Businesses must understand that authorized individuals’ corrupt actions can destroy a company.

On March 4, 2024, the Higher Anti-Corruption Court issued the first verdict imposing criminal law measures on the legal entity in the corruption offense case.

Andriana Kulchytska, partner and attorney at “Nazar Kulchytskyy and Partners,” analyzed this verdict. We share the content and key facts of the case.

This is the first precedent issued almost ten years after introducing the amendments regarding applying criminal measures to legal entities.

The amendments to Ukraine’s Criminal Code were prompted by Ukraine’s implementation of the EU-Ukraine Action Plan on Visa Liberalization.

It’s worth noting that Ukraine is a party to the most important international legal agreements combating crime. Almost all of them impose criminal liability on legal entities for criminal offenses:

• ●  the United Nations Convention against Transnational Organized Crime (Article 10),
• ●  the United Nations Convention against Corruption (Article 26),
• ●  the Council of Europe Criminal Law Convention on Corruption (Articles 18, 19).

The legislation of the United States, Canada, France, the United Kingdom, Australia, Switzerland, Denmark, Finland, the Netherlands, Israel, Estonia, Georgia, Latvia, Lithuania, Moldova, and Romania also provides for criminal liability of legal entities. Penalizing for committing crimes may include fines, liquidation, and activity restrictions.

I want to draw attention to the fact that the verdict has yet to gain legal force and may be appealed to the appellate court. At the same time, I need access to the court case and need to familiarize myself with the contents of the prosecution or defense evidence. So, the analysis includes only the verdict of the Higher Anti-Corruption Court.

According to the verdict, by order of the Odessa Regional Administration, in connection with the introduction of martial law and to ensure navigation safety, the exit and stay of small vessels in the inland waters of the Odessa region, particularly at fishing reservoirs, were temporarily prohibited.

Acting in the interests of his own company, the LLC “VMS-10” director provided a public official’s unlawful benefit of 200,000 hryvnias for lifting the ban on the exit of small vessels to water bodies for fishing aquatic resources.

During the court hearing, the company’s director fully admitted his guilt. He explained that the company could not operate due to the prolonged ban, so he saw the possibility of providing an unlawful benefit and lifting the ban as ways to “solve the problem.”

The court found the company director guilty of committing a criminal offense under Part 1 of Article 369 of the Criminal Code of Ukraine. Additionally, criminal law measures were imposed on the LLC “VMS-10” based on Part 2 of Article 96-7 and Part 1 of Article 96-10 of the Criminal Code of Ukraine:

• ● the court imposed a fine on the director in the amount of 3,000 non-taxable minimum incomes of citizens, which amounts to 51,000 hryvnias;
• ● special confiscation in the total amount of 200,000 hryvnias was applied, which must be compulsorily seized into state ownership;
• ● a fine of 340,000 hryvnias was imposed on LLC “VMS-10”.

Thus, the company and the authorized person on whose behalf it acted essentially share the responsibility for the committed crime. In this case, there is no obligation to prove the company’s guilt separately. Authorized persons of a legal entity include not only the owner or manager of the enterprise but also any person acting under a power of attorney or formation documents.

Depending on the severity of the criminal offense and the damage caused, the enterprise may be liquidated in addition to fines and property confiscation.

Similar court verdicts will become more common every year. Businesses need to understand clearly that unlawful actions by authorized individuals can lead to the destruction of the company.

Author: Andriana Kulchytska, Partner at “Nazar Kulchytskyy and Partners”