Never give in!


Communicating with our clients and partners from all over the world, we don’t have a shadow of doubt that the entire world is already in crisis due to the spread of COVID-19. As an anti-crisis management business consultant with over 20 years of experience, I can say with 100% certainty that the crisis is not something far and unknown for Ukraine and Ukrainians. For this country, the crisis is a daily reality. Unfortunately, or fortunately, crises have haunted our country since the day of its creation. It began with the years of independence, then we had the revolution and the war, and all this happened in the short 27 years of the country’s existence. As an anti-crisis consultant, I can explain all the mechanics of entering a crisis, passing through and getting out of it. Here is what a business needs to know about the crisis:

  1. The crisis cannot be pleasant. It is complex from a psychological and financial point of view.
  2. During the crisis, the established old processes and business solutions do not work and will not work.
  3. In order to survive, a company needs to be able to rapidly change (business processes, search for new markets, ways to optimize and reduce operating costs, introduce new types of services, etc.) and make fairly fast and innovative management decisions.
  4. You need to become flexible and start seeing opportunities where you simply haven’t seen them before or where there were no opportunities at all.
  5. Accept the fact that financial losses are an invariable part of the crisis. However, this process is temporary and if everything is done correctly, minus will turn into a big plus.
  6. Accept the fact that it may not work, but you should continue to act against all the odds. Every day you should do the best that can be done even in a very difficult situation.
  7. Of course, never ever give in (the words of great Churchill during the great world crisis).
  8. Create an anti-crisis headquarters which consists of your team members (it is better that experts from various departments be assigned to it), regularly conduct brain storming, and discuss new opportunities, existing challenges and possible options for action.
  9. Study living examples in practice, the existing methods of overcoming the crisis.
  10. Create your own anti-crisis strategy based on the individual needs of your business.
  11. Select individual tools necessary and acceptable for your anti-crisis strategy implementation.
  12. Check your anti-crisis strategy every day and make the necessary changes to it depending on the external and internal situation.
  13. The good news is that every crisis has both its beginning and its end. The date of term of the crisis can be calculated to a high precision, based on the analytical data.

We can definitely state that crises are necessary for all of us – there is no growth without them, no change, no movement. A crisis is a unique opportunity; it works in the same way for a business, for a person or for the whole world; it is a chance to become even stronger. Moreover, if passing and exiting from the crisis properly, it will guarantee you incredible advantages and bonuses. What bonuses you can get in the case of the crisis:

  1. Business processes optimization
  2. Search and development of new markets
  3. New products and services creation
  4. Business resilience to new challenges and crises

Therefore, an anti-crisis way of thinking, studying the crisis and creating an anti-crisis business strategy should become an integral part of any business environment and any management decision made. An anti-crisis strategy developed and implemented in business processes in time will help move away from the ‘crisis = death or chaos’ concept, and move on to understanding that crisis = opportunity. Furthermore, there are huge opportunities for growth. This is what will help businesses and people be ready, come to the understanding that the crisis is a necessary part of growth and it is during the period of crisis that you can start with a breakout success.

For Ukraine, the crisis caused by COVID-19 is a big chance.

Almost all types of businesses have an anti-crisis strategy in Ukraine. It is simply impossible to survive in Ukraine, much less to become successful without an anti-crisis strategy. A great deal of companies does not know that they have such a strategy, but any Ukrainian company has it.

For a foreign investor, during the global crisis Ukraine is becoming attractive and these are the reasons:

  1. Perfect territory location for the logistics services production and/or provision both for the domestic market and for the market of EU countries.
  2. New market outlet (42 000 million people).
  3. Possibility of obtaining a private ownership asset in conjunction with a land plot by purchasing the land directly from the state.
  4. Significant reduction in operating costs for any business:
  • Cheap labor force (there is a large number of skilled labor). A high salary for a highly skilled worker is €
  • Cheap local material resources used in production.
  • Opportunity to receive reduced tax rates if an asset is sold in a special taxation zone.
  • Low land and asset cost.
  1. There is no severe competition; the market is not structured.
  2. Minimum term to enter a new market.
  3. Opportunity to receive planned profit during the global crisis.

Moreover, Ukraine is a new market which in fact is so much-needed by large industrial corporations that really suffered heavily due to the spread of COVID-19 and the actual shutdown of a huge number of business processes in the world. Therefore, Ukraine can become a lifeline that will allow many global corporations to stay afloat with their profit or at least without significant losses.

New markets give new opportunities, including the ability to stay alive. Be flexible and open to inevitable changes and you will change yourself, become stronger and discover new worlds.

 

Criminal prosecution of large business in the new conditions: what to keep in mind and what to be ready for


Nataliia Osadchaya, the co-founder of S&P Agency, a Candidate of Legal Sciences, a Lawyer, an adviser on investment risks and conflicts.

 

We expected that “a new way of life” of Ukrainian business will become easier after the presidential and parliamentary races. However, large investors in Ukraine haven’t noticed any decrease in the number of problems over  the past few years; on the contrary, the difficulties of some of them have even become more global.

 

Large businesses have faced a significant increase in the number of criminal cases regarding tax, antitrust, environmental, and other issues recently.

 

The authorities of the Prosecutor’s Office of Ukraine, including the GPU and NABU, intensified their activities recently. The spectrum of “questions” that arise in front of businesses is so wide that any system can be hardly traced. There is a high probability that such problems arise for large companies which are actively investing in Ukraine.

We are talking about criminal cases on causing damage to the state, tax evasion, fictitious entrepreneurship, forgery of documents, abuse of power, misappropriation and embezzlement of property through malpractice, violations of the environmental safety rules, damage to the land, pollution of the atmosphere, violations of the water protection rules – these are only some cases in which the state starts a criminal prosecution against large domestic and foreign businesses.

 

However, as our experience shows, the evidence in similar criminal cases against our clients is generally very weak. Despite this, business advisers have to take huge efforts to prove the absence of a crime and to stop the criminal prosecution, and restore the reputation of the company and its executives.

 

Business suffers from a variety of investigative actions conducted within the initiated criminal cases – search raids, the seizure of documents and equipment, the disclosure of bank secrecy, asset seizures, endless interrogations of management, employees and counterparties. All this ends with unspoken actions – eavesdropping and recording telephone conversations, removing information from servers of telephone companies, surveillance, etc. In addition, the entire business community is actively watching the whole process in relation to such companies, as after every high-profile investigative action, any search or inspection, relevant information appears in the media. So, another issue for a business suffering from conflicts is restoring its reputation and refuting this information or sharing its position with the public media.

 

Interestingly, many of the criminal cases, which have recently been intensified by investigative actions, have been initiated since the time of past power. It should also be remembered that the current law does not provide any terms for the criminal pre-trial investigation if a criminal case has been formally opened before March 15, 2018, and if a company is not suspected. The investigation process can last for years, during which any investigative action can be taken. That’s what is happening today. Limitations of the pre-trial investigation terms, which came into force on March 15, 2018, apply only to criminal proceedings opened after this date. Therefore, if a criminal case was instituted before March 15, 2018, we can forget about any pre-trial investigation period. What’s more, we used to face situations when for preserving the indefinite deadlines of the investigative actions, law enforcers found some old case initiated ages ago, changed the plot, attracted new sides, as a result, there was no time limit anymore! Keep in mind that courts satisfy any petitions of law enforcement agencies representatives in 95% of cases. These are requests regarding temporary access, searches, account and property seizures, bank secrecy, silent investigative actions (including wiretaps), etc. So, the person under the investigative actions is left absolutely disempowered and without any chance to demonstrate evidence of his/her innocence.

 

So, one can actually submit evidence, but law enforcement agencies do not accept such documents physically. According to the current law of criminal procedure, the person being investigated does not have official status in the specific case before being suspected, therefore, no petition from such a person will be considered, and the documents received by the authorities are simply not included in the case.

 

Another matter of concern is that criminal cases being filed against large foreign companies that invest plenty of money in the economy, create jobs and pay large amounts of taxes.

All these negative phenomena affect the country image and discourage potential investors. It’s not a secret that foreign investors are interested in the safety of their investments and the level playing field within the legislation. Ukraine still needs to improve this.

 

Rescuing Businesses

There is no single answer to the question: “Why do businesses face problems?”. Each case is unique. It is clear that the underlying causes of such conflicts do not only relate to legal mistakes. I mean that legal or procedural mistakes not always become the basis for “starting creating problems” for businesses.

 

As for our experience, a fairly large percentage of our clients who have been the subject of serious prosecution by the state, have made mistakes at the initial stages of building their business processes. This allowed their “opponents” to turn these mistakes into a serious problem. Series of search raids in the company and its counterparties, the seizure of a huge number of documents, interrogations and examinations – all these consequences naturally arise if state bodies become interested in a business.

 

Resolving one of such cases took us a year of painstaking work, more than a hundred motions to the GPU, over 60 appeals to the court, official help from the diplomatic missions, international organizations and media channels. I’d like to highlight that one year is a strong result of solving such a complex conflict. The process can often last much longer, interfering with normal business processes and destroying the business reputation.

 

Being One Step Ahead

When the confrontation with law enforcement agencies sharpens, it becomes increasingly difficult to prove the correctness of a business. Both conflict sides possess evidence that goes in their favor. Therefore, the solution to such conflicts is a difficult process, but it is essential for a company. Sure, the victory in conflicts will be the immunity for possible subsequent attacks. Compromise is not the key in such confrontations, it is either defeat or victory. As our experience shows, compromise is an illusion; in fact, it is a sign of a future defeat. Our state has never compromised on business, except only temporarily and solely for the sake of winning in the future. Additionally, let’s not forget the considerable credibility that the new government now has.

 

Under such circumstances of political and social instability, it is crucial that all risks be calculated at the “zero” stage (it means before signing any contracts or before starting the implementation of any projects). Having this done won’t leave even the slightest opportunity for your opponents to cause problems to your business. Unfortunately, nowadays, we still have to save businesses than to minimize risks at the start. However, businesses learn from mistakes as humans do.

 

Being one step ahead of opponents is one of such lessons.

Doing business in Ukraine during the period of political instability: what to focus on


Nataliia Osadcha, the co-founder of S&P Investment Risk Management Agency

Throughout the entire period of the Ukrainian state formation, business was accompanied by political and economic instability. Six presidents have changed during 27 years of the development of Ukraine, we have experienced two revolutions, a complete transformation of external state relations and a country’s development course.

At the same time, business remains the most sensitive to political changes throughout all the stages of the development of Ukraine, especially during the re-election of the president and parliament of the country, change of government. Every change is a separate epoch with its own rules, goals and consequences both for the country and for the business as a whole. At all times, stability remains the main goal for business, as well as saving assets and obtaining planned profit, regardless of any political fluctuations and changes.

After the second revolution –  Revolution of Dignity – with the start of hostilities in the Donbas and the annexation of the Crimea, our country experienced a deep political and economic crisis. However, , macroeconomic performance has improved recently. Ukraine has begun to show steady economic growth. From an economic point of view, the financial crisis has made the country more attractive to foreign investors: inflation, falling asset prices, a decrease in the cost of labor and production costs. At the same time, the decline in investment in recent years was mainly due to military actions, despite the fact that the war was not at an active stage.

There is tough competitiog during the period of markets’ consolidation. Large international business is trying to find new, economically interesting markets, especially, if these markets are geographically located in Europe. Ukraine is exactly such a market. What makes Ukraine an attractive country for foreign capital:

  • there is no free agricultural land market (due to the moratorium on the sale of agricultural land);
  • the privatization of large state enterprises which are interesting for large foreign players, has not yet completed;
  • there are no toll roads, and public-private partnership is just beginning to emerge;
  • the largest area in the center of Europe with the population of 42.3 million people;
  • more than 42 million hectares of agricultural land.

All this is impressive, still, there are risks inherent in the developing countries, and Ukraine is no exception. Every five years, a large-scale change of political power takes place in the country, which leads to changes in legislation and, sometimes, even the entire course of the country’s development.

Ukraine is now again on the verge of political change, and forecasts are extremely different: from the complete crisis to an unprecedented victory of democracy. Honestly speaking, nobody can give a clear forecast of how events will develop and what changes will take place. Time will tell.

The second major risks are business ones. This category includes changes in the business climate and legislation announced by the previous government and the president declared in regulations and “rules” of doing business in Ukraine. The main risk, like 27 years ago, when Ukraine had just started its way as an independent state, remains the risk of losing assets. In fact, this risk has become less relevant over 27 years, as in other developing countries. Another important risk remains financial one associated with economic performance. Political, business and financial risks are interconnected, they interact closely and are the result of each other.

In fact, the above-mentioned risks in an economically attractive environment is not something unique for Ukraine. Any developing country is a market with potentially high risks and at the same time high profit rates. To be successful in any developing country, you need to learn how to correctly calculate these risks, that is, consciously accept the fact of their existence and learn how to manage them. Risk management exists exactly as long as humanity exists. It is just that the term is not familiar to everyone, but this does not mean that we do not do these actions for 24 hours every day. Going out of the house, we are looking at the weather forecast and choose clothes according to it, we take or not take an umbrella, calculate the time spent in traffic jams to get to the scheduled meeting on time. In the snowfall, we change the wheels of our cars, set the alarm signal in houses or apartments for the safety of our lives, minimizing the risk of a possible unwanted intrusion. We constantly calculate our risks, but not always, we do that in business.

To protect your business from loss of assets and other risks, the first rule is to clearly understand the existence of risks, identify the threats they carry and determine how to manage them.

As a risk minimization specialist and a business consultant with more than 20 years of experience in asset protection and risk minimization in Ukraine, I can say that you can not only calculate a lot of risks, but also successfully minimize them. And if, after analysis, it turns out that the risks are very high and their minimization or prevention are impossible, you can save time, money and health simply by stopping such an unjustifiably risky business project.

So, where does risk management begin, and at what stage is it better to apply it in the realities of Ukraine? The risk management process must be implemented at the earliest stage of a business project. The perfect start is the stage of a business plan (calculation, analysis, the formation of financial indicators, ownership structure, partnership, the procedure for acquiring assets and their structure, management, etc.). At at this stage, risk management is not only necessary, it is vital for the implementation and receipt of what has been carefully calculated by experts in the business plan. When we calculate risks at the “zero” stage, we take into account everything that can at least somehow adversely affect the implementation of the project in the future or lead to the loss of an asset. Political risks will not be so important or fundamental factor if attention is paid to mechanics. Properly structured partnership relations (taking into account the system of checks and balances), the correct procedure for acquiring an asset and structuring a transaction, the stage and process of starting construction work, are correctly defined. They will give you high guarantees, and regardless of the change of power in the country and political balance of power, you will remain with your business. There are actually a lot of examples. Let’s see how many foreign companies which “entered” the country during the period of political cataclysms, are still doing business successfully. Some have been successful in Ukraine for over 27 years. And no matter during what period of political relations these companies “entered” the market: if the risks are calculated correctly, they will remain here for a very long time. There are also a lot of negative examples when a business lost millions or even hundreds of millions of dollars. Unable to cope with risks, they simply left the Ukrainian market, having suffered multimillion-dollar losses. I’ve been studying such situations for a long time, so, I can say that in 90 percent of negative cases, investors made significant mistakes. Mistakes often occur at the beginning stage of the business plan implementation. The main mistake is that companies do not identify the Ukrainian market as high-risk, do not accept this fact as a necessary element of the formula. If this element is not taken into account in the formula, all components of your business plan will fail. And the company will not get the planned business and financial results. Investors make different mistakes:

  • hopes that the guarantees given to them by the government will be respected (for a political change of power every five years it is unreasonable to rely on government guarantees, which perhaps will not be at this time);
  • hopes that partners will be honest and keep their word (will not be, if you do not force this, will not make the partner unprofitable to violate the agreement);
  • hopes that small legal inaccuracies will not have significant consequences (as practice shows, there were always minor inaccuracies in the basis of the most complex conflicts);
  • the hope that nothing bad can happen to you, so, there is no need to spend money on insurance. As practice shows, 95 percent of success is the detailed preparation and calculation of all possible risks and probability of these risks occurring. This statement is true regardless of whether you go to the mountains, plan diving, rafting or prepare for serious investments in a country like Ukraine. Without a detailed plan, guide and risk calculation, this is a frivolous and risky undertaking with an uncertain outcome.

Implementing risk management process during the formation of a business plan gives a high chance of success. At the stage of the business functioning, risk management should already be implemented directly in all business processes of a company and, especially, in management decision-making processes.

For example, the decision to start building a large business object should not only include risk auditing, but also be the subject of discussion at the highest level of company’s CEO and business owners, the conscious acceptance of the identified risks and taking steps to minimize them.

Companies which are not only engaged in long-term planning but also have a precise coordinate system which helps to get into the planned future, have been and will remain successful. However, without a conscious risks calculation, this does not seem possible.

S&P Investment risk management agency is a multi-level consulting company. Our company has been accompanying a large foreign business in Ukraine for almost 12 years. Our main directions are risk management, crisis management (taking companies out of crises of different complexity levels), reputational protection (essential factor for overcoming crises), and legal services. Our specialists combine various expert knowledge and deep practical experience as crisis managers, business consultants, PR specialists, GR, lawyers, tax agents, investigators, detectives, strategy consultants, and many other professions. This combination distinguishes S&P Investment Risk Management Agency among other companies. We calculate and minimize for the business in Ukraine the following types of risks: business, investment, financial, reputational and legal ones.

 

We act as business consultants for companies with the purpose of preventing business conflicts and their actual avoidance, and minimizing potential negative consequences. For those companies that are already in a business conflict, for example with a client, counterparty, competitor or government/law enforcement agency, we not only develop a strategy for successful conflict resolution, but we also use various tools and accompany the business until the successful conclusion of a crisis/conflict. Moreover, our high-level lawyers allow us to provide our clients with a full range of consulting services. At the same time, the essential difference between our company and the classical legal consulting is that the legal strategy that we develop is derived from the risk management and crisis management strategies. Therefore, legal instruments are selected and provided to the client together with a risk minimization strategy. In this case, the legal strategy itself and its implementation are fundamentally different from standard legal tools and moves.

 

Despite the fact that legal services are only one of the lines of our company activity, it is highly appreciated by leading independent ratings and experts. This year, the experts of the Kiev Post editorial office conducted the first independent study of the legal services market in Ukraine. S&P Investment Risk Management Agency is in the TOP 50 of the best law firms in Ukraine and occupies 4th place in the category “Transparency and Responsibility”. For us, the high appreciation of the Kiev Post is a very important indicator of our expertise and achievements.

 

S&P Agency in Kyiv Post Ranking: trust of independent experts


Kyiv Post is the first and the most popular Ukrainian English-language newspaper that publishes topical news of the world and Ukrainian business every week. In April, the edition published an independent ranking of TOP 50 Law firms in Ukraine. The S&P Agency Investment Risk Management not only took rightful place among the best legal companies in Ukraine but also entered the TOP 5 Law firms in Ukraine in the Transparency and Responsibility category, in which took an honorable 4th place.

For the first time in 12 years, S&P Agency Investment Risk Management has taken part in the national ranking due to its independence and high reputation among Kyiv Post experts.

The Kyiv Post ranking was based on the comprehensive, honest, non-commercial analysis of Ukrainian legal firms. Kyiv Post team monitored competent ratings in Ukraine and abroad to define which companies’ features are most valuable for clients. Candidates were ranked in five categories: responsibility, approachability, internationality, social balance and common strength of a legal firm. To evaluate the reliability and quality of companies, the experts and team of the Kyiv Post developed the most objective method based on mathematical formulas.

Publishing its first ranking, the Kyiv Post edition expressed its hope that impartial research will become the basement for trust in rankings from both community and legal entities side. The 50 best legal services providers were selected first of all for the quality of service they guarantee to clients. The researchers did not take into account the scale of firms. The bases of the evaluation were transparency, approachability and benefits, which their activity brings to Ukrainian society and business. The ranking compilers mainly oriented to businesses which need legal support and ongoing advice for efficient work. A follow up from Kyiv Post readers showed that results of such kind research are appreciated. They motivate companies to improve and show readers the true market leaders in legal services.

We are proud of the trust of the independent Kyiv Post experts! The best value of our activity is the results of work performed.

The special feature of S&P Agency Investment Risk Management is in effective combining of risk management, crisis management, reputational protection and jurisprudence. Herewith, the legal strategy development and its appliance fundamentally differ from standard legal tools and mechanisms. We believe we help businesses change the economic system from the inside.

Our performance over the past three years (in figures):

  • additional tax requirements and fees for companies have been reduced in the total amount of 400 million UAH;
  • thanks to successful proceedings, VAT in the amount of 50 million UAH have been returned to business;
  • illegally blocked VAT in the amount of 370 million UAH has been returned to the current amount;
  • 25 criminal proceedings against foreign companies have been canceled in the total amount of 950 million UAH;
  • trainings for more than 45 foreign companies have been conducted.

Effective business protection. S&P Agency version


Preventing problems is not only more effective but also cheaper than overcoming their negative consequences. This applies to all spheres of our life – both health and business.

The last year was marked by high-profile cases of raider seizure attempts and of growing pressure on business from the state, especially from law enforcement agencies.

The complaints of businesses about illegal criminal prosecution and illegal actions of the State Fiscal Service (SFS), which have only grown in recent years, remain present. These are loud accusations of attempting to block business activity and conduct large-scale searches at the Nova Poshta company, at the grain terminal of the Swiss-Ukrainian company Risoil S.A., so the business activity was blocked for more than 5 days. These actions include attempts of a raider seizure of gas station belonging to BRSM-Nafta, LLC Euro Power, LLC Rostok Holding, attempts to seize Victoria Mall – the largest shopping mall in Western Ukraine owned by Dragon Capital. The conflict between Philip Morris and DFS was resonant and unprecedented from the perspective of the amount of additional tax accruals – UAH 635.3 million. This is only the tip of the iceberg and only those conflicts that were discovered by business in the media space and occurred in 2018.

Still, the case of LLC Promotion Outsourcing and LLC Promotion Staff has been and remains the most interesting in 2018. We wrote about it, conducted a business training which analyzed the causes, errors and possible consequences of this criminal case for business in detail. I will try to briefly dwell on this loud case. The unprecedented nature of this case lies in the fact that the Kiev Prosecutor’s Office began a pre-trial investigation in which 42 companies with foreign investments, including Huawei, Samsung, Kievstar, Bayer, Sanofi,and other international giants were accused of tax evasion and illegal withdrawal of funds abroad. The total amount of unpaid taxes, according to the results of law enforcement, was about 950 million UAH.

The essence of the conflict: according to the materials of the pre-trial investigation, it was established that the largest budget-forming enterprises of the country, including ones with foreign capital, used the services of illegal withdrawal of funds abroad and tax evasion and obligatory payments. It is noted that officials of enterprises entered into an agreement with unidentified persons and transferred funds to the accounts of domestic commercial structures under their control – LLC Promotion Outsourcing and Promotion Staff LLC – for allegedly providing them with own qualified specialists necessary for carrying out the main customers’ activities (outsourcing services). In fact, employees were selected and employed by the customer companies. Thus, 42 companies in the text of the resolution are directly accused of illegally withdrawing funds abroad using the services of Promotion Staff LLC and Promotion Outsourcing LLC by concluding fictitious outsourcing contracts.

Criminal prosecution of business is a painful issue for all companies in Ukraine without exceptions, and for foreign companies, it may be a disaster. This is often used by law enforcement officers.

First of all, among the main business mistakes which led to negative consequences, there is the unwillingness of companies to actively defend their rights within the framework of criminal prosecution, including the lack of readiness for investigative actions in the form of temporary access to things and documents and to direct searches.

Secondly, companies lack truly well-established monitoring of counterparties and a system for miscalculation of risks from transactions with them. Many companies do not check their business partners and often enter economic relationships with enterprises in respect of which criminal proceedings have already been opened. This automatically puts the very company that transferred funds to the “problem” counterparty at risk of prosecution. As we can see, with the trend of 2018, verification and criminal prosecution of agreements on the provision of services entered, law enforcement agencies are also defined as fictitious.

Also, the lack of a communication strategy with law enforcement agencies is among the main mistakes. What do I mean by “communication strategy”? The fact that a company calculates and simulates possible risks for themselves and their business at the stage of receiving any request from law enforcement agencies. Therefore, any answer, even to a supposedly innocent (at first glance) letter, request or demand, must be carefully verified to completely prevent law enforcement authorities from obtaining permission to conduct investigative actions against your company.

You can still highlight such errors as the absence of a defense strategy in criminal proceedings. Maybe the company doesn’t have a certain strategy, but it doesn’t include counting and minimizing possible risks at all. Therefore, companies often complain about blocking their activities, especially during or after a search. Many negative consequences – foreclosure, disclosure of banking or commercial secrets, financial and reputational losses – can be avoided if you formulate a security strategy at the “zero” stage. That is, before the active phase of the conflict. Preventive measures are the only effective tool for minimizing negative consequences. Unfortunately, the demand for preventive measures is only for those companies that have already gained experience of hard confrontation, felt all the “delights” of conflicts and no longer want this kind of wars.

With many years of experience in solving the above-mentioned conflicts, our company has closed 25 high-profile criminal cases against large foreign enterprises and their leaders on tax avoidance for the total amount of over UAH 950 million in the last three years!

S&P AGENCY FOR BUSINESS IN NUMBERS FOR THE LAST 3 YEARS

  • Reduced premiums for taxes and fees to companies totaling UAH 400 million
  • Including 2018 – UAH 200 million
  • During 2018, due to the successful business cases, the VAT amount of UAH 50 million was returned to the settlement account
  • During 2017-2018 business was returned illegally blocked VAT in the amount of USD 370 million to the settlement account
  • 25 criminal cases were opened against company executives regarding tax avoidance for the total amount of UAH 950 million

S&P AGENCY RECOMMENDATIONS

  • Criminal prosecution often begins with a request. Therefore, the first important position – the answer to this request should be very well prepared. It is this “strategic communication” that makes it impossible for law enforcement officers to obtain any investigative actions against your company.
  • The second important position is preventive measures as the only effective means of protection against criminal proceedings and minimization of negative consequences.
  • Third, what you have to take care of is the monitoring of counterparties and the risk assessment system for the contracts with them.
  • So, take care of your business security in advance! Actively defend your rights if you did not succeed in avoiding criminal proceedings.

Business under pressure: anti-trends in 2018


2018 year did not bring innovations to the most common business problems in Ukraine. Business is still “at gunpoint” of many controllers, who have only increased their pressure over the past year.

Problem №1. Criminal prosecution

As a year ago, criminal prosecution by the GPU, the SBU, the tax police and the police are still the most painful. The main unpleasant news is that the number of criminal cases and the amount of damages incriminated to the business, especially in tax crimes, have increased significantly over the past year.

We made the rating of popular types of criminal cases that were opened in relation to business in 2018. The first place both in the number of cases and the charged amounts refers to the Art. 212 of the Criminal Code of Ukraine (tax evasion). Everyone remembers the high-profile case of the LLC “Promotion Staff” / LLC “Promotion Outsourcing”, when more than 42 foreign large companies were accused of tax evasion totaling 955 million UAH. This criminal case is still being investigated.

The second place is for fictitious business (Article 205 CC). Of course charges of fictitiousness very often go together in combination with tax evasion (Article 212 CC). It is also incriminated in the Outstaff case.

In the “honorable” third place is the excess of official authority (art. 364 CC). This is a very “interesting” article according to which business is often being charged and in totally different circumstances. We even joke, that if law enforcement officers “do not know where to start”, then they try to start from Art. 364 CC. It is a universal article for creating problems. The mentioned criminal case of the LLC “Promotion Staff” / LLC “Promotion Outsourcing” was first initiated by this article and only then re-qualified for tax evasion and fictitious entrepreneurship.

The main “know-how” of 2018 in criminal prosecution of business can be considered the “base” expansion for creating problems. So, if earlier the tax and law enforcement agencies “caught” agreements on the actual purchase of the goods by the taxpayer from the “problem” counterparty, then in 2018 they began to charge taxes on transactions for purchased services, but not for the goods. 

Problem №2. Additional tax payments

The next major threat after the prosecution is the additional charge of taxes and fees. It is relevant both for domestic and foreign business operating in Ukraine. However, this problem is also not new one, since the budget needs to be constantly replenished. It is clear that additional tax payments and accusation under Art. 212 CC (tax evasion) go hand in hand. Therefore, enterprises that have been charged the taxes to pay in 95% of cases will also have to “fight back” from the criminal case.

The 2018 innovation was the opening by the law enforcement agencies of criminal cases under Art. 212 CC without an audit and even without additional taxation by the State Fiscal Service of Ukraine.

In general, in 2018 the actions of the tax police and its pressure on business remained the same acute problem as before. Despite the loss of this authority’s powers. The courts remained in the old position and actively gave permission to the tax police to conduct investigations. The number of criminal cases investigated by the tax police has increased. In other words, the loss of authority by the tax police turned out fictitious, because in fact, it did not affect its activities.

Important moment! No matter how weird it would seem to you, but one of the main reasons for the criminal proceedings growth against large businesses, in our opinion, is the stimulation by the business itself of such behavior of the controlling authorities. So, if we are talking about the popular Art. 212 CC (tax evasion), then we are talking about the panic fear of many large companies of the criminal proceedings. Exactly this threat pushes such taxpayers to make a decision on the voluntary repayment of additional payments which are not always fair. If the threat enters the active phase and investigative actions begin in the form of interrogation, search or temporary access to things and documents, then this convinces “those who hesitate” who were not ready to surrender so quickly, go with the “piece” and pay the additional amounts to the budget. It’s about the facts. A fairly large number of foreign companies after a brief hesitation decide to pay the additional amounts to the budget. Oddly enough, but this scheme worked and still works.

There are not so many players who take an active stand and prove that there is no crime in their actions, especially if we are talking about Art. 212 CC. Changing the tendency and, as a result, reducing risks depends on the position of the business, especially the large one. After all, if business allows tendencies are only strengthen.

Problem №3. The arbitrariness of “environmentalists” 

To the trends of the passing year we should also add the complex business relations with the State Environmental Inspectorate. According to the estimates of the European Business Association and the Office of Effective Regulation, in 2018 business losses from illegal actions of the State Environmental Service amounted to about $ 200 million. In addition to daily losses from a blocked ship and cargo in the port, which fluctuated from $ 15 thousand to $ 30 thousand a day. In short, “gentlemen ecologists” during 2018 used “prohibited methods”, in other words they just stopped the ships in the port that could last from 1 to 7 days. They stopped it very simply: put a stamp on the shipping documents that there was radiation cargo on the ship. Despite the fact that the cargo was actually clean, as while loading on the ship, it had already passed radiation control and the radiation frame did not work. They released the ship from the ports in different ways: someone “agreed”, someone paid a fine for “pollution” of the water area. There was great disturbance of the business, core business associations required the actions of environmentalists to be brought within the law, to change the procedure and deprive them the right to conduct radiological monitoring. The legislator even changed a number of laws to minimize abuses by representatives of the State Environmental Inspectorate. However, the result was not changed. Corruption is still continue, only the ban on the ship’s departure is now made out not by stamping, but using the decree on the ban on leaving the port.

Why does a business suffer such losses? Because over the past year, none of the officials who exceeded their authority was not brought to any responsibility. Experiencing enormous losses from illegal decisions of the State Environmental Inspectorate, business has never transferred them on the shoulders of the state and the person who directly took one or another illegitimate decision. No responsibility – no changes.

In the dry residue

If there will be no fundamental political changes, we can expect that in 2019 everything will remain the same without significant changes. In other words, changes that are important for business are not going to happen without actions. Therefore, the business must unite efforts and break by itself these unfavorable tendencies.

If the political alignment of forces will change, then anything can happen. It can not be modelled or predicted.

5 basic business recommendations for 2019

  1. Carefully examine the requests to the company from tax and law enforcement agencies. First of all, identify the legality of the claim.
  2. Do not put forward original source documents, especially if such a requirement is not specified in the request or there is no requirement for issuing documents at all (companies often issue original documents, even if they are not asked. This is a mistake!).
  3. Think carefully about the response to enforcement or tax authorities. It depends on what you write in the answer whether you have temporary access to documents or a search in your company. You can help yourself and avoid the above problems.
  4. Prepare the company and its employees for possible investigative actions. I am personally fundamentally against “modeling mask shows” (the guys come to your office and “simulate” the search). You will not achieve nothing, but shock and panic among the staff. We stand for a step by step approach. Start from the office, then develop and implement internal rules for communication between employees and departments. After that, step by step, teach every employee what to do at certain points in time. If you remove panic and fear then you will gain efficiency. So, you will avoid “surprises” during investigative actions. And you will not suffer extra expenses.
  5. Perform constant monitoring of actual and future counterparties. This is a simple rule, which ignoring is very expensive later. It is all about preventive measures that are effective protection against possible negative events in the future.

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