“Ukrainian-style FCPA” bulks up corporate foreign bribery offence

Ukrainian prosecutors no longer need to secure the related conviction of a senior executive before charging companies in Ukraine for offering, permitting or giving “an improper benefit” to a foreign public official. Lawyers said the legal change has created something akin to a “Ukrainian-style FCPA”, bringing the country one step closer to OECD membership.

Recent amendments to Ukraine’s criminal code, which took effect in late December, state that corporate criminal liability for foreign bribery no longer relies on the corresponding criminal liability of an individual. Ukraine has also amended its penalty system for foreign bribery.

Companies in Ukraine have been on the hook for foreign bribery since 2014 but the amendments mean companies can now be prosecuted without the prior conviction of a shareholder, ultimate beneficial owner or board member who committed foreign bribery for the company’s benefit. The law also makes companies liable for laundering funds deriving from overseas corruption.

Ukraine has been heavily reliant on foreign aid and investment since Russia’s full-scale invasion of the country in 2022, which has resulted in a drawn-out war with its significantly larger neighbour. Lawyers said the amendments are part of Ukraine’s effort to show Western allies and donors that their funds are being used efficiently, and that Ukraine is a safe place for foreign companies to invest and do business.

“Like many things that Ukraine has done on the anti-corruption front in the past few years, this was done because we are trying to align ourselves with the pace of the international community,” said Dmytro Marchukov at Integrites Law Firm in Kyiv, “especially because, given ongoing Russian aggression, Ukraine depends on the political and economic support of various countries and institutions.” He added that the recent amendments to the Ukrainian criminal code have created something approaching “the Ukrainian-style FCPA”.

Marchukov thinks the amendment is designed to make it easier and quicker for Ukrainian law enforcement agencies to get companies on the hook for foreign bribery. “On some occasions, not waiting for the verdict against the individual may be the only option to get a company on the hook,” he said.

Kateryna Gupalo at Arzinger in Kyiv is a member of a local legal association that worked with the Ukrainian government and the country’s National Anti-corruption Bureau (NABU) to draft the amendments. She told GIR that discussions about the reforms only began in mid-2023.

“Ukraine needs to show to our international partners that we are fighting corruption not only in terms of enforcement but also in bringing our legislation in accordance with international standards,” she said. “Luckily, here in Ukraine the legislation process is a little bit faster than in other countries.”

Gupalo and Marchukov said that the amendments are an effort to align Ukraine’s criminal law with recommendations from the Organisation for Economic Cooperation and Development (OECD). Since 2023, the institution has been working on a four-year programme designed to “support Ukraine’s reform, recovery, and reconstruction and help it advance its EU and OECD accession ambitions.”

The programme “envisages” that Ukraine will eventually participate in 24 OECD bodies and adhere to 76 OECD legal instruments including the Anti-Bribery Convention which requires signatories to outlaw the bribery of foreign public officials in international business transactions.

“It needs to be recognised that the speed at which the legislation was changed is proof of a strong political will,” said Nicola Bonucci, a former director for legal affairs at the OECD. “This, at the end of the day, is one of the unwritten, basic pre-requirements to joining the OECD.”

The recent amendments introduced an offence for “failure to ensure the fulfilment of the duties assigned to an authorised person of a legal entity by law”. Simply put, Ukrainian lawyers say this creates a corporate offence akin to the failure to prevent bribery offence within the UK Bribery Act, and creates another route for courts to hold companies criminally liable for foreign bribery without the related conviction of an individual.

The amended criminal procedures require Ukrainian prosecutors to tell a suspect company about its right to enter settlement talks to resolve the case against the business. Local lawyers believe the settlement process could look something like a deferred prosecution agreement in the US or UK, although there are scant details about how the Ukranian mechanism will work in practice – except that any agreement must be approved by a court.

The criminal code amendments have also tweaked the penalties companies face for foreign bribery, which now include a fine of up to 7.5 million times the minimum threshold at which individual Ukrainians must pay tax on their incomes – putting the current maximum corporate fine at around 127.5 million hryvnias ($3 million), lawyers said. Companies also face temporary non-financial penalties including suspensions of their operating licenses, their participation in public tenders and their ability to receive national or international investment. Convicted businesses can also be temporarily banned from sponsorship or advertising activities.

A spokesperson for the NABU said the amendments “represent a significant step toward strengthening Ukraine’s institutional capacity to combat corruption” and align with the country’s “commitments to implementing international standards of transparency and accountability and to enhancing the country’s anti-corruption infrastructure”.

High expectations for compliance, lower expectations for enforcement

Lawyers expect the amendments will enhance anti-corruption practices and compliance throughout the private sector in Ukraine, but they are uncertain about the impact on corporate enforcement efforts.

Only certain types of businesses in Ukraine such as large foreign companies, listed companies and state-owned entities are currently required to have anti-corruption policies and whistleblowing channels for employees to report wrongdoing.

“Small and medium-sized companies, especially those operating internationally, will need to take anti-corruption even more seriously,” said Olga Vorozhbyt, a partner at Sayenko Kharenko in Kyiv. She added that the amendments raise the stakes for larger companies that aren’t yet “playing by the rules” by allowing Ukrainian authorities to block a company’s operations without first holding an individual accountable for wrongdoing. The lawyer thinks the move “might be a game-changer in fighting corporate corruption”.

But Vorozhbyt is sceptical of the enforcement impact, or that foreign bribery cases will proceed as smoothly as the law envisions. She said directors at companies fined for bribery offences or barred from public contracting could simply create new corporate entities. The potential loophole “raises serious questions about how effective the law will really be in deterring repeat offenders,” she said. Vorozhbyt also fears that political interference could also undermine what the law is trying to achieve if courts decide foreign bribery cases “based on politics instead of fairness”.

“It’ll be interesting to see how this all plays out, but there’s definitely room for optimism – as long as the enforcement is fair and consistent,” she added.

Before the recent amendment, Ukraine’s criminal code already had corporate liability for many types of corruption such as bribing domestic public officials or company executives but these crimes still require the related conviction of an individual before the company can be prosecuted.

While Marchukov believes Ukraine’s corruption laws “are not below the international standard”, he accepts the country’s enforcement of them is widely seen as inefficient – something he attributes to Ukraine’s inclusion in the Soviet Union until 1991 and the many “lost years” that followed independence.

Jane Shvets, a Ukrainian-born US-qualified lawyer at Debevoise & Plimpton in New York, said that Ukraine’s bigger immediate challenge in the anti-corruption sphere is continuing to fight domestic bribery and promoting transparency in procurement processes to attract foreign investment, rather than tackling foreign bribery.

“These amendments, although certainly a step in the right direction, are a little ‘beside the point when considered in the context of the current situation and Ukraine’s biggest risk and challenges,” she said.