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Making Russia Pay for Crimea

Making Russia Pay for Crimea

June 27, 2014, Vol. 1, Issue 2

How to plug a $12 billion hole The global search for allegedly stolen billions Disputes mar ’s corruption fi ght Summer internships for law students

Making Pay For Ukraine’s legal options for forcing return of peninsula Editors' Note Contents Dear readers, 4 Disputes stifl e Ukraine’s We are pleased to present the second issue of Legal Quarterly, with 36 pages – 12 more than attempts to get rid of endemic the inaugural edition published on March 26. corruption T he Post’s magazine is dedicated to covering the most pressing legal issues of the day and provides a platform for Ukraine’s lawyers and others in the legal community to share 6 How to make Russia pay for their insights with the broader community in government, business and civil society. stealing Crimean peninsula

Ukraine is undergoing numerous changes on many fronts inspired by the 9 Vox Populi Revolution. Its new president, , was elected by a landslide vote on May 25 LOCAL CONNECTIONS. GLOBAL INFLUENCE. and inaugurated on June 7. Meanwhile, Ukraine still contends with Russia's illegal annexation 10 How to plug a $12 billion hole of Crimea and a Kremlin-backed separatist war in two of its most populous oblasts in eastern Ukraine, home to 15 percent of the nation's population. 12 Justice minister sees himself as a corruption fi ghter Squire Patton Boggs has come together to combine the strength, influence and resources of Squire Sanders and Patton Boggs. Special attention i s devoted in this issue to Ukraine’s relations with Russia, including the legal prospects for Ukraine getting Russia to return the Crimean peninsula. 14 Ukraine searches globe for Together we can now deliver insight, knowledge and expertise from 44 offices in 21 countries across Europe, North America, We also cover the legal aspects of fi ghting corruption, unmasking the shadow economy and billions allegedly stolen by Yanukovych the Middle East, Asia Pacific and Latin America. ending transfer-pricing scams in the never-ending struggle to improve Ukraine's business climate. 16 Good news may come on M&A Since the 1990s, Ukrainian law schools have been overcrowded with applicants. But Western- Blending global reach and local connections with long-established relationships with regulators in Washington DC, market if Russia stops waging educated lawyers who work here say Ukraine’s approach to teaching law is fl awed. In this bloody war against Ukrainian and beyond, we support clients wherever law, business and government interact. edition, we look at ways to improve the situation. state We received several suggestions for improving the Legal Quarterly after the last edition and Clients now have unrivalled access to more than 1,500 lawyers, committed to working together to find welcome your feedback on ways for us to improve. 19 Law Firms listing legal solutions – no matter when and where they are needed. Sincerely, 22 How to bring Ukraine’s economy out of shadows In Ukraine, Squire Patton Boggs-Salkom International Association will continue to assist companies with all their legal issues in Brian Bonner Ivan Verstyuk Mark Kyiv Post Rachkevych the region and around the world, strengthened by a combination which furthers our local experience and global resources. 24 Central bank struggles to give Chief Editor Associate Editor shaky hryvnia a softer landing Business Editor Contact us to discuss how we can help your business. 26 DLA Piper Law recruits summer All of our contacts are available online at http://www.kyivpost.com/contacts/ legal interns from war-torn Crimea as well as eastern , Luhansk olbasts

28 Ukraine seeking fair price for gas from Stockholm court

31 Open Skies Agreement postponed, once again June 27, 2014, Vol. 1, Issue 2 Спеціалізоване видання «Kyiv Post Legal Quarterly» видається ТОВ «Паблік-Медіа». © Kyiv Post, 2014 Наклад — 11 000 прим. 32 Business of Yanukovych’s alleged Розповсюджується безкоштовно. The material published in the Kyiv Post Legal Quarterly may Матерiали, надрукованi у виданні «Kyiv Post Legal front man still operating in not be reproduced without the written consent of the publish- Quarterly» є власнiстю видавництва, захищенi er. All material in the Kyiv Post Legal Quarterly is protected by мiжнародним та українським законодавством i Ukraine Ukrainian and international laws. не можуть бути вiдтворенi у будь-якiй формi без письмового дозволу Видавця. Думки, висловленi у The views expressed in the Kyiv Post Legal Quarterly are not дописах можуть не завжди співпадати з поглядами 34 Legal organizations in Ukraine necessarily the views of the publisher nor does the publisher видавця, який не бере на себе вiдповiдальнiсть за наслiдки публiкацiй. carry any responsibility for those views. Засновник — ТОВ «Паблік-Медіа» Головний редактор — Брайан Боннер Published by Public Media LLC Відповідальній за випуск — Якуб Парусинський On cover: Activists celebrate Day of Chief Executive Offi cer: Jakub Parusinski Адреса видавця та засновника співпадають: Crimean independence from Russia Chief Editor: Brian Bonner, Project Editor: Ivan Verstyuk Україна, м. Київ, 01004, вул. Пушкінська, 31А, 6й пов. near the Russian Embassy in Kyiv on Sales Director: Alyona Nevmerzhytska Реєстрацiйне свiдоцтво — June 14. (UNIAN) Sales Managers: Elena Symonenko, Aleksandra Pavlovskaya Кв № 20588-10388Р від 18.03.2014 Надруковано — ТОВ «ВКФ ТРІАДА», Chief Designer: Vladyslav Zakharenko Україна, м. Київ, 03680, вул. Кржижановского, 4, Editorial Team: Mark Rachkevych, Evan Ostryzniuk, тел.: +38 044 499 88 68 Iryna Yeroshko, Anastasia Forina, Solomiya Zinevych, Замовлення № 743 Nataliya Trach, Olena Goncharova, Isaac Webb З приводу розміщення реклами звертайтесь: Photoeditor: Pavlo Podufalov +380 44 591-77-88 44 Offices in 21 Countries Відповідальність за зміст реклами Photographers: Kostyantyn Chernichkin, Anastasia Vlasova несе рекламодавець. squirepattonboggs.com [KYIV POST LEGAL QUARTERLY] #02/2014 3 salkom.ua Development and the ’s Group of States In turn, the Justice Ministry said that its position was Disputes stifl e Ukraine's attempts against Corruption, called GRECO, support the concept of supported by the Cabinet of Ministers. an anti-corruption offi ce. Chornovol and Olena Tyshchenko, her advisor on an- “In Ukraine, many law enforcement bodies – too manyb– ti-corruption policy, criticized Oleksiy Khmara, head of to get rid of endemic corruption have an anti-corruption mandate. This resulted in frag- Transparency International in Ukraine, who they claimed Corruption fi ghter mentation. They’re all going after small fi sh, when we all is not affi liated with the -based Transparency Tetyana Chornovol know the fundamental problem is high-level corruption,” International, a corruption watchdog with global reach. has criticized the Justice Ministry and By William Schreiber etyana Chornovol, the Ukrainian government’s corruption-fi ghting said Olga Savran, manager of OECD’s anti-corruption net- “First of all, there is no Transparency International in Transparency In- [email protected] commissioner, has had a bumpy road accomplishing her mission of work for Eastern Europe and Central Asia. Ukraine. But (Khmara) has used this brand for many years," ternational Ukraine Independence from high-level political pressure, ac- Tyshchenko told the Kyiv Post. "From what we know, he in their anticorrup- eradicating the nation’s cancerous disease of graft. Her frustration tion efforts. (Pavlo T countability to both the prosecutor’s offi ce and the pub- just submitted his documents, and they’re being reviewed Podufalov) has spilled over as she complains about facing nothing but obstacles in lic, and legally established investigativeestigative anandd proceproceduraldural by TTransparencyransparency IInternationalnternational iinn BBerlin.erlin. SSoo to me iitt fulfi lling her monumental task. powers are crucial for the bureau’seau’s activitactivity,y, according ttoo isn’t reallreallyy honest to take this brand if he doesn’t Savran. “This should be a professionalfessional pprocessrocess – not a ppar-ar- havhavee rrelationselations wwithith iit."t." Speaking at the Ukraine Crisis Media Center The Justice Ministry did not respond to her tisan one,” she concluded. Olena Kifenko, a sspokespersonpokesperson for on June 3, Chornovol accused the Ministry of charges. Oleksandr Lemenov, a lawyerer with the Center for TransparencTransparencyy International-Ukraine, Justice as well as Transparency International Ryaboshapka has been the offi cial head of Political and Legal Reforms, saidaid that "Chornovol and othoth-- denied these charges. She sasaysys that Ukraineb– a major corruption watchdog – of anti-corruption efforts at the Justice Ministry ers are essentially working in tthehe absence of an appropriate the UkUkrainianrainian oofffi ce becbecameame a nationnation-- belonging to a “political mafi a” that has frus- since 2011, when Yanukovych was still in pow- legislative framework.” al chapter of TransparencTransparencyy International trated her efforts to stamp out corruption. er. Chornovol, who was savagely beaten in an Chornovol drafted a resolutionution wiwithth in 2012. “All the country believes I am in charge of attack linked to Yanukovych, was appointed the Cabinet of Ministers on MMayay 16 al- Meanwhile, a rerepresentativepresentative from fi ghting corruption (while) it is the Justice to her unenviable post on March 5, with plans tering procedures related to sstatetate seizure TransparencyTransparency International’s Berlin offi ce Ministry and … (Deputy Minister Ruslan) to create an anti-corruption bureau. So far, of assets connnected to the YYanukovychanukovych clarifi ed that TransparencTransparencyy InternationInternational-al- Ryaboshapka who have the power and legal Chornovol’s bureau doesn’t have offi cial sta- “family,” the ex-president’s innernner circcircle.le. UUkrainekraine is ““aa national chachapterpter in fofor-r- mechanisms to fi ght ,” tus. That’s why on April 18 she submitted a bill Currently, the law lets the governmentovernment oofferffer mmation”ation” – tthehe llastast stestepp tatakenken bbeforeefore an she said. through the Batkivshchyna party faction in seized assets to private corporationsorations tthroughhrough ororganizationganization bbecomesecomes a ffull-ull-fl eedgeddged “Have you ever heard Ruslan Ryaboshapka parliament to get legal recognition. competitive bids. Chornovol’ss resoresolutionlution wouwouldld cchapter.hapter. TThehe ggrouproup is autautho-ho- instigate any investigation or start any cam- A rival bill also was submitted on April allow seized assets to be turnedned over ononlyly to pupub-b- rrizedized to use tthehe ororganiza-ganiza- paign against government corruption, against 24, drafted by a coalition of civil society ex- lic enterprises. However, the Justice MinistrMinistryy reredrafteddrafted tion’s name anandd llogo,ogo, tthehe the (ousted President 's) perts, including those from Transparency this part of the resolution onn June 6 to hhaveave confi scat- BerBerlinlin hheadquarterseadquarters family?” said Chornovol, whose journalistic International Ukraine as well as Vitali ed assets go to private companies,anies, witwithouthout notinotifyingfying tthehe ssaid.aid. A corruption monument depicting a golden investigations contributed much to uncover Klitschko’s Ukrainian Democratic Alliance for public about the change, saidd Chornovol. “It’s one thinthingg toilet is unveiled on April 26 near the head- quarters of , the state energy giant, highly dubious schemes used by Yanukovych Reforms. if this property is a car, but iff it’s a refi nery,nery, plantplant or a in Kyiv. (Ukrainian News) and his inner circle. According to UDAR’s bill, the chief corrup- gold mine, that’s something elelse,”se,” sshehe expexplained,lained, wwhilehile tion fi ghter would be chosen competitively, sharing her suspicions about private fi rms with connecconnec-- whereas Chornovol’s version makes that po- tions to Justice Ministry offi ccialsials who could benefi t from sition an appointment. Earlier, Transparency this change. International-Ukraine said the new offi ce head should have legal credentials, but the group has since withdrawn that condition. There are other differences between the two bills: Chornovol’s draft places the offi ce un- der the National Security and Defense Council; in the rival version it reports to the Cabinet of Ministers. Chornovol’s draft exclusively targets graft in the public sector; in the civil society draft there is some private sector jurisdiction. Regardless of its structure, Ukrainian legal experts are skeptical. “By itself, an anti-cor- ruption offi ce won’t solve the corruption issue. Legislation like this can provide mechanisms to fi ght corruption, but not to fi ght the sys- tem,” says Vitaliy Gren, a laywer and anti-cor- ruption activist. International organizations, such as the Organization for Economic Cooperation and

4 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 5 peaceful courts to redress the violation of Ukraine’s territo- rial integrity. Legal experts say that Ukraine has serious grounds to sue Russia over the occupation in an international court of law. The questions are on which grounds, in what courts, and if the new government truly has the will to go through with a lawsuit and all the complexities it entails. Ukraine must be careful how it will sue its northern neighbor. To simply appeal to an international court for the return of Crimea to Ukrainian sovereignty would be futile and a tacit admission that Russian owns the place. As Maksym Lavrynovych, managing partner of Lavrynovych & Partners explains: “The law clearly states that Crimea is a part of Ukraine, so to go to court to get it back would contradict the law, because it is already ours ac- cording to the constitution.” In addition, the international community (except Russia) recognizes Crimea as a part of Ukraine, regardless of the re- ality on the ground. International law is impotent in this case as well. Volodymyr Vasylenko, head of a public commission that investigates and prevents human rights violations in Russia for damages to its investments or the investments Simferopol Ukraine and a judge of the International Criminal Tribunal and assets of its citizens as a result of actions conducted by residents cut a cake given to them on for the former Yugoslavia, said on March 21 that no legal the Russian armed forces, Lavrynovych argues. It would not June 7 during the mechanisms for the return of Crimea in an international be hard to prove lost assets and declining property values, celebration of the How to make Russia pay for court are available. “Consent of both parties is required, and for example. city’s 230th an- niversary. Confl icts Russia believes that its actions are fair,” Vasylenko says. Finding a place to fi le a lawsuit is not as diffi cult as one constantly arose If Russia was playing by the rules, the legal situation might assume. between people as might be different. The Rome Statute of the International Ukrainian citizens who suffered property losses in Crimea the cake was given for free and local stealing Crimean peninsula Criminal Court has the right to bring legal action against could approach the Russian courts, oddly enough, since both residents wanted to countries that commit crimes of aggression and other war countries signed a bilateral agreement in 1998 within the get as much of it as crimes, but while Russia is a signatory of the statute, it has framework of the Commonwealth of Independent States for possible. (UNIAN) Russia’s President (2nd R), took some time, but on June 3 Ukraine fi led a lawsuit with Crimean Prime Minister Sergei Aksyonov not ratifi ed it, so it remains beyond this court’s jurisdiction. mutual protection of investments. Russia promised to pro- (L), Crimean parliament speaker Vladimir the European Court of Human Rights against Russia for its tect private assets in Crimea when it annexed the region. Konstantionov (2nd L) and Alexei Chaly, Sev- annexation of the Crimea peninsula. The nation demands $90 Show me the money However, Ukraine should recognize itself as a part of CIS, astopol’s new de facto mayor (R), join hands It Barring the geopolitical route, that leaves the econom- while the current government has been keen on leaving the after signing a treaty on the Ukrainian Black billion in compensation for assets seized. Sea peninsula becoming part of Russia in ic one, which is what Ukraine has done. Ukraine should sue organization that unites former Soviet republics.  the Kremlin in , on March 18. (AFP) The prospects of Russia giving Crimea back in the peninsula back. Appeals to the United BY EVAN OSTRYZNIUK the near future, however, are unlikely. Nations have resulted in a resolution in [email protected] Justice Minister submitted Ukraine’s favor. No major country or organi- 17 volumes of supporting documentation con- zation recognizes Crimea as a part of Russia. taining value calculations to determine the Western nations have also imposed fi nan- losses Ukraine incurred when it lost Crimea. cial sanctions on high-ranking Russian offi - And this might be just the beginning. cials to punish Ukraine’s former ruler over the Prime Minister also in- annexation. dicated that more lawsuits may follow, stat- Then, on April 15, Ukraine’s parliament ing that the Prosecutor General’s Offi ce is only passed a law on the temporary occupation of “starting investigations” and the government Crimea that restates it still belongs to Ukraine is “(still) weighing its legal options.” and that human rights or property violations In turn, Russia has already said that it would committed there are the responsibility of the reject any ruling it considers “biased,” which Russian Federation as the occupier. would be any ruling made against it. But with Ukraine’s military too weak to sup- Ever since the Russian Federation formal- press an armed insurgency in the southeastern ly annexed Crimea on March 18, Ukrainian part of the country, it is not in any condition to offi cials have been adamant about getting liberate Crimea by force. That leaves the more

6 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 7 ADVERTISEMENT  Taking the international route is a better option, “Returning Crimea to Ukraine is impossible,” said Putin’s Vox Populi legal experts agree. press secretary Dmitry Peskov on May 26, “so there is no Dmitry Pichugin, Managing Partner, Goldblum This would mean asking for arbitration to determine point in talking about it. It is a region of Russia.” On the Ukraine’s parliament on April and Partners, specializes in corporate and compensation for expropriation, damages or loss of value, following day Russia’s permanent representative to the tax law, M&A and financial consulting. which is what Ukraine is doing now. , Vladimir Chizhov, announced that “any 15 cancelled the need to have His areas of specialization include advising on restructuring, due diligence, evaluation In addition to the European Court of Human Rights, attempts of Kyiv to sue Russia over Crimea will have no obligatory corporate stamps, of tangible and intangible assets, other possible arbitration venues include the Arbitration prospects.” eliminating a Byzantine bureaucratic liquidation, split-up, amalgamation, and Institute of the Stockholm Chamber of Commerce, Such a bellicose attitude has been met and overcome practice. Will this help conduct purchase and sale of ownership rights. International Court of Justice at The Hague, and before. Amendments to the Ukrainian Act about advocacy Arbitration Commission of the UN for International Trade business in Ukraine? Ministry of Justice has drafted amendments to the Ukrainian Act about ad- Rights. Cyprus precedent BY Solomiya Zinevych [email protected] vocacy, which has already been sent to the expert discussion of the Venice Russia would have a diffi cult time brushing off the An international precedent exists that supports Ukraine’s Commission, and then will be given consideration in the . European or courts, because it is a signato- ambition to sue Russia on behalf of investors. Yevgeniy Kalashni, Dmitry Pichugin commented the most important changes made to the Act. In his ry to both. “Cyprus sued Turkey in the European Court of Human lead attorney, chief of Kalashnik opinion, the aim of the bill is the expansion of the rights of lawyers in the exercise of advocacy, improving the standards of interaction with state authorities, improv- The courts also anticipate claims of jurisdictional am- Rights in 2013 for compensation to Cypriot investors who and Partners LLP ing the quality of service of the advocatory associations by tightening the rules and biguity that could be used to muddy the legal waters. Even materially suffered as a result of the (1974) Turkish inva- “The adoption of the law will affect foreign en- requirements of obtaining a lawyer's license. Despite the positive changes for prac- though Europe and the UN assume Crimea as a part of sion,” explains Iryna Marushko, partner at Lavrynovych & trepreneurs positively: it will bring new possi- ticing lawyers there could be some negative aspects for lawyers, law firms or indi- Ukraine, its courts recognize the concept of “extra-terri- Partners. bilities and new strategic partners. It is possible vidual entrepreneurs who operate not as lawyers, without a license. torial control.” Since Crimea is effectively under Russian On May 11, Europe’s highest court ruled in favor of that huge foreign corporations will not like this law . The most important changes and their influence on the future work of lawyers control, the courts will recognize Russia’s de facto jurisdic- Cyprus and ordered Turkey to pay 90 million euros to the System changes will scare large business owners.” Significant amendments have been made in the art. 19 of the Act, which says that represent the interests of individuals and legal entities in the trial, administra- tion over the territory, Iryna Marushko of Lavrynovych & victims of its armed aggression 40 years ago. The amount tive, commercial and criminal court proceedings, as well as in cases of adminis- Partners explains. includes compensation for property losses. Petro Butsky, trative offence, is only to be made by the licensed lawyers. From the start, Russia cloaked its military aggression The onus for this lawsuit fell on the state, which should legal consultant at Gedeon Richter, a Hungary-based phar- At that rate, employees of law firms or natural persons-entrepreneurs, con- against Ukraine in legal arguments, however spurious, says give Ukraine even more impetus to proceed with legal ac- maceutical company stituted the majority of representatives in court by power of attorney will be Lavrynovych. When Russian President Vladimir Putin and tion. “Cyprus is protecting the country and its people,” says “The law will have a rather positive impact on our company. Unlike forced to continue their activities in the providing of legal services only on con- dition to obtain the status of a licensed lawyer in the Ukraine. his rubber-stamp parliament decided to annex Crimea, they Lavrynovych. “The court calls them investors, because they small companies, big corporations can’t provide each worker with a With regard to the requirements to become a lawyer, in my opinion, the bill pro- argued that it was in response to a demand made by an in- were building their hotels and shops that were taken over corporate stamp, which leads to constant problems... Moreover, sig- vides the introduction of stricter conditions for obtaining a license, which, by- dependent country, following a declaration through a refer- by Turkey. All of this was done with the help of the state.” natures will add trust to partnership relations and make the responsi- turn, can lead to reduction of low-skilled and unscrupulous lawyers. endum. In typical double-speak, Russian Foreign Minister Turkey is appealing this ruling, but it has lost and paid bility for assigned decisions more personal.” One of examples of the stricter requirements can be found in the Art. 6, which Sergey Lavrov declared on March 21 that “the decision to up similar lawsuits brought against it by individuals in increased the necessary work experience as paralegal to 3 years instead of the accept Crimea into Russia is based on the free will of the 1998 and 2003. Oleksandr Mashtalyar, previous two. The second part of this article supplemented conditions, under which there is no possibility of obtaining the status of a lawyer, as, for exam- people of Crimea by referendum and corresponds to inter- lawyer at Agency of Anti-Crisis Solutions ple, the imposition of administrative liability for corruption offenses, or if there national law.” Upholding 1994 Budapest Memorandum “This law will not make a signifi cant difference. some diseases that hinder the implementation of advocacy. So, if Ukraine wants to sue anyone for damages in Another advantage to bringing a class-action suit in an in- Obligatory corporate stamps do not bring incon- The next article to be paid attention to is art. 20, which is more focused on profes- Crimea, the Russians could merely shrug and state that ternational court is to force Russia to respect internation- veniences to Ukrainian or foreign entrepreneurs. sional rights of the lawyers. I assume, such additions as in paragraph 1 of part 1 "… it would have to be the , which conve- al agreements, adds Marushko. This could retroactively Problems with fake stamps will be simply substi- and receive from them the relevant information and documents" as well as part 3 concerning confidential information, will improve the capability of lawyers to coop- niently no longer exists. extend to the 1994 Budapest Memorandum that was sup- tuted by problems with forged signatures.” Picture taken late erate with state authorities and private individuals to perform their duties. on May 4 shows posed to guarantee Ukraine’s territorial integrity, which The last but not least amendment to be mentioned is art. 23, which is dedicated to people fi shing Russia remains obstinate Russia fl agrantly violated. Christina Nuzhna, at sunset in the the advocatory guarantees. According to this article, the lawyer has the right to ac- Crimean town of Russia’s reaction to Ukraine’s legal threats has so far been legal consultant at Krohne Ltd., -based producer quire defenders in the Ukraine (such as pistols and revolvers, ammunition intended Alushta. (AFP) dismissive. Enforcement chances ‘small’ of energy meters for shooting with rubber bullets). Anyway, the advocatory guarantees are providing law- yers a kind of immunity. The rules of art. 23 (especially items 9, 10, 12, 18) are inherent Winning a lawsuit is one thing. Enforcing the ruling is an- “Every person that makes decisions in our company has a corporate European standards by carrying out lawyers activity and control over their activities. other, and Ukraine might lose despite winning by virtue of stamp, so adoption of this law will not make any difference for us. Summation Russia’s immense global standing. However, implementation of new standards in documentation will Considering the above, I assume that the new act will improve the quality of “Ukraine has strong chances to win the case in the bring certain inconveniences. I can’t imagine cooperation with banks law service by strict demands of lawyers’ qualification. The act on the one hand International Court of Justice,” says Alexey Kot, Managing without using corporate stamps.” may negative affect the activities of lawyers without license, but on the other Partner at Antika Law Firm, “but considering Russia’s nihil- hand it will weed out unscrupulous legal defenders. Amendment provides and unifies the implementation of the European practice by empowering lawyers in istic attitude towards international institutions, the chanc- Sergiy Defyak, their work; improve communication with the public and other authorities, as es to enforce this decision are rather small.” lawyer at Euroconsulting well as private companies. Kot goes on to argue that, while Ukraine can appeal all “Cancellation of corporate stamps will not have the way up to the UN Security Council should Russia refuse an impact on foreign entrepreneurs. Ordering to abide by an international court ruling, as a permanent stamps is a simple and cheap procedure: it takes member of the council, Russia has veto power and would be one day and Hr 250, European entrepreneurs usu- certain to use it. ally do not have problems with it.” Gulliver Business Center, 1 A Sportivna Sq., Kyiv, Ukraine +38 044 362 7909, [email protected], www.goldblumandpartners.com

8 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 9 Initially, the law went into force on Sept. 1, Partners thinks that Ukrainian transfer pricing but subsequently later was revised because rules are more complicated than those nations companies were experiencing hardships in with a longer track record in this area, namely providing reports on their offshore transac- America, Britain and Germany. tions. At fi rst, the deadline was set for May 1, The law leaves enough room for inventive but afterwards was shifted to Oct. 1. entrepreneurs to engage in capital fl ight, adds The recent changes, however, introduced far Pavlo Demchuk, a Kyiv-based expert on trans- smaller fi nes for non-compliance with transfer fer pricing. pricing rules, which makes the procedure less Generally, the most important factors that bribe-prone, experts say. lead Ukrainian businesses to favor offshore ju- “That is an adequate step given the cur- risdictions are not only lower taxes, but also rent situation in the country. The lack of cer- the poor quality of Ukrainian corporate and tain secondary legislation on the matter commercial legislation. Inadequate court pro- coupled with the general turmoil of the past tection contributes to this, too, lawyers say. six months made it unwise to keep May 1 as the reporting deadline. The decision to have it shifted to Oct. 1 is a well-balanced one,” says Oleksandr Martynenko, senior partner at CMS Cameron McKenna. Many businesses However, most companies have already in Ukraine have submitted their transfer pricing reports to perfected tax evasion avoid fi nes, says Denys Lysenko, Vasil Kisil’s partner. through complicated The standard way of moving profi ts starts offshore schemes. But with registering a resident company in an off- Ukrainian authorities shore jurisdiction that has lower taxes. Then a say they are taking Ukraine-based producer sells what it produc- es to that offshore entity at an extremely low aim in order to boost price to avoid paying a substantial amount of tax revenues. taxes under Ukrainian tax legislation. When any interested party wants to pur- chase those products, it buys it from the off- shore entity which pays signifi cantly lower taxes at a given jurisdiction. Goods that are However, it is realistic to give companies in- actually sold may never leave Ukraine under centives to return to Ukrainian taxation. this scheme. “Further measures, including a potential The British Virgin Islands are among Transfer pricing legislation is applied when tax amnesty for previous periods, could and the most popular offshore destinations there is a suspiciously low price for the sale of are likely to be considered to boost Ukraine’s among Ukrainian businesses. (Wikipedia) goods or services to foreign companies. In this investment potential for primarily domes- case, average market prices are used to assess tic players,” says Lysenko of Vasil Kisil & the transactions. Partners. By Ivan Verstyuk The tax havens of Cyprus and British Virgin Martynenko of CMS Cameron McKenna [email protected] Islands remain the most popular offshore ju- agrees: “Give them good laws coupled with risdictions for Ukrainian businesses. solid protection and decent tax treatment and Ukraine’s transfer pricing legislation is ade- they will be back with their capital. By ‘good May 29, changes to How to plug a quate, says CMS’s Martynenko. It covers deals laws,’ I mean a common law system.” the transfer pricing whose aggregate annual value exceeds $5.1 Almost all offshore jurisdictions, apart from On law, seen as a million. If transaction take place with a for- Andorra and Monaco, belong to the common crucial regulatory act to prevent eign resident, transfer pricing laws are implied law system, which is less dependent on gov- the shifting of capital abroad, if the corporate income-tax rate in that coun- ernment decisions. Money likes stability and $12 billion hole try is lower than Ukraine’s by 5 or more per- predictability, says Martynenko. came into effect. Vasil Kisil & centage points, or 14 percent and less. Meanwhile, Boston Consulting Group esti- Partners law fi rm estimates that However, secondary legislation that applies mates that globally some $9 trillion of capi- state coffers lose out on $12 billion to other existing laws is lacking, especially for tal has shifted to offshore jurisdictions, while annually due to so-called offshore the banking sector. it expects this fi gure to reach $11.2 trillion by tax optimization schemes. Meanwhile, Lysenko of Vasil Kisil & the end of 2017.

10 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 11 Justice Minister ADVERTISEMENT Pavlo Petrenko says that “a lot still remains to 2,345 investigations that were applies for a new be done.” launched. Peter Teluk, Managing Partner, Squire Patton Boggs passport on June 5. Ukraine’s legal communi- "Every new government Ukraine (Ukrainian News) ty greeted Petrenko’s appoint- starts with anti-corrup- ment with high expectations tion initiatives," says Maksym Getting Tough on Compliance once he replaced the disgraced Lavrynovych of Lavrynovych Over the last several years, compliance has become increasingly important in civ- , who is accused of & Partners law firm. "Anti- ilized countries. Ukraine is now on the way to reforming its economy, government negligence and was a close ally corruption efforts have been and judicial systems, and anti-corruption practices and procedures are more im- of fugitive ex-President Viktor going on for a long time, in ac- portant than ever before. In this piece, we show how Ukraine can benefit from Yanykovych. cordance with the visa-regime international experience in this area. Squire Patton Boggs has advised multiple clients on compliance matters worldwide and is well equipped to pursue compli- The minister previously liberalization plan." ance initiatives to assist Ukrainian government agencies and businesses. served as a member of parlia- Unfortunately, Lavrynovych The Foreign Corrupt Practices Act (FCPA) was enacted in the United States back ment in the Batkivshchyna par- says, the incomes of low-lev- in 1977 for the purpose of making it unlawful for US individuals and companies ty faction, after practicing law el offi cials were decreased by 50 to make payments to foreign officials in order to obtain or retain business. Since beginning in the early 2000s. percent recently. "So, on the one 2010 the US governmental authorities, namely the Department of Justice and the Securities and Exchange Commission, have become much more vigilant in enforc- Unlike other EuroMaidan- hand the government makes this ing the FCPA against companies. In 2010, the UK also adopted its anti-bribery act backed government offi cials, good move increasing liability making it a criminal offense to bribe foreign officials. Ukraine has also over the past Petrenko was not criticized for for corruption, and on the oth- few years adopted a number of pieces of legislation focusing on anticorruption. gaining offi ce simply for his an- er hand it pushes (the offi cials) Foreign anticorruption practices and procedures are becoming more stringently ti-Yanukovych stance. His ex- to committing such crimes,” ob- applied by governments. Many in Ukraine tend to think that the FCPA is merely a “US matter.” However, this is not the case. Currently, of the top ten FCPA cases, only pertise is recognized by the legal serves Lavrynovych. one involved a US headquartered company. The top ten are Siemens (Germany) community. Petrenko has spearheaded a bill US $800 million; KBR/Halliburton (US) US $579 million; BAE (UK) US $400 million; Justice m inister sees himself Petrenko took a radical ap- to restore public trust in judges. Total S.A. (France) US $398 million; Snamprogetti Netherlands and ENI (Holland/ proach to laying off underqual- Essentially, the bill calls for re- Italy) US $365 million; Technip (France) US $338 million; JGC Corporation (Japan) US $219; Daimler AG (Germany) US $185 million; Alcatel-Lucent (France) US $137 mil- ifi ed employees. Right after views of rules made involving the as a corruption fi ghter lion and Magyar Telecom/Deutsche Telekom (Hungary/Germany) US $95 million. he took offi ce, he summoned dirty 2012 parliamentary elec- If Ukrainian companies think that foreign anti-corruption practices do not or will the heads of the ministry’s re- tions, the EuroMaidan protests not apply to them, they need to think again. If they are receiving investment from BY Olga Rudenko avlo Petrenko, 34, sees fi ghting corruption “When I was appointed to be the new justice gional departments and made and the sentencing of protesters. a US company or foreign company that does business in the US, the FCPA will be a [email protected] minister, I could either go with the stream or them pass a test that would Those found guilty of unjust deci- concern to such investor. If a Ukrainian company is sold to a major multinational, and cutting the Justice Ministry’s staff as his such company will have FCPA liability for the past acts of the Ukrainian company. break the system to the root. I chose the sec- demonstrate their legal ex- sions would be dismissed. Compliance is not simply following anticorruption regulations. It is also environ- key tasks. He became minister on Feb. 27 in ond option,” Petrenko wrote after his fi rst pertiseb– similar to those giv- Petrenko says members of civ- P mental compliance. Companies are paying more and more attention to complying the wake of the EuroMaidan Revolution, part of the 100 days in offi ce. en to four-year students of law il society and the legal com- not only with the environmental regulations of a particular country, but also with "kamikaze government” led by Prime Minister Arseniy Serhiy Pionkovsky, co-managing part- schools. As a result, as many as munity took part in drafting “world-wide” standards. In case of foreign companies, it is worthwhile to remem- ner of Baker & McKenzie law fi rm, approves 40 top employees failed and lost the law. Lavrynovych, however, ber that under certain circumstances they have to report back to their country and Yatsenyuk. investors if major ecological issues are revealed in other parts of the world and the some of the ministry’s recent actions, but their jobs. downplays the legal communi- potential financial exposure is potentially as great as FCPA exposure. The main goal, however, has ty’s participation, arguing that it External counsel can assist with the whole array of services including work with been fi ghting corruption. In his was “very limited.” management to establish preventive measures, among them a review and revi- Advertise on the Kyiv Post’s website progress report, he claims to be Petrenko's also managing the sion of policies and procedures, and assisting when a problem has been identi- to reach your customers and clients! satisfi ed with the initial results. introduction of an electronic fied and an investigation has begun. Companies are slowly beginning to understand that it is a worthwhile investment Among them is the adoption of system of issuing notary licens- to establish preventive measures. The liabilities, not just in terms of fines, but in The world’s growing demand for English-language news about Ukraine is being met by an anti-corruption law, which is es. Applicants for notary service personal criminal liability that can be imposed on key personnel of the company the Kyiv Post, the nation’s most reliable English-language news source since 1995. part of an action plan to secure positions will have to pass an We havehave moremore thanthan 30 millionmimilllion pagepagge views this year as of June 10, far more than any other and in damage to reputational risk are high. yearyyear sincesince tthehe KyiKyivv PPostost wewentnt onloonlinelinei e in 2002. We also have nearly 2,000 online subscribers. visa-free travel for to online examination. Meanwhile, The world has changed and will continue to evolve with respect to transparency, Our journalistsjournalists havehave traveledtraveledd theth nationnnation fromfrom the western border with Moldova to the the European Union. the bribe for becoming a nota- corporate governance and compliance. Companies that wait to be investigated in easterneasastern bordersborders withwith LuhanskLuhansk andand DonetskDonnetsk oblasts and manymany places in between, includingincluding terms of FCPA compliance will wind up paying a higher price if they do not have The law increases punish- ry has risen to $160,000 in Kyiv, Russian-occupiedRussian-occupiedCd Crimea.Crimea. preventive measures already in place. Our onlyonly missionmission isis to serve readersreaders interestedinterested inin UkraineUkraine withwith journalismjournalism thatthat liveslives up ment for corruption-related of- Petrenko says in his report. Governments and authorities all around the world are getting tough on compli- toto our motto ofof Independence, CommunityCommunity and Trust. fenses. Previously, offering a Pionkovsky of Baker & ance matters, whether it is anti-corruption, environmental, or fiscal (banking). ThanksThanks to evereveryoneyone for their support of Ukraine and the KKyivyiv Post bribe was not a criminal offense. McKenzie said: “A reform of There are costs involved in establishing a compliance program, including time dduringuring these turbulent timestimes!! Also, control over the incomes the outdated state enforce- and money. However, the costs will be much higher when trying to remedy a compliance matter after it has occurred. Ukrainian companies, if they are looking and property of offi cials was ment service is badly required. Contact:Contact: AdvertisingAdvertising at 591-7788 or [email protected]@kyivpost.com EEditorialditorial at 591-3344 or news@[email protected] to expand to US and European markets, will need to be aware of and abide with SubscriptionSubscription at 591-7788 or [email protected]@kyivpost.com intensifi ed. One change is to introduce pri- compliance matter. Even if they remain in the domestic market, if they are receiv- OOrr ggoo Donate: http://www.kyivpost.com/payment/?section=donatehttp://www.kyivpost.com/payment/?section=donate Under the previous gov- vate enforcement offices in ing funding through international banks and stock exchanges, their cost of mon- online at: Subscribe:Subscribe: http://www.kyivpost.com/newspaper/subscribe/http://www.kyivpost.com/newspaper/subscribe/ ernment, corruption fi ghting Ukraine. This practice exists in ey will be higher if a proper compliance program is not in place. didn’t yield impressive results. some European countries and it 12 Khreschatyk St., Kyiv 01001, Ukraine In 2013, only 74 people were has proved to be very success- T +38 044 591 3140, F +38 044 591 3141 Please subscribe & advertise today to support independent journalism in Ukraine! punished for corruption out of ful.” squirepattonboggs.com; salkom.ua

12 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 13 hectares tied to ex-presidential chief of staff Ukraine searches globe for billions on which a solar energy farm allegedly is illegally situated. The former chief prosecutor said that investigators are also conducting an audit of documents tied to the alleged over- allegedly stolen by Yanukovych payment of $300 million for two offshore drilling platforms by state-owned Naftogaz when Yuriy Boiko was the ener- gy minister. Boiko has maintained his innocence, saying the By Mark Rachkevych $300 million was used as part of a package purchase that in- [email protected] cluded additional items and equipment. Three court claims were submitted for the return of 159 uthorities in Kyiv have made prog- hectares of residential and hunting land that Yanukovych ress in tracing, identifying and and his proxies had allegedly embezzled from state own- freezing part of an estimated $100 ership. Litigation also was started to re-claim 10 hectares Abillion in assets allegedly embezzled that once belonged to Arbuzov. by fugitive ex-President Viktor Yanukovych and his associates. Oligarch-in-chief Deputy Prosecutor General Vitaliy Kasko During a progress report that Makhnitsky gave on June 5, told the Kyiv Post that some $3 billion has he said authorities are treating the $100 billion grand theft helped organize phantom fi rms in return for cash, the news Deputy Prosecutor been frozen involving 22 former high-level of- as one case, with Yanukovych as the head of an organized agency reported. Klymenko denied the claims. Vitaliy Kasko in his offi ce on June 10 fi cials or their associates. criminal group. From exile in Russia, the 63-year-old fugi- In the oil and gas sector, authorities say, tax evasion and told the Kyiv Post “The list of people continues to grow as tive has denied charges of corruption and of giving orders other schemes were allegedly used by Kurchenko totaling that the number more evidence is uncovered… when we get to kill more than 100 EuroMaidan protesters. $2.2 billion. Mahnitsky on June 5 said they had frozen $209 of people whose assets are frozen more, we pass it on to our (European and While Makhnitsky told that $32 billion in cash million of his personal and business-related assets. has grown to 22, and North American) partners to get assets fro- had been taken to Russia in trucks and is now being used to The Education Ministry, for example, would purchase continues to rise as zen,” said Kasko. fi nance separatist actions in eastern Ukraine, the amounts school buses and textbooks at infl ated prices through additional evidence is uncovered. (Anas- On June 18, authorities further specifi ed are mere estimates. “friendly companies,” according to Kasko. He added that a tasia Vlasova) that $1.34 billion had been frozen in foreign “Yanukovych and his inner circle preferred cash and “similar scheme existed in every economic sector.” bank accounts belonging to Yanukovych and not transfers to bank accounts where this money could be Some of these companies still exist because of imperfect his inner circle. Most money had been convert- traced and found…but all these amounts are approximate, Ukrainian law and the diffi culties in identifying end-bene- ed to domestic Ukrainian government bonds and because the investigation is ongoing, the ($100 billion) fi ciaries, according to Daria Kaleniuk, executive director of with an interest rate of 19 percent, Prime amount could grow higher,” Kasko said. watchdog Anticorruption Action Center. Minister Arseniy Yatsenyuk said in a Cabinet Thus, a total of 56 Ukrainians, many of whom are for- of Ministers meeting. mer government offi cials, have been sanctioned in the Challenging asset freezes The government’s Financial Monitoring Service European Union, Switzerland, Luxembourg, Lichtenstein, Between April 29 and May 30, 11 Ukrainians, nine of whom identifi ed 42 companies tied to Yanukovych and Great Britain, Australia, Canada and the U.S where they were former government offi cials or current lawmakers, his entourage in Cyprus, Seychelles, Panama, face asset freezes. Some 20 are on a wanted list, with 12 initiated litigation in the Eurpean Union's’s General Court Belize and Great Britain. So far, the accounts of 19 having had their accounts and property frozen in Ukraine. in Luxembourg to challenge the asset freezes. They are: companies have been frozen. Criminal investigations in Ukraine have been opened into ex-fi rst deputy presidential chief of staff Andriy Portnov, “Together with fi nancial intelligence units 15 of the 56 sanctioned individuals. In addition, 50 com- ex-Prime Minister and his son, lawmaker of in U.S., Great Britain, Latvia, Cyprus and panies, 17 banks and 33 individuals are suspected of di- Oleksiy Azarov, Kurchenko, Klyuyev and his younger broth- Panama, we uncovered these aforementioned rect ties to Yanukovych’s alleged illegal activity, including er, lawmaker Serhiy Klyuyev, Yanukovych Sr. and his sons, offshore companies and the surnames of (for- , his purported front man. Oleksandr Yanukovych and lawmaker Viktor Yanukovych mer) high-level offi cials and their legally ap- Kasko said that the “vast majority of the 22 individuals Jr., and ex-Prosecutor General and his son, pointed company and money managers,” are hiding out in Russia.” He said some of the offi cials con- lawmaker Artem Pshonka. Yatsenyuk announced. cealed their assets well. "Here it is more diffi cult to uncov- The same day, the prosecutor’s offi ce said er and arrest their assets, but nothing is impossible.” Source: Anticorruption Action Center it uncovered a similar bond scheme worth $2 billion tied to ex-First Deputy Prime Minister Pilfering state assets Prosecutors are working with international As of June 3, Ukrainian authorities have opened criminal investigations against 15 of the 56 former high-level offi cials who have had their assets frozen in the European Union, Swit- . Former Prosecutor General Money was siphoned in a variety of ways, authorities partners in seizing allegedly stolen assets. zerland, Lichtenstein, Canada, the United States and United Kingdom. They are: (1st row, Oleh Makhnitsky said that the funds were il- say. One fraudulent scheme involved using the former from left) ex-President Viktor Yanukovych, ex-Interior Minister , ex- legally shifted offshore but were reinvested Revenues and Duties Ministry to squeeze $11 billion from Prosecutor General Viktor Pshonka, ex-Prime Minister Mykola Azarov, ex-State Security chief Oleksandr Yakymenko; (2nd-row, from left) former presidential chief of staff Andriy Klyuyev, in Ukrainian government dollar-denominated coffers. The epicenter was the upper story of the minis- ex-Deputy Interior Minister Viktor Ratushnyak, Mayor , ex-Kharkiv bonds worth $1.8 billion and hryvnia bonds of try where a secret, sound-proof chamber with a clear plas- According to Kaleniuk of the Anticorruption Action Governor , ex-Revenues and Duties Minister Oleksandr Klymenko; (3rd row, Hr 1.2 billion at a 9 percent discount rate. tic table and six matching transparent chairs were used Center, former Security Service chief Oleksandr Yakymenko from left) ex-First Deputy Prime Minister Serhiy Arbuzov, ex-Justice Minister Olena Lukash, Oleksandr Yanukovych, ex-Agriculture Minister Mykola Prysiazhnyuk, ex-Energy and Coal He added that nine court claims have been to hatch illegal schemes, Tax Minister Ihor Bilous told the and ex-Interior Minister Vitaliy Zakharchenko are prepar- Industry Minister . fi led to cancel land-lease contracts totaling 281 Associated Press. His predecessor, Oleksandr Klymenko, ing asset freeze challenges in Luxembourg as well.

14 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 15 Mergers & Acquisitions Companies – whether they are large conglomerates or relatively small business actors – constantly seek out opportunities to increase profi ts. Merging with another corporate entity or acquiring one is part of this strategy.

A seller makes a decision to dispose the business they own, which sometimes in- volves pre-sale restructuring. Under a different scenario, a buyer makes a decision to ac- quire someone’s business or Graham Conlon has been facilitat- I one of two companies comes ing M&A deals in Ukraine since up with an idea to merge with 2011. (Kostyantyn Chernichkin) another. An investor memo- randum is usually prepared for this containing a descrip- tion of the potential deal. Good news may come The buyer/merger initiator submits a non-binding offer giving a price indication and II other conditions of the future on M&A market if Russia deal. Bidders are given time to conduct due diligence of the stops waging bloody war target business and have III meetings with its manage- ment.

against Ukrainian state Depending on due diligence fi ndings, bidders give a price indication. Based on this, By Maryna Shapka, [email protected] IV the preferred bidders are selected. raham Conlon, partner at CMS Cameron McKenna law fi rm, Two sides of the deal conduct foresees a boom in Ukraine’s mergers and acquisitions market negotiations and submit bind- now that the nation has elected Petro Poroshenko as president in ing transactional documents. G This stage also includes a transparent and democratic process. V obtaining regulatory approvals for the merger or acquisition. Next year, if the separatist tension in eastern Eastern Europe, Conlon wrote that Ukraine Ukraine eases, the market will grow signifi - had some bright spots in foreign direct invest- Two sides settle the fi nancial cantly, adds the English lawyer who has been ment, such as Shell’s potential $10 billion in- part of the deal by creat- residing in Kyiv since 2011. vestment in shale gas. ing and fulfi lling a payment “This country is one of the most exciting But foreign direct investment in the M&A schedule according to the countries in the entire world, because if you sector presented a more depressing picture. contract. Corporate rights and look at all the other countries around here, al- “FDI in the M&A sector was muted and assets are transferred to the new owner – in the case of an most all of them have received fi ne direct in- we witnessed a number of high profi le exits VI acquisition, or between two vestments maybe within the last 20 years,” from the country – in particular in the bank- companies – in the case of says Conlon. “Ukraine has received compara- ing sector. The outlook in Ukraine for 2014 a merger. This is also called tively less because of the fact it is quite diffi - is currently unclear, especially in light of the closing or completion of the cult to do business here, and now you have a current political climate, but currently we see deal. country with a president, so mergers and ac- it much the same as in 2013 – comparative- Source: Syutkin & Partners, Egorov quisitions will come back.” ly little FDI, but with a number of high pro- Puginsky Afanasiev & Partners Ukraine In the law fi rm’s 2013-2014 M&A report for fi le M&A deals being carried out by and  Data collected by Daryna Shevchenko

16 #02/2014 [KYIV POST LEGAL QUARTERLY] Law firms ADVERTISEMENT

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Alekseev, Boyarchukov and partners, Law Offices 11 Shota Rustaveli St., 3rd floor, Kyiv 01001, Ukraine, www.abp.kiev.ua, [email protected]

+38 044 235 8877 Sergey Alekseev, 2005 Kyiv, Tax, Corporate and M&A; Dispute Resolution; Ukrsotsbank (Unicredit Group), Globus Mall English, Russian, +38 044 537 1828 Sergey Ukraine Criminal; Banking and Finance; Bankruptcy and Debt (London & Regional Properties), Platinum Ukrainian Boyarchukov restructuring; Competition and Anti-monopoly law; Bank, Miskzhitlobud Ltd., Prizma Beta Ltd., Real Estate and Land Law; Labour Law Ukrproduct Group Ltd, Forum Bank

Alliance Ratushnyak and Partners, Law Office 72 Yamska St., Kyiv 03150, Ukraine, [email protected], www.legalconsulting.com.ua

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+38 044 490 7001 Andrey Astapov 2002 Kyiv, Arbitration; Competition; Disputes; Corporate; British American Tobacco, MasterCard, English, Polish, Ukraine M&A; IP; Banking & Finance; Energy; Pharm; Tax; Baxter, Bunge, L’Oreal, LVMH, Christian German, French, Restructuring Dior, PepsiCo, Nemiroff etc. Italian, Spanish Russian, Ukrainian Russian-backed militants attack a branch of Privatbank in the eastern Ukrainian city of Donetsk on April 28. Some 300 masked pro-Russian militants wielding baseball bats attacked a branch of the bank owned by an oligarch regional governor who has voiced criticism of Moscow. The gang attacked the Donetsk offi ce of the powerful Private banking and metal industry holding belonging to Igor Kolomoisky, a billionaire Asters who is also governor of the nearby region of Dnipropetrovsk. (AFP) Leonardo Business Center, 19-21 Bogdana Khmelnytskoho St., 14th floor, Kyiv 01030, Ukraine, [email protected], www.asterslaw.com

+38 044 230 6000 Oleksiy Didkovskiy, 1995 Full-Service Law Firm L’Oreal, Coca Cola, Nissan Motor Ukraine, English, Russian, Armen Khachaturyan S.C. Johnson, EBRD, IFC Ukrainian  amongst Ukraine’s elite, backed by their seats, though consulting from U.S. and a few more high profi le strategic exits,” he other Western countries could make the pro- added. President Petro cess more fruitful. Arzinger Agriculture, energy and information tech- Demand for merger-and-acquisition legal Eurasia Business Centre, 75 Zhylyanska St., 5th Floor, 01032 Kyiv, Ukraine, [email protected], www.arzinger.ua nology sectors are of special interest for for- Poroshenko’s service has been weak due to political instabil- eign investors, Conlon said. The CMS Cameron administration will ity. However, investors realize that improving +38 044 390 5533 Timur 2002 Kyiv, Litigation; Antitrust/Competition; Corporate/ Astelit, Bayer AG, Bunge, Citibank, English, German, Bondaryev Ukraine M&A; Real estate; IP; Arbitration; Tax; Banking & GlaxoSmithKline, Henkel, Lafarge, Porsche, French, Ukrainian, McKenna partner hopes Ukraine will continue have to strengthen the legal environment is not a one-day mis- Finance; Bankruptcy; White Collar Defense SHARP, SCM, UNIQA AG, Ukrtelecom Russian to encourage energy companies to come and Ukraine’s rule of law sion, according to Conlon. do business here. Securing a $17 billion bailout package from Having participated in a number of M&A to boost interest the International Monetary Fund along with AVER LEX Attorneys at law deals involving the European Bank for in mergers & implementing macroeconomic measures are Olimpiiskyi Business Centre, 72 Chervonoarmiyska St., 13 fl., office 21, Kyiv 03680, Ukraine, [email protected], www.averlex.com.ua Reconstruction and Development, Royal important steps for Ukraine. Meanwhile, a acquisitions. +38 044 300 11 51 Olga Prosyanyuk, 2012 Kyiv, Criminal law and process; Litigation; Panteleymonivskyi refractory plant, English, Russian, Bank of Scotland, HSBC and Eurasian Bank, free trade regime between Ukraine and the Vitaliy Serdyuk, Ukraine Taxation Bank of Cyprus, OTP Bank, Czeck Export Ukrainian the lawyer acknowledged that the Ukrainian European Union will also attract investors. It Igor Fedorenko, Bank, Azelis Ukraine, Volkonskogo Mykola Hrygoriev confectionary government has to demonstrate commit- became effective on March 11. ment to combating corruption in order to raider attacks happen in a notoriously corrupt Investing in Crimea is another big problem convince the business community that it is environment. for foreign players. The international com- Baker & McKenzie — CIS, Limited serious. “I think that the EuroMaidan (Revolution) munity does not recognize Russia's annex- Renaissance Business Center, 24 Vorovskoho St.,Kyiv 01054, Ukraine, [email protected], www.bakermckenzie.com Investors have mostly stayed away due to has changed the situation with Ukrainian ation, while Russia enforces its laws there. poor law enforcement, Conlon adds, includ- courts,” says Conlon. He believes that the lus- Investments there under Russian laws violate +380 44 590 0101 Serhiy 1992 Antitrust & Competition; Banking & Finance; Arcelor Mittal, EastOne Group, Horizon English, Russian, +380 44 590 0110 Piontkovsky, Corporate; M&A; Securities; Dispute Resolution; Capital, ING Bank Ukraine, Metinvest Ukrainian ing in which hostile company takeovers and tration process will help as corrupt judges lose Ukrainian ones and vice versa, says Conlon. Serhiy Chorny Employment; IP; International trade; Real Estate BV, Sberbank, UkrSibbank BNPP Paribas and Construction; Tax and Customs Group, VTB 18 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 19 ADVERTISEMENT ADVERTISEMENT

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B.C. Toms & Co Goldblum and Partners 18/1 Prorizna Street, Suite 1, Kyiv 01001, Ukraine, [email protected], www.bctoms.net Gulliver Business Center, 1 A Sportivna Sq., Kyiv, Ukraine, [email protected], www.goldblumandpartners.com

+38 044 490 6000 Bate C. Toms 1991 Kyiv, Agricultural Investments; Banking, Finance and WND English, French, +38 044 362 7909 Wan Bo 2012 Zug, Swit- Corporate law, M&A, Legal Dispute WND English, German, +38 044 278 1000 Ukraine Capital Markets; Oil, Gas and Electricity; M&A Russian, Ukrainian zerland Russian, Ukrainian and Polish

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+38 044 249 7905 Helen Volska 1998 Kyiv, Company: Establishment, Restructuring and Insolvency; Florange, Yves Rocher, EBA, 3M, Michelin, English, German, +38 044 455 8887 Anna Ogrenchuk, 2009 Kyiv, Legal services: Litigation, Corporate, Finance Alfa-Bank, Bank of Cyprus, Universal Bank, English, German, Ukraine Contractual relations: External and Internal trade; Employment Dragon Capital and others. French, Russian, Artem Stoianov Ukraine Zlatobank, QBE Ukraine, Allianz Ukraine, Arab Russian, Ukrainian and Migration; Dispute Resolution: Litigation, Mediation; Tax Ukrainian and Customs control; Management on temporary basis Energy Alliance UA, Vikoil Ltd., Ukrenergy Coal Ltd

Egorov Puginsky Afanasiev and Partners Ukraine Misechko and Partners, Law Firm 38 Volodymyrska St., Kyiv 01030, Ukraine, [email protected], www.epap.ua 76 B Volodymyrska St., office 7, Kyiv 01033, Ukraine, [email protected], misechko.com.ua/en

+38 044 492 8282 Serhii Sviriba, Oksana 1997 Kyiv, Banking & Finance, Capital Markets; Bankruptcy; Competition; Domestic BASF, Citi Bank, Credit Suisse, DCH, Erste Bank, English, German, +38 044 279 3943 Volodymyr 2009 Kyiv, Tax; Transport law; Corporate law; Litigation; United Aviation Services, Tokyo Boeki, English, Russian, Ilchenko, Markiyan Ukraine Litigation; Employment; Family Law; IP/ TMT; International Arbitration & IBRC, IDS, Intesa Sanpaolo, Johnson Controls, French, Polish, Misechko Ukraine Sport law; Antitrust and competition; Intellectual Panalpina, Progresstech, Stroytransgaz, Metal Ukrainian Kliuchkovskyi, Oleksii Cross-Border Litigation; International Trade & Customs; M&A and Corporate; J.P. Morgan, Morgan Stanley, Regal Petroleum, Spanish, Russian, property; Real estate Holding Trade, SEB Bank, Kraevid Invest, Reznikov, Ilona Zekely Pharmaceuticals & Healthcare; Real Estate; Sports Law; Tax; White Collar Crime Samsung, Unilever, Sodrugestvo Group Ukrainian Europe Arm Sport, Kerch Shipyard

ENGARDE Attorneys at Law NOBLES 4 G Andrushchenko Str., 4th floor, Kyiv 01135 Ukraine, [email protected], www.engarde-attorneys.com 7/11 Khreschatyk St., Kyiv 01001, Ukraine, [email protected], www.nobles-law.com

+38 044 498 7380 Irina Nazarova 2009 Kyiv, Dispute resolution (litigation and international arbitration), Major Ukrainian holdings, banks, English, German, +38 044 495 3080 Alexander Weigelt, 2007 Kyiv, Corporate; M&A; Commercial; Antitrust; Employment; Avon, BSH, Deutsche Telekom, EBRD, English, German, Ukraine corporate and commercial law (incl. mergers & acquisitions), enterprises, foreign investors French, Russian, Tatiana Iurkovska Ukraine Insolvency & Restructuring; Banking & Finance; Ferrostaal, Groupon, IKB, Otto, Rocket Russian, Ukrainian insolvency and restructuring, tax law, real estate Ukrainian (Khandazhevska), Energy; Real Estate; Intellectual Property; Litigation Internet, Royal Bank of Scotland Volodymyr Yakubovskyy

FCLEX Law Firm Syutkin and Partners 14 D Bekhterivsky Lane, Kyiv, 04053, Ukraine, [email protected], www.fclex.com 10 Redutnaya St., office 2 Kyiv 01015 Ukraine, [email protected], www.syutkin-partners.com +38 044 238 6420 Viktor Barsuk 2002 Kyiv, Banking and Finance; Bankruptcy; Competition; Finance&Credit Bank, Terra Bank, Ferrexpo AG, English, Russian, Ukraine Corporate and M&A; Dispute resolution; Intellectual NorYards AS, Arterium Corp., AutoKraz, IC “Omega”, Ukrainian +38 044 383 0000 Mykola Syutkin, 2006 Kyiv, M&A; Bancruptcy and Debt; Real Estate; Assets Noble Resources Ukraine, Carlo Pazolini English, Russian, property; Labor; Real Estate; Tax; White Collar Crimes IC “Avesta Insurance”, SOTA Cinema Group Nataliya Osadcha Ukraine Securitization; Litigation; Corporate Law; Tax Trading, IFD Kapital, Satellit Ukrainian

Gramatskiy&Partners Squire Patton Boggs-Salkom International Association 16 Mykhailivska St., suite 7, Kyiv 01001, Ukraine, [email protected], www.gramatskiy.com squirepattonboggs.com, salkom.ua

+38 044 581 1551 Ernest 1998 Kyiv, Business-Advocacy; Foreign Investments; Foreign City Capital Group, Seven Hills, Danfoss, English, Italian, +38 044 591 3100 Peter Teluk, 1992 Kyiv, Anti-Corruption (FCPA/UK Bribery Act); Antitrust and Acron, Carlsberg Ukraine, ContourGlobal, Furshet, Group English, Russian, Gramatskiy Ukraine Trade; Real Estate; Agribusiness; IT Law; Litigation; Tax TM De-vi, PlayTech, TERRA BANK, ULMA Greek, Polish, +38 044 591 3140 Evgeniy Kubko Ukraine Competition; Banking and Finance; Commercial Contracts; DF, Lufthansa Ukraine, MTS Ukraine, Nadra Bank, Orithil, Ukrainian Law&Tax Disputes; Business Restructuring; Corpo- Ukraine, Celentano, Banka, Jeltok, Russian, Ukrainian Corporate; Dispute Resolution; Intellectual Property; Labor and Ukrainian Construction Company, UniCredit Bank, rate Security; Due Diligence; Insolvency & Bankruptcy Promkabel, Larsen, Playtech Employment; Litigation; M&A; PE; Real Estate; Tax and Customs United Capital Partners, Velti, Winner Imports Ukraine 20 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 21 of Toronto fellow. “Regarding the pay- most. The situation is not transparent, Ukraine’s head of taxation, singled roll tax, a cut is likely to be benefi cial. not available to public scrutiny, and it out VAT tax schemes in April as a The previous 34.7 percent rate is un- has the risk of being unfair to tax pay- huge part of the illegal sector’s archi- usually high.” ers.” Sham companies, according to tecture. Some experts have proposed Simplifying administrative proce- Verlanov, are a major headache for abolishing the system entirely, but dures for corporate tax could also re- his clients – but until the government this would be a mistake, according to lieve small businesses of an immense goes public with its list of such viola- Oleg Matsekh, a business owner and burden. tors, above-board companies won’t be At the high-end, the government’s able to eliminate the untrustworthy most ambitious for re- links in their supply chains. capturing lost tax revenue is a May 21 A second problem with the amnes- Ukraine’s shadow economy “compromise” bill that attempts to ty is an ambiguous time period be- may be worth $64 billion a year. reclaim funds it lost to tax evasion. tween the January start of the fi scal Bringing this activity out into Unscrupulous companies have a 90- year and the late May enactment of the open will boost tax revenues day period to self-declare income that the compromise. previously escaped taxation – and in “One can assume that either the considerably. return for 15 percent of their revised law will be extended for these six revenue, Ukraine’s tax service will of- months, or the law will be extended fer them amnesty and an offi cial cer- for 2015,” said Verlanov. “This is pro- tifi cate of compliance. viding incentives for further tax eva- activist with Reanimation Package Serhiy Verlanov, a senior attorney sion. There is a high risk that grey and of Reforms, a community advocacy at PwC Ukraine, says the compromise black business will wait for another group: the European Union sees a VAT in its current form won’t benefi t his amnesty.” system as a non-negotiable require- company’s clients, who are mostly big At the roots of many sham com- ment for partners. and clean businesses. panies and tax evasion schemes “The current problem is the admin- “Companies deeply involved in is Ukraine’s value-added tax, of- istration of the system, which is a very How to bring Ukraine’s fraud are the ones that will benefi t the ten shorthanded as VAT. Igor Bilous, diffi cult problem,” said Matsekh. economy out of shadows U.S.-UKRAINE BUSINESS COUNCIL (USUBC) Pilolobus, American theatre group, kraine’s shadow economy is not hard to fi nd. It greets you at the practices its “Shadowland” on one of the A strong international voice for business in Ukraine stages in Kyiv. For Ukraine and its economy, Uairport with an unmarked cab and insists you sit up front. “Shadowland” is something more meaning- Promoting U.S.-Ukraine business relations since 1995 ful than just the play name. (UNIAN) It sets up fruit-laden card tables next to the proposition. But the diverse forms of off-the- Washington, D.C. metro entrance and unmarked garment stalls books business in Ukraine means any single BY William Schreiber in outdoor bazaars. For many in post-Commu- legislative solution is unlikely. Instead, the [email protected] nist countries, this is the shadow economyb – government has advanced a host of different something quite visible and concrete – an tax reform measures since March, aiming both The 200 members of USUBC strongly support everyday resource for surviving the scarcity of high and low to recover state revenue. consumer goods during the Communist sys- Starting at the low end, there are several the legal profession in their work to reform and tem or the poverty of the 1990s. laws currently before the Verkhovna Rada to But for Ukraine’s tax offi cials, bootstrap coax small business and individuals into pay- improve Ukraine's legal system. black market entrepreneurs account for only ing taxes. These bills attempt to make pay- a fraction of off-the-books income. The col- ing taxes in Ukraine less painful – by reducing lective sum of street peddling startups is out- fees for new businesses and by simplifying ad- weighed by tax evasion schemes perpetrated ministrative procedures. One such law cuts the by so-called black business, often cooked up baseline of a payroll tax called the one-time by creative accountants and unscrupulous Unifi ed Social Contribution fee nearly in half, lawyers. to 18.1 percent of income. www.usubc.org As Ukraine faces down a staggering bud- “High payroll taxes not only encourage par- get defi cit, levying taxes on the shadow econ- ticipation in the underground economy, but omyb– which offi cial estimates place anywhere also shift to bogus self-employment and con- from $31 billion to $64 billion – is a tempting tracting out,” explains Peter Spiro, a University

22 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 23 However, the provision doesn’t apply to indi- viduals who earn less than Hr 150,000 in for- eign currency. The norm, instead, applies only to business entities – corporate or individu- al ones. Individuals who receive payments that ex- ceed the threshold do not have to personally sell the currency themselves. Banks that re- ceive funds do this for them, explains Andriy Sydorenko, a lawyer for Ilyashev and Partners fi rm. Ukraine’s exports reached $63.3 billion in 2013, thus half of this amount was mandatori- ly converted into hryvnias. The measure initially took effect under the NBU governorship of Serhiy Arbuzov, who is currently wanted by authorities on suspi- cion of embezzling state assets. He and his successor at the central bank, Ihor Sorkin, were obsessed with keeping the hryvnia pegged closely at Hr 8 to the U.S. dollar, and in quelling the appetite for foreign currency. However, the NBU did not have too many The has struggled Meanwhile, ex-central bank governor Stepan instruments at its disposal to keep the hryv- to fi nd the true value of the hryvnia as the public appetite for foreign currencies Kubiv had let the hryvnia mostly fl oat free- nia from falling and it is still debatable wheth- remains strong because of the ongoing ly, a monetary policy inconsistent with making er the regulator should have kept the hryvnia instability in the nation. (Kostyantyn Cher- it compulsory to sell half of foreign curren- from weakening, adds Stepanenko. Had the nichkin) cy earnings. central bank not conducted such a stringent Since the beginning of the year, the hryvnia monetary policy since 2010, when Yanukovych has lost as much as a third of its value, sink- came to power, the hryvnia’s landing would’ve ing to 13.3 to the dollar in the second half of been much softer than this year’s devaluation April, before settling recently closer to 12.5/$1. shock. Mandatory sales of foreign currency earn- Olena Shcherbakova, head of the mone- ings didn’t help much to avoid devaluation. tary policy department at NBU, thinks that the Public panic following the political crisis that provision’s short, three-month extension is a Ukrainians saw their saw the overthrow of former President Viktor sign of the central bank’s optimism about the Yanukovych’s regime is responsible for the country’s economic prospects. By contrast, the currency slide from Hr sharpness of the decline. Russia’s annexation previous extension had a six-month term. 5 to Hr 8 to the dollar of Crimea and war against Ukraine in the east- “Reducing the period of the measure’s valid- during the 2008-09 ern oblasts haven’t helped any. ity can be explained with better market expec- global fi nancial crisis. Sydorenko of Ilyashev and Partners says tations in the context of resumed cooperation that, theoretically, the NBU requirement is with international fi nancial institutions,” said Now, the shocks of Central bank struggles to give advantageous for importers as it pushes the Shcherbakova in a statement published on the staggering corruption hryvnia rate up, which leads to cheaper prices NBU website on May 19. and Russia's war have for foreign goods in hryvnia terms. However, She mainly means the May 1 agreement it sinking to between this is not benefi cial for exporters, who can’t with the International Monetary Fund to re- Hr 12-13. shaky hryvnia a softer landing hold on to hard currency in order to sell it ceive a $17 billion two-year loan with a 3 when the hryvnia becomes cheaper, he adds. percent interest rate aimed at stabilizing The measure seems to be working, at least Ukraine’s state budget. in terms of reducing the demand for hard cur- However, the market should not be overly BY Iryna Yeroshko [email protected] rency on the interbank market, says Roman optimistic in its expectations, thinks Ilyashev National Bank of Ukraine ex-gov- Stepanenko, head of the banking and fi nance and Partners’ Sydorenko. The current eco- ernor let the hryvnia preserve Ukraine’s dwindling foreign reserves, a National department at Egorov Puginsky Afanasiev & nomic situation remains complicated and will freely fl oat when he was appointed Bank of Ukraine requirement for exporters to sell half of to the post more than three months Partners. There is now more foreign currency likely compel the central bank on Aug. 20 to ago, but he kept a measure in place their foreign currency-denominated revenue has been in on the market and the NBU does not have to prolong the mandatory sale of export revenue to mandate foreign currency earn- To ers to convert half their revneue to effect since Nov. 19, 2012. The measure’s latest extension took place make monetary interventions. in foreign currency for another term. hryvnias. (Ukrainian News) on May 20 and will stay in effect until Aug. 20.

24 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 25 Project manager Maryna Kostogryz said: “We want to help students build their future and give them a start.” Students will acquire practical experience in a fi eld where gradu- ates usually have only a wealth of theoretical knowledge, a common complaint by seasoned attorneys. While some Ukrainian graduates believe that a prestigious university diploma is the key to success, Leonid Antonenko, counsel at Sayenko Kharenko law fi rm, says “a diploma doesn’t al- ways indicate a proper job candidate.” Oksana Ilchenko, a partner for Egorov, Puginsky, Afanasiev and Partners, said involv- ing law fi rms into university curriculum “will reinforce the bridge between theory and prac- tice and also between the law schools and the market.” DLA Piper interns will have a chance to choose an area of specialization and focus on one of the fi rm’s legal practices: corporate law, The Danish Ministry of Foreign Affairs Students of Ukrainian law schools pay more mergers & acquisitions, fi nance, real estate, provides scholarships for obtaining master’s attention to theory rather than practice, while experts say they should do the op- taxation, and intellectual property. degrees in journalism and media communica- posite. (PHL) Tetyana Kostina, 21, a senior at Odesa Law tions at the School of Journalism at Ukrainian Sudents of the Odesa Law Academy’s Academy and major activist in the Student Catholic University in Lviv. Besides Crimea Crimean campus attend their graduation ceremony in 2013. (onua.crimea.ua) League of the Ukrainian Bar Association, be- and , students from Kharkiv, Kherson, lieves that DLA Piper’s internship is a great Mykolaiv, Odesa and Zaporizhya oblasts are The project ‘Break into opportunity to acquire practical skills. She ap- also eligible to apply. Law’ will take at least plied, and DLA Piper confi rmed receipt of the Students from these regions will have a submission. chance to live and study in the country’s 12 law school students DLA Piper recruits summer legal In order to become a good lawyer, a student unoffi cial western capital of Lviv, known for and give them should not only attend lectures of university its European atmosphere. Ukrainian Catho- summer internships at professors, but also go to conferences and gain lic Unirvesity’s School of Journalism takes a Ukraine’s leading law interns from Crimea as well as war- practical experience, adds Kostina. Western-style educational approach, focusing However, DLA Piper’s internship is not the on providing students with hands-on practice schools. only opportunity for Ukraine’s troubled re- in publishing a newspaper, or running a web- torn eastern Donetsk, Luhansk oblasts gions. site, television or radio station.

By Oksana Torhan, tudents from Russia-annexed Crimea and the troubled Donetsk [email protected] and Luhansk oblasts, where Kremlin-backed separatists are KYIV POST: UKRAINE’S GLOBAL VOICE waging war, will have a chance this summer to undergo a one- The top Ukraine and Russia news sources over the six-month S period measured: month internship with leading law fi rms. OVER Kommersant (Russia) 24.7% 31 MILLION Global law fi rm DLA Piper accepted applica- cialist for the fi rm’s Kyiv offi ce, told the Kyiv Kyiv Post (Ukraine) 21.8% PAGE VIEWS tions through June 20 from fourth-year law Post. Vedomosti (Russia) 18.9% +PCUQH,WPG students from these areas. Skype and tele- “If we get more than the expected number Izvestia (Russia) 14.3% making Kyiv Post the most direct phone interviews are under way. Qualifi ed of qualifi ed applicants, we’ll take in more, and path between local developments The Moscow Times (Russia) 7.3% and the international community applicants must have a strong command of the program will last through August,” she “THE KYIV POST IS English. added. UKRAINE’S MOST-QUOTED ADVERTISE TO REACH YOUR FUTURE PARTNERS, READ TO KNOW The project, called “Break Into Law,” is ex- Ukraine’s education ministry has also taken SOURCE IN AMERICAN WHAT IS HAPPENING TODAY! pected to take in 12 interns who will be given notice. It recently gave DLA Piper managing free room and board, including a per diem partner and supervisor of corporate social AND EU MEDIA OUTLETS, Contact us: for advertising offers in print and online: 044 591 7788 or [email protected]; for subscriptions: [email protected], 044 591 7788; living allowance. Up to six people could start responsibility projects Margarita Karpenko a SECOND IN UKRAINE AND to reach the newsroom: 044 591 3344, [email protected] interning as early as June 30, Olena Lazareva, certifi cate of appreciation for the fi rm’s “con- * RUSSIA” * DLA Piper marketing and public relations spe- tribution to higher education.” — according to a survey by Moscow-based AGT Communications Agency carried out over the six month period to May 21.

26 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 27 the tradition of secret negotiations. After Norwegian law fi rm that specializes in ener- Ukraine may have strong case condemning the 2009 contract as unfavor- gy-related disputes to provide representation Arbitrators in Stockholm will take into account Ukraine seeking fair price for able, Ukraine let Russia anchor its Black Sea against in the Arbitration Institute of the economic part of the legal relationships, Fleet at for an extra 25 years in the Stockholm Chamber of Commerce. including the situation on the gas market, ex- exchange for a $100 gas price discount. Yet The dispute is technically between Naftogaz plains Kot of Antika Law Firm. “Due to this, gas from Stockholm court again prices continued to rise until Dec. 17, and Gazrpom, both state-owned yet indepen- Ukraine may, for instance, state that Gazprom 2013, when Yanukovych got Russian President dent legal entities, althout it is actually be- has a monopolistic position on the market and Vladimir Putin to set the gas price at $268 tween the Ukrainian and Russian states. try to prove the fact that it may use such a po- By Evan Ostryzniuk he numbers keep getting bigger. On June 16, Ukraine and Russia in exchange for what amounted to fealty to The parties are contractually obligat- sition howsoever.” [email protected] fi nally decided to sue each other in a Stockholm arbitration court, Russia. Around the same time, Yanukovych ed to turn to the Stockholm court to resolve The Europeans do not look favorably on mo- with Ukraine asking for a just price for gas as well as $6 billion unexpectedly rejected a far-ranging politi- disputes. nopoly. In 2013 and again this year Lithuania T cal pact and free-trade agreement with the Naftogaz made it clear on June 1 why it was fi led with the same Stockholm court a lawsuit in compensation for overpayment, while Russia says Ukraine’s debt is European Union. going to court: “Russia again proposed re- against Gazprom for overcharging the coun- $4.5 billion. turning to a mechanism for forming the price try since 2004, oilprice.com reports. The Baltic Getting serious unilaterally via the Russian government's reg- state was paying an astounding $470-480 per The crux of the matter, however, is wheth- and suspension of supply were regularly Since the EuroMaidan ulation of the export duty on natural gas 1,000 cubic meters for Russian gas until it won er Russian state-owned Gazprom’s murky exchanged. Revolution, Russia supplied by Gazprom to Ukraine.” its fi rst arbitration suit this year for a 20 per- pricing policy regarding Ukraine can be Prime Minister Arseniy Yatesniuk wants to has treated gas Even European Commission energy of- cent price reduction. drawn onto the cleaner shores of market get rid of all that. That is why on June 11 he negotiations with fi cer Gunther Oettinger, who is mediat- Poland’s state gas fi rm PGNiG went that relations. fl atly rejected Russian Energy Minister Alexey Ukraine as a joke ing negotiations between Ukraine and route back in 2010, and settled out of court for Gas diplomacy between Ukraine and Russia Novak’s $100 per 1,000 cubic meter rebate, by trying to dic- Russia, said on June 11 that Russia is not only lower gas prices, but also for Gazprom since the collapse of the has been which would have lowered the price to $285, tate terms to its offering a price that is closer to a fair to link its pricing formula to market pric- based less on economic principles than on just a touch above Ukraine’s asking price of own geopolitical market one. es, worldoil.com reported. Ukraine wants the geopolitical ambitions. Namely, the Kremlin $268. advantage. More proof that getting the low- same thing. has wanted to restrict Ukraine’s sovereignty by In the end, Ukraine might end up paying So the new est price possible is not the main aim Lavrynovych told the Kyiv Post: “Russia has making it energy dependent more than $285 for gas. Ukrainian govern- can be found in the June 13 statement previously recognized the jurisdiction of this on Russia. To ensure The Ukrainian side fundamentally dis- ment got serious. by Naftogaz head Andriy Kobolyev, court, so we are hopeful.” this, gas supply negoti- trusts its Russian counterparts, since time and On May 28, it re- when he said Ukraine was prepared to Roman Marchenko of Ilyashev & Partners ations have been pri- again it has unilaterally altered or suspend- tained a pres- pay $326 per 1,000 cubic meters for agrees that Naftogaz may prevail. “Such claims vate, personal affairs ed the contract between the two nations. For tigious Russian gas. “This price proposed to the Russian monopolist are repeatedly con- between the Kremlin example, the now infamous 2009 gas con- by the EU is not market level,” sidered by arbitration,” he says. “Typically, Ukrainian Minister of Energy and Coal Industry (L) and Kyiv. Suspicious tract negotiated by then-Prime Minister Yulia he said, “but Ukraine is Gazprom does not like going to court, prefer- and head of Russia's state gas intermediaries were Tymoshenko reveals the arbitrary nature of ready to compromise ring to settle instead in order to avoid the pos- fi rm Gazprom Alexei Miller (R) used for distribu- the agreement. and fi x it for a year sibility of an adverse ruling.” arrive for talks over Russia's gas supply to Ukraine in Kyiv tion and accusa- “The price formula for gas was applied and a half, so that No one can be certain, however, how the on June 14. (Ukrainian tions of illegal only for a few months,” explains Alexey Kot, during this peri- judges will decide, which may prompt an out- News) siphoning Managing Partner of Antika Law Firm. “For od we can reach a of-court settlement, Lavrynovych said. the rest of the time, there were so called ‘dis- fi nal agreement Energy Research Institute’s Yuriy Korolchuk counts’ determined and applied by political with Gazprom argues that it is always better to go to court leaders of Russia. Moreover, the political point and resolve over gas pricing after all debts are settled. of such ‘discounts,’ or their non-market na- the matter in However, this remains a complicated issue ture, was not a secret.” court.” since the size of Ukraine’s gas debt depends di- What was a secret, though, was the for- Should rectly on the pricing. mula Gazprom used to determine the price. Stockholm Gazprom claims Ukraine owes it $1.45 “We have not seen the contract,” says rule in billion for gas supplied in November and Lavrynovych & Partners managing part- favor of December and $3 billion for April and May. ner Maksym Lavrynovych. By 2010, the gas Ukraine, On May 30, Naftogaz paid off its fi rst quar- price for Ukraine had gone up to $400 per it would ter gas debt of $786 million. 1,000 cubic meters instead of going down clear the Ukraine is also suing Russia for stealing 2.2 from $360, which was promised. This is ground for billion cubic meters of gas stored in Crimea what the Ukrainian side is claiming as a new gas when its armed forces occupied the peninsula. “overpayment”. relationship. Separately, on June 3, the Ukrainian govern- The government of former President ment fi led a lawsuit in the European Court of Victor Yanukovych continued Human Rights against Russia for $90 billion in compensation for Russia’s illegal annexation of Crimea on March 18.

28 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 29 Open Skies Agreement postponed, once again

Designed to allow any European-based and Ukrainian airlines, consumer protec- airline to fl y from anywhere within the tion, safety, security and the other regula- European Union to any city within Ukraine tions stipulated by the agreement will also and vice versa, the ministry’s news release enhance safety and security standards. Thus, said the treaty, known commonly as the users of air transport will also get more ad- Open Skies Agreement, was postponed be- vanced protection of their consumer rights cause Spain and the United Kingdom had and their safety,” says Gavrilov. not agreed on the territorial defi nition of Ukrainian and EU airlines will also reap re- Gibraltar. wards from the agreement. Citing a “well-informed source in the Gavrilov expects that “EU airlines will European Commission,” Interfax Ukraine re- be able to operate direct fl ights to Ukraine ported that the European Commission hopes and vice versa. Ukrainian airlines will have to sign the agreement on June 27 along with the right to operate fl ights to the EU pro- a landmark free-trade deal within the EU vided that the service serves also a point in Association Agreement. Ukraine.” Similarly, EU airlines will be able to This is the second time in three months operate fl ights to Ukraine, as well as domes- that the agreement has been postponed. On tic fl ights inside the country. March 12, the Infrastructure Ministry an- “So it is clear,” Gavrilov says, “that both nounced the postponement, also citing a def- Ukraine and the EU will benefi t from cooper- initional dispute about the territory included ation under the agreement when it is signed.” in the agreement. Ukrainian air traffi c should grow consid- In theory, and based on the results of oth- erably after the agreement is signed. Since er Open Sky agreements, passenger volumes 1991, Ukrainian air traffi c has increased near- would increase, airfares would decline, fl ight ly fi vefold. According to the Ukrainian State frequencies would rise and tourism would be Air Traffi c Services Enterprise, more than boosted. 534,000 fl ights traveled through Ukrainian The European Commission started talks airports in 2013, up from just 120,500 in on the deal with Ukraine in 2007 after receiv- 1993. ing a mandate the previous year. Discussions, Signing the agreement will likely give a however, didn’t pick up steam until last boost to the Ukrainian economy as a whole. November at the Summit Vadim Samoilenko, an expert on aviation in Vilnius, Lithuania, when Ukraine and the law at Asters Law Firm, told the Kyiv Post EU initialed the agreement. Experts believe in March that his fi rm expects “that OSA that the agreement will be ratifi ed and enter will promote the free movement of per- into force in summer 2015. sons and goods, [and] expand commercial According to Igor Gavrilov, the head opportunities.” of the corporate department of Alekseev, In a news release issued by the European Boyarchukov & Partners, the Open Skies Commission after the agreement was ini- BY Isaac Webb [email protected] Agreement will “create a common aviation tialed on November 28, the EU commissioner area which will be based on identical rules in for mobility and transport called the agree- June 5, the the areas of safety, security, air traffi c man- ment “an important stepping stone for our Ukrainian agement, environment, consumer protection, strategy to achieve closer cooperation be- Infrastructure computer reservation systems and others.” tween the EU and its neighbors, particularly On Gavrilov thinks the agreement will lead to in the context of the Eastern Partnership." Ministry announced greater competition among airlines, which The EU has signed similar comprehensive Lviv Danylo Galytsky airport, built during Ukraine’s preparations for co- international airspace won’t be will benefi t Ukrainian and European travelers aviation agreements with other neighbor- hosting the 2012 European soccer championship, may become one of the benefi ciaries of signing the Open Skies Agreement. (Ukrainian News) opened up with the European by driving down the cost of airfare. ing countries, including Morocco, Georgia, Union for the second time. “The cost of air tickets will be reduced… , the Western Balkans, Moldova, and Moreover, boosted competition between EU Jordan.

30 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 31 Since March, the Prosecutor General’s Offi ce has forward- Businesses of ed seven criminal cases on the alleged illegal activity of 50 Kurchenko-related companies to Ukrainian courts. Also ac- cused are 62 suspects involved in the wanted business- Yanukovych’s man’s alleged fraud. In March, Kurchenko, through his VETEK conglomerate, vehemently denied any wrongdoing. "I am an honest Ukrainian businessman who has always alleged front man been investing in Ukraine, the Kharkiv-native emphasized. Kurchenko is believed to be hiding out in Russia. Meanwhile , his assets have been frozen in the European still operating in Union, Luxembourg, Great Britain and Canada, according to Kyiv-based watchdog Anticorruption Action Center. The group says Kurchenko is currently challenging the asset- Ukraine freezes in courts. Before disappearing on Feb. 19, just two days before By Solomiya Zinevych [email protected] Yanukovych fl ed offi ce for exile in Russia, Kurchenko’s business empire spanned oil and gas, media, banking and uring ex- P resident Viktor Yanukovych’s truncated a soccer team. magazine, in collaboration presidency of more than three years, Ukraine’s coffers with Kyiv-based investment house Dragon Capital, esti- lost around $100 billion in assets, authorities say, mated his net worth in December at $2.4 billion. Law enforcers now hope that their investigation will On June 11, the cen- D “Kurchenko used schemes in which his legal owner- give Ukraine an opportunity to challenge the transfer of tral bank revoked including some $2.2 billion that his alleged front man, the banking license ship was hidden, (and) liability for assets (were) minimized. Kurchenko's assets to the ownership of Russia's VTB bank. held by Brokbi- Serhiy Kurchenko, had embezzled, roughy half through However, his corporate rights for the company may also But getting control of the property is challenging. znesbank, which tax evasion. Thus far, some $209 million of his personal be confi scated by a court order,” said Roman Khrustenko, Kurchenko received two loans from Russia's VTB Group belonged to Serhiy Kurvhenko, due to and business-related assets have been frozen, General managing partner of BA Lexel. worth $300 million, while the refi nery’s shareholders ap- insolvency. (PHL) Prosecutor Oleh Mahnitsky stated on June 5 at a briefi ng. Ukraine’s Security Service, the SBU, has accused proved the credit line from VTB to reach $370 million, ac- Kurchenko of illegally purchasing Ukrainian Media cording to an April 11 Kyiv Post investigation. The refi nery Holding, which included Forbes Ukraine among 50 was used as collateral for the loans. In addition, oil prod- other brands, the Metalist Kharkiv soccer club, and ucts that belonged to Kurchenko's offshore company were Sparschweingas GmbH & Co, a network of 170 gas stations used in one of them, worth $270 million. in Germany. “Besides confi scation of corporate property, a court Still, despite being put on an international wanted list, can also decide to nationalize Kurchenko’s business- Serhiy Kurchenko, owner of the Kharkiv Metalist Kurchenko continues doing business in Ukraine. In April, es if proof of his ownership is established,” said BA Lexel’s soccer team, and other according to Ukrainian web portal Oil News, Kurchenko Khrustenko. major assets, dispalys purchased Sovremennik, the third-largest network of gas Interior Minister said that 80,000 tons of the 2013 Ukrainian soccer championship stations in Crimea, and later in May, the Lukoil gasoline fuel and lubricants within Kurchenko’s group were seized silver medal. (UNIAN) station network on the peninsula. and will be sold at auction. Additionally, he is still listed as the president of Metalist Kharkiv on the club’s website. The Ministry of Revenues and Duties says that after Serhiy Kurchenko, ex-President Viktor checking the bank accounts and activities of 50 suspect- Yanukovych’s alleged front man, is being ed companies in relation with Kurchenko’s alleged mon- probed for corrupt schemes that cost the ey laundering schemes, their accounts were temporarily frozen. The list of companies includes oil and gas refi nery state at least $2 billion. companies Odesa Oil Refi nery and Gas Ukraine 2020, media holding Vesti Mass Media as well as other companies. Vesti, In response to Avakov’s statement, anti-corruption com- a free daily newspaper with a circulation of 350,000, is still missioner said on June 11 that the ar- distributed in Kyiv. And the media outlet has dismissed al- rested assets had not been sold as promised. “The money legations of money laundering, and called a May 22 tax po- could be spent on the Ukrainian army,” Chornovol added. lice raid on its offi ce an act of “political pressure.” But Khrustenko doubts that Kurchenko’s business will In 2013 Kurchenko bought the Odesa Oil Refi nery for become national property. “Should the abuse of law be $125 million. Later in the year, the plant was used as col- proven when purchasing the enterprises, Kurchenko’s own- lateral to receive a loan from VTB, a Russian bank. But the ership may be judicially invalidated or terminated using procedure for getting this loan, as well as its conditions, rules of restitution by returning the property to the previ- shows evidence of fraud, investigators say. ous owner,” he added.

32 #02/2014 [KYIV POST LEGAL QUARTERLY] [KYIV POST LEGAL QUARTERLY] #02/2014 33 Legal organizations in Ukraine

National Association of Advocates of Ukraine a lobby organization, in practice. More than 3,000 lawyers from all unba.org.ua regions of the country belong to the UBA, including attorneys, no- taries, scholars, judges, civil servants, members of parliament and The National Association of Advocates of Ukraine is essentially the other legal experts.bAmong its aims are to increase legal awareness Ukrainian bar, to which all lawyers must belong. Legally, it is a non- and legal culture in society, develop the legal profession, improve profi t professional organization whose aim is to ensure the objectives legislation, implement ethical standards in the provision of legal of the legal profession, promote the development and strengthening of services, and protect the professional rights of UBA members and the legal profession in Ukraine, and protect the rights and legal inter- human rights in general. The UBA is a member of the International ests of its members. The association serves as an umbrella organiza- Bar Association. tion for the governing authorities of the legal profession, including the Congress of Lawyers of Ukraine, which is the highest governing body, Association of Lawyers of Ukraine and the Qualifi cations-Disciplinary Commission of Advocacy, which uaa.org.ua serves as a complaints board for the common citizenry. The Association of Lawyers of Ukraine is a public non-profi t orga- Union of Advocates of Ukraine nization created to unite lawyers to promote the development and cay.org.ua strengthening of the legal profession in Ukraine, raising the legal as- sistance provided by lawyers, enhancing the role and authority of the The Union of Advocates of Ukraine claims to be the fi rst nonprofi t, volun- legal profession in society, and protecting of rights and legal interests tary, professional, independent, self-governing organization of lawyers as- of its members. sociation in independence. The organization brings together lawyers for their professional development and improvement of training, promotes Christian Lawyers Association of Ukraine the legal profession, legal awareness, standards of conduct. clau.org.ua

Ukrainian Bar Association The Christian Lawyers Association of Ukraine claims to be a non-prof- uba.ua it public organization that brings together Christian lawyers for pro- fessional service to the Church and society. The association professes Despite its name, this is not the Ukrainian bar per se, but rath- to be non-denominational. Its aim is to bring together active lawyers er a nongovernmental organization founded in 2002 to bring to- carrying out their professional activities based on Christian values, to gether lawyers for a strong and infl uential professional community, protect the rights and interests of citizens, legal aid organizations and which would become a powerful voice of the legal profession. It is legal education, as well as draft regulations. Events Supplements

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