Illicit Enrichment: Analysis of President’s Draft Law

1. Where We Are Now

On 26 February, the Constitutional Court of Ukraine recognized the Article of the Criminal Code of Ukraine (hereinafter – the Code) criminalizing illicit enrichment of public officials unconstitutional. The Constitutional Court of Ukraine believes that the current version of Article 368² of the Code violates Arts. 8, 62 and 63 of the Constitution of Ukraine. In its previous brief, TI Ukraine explained why this judgement was not factually correct. In spite of this, the decision of the Constitutional Court of Ukraine is binding, final and cannot be appealed, and Article 368² of the Code has become invalid since the day when the Constitutional Court of Ukraine made this Decision.

On 3 June 2019, the President of Ukraine submitted draft law No. 10358 on civil forfeiture of public officials’ assets obtained through corruption and restoration of criminal liability for illicit enrichment.

2. Key Aspects

 TI Ukraine has asserted that the institute of civil forfeiture of illegally obtained assets has to be extended, and criminal liability for illicit enrichment has to be restored:

• With consideration of the concerns expressed by the Constitutional Court of Ukraine;
• In a way that would minimize the risk of the article being repealed;
• In a way that would make it possible for law enforcement to establish all elements of a crime.

 Criminal Liability for Illicit Enrichment

 This is the version of the illicit enrichment provision put forward by the president:

 Article 368⁵. Illicit enrichment

1. Acquisition by a public official of assets the value of which exceeds twelve thousand tax-free minimum incomes of an individual–

is punishable by imprisonment for five to ten years and revocation of the right to hold certain positions or engage in certain activity for up to three years.

Note.

1. Public officials are individuals specified in the Law of Ukraine “On Corruption Prevention,” Article 3, part 1, clause 1.
2. Acquisition of assets should be understood as acquisition of assets by a public official for possession, or acquisition of assets by a different private individual or legal entity financed by a public official, by agreement of a public official or at the direction of a public official.
3. Assets should be understood as money (including cash, funds on bank accounts or stored in banks or other financial institutions), other property, property rights, intangible assets, amount of reduction of financial liability, as well as works or services provided to a public official.
4. Income of a public official should be understood as any type of income received (accrued) by the public official in accordance with the requirements and restrictions set forth in the Law of Ukraine “On Corruption Prevention.”
5. When the difference between the value of acquired assets and the income is calculated, assets that are simultaneously reviewed in a proceeding on recognition of assets as unfounded and their forfeiture by the government, as well as assets forfeited to the national budget as part of such a proceeding, are not taken into account.

The proposed text introduces the following approaches to regulating the criminal liability for illicit enrichment:

• The interpretation of illicit enrichment as the difference of value between acquired assets and income is introduced, which is consistent with the approach proposed by TI;
• For an act to be criminalized, the difference must constitute more than twelve thousand tax–free minimum incomes of an individual (as of 1 January 2019 – UAH 11,526,000, i.e. approximately EUR370,000). This amount is twelve times greater than the minimum proposed by TI and the old version of the illicit enrichment article, and corresponds to what was suggested by TI as an act “on a large scale.” On the one hand, this version reduces the potential number of cases on illicit enrichment, on the other hand, it helps law enforcement agencies to focus on the most significant violations. For assets that exceed five hundred tax-free minimum wages (as of 1 January 2019 – UAH 960,500, or approximately EUR 31,000), it is proposed to apply civil forfeiture.
• Definitions of assets and income are removed from the description in the article itself and are added as notes. Assets are defined as not only money, property, works, but also, for instance, as amount of reduction of financial liability, which has also been suggested by TI Ukraine and makes for an as broad definition of the notion as possible. It is also important that the article defines income as any kind of income received in accordance with the requirements and restrictions of the anti-corruption legislation, that is, legally obtained income.

Civil Forfeiture

 Civil forfeiture is a potential tool to collect the property illegally obtained by public officials in the recent years for the benefit of the budget. It should be regarded as a way to forfeit property of an individual to public domain when such property has not been subject to seizure or special seizure and when legal grounds of its acquisition have not been proven. Finding and identification of illegally obtained assets will take place as part of the pre-trial criminal investigation, during which funds and other illegal assets will be traced, recorded and seized. Afterwards, a civil lawsuit will be filed to recognize such assets as unfounded.

The text on civil forfeiture proposed by the president:

Article 290. Filing a lawsuit on recognition of assets as unfounded and their forfeiture.

1. A lawsuit on recognition of assets as unfounded and their forfeiture to the national budget is filed by a representative of the National Anti-Corruption Bureau of Ukraine as approved by the prosecutor of the Specialized Anti-Corruption Prosecutor’s Office. In cases on recognition of assets as unfounded and their forfeiture to the national budget where the defendant is the director, a deputy director, a staff member (a manager, an official) of the National Anti-Corruption Bureau of Ukraine, the prosecutor of the Specialized Anti-Corruption Prosecutor’s Office, filing the lawsuit and representation of the national interests in court is assigned to prosecutors of the Prosecutor General’s Office of Ukraine at the directive of Prosecutor General.
2. A lawsuit is filed about unfounded assets:

– acquired during three years before the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Concerning Forfeiture of Assets Owned by Public Officials and Punishment for Acquisition of Such Assets” comes into effect, if the difference between the value of assets and the public official’s income is five hundred or more times greater than the minimum wage as of the day when the aforementioned Law comes into effect;

– acquired after the aforementioned Law comes into effect if the difference between the value of assets and the public official’s income is five hundred or more times greater than the minimum wage as of the day when the aforementioned Law comes into effect but does not exceed the limit set forth in Article 368⁵ of the Criminal Code of Ukraine.

3. A lawsuit on recognition of assets as unfounded and their forfeiture to the national budget can be filed against a public official if the National Anti-Corruption Bureau of Ukraine or, in cases set forth in the law, the Prosecutor General’s Office of Ukraine, has established that this official has acquired unfounded assets or that a different individual or legal entity has acquired unfounded assets funded by the public official, by agreement of the public official or at the directive of the public official.

If the lawsuit is filed, the National Anti-Corruption Bureau of Ukraine or, in cases set forth in the law, the Prosecutor General’s Office of Ukraine takes measures to identify assets about which there is evidence that they have been acquired by a public official for possession or acquired by a different individual or legal entity as funded by the public official, by agreement of the public official or at the directive of the public official, and takes measures to secure the lawsuit concerning such assets.

4. For the purposes of this Chapter:

1) Assets are money (including cash, funds on bank accounts or stored in banks or other financial institutions), other property, property rights, intangible assets, amount of reduction of financial liability, as well as works or services provided to a public official;

2) Public officials are individuals specified in the Law of Ukraine “On Corruption Prevention,” Article 3, part 1, clause 1.

3) Income of a public official is any type of income received (accrued) by the public official in accordance with the requirements and restrictions set forth in the Law of Ukraine “On Corruption Prevention.”

The following approaches to extending the civil forfeiture institute are implemented:

• A lawsuit on recognition of assets as unfounded can be filed without a guilty verdict concerning the individual. Forfeiture of public officials’ illegally obtained assets will take place by court decision in civil proceedings.
• The jurisdiction of the High Anti–Corruption Court extends to review of civil lawsuits on recognition of assets as unfounded. The claimants are representatives of the National Anti-Corruption Bureau of Ukraine or prosecutors of the Prosecutor General’s Office of Ukraine.
• The burden of proof of the connection between the assets and the public official and the fact that such assets are unfounded lies on the NABU or the PGO. At the same time, if such evidence is provided, the burden of proof of the fact that the assets are legal lies on the defendant.
• The option of civil forfeiture is provided concerning assets obtained within three years before the Law comes into effect, if the value of such assets exceeds 500 minimum wages (as of 1 January 2019 – UAH 960,500, or approximately EUR 31,000). This partially resolves the problem of cases closed after the illicit enrichment provision was abolished. Now, illegally obtained assets can be seized in civil proceedings.
• Civil forfeiture of assets acquired after the Law comes into effect will be used for assets of the following amounts: between five hundred minimum wages to twelve hundred tax-free minimum incomes (as of 1 January 2019 – UAH 960,500 to UAH 11,526,000, or approximately EUR 31,000 to EUR 370,000). Everything that exceeds this amount means criminal liability for illicit enrichment.
• It should be noted that the European Court of Human Rights recognizes that seizure of assets beyond the scope of a criminal proceeding does not contradict the presumption of innocence, does not violate property rights and does not constitute punishment without trial (see cases M v Italy, Arcuri and Others v Italy, Riela and Others v Italy, Butler v the UK, Welch v the UK, Gogotidze and Others v Georgia).

Asset forfeiture beyond the scope of criminal proceedings is used in such countries as Australia, Israel, Ireland, Canada, Liechtenstein, Lithuania, South African Republic, Slovenia, the UK, Thailand, Fiji, Philippines, Switzerland. Civil forfeiture is permitted under Directive 2014/42/EU of the European Parliament and of the Council.