Anti-corruption Package: Promising Declarations?
The last working days in October of the Ukrainian Parliament will stick in memories for adoption of bulk of long expected documents. Such a huge demand in the Ukrainian society to reestablish credence to public institutions has been sa- tisfied with lustration measures. As the government declared its intention to pursue a drastic policy of eradication of corruption in the country to citizens and European society, the recently passed anti-corruption package is the subject of our monthly discussion. And experts argue that the effectiveness of the new regulations is at stake. Perhaps Ukraine should learn from, and successfully implement, Georgia’s experience of fighting corrupt practices?
What are the legal risks of the recent On Purging the Government Act of Ukraine of 16 September 2014, No.1682-VII?
Because the Act was written in secrecy, it expectedly provoked criticism from all actors, including legal experts, civic society activists, judiciary and law enforcement branch of the government. Some politicians seeking electoral benefits have so far been its only supporters.
Firstly, the Act’s aggressive approach to dismissal of public officials is at odds with the wide range of constitutional principles and rules.
On 18 October the State Counterintelligence Service filed a petition with the Constitutional Court of Ukraine for the official interpretation of the Act’s various provisions. This is a disguised attempt to achieve a bigger purpose, i.e. declaring the Act unconstitutional. The petitioner claims that the Act contradicts Article 38 (equal right of access to public service), Article 43
(everyone has the right to labor, the state guarantees equal opportunities in the choice of profession and occupation), Article 58 (no one shall bear responsibility for acts that, at the time they were committed, were not deemed by law to be an offence),
Article 61 (the legal liability of a person is of an individual character) of the Constitution of Ukraine.
These constitutional rules taken together with the principle according to which “constitutional human and citizens’ rights and freedoms shall not be restricted, except in cases envisaged by the Constitution of Ukraine” (Article 64) create a solid legal ground for the claim.
Secondly, because the Constitution has direct effect and the courts can apply its provision directly there is a risk that the local courts will step in even before the Constitutional Court takes its decision. Mr. Mykola Golomsha, First Deputy Prosecutor General, and one of the high profile victims of this hasty dismissal campaign, has already challenged his dismissal and promised to do “whatever it takes to clear a name”. If Mr. Golomsha’s claim is successful, many more will follow. This will be a huge defeat for the lustration idea in Ukraine and a serious blow to the reputation of the state.
Finally, the Act does not solve any real problems but rather creates imbalances within the public service undermining its efficiency and killing public servants’ motivation. As the Economist, a weekly magazine, put it, “the Act has so far largely been used to clear space for new clans”. Although the Act declares other purposes (in addition to the large scale dismissal campaign), it says nothing about the tools of achieving them. This is why the Act will very soon be viewed by the general public as a politically motivated move by its authors to clear the government of their political opponents, a very sad result for a very promising initiative.
How efficient do you think the recently approved On Prevention of Corruption Act of Ukraine is from the point of view of combating corruption at the top level of the government?
The adopted Act defines the basics of the government’s anti-corruption strategy, which includes the concept of the decision-making system in this anticorruption policy.
The document foresees both the special governmental body to fight corruption and a series of innovative procedures, in particular a selective Act concerning financial transparency during election campaigns and political parties financing. This procedure also defines institutional lobbying as an intermediary between the civil population and state institutions and includes the subtleties of public service in local communities, etc.
However, many aspects of this document are of a declarative character where the very substance of document cannot be functional without amending other aspects of legislation such as witness protection, reforms for the reimbursement of state employees, increase in the transparency of Ukrainian legislation in state supply, etc. In addition, several norms of the Act about “local police” appear to be absurd taking into consideration the complexity of the social and political situation in the country and, thus, makes the efficiency of this Act very doubtful. The positive side of it is the acceptance of that legislation which intends to create the institution of a business ombudsman, to make it impossible to free from responsibility those individuals who committed acts of corruption to be released from custody on bail.
What changes could be expected in the near future after implementation of the On Principles of Anti-corruption Policy in Ukraine (Anti-corruption Strategy) in 2014 — 2017 Act of Ukraine?
The anti-corruption body will prepare and present annual reports on the state of the fight against corruption to Parliament and conduct a public education campaign to eradicate tolerance towards corruption, including commercial bribery.
Rules for financing of political parties and of election campaigns to all councils and for the post of president will be unified. Disclosure of all campaign donations and of expenses and revenues of the political parties will be required, financial reports of parties will be subject to periodic and pre-election audits by certified independent auditors.
The statute on lobbying will introduce legitimate methods of lobbying and sanctions for violations, and require disclosure of whose interests are being lobbied.
Tests of integrity of government officials will be allowed. They will not be viewed as a provocation of bribery (and thus may be grounds for criminal prosecution) where the official had a pre-existing intention to give or accept illegal benefit.
Whistleblowers will be encouraged to report acts of corruption, protected from persecution and reworded for their tips-offs. Introduction of whistleblower hotlines and of anti-corruption action plans will be required of legal entities and state bodies.
Companies and/or officers convicted of corruption will be disbarred from public tenders and access to public finances.
What possibilities to conceal information about the real business owners will companies still after approval of the On Changes to Certain Legislative Acts of Ukraine Concerning Ultimate Beneficiaries, Legal Entities and Public Figures Act of Ukraine?
Adoption of the On Changes to Certain Legislative Acts of Ukraine Concerning Ultimate Beneficiaries, Legal Entities and Public Figures Act of Ukraine should have a positive effect on the openness of information about the beneficial owners behind individuals. The mechanisms provided by the Act are sufficiently transparent and leave a few options to hide the beneficial owner.
However, in our opinion, in reality the situation will be different. Today, the majority of holding companies and holding groups are registered in Cyprus or in other offshore jurisdictions. As a rule, such jurisdictions are characterized by the developed institution of nominal owner — a natural person (individual). Moreover, such a nominal owner in many cases is not indicated as a nominal and formally is the complete final beneficiary of the holding group.
Taking into account the fact that foreign jurisdiction regulatory bodies have very few opportunities to establish that a certain natural person — offshore citizen is actually a nominal owner and it is practically impossible to prove this fact.
Taking into account the new regulations, it is expected that companies will change their current nominal owners (that are usually the nominal owners of a few tens of companies at the same time) to new ones that will not be connected to any natural persons. After this, the possibility to prove the fact that the final beneficiary of the holding group is another person will be reduced to zero.
Ukrainian Prime Minister Arseniy Yatsenyuk suggested eliminating commercial courts. Would the elimination of commercial courts promote efficiency of judicial reform in the country? How can it affect court lawyers?
Prime Minister Arseniy Yatsenyuk is not the first to voice the initiative to liquidate commercial courts. It has been discussed now and then for quite some time, but so far nobody has even got as close as a comprehensive bill on the issue.
The most probable reason for this is that the question of whether we need commercial courts in their capacity as such is quite controversial.
Even though some say that disputes in commercial and general court differ only in terms of who the parties are, in reality composition of the parties in many cases also determines the type of disputes arising between them. For instance, a judge in a general court obviously would not have enough expertise to hear anti-trust or bankruptcy cases. Likewise, commercial court judges may have less expertise when it comes to, for example, family law disputes (divorces, adoptions, inheritance, etc.).
Specialization of courts plays an important role in the quality of justice. Therefore, at the moment in commercial courts means parties may enjoy more efficient, quicker and some even say more professional resolution of their commercial disputes.
Unfortunately, we have a history of reforms that were carried out in a rush and created more problems than they solved. Liquidation of one corrupt institution and transferring its authority to another is unlikely to help fight corruption; rather, it will just create another corrupt institution. Liquidation of a whole branch of commercial courts is definitely something that should be thought through carefully, discussed within the professional community and implemented only if and when all of the controversies arising will be solved. It appears that is not likely to happen in the near future.
Recently, a pool of law firms within the US — Ukraine Business Council developed the strategic priorities of the legal reform in Ukraine. One of the fundamental reform priorities is the fight against corruption, including the transparent legislation on public hearings in the Parliament and sessions for consideration of citizens’ suggestions. What additional mechanisms should the legislation include to make such initiative completely operational?
Prior to all other things, fighting corruption in our country calls for a search for new, effective ways whose implementation would eradicate corruption in our lives. Unfortunately, the proposal as to adoption of transparent legislation providing for holding hearings in the Verkhovna Rada and sessions to consider public comments does not offer anything new, nor does it offer any specific, effective way to fight corruption.
To date, the Rules of Procedure of the Verkhovna Rada of Ukraine provide for a mechanism for parliamentary hearings on various issues. According to Article 236 Part 8 of the Rules, based on the results of parliamentary hearings, Parliament adopts a resolution at its plenary session that approves the recommendations based on the results of those hearings.
In addition, the citizens’ comments that in future might be discussed at the parliamentary hearings of, as indicated above, “hearings in the Verkhovna Rada”, should be carefully analyzed and summarized by the competent authorities or organizations specially created for that purpose. Therefore, our opinion is that it is important to improve the mechanism for calling and holding parliamentary hearings rather than to create a “new” mechanism for “hearings and sessions of the Verkhovna Rada for consideration of the comments of citizens.”
First of all, it is appropriate to expand the functions and duties of the Committee for Fighting Organized Crime and Corruption to include the functions to review and analyze the comments of citizens with a view to making proposals to the Verkhovna Rada of Ukraine as to holding parliamentary hearings. Analysis of the comments (based on which the committee must apply to the Verkhovna Rada of Ukraine with the proposition to hold the hearing) must be a duty rather than a right of the committee. However, in this case it is irrational to convene a separate session on consideration of citizens’ comments. Review of appeals — this is what must be the work of the committee between sessions. It is the result of the review of the comments and their generalization at the meetings of the parliamentary committee that the Committee must rely on in adopting a mandatory decision to appeal to the Verkhovna Rada with a proposal to hold a hearing on a specific issue.
For greater effectiveness of this mechanism it is expedient to amend the Rules of Procedure of the Verkhovna Rada to increase the number of questions for discussion at parliamentary hearings, because currently only one thematic issue may be offered for consideration at a parliamentary hearing.
In addition, it would also be appropriate to amend the Procedural Rules of Procedure of the Verkhovna Rada of Ukraine and to expand the range of those who may turn to the Verkhovna Rada with a proposal to hold parliamentary hearings, as well as to vest such right in the National Anti-corruption Bureau of Ukraine which was established in connection with the recently adopted package of anti-corruption acts.
Recently, Georgia implemented quite successful anti-corruption reforms. What experience could Ukrainian authorities use to implement future anti-corruption initiatives?
Ukraine needs massive, coordinated, systematic and on-going reform targeting the entire governance and legal system (and all of its components), and replacing it with a modern, transparent, competitive, liberalized and simplified, as well as decentralized system, fitted with new legislation and regulatory practices, and implemented by a new non-corrupt class of civil servants, protected by fair courts.
It appears that the closest blueprint for Ukraine to follow is Georgia, which in 2004-2012 prepared, adopted and implemented a comprehensive package of reforms covering the entire spectrum of its governance and legal system, while minimizing corruption to a negligible level. Georgia has done it under circumstances similar to Ukraine’s: on the negative side — under a trade embargo on Georgian exports to the Russian Federation, cutting off of gas supplies, military invasion with subsequent occupation of significant parts of Georgian territory; and on the positive side — with the prospect of signing the Association Agreement with the EU. Ukraine may have the benefit of learning not only from Georgia’s undeniable overall success, but also from its less significant practical mistakes made during the transition period.
There have been numerous studies, articles and books written about Georgia’s reforms, but the formula seems to be undertaking the following measures decisively and simultaneously: deregulation and liberalization, including e-Government and minimizing as much as the possible human factor in relations between citizens and businesses with the government; drastic reduction of government apparatus and increase of salaries for remaining civil servants; massive replacement of the old cadre of civil servants, judges and law enforcement with young, Western-educated professionals; radical replacement of legislation with new modern Acts and regulations; building new, strong institutions; severe enforcement of anti-corruption measures, jail terms for even small-level acts of corruption, public exposure; PR Campaign and promoting symbols, such as, for example, transparent glass buildings for police.
Georgia (as Ukraine should) took full advantage of new technologies. Using advanced IT solutions for governance and legal reform can save a tremendous amount of time and effort and minimize corruption. To this end, Ukraine’s reforms should be as much about software and IT solutions as it is about new Acts.
What is your opinion about a possibility to use Georgia’s experience to reform the tax system to curb corruption in Ukraine? Which areas of the reform should be a priority?
I believe the main reforms of the tax system should ultimately lead to simplification of administration and minimize the time taxpayers spend to calculate taxes and to prepare reports. Georgia’s experience is very interesting, especially because we are able to evaluate implementations and examine the gained results for each component of reform.
The priority measures that we could use too are the complete computerization of all procedures.
In Georgia, the entire process of administration and servicing of taxpayers takes place only in electronic form. A single electronic account is created for every taxpayer. The account contains filed declarations and paid taxes. This excluded any manipulations and made the procedure transparent. They also implemented automated systems to detect and respond to offences and the system of electronic invoices. As a result, such a computerized system enables the monitoring of goods across the country and does not allow invoices to be destroyed or the issue of invoices for an unregistered person. All information is available in real time. Communication with taxpayers is carried out only through front offices, which only accept and provide information or decisions. Information is processed by separate back offices that share information with the front offices electronically. Direct communication with taxpayers does not exist. All these measures certainly promote transparency of tax administration and can be used in our reforms.
