Anti-corruption compliance programs: how to make them work under Ukrainian law

February 2013 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION

Financier Worldwide Magazine

For foreign companies doing business in Ukraine, it is important to consult with local external legal counsel not only on the specifics of Ukrainian anti-corruption and anti-bribery regulation, but also to seek advice on how to implement global anti-corruption and anti-bribery policies in Ukrainian subsidiaries in order for them to be enforceable under Ukrainian law.

Global corporate compliance programs and policies are not per se enforceable in Ukraine. Thus, global anti-corruption and anti-bribery policies, procedures and other related documentation must be: (i) brought into compliance with Ukrainian anti-corruption and other applicable legislation; (ii) translated into Ukrainian or any other regional language; and (iii) approved by a Ukrainian subsidiary.

Needless to say, the level of compliance depends not only on the senior management of the company, but also on its ordinary employees. Ukrainian employment legislation does not acknowledge the concept of at-will employment and Ukrainian employers have to be very creative to be able to fire an employee even for a good cause. Therefore, for local compliance policies and procedures to work, a Ukrainian subsidiary has to make sure that, in particular: (i) all these documents were approved by the properly authorised person and all procedures prescribed by law are complied with; (ii) all employees acknowledge that they have read the policies and understood their content; (iii) the company’s regulations on disciplinary actions provide for remedies if an employee violates the respective anti-corruption policy or other applicable documentation; (iv) proper employee training programs are in place; and (v) sophisticated approval and reporting procedures have been introduced.

In addition, when implementing a compliance program it is important to seek outside legal opinions for each instance of gift giving or providing hospitality or entertainment to officials and public servants, as well as any other potential subjects of liability for corruption and bribery offences. One of the reasons for this is that a local in-house counsel is a subordinate of the company’s CEO and, therefore, cannot be completely independent when doing his or her job. In addition, it is always prudent to have the issue evaluated from outside, by someone who is an expert in the field but, on the other hand, has no personal interest in a particular deal.

Practice shows that in relations with third parties it is very important to insist on a sophisticated anti-corruption contract clause. Moreover, it is advisable to provide in any contract with third parties that: (i) they undertake to adopt their own anti-corruption policies based on the policy of the FCPA/UKBA affected company or, if an individual, to adhere to the FCPA/UKBA affected company’s policy; (ii) a local anti-corruption and anti-bribery policy of the FCPA/UKBA affected company should be made an integral part of the contract; (iii) the FCPA/UKBA affected company shall have the right under the contract to regularly inspect third parties’ compliance with the policy; and (iv) it is recommended that a third party undertakes to include the same anti-corruption clause in future contracts with its subcontractors and other third parties.

Another important, but often underestimated, issue related to doing business in compliance with the FCPA/UKBA is conducting anti-corruption compliance due diligence reviews of Ukrainian targets and partners. If foreign investors do conduct such due diligence, they frequently face a rather odd attitude from the potential partner’s management, who either do not take the issue seriously or think it will be easy to conceal the true state of compliance and persuade a foreign investor that the partner’s business practices conform to the FCPA/UKBA and applicable Ukrainian legislative requirements. Therefore, it is important that local experts in the anti-corruption area who know the local business culture and speak the local language are brought to the FCPA/UKBA compliance interviews and perhaps even allowed to lead them.

Unlike the FCPA and the UKBA, Ukrainian anti-corruption legislation does not envisage the special position of compliance officer or the creation of a special compliance department. However, nothing in the law prohibits a company from establishing such a department or appointing a compliance officer – but the company’s owners and local management should be very careful in documenting the duties of the compliance officer and allocating tasks for the compliance department.

In Ukraine the compliance officer is not an independent, protected position, and he or she is formally accountable to the Ukrainian CEO. Nevertheless, there is a way to deal with this problem. Considering that it is very difficult to dismiss a regular Ukrainian employee and that it is much easier to terminate the company’s CEO, it is advisable to provide in the employment agreement and job description of the compliance officer an obligation to report any identified or suspected wrongdoing directly to the global supervisor.

The other option would be to appoint a compliance officer at the corporate level. Such an officer can be elected by the company’s shareholders as a member of the audit committee or a sole auditor. This would allow him or her to inspect the financial records of the company and to control the activities of the company’s CEO and other management, including their compliance with anti-corruption and anti-bribery laws. Making a compliance officer part of the company’s corporate structure (i.e., appointing a representative of one of the company’s shareholders, preferably a foreigner who routinely deals with FCPA/UKBA compliance issues) without entering into employment relations with him or her would allow the shareholders to have a compliance officer who is independent of the company’s management.

In addition, a foreigner who does not speak any of the local languages may simply miss important information. Therefore, the better option would be to hire a Ukrainian compliance officer as the company’s employee and to elect a shareholder’s foreign representative as a compliance officer at the corporate level. In any event, in both cases all necessary corporate and employment documentation should be carefully drafted.

On the other hand, a compliance officer at the corporate level will not be able to the see the full picture. His or her authorities will be limited, as the officer will not be the company’s employee. The functions of the compliance officer are limited by law. Largely, the officer, together with the company’s HR and a trade union (if it exists) uses the limited tools given to him or her by Ukrainian labour legislation. If the officer identifies serious violations punishable under Ukrainian anti-corruption and anti-bribery legislation, he or she is responsible for reporting them to the respective enforcement authorities even if the company’s CEO objects to this. The activities of a compliance officer will be largely affected by Ukrainian personal data protection legislation.

It is obvious that doing business in Ukraine in compliance with the FCPA and the UKBA is not an easy task. However, if the companies (both the US/UK parent and Ukrainian subsidiary) are serious about compliance, they do manage to be successful in Ukraine while adhering to the high compliance standards of the FCPA and UKBA.

Svitlana Kheda is counsel and head of the anti-corruption and anti-bribery practice group at Sayenko Kharenko. She can be contacted on +380 50 410 0259 or by email: SKheda@sk.ua.

Svitlana Kheda

Sayenko Kharenko