Combatting corruption has been declared a primary goal in Ukraine following the Revolution of Dignity in 2014. Slowly, but steadily, Ukraine’s reputation as a country with a serious corruption problem is improving.
Foreign governments and investors understand that corruption is still a problem for Ukraine, although the degree is going down. The existence of publicly available Ukraine-related FCPA investigations, the applicability of the UKBA, and recent developments in combatting corruption in Ukraine all show progress.
FCPA Jurisdiction
Under the US Foreign Corrupt Practices Act (FCPA), subsidiaries of US companies may be subject to the jurisdiction of the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ), irrespective of whether they act within, or outside of, the United States. The FCPA’s anti-bribery provisions also apply to any US-listed company or any company that has shares quoted in the over-the-counter market and is required to file periodic reports with the SEC.
FCPA investigations involving Ukraine have been conducted based on: (i) violations conducted directly by Ukrainian subsidiaries of US companies; and (ii) involved US-listed companies.
ADM Investigation
The FCPA investigation of the Archer Daniels Midland Company (ADM) is the most widely known example of extending the FCPA jurisdiction to Ukraine and actual payment of both civil and criminal penalties.
In 2013, a unit of ADM pleaded guilty to violating the FCPA by bribing Ukrainian government officials through vendors in exchange for VAT refunds. The DoJ’s investigation revealed that throughout 2002-2008 a Ukrainian subsidiary of ADM, Alfred C. Toepfer International Ukraine Ltd. (ACTI), and another ADM subsidiary in Europe, had paid third-party vendors USD 22 million to pass as bribes to Ukrainian government officials for VAT refunds.
The two subsidiaries artificially increased prices in agreements with a Ukrainian shipping company to include funds to bribe government officials (e.g., under sham insurance agreements, which included false premiums used as bribes). Such misconduct went unrevealed for so long due to deficiencies in ADM’s FCPA compliance system regarding subsidiaries in Germany and Ukraine.
Consequently, ACTI paid a criminal fine of USD 17.8 million to the DoJ and pleaded guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA.
Teva Investigation
In December 2016, TEVA Pharmaceuticals Industries Ltd. (Teva), one of the world’s largest pharmaceutical companies, entered into a deferred prosecution agreement with the SEC and DoJ under which Teva agreed to pay a fine of USD 519 million.
In Ukraine, Teva had hired a government official as a consultant and paid him USD 200,000 from 2002-2011 via various fees, with false books and records made up to conceal the payments.
IBM Investigation
In 2012, IBM notified the SEC of a probe by the Polish Central Anti-Corruption Bureau. The DoJ joined the investigation in 2013 and expanded it to include deals in Ukraine as well.
The allegations involved illegal activity by a former IBM Poland employee in connection with sales to the Polish government. In June 2017, the DoJ and the SEC informed IBM that their investigations into these matters had been closed and that no enforcement action against the company would be pursued.
UKBA Investigations
The UKBA Bribery Act (UKBA) applies to offences which are committed by a person in or with close connections to the UK. The list of persons having close connections with the UK goes well beyond merely UK citizens and UK-incorporated companies.
As we write this, no investigations involving Ukraine under the UKBA have been reported.
Domestic Developments
In 2015, the Ukrainian government established the following key state authorities for combatting corruption: March 2015: the National Agency for Prevention of Corruption, which is responsible for reviewing declarations filed by public officers and verifying their lifestyle; April 2015: the National Anti-Corruption Bureau of Ukraine (NABU) responsible for pre-trial investigations of high-ranked state officials suspected in corruption; and September 2015: the Special Anti-Corruption Prosecutor’s Office responsible for representing the state in court on the basis of NABU’s pre-trial investigations and supervising the NABU’s actions at pre-trial stage.
Additionally, the government is considering establishing an Anti-Corruption Court as a separate judicial body.
Another important development is the introduction of an e-declaration system, which requires all public officials to submit annual declarations and report substantial changes in their financial condition.
Conclusion
Ukraine is undergoing substantial reforms in combatting corruption and establishing itself as a country preferable for doing business. Despite a number of FCPA investigations, Ukraine is demonstrating steady progress towards creating a transparent investment environment. Recent developments are quite promising in this respect.
By Dmytro Marchukov, Partner, and Andrii Gumenchuk, Associate, Avellum
This Article was originally published in Issue 4.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
