Analytics

On November 25th 2021, the Cabinet of Ministers of Ukraine published the Order as of November 24, 2021, No. 1493-p “About the beginning of activity of the Bureau of Economic Security”, according to which the Cabinet of Ministers has determined the possibility of the Bureau of Economic Security of Ukraine (the Bureau) to start functioning as law-enforcement body.

1.

We would like to remind, that the Bureau had to begin activity on September 25th. This date was seen from the transitional provisions of the Law of Ukraine “On the Bureau of Economic Security of Ukraine”, which in paragraph 9 of Section IV of the relevant Law established that: “9. The Bureau of Economic Security of Ukraine shall start its activity no later than six months from the date of entry into force of this Law”.

Before that date the Bureau failed to be launched. In order to somehow resolve this issue, on September 22, 2021, the Law of Ukraine “On Amendments to Article 11 of the Law of Ukraine ‘On Currency and Currency Transactions’ Concerning the Performance by Banks of the Functions of Currency Supervision Agents” was adopted (Draft Law No. 5851 as of August 17, 2021). This Law entered into force on October 9, 2021 (in the part concerning the Bureau). Hence the six-month period after its completion turned into an eight-month period. Whether such extension of the term is legal, please read in our previous review “September 25th: has the Bureau of Economic Security of Ukraine been launched and what is waiting for the State Fiscal Service authorities (tax police)?”.

2.

Despite the existence of issues with the legitimacy of the extension of the term for the beginning of the Bureau functioning, finally the Bureau has started its activity and on November 25th the following laws have entered into force:

• the Law of Ukraine “On the Bureau of Economic Security of Ukraine” (the Law on the Bureau), and
• the Law of Ukraine No. 1888-IX of November 17, 2021 “On Amendments to the Code of Ukraine on Administrative Offenses, Criminal and Criminal Procedure Codes of Ukraine regarding the introduction of the Bureau of Economic Security of Ukraine and related improvements in the work of some state law-enforcement bodies” (the Law No. 1888-ІХ).

Besides, it should be noted that the Law No. 1888-IX was crucial to the start of the newly created body, because it, among other things, amended the Criminal Procedure Code of Ukraine (the CPC of Ukraine) and determined the list of criminal offenses within the Bureau’s jurisdiction – the list was quite extensive in connection with the inclusion of all economic crimes into the jurisdiction of the Bureau. Thus, the Bureau received powers not only institutionally but also functionally.

At the same time, the conflict regarding “investigative bodies monitoring compliance with tax legislation”, which are specified in Article 216 of the CPC of Ukraine, but for a long time simply did not exist, was finally resolved. Such bodies within the State Tax Service, which is the body that exercised control over compliance with tax legislation, have never been established. We would like to remind that since 2019 the State Fiscal Service, name of which has been used as a signboard by the tax police, has not been a body that monitors compliance with tax legislation.

Thus, the almost 10-year story of tax police reform has come to an end, at least on paper.

3.

What shall we expect next in the pre-trial investigation of tax evasion and other criminal offenses in the fiscal sphere?

The provisions of paragraph 2 of Section VI “Final and Transitional Provisions” provide the following:

“2. Materials of criminal proceedings, which on the day of the beginning of activity of the Bureau of Economic Security of Ukraine stay in other body of pre-judicial investigation at a stage of pre-judicial investigation, but in accordance with the law, are the subjects of the Bureau of Economic Security of Ukraine, within two months from the date of the decision to start the Bureau of Economic Security of Ukraine shall be transferred by the pre-trial investigation body to the respective prosecutor in criminal proceedings for further decision to be made in accordance with the Criminal Procedure Code of Ukraine.

Materials of criminal proceedings, which stay in the pre-trial investigation bodies monitoring compliance with tax legislation, at the stage of pre-trial investigation, shall be transferred to the respective prosecutor in criminal proceedings for further transfer to the Bureau of Economic Security of Ukraine in accordance with the Criminal Procedure Code of Ukraine”.

Namely, from November 25th, the materials must be handed over to the prosecutor in criminal proceedings. Accordingly, during this time all investigative actions aimed at investigating such criminal proceedings are illegal.

As we understand, the transfer of materials of criminal proceedings should take place in the manner prescribed by Article 218 of the CPC of Ukraine, the provisions of which were significantly changed by the Law No. 1888-IX of November 17, 2021.

Thus, Part 2 of Article 218 of the CPC of Ukraine (in the version of the Law No. 1888-IX) currently provides:

«2. If the investigator became aware from the statement, notice or other sources of the circumstances that may indicate a criminal offense, the investigation of which is not within his competence, he is obliged to notify the prosecutor in writing within five days from the date of establishing such circumstances and to conduct the investigation until the prosecutor determines other jurisdiction.

The prosecutor considers the written notification of the investigator within ten days from the date of its receipt and in case of confirmation of the circumstances stated in it he is obliged to approve a resolution determining the jurisdiction.

If the prosecutor independently establishes the circumstances that indicate the need to determine other jurisdiction, he is obliged to adopt a resolution determining the jurisdiction within ten days from the date of the establishment of such circumstances”.

Namely, in accordance with the CPC of Ukraine, the responsibilities of the investigator and prosecutor for compliance with the rules of jurisdiction were clearly defined. But what is more important, the specific deadlines were set for the transfer of proceedings to the pre-trial investigation body under proper jurisdiction.

Of course, questions to such version of the Law remained, which rather will be decided by case law but all in all such changes are positive not only in connection with the launch of the Bureau, but also in general for compliance with the law at the stage of prejudicial investigation. Since the previous version (before November 25, 2021) did not set any obligations for the prosecutor and investigator regarding notifications about violations of the rules of jurisdiction and the adoption of the procedural decision (regarding determination of jurisdiction), as well as deadlines for adopting respective procedural decisions.

4.

Despite of the fact that the tax police did not work a full year, the farewell note of the State Fiscal Service was no less bright. The last 10 months of the tax police were spent under the motto “searches, searches with seizure of equipment, interrogations of company’s officials” and other means of “pressure” on the business, headlines about which appeared in the media almost every week. At least such opinion is supported by the effectiveness of the investigation of criminal offenses for tax evasion according to the statistics of the Prosecutor General’s Office.

For example, during January-October of 2021 only 32 reports of suspicion for tax evasion were handed over. The materials of 29 criminal proceedings were sent to the court, and only 8 of them were with an indictment. The rest of the materials of the criminal proceedings (21) were submitted for consideration regarding exemption from criminal liability.

Also, as one can see, in July-October of 2021 the number of closed criminal proceedings increased sharply. Thus, in January-June 16 criminal proceedings were closed. Therefore, in July-October 101 criminal proceedings were closed. This number of closed criminal proceedings once again confirms a de facto lack of grounds for their initiation, and the fact that such criminal proceedings actually served as means of pressure on taxpayers.

As we understand, the remainder of the criminal proceedings (73) as of October was expected to be transferred to the prosecutor’s office for further distribution within the Bureau’s jurisdiction.

The results of the court proceedings are, on the whole, in line with the general trend of previous years before the pandemic. Thus, in three quarters of 2021 the courts issued 11 convictions, 7 acquittals and 71 decisions on exemption from criminal liability.

More detailed statistics on the results of court proceedings and descriptions of relevant court decisions are provided in the Annex 1.

5.

Only time will tell whether the newly created Bureau lives up to expectations and whether the approach to the investigation of criminal offenses for tax evasion changes.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

Kind regards,

© WTS Consulting LLC, 2021

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