5 top cases in 2017 of pres­sure on busi­nesses

Kyiv Post Legal Quarterly - - Contents -

Ukraine’s govern­ment keeps say­ing it wants to make Ukraine more at­trac­tive to for­eign in­vest­ment, but the num­bers keep show­ing that it’s fail­ing to do so. Only $4.4 bil­lion in for­eign di­rect in­vest­ment came to the coun­try in 2016 — and a quar­ter of it came from Cyprus, an off­shore tax haven fa­vored by Ukraini­ans.

In a re­cent poll of for­eign in­vestors, op­pres­sive law en­force­ment ranked sixth among con­cerns in a poll by in­vest­ment com­pany Dragon Cap­i­tal, the Euro­pean Busi­ness As­so­ci­a­tion and the Cen­ter for Eco­nomic Strat­egy.

The 77 com­pa­nies polled cited cases of mis­con­duct by the Security Ser­vice of Ukraine, or SBU, the Na­tional Po­lice and the Pros­e­cu­tor Gen­eral’s Of­fice.

These are five of the more fa­mous cases of law en­force­ment pres­sure on busi­ness in 2017:

Dragon Cap­i­tal

On April 26, the SBU searched the Ukrainian of­fice of in­ter­na­tional in­vest­ment firm Dragon Cap­i­tal. The security ser­vice claimed

the com­pany was us­ing Rus­sian-made spy­ware called Stakhanovets Pro.

How­ever, Dragon Cap­i­tal CEO To­mas Fiala told the Ukrain­ska Pravda news web­site that the searches could have been an ef­fort to put pres­sure on his firm due to its cor­po­rate con­flict over Sky Mall, one of Kyiv’s largest malls.

Dragon Cap­i­tal filed a court case against Olek­sandr Hra­novsky, a top law­maker with Pres­i­dent Petro Poroshenko’s party, and his busi­ness part­ner An­driy Adamovsky, who both have stakes in Sky Mall.

Soon af­ter, Dragon Cap­i­tal’s press ser­vice said that the SBU tried to seize all of the com­pany’s com­put­ers. Af­ter the search made head­lines, the au­thor­i­ties seized only three com­put­ers.

Only af­ter the SBU searched the firm did au­thor­i­ties pub­licly say that Stakhanovets Pro has since 2016 been con­sid­ered by the SBU as il­le­gal spy­ware. Dragon Cap­i­tal says it pur­chased the spy­ware from a lo­cal sup­plier in Dnipro in 2015, be­fore it was de­clared il­le­gal.

Fiala said that by search­ing his firm, the SBU could have been try­ing to pre­vent the im­ple­men­ta­tion of a rul­ing by the Lon­don Court of In­ter­na­tional Ar­bi­tra­tion in the Sky Mall case in fa­vor of Dragon Cap­i­tal.

It took more than a month for the SBU to apol­o­gize and re­turn the con­fis­cated com­put­ers, ac­cord­ing to Olga Beloblovskaya, Dragon Cap­i­tal’s com­mu­ni­ca­tions di­rec­tor. The court hear­ings on Sky Mall are still go­ing on in Lon­don.

Beloblovskaya said the SBU’S search cost Dragon Cap­i­tal dearly in time, money and stress.


A sim­i­lar in­ci­dent oc­curred in March, when about 100 SBU of­fi­cers searched the of­fices and homes of top man­agers of Youcon­trol, an IT firm that pro­vides com­pany re­ports based on com­piled data from state reg­istries.

The SBU ac­cused Youcon­trol of dis­rupt­ing au­to­mated sys­tems and of data col­lect­ing while us­ing Rus­sian tech­nol­ogy. It ar­rested the bank ac­counts of many of its em­ploy­ees, as well as some of their rel­a­tives, ac­cord­ing to Youcon­trol’s web­site.

Youcon­trol lawyer Danylo Globa told the Kyiv Post in March that the charges were “le­gal ni­hilism” as the leg­is­la­tion on open data per­mits the use, copy­ing and dis­tri­bu­tion of the types of in­for­ma­tion col­lected by Youcon­trol.

Youcon­trol has been used by anti-cor­rup­tion ac­tivists and in­ves­tiga­tive jour­nal­ists.

Since the search, the SBU has kept hold of the con­fis­cated money and other prop­erty. Globa said the courts have or­dered the SBU to re­turn the seized prop­erty six times, to no ef­fect. The SBU, in turn, said it hadn’t re­ceived any court or­ders, and there­fore was un­able to do so.

Globa said Youcon­trol will con­tinue to fight for its rights in the courts, and that his com­pany has been pre­par­ing new ap­peals to the SBU and the pros­e­cu­tor’s of­fice to drop crim­i­nal charges.

BIIR Prop­er­ties

BIIR Prop­er­ties, a sub­sidiary of Dan­ish en­gi­neer­ing com­pany BIIR, is an­other com­pany that has faced govern­ment of­fi­cials im­pos­ing pres­sure on its busi­ness. The trou­ble started when the com­pany bought an of­fice build­ing in Odesa for its head­quar­ters n Fe­bru­ary.

The com­pany had been op­er­at­ing in Ukraine since 2013 in Luhansk, but due to Rus­sia’s war against Ukraine it re­lo­cated its en­tire op­er­a­tion and staff to Odesa.

The build­ing the com­pany pur­chased in Odesa was un­der fore­clo­sure — it had orig­i­nally be­longed to Mega-stroy, the ul­ti­mate ben­e­fi­ciary of which was Va­len­tyn Skoblenko, a po­lit­i­cal ally of the for­mer Cen­tral Elec­tion Com­mis­sion Head Sergiy Ki­valov, who is highly in­flu­en­tial in the Odesa courts.

Ac­cord­ing to a court case from 2013, Mega-stroy failed to make mort­gage pay­ments for more than six years, so the bank fore­closed.

The prop­erty was then sold by Fi­nan­cial Trust Group to real es­tate com­pany Prime Odesa, which sold it on to BIIR Prop­er­ties.

Shortly af­ter pur­chas­ing the build­ing, how­ever, Skoblenko filed a case claim­ing that he was not aware that the prop­erty had been fore­closed.

The ini­tial court rul­ing was that the build­ing should be re­turned to its pre­vi­ous owner, the mort­gage debt en­tirely can­celed, and there should be no resti­tu­tion to the Dan­ish in­vestor.

BIIR ap­pealed, and is cur­rently wait­ing for a rul­ing, which is ex­pected on Jan. 4.


On Sept. 6 armed law en­forcers searched the premises of As­tarta-kyiv, a ma­jor agri­cul­tural hold­ing and sugar pro­ducer. For sev­eral hours, As­tarta-kyiv em­ploy­ees were not al­lowed to en­ter their of­fices and the whole en­ter­prise was par­a­lyzed. Its bank ac­counts were frozen.

The search was ini­ti­ated by the Pros­e­cu­tor Gen­eral’s Of­fice as a part of a crim­i­nal in­ves­ti­ga­tion into tax eva­sion.

As­tarta’s press ser­vice de­nied all ac­cu­sa­tions of tax eva­sion, and called the law en­forcers’ ac­tions “un­pro­fes­sional, pres­sure on the busi­ness.”

On Sept. 19, the pros­e­cu­tor’s of­fice closed the case against As­tarta due to the ab­sence of ev­i­dence. Af­ter 10 days, Pech­ersk District Court of Kyiv or­dered As­tarta’s ac­counts to be un­frozen.

As­tarta’s press of­fice said that this had been the first raid by law en­forcers in the al­most 25 years of the com­pany’s ex­is­tence.

The As­tarta case was re­solved be­cause the com­pany fought back ac­tively, and through mak­ing per­sonal ap­peals to mem­bers of the Ukrainian govern­ment about the prob­lem, ac­cord­ing to Anna Derevyanko, the ex­ec­u­tive di­rec­tor of the EBA.


Back in June, Sanofi-aven­tis, the Ukrainian di­vi­sion of French Sanofi Group, a global phar­ma­ceu­ti­cal com­pany, ac­cused Ukrainian ven­dor Khosa Plex — which pro­vided mar­ket­ing ser­vices to the com­pany — of steal­ing nearly $1.9 mil­lion us­ing forged doc­u­ments. Kyiv's Busi­ness Court of Ap­peals up­held the ven­dor’s claim on Oct. 5.

The press ser­vice of Sanofi-aven­tis said in a press re­lease that in 2014 Khosa Plex had been guilty of tax eva­sion and mak­ing fraud­u­lent deals, which had led to a crim­i­nal in­ves­ti­ga­tion be­ing opened against the com­pany’s for­mer top man­age­ment.

Af­ter that, Sanofi-aven­tis broke off its agree­ment with Khosa Plex, but soon dis­cov­ered that the firm had con­tin­ued to or­der pro­mo­tional cam­paigns in phar­ma­cies on be­half of Sanofi, while send­ing the in­voices to Sanofi-aven­tis.

In 2016 the ven­dor filed a claim in court against

Sanofi-aven­tis and pre­sented fake doc­u­ments to the court, SanofiAven­tis press ser­vice said.

The Busi­ness Court of Kyiv re­fused the re­quest of Sanofi-aven­tis that the doc­u­ments be sent for ex­am­i­na­tion to es­tab­lish their au­then­tic­ity, and or­dered the seizure of more than Hr 46 mil­lion from the bank ac­count of Sanofi-aven­tis.

Sanofi’s lawyer Leonid Ch­ernyavskiy told the Kyiv Post on Dec. 15 that Hr 92 mil­lion had been ar­rested by the law en­forcers. The first court or­dered Sanofi to pay Hr 46 mil­lion to Khosa Plex, but Ukraine’s ex­ec­u­tive ser­vice with­drew the sum twice from Sanofi’s ac­counts. They tried to re­turn the sec­ond con­fis­cated Hr 46 mil­lion to Sanofi, but failed, as the en­tire sum was ar­rested by the state amid on­go­ing crim­i­nal pro­ceed­ings.

Sanofi has been con­tin­u­ing to fight for its money, but court hear­ings are con­tin­u­ally post­poned due to changes of judges. The last judge was dis­missed by the newly cre­ated High Coun­cil of Jus­tice. The Sanofi case will now be passed from the Busi­ness Court of Ap­peals to the Supreme Court. The date of the next court hear­ing has not been set.

Con­se­quently, Sanofi says it plans to file an in­ter­na­tional ar­bi­tra­tion claim.

“The com­pany hopes that the coun­try’s lead­er­ship will take all nec­es­sary steps to stop fi­nan­cial raiders whose ac­tions cause sig­nif­i­cant dam­age to the coun­try’s in­vest­ment im­age and cause an out­flow of for­eign di­rect in­vest­ment from Ukraine,” Guil­hem Granier, di­rec­tor of Sanofi-aven­tis Ukraine said in a state­ment.

“Fi­nan­cial raiders’ ac­tions cause sig­nif­i­cant dam­age to the coun­try’s in­vest­ment im­age.” – Guil­hem Granier, di­rec­tor of Sanofi-aven­tis Ukraine.

Pros­e­cu­tor Gen­eral Yuriy Lut­senko (L) speaks with rep­re­sen­ta­tives of busi­ness as­so­ci­a­tions dur­ing a dis­cus­sion in his of­fice in Kyiv on Oct. 5. Lut­senko signed a let­ter of un­der­stand­ing with busi­nesses to make law en­forcers more ac­count­able in crim­i­nal in­ves­ti­ga­tions. (gpu.gov.ua)

A vis­i­tor stands on the stairs of the Val de Bievre Cam­pus of French multi­na­tional phar­ma­ceu­ti­cal com­pany Sanofi at the com­pany’s head­quar­ters in Gen­tilli near Paris on Dec.4. (AFP)

A Sept. 16 sur­vey of for­eign in­vestors shows that cor­rup­tion, lack of rule of law and mo­nop­o­liza­tion by oli­garchs are the three ma­jor ob­sta­cles to for­eign in­vest­ment in Ukraine.

A Sept. 16 sur­vey of for­eign in­vestors by Dragon Cap­i­tal, Euro­pean Busi­ness As­so­ci­a­tion and Cen­ter for Eco­nomic Strat­egy iden­ti­fies ob­sta­cles to in­vest­ment in Ukraine and pri­or­ity ar­eas to im­prove the in­vest­ment cli­mate.

Ukrainian law­mak­ers are ac­cused of putting pres­sure on busi­nesses rather than serv­ing as pub­lic cham­pi­ons for free, fair and com­pet­i­tive mar­kets.

To­mas Fiala, CEO of Dragon Cap­i­tal, speaks dur­ing the 5th Kyiv Post Tiger Con­fer­ence in Kyiv on Nov. 29, 2016. (Kostyan­tyn Ch­er­nichkin)

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