Expert Opinion (#05 May 2012)

Decriminalization of Business Crime: Quo Vadis?

by Vitalii V. Mazur, Olena V. Pleshan

As described in numerous legal commentaries, the On Amendments to Certain Legislative Acts Regarding Humanization of Responsibility for Legal Infringements in the Sphere of Business Activities Act of Ukraine of 15 November 2011, No.4025-VI has decriminalized a number of activities that were recently classified as business crimes. This Act also “converted” some formerly criminal acts into administrative and customs violations. Other acts remain criminal, but went from matters of public accusation to matters of private accusation. Still, when we read this Act for the first time, we were tempted to ask: how exactly did this happen and what could be the practical implications?

From the Criminal Code to the Code of Administrative Violations

As noted, Ukrainian law now treats certain acts which were formerly crimes as administrative violations. Among these acts are violation of the procedures for conducting commercial activities and financial services activities (formerly Article 202 of the Criminal Code), failure to return foreign currency income (formerly Article 207 of the Criminal Code), coercion to engage in anticompetitive behavior (formerly Article 228 of the Criminal Code), engaging in prohibited commercial activities (formerly Article 203 of the Criminal Code) and a few other socially harmful activities. What do these changes mean in practice?

One important sanction associated with a criminal conviction is that the offender can be barred from engaging in certain activities related to the criminal violation. Although Ukrainian courts do not often apply this punishment for business-related crimes, such sanction cannot be applied at all for an administrative violation. This means that decriminalization makes the deterrent effect of a sanction significantly weaker.

For example: if a person violates Ukrainian laws regulating financial services (former Article 202 of the Criminal Code of Ukraine), or conceals the insolvency of an enterprise (former Article 220 of the Criminal Code of Ukraine), that person will not be formally banned from engaging in similar business activities. In fact, now the only deterrent is the threat of another administrative fine.

Another way in which decriminalization weakens enforcement measures is the difference in the influence of recidivism on punishments under criminal and administrative law. To be specific, the punishment for a second or subsequent criminal conviction can be made more severe if the violation was perpetrated within a defined timeframe after the previous sentence had been served (this timeframe did not exceed two years for the crimes which were decriminalized). However, an administrative fine is not enhanced with repeated violations, unless committed within one year after the previous administrative violation. This timeframe is shorter than for the timeframe which applied to some of the decriminalized criminal activities. In the long run, this is likely to weaken the combating of business crimes.

Moreover, under Ukrainian law, a person with prior criminal record cannot be a judge, notary, attorney-at-law, or serve in other offices, if the criminal conviction has not been cancelled or terminated. This rule does not apply to persons who have committed administrative violations. Consequently, persons who committed administrative offences relating to the field of legal services or law-enforcement will be able to remain in their position or even take such a position, even though they did not respect the law in the past.

Yet another difference between a criminal and an administrative violation is that an administrative violation does not appear on a certificate on absence of criminal record. Such a certificate is required in certain cases, and a person who is unable to obtain one may find it difficult to obtain certain rights (such as a foreign travel passport). With regard to the social and economic harm caused by the activities in question, certain restraints are necessary to guarantee that the offender does not continue conducting unlawful business practices on an even larger scale.

Finally, by reclassifying unlawful acts as administrative violations, offenders will escape even administrative liability, if they committed acts which were crimes at the time they were committed and which were later decriminalized and reclassified as administrative violations. This is because under criminal law, decriminalization of an act has retroactive effect, but at the same time the act in question was not an administrative violation at the time it was committed and, therefore, cannot be retroactively punished as an administrative violation. So, people who have committed business crimes according to the previous version of the Criminal Code, but which now have been converted to administrative violations, will be free from both criminal and administrative liability.

There is also a procedural effect caused by these amendments. The Criminal Procedure Code allows two months to conduct a criminal investigation, which can be extended to up to six months, and court proceedings are not limited in time.

The On Administrative Violations Code of Ukraine clearly states that administrative sanctions can only be imposed up to two months from the day the violation was committed or discovered. It is, therefore, hoped that treating these unfair business practices as administrative violations will result in faster investigations and judicial proceedings.

From Criminal Code to Customs Code

Of particular practical importance is the decriminalization of smuggling, because criminal investigations of smuggling were common and because the authorities need the resulting cash for state and other budgets.

The new Act transfers smuggling in the part of transferring goods outside of customs control or by hiding goods from customs control, from the Criminal Code of Ukraine to the Customs Code of Ukraine. The result is that smuggling has also been “downgraded” to an administrative violation of customs rules. On the other hand, at the same time the legal consequences have become stricter even though the qualification of the offence was changed from a criminal offence to an administrative violation. The amendments to the Customs Code of Ukraine of 15 November 2011 increase the liability for smuggling by providing for compulsory rather than discretionary confiscation of smuggled objects, and so do the regulations set out in the upcoming version of the Customs Code for adoption (Draft No.8130-d registered in the Ukrainian Parliament on 12 May 2011).

From public accusation to private accusation

The Criminal Procedural Code of Ukraine distinguishes between crimes subject to public, private and public-private accusation. Bringing criminal charges based upon a private accusation, that is, based exclusively upon a complaint by the injured party, can lead to dangerous consequences when business crimes are involved. However, the On Amendments to Certain Legislative Acts Regarding Humanization of Responsibility for Legal Infringements in the Sphere of Business Activities Act of Ukraine, amended Article 27 of the Criminal Procedure Code to reclassify several crimes as strictly crimes of private accusation.

For instance, violations of Criminal Code of Ukraine Article 203-1 (illegal production of laser discs, matrixes, equipment and raw materials for their production), Article 229 (illegal use of trademarks, commercial names or qualifying marks showing the origin of goods) and others have become matters of private concern. This means that Ukrainian law-enforcement authorities are not required to prosecute these crimes, even if perpetrated openly and publicly, unless a victim of such crime complains. Thus, even though none of the crimes specified in Article 27 of the Criminal Procedure Code (listing crimes of private accusation) have been decriminalized, shifting them to crimes subject to private accusation has made it nearly impossible for the state to fight them at its own initiative.

In our view, these alterations might be the first step in a line of changes. On 14 February 2012, Draft Act No.10047 On Amendments to Certain Legislative Acts of Ukraine (regarding humanization of criminal liability in the sphere of intellectual property) was submitted to the Ukrainian Parliament. The proposed changes would also render the crimes listed under Articles 176 (copyright violation) and 177 (violation of the right to invention, utility model, etc.) of the Criminal Code matters of private accusation. Should the Parliament pass this Draft Act, traders selling unauthorized copies of software, music or movies in the streets will not be subject to criminal prosecution by the police, unless the title-owner complains. Since only the title-owner will be able to initiate a criminal case, this means that the holders of intellectual property rights would be responsible for bringing complaints regarding violations of their intellectual property rights. This would, without doubt, require them to increase their efforts in protecting their rights.

On the other hand, it would bring the Ukrainian legal situation in this field closer to many countries of the EU and elsewhere, which have similar systems in place.


To sum up, some business practices which used to be treated as criminal violations have been reclassified as administrative violations. We forecast that this could be counter-productive in the ongoing fight with these questionable business practices. Besides, the shift of certain crimes subject to private accusation gives the state an excuse not to interfere in certain business crimes at all and would require the victims of legal infringements to help themselves.

With consequences such as these, we have to ask: Cui bono?

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