Moratorium on pressure: how personal responsibility of investigators and prosecutors can protect business
Businesses are asking the authorities to extend the moratorium on procedural actions of law enforcement agencies that can stop business activities. For the three months that the moratorium was in effect, introduced on the basis of the NSDC decision, there have been no systemic changes that would help reduce pressure from law enforcement.
Although the Prosecutor General's Office reported closing almost a fifth of the cases against businesses, according to entrepreneurs themselves, not a single investigator or prosecutor has been brought to justice.
There have been no global changes in the blocking of tax invoices, which is also one of the most pressing problems of business and was mentioned in this decision. Deputies also failed to reboot the Bureau of Economic Security, which is supposed to investigate economic crimes.
Censor.NET's correspondent looked into why this happened and what really needs to be changed so that during the war business does not have to be on the defensive, protecting enterprises from the arbitrariness of law enforcement.
TEMPORARY MEASURES NEVER BECAME A LONG-TERM STRATEGY
It should be recalled that in January of this year, the National Security and Defence Council of Ukraine adopted a decision on economic security during martial law, which was related to the pressure on Ukrainian business. It was put into effect by a decree of President Volodymyr Zelenskyy.
This was the government's response to the business community's outrage at the arrest of investment banker Ihor Mazepa.
Among other things, this decision provided for a moratorium on procedural actions in cases related to the economy. Commenting on what law enforcement officers should not do, the deputies emphasized that it was primarily about searches and seizure of property (equipment, servers, cash). The second is the seizure of bank accounts. The third is the seizure of property, which prohibits the use of this property for business activities. It means that anything that could lead to blocking the work of the enterprise or hindering its business activities.
Why is it exactly three months? In answering this question, my interlocutors suggested that this time would probably be enough to understand what was happening and develop effective tools to remedy the situation.
However, no one could explain to me what investigators investigating high-profile crimes in the economic sphere should do during this period and what they should do according to the law.
Nor could they clearly explain who should conduct the audit of criminal proceedings against businesses, which was also provided for in the presidential decree that put the NSDC decision into effect. Lawyers noted that there is no such direct provision in the Criminal Procedure Code (CPC).
Nevertheless, there were certain hopes for this audit, as the public wanted to find out how many criminal proceedings had been opened against businesses without any basis and by which law enforcement agency.
Commenting on the NSDC's decision to our publication at the time, Halyna Yanchenko, head of the Temporary Special Commission of the Verkhovna Rada on Investor Protection, said that this was an important point since the second most frequent reason for appeals to the parliamentary commission over the past year was pressure from law enforcement agencies and the unjustified opening of criminal proceedings. And sometimes these criminal proceedings, according to her, are absurd. For example, a case is opened because of the production of low-quality goods, but the company does not produce these goods in principle. Or criminal proceedings are opened against one company, while searches are conducted at another company in another region.
The business community generally welcomed this step by the authorities, although it was immediately clear that the points proposed in the decree were selective and short-term, and that systemic changes were needed.
When the moratorium expired, representatives of the Council for Entrepreneurship in Wartime, which was created during this period, made cautiously optimistic statements that the number of searches and requests for property seizure filed by prosecutors and investigators had decreased over the three months. However, given that the moratorium was in effect, this was probably the case.
At the same time, the Manifest 42 civic movement released a statement at a press conference that "when the three-month moratorium expired, there was a risk of returning to the most shameful practices of violating Article 42 of the Constitution, which guarantees the right to entrepreneurship." The statement was read out by Serhii Pozniak, chairman of the board of Manifest 42 and head of the Association of Veteran Entrepreneurs. The statement also says "There have been no systemic changes during the moratorium on blocking business by security forces, which forces entrepreneurs to move to organized resistance to law enforcement pressure."
In their speeches, the participants of the press conference stressed that the problem of blocking tax invoices has not yet been resolved and that after the audit, many questions remain about high-profile cases, as well as about who among law enforcement officers will ultimately be held accountable.
"I would like to say more about the emotional state rather than the numbers. In the third year of the full-scale invasion, it is also difficult for business. We are fighting for every penny, for every person, for taxes, and also for the help of the Armed Forces. I think there is not a single company that does not help. Some of us do more, some of us do less, but we all do it. That is why the attitude of the state through law enforcement agencies to Ukrainian business is not something like ingratitude. I don't know what cultural word to call it. I think that business is ready to unite and play by the rules, but we all need a social contract where the state will fulfill its obligations, business will fulfill its obligations, and law enforcement will fulfill its obligations. By uniting, I think we can defeat our enemy much faster," said Viacheslav Lysenko, a member of the Board of CEO Club Ukraine.
Serhii Pozniak added that, unfortunately, the philosophy of pressure on business has not yet been changed. However, during the presidential decree, law enforcement agencies mostly avoided actions that blocked the work of enterprises. "That is, the moratorium showed that the law can work if there is a will," said Pozniak and explained that the members of the Manifest 42 civic movement believe that such a moratorium should be in place permanently, as well as the audit of criminal proceedings. "Otherwise, these things tend to return," he said. "Searches without warrants, summonsing employees for interrogation... All this is a threat to national security. This leads to the immigration of enterprises abroad, to a blow to the economy."
There has been no official reaction to this statement from the authorities so far. But in any case, it is clear that systemic changes are needed, not temporary solutions. We asked lawyers specializing in business protection cases what they might be.
RISKS FOR TAXPAYERS
We started with an issue that has not been systematically resolved for quite some time. We are talking about blocking and unblocking tax invoices. This issue has been raised by businesses from time to time since 2017. In December 2023, the NACP reported on the existing problem in the tax invoice registration procedure and presented its own research, which identified a number of corruption risks and proposed a comprehensive solution to the issue, developed jointly with People's Deputies, representatives of the business community, the Business Ombudsman Council, the Union of Ukrainian Entrepreneurs, BRDO, the Ukrainian Business Council, the Economic Expert Platform, judges, members of specialized NGOs, etc.
The NACP sent recommendations based on the results of the study to the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, the Ministry of Finance, the State Tax Service of Ukraine and the Ministry of Economy and emphasized the need to introduce effective anti-corruption safeguards in this area.
In other words, even before the clause on the audit of the risk monitoring system and criteria for blocking tax invoices and procedures and criteria for unblocking them were included in the NSDC decision, the Ministry of Finance and the relevant committee of the Verkhovna Rada should have proposed some solution. It is unknown why they did not do so. At least, the Cabinet of Ministers resolution setting out the criteria has not been changed recently.
Attorney Andrii Tamoshiunas, who specializes in tax-related cases, notes that he has recently received fewer requests for legal assistance in unblocking tax invoices (TI). But, in his opinion, there are no systemic changes. "At first, I really thought that there were fewer blocking cases, but then I realized that in some places the business itself learned to "unblock", in others - to "optimize" (in particular, not to submit for unblocking, "duplicate" TI, etc.)," explains the lawyer. "At the same time, in our experience, representatives of all categories of business (both systemic and non-systemic, small and medium-sized) continue to be "blocked". There are many cases when an enterprise has been operating for years, has the same core business, the same UCGFEA (Ukrainian Classification of Goods for Foreign Economic Activity) codes (input and output), the same number of employees, but it has not been "blocked" before or at least blocked tax invoices were registered on the basis of submitted packages of documents, and then from a certain time the same company starts to block TI and/or refuse to "unblock" them. And the most important thing is not even this fact, but the fact that often taxpayers cannot even understand the root causes of the problem in order to fix it."
An additional problem, he said, is "the riskiness of the payer." In Tamoshiunas' opinion, it would be better for real business if the instrument were canceled."Because, in my opinion, it harms real business more than it helps in the fight against fictitious companies: Firstly, any provision of the Tax Code does not authorize the tax authorities to make decisions on compliance with the criteria of riskiness of the payer, and Article 55-1 of the Commercial Code provides only for the judicial format of "recognizing" a business as fictitious; secondly, the "riskiness of the payer" often leads to "excessive liability" of such a payer, since, on the one hand, due to the conditional "risky" UAH 1,000, the entire activity of the payer may be "under attack" (and this is not only the blocking of tax invoices/adjustment calculations and possible fines from counterparties, but also image risks, which often even outweigh the financial consequences)."
By the way, to understand how "payer risk" works, it is enough to recall the coronavirus - someone got sick, then communicated with someone and a chain reaction started... It is absolutely the same in this case - one "infected" payer can "infect" others in the chain (and in both directions - both buyers and suppliers)," he believes.
HOW TO MAKE LAW ENFORCEMENT OFFICERS BEAR RESPONSIBILITY FOR THEIR ILLEGAL ACTIONS?
The vast majority of lawyers who have to defend businesses emphasize that law enforcement officers need to strictly adhere to the current legislation and not manipulate it.
Lawyer Armen Nersesian identifies several problems that exist today. The first is the manipulation of jurisdiction. "For many years now, it has been said that the economy should be taken away from the SSU or the National Police. But what do we see in practice? For example, the SSU opens proceedings allegedly for terrorist financing, because this is their jurisdiction. And they can add other articles to it. This means that formally, there are no alleged violations. But you open a procedural document - a suspicion - and there is no evidence to prove this is terrorist financing. At best, if the investigator is competent, and it's about cryptocurrency, it says that there is a suspicion that the crypto allegedly sent to people with Donetsk or Luhansk registration. Although we have half of Kyiv with such a license. But they can manipulate it, and it's not clear what will happen next.
In general, the problem is with the CPC itself," the lawyer believes. - "For example, I started working under the Criminal Procedure Code of the year 1960. And it was easier to some extent. Back then, a resolution was issued to initiate a criminal case. It was a procedural document that I could appeal.
Now you can enter anything into the Unified Register of Pre-trial Investigations (URPTI). Law enforcement officers explain that this is just preliminary information that was entered into the URPTI. And what they are investigating will be clear only when they can see at least some documents.
Another urgent issue, in his opinion, that needs to be resolved is the responsibility of the investigator and prosecutor. "In 90% of the business cases I participated in as a lawyer, searches were not required, but they were conducted. At least documents and financial statements can be requested for temporary access, without breaking down doors and so on.
Searches are required where a person keeps, for example, drugs or explosives. And in 90% of economic crimes, they are simply not needed.
It's the same with the seizure of property. For example, a company's accounts are seized, it does not work, incurs losses, and its contractors terminate their contracts. After a while, the criminal proceedings are closed due to a lack of evidence. In three months or three years, thanks to the abolition of the Lozovyi amendments, which gave us the possibility of "eternal" criminal proceedings. And accordingly, we can now have arrests for three years. I had a case where the arrest was lifted only after 12 motions.
There are situations when they say that the company is fictitious. In this case, the production facilities are seized, and the video of the search shows that there are machines there," he explains. He adds that in most cases, investigating judges approve searches. - In the last five years, they have begun to ban cash seizure. What about equipment and computers? Three laws have already been adopted to ban seizures, but they don't work. Investigators say they don't have the specialists to conduct an on-site inspection."
According to him, the situation could be changed if business representatives filed lawsuits against investigators and prosecutors demanding compensation for the period of time they did not receive income. But so far, businesses have been hesitant to take such steps for fear of opening new proceedings.
Lawyers emphasize that there are now enough institutions that could address the issue of improving legislation, and there is no point in creating new ones.
"In my opinion, artificial institutions of imaginary influence on this situation are being created around the issue of 'pressure on business. This is done deliberately to distract from truly effective algorithms," says attorney Kostiantyn Hloba, "All the levers currently proposed are not a significant counterweight, which only generates excessive overregulation and is intended to only suspend the consequences of such actions to a certain extent. Answering the question of why there is pressure on business, he cites a number of factors: "First, certain law enforcement officials pursue their own corrupt or personal goals. Secondly, the judicial system is dependent on law enforcement officials, and, accordingly, by manipulating court rulings, the law enforcement system can put uncontrolled pressure on business. Third, there are no effective algorithms for judicial control over the state of pre-trial investigation and law enforcement officials.
I propose not to beat a dead horse by building mythical institutions, but to pay attention to only two aspects and, more importantly, to their real and practical application. I am talking about the aspect of independence of the court from the law enforcement system and the aspect of judicial control over the pre-trial investigation and law enforcement personnel. It means that the investigating judge at the pre-trial investigation stage can assess the actions of a particular investigator or prosecutor. And so that this assessment does not just remain an assessment, but has further consequences in the form of automatic initiation of disciplinary proceedings. I also propose to give the court the right to close criminal proceedings mandatorily if the lawyer proves that there is abuse of the investigation."
In turn, attorney Oleh Shram is convinced that investigators and prosecutors should strictly comply with the provisions of the CPC now, without waiting for the legislation to be improved, and then there will be fewer problems for business. "It is necessary to comply with the existing law, read it and apply it in terms of the general principles of criminal proceedings and the Constitution. And then look at what needs to be corrected or changed. What is the problem? We can rewrite the law 10 times, but what will change if we don't execute it? "If we change it again, it will not be executed again," says the lawyer. "Prosecutors are responsible for the execution of laws in criminal proceedings, and it depends on them what will be submitted to the court, what motions will be filed. Whether they will receive unfounded motions or whether criminal proceedings will be used for purposes other than those provided for by law. Whether the instrument of criminal proceedings will be used to violate someone's constitutional or other rights, contrary to the established procedure. This all depends primarily on prosecutors, and secondarily on investigating judges who authorize searches, seizure of property, bank accounts, etc."
He also commented on the new standards for prosecutors' activities in protecting investments during pre-trial investigations, which were recently signed by Prosecutor General Andrii Kostin. "There is nothing new there. It seems that investigators and prosecutors do not read the CPC, it is too big for them, so they have made a manual for them. Just read this. In general, a lot depends on prosecutors. And if we take, for example, the issue of rebooting the BES, where there is a problem with personnel and a permanent head needs to be appointed, there will still be a problem with the prosecutor's office, which is not fulfilling its function. Prosecutors do not assure compliance with the law. And one more point that many people are silent about. In my practice as a lawyer, I often see that in cases where there are indeed some wrong decisions or actions, prosecutors do it themselves. Not investigators with the help of prosecutors, but prosecutors themselves initiate searches and arrests. I have a few cases where there is no trace of the investigator, maybe a few formal procedural documents have been signed, but the prosecutors themselves do all the key things."
Halyna Yanchenko, a member of parliament, also speaks about the need for fundamental and long-term changes. "What changes have I seen in the context of the NSDC decision? The first is that the security forces have finally decided to count the number of cases of economic crimes that have been opened in recent years. The second point is that economic cases have been partially transferred from other bodies to the BES, but not all cases, including a number of high-profile ones, have been transferred anywhere. And the third thing is that during these three months there was a "lull", although we observed that some searches were still being conducted and arrests were being made. But at least it is not as active as it was before. The only thing that worries me is that now all this may resume. Because there are no systemic changes at the legislative level. Only the draft law on BES has been developed, which was widely criticized by the investment community and experts, and ultimately the Verkhovna Rada did not adopt it. Other draft laws that have been developed and could have a positive long-term effect continue to be ignored."
For example, one of these documents was registered last year. It is draft law No. 9211, which introduces amendments to the Criminal Procedure Code. Its purpose is to protect the tech sector from unwarranted interference by law enforcement agencies with observance of investigation balancing. According to the authors, these changes will reduce pressure and excessive interference of law enforcement agencies in the activities of Ukrainian businesses, as well as stimulate the development of the digital economy.
Summing up the three months of the NSDC decision, People`s Deputy Yaroslav Zhelezniak noted that "the only thing that has been done is that the consequences of the SASU decision on military procurement and profits have finally been corrected (after a year and a bunch of criminal cases from the SBI).
Commenting on the amendments to the CPC, he drew attention to the fact that "a completely empty law (No. 10440) from the government was introduced and approved by the Committee, which was not supported by anyone... And now all business ideas are ignored and nothing is happening."
Will something be done in the future or will everything remain limited to standards for prosecutors? Obviously, changes are needed if we want businesses that have to work in extremely difficult conditions, particularly in frontline cities, to survive and fill the budget.
Tetiana Bodnia, Censor.NET
