The Bureau of Economic Security: Approaching Ukrainian Realities

After the Committee on Finance, Tax and Customs Policy prepared the draft law № 3087-d “On the Bureau of Economic Security of Ukraine” for the second reading, the businesses raised the question: “Is everything taken into account in the law? Will the new body really meet European standards? Will it be adapted to Ukrainian realities? Is the issue of stopping the pressure on businesses from all law-enforcement agencies is being resolved?” The new body, if launched, will operate with modern tools of analytical research, in the activities of which сrime prevention will dominate over the influence of criminal law, and the protection of human rights and freedoms will not be a populist slogan, but the real motto of the newly created body”.

Our expert group has always emphasized that the roots of all problems are in the current system of organizing the work of law-enforcement agencies and in the existing structure of the pre-trial investigation process. Also, the framework laws do contain incorrect approaches for regulating the activities of law-enforcement agencies outside the criminal process.

Therefore, we proposed the Concept of building a risk-oriented system for combating crimes in the economy. And this is not only determining the competence of each law-enforcement and regulatory body in the prevention of criminal threats in the economic sphere, the detection and investigation of crimes in the economic sphere. These are tools, mechanisms and ways to solve problems of this nature. We emphasize that it is a system where all the elements are interconnected and interdependent, and therefore cannot exist in isolation. The biggest problem of the authority is that it considers activity of the establishment of the Bureau of Economic Security of Ukraine or the reform of any law-enforcement agency outside the process of functioning of the law-enforcement system as a whole. Such an approach always provokes resistance and rejection by the society, business and the expert community.

Why have we chosen such a way of solving systemic problems and what is the logic of our approach is based on? Let’s compare it with the approaches proposed by the authors of the draft law. In what way are they trying to deprive such bodies as the Security Service of Ukraine, the National Police and if necessary the State Bureau of Investigation of the influence on businesses?

1. It should be noted that the Laws of Ukraine «On the Security Service of Ukraine», «On the National Police», «On the State Bureau of Investigation», «On the National Anti-Corruption Bureau of Ukraine» and «On the Bureau of Economic Security of Ukraine» determine the powers of these bodies outside the pre-trial investigation and operational and investigative activities, in cases dealing with the Security Service of Ukraine, counterintelligence activities, etc. The powers of each of these bodies are determined by the Criminal Procedural Code of Ukraine and the Law of Ukraine «On Operative Investigation Activity».

Examples of powers outside the criminal process, operational and investigative activities related to the relationship with business are:

— «To receive in the manner prescribed by law at the written request of the head of the body or operational unit of the Security Service of Ukraine from customs authorities, financial and other institutions, enterprises, organizations (regardless of ownership) information and documents on transactions, accounts and cash flows for a particular period of time (with the decoding of amounts, date of appointment and counterparty of payment), deposits, domestic and foreign economic agreements, as well as certified copies of documents on the basis of which the account of a particular entity or person had been opened… »item 1. part 2. Art. 25 of the Law of Ukraine «On the Security Service of Ukraine»;»

— «Requires and receives in the manner prescribed by law from other law-enforcement and state bodies, local governments, enterprises, institutions, organizations information necessary to exercise the powers of the Bureau of Economic Security of Ukraine», item 12 . part 1. Art. 8 of the draft Law of Ukraine «On the Bureau of Economic Security of Ukraine», etc.

At the same time, the Law of Ukraine «On the National Police» does not mention economic crimes. However, this does not relieve this institution from criticism for putting pressure on business.

2. There are similar constructions in the Law of Ukraine «On Operative Investigation Activity». Article 8 stipulates that operational units are entitled to: in the manner prescribed by law to raise the issue of inspections of financial and economic activities of enterprises, institutions, organizations, regardless of ownership and persons engaged in entrepreneurial activities or other economic activities individually, and participate in their conducting; 4) to get acquainted with documents and data characterizing the activities of enterprises, institutions and organizations, to study them, at the expense of funds allocated for the maintenance of units engaged in operational and investigative activities, to make copies of such documents at the request of heads of enterprises, institutions and organizations — exclusively on the territory of such enterprises, institutions and organizations,… ».

There are many conflicts or contradictions of these laws, for example, with the Tax Code of Ukraine and other laws. However, practice shows that the vast majority of abuses by law-enforcement agencies are carried out within the pre-trial investigation. Accordingly, the problem should be sought in procedural constructions, i.e. in the The Criminal Procedural Code of Ukraine.

If we analyze some articles of the Criminal Procedural Code of Ukraine, such as Art. 216 where the jurisdiction of law-enforcement agencies, in particular the Security Service of Ukraine, is defined, it should be noted that only a few articles of the Criminal Code of Ukraine under which pre-trial investigations are conducted by security investigators can be used to put pressure on business. These are Articles 110-2 (financing of actions committed for the purpose of forcible change or overthrow of the constitutional order or seizure of state power, change of borders of the territory or state border of Ukraine), 201 (smuggling), 201-1 (movement across the customs border of Ukraine out of customs control or with concealment from customs control of timber or lumber of valuable and rare species of trees, unprocessed timber, as well as other timber prohibited for export outside the customs territory of Ukraine), 258-5 (terrorism financing), etc.

3. Along with this, another combined precondition that creates opportunities for such pressure is how certain articles of the Criminal Procedural Code of Ukraine correspond to each other. In accordance with Part 1. Art. 214. of the Criminal Procedural Code of Ukraine «Investigator, public prosecutor shall be required immediately but in any case no later than within 24 hours after submission of a report, information on a criminal offense that has been committed or after he has learned on his own from any source, about circumstances which are likely to indicate that a criminal offence has been committed, to get access to the information concerned in the Integrated Register of Pre-Trial Investigations, to initiate investigation…». Part 4 of this article: «Investigator, public prosecutor, other official authorized to accept and register reports, information on criminal offenses, shall be required to accept and register such report or information. Refusal to accept and register a statement or information on a criminal offense shall be inadmissible.»

In Part 10 of Art. 216 of the Code of Criminal Procedure of Ukraine states: “If during the pre-trial investigation other crimes committed by the person under pre-trial investigation or another person are established, if they are related to crimes committed by the person under pre-trial investigation, and which are not subject to the body that conducts pre-trial investigation in criminal proceedings, the prosecutor who supervises the pre-trial investigation, in case of impossibility to allocate these materials in a separate proceeding, determines the jurisdiction of all these crimes».

Part 2. Art. 218: «If investigator has learned, from a report or information or another source, about circumstances which can indicate the commission of criminal offence the investigation of which does not fall within his competence, he conducts investigation till public prosecutor determines other investigative jurisdiction.»

Thus, any authorized body may accept a statement of any crime and investigate it until the prosecutor determines another jurisdiction. And how long will it take is unknown. In favor of the authors of the draft law, it should be said that they took advantage of our proposal and set a five-day deadline for such a decision.

4. It should also be taken into account that in addition to investigators, the prosecutor who, in accordance with Part 2 of Art. 36 is «supervising the compliance with law during pre-trial investigation in the form of providing procedural guidance in a pre-trial investigation» and has broad powers to initiate and close criminal proceedings, conduct investigative actions, covert investigative actions, overturn illegal and unfounded investigative rulings, and much more that could be used to end pressure on business. Also involved is the investigating judge, who is empowered with authority to control the legality and validity of decisions and actions (inaction) of the investigator and prosecutor; restrictions on the conduct of pre-trial investigation of constitutional human rights through the application of measures to ensure criminal proceedings, the conduct of certain investigative and covert investigative actions and decisions of pre-trial investigation bodies. Thus, in accordance with Art. 94 of the Code of Criminal Procedure of Ukraine only the chain of investigator — prosecutor — investigating judge «evaluates evidence based on his own moral certainty grounded in comprehensive, complete, and impartial examination of all circumstances in criminal proceedings being guided by law, evaluates any evidence from the point of view of adequacy, admissibility, and in respect of the aggregate of collected evidence, sufficiency and correlation, in order to take a proper procedural decision.»
5. Thus, the factors that lead to pressure on businesses are: first, the wide range of credentials of the prosecutor in matters of pre-trial investigation (but it can not be limited, it can lead to the collapse of the investigation process of all law-enforcement agencies); secondly, the nature of the crimes under investigation by law-enforcement. For example, for the Security Service of Ukraine, special attention is paid to those related to the movement of uncontrolled financial flows.

In Ukraine, members of organized criminal groups, oligarchs, corrupt officials, and ordinary entrepreneurs have concentrated a multibillion-dollar mass of uncontrolled cash that can be used to finance illegal activities. In most cases, the center of its generation are the so-called «conversion centers», and given that the clients of such centers are also representatives of the real sector of the economy, this creates a clear reason for any law-enforcement agency, including the Security Service of Ukraine, to use this factor to pressure businesses.

The draft law 3087-d, despite the fact that it took into account the comments and recommendations of the expert community and deputies regarding the strengthening of the analytical component, still turned out to be non-systemic. It does not solve the problem of pressure on business in any way.

In the opinion of the Chairman of the Committee on Finance, Tax and Customs Policy and the author’s team, such changes in the legislation as exceptions:

from the Laws of Ukraine:

Legal norms of the law «On Security Service of Ukraine» relating to investigations in the economic sphere, in particular: protection of the state economic potential of Ukraine; prevention, detection, cessation and detection of crimes against corruption and organized crime in the field of management and economy; exclusion from the Security Service of Ukraine of the unit for the fight against corruption and organized crime;

Legal norms of the law «On Organizational Legal Principles of Struggle against the Organized Crime» on exclusion of special divisions on fight against corruption and organized crime of Security service of Ukraine from the list of the state bodies specially created for fight against organized crime;

«On National Security of Ukraine» norms on ensuring the economic security of the state by the Security Service of Ukraine through the implementation of counterintelligence protection;

as well as the introduction of a ban on entrusting investigative (search) actions to operational units of the Security Service of Ukraine during the pre-trial investigation of criminal offenses that are under the jurisdiction of the Bureau of Economic Security, by which the problem of pressure on business will be solved is very doubtful. In our opinion, this is the wrong path, which will have serious negative consequences.

Therefore, the key problem is not in the normative constructions of legislative acts that outline the powers of the Security Service of Ukraine or another law-enforcement agency. It lies within the system of pre-trial investigation. We have not yet raised the problematic issues that law-enforcement officers resort to in order to get a reason to contact the entrepreneur. This is a deliberate inclusion in the circumstances that are subject to proof of events that are not relevant to the investigated criminal proceedings, as well as various manipulations with the expansion, changes in the plots of the investigated criminal event, and so on.

6. Now, regarding the risks of introducing such an innovation as a research check into the Criminal Procedure Code of Ukraine. In short, it will actually address a few key points:

— the deadlines for submitting an application, notification of a committed criminal offense to the Unified Register of Pre-trial Investigations will change from 24 hours to any number of days;

— the form of response of the authorized subject will be determined in case of expiration of the terms of the investigative inspection (to initiate criminal proceedings, to refuse to open it or to send it under the investigation or jurisdiction of the investigative body);

— research verification tools will be identified, such as: selection of explanations; conducting a medical examination; obtaining an opinion of specialist and taking readings of technical devices and technical means that have the functions of photo and filming, video recording, or the means of photo and filming, video recording; seizure of tools and means of committing a criminal offense, things and documents that are the direct subject of the criminal offense, or which are found during the detention of a person, personal search or inspection of things. Maybe this list will increase, and maybe vice versa.

Given the fact that the annual number of investigated criminal proceedings in all law-enforcement agencies ranges from 1.5 to 1.7 million, at first glance, such a proposal might seem quite logical, but the devil is in the details. How can this affect business? Definitely in a negative way, because it means having high corruption risks. Despite the fact that risk is a category that is characterized by the probability of consequences, in this case they will be incredibly high.

What exactly do we mean?

First, in the case of receiving virtually every report of a criminal offense, in order to verify them, the law-enforcement officer will be forced to get the essence of such message explanations from the director, accountant and other persons involved in the incident. Second, make copies of the original documents to obtain an expert opinion. Third, in the case of receiving such reports and notifications by different law-enforcement agencies and for different periods of tax reporting, such a process can be endless and uncontrolled.

7. However, despite the hopelessness of the situation, the expert group, which in recent years has studied the feasibility of implementing a progressive ILP model in the existing law-enforcement system, it proposed a systemic approach regarding the integrated application of risk-based approach in both pre-trial investigation and outside of the process.

In particular, it was proposed to introduce in the Criminal Procedural Code of Ukraine a set of norms for the application of a system of risks and threats, which would provide: establishing a 3-5-level system for identifying threats with an assessment of possible consequences (losses) from them, combined, depending on the level of threat, with ways and tools to respond to them; introduction of risk assessment for initiating or closing criminal proceedings (conducting investigative actions) (introduction of covert investigative actions), introduction of a system for prioritizing the investigation of criminal proceedings, etc. Unified methodology should be envisaged by the regulations or by the decree of Prosecutor General’s Office of Ukraine in the manner of provision regarding the Unified register of pre-trial investigations.

Schematically, this process is as follows: (picture attached)

The risk-oriented component outside the criminal process and operational and investigative activities implemented in the laws governing the activities of law-enforcement agencies should include: a system for building strategic management (strategic analysis); risk management by specifying response tools that minimize such risks depending on the level of threat; risk criteria; a set of risk assessment measures; granting analytical product status, etc. It should be realized that the proposed system will significantly reduce corruption risks and make analytics a serious tool in the work of law-enforcement agencies.

Unfortunately, it is extremely difficult to solve the existing problems in any other way, given the realities of today. If we follow the path of uncalculated separation of law-enforcement agencies, restriction of their powers, or thoughtless influence on the discretion of the prosecutor’s office, it will clearly lead to a serious aggravation of the criminogenic situation. Then not only militiamen, but also criminals will put pressure on business. In addition, we will deprive law-enforcement agencies of the opportunity to eliminate powerful organized criminal groups from the economy and destroy systemic criminal schemes.

Grigol Katamadze

President of UNGO TAU

Vice President of the Taxpayers Association of Europe

Vyacheslav Nekrasov,

Candidate of Law, Associate Professor,

leading researcher of National Academy of Internal Affairs