Al­gir­das Semeta, Ukraine's busi­ness om­buds­man, talks suc­cesses


Ukraine’s busi­ness om­buds­man, Lithua­nian-born Al­gir­das Semeta, is get­ting re­sults.

He and the body he heads, the Busi­ness Om­buds­man Coun­cil, as of May 1 had launched in­ves­ti­ga­tions in­volv­ing 60 per­cent of the 799 com­plaints they re­ceived since start­ing in­ves­ti­ga­tions in May 2015. Of these, 341 cases have been re­solved; in some cases state of­fi­cials were dis­missed.

“For me the most im­por­tant thing is im­ple­men­ta­tion, be­cause what I think Ukraine lacks is ac­tual im­ple­men­ta­tion in many ar­eas,” Semeta told the Kyiv Post dur­ing an in­ter­view at his of­fice in Kyiv’s Podil dis­trict on May 11. “I in­sist on the thor­ough im­ple­men­ta­tion of our re­com- men­da­tions, and we don’t stop mon­i­tor­ing un­til we see that the rec­om­men­da­tions we make are im­ple­mented.”

The coun­cil has al­ready over­seen cases in­volv­ing a to­tal sum of Hr 3.5 bil­lion ($140 million). This in­cluded en­sur­ing that value-added tax re­funds are paid out and can­cel­ing un­jus­ti­fied fines by tax au­thor­i­ties.

Tip­ping point

Semeta says there are two key in­di­ca­tors that will show whether Ukraine’s busi­ness cli­mate is fi­nally tip­ping from bad to bet­ter – tax ad­min­is­tra­tion and law en­force­ment.

“If sig­nif­i­cant im­prove­ments are made in these two ar­eas, we’ll be able to say that Ukraine has made sig­nif­i­cant progress in im­prov­ing its busi­ness cli­mate,” Semeta said.

But if no progress is made in these two ar­eas, ad­vances in other ar­eas will can­celled out, he warned. “Even if the Na­tional Anti-cor­rup­tion Bureau and anti-cor­rup­tion pros­e­cu­tor do a per­fect job, if a case fails in the courts, it means that noth­ing is hap­pen­ing,” Semeta said.

The Lithua­nian has ex­pe­ri­ence. Be­fore be­com­ing om­buds­man, Semeta worked as Euro­pean Com­mis­sioner for Tax­a­tion and Cus­toms Union, Au­dit and Anti-fraud. He was also Lithua­nia’s fi­nance min­is­ter from 2008-2009.

“When I was a Euro­pean com­mis­sioner I stud­ied a lot of ma­te­ri­als about de­vel­op­ments in Ukraine, so I was fa­mil­iar with what’s go­ing on in Ukraine,” Semeta said. “What hap­pens in Ukraine will ac­tu­ally have an in­flu­ence on the fu­ture de­velop-

ment of Europe, and I think even glob­ally. I think it’s ex­tremely im­por­tant that Ukraine be­comes a suc­cess story.”

While it’s too early to say how the story will turn out, Semeta is hope­ful.

“I wouldn’t be too pes­simistic about what’s go­ing on in this coun­try – you have to look at the num­ber of re­forms and the scope of re­forms that have al­ready been im­ple­mented,” Semeta said. “They re­ally do look impressive – for any stan­dard demo­cratic coun­try it would be a lot.”

How­ever, af­ter ne­glect­ing cor­rup­tion and in­sti­tu­tion-build­ing for 25 years of in­de­pen­dence, Ukraine has so much to change.

One quick fix would be to set up a clear sys­tem of in­ter­nal but in­de­pen­dent con­trols that would ef­fec­tively mon­i­tor the work of tax in­spec­tors and ad­min­is­tra­tors.

“If they do some­thing wrong, this in­ter­nal struc­ture would step in and im­pose dis­ci­plinary sanc­tions,” Semeta said. The cur­rent dis­ci­plinary struc­ture is not in­de­pen­dent of the tax ad­min­is­tra­tion.

An­other step would be to cut the num­ber of civil ser­vants in state fis­cal ser­vices. Ukraine still has more than 35,000 tax in­spec­tors, even af­ter their num­bers were cut by a third by for­mer Fi­nance Min­is­ter Natalie Jaresko.

"By cre­at­ing ef­fi­cient pro­ce­dures and hir­ing some new staff they would be able to achieve the same or even bet­ter re­sults than they do now,” he said.

Semeta also aims to level the play­ing field be­tween busi­ness and the au­thor­i­ties. All too of­ten, busi­nesses in Ukraine find them­selves un­der crim­i­nal pros­e­cu­tion, fac­ing heavy fines and con­fis­ca­tion of equip­ment, stop­ping work.

“What we pro­pose is that the fis­cal ser­vice should not open a crim­i­nal in­ves­ti­ga­tion un­til the ad­min­is­tra­tive ap­peals process is fin­ished,” Semeta said, adding that fi­nan­cial penal­ties are of­ten dis­pro­por­tion­ate to the se­ri­ous­ness of vi­o­la­tions.

“The crim­i­nal­iza­tion of busi­ness is a re­ally se­ri­ous prob­lem in this coun­try.”

The coun­cil pro­poses to in­clude in­de­pen­dent ex­perts in the ap­peals process.

Semeta also wants the thresh­old at which a crim­i­nal case can be opened to be in­creased – right now it is only about $29,000.

And busi­nesses that do end up fight­ing a crim­i­nal case should have more abil­ity to de­fend them­selves. For one thing, video record­ings of searches of busi­ness premises should be ad­mis­si­ble as ev­i­dence, although there is a lot of re­sis­tance to this com­ing from law en­force­ment agen­cies.

“An­other sim­ple pro­posal is not to al­low the with­drawal of com­put­ers from busi­nesses,” Semeta said.

In one case, a medium-sized com­pany was ac­cused of un­law­fully dis­miss­ing an em­ployee. “Dur­ing the crim­i­nal pro­ceed­ings, in­ves­ti­ga­tors ar­rested and with­drew all of the com­pany’s com­put­ers,” Semeta said. “But there are much more in­tel­li­gent ways to sat­isfy the needs of the law en­force­ment agen­cies and at the same time not dis­rupt the ac­tiv­ity of a busi­ness.”

An­other case in­volved the two or three own­ers of a small busi­ness, a shop, who came into con­flict with the lo­cal au­thor­i­ties. Of­fi­cials in­stalled a traf­fic bar­rier to block en­try to the busi­ness.

“This was done com­pletely with­out jus­ti­fi­ca­tion, and it ap­peared that lo­cal of­fi­cials were sim­ply act­ing in the in­ter­ests of their own busi­nesses,” Semeta said.

His team is par­tic­u­larly at­ten­tive to small busi­nesses, as large ones usu­ally have the means to hire a lawyer and de­fend them­selves. In fact, most com­plaints come from small and medium busi­nesses: only 20 per­cent come from large ones.

Most of the com­plaints re­gard­ing abuse of mo­nop­oly are con­nect with oblener­gos, or re­gional power com­pa­nies.

“Gen­er­ally speak­ing, ac­cess to elec­tric- ity is a big is­sue,” Semeta said. “Ev­ery re­gion I go to, busi­nesses com­plain that this is a re­ally huge prob­lem.”

Other com­plaints have in­volved ma­jor state-owned en­ter­prises such as wa­ter sup­ply com­pany Kharkiv Vodokonal, rail­way mo­nop­oly Ukrza­l­iznyt­sia and Kyiv’s Bo­ryspil In­ter­na­tional Air­port.

On the plus side, the coun­cil has signed a me­moran­dum of co­op­er­a­tion with State Fis­cal Ser­vices. Since then, more than 70 per­cent of the om­buds­man’s rec­om­men­da­tions have been fol­lowed by the agency.

But prob­lems re­main with tax ad­min­is­tra­tion. Semeta’s team com­plied a re­port on flaws and pro­posed so­lu­tions. But only a few rec­om­men­da­tions have been im­ple­mented.

The Busi­ness Om­buds­man Coun­cil will next lobby Fi­nance Min­is­ter Olek­sandr Dany­lyuk. “We will push him hard to re­ally re­new work on the tax code, with a par­tic­u­lar em­pha­sis on tax ad­min­is­tra­tion,” Semeta said.

The coun­cil is funded by Den­mark, Fin­land, Ger­many, Ja­pan, the Nether­lands, Swe­den, Switzer­land, the United King­dom, and the United States. But Semeta hopes that the Ukrainian state and busi­ness will be­come donors as well.

The bud­get of the Busi­ness Om­buds­man Coun­cil is 1.5 million euros ($1.67 million) per year. So far there are 15 peo­ple on Semeta’s team, but the plan is to hire seven more. One of the coun­cil's big ad­van­tages over the state is the abil­ity to pay liv­ing wages. Semeta would not say how much his em­ploy­ees are paid, but said that the sums are com­pat­i­ble with Ukrainian pri­vate sec­tor salaries.

While the work is de­mand­ing, Semeta said he wants to stay on in the job af­ter his first two-year term is up. And he hopes that even­tu­ally Ukraine will even be in a po­si­tion to teach its neigh­bors a thing or two about how to com­bat cor­rup­tion.

Ukraine's Busi­ness Om­buds­man Al­gir­das Semeta speaks with the Kyiv Post on May 11. (Volodymyr Petrov)

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