On April 26, a new law requiring companies to have compliance programs will come into effect in Ukraine. The law applies to almost all companies participating in public tenders and to state owned enterprises over a certain size. Among other things, it requires companies to appoint a compliance officer with responsibility for implementing the compliance program and reporting to shareholders.
The law also encourages companies to:
- conduct regular risk assessments
- establish mechanisms for monitoring implementation of the compliance program
- draft and implement an employee code of conduct
- define the responsibilities of shareholders and employees with respect to anti-corruption compliance
- establish procedures for reporting misconduct and protecting whistleblowers
- develop programs to raise employee awareness about anti-corruption
- establish mechanisms for holding employees liable for violations, and
- include compliance provisions in contracts with third parties.
While the law does not include penalties for failure to have a compliance program, law enforcement agencies may consider the existence [or absence] of a compliance program in deciding whether to pursue a case. Thus, a compliance program will provide a company with some defense (though not an absolute defense as under the UK Bribery Act) in the event of an investigation. Conversely, the absence of a program may be considered some evidence of guilt. This same approach will likely be used in cases involving companies that are not directly subject to the law.
The law is all the more significant because on April 16, President Poroshenko appointed Artem Sytnyk as the first head of Ukraine’s new Anti-Corruption Bureau. (We reported on the new Anti-Corruption Bureau in our post here.) Sytnyk, who is only 35, spent ten years working as a prosecutor before resigning due to disagreements with the previous government headed by Viktor Yanukovych and, as Sytnyk put it, “the criminalization of law enforcement agencies.” Since 2011, he has been a partner in a private law firm.
It remains to be seen how effective Sytnyk will be. It will take time for him to hire staff and get the Bureau up and running. Also, some have questioned how aggressive he will be given that the law firm where he worked is owned by a former prosecutor whose daughter is married to Hennadiy Kernes, the Mayor of Kharkiv and a well known Yanukovych loyalist. But at least he seems to be saying all the right things.
In interviews after his appointment, Sytnyk said his top priority would be prosecuting serious misconduct by judges and politicians. He also promised to start cooperating immediately with foreign law enforcement agencies, including the FBI, and noted that “the public is not going to wait for the results of the Bureau’s work for years.”
As always, only time will tell. But in the meantime, companies doing business in Ukraine are well advised to conduct risk assessments, review their compliance programs in light of the new law, and make appropriate adjustments.
Yuliya Kuchma is an associate in Baker & McKenzie’s corporate and investigations practice in Washington, D.C., focusing on business crimes and investigations. She also represents companies before the Department of Justice and the Securities and Exchange Commission in connection with possible enforcement actions. Prior to joining the Washington office, she worked in Baker & McKenzie’s office in Kyiv, Ukraine.
Thomas Firestone is a partner in the Washington, D.C. office of Baker & McKenzie. His practice focuses on international white collar criminal defense and compliance, with a special focus on Eastern Europe and the former Soviet Union. He previously spent 14 years at the U.S. Department of Justice, first as an Assistant U.S. Attorney in the Eastern District of New York and then as Resident Legal Adviser and Acting Chief of the Law Enforcement Section at the U.S. Embassy in Moscow.