Non-Compliance with Requirements of State Audit Service — up to 3 Years of Restriction of Liberty: Unexpected, but Realistic

Discussions on how to enhance safeguards for officials of the State Audit Service, its offices and departments have been going on for a long time. These conversations were especially aggravated in March 2023, when auditors were not allowed to conduct scheduled measures in the Dnipro City Council. The State Audit Service reported that its employees were not allowed to take control measures 30 times in 2022 and 12 times in 2023. These statistics concern only the objects of the Dnipro City Council. There are many more such cases throughout Ukraine. Non-admission to inspections and audits leads to the fact that control bodies cannot verify the legality of spending billions of budget funds. Therefore, the State Audit Service called for the introduction of criminal liability for obstructing its work. 

In April 2023, MP Pavliuk submitted draft law No.9215 to the Verkhovna Rada, proposing to supplement the Criminal Code with Article 351-3. It suggested providing for criminal liability for obstructing the activities of the state financial control body (hereinafter referred to as the SFCB) as for a minor crime. However, the draft law is still being considered by the Verkhovna Rada Committee on Law Enforcement. 

Instead, the provision on criminal liability for obstructing the SFCB unexpectedly appeared in draft law No. 8235 — MPs voted for it, the President of Ukraine signed it, and now it will enter into force on August 11. 

Let’s find out what liability there is for obstructing public auditors, which provisions have been introduced into draft law No.8235, and what consequences this may have. 

Liability for non-compliance with the requirements of public auditors today

As of today, Article 164-2 of the Code of Ukraine on Administrative Offenses (hereinafter referred to as the Code) is in force, which provides for fines for violating the legislation on financial matters. In particular, obstruction of SFCB employees in conducting audits and inspections entails the imposition of a fine of UAH 136 to 255. 

If an administrative penalty for one of the violations provided for in Article 164-2 of the Code has already been imposed on a person during a year, but they have committed another one — the fine is UAH 170 to 340. 

As we can see, the existing amount of fines is unlikely to scare off those who are trying to prevent auditors from conducting inspections and conceal how they have spent billions of hryvnias. In addition, Article 164-2 of the Code provides only for obstruction. Failure to comply with legal requirements and provision of inaccurate information are not provided as separate offenses.

In addition to administrative liability, there is criminal liability for obstructing a representative of the authorities,established by Article 342 of the Criminal Code of Ukraine. Traditionally, obstruction is interpreted as an active physical counteraction to the performance of duties. 

Ruling of the Plenum of the Supreme Court of Ukraine No. 5 of April 26, 2002, “On Judicial Practice in Cases of Bribery” designates employees of state bodies and their apparatus, who are empowered, within their competence, to put forward requirements, as well as to make decisions binding on legal entities and individuals, regardless of their departmental affiliation or subordination, as the representatives of the authorities.

In accordance with Article 15 of the Law “On the Basic Principles of State Financial Control in Ukraine,” officials of the SFCB are representatives of the executive authorities. The legal requirements of SFCB officials are mandatory for the officials of the objects under control. Therefore, there should also be criminal liability for obstructing auditors. However, the concept of obstruction does not cover cases where a person does not fulfill the requirements without active physical counteraction. 

What will change?

From August 11, Article 351-1 of the Criminal Code will be as follows:

 Let’s take a closer look at the key elements of this crime.

The criminal offender is an official. 

According to Article 18, part 3 of the Criminal Code, officials shall mean persons who permanently, temporarily or by special authority perform the functions of representatives of government authorities or local governments, as well as who permanently or temporarily hold positions in government authorities, local governments, enterprises, institutions, or organisations related to the implementation of organisational and administrative or administrative and economic functions, or perform such functions under special authority, which a person is endowed with by a government authority, local government, central authority with special status, authorised body or authorised official of an enterprise, institution, organisation, court or law.

The objective element of a new crime — first of all, an act that qualifies as a crime — can consist of three options:

1. failure to comply with the legal requirements of the SFCB;
2. creation of artificial obstacles to the work of the SFCB;
3. providing knowingly false information to the SFCB.

Let’s outline what is considered to be the legal requirements of the SFCB. 

The right of the SFCB to put forward requirements is provided for by the provisions of the Law “On the Basic Principles of State Financial Control in Ukraine” (hereinafter referred to as the Law), Article 10 of which gives the SFCB the right, in particular:

• to put forward binding requirements on the managers and other persons of controlled enterprises, institutions, and organizations regarding the elimination of identified violations of the law;
• to require the heads of controlled institutions to conduct inventories of fixed assets, material assets, funds and settlements;
• to apply to the court in the interests of the state if the controlled institution has not ensured compliance with the requirements for eliminating violations of the legislation on the preservation and use of assets identified during the state financial control.

Considering the conditions under which the requirements of the SFCB are legitimate, the Supreme Court, in its ruling of May 29, 2020, in the case No. 804/668/17, stated the following:

The “legal requirement” of the supervisory body to eliminate the identified violations of the law must be made in writing, formed as a result of the implementation by the supervisory body of its competence (tasks and functions in accordance with the law), contain clear, specific, and understandable precepts to the controlled entity (object of control, its officials), which are mandatory for the latter. This is also consistent with the requirements of Article 2 of the Code of Administrative Proceedings of Ukraine regarding the validity of the decision of the public authority.

Moreover, the Supreme Court in the ruling of May 8, 2018, in case No. 826/3350/17 and the ruling of August 6, 2020, in case 826/6254/17 came to the conclusion that a legal requirement unconditionally generates legal consequences (in particular obligations) for its addressee, that is, it is endowed with the features of a legal act of individual action. Therefore, such a requirement may be contested in court. At the same time, the legality of the written request of the supervisory body unconditionally implies its validity, that is, the existence of grounds for sending it to the addressee.

Consequently, the legal requirement of the SFCB is a requirement issued on the basis, within the powers and in the manner prescribed by law, has a written form, formed as a result of the implementation of the supervisory body of its competence, contains clear, specific and understandable precepts, is justified.

The creation of artificial obstacles, as one of the options for action, is to prevent the SFCB from exercising its powers.

In the comments to similarly worded Article 351-2 of the Criminal Code of Ukraine, the Main Legal Department of the Administration of the Verkhovna Rada of Ukraine called this and other formulations unspecific. 

Subjective element of a crime

Since the disposition of the article does not indicate the subjective elements of the crime, theoretically, the crime can be committed both intentionally and recklessly. For example, due to the heavy workload, the specialist of the department did not have time to send all the documents and information within the deadline required by the SFCB but sent some of them a day later or even created artificial obstacles by poorly scanning documents. Potentially, there is a risk of criminal liability for such situations. 

A similar comment was contained in clause 42 of the Comments of the Main Legal Department of the Administration of the Verkhovna Rada on the draft Law of Ukraine “On the High Council of Justice” (register No. 5180), which supplemented the Criminal Code of Ukraine with Article 351-2 “Obstruction of the activities of the High Council of Justice, the High Qualification Commission of Judges of Ukraine” with a similarly worded disposition. In particular, the Main Legal Department noted:

“in view of the wording of this article, this crime may be committed both intentionally and recklessly. However, given the fact that the disposition uses such vague wording as ‘legal requirements,’ ‘artificial obstacles,’ then in the future, this may lead to criminal prosecution of persons who, due to their negligence, did not fulfill certain requirements or allowed such artificial obstacles.” 

Evaluation of the initiative

Advantages

A positive effect that can be expected from the introduction of criminal liability for obstructing the SFCB is the strengthening of guarantees to allow the SFCB to exercise control measures. During the war, many procurement transactions were conducted without competitive procedures and this excluded the possibility of monitoring them — only other control measures that required physical admission. 

According to the Prozorro system, the volumes of procurement in 2022-2023, which was impossible to monitor, reached the following indicators:

• In the period from February 28 to the end of 2022, procuring entities reported on concluding 72,600 direct contracts on the purchase of goods and services; each having a value of UAH 100,000 or more, and in total — more than UAH 120 bln. 
• In the same period, the procuring entities reported on the conclusion of 1,210 direct contracts for the purchase of works worth UAH 1.5 mln or more, in total — almost UAH 18 bln.
• From January 1 to May 18, 2023, procuring entities reported on the conclusion of 59,270 direct contracts on the purchase of goods and services, each having a value of UAH 100,000 or more, and in total — more than UAH 91 bln. 
• During the same period, the procuring entities reported on the conclusion of 611 direct contracts for the purchase of works worth UAH 1.5 mln or more, totaling more than UAH 8 bln.

Therefore, additional guarantees of financial control over how these budget funds were spent are of exceptional, historical importance.

Probably, the introduction of criminal liability for non-compliance with the legal requirements of the SFCB will help solve another problem — the difficulty in obtaining the personal data by the SFCB of the persons who committed violations. The State Audit Service reported that in order to draw up a protocol, conduct further court proceedings and enforce a fine, information about the offender is needed — in particular, their date of birth, place of residence, individual tax identification number. But offenders do not provide their personal data at the request of auditors, avoiding responsibility. For example, in 2019, 42 procuring entities did not provide the necessary information for 93 requests from public auditors. 

One of the rights of the SFCB is the right to obtain information, documents, and materials necessary to perform the assigned tasks (Article 10, clause 11 of the Law “On the Basic Principles of State Financial Control in Ukraine”) from state bodies and local self-government bodies, enterprises, institutions, organizations of all forms of ownership, other legal entities, and their officials and individual entrepreneurs. Therefore, the potential failure to provide personal data at the request of the SFCB can also be considered as non-compliance with legal requirements.

Disadvantages

1. Inconsistency with the logic of Ukrainian legislation on the criminalization of acts

Conceptually, the criminalization of acts of non-compliance with the legal requirements of a certain public authority and/or obstruction of its activities looks controversial. If we analyze the existing corpus delicti of administrative and criminal offenses related to similar acts against other bodies, we can come to the following conclusions.

Administrative liability is provided for failure to comply with the legal requirements of officials:

• of tax authorities (Article 163-3 of the Code of Ukraine on Administrative Offenses)
• of the National Anti-Corruption Bureau of Ukraine, Bureau of Economic Security of Ukraine, State Bureau of Investigation, Security Service of Ukraine (Article 185-13)
• of a prosecutor (Article 185-8)
• of the State Service of Ukraine on Food Safety and Consumer Protection (Article 188-2)
• of the State Labor Service (Article 188-6) and the central executive body implementing the state policy in the field of labor protection (Article 188-4)
• of the bodies exercising state control in the field of environmental protection, use of natural resources, radiation safety, or protection of natural resources (Article 188-5)
• of the central executive body implementing the state policy on state supervision (control) in the field of fire and man-made safety (Article 188-8)
• of the central executive body implementing the state policy in the field of quality control and safety of medicines (Article 188-10)
• of the bodies of the State Sanitary and Epidemiological Service (Article 188-11)
• of the central executive body implementing the state policy on civil protection, supervision, and control over the state of protection of territories from natural and man-made emergencies (Article 188-16)
• of the bodies of state regulation of nuclear and radiation safety (Article 188-18)
• of the entities of state financial monitoring (Article 188-34)
• of the bodies of state architectural and construction control and supervision (Article 188-42)
• of the NACP (Article 188-46)
• of the National Agency of Ukraine for Finding, Tracing and Management of Assets Derived from Corruption and Other Crimes (Article 188-48)
• of the central executive body that ensures the implementation of the state policy on land transport safety (Article 188-57)
• and many others. 

Criminal liability is provided for failure to comply with legal requirements only:

• of an MP, a member of local council (Article 351 of the Criminal Code of Ukraine);
• of the Accounting Chamber, member of the Accounting Chamber (Article 351-1 of the Criminal Code of Ukraine);
• of the High Council of Justice, its body or a member of the HCJ, the High Qualification Commission of Judges of Ukraine or a member of the HQCJ of Ukraine (Article 351-2 of the Criminal Code of Ukraine).

That is, non-compliance with the requirements of either persons elected in the elections, or the Accounting Chamber (provided for in Article 98 of the Constitution), or the HCJ and the HQCJ as bodies that monitor the proper functioning of justice is provided for as crimes. 

Consequently, for non-compliance with the legal requirements of officials of the vast majority of public authorities, administrative liability is provided, even if their powers shall relate to the safety, life, and health of people (that is, values that are the highest in Ukraine, and therefore higher than compliance with the legislation on the national budget — Article 3 of the Constitution of Ukraine).

Regarding the obstruction (creation of obstacles) in the work of state bodies, administrative liability is provided for the commission of the following acts:

• creating obstacles in the activities of authorized officials of the central executive body implementing the state policy on state supervision (control) in the field of fire and man-made safety related to conducting inspections (Article 185-14)
• creating obstacles to the activities of the central executive body implementing the state policy in the field of labor protection (covered by Article 188-4, as well as non-compliance with legal requirements);
• preventing authorized persons of the tax authorities, the Pension Fund of Ukraine, compulsory state social insurance funds from conducting inspections (Article 188-23)
• obstructing the exercise of the powers of the Commissioner for Persons Missing in Special Circumstances (covered by Article 188-51, as well as non-compliance with legal requirements);
• and others

Criminal liability is provided for:

• creating artificial obstacles in the work of an MP, a member of a local council (Article 351 of the Criminal Code of Ukraine);
• creating artificial obstacles in the work of the Accounting Chamber, a member of the Accounting Chamber (Article 351-1 of the Criminal Code of Ukraine);
• creating artificial obstacles in the work of the High Council of Justice, its body or a member of the HCJ, the High Qualification Commission of Judges of Ukraine or a member of the HQCJ of Ukraine (Article 351-2 of the Criminal Code of Ukraine),
• as well as interference in any form in the activities of a judge in order to prevent him/her from performing his/her official duties or to obtain an unlawful judgement (Article 376 of the Criminal Code of Ukraine);
• Illegal influence in any form on the President of Ukraine, the Chair of the Verkhovna Rada of Ukraine, a Member of the Parliament of Ukraine, the Prime Minister of Ukraine, a member of the Cabinet of Ministers of Ukraine, the Head of the Constitutional Court of Ukraine, a judge of the Constitutional Court of Ukraine, the Chair or a member of the High Council of Justice, the Chair or a member of the High Qualification Commission of Judges of Ukraine, the Commissioner for Human Rights of the Verkhovna Rada of Ukraine or his/her representative, the Director of the National Anti-Corruption Bureau of Ukraine, the Director of the State Bureau of Investigations, the Director of the Bureau of Economic Security of Ukraine, the Prosecutor General, the Chair of the Accounting Chamber or other member of the Accounting Chamber, the Chair or a member of the Central Election Commission, the Head of the National Bank of Ukraine, a member of the National Council of Television and Radio Broadcasting of Ukraine, the Head of the Antimonopoly Committee of Ukraine, the Head of the State Property Fund of Ukraine, the Head of the State Committee for Television and Radio Broadcasting of Ukraine, a member of the National Commission for State Regulation of Energy and Public Utilities, in order to prevent them from performing their official duties or to achieve the adoption of unlawful decisions(Article 344 of the Criminal Code of Ukraine);
• interference in the activities of an employee of a law enforcement agency, a forensic expert, an employee of the state executive service, a private enforcement agent (Article 343 of the Criminal Code of Ukraine).

Thus, such a crime as obstruction (creation of artificial obstacles) to work (exercise of powers) is provided only for persons elected in direct elections (MP, member of the local council), or the Accounting Chamber (provided for in Article 98 of the Constitution), or the HCJ and the HQCJ as bodies that ensure the proper functioning of justice. In order to protect and ensure the proper work of other bodies and officials, law enforcement officers, and government officials, criminal liability is provided for illegal influence (interference in activities). 

Summing up, the criminalization of non-compliance with the legal requirements of the SFCB looks illogical against the background of administrative liability for non-compliance with the requirements of other bodies (in the vast majority of cases). It would probably be advisable to criminalize only obstruction to the performance of official duties (specifying, in particular, the prevention of implementing a measure of state financial control as a form of obstruction). 

2. Risk of abuse

Criminalization of non-compliance with the legal requirements of the SFCB creates a risk of abuse by these bodies and pressure on the controlled institutions. After all, refuting the legality of the requirement takes at least several months for judicial appeal, while criminal proceedings shall be initiated within 24 hours from the date of submitting a statement, notice of the committed criminal offense.

3. Unacceptable way of amending legislation

Speaking about the “revolutionary expediency” of changes regarding the criminalization of non-compliance with the legal requirements of the SFCB, one cannot ignore the surprising procedural way in which this provision was introduced. 

In the original version of the draft law No.8235, the authors did not provide for the criminalization of new acts at all. In particular, they did not plan changes that would relate to the guarantees of the activities of the SFCB.

The initial draft law and the comparative table contained changes to the sanctions of already existing articles — brought the penalties in line with the requirements of the General Part of the Criminal Code, contained editorial changes. This is evidenced by the very title of the draft law – “On Amendments and Additions to the Criminal Code of Ukraine (on the Elimination of Contradictions in the Punishment for Criminal Offenses)”

In the explanatory note, the authors justified the changes as follows: the practice of law enforcement revealed a number of cases when certain types or amounts of penalties were established in the sanctions of the articles of the Special Part contrary to the provisions of the General Part of the Criminal Code of Ukraine. This state of affairs is unacceptable, since it violates the principle of legal certainty as an indispensable component of the rule of law, which is recognized and guaranteed in Ukraine (Article 8 of the Constitution of Ukraine), creates a basis for the lack of uniformity of judicial practice and violation of the rights of the persons prosecuted.

However, unexpectedly, in clause 20 of the comparative table, it was recorded before the second reading that MP S. Ionushas proposed, among other things, to supplement Section 1 of the draft law with clause 11 of the following content: “11) in Article 351-1: a) the title after the word ‘activities’ shall be supplemented with the words ‘of the state financial control body’; the first paragraph of part one after the word ‘requirements’ shall be supplemented with the words ‘of the state financial control body’.” The proposal was considered. 

Accordingly, neither the comments of the Main Legal Department, nor the conclusion of the anti-corruption expertise, nor other documents related to the work on the draft law contain an assessment of this provision.

We believe that this way of developing and adopting amendments to the legislation, especially on such significant issues, is unacceptable.

Moreover, the amendment to Article 351-1 of the Criminal Code of Ukraine regarding the criminalization of a new act on the eve of the second reading is inconsistent with Article 116 of the Rules of Procedure of the Verkhovna Rada of Ukraine, approved by the Law of Ukraine dated February 10, 2010, No. 1861-VI. According to it, proposals and amendments to the draft law, which is being prepared for the second reading, can be introduced only to the text of the draft law (sections, chapters, articles, their parts, clauses, subclauses, paragraphs, sentences), which was adopted by the Verkhovna Rada as a basis. The Main Committee, as an exception, may decide to consider the proposals made and amendments regarding corrections, clarifications, elimination of errors and/or contradictions in the text of the draft law, other structural parts of the draft law and/or other legislative acts that were not the subject of consideration in the first reading, if the need for their introduction was indicated in the conclusions of this Main Committee and/or the expert unit of the Administration of the Verkhovna Rada and announced by the presiding officer at the plenary meeting during the consideration of such a draft law in the first reading. Such proposals and amendments should correspond to the subject of legal regulation of the draft law.

To sum up, we urge the SFCB to carefully consider the new guarantees of its activities and apply the new tool of influence only in case of intentional interference with its work. We urge MPs to develop amendments to the current legislation in a transparent way, preliminarily discussing initiatives with the public, representatives of stakeholders, and the academic community, as well as with unconditional compliance with the requirements of the Rules of Procedure of the Verkhovna Rada of Ukraine.

The legal analysis was prepared within the USAID UK aid project Transparency and Accountability in Public Administration and Services / TAPAS.