in Anti-Corruption Regulation in Ukraine

In 2015 Ukraine slightly improved its Corruption Perceptions Index ranking, having jumped 1 point so that our country scored 27 points out of 100 on the 2015 Corruption Perceptions Index reported by Transparency International. This improvement was caused by a number of recent developments in anti-corruption regulations in Ukraine aimed inter alia at establishing independent institutions to fight corruption.

In particular, on 26 April 2015 the new On Corruption Prevention Act of Ukraine of 14 October 2014 came into force. This Act provides for a wide range of legal developments, including a number of limitations and requirements for private companies and their employees. For instance, this Act stipulates certain limitations related to gifts and engaging employees that have been employed in the public sector. Besides, the Act contains requirements for developing an anti-corruption compliance policy, as well as appointing a compliance officer of a company. Moreover, the new legislation guarantees protection of whistleblowers.

Ukraine has also established the State Register of Corruption Offenders which contains public information regarding individuals, who were brought to criminal, administrative, disciplinary or civil liability for corruption offences, as well as legal entities, against which the measures of criminal character for corruption offences were applied. The aforesaid Register of Corruption Offenders is designed to prevent officials and legal entities, which have already committed corruption offenses, from participating in public procurement. Besides, this Register may be used by private companies for internal business-related purposes.

Recent developments in anti-corruption regulation in Ukraine are supposed to have a significant impact on corrupt business practices both in public and private sectors.

Internal Anti-Corruption Investigations

Internal anti-corruption investigations are a vital part of a security program in companies as they are aimed at the elimination of corruption risks.

Such investigations in the Ukrainian offices of international companies may be caused by ongoing FCPA and/or UK Bribery related investigations, or indications of a potential corruption offence detected by a company.

Internal investigations can be conducted in a number of different ways, taking into account the needs of a certain company. However, in any case such corporate investigations shall be in line with current legislation of Ukraine regulating personal data protection issues, employment, etc. In particular, internal investigations may raise a number of issues, including the following:

— collecting documents and evidence (personnel files, access to e-mail records, telephone records, building entrance/exit records, appointment calendars, etc.),

— video and audio recording (including covert video surveillance, conducting witness interviews with video or audio recording devices),

— taking preemptive disciplinary or other actions against the individuals responsible,

— voluntary disclosure of the contents and results of internal investigation to the local government law-enforcement authorities,

— multi-jurisdictional disclosure (including requirements for mandatory disclosure obligations in a number of jurisdictions: where a company is based, where the corruption offence took place and where relevant employees are located), etc.

Workplace Privacy and Employee Monitoring in Ukraine

Unfortunately, Ukrainian labor legislation still doesn’t envisage clear rules regarding employee monitoring with the help of technical equipment. However, the Draft Labor Code, which is being considered by the Ukrainian Parliament and was supported in the first reading on 5 November 2015, introduces the right of an employer to monitor the employees fulfilling their labor duties, subject to a preliminary warning (para. 1 Article 30)1. It must be underlined though that the business practice of monitoring employees is already widely used in Ukraine. However, the means applied are not always legitimate. In order to find a fair balance between the right to workplace privacy (including the constitutional right to the privacy of correspondence and telephone talks) and the employer’s control requirements, the employer must legitimize the procedures by:

— Elaborating internal documentation formalizing employee monitoring, and

— Informing employees about such procedures and gathering their consents (if necessary), including the respective clauses in labor agreements.

At the same time, one must differentiate between such types of monitoring as video and telephone monitoring, monitoring of e-mail, voice and postal mail, as well as computers and GPS.

Furthermore, personal data protection rules must also be considered depending on the type and purpose of monitoring, and reflected in labor agreements and internal labor documentation, with special attention paid to “sensitive data” requiring special protection. 

It must be stressed however, that the employee monitoring issues give rise to disputes throughout Europe, with the recent Judgment of the European Court of Human Rights2 (dealing with protection of privacy with regard to employees’ Internet communications) serving as an excellent example. 

Criminal Proceedings Issues

Corruption offences are punishable under Ukrainian criminal law. Accordingly, suspicions regarding employees’ involvement in corrupt practices may be accompanied not only by FCPA and/or UK Bribery related investigations, but also by criminal investigations conducted by Ukrainian law-enforcement agencies.

When investigating criminal offences, Ukrainian law-enforcement agencies normally withdraw documents for processing and seize servers to obtain access inter alia to employees’ electronic correspondence. They also conduct interrogations.

This means that if the original documents as well as servers, employees’ portable computers etc. are seized by Ukrainian law-enforcement agencies, the relevant data may become inaccessible for the company for internal investigations.

On the other hand, law-enforcement agencies have enough power and authority to obtain the fullest access to the files and information, regarding which a company encounters the above-described access problems. In particular, we refer to personal correspondence, telephone calls, information that employees, as witnesses, are obliged to disclose to law-enforcement authorities.

At the same time, all the data, documents and other forms of proof obtained by law-enforcement agencies in the course of investigations are protected by pre-trial investigation secrecy. At the pre-trial investigation stage a company may not seek access to all evidence collected by law-enforcement agencies. Decisions on the disclosure of particular information obtained in the course of investigations shall be made by investigators and/or prosecutors, if they believe that it will help to ascertain the objective truth in the relevant investigation.

Grounds for Dismissal

Strange as it may seem to any foreign investor, non-flexible and employee-friendly Ukrainian labor legislation doesn’t provide for simple and effective means for dismissal or temporary suspension of employees of private companies on the ground of the “corrupt behavior” only, unless within a criminal procedure or following certain specific cases envisaged by the On Corruption Prevention Act of Ukraine. The mere suspicion, accompanied by as much seemingly unchallengeable evidence as the case might be, doesn’t provide grounds for immediate dismissal without notice. Moreover, any decisive (but illegitimate) steps on the part of the employer may result in reinstatement of employment with payment for forced absence and moral damages to such employee pursuant to a court decision.

Our Recommendations

In order to mitigate the risk of corruption in private companies in Ukraine, as well as to ensure effective internal anti-corruption investigations, we would recommend that companies:

— develop or adjust anti-corruption compliance policy in accordance with current anti-corruption regulation in Ukraine;

— appoint a compliance officer within the company (taking into account the requirements and limitations set out by the On Corruption Prevention Act of Ukraine for taking up the position of  compliance officer);

— develop a transparent internal regulatory framework (including data protection and employment surveillance issues), a consistent implementation policy and an effective enforcement strategy;

— ensure the safety of backup copies of documents and data in case of their seizure by law-enforcement agencies.  

 

1 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=53221

2 Case of BĂRBULESCU v. ROMANIA, No.61496/08, ECHR 2016, Judgment of 12 January 2016 under the link http://hudoc.echr.coe.int/eng?i=001-159906#{“itemid”:[“001-159906”]}