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Statistics of criminal proceedings for tax evasion for the first quarter of 2021

31 May, 2021 Newsletters

On May 12, 2021, the Cabinet of Ministers of Ukraine (the CMU) adopted the Resolution on the establishment of the Bureau of Economic Security of Ukraine1 (the Bureau) as the central executive body. At the same time, as we can see, this is not a full-fledged start of the new pre-trial investigation body, but only the inclusion of the Bureau into the scheme of direction and coordination of central executive bodies, which are “supervised” by the CMU2.

Thus, the Bureau is institutionally one step closer to creation, but it should be noted, that according to the Law “On the Bureau of Economic Security of Ukraine” the Bureau should start to work no later than six months after its entry into force (i.e., no later than September 31, 2021).

During the last press conference the President of Ukraine announced that selection to the Bureau will be carried out on a competitive basis, and candidates will be selected by a specially created commission, which is about to be presented and will start selection for the position of the Director of the Bureau. At the same time, the current staff of the State Fiscal Service, as we understand, plans to participate in the competition.

But interestingly enough, whether potential candidates for the Bureau are really concerned about indicators of their effectiveness, which can be seen from the following statistics.

1.

Thus, according to the Prosecutor General’s Office of Ukraine, in the first quarter of 2021, only 29 criminal proceedings were opened. Last year, 246 tax evasion proceedings were registered in the first quarter, which is almost nine times more (!!!).

In other words, this is probably the lowest index recorded for the last 5 years, during which the statistics of criminal proceedings for tax evasion were monitored, which is illustrated by the following chart:

In the first three months of 2021, 12 suspicions were handed over (compared to the last year, when there were only 8), and the investigators with state prosecutors sent 2 indictments to court – similarly to the first three months of 2020. None of the proceedings for tax evasion was closed in the first quarter of 2021, in contrast to the same period in 2020.

As we can see, there is no activity in the investigation of tax evasion.

We hope that the reason for this phenomenon lies in the “qualitative” (rather than quantitative) approach to the investigation of criminal proceedings. But actually, we believe that the reasons are more trivial, namely the extended moratorium on documentary audits, which have always been a source of significant criminal proceedings, as well as probably the desire to transfer the “Augean stables” to the Bureau and its staff.

When it comes to the results of the trial, the indices, as usual, are not numerous. Thus, during the first three months of 2021, the courts considered 3 criminal cases on the merits, passing 1 judgement of conviction and 2 verdicts of acquittal. It seems as not many, but this is almost half of all sentences for the last year (in 2020, only 7 sentences were passed). At the same time, there were a good deal more decisions on exemption from criminal liability, namely 28.

Hence, we would like to distinguish two verdicts – in the case No. 947/15030/20 and in the case No. 210/4382/16-к.

The verdict in the case No. 947/15030/20 concerned the director of non-resident enterprises registered in low-tax jurisdictions, which were used in schemes for the illegal use of the customs regime of inward processing. This is one of the cases related to the so-called “Kurchenko’s schemes”. Thus, in 2013, 55 invoices were submitted to the customs authority, with the signatures of the accused as a director of a Panama company, under which the customs registration of petroleum products was carried out. The goods with a total value of UAH 1.8 billion were under customs control and were supposed to be transported outside the customs territory of Ukraine through the terminal of another legal entity in the Rhine port. In reality, there was no transshipment of oil products through the terminal, and oil products, which were supposed to be exported outside the customs border of Ukraine in customs regimes of transit and re-export, were released for free circulation on the territory of Ukraine without paying taxes.

During the trial, the accused entered into a plea bargain in exchange for cooperation with the pre-trial investigation bodies in the criminal proceedings against the organizers of tax evasion schemes. At the same time, there is the question, whether these testimonies will be valuable in relation to the organizers of the schemes of tax evasion and related revenues, taking into account the doubts about the real possibility of bringing the perpetrators to criminal responsibility.

The verdict in the case No. 210/4382/16-к is also noteworthy. As can be seen from the facts of the case, the actions of the accused, who held the position of director of an intermediary company in the supply of air conditioning systems to the nuclear power plant, were incriminated as tax evasion. According to the investigation, the director’s actions regarding the documentation of the purchase of air conditioning systems for further sale to the nuclear power plant were aimed at forming an unjustified tax credit, as the seller’s director was prosecuted for fictitious business.

During the trial it was established that the air conditioning systems from the primary seller to the nuclear power plant (NNEGC “ENERGOATOM”) were indeed delivered and there are no complaints about these operations from the nuclear power plant. This confirms not only the reality of business transaction between the company and the primary seller, but also its performance. In addition, the director’s guilt was not proved and was based only on the assumptions of the investigation.

It is worth noting that during the trial, the prosecution called as a witness an investigator who was investigating a criminal case on fictitious business against the official of the primary seller of air conditioning systems. At the same time, it is seen from the testimony of the investigator, that despite the presence of real evidence, he actually provided evaluative judgments, which could not be taken into account. That is exactly what the court actually did and passed the acquittal.

A complete list of court decisions for tax evasion with a brief overview is provided in Addition No.1.

All in all, one can clearly see that there is no any activity in the part of pre-trial investigation. As we understand, there is a strong desire to transfer all “Augean stables” to the Bureau.

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.

Footnotes:

1Resolution of the Cabinet of Ministers of Ukraine No. 510 from May 12, 2021 “On the establishment of the Bureau of Economic Security of Ukraine”.

2Resolution of the Cabinet of Ministers of Ukraine No. 442 from September 10, 2014 “On optimization of the system of central executive bodies”.

Kind regards,

© WTS Consulting LLC, 2021

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