September 26, 2014, Vol. 1, Issue 3

$100 billion question drags Russia to court for death, destruction and theft

Editors’ Note Contents

Dear readers, 4 Ukraine piles lawsuits on Russia We are privileged to present the third issue of the Legal Quarterly – 36 pages of news from a for damages legal perspective. Inside the Post’s special supplement are stories about the hot issues affecting politics, the economy and society. After six months of war to defend its sovereign- 8 Vitaliy Radchenko is an energy dealmaker at a diffi cult time ty from invading Russian forces and their proxies, Ukraine is suffering deeply from the hu- man and economic toll. 10 Oleksandr Ruzhytskyi: Oct. 26 Here are some of this issue’s highlights: parliamentary election won’t be • With Crimea and roughly one third of the Donbas occupied by Russian or Russian-backed representative under current forces, Kyiv’s legal community shares what the new status in both of these territories legislation, circumstances means to people and the law. 12 Ombudsman fi nds human rights • We have a breakdown of government benefi ts for war victims, including combatants and violations by Russia-backed their family members. separatists • The nation’s international lawsuits against Russia seek redress for death, destruction and 14 Legislative initiatives to boost IT loss of territory. There is also a drive under way internationally to get Russia branded a sector: What does future hold? state sponsor of terrorism. • Lawyers share their viewpoints on the upcoming Oct. 26 parliamentary elections; and 17 Legal services • The Ukrainian information technology sector is the focus of discussions into whether this 20 Ukraine readies sanctions part of the economy should receive special benefi ts. against Russia Enjoy! We look forward to your feedback. 22 Veterans face mounds of paperwork to get combatant status and war benefi ts Brian Bonner Ivan Verstyuk Mark Kyiv Post Rachkevych 24 Ukrainian goods need makoever Chief Editor Associate Kyiv Post to sell in EU Business Editor Business Editor 26 David Vaughn: ‘Judicial reform is All of our contacts are available online at http://www.kyivpost.com/contacts/ not for the short-winded’ 28 Lawyers dissect law on Donbas region’s new status

30 makes law to save their businesses

32 Oleksii Khmara: How and why party fi nancing is hidden September 26, 2014, Vol. 1, Issue 3 Спеціалізоване видання «Kyiv Post Legal Quarterly» видається ТОВ «Паблік-Медіа». © Kyiv Post, 2014 Наклад — 11 000 прим. The material published in the Kyiv Post Legal Quarterly may Розповсюджується безкоштовно. not be reproduced without the written consent of the publish- Матерiали, надрукованi у виданні «Kyiv Post Legal Quarterly» є власнiстю видавництва, захищенi er. All material in the Kyiv Post Legal Quarterly is protected by мiжнародним та українським законодавством i 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 necessarily the views of the publisher nor does the publisher видавця, який не бере на себе вiдповiдальнiсть за carry any responsibility for those views. наслiдки публiкацiй. Засновник — ТОВ «Паблік-Медіа» Publisher: Mohammad Zahoor Головний редактор — Брайан Боннер Відповідальна за випуск — Наталія Бугайова Chief Executive Offi cer: Nataliya Bugayova Адреса видавця та засновника співпадають: Chief Editor: Brian Bonner Україна, м. Київ, 01004, вул. Пушкінська, 31А, 6й пов. Sales Director: Alyona Nevmerzhytska Реєстрацiйне свiдоцтво — Sales Managers: Elena Symonenko, Yulia Kovalenko Кв № 20588-10388Р від 18.03.2014 Designers: Vladyslav Zakharenko, Jurij Ternicki Надруковано — ТОВ «ВКФ ТРІАДА», Editorial Team: Mark Rachkevych, Evan Ostryzniuk, Україна, м. Київ, 03680, вул. Кржижановского, 4, Ivan Verstyuk, Anastasia Forina, Olena Goncharova, тел.: +38 044 499 88 68 Ian Bateson, Andrii Degeler, Oleg Naumenko, Замовлення № 2371 On the cover: People visible through a bul- Iana Koretska, Oksana Grytsenko З приводу розміщення реклами звертайтесь: let hole in a window wait in line to cross Photo Editor: Pavlo Podufalov +380 44 591-77-88 Відповідальність за зміст реклами the border to Russia on Sept. 12 in Izvaryne Photographers: Kostyantyn Chernichkin, Anastasia Vlasova несе рекламодавець. near in . (AFP)

[KYIV POST LEGAL QUARTERLY] #03/2014 3 President (L) and Defense Minister Valery Heletey exam- ine weapons and ammunition captured from Russian-backed militants during Ukraine piles lawsuits a visit to the army’s headquarters near the Oblast city of Izyum on July 8. (Anastasia Vlasova) on Russia for damages

By Evan Ostryzniuk Ukraine is now fi ghting Russia in courtrooms, on a front where it has [email protected] much better chances of winning than on the battlefi eld. More than $100 billion is at stake as Kyiv pursues claims for damages, state-sponsored terrorism and unfair natural gas pricing.

4 #03/2014 [KYIV POST LEGAL QUARTERLY] he Ukrainian government is seeking judicial rulings to brand death and destruction caused in eastern Ukraine. The United Nation’s Russia as a rogue state that should pay massive compensation. International Court of Justice would hear the case. THowever, any court decision could take years. Ukraine is demanding $80 billion in compensation for losses sus- Kyiv has fi led three separate international grievances seeking more tained by terrorism committed in southeastern Ukraine. “Russia is a than $100 billion. One seeks to have Russia branded a state sponsor of state-terrorist and aggressor state and shall be liable in accordance terrorism, with a claim of $80 billion. with international law,” Yatsenyuk said. Ukraine’s lawsuit spree started in March when the Kremlin annexed If the UN and the U.S. brand Russia as a state sponsor of terrorism, Crimea. On June 3, the government that replaced ousted President member countries could invoke additional sanctions. fi rst sought $90 billion in compensation for theft Experts disagree as to whether this step is likely to be taken. and damage to property. The European Court of Human Rights in Rutgers University professor Alexander Motyl argues that Russia qual- Strasbourg started reviewing the case last month, Justice Minister Pavlo Petrenko announced on Aug. 19. Many people in Ukraine and Crimean Tatar leader and member of parliament Mustafa Dzhemilev is suing Moscow in the same court for not being allowed entry to his elsewhere are trying to fi gure out how homeland, among other alleged human rights violations. to make Russia pay for the death and The drive to brand the Kremlin as a sponsor or terrorism began on destruction it has caused in Crimea June 13, when Ukraine fi led another lawsuit in the European Court for and the Donbas. Human Rights that claimed gunmen from an anti-Ukrainian militia kidnapped and carted to Russia a busload of children from Snizhne in Oblast on June 12. The Ukrainian government considers these ifi es as a state sponsor of terrorism, citing a section of the United militias to be terrorist organizations. The court demanded an explana- States Code, as well as statements given by U.S. Ambassador to tion from the Russian government. Russian President ’s Ukraine Geoffrey Pyatt and former NATO Supreme Allied Commander spokespeople said the children left voluntarily and that the Kremlin Wesley Clark and the European Union defi nition of terrorism. has no relationship with the militia involved. However, Allen Weiner, a senior lecturer in law at Stanford Perhaps the deepest knife thrust has been Prime Minister Arseniy University Law School, told the Kyiv Post that it was unlikely that the Yatseniuk’s Sept. 3 announcement that Ukraine will seek to have U.S. would go that far. Currently, only four countries are on the U.S. Russia labeled as a state sponsor of terrorism for the widespread list of state sponsors of terrorism: Cuba, Syria, Iran and Sudan. 

[KYIV POST LEGAL QUARTERLY] #03/2014 5  Branding a large state a sponsor of terrorism is not usually done, said Professor Markus Kounalakis of the Hoover Institution at Stanford University. “It is unlikely that Russia will be desig- nated a state sponsor of terror under current conditions and with the need for ongoing diplomatic relations, help and collaboration in other parts of the world and in the United Nations,” he told the Kyiv Post. Nonetheless, “it seems that the state in question has sup- plied the transnational means to affect a violent international incident involving non- combatant civilians from nations who are not a party to the current strife,” the academ- ic stated.

Gaz versus gaz The Ukrainian-Russian gas war might end be- fore winter, according to Ukraine chairman Yuriy Kobolev. On July 25, he said that he expected an interim ruling on the gas dispute between Kyiv’s state-run

Rescue workers survey the ruins of a house struck by a shell on July 3 in Mykolayivka in . (Anastasia Vlasova)

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6 #03/2014 [KYIV POST LEGAL QUARTERLY] oil and gas monopoly and Russia’s Gazprom from the Arbitration Institute of the Chamber of Commerce. An interim order or mea- sures issued by the tribunal requires the respondent to undertake certain actions to secure that the fi nal award is enforced. Russia’s natural gas gi- ant cut off blue fuel to Ukraine on June 16. Then Naftogaz submitted a claim with the Stockholm arbi- ter stating that Gazprom had overcharged Ukraine $6 billion since 2010 for gas. Concurrently, Gazprom filed its own request that Ukraine was delinquent in the amount of $4.5 billion for delivered gas. The price of future gas purchases Petrov, counsel at Asters and secretary general of the A boy and a dog is also in dispute. On July 23, Stockholm announced Ukrainian Arbitration Association, who studied arbitra- look out from a bus stopped to be that it was combining the requests and initiating tion law in Sweden. checked at a check- hearings. Gazprom suffered a legal loss on July 28 when The point on a road be- Kobolev appears optimistic, according to legal experts. Hague’s Permanent Court for Arbitration ruled that Russia tween Kramatorsk and Slavyansk on “I would say that an interim ruling before winter is un- owed more than $50 billion to shareholders of former oil August 7. (AFP) likely because the hearings may take at least a year, which giant Yukos for legal manipulations that bankrupted the is too long,” said managing partner Oleksiy Kot of Antika company. law fi rm. “Without a doubt, the Yukos case can be used as a prec- Ukraine could get what it wants fairly soon, other law- edent and also can have an impact on Ukraine’s lawsuit yers said. “I would not exclude that the arbitral tribu- against Russia,” argues Antika’s Kot, “and gives an oppor- nal may issue an order to fi x an interim price for gas for tunity to predict the course of events if Naftogaz wins this Ukraine before the fi nal award is rendered,” said Yaroslav case.”

[KYIV POST LEGAL QUARTERLY] #03/2014 7 Vitaliy Radchenko of CMS Cameron McKenna. (Anastasia Vlasova) Vitaliy Radchenko, energy dealmaker at a diffi cult time

By Ian Bateson Ukraine is heading into winter without access to Russian gas and much of [email protected] Donbas coal. It's a perilous state of affairs for a fi nancially ailing nation that guzzles energy ineffi ciently.

8 #03/2014 [KYIV POST LEGAL QUARTERLY] italiy Radchenko, 31, is a man with much-needed skills these domestic production. That, he says, coupled with assurances that the days. He is a legal expert on Ukraine’s energy market, a fl u- tax code would not be suddenly changed could spur more Ukrainian gas Vent English-language speaker and partner at the international going to Ukrainian homes. law fi rm CMS Cameron McKenna. And he knows the energy challeng- The second would be to increase the money state-owned Ukrainian es Ukraine is facing. gas companies receive for their gas. He says that state-mandated pric- Since the Ukrainian crisis started last November, the nation has lost es have kept rates artifi cially low, which don’t allow companies to spend access to Russian gas, much of Donbas coal and Black Sea gas reserves money on modernization and exploration. off the coast of Crimea. With winter coming, Ukraine is struggling to balance its energy books. The effects of that balancing act are starting ‘When you have a war raging in to hit home. eastern Ukraine, you understand how “These days when you have a war raging in eastern Ukraine you now important the simple things are in the understand how important the simple things are in the energy sector energy sector...hot water, electricity that we usually take for granted: hot water, electricity 24/7 and heat- ing,” Radchenko said. 24⁄7 and heating.’ With increasingly fi nding their centrally heated water — Vitaliy Radchenko lukewarm and with plans for rolling blackouts, how to maximize en- ergy reserves and production is anything but an abstract prospect for Third, he would want fi rm structures put in place to make the price, Ukrainian offi cials. volume and consumption of gas clear. The ownership of Ukraine’s re- “The war has done quite signifi cant damage to infrastructure,” he gional gas companies is often unclear. And their monopoly positions said, adding that the nation is scrambling to secure coal imports while allow them to manipulate the market to their benefi t. That situation saving on gas and electricity consumption. hurts consumers and makes it diffi cult to attract outside investment. Energy effi ciency has never been a major tenet of the Ukrainian According to him, “everything to achieve transparency in the market economy. The tried to make up for ineffi cient produc- would be better.” tion by providing cheap energy. Those ineffi ciencies continued, initial- For now, both Ukraine’s gas and wider energy market remain com- ly through cheap gas from Russia with the burden of subsidizing energy plex problems to solve, but Radchenko says that is what he likes about increasingly being borne by the bankrupt Ukrainian state. his work. The immediate task for Ukraine is to increase and diversify ener- “It is (about) getting to the bottom of diffi cult or complex questions. gy imports, and in particular gas imports, from its western neighbors to It is the mystery and then the solution that drives me,” he said. make up for what it has lost in the east. “Because Ukraine is being cut off from Russian gas, there is lot of de- mand to import gas from the European Union. That’s what we are now working on. (There are) a number of projects that would allow Ukraine to bring more gas into storage and be able to live through the winter,” he said. A major part of the challenge is fi nding companies that can transport gas to Ukraine, and connecting foreign companies with Ukraine’s energy market is something in which Radchenko specializes. Having worked to bring Shell into the Ukrainian energy market, he knows what it takes, but also thinks there is a lot more the government could do to alleviate the growing energy crisis. He considers a recent hike of the extraction tax, in particular, counterproductive. “If you increase the gas production tax two-fold, you either have to revisit your exploration program and cut something out, or you have to stop doing something else,” he said, adding “you have a pile of cash al- located to drilling something and suddenly half of that cash will just go towards taxes. That is obviously not how stimulation of gas productions should work.” The government is under pressure to raise funds to support its mili- tary as the economy contracts, but what really concerns Radchenko is a lack of communication between politicians and industry experts. In seeking to reform the gas industry in Ukraine, however, he says there are three key reforms he would try push through. The fi rst would be to create incentives for companies in Ukraine to increase production. As Ukraine struggles to meet its gas quotas need- ed for winter, Radchenko sees little being done to encourage greater

[KYIV POST LEGAL QUARTERLY] #03/2014 9 Oct. 26 parliamentary elections won’t be representative under current legislation, circumstances

Ukrainian voters go to the polls on Oct. 26 to elect a new parliament. But because of Russia's war, as many as 30 of the 450 seats may stay empty in districts. A 100 percent proportional system would solve this problem.

By Oleksandr Ruzhytskyi here is about a month left to the par- paved the way for pre-term election, since offi [email protected] liamentary elections in Ukraine. Snap the Constitution stipulates that if parliamen- Telections were one of the campaign tary factions fail to form within 30 days, the promises of President Petro Poroshenko. The president is entitled to dissolve parliament. artifi cial collapse of the legislature’s coalition Poroshenko took advantage of this prerogative.

A makeshift voting station inside of a tent near the Security Service of Ukraine building in Luhansk occupied by Kremlin-backed separatists on May 11 that the group set up to hold a self-styled referendum to secede from Ukraine. (Ansastasia Vlasova)

10 #03/2014 [KYIV POST LEGAL QUARTERLY] Local Knowledge & Global Expertise

gide.com

Counting of votes at a polling station in a school in Kyiv on May 25. (Kostyantyn Chernichkin) LEGAL ADVICE IN UKRAINE: Society is longing for these elections. After to lose infl uence in forming party lists. Party the EuroMaidan Revolution, the public has de- bosses are not interested. Pragmatic and 100% Compliant manded reforms and wants to see new fac- Another concern is how to conduct the elec- es in parliament. However, it is questionable if tions in the current unstable situation. There the snap elections will discover new politicians are some “technical problems” because of the and bring fresh quality into the Verkhovna Russian invasion. There are 225 constituen- CONTACT PARTNERS Rada. According to the current law on elec- cies all over Ukraine. The problem is how to or- BERTRAND BARRIER tions, half the legislature (225 members) are to ganize elections in the regions no longer under [email protected] be elected from political party lists on a pro- government control. There are 12 constituencies portional basis, and half (225 members) from in Crimea. Offi cially, the government recogniz- DR JULIAN RIES single-mandate districts. es that Crimea is a temporarily occupied territo- [email protected] Up to now, the vote threshold for parties has ry; nevertheless, constituencies are not removed been 5 percent. However, it might be changed from “occupied territories” regardless of the fact during the election campaign. In fact, a common that it will be impossible to hold parliamentary practice in Ukraine is to change the election rules elections there. During the last presidential elec- even a few weeks before the election. For exam- tions in May, the Central Election Commission ALGIERS ple, the vote threshold used to be 4 percent, later proposed that Crimeans travel to Kherson Oblast BEIJING 3 percent, and now it is 5 percent. Unfortunately, and vote, but it will not work this time. BRUSSELS the rules often depend on the interests of ruling Similar problems might occur in Donetsk BUDAPEST parties and their leaders try to amend the law if it and Luhansk Oblasts. It will be not possible CASABLANCA helps them win more seats. to guarantee safety during the elections until HANOI Still, civic activists are calling for a radi- the war with Russia ends. Most likely, parlia- HO CHI MINH CITY cal, new approach to the parliamentary elec- ment will not be fi lled with 450 lawmakers. Up HONG KONG tion process. Their concept foresees elections to 30 seats might stay empty if nothing chang- ISTANBUL on a proportional basis, but with an open par- es. There is a way to avoid this problem – to KYIV ty list – currently only the fi rst 10 candidates switch to a 100-percent proportional system LONDON are listed. This means that the fi nal position of for elections. MOSCOW a candidate in a party list will depend also on To conclude, Ukraine needs an election code NEW YORK the number of votes the candidate personally that will stipulate clear, transparent and pre- PARIS received. Such a system might be optimal and dictable rules for elections. Probably, this will SHANGHAI open the door to politics for a younger gener- be the task of the new parliament. TUNIS ation. However, these initiatives were not sup- Oleksandr Ruzhytskyi is a lawyer with L.A. WARSAW ported either by the majority of lawmakers or Group in Kyiv. He can be reached at offi ce@la- by the president. To adopt such a law means group.com.ua.

GIDE LOYRETTE NOUEL [KYIV POST LEGAL QUARTERLY] #03/2014 11 4, Volodymyrska Street - Kyiv 01001 - Ukraine tel. +38 (044) 206 0980 | [email protected] Ombudsman speaks of human rights violations by Russia-backed separatists

The nation’s human rights czar has never had much power. Additionally, the current ombudsman’s ties to the disgraced regime of ex-President Viktor Yanukovych is harming her credibility in fi ghting violations.

By Ivan Verstyuk he nation’s referee on human rights Moreover, the self-proclaimed Donetsk [email protected] observance, Valeriya Lutkovska, be- People’s Republic or Luhansk People’s Tlieves Kremlin-backed fi ghters are Republic – both terrorist organizations, ac- guilty of human rights violations in Crimea cording to Ukrainian legislation – can’t be and eastern Ukraine. sued because “nobody recognizes them as sov- But proving that Russia committed crimes ereign political entities,” said the nation’s om- against humanity in an international court is budsman, who served as justice minister from diffi cult, she said. 2006-2011.

12 #03/2014 [KYIV POST LEGAL QUARTERLY] "We'll need strong arguments to prove they possibility to fi le cases to the Supreme Court are controlled by the Russian Federation," add- on behalf of aggrieved citizens would be an ef- ed Lutkovska, 42, a former Lavrynovych& fective measure," she said. Partners attorney. Lutkovska was appointed to her of- She recounted various violent deaths as fice through a controversial show-of- well as torture in Russia-annexed Crimea and hands vote in parliament on April 24, areas of the Donbas controlled by Kremlin- 2012. Then, the opposition, led by Yulia backed separatists. For example, in early Tymoshenko's Batkivshchyna party, August, separatists would not allow tubercu- blocked the tribune while the majori- losis patients at a children’s clinic in Alchevsk ty, controlled by pro-Viktor Yanukovych to leave the city when electricity and water Party of Regions, voted for the supply were cut off. Facing a life-threatening candidate. situation, the head of the clinic tried to per- Lutkovska's cooperation with Yanukovych's suade the militants to let them be evacuat- government harms her effectiveness. ed to Boyarka, a small town near Kyiv. Eventually the aggressors acquiesced. However, combatants at one checkpoint out- Lutkovska was appointed to her side Alchevsk would not offi ce through a controversial acknowledge the Ukrainian- show-of-hands vote in government issued docu- parliament on April 24, 2012. ments that were presented to them. They insisted the Then, the opposition, led by Yulia “Russian” children be treat- Tymosheno's Batkivschyna party, ed in Russia, according to blocked the tribune while the Lutkovska, and sent the bus majority controlled by ex-President transporting the children back to Alchevsk. Their doc- Viktor Yanukovych voted for her. tor was subsequently im- prisoned and threatened. "After we talked to the separatists in control of Alchevsk, they let her go," said Lutkovska of Pavlo Bilousov, counsel at Aequo law fi rm, the doctor. says that human rights observance in Ukraine Meanwhile, in Crimea, the rights of local has not improved. "It seems that in these hard Crimean Tatars remain a key issue. They are times of Ukraine’s history, the ombudsman's deprived of freedom of assembly rights, ac- offi ce sees its main function in monitoring the cording to the ombudsman. "We work close- problems in Ukraine, discussing them with for- ly with the Mejlis (a representative body of the eign diplomats and international organiza- Crimean Tatars) and its leader Refat Chubarov, tions and rarely speaking on these issues to while Mustafa Dzhemilev (presidential policy the media. The Ukrainian ombudsman should Ukrainian Parliament Com- advisor on Crimean Tatars) also participates in fi nally grasp the importance of her role and missioner for Human Rights this," said the human rights defender. obligations, and use the full powers vested in Valeriya Lutkovska. (Kostyantyn Chernichkin) The international community doesn't fully her," he added. understand the situation in Ukraine, she add- However, Arsen Milyutin, senior asso- ed. "When I gave a presentation to the United ciate at Yegorov, Puginsky Afanasyev & Nations' commissioner for human rights Partners law firm, thinks Lutkovska has Navi Pillay and told (her) about the problems managed to stay fair. "At this point, from Ukraine faces, all she asked was what we're go- my point of view, the main focus of the ing to do with fascism in western Ukraine," ombudsman's activity should be directed Lutkovska said. at protecting human rights in the area of Meanwhile, Lutkovska believes Ukraine's the anti-terrorist operation, regarding ev- human rights offi cer should have more func- eryone – the local population, soldiers and tions. "The ombudsman doesn't participate in representatives of separatist movements," any court processes, though having the legal he said.

[KYIV POST LEGAL QUARTERLY] #03/2014 13 Legislative initiatives to boost IT sector: What does the future hold?

14 #03/2014 [KYIV POST LEGAL QUARTERLY] Ukraine's information technology companies already have considerable benefi ts, including cheaper taxes, but the industry is looking for improvement from new faces in government who understand the IT world.

By Andrii Degeler [email protected]

ne of the repeatedly stated goals of the new Ukrainian gov- ernment — and of the new parliament, which will be elect- Oed on Oct. 26 — is to turn the country into an innovative state where the information technology business is acknowledged as an important part of the economy. Several well-known people from this sector are making their way to the top — including ex-head of Ukraine Dmytro Shymkiv, the deputy chief of staff to President Petro Poroshenko, and internet busi- nessman Oleksandr Olshanskiy, who is running for parliament as an in- dependent candidate in a single-mandate district. In addition to them, Oleksiy Skrypnyk, the CEO and founder of software developer and Vlad Voskresensky, CEO and co-founder of successful startup InvisibleCRM, are both on the lists of the Samopomich party, holding the third and 24th positions respectively. For the Ukrainian IT sector, new faces in politics mean a chance for signifi cant deregulation and simplifi cation of the laws governing its existence. Uncertainty in the IT market “was a barrier to legislative initiatives,” commented Valentina Siletska, a lawyer at Syutkin and Partners. Today's market players have identifi ed a few particular spots where changes in laws may have a positive impact on different players, from outsourcing software developers, whose total revenue reached $2 bil- lion in 2013, to aspiring tech entrepreneurs.

For IT businesses Relatively large Ukrainian IT companies already enjoy a few bene- fi ts making their work easier — and a lot cheaper in terms of taxes. However, there is still room for improvement. “Today IT companies have a lowered profi t tax rate of 5 percent (used to be 15 to 17 percent), while their employees pay personal in- come tax of 5 percent instead of 15 percent,” Siletska said. Most of the new pieces of legislation that IT companies might ex- pect in the future are listed under the Easy Business initiative present- ed in the middle of August by Shymkiv and former Economy Minister Pavlo Sheremeta. In particular, Shymkiv and his colleagues propose to simplify or even cancel altogether the licensing procedure for electronic money sys- tems, adopt a law governing e-commerce that would further aid its de- velopment and “safeguard critical telecommunications infrastructure” – namely protecting businesses from having their servers seized by se- curity agencies, something that has repeatedly happened in recent This photo obtained on Jan. 17, courtesy of , years. shows a smart contact lens. The Google lab is craft- Also, Shymkiv marked the necessity of guaranteeing equal opportu- ing a contact lens that could help diabetics manage blood sugar levels. It works “using a tiny wireless nities to receive 3G communications licenses for all contenders, as well chip and miniaturized glucose sensor that are as simplifying the employment registration procedure for those for- embedded between two layers of soft contact lens eigners who work in the IT sector. material,” project co-founders Brian Otis and Babak  Parviz said in a blog post. (AFP)

[KYIV POST LEGAL QUARTERLY] #03/2014 15 Promoting brand Ukraine in the world has become a driving force for the country’s economic develop- ment, according to presidential deputy chief of staff Dmytro Shymkiv during a Sept. 4 news confer- ence. (Mykhailo Markiv/POOL)

 For entrepreneurs governing out-staffi ng, non-solicitation, non-competition One of the most important legislative problems that entre- and stock options as part of a compensation scheme, etc. preneurs face is that Ukrainian citizens are not legally al- Also Voskresenskiy lists clarifi cation of questions regarding lowed to open bank accounts and found companies abroad. public-private partnerships and intellectual property as his These restrictions complicate matters for teams that build priority in . products for global markets, explained BVU Group founder Denis Dovgopoliy. For government In about 20 years since the respective decree was passed, There are also IT-related initiatives on the governmental Ukrainian entrepreneurs have had a choice of either regis- level. The Easy Business list includes points such as intro- tering a company abroad in breach of the law, or agreeing duction of electronic document fl ow that would be legally with a foreigner who would register an entity and then give equal to traditional papers, as well as allowing access to the it to the real founder — or sell for a symbolic $1. Both ways, database of tender documentation to everyone who wants however, bear risks that affect Ukrainian startups' valua- to process and mine it. tion. The Ukrainian government can, for instance, theo- Oleksiy Skrypnyk also mentioned that one of his tasks in retically cancel the registration of the company in court parliament will be to work on an all-levels e-government Oleksandr Olshan- (although it has never happened), while the initial founder system. skiy (Oleksandr could also fi le a lawsuit to dispute a transfer. “Our current e-government systems are chaotic; we're Olshanskiy/face- “TheseThese risks lowerlow pre-money valuation of Ukrainian trying to build a house without a foundation. We, direc- book) startups for investorsinv abroad by approximately 10 per- tors of IT companies, have a vision on this. We need about cent,” DovgoDovgopoliyp said. a year to build a new solution,” Skrypnyk said. ThisThis law, however,h is incredibly diffi cult to can- In general, one of Skrypnyk's goals is to provide condi- cel altogether,altogethe as it governs many other sec- tions for IT specialists to work not only as outsourced soft- tors and companycom types, not only startups. That's ware developers, but also create products for the country. why DovgopoliyD says that a realistic solu- In his opinion, similar to that of businessman and political tiontion would be to raise the threshold, al- candidate Olshanskiy, greater success will only be possi- lowinglo Ukrainians to found companies ble when some of the key problems are solved involving the abroada with a statutory fund limited by army, economy, and corruption. €500,000. This problem is also men- Andrii Degeler is the Kyiv Post’s information technol- tioned in the Easy Business list and ogy reporting fellow. Degeler has been covering the IT could be solved in the observable future. business in Ukraine and internationally since 2009. His fel- Ukrainian entrepreneur Vlad lowship is sponsored by AVentures Capital, , FISON VoskresenskyVoskre cites other problems. Among and SoftServe. He can be reached on Twitter (@shlema) or them aare labor regulations, including those [email protected].

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

Asters 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

Arzinger Eurasia Business Centre, 75 Zhylyanska St., 5th Floor, Kyiv 01032, Ukraine; [email protected], www.arzinger.ua

+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, Finance; Bankruptcy; White Collar Defense SHARP, SCM, UNIQA AG, Russian

Baker & McKenzie — CIS, Limited Renaissance Business Center, 24 Vorovskoho St., Kyiv 01054, Ukraine; [email protected], www.bakermckenzie.com

+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, BV, Ukrainian Serhiy Chorny Employment; IP; International Trade; Real Estate RaiffeisenBank, MasterCard, UkrSibbank and Construction; Tax and Customs BNPP Paribas Group

B.C. Toms & Co 18/1 Prorizna St., Suite 1, Kyiv 01001, Ukraine; [email protected], www.bctoms.net

+38 044 490 6000 Bate C. Toms 1991 Kyiv, Agricultural Investments; Oil, Gas and Electricity; WND English, French, +38 044 278 1000 Ukraine M&A; Banking; Finance and Capital Markets Russian, Ukrainian and Polish

СMS Cameron McKenna LLC 38 Volodymyrska St., 6th floor, Kyiv 01030, Ukraine; [email protected], www.cmslegal.com, www.cms-cmck.com

+38 044 391 3377 Daniel Bilak 2007 London, Corporate and M&A; Energy; Lifesciences/ WND English, German, UK Pharmaceuticals; Technology, Media and French, Ukrainian, Communication; Tax; Banking and Finance; Commercial; Russian Competition; Dispute Resolution; Employment; Intellectual Property and Real Estate & Construction.

Dentons (LLC Salans FMC SNR Denton Europe) 49-A Volodymyrska St., Kyiv 01034, Ukraine; [email protected]; www.dentons.com

+38 044 494 4774 Oleg Batyuk 1992 Global Banking and finance; Corporate/M&A; Dispute Multinational corporations, commercial English, Russian, +38 044 494 1991 law firm resolution; Investments; IP&T; Real estate and and investment banks, energy companies, Ukrainian Construction; Restructuring; Tax developers, hotel chains, investment funds, international organisations

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DLA Piper Ukraine LLC 77 A Chervonoarmiyska St., Kyiv 03150, Ukraine; [email protected], www.dlapiper.com

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+38 044 206 0980 Bertrand Barrier, 2006 Paris, Corporate and M&A; Banking&Finance; Competition Air Liquide, Bongrain, BNP Paribas, Briziums, English, French, Dr Julian Ries France and General Commercial Law; Projects (Finance EBRD, IFC, EIB, Societe Generale, VTB Bank German, Russian, & Infrastructure), PPPs; Real Estate; Tax; Dispute (Austria) AG, UniCredit Bank Austria AG, Sony, Ukrainian Resolution; Employment; Intellectual Property LBBW, Porsche Finance Group, VA Intertrading

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Gramatskiy & Partners 16 Mykhailivska St., Suite 7, Kyiv 01001, Ukraine; [email protected], www.gramatskiy.com

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[KYIV POST LEGAL QUARTERLY] #03/2014 19 Ukraine gets to sanction R

An anti-war protester holds a Ukrainian fl ag in the center of President Petro Poroshenko on Sept. 10 signed into law a bill that Moscow on Sept. 21. Thousands of Russians marched to protest allows for restrictive measures to be imposed on Russian companies and against the Kremlin’s involve- individuals for encroaching on the nation's sovereignty. ment in the Ukraine crisis, in the fi rst major anti-war rally since fi ghting erupted in April. (AFP) Aug. 14, Ukraine’s parlia- The government’s National Security and ment legally set the stage for Defense Council oversees sanctions. Its mem- Onpunishing Russia over its an- bers include the president, who can pro- By Oleg Naumenko nexation of Crimea and invasion of eastern pose and approve them, as well as the Justice [email protected] Ukraine. The bill lets the government im- Ministry, central bank, Cabinet of Ministers pose 29 types of sanctions on foreign states, and Security Service of Ukraine. legal entities and individuals that threat- Sector-wide sanctions need approval by en Ukraine’s national security, and the rights parliament. and freedoms and of its citizens. A list of 65 Whereas Prime Minister fi rms and 176 individuals has already been called the bill’s adoption an “historic step,” compiled that are likely to be targeted. some are skeptical and believe that sanctions President Petro Poroshenko signed the bill against Russia will backfi re, considering that on Sept. 10. Ukraine depends on Russia for many things,

20 #03/2014 [KYIV POST LEGAL QUARTERLY] Russia also stopped supplying Ukraine with see anything unconstitutional because the natural gas over a price dispute and has grad- NSDC’s status is subject to a special law. ually banned imports of agricultural and food ready products. A double-edged sword During a news briefi ng on Aug. 22, Pavlo Setting up a legal framework Petrenko, Ukraine’s minister of justice, men- Included in Ukraine’s bill are restrictions on tioned a list of unspecifi ed 65 companies with Russia business and trade operations, revocation of Russian capital and 176 individuals to be pe- licenses and other permits, a ban on fi nan- nalized under the sanctions bill. Although no cial transactions and a bar to participation sanctions have been introduced yet, experts in privatization of Ukrainian state proper- are concerned about the fallout. ty for companies with a considerable share of Sanctioning Russian banks, which have Russian capital. Support of terrorism in east- 13 percent of the Ukrainian savings and loan ern Ukraine and the annexation of Crimea market, can backfi re, says UNK Partners' makes a company or an individual subject to Leshchenko. “Any major restrictions can cause sanctions. However, the document does not re- panic and tremendous damage to the econ- fer to Russia as the aggressor-state directly, omy. They should be applied carefully, since applying more general defi nitions instead. banks guarantee fi nancial stability,” he said. Oleksandr Zadorozhny, head of the Valeriya Gontareva, head of the National Ukrainian Association on International Law, Bank of Ukraine, similarly argued that if the president's pro bono arm on legal matters, Russian banks are expelled from the country, says the law needs more specifi cations on the ordinary Ukrainians will suffer substantially. types of restrictions that could be applied as Russia-owned VTB bank said it doesn't feel sanctions, as well as a timeline of implemen- pressure from Ukrainian regulators. "The NBU’s tation. He believes the nation still needs legal fi nancial monitoring and its preliminary con- architecture for applying restricting measures. clusions showed that there are no serious vio- SayenkoKharenko's legal expert lations of Ukrainian legislation in our activity," Oleksandra Brovko emphasizes that any said Valeriya Seleznyova, spokesperson at VTB. sanction policy should be coordinated with Ukraine's major mobile phone operators, the international community. Regarding such as Kyivstar and MTS with Russian parent Ukraine's current situation,"(it should go) companies, may encounter diffi culties, said hand in hand with the actions of the United Nataliya Ulyanova, an expert on internation- States and the European Union – Ukraine has al tax planning at ICF Legal Service. She said to show that it can protect itself.” Russian companies might start entering the Ukrainian market through offshore entities Temptation of power abuse registered in Cyprus, for example, to avoid po- Roman Leshchenko of UNK Partners law fi rm tential sanctions. voiced concerns that the new sanctions bill Another question is how far Ukraine can go including critical natural gas supplies. might violate the constitution. “This bill pos- without harming itself. Yatseniuk estimates Some lawyers with whom the Kyiv Post es several risks. Firstly, Ukrainian authori- Ukraine will lose $7 billion, while experts think spoke, furthermore, believe the bill is ties do not need any court rulings to introduce the fi gure may be much bigger – all the way unconstitutional. sanctions against legal entities and individu- to $14 billion. Russia is likely to introduce the Russia invaded Crimea in February and als," he says. counter-sanctions in reply to any aggressive annexed the peninsula in March. Russian Another problem is that a single institution, economic policy that hits its interests. military units, mercenaries and proxies subse- the NSDC, can introduce and approve sanc- quently invaded the two easternmost oblasts tions. Constitutionally, the NSDC is defi ned International acceptance of of Luhansk and Donetsk. Meanwhile, many as a consultative body, whereas sanctions pol- Ukraine's sanctions Western nations and others, such as Japan, icy should be a part of the executive branch. Ukraine has good chances of protecting its in- have imposed their own set of measures "A possible solution might be to…include the terests and have its measures accepted by the against Russia. The sanctions include cutting NSDC’s new functions in the forthcoming con- global community. Nataliya Chonok, an ex- access for companies to capital debt markets, stitutional reform,” Leshchenko said. pert on World Trade Organization policy, said export-import limitations of sensitive technol- Zadorozhny of the Ukrainian Association on the WTO would accept Ukraine's unwilling- ogies and travel bans for individuals deemed International Law disagrees with Leshchenko. ness to do business with Russia under the cir- responsible for military aggression in Ukraine. “The primary function of the NSDC is nation- cumstances. "Ukraine can prove its actions are Russia, in return, banned European and al security – this is why it was chosen for in- justifi ed as they are necessary to protect its American imports of agriculture products. troducing the sanctions." Moreover, he doesn't national security," she said.

[KYIV POST LEGAL QUARTERLY] #03/2014 21 Guarantees and benefi ts Veterans for military combatants: face mounds of paperwork to get

25 percent pension in- Average salary- combatant Free travel on public crease sized compensa- transportation tion for temporary disability status and

Government-paid medical care in war benefi ts special treatment Discounts on utility facilities services More than 935 soldiers have been killed in Russia's war against Government- Ukraine, while more than 3,000 provided housing Hr in two years Government-allotted people have been injured. The Annual monetary al- land for housing lowance on May 5 cost of caring for survivors and wounded will be high. One-time fi nancial assistance to military combatants

thousand By Iana Koretska [email protected] hryvnias thousand 250 subsistence wages hryvnias (I disability group) hile Ukraine’s government gives 500 subsistence wages special benefi ts to the families of thousand (death) hryvnias Wsoldiers killed and to fi ghters in- thousand 200 subsistence wages jured in Russia’s war, it still takes persis- hryvnias (II disability group) tence and documents to collect them from thousand 70 subsistence wages the bureaucracy. hryvnias (partial disability) Thus far, more than 935 Ukrainian ser- 150 subsistence wages vicemen have been killed in fi ghting since (III disability group) mid-April. At least an additional 3,215 peo- Benefi ts for families of military combatants ple were wounded, and their numbers keep growing, despite a ceasefi re that has been in place since Sept. 5. The list of those who will not be home in- cludes Mykola Berezovy, the husband of journalist and activist Tetyana Chornovol, Government-paid Government- Government-paid Government- Government-paid Ukrinform journalist Oleh Zadoyanchuk and paid prescrip- housing/apart- vacations at treat- paid dental annual medical tion drugs ment repairs ment and recre- treatment examination Mark Paslawsky, an American investment ation facilities banker who said he became a Ukrainian cit- izen before volunteering for the . Ukrainians have donated as much as Hr

Free rides on Higher educa- Financial aid Discount on 150 million for the needs of those fi ghting public trans- tion scholar- in case of payments for against Russian elements in Donetsk and portation ships combatant's utility services death at a rate Luhansk oblasts, according to the Verkhovna of their salary Rada's analytical department. Life-saving medical kits, protective gear and other essen- Ukraine’s government offers many benefi ts to soldiers and their relatives. But taking advantage of them is not always easy. (Ukrinform) tials have been supplied by local and foreign volunteer groups over the months. 

22 #03/2014 [KYIV POST LEGAL QUARTERLY]  Parliament passed laws providing guarantees and benefi ts for soldiers. “First of all, the legislators have clarifi ed who may be identifi ed as a military operation participant…Parliament has amended the law on the status of war veterans and guarantees of their social protection,” said Sergiy Shapov, an expert at Alekseev, Boyarchukov and Partners. Currently, all fi ghters have the legal status of being a war veteran. This qualifi es them for fi nancial assistance, gov- ernment-paid medical care and housing. The list includes members of the Ukrainian Armed Forces, National Guard, Security Service, Foreign Intelligence Service, Border Guards Service, Interior Ministry and volunteer battalions that act in accordance with the law and are recognized as those which defend the country's independence and terri- torial integrity. However, there is no guarantee that the bureaucratic ma- chine will work correctly. “A soldier won’t be recognized as a military combat- ant without the requisite documents, such as an army or- But those who'll overcome the bureaucratic obstacles Approximately 150 members of the der and offi cially stamped military identifi cation card, etc.," are entitled to receive privileges such as free health care, a volunteer Azov said Volga Sheyko, a lawyer at Asters. monetary allowance or compensation for their disability. Battalion arrived Even having all the documents doesn’t guarantee that A one-time fi nancial payment to disabled military in Kyiv on Sept. 15 from the war front attaining the status will be easy. "You'll have to go to the combatants ranges Hr 182,000-304,000, said Shapov of in Ukraine’s eastern (offi ce of) General Staff of the Ukraine's Armed Forces or, if Alekseev, Boyarchukov and Partners. "Benefi ts have also regions as part of you're a reservist - to the regional military commission (to been established for family members of ATO participants a troop rotation. (Volodymyr Petrov) submit the documents personally in a paper form)," Sheyko who have died,” he added. explains.

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[KYIV POST LEGAL QUARTERLY] #03/2014 23 Two employees work on a helicopter on March 14, 2013 at the airplane and helicopter manufacturing company in Ukrainian goods need Zaporizhya. (Ukrainian News) makeover to sell well on European market

Ukraine fi rst needs to bring its legislation and production quality in line with a variety of European standards before it could start benefi ting from a landmark free-trade deal that will go into effect on Jan. 1, 2016.

By Iana Koretska verything from certifi cation, quality Under a compromise reached on Sept. 12 [email protected] control and traceable food is required with Russia, which opposes the deal, the post- Eor needs upgrading even for companies ponement means that Ukraine will not have that don’t do business with the European to cut its duties on EU imports for 15 months. Union. In turn, the EU will keep in place for Ukraine Having the free-trade pact with the EU de- quotas for certain imports under preferential layed until the start of 2016 might be a good terms through the end of next year. thing. Not only do the majority of Ukrainian As a result, Ukraine is expected to ex- products not meet European standards, legis- port €13.8 billion worth of products to the lation in areas such as food safety, sanitation, 28-nation bloc by year's end, according to the labeling and technical requirements hasn’t European Parliament, an increase of 9 percent caught up as well. over the previous year.

24 #03/2014 [KYIV POST LEGAL QUARTERLY] Exporting poultry meat to the Netherlands (EU member)

Control of: contaminants, Health control of products of EUR 1 certificate issued by Proper labelling pesticide, residues of animal origin, traceability, Ukrainian Chamber of of packaging veterinary medicines compliance and responsibili- Commerce and Industry ty in food and feed

HACCP EUR.1

Meat and Preferential tariff quota edible offal, 0207.12.(10-90) poultry 16,000 tons per year Code 0207 9999 Source: Kyiv Post research, Myronivsky Hliboproduct

There are four main stages that Ukrainian poultry makers go through to export poultry to the European.

Given that the EU is the fi nal destination of 33 percent of the nation’s the Ukrainian Chamber of Commerce and Industry. They need to mod- exports, much “homework” needs to be done to create a legal frame- ernize Soviet-era production to meet the EU's technical requirements. work for trade under the new deal, said Nataliya Mykolska, head of in- One company that has met requirements is Ukraine's largest poultry ternational trade expertise at Sayenko Kharenko law fi rm. producer, Myronivsky Hliboproduct. The London-listed company plans The new standards will affect every business regardless if they do to supply as much as 15,000 tons of chicken meat this year to the EU. business with the EU. On a national level it took Ukraine fi ve years to alter its standards and This is a timely move since Russian retailers increasingly refuse to do obtain permission to sell poultry to the EU in October 2013. Internally, business with Ukrainian companies since additional restrictions could MHP had to pass through a number of EU inspections during the pro- be enforced any day by hostile Russian regulators in the Kremlin’s on- cess, said company spokesperson Zoya Shevchuk. going trade war. Once a company meets all the technical requirements set by the “Ninety eight out of 100 Russian retailers sent us a rejection,” Oleg Brussels-led political and economic bloc, it still needs permission from Tushkevych, sales director at package producer Ergopack, told hubs. the EU to export a specifi c type of product. A Ukrainian producer should com.ua, a business news website. have the Eur-1 certifi cate of origin to enter the EU market, according to Moreover, Russia's ban on Ukrainian confectionery, dairy and meat Igor Dankov, customs law expert at EY, an accounting and consulting products have forced many companies to look for markets in Asia and company. It’s a requirement for all exports that exceed €6,000. the EU. Kryukiv Railcar Works, a major publicly traded company, cut Certifi cates of origin currently are issued by the Ukrainian Chamber wagon production by 66 percent this year since orders stopped coming of Commerce and Industry. In the future, traders will most likely apply from Russia, its principal client. for the certifi cate with the nation's customs policy, according to Dankov Machinery is highly dependent on exporting to Russia, said Sergiy of EY. This still needs to be legally set though. Currently the customs Svystil, vice president of the Ukrainian Chamber of Commerce and service lacks qualifi ed experts for this kind of work, he added, while the Industry. "But this market is limited for Ukrainian producers now and Chamber of Commerce employs 610 specialists of this type. the situation is becoming worse by the day, so producers have to seek Preparations for exporting goods to the EU may take between two new markets now and the European market is one of the options.” months and two years. It depends on the type of product and whether it Motor Sich, a Zaporizhya-based aircraft engine maker, has already meets the bloc's requirements, said Hanna Shtepa, a lawyer with Baker started looking for clientele in the EU. After Russia canceled an order & McKenzie. for MS-500V helicopter engines, a type used only in Russia, manage- European requirements include proper health control, labeling, mar- ment started looking at the Polish market. keting and veterinary issues. Each product is categorized in respect to Capital, a business daily, reported that Motor Sich is considering joint its quality and safety standards, said EY's Dankov. production with an EU partner. 's PZL Swidnik, an aircraft pro- Food standards include restrictions on contaminants, such as pesti- ducer, is considering using Motor Sich's engines for its Mi-2 and Sokol cides, while control over veterinary medicine residue in meat is manda- helicopters, reported Capital and Polish media. tory. Traceability of food products is crucial since Ukraine may export EU certifi cation is required for this to happen, however. This is prob- only locally produced goods. All packaging should be marked with the lematic for Motor Sich and other Ukrainian producers, said Svystil of international standard stamps.

[KYIV POST LEGAL QUARTERLY] #03/2014 25 The ousted Yanukovych administration used Ukraine's David Vaughn: malleable and corrupt courts as weapons against his political ‘Judicial reform is not opponents. The same scenario can happen again, since judges and others in the legal system still lack for the short-winded’ accountability and independence.

By Oleg Naumenko [email protected]

krainian courts were instrumen- tal during former President Viktor UYanukovych’s four-year rule to lock up political opponents or anyone deemed a threat to his corrupt government. But since he fl ed the country in late February, not much has been done to make Ukraine’s judiciary in- dependent and accountable to the public. The Kyiv Post sat down with David Vaughn, head of the U.S. government-funded FAIR Justice project, to hear what progress has been made and what obstacles are in the way to have justice administered fairly. Vaughn is no stranger to post-Soviet judi- cial systems. Having studied Russian at the University of Vermont, he fi rst arrived to work in Kharkiv in the late 1980s. “It was a one-year pro-bono trip to work on reforming the judicial system of the USSR. Back then I never thought that I will come back later and see a democratic country replacing an old Soviet system,” he said.

Kyiv Post: How much progress did the new Ukrainian authorities make in the last six months? David Vaughn: There were some signifi cant changes implemented thanks to the law on re- storing public trust in the judiciary approved in April. The law increased the number of mem- bers in the Council of Judges from 11 to 40, which makes the council less prone to manip- ulation and more independent. Moreover, prior to this law, Ukraine had four institutions to gov- ern the judiciary – the law has fi nally empowered the National Commission with decisive authority over the other three bodies. Ultimately, Ukraine needs to have just one national body that would govern the judiciary. I would like to empha- More than a half-year size the importance of unifying various judiciary after the overthrow of President Viktor bodies in Ukraine with overlapping functions. Yanukovych, Ukraine’s corrupt judicial system KP: What should should be done to en- remains largely un- changed. (UNIAN) hance the reputation of the courts?

26 #03/2014 [KYIV POST LEGAL QUARTERLY] DV: The constitution should be changed to clearly out- spend up to a week compiling statistical reports, but a new line the authority of the courts and grant more indepen- computer algorithm helps them to do the same task within dence to the judiciary. Today, courts can be liquidated an hour. It saves lots of money and time that can be used to by the president, which reduces their independence and fulfi ll the judge’s main functions. David Vaughn heads the U.S. makes judges overly reliant on the executive branch. As I stated earlier, the unifi cation of bodies with over- government-funded The issue of de-politicizing the judiciary is critical. lapping functions is key. Creating only one national com- FAIR Justice project. According to European Union standards, the majority of mission for selecting judges would reduce the potential for (Courtesy) the HiHighgh CCouncilouncil ooff Justice’s members should be judges corruption. Meanwhile, cutting the number of bureaucrats electedelected bbyy peers. CuCurrently, there are only three such judg- engaged in the process allows salary increases, provid- es in the bodbodyy out oof 13 members. French legislation, for ing National Commission members with more incentives example,example, allows even ordinary citizens to take part... to work honestly. Similarly, there are still two bodies re- thisthis ddiversiiversifi cationcat creates more links between the ju- sponsible for disciplining judges should be merged. Finally, diciarydiciary and civcivili society that, once again, is benefi cial for ththee ssystem’system’ transparency. We aalsolso aadviseddvi on the lustration bill. This bill can becomebecome a useusefulfu tool to sanction judges who have mademade unlawfuunlawfull ddecisions and prevent them from occu- Courts today are overly pyingpying this post foforr a particular period of time. It also holds dependant on the executive judgesjudges accountaaccountableble if their income statements reveal in- consistenciesconsistencies wwithith their offi cial income, as well as if branch the income of ttheirh children and spouses show simi- lar contradicontradictions.cti On the other hand, there should be safsafeguardseguards so judges can appeal decisions if they thinkthink that ssanctionsa against them were unjust. in our view, Ukraine’s four-tier court system can be cut to KP: HoHoww can the performance of courts be a three-tier system in which the authority of the Supreme raised?raised? Court of Ukraine would be expanded, reducing corruption DV: FiFirstly,rst de-politicization grants higher ef- and increasing the effi ciency of the court system further. fectivenessfectiveness because such a system is governed by law anandd not by other political considerations; KP: When will we be able to see signifi cant changes bothboth cclaimantlaim and defendant can rely on the in the judiciary? strengthstrength of their legal arguments and not on DV: I like to quote one U.S. judge who worked in the hiddenhidden fafactors. Secondly, we are working inten- 1930s who said, “judicial reform is not a sprint but a mara- sivelysively to iimprove court practices…Digitalizing thon”. Such a process is not for the short-winded, especial- judicialjudicial wwork plays a crucial role. We had a pilot ly given that currently the authorities have more pressing projectproject iinn 2007-2010. For example, judges could matters of preserving the territorial integrity of Ukraine.

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[KYIV POST LEGAL QUARTERLY] #03/2014 27 A law granting special status to Donetsk and Luhansk Lawyers dissect oblasts is widely perceived as granting Russian forces and proxies de facto control over one third of the law on Donbas Donbas, home to 15 percent of Ukraine's population. fter severe battlefi eld losses in September, bringing Ukraine’s military losses to nearly 1,000 soldiers, Ukrainian President region’s new APetro Poroshenko on Sept. 16 pushed through a law to give self-rule to separatist-held territories in the eastern Ukrainian oblasts status of Donetsk and Luhansk. Some lawmakers who were present during the vote, including Batkivshchyna faction member Andriy Shevchenko, tweeted that the By Oksana Grytsenko bill was adopted with egregious procedural violations. They said it was [email protected] passed in a dubious vote during a closed-door session. Its detractors said the law is a concession to Russia, which is back- ing the separatists, and legitimizes the breakaway Donetsk People's Republic and Luhansk People's Republic that Ukraine has branded as terrorist organizations. But for millions of the region’s residents, the law poses a big ques- tion mark over their lives. , the governor of Donetsk Oblast, said he had a sleepless night after he saw this bill and realized that it left him no less than 50 questions unanswered. “How is this possible to divide Donbas in two parts?” Taruta asked journalists in after the vote. A boy touches the machine gun of a ser- Among his unanswered questions are the geographic boundaries of viceman of in Mariupol on the territories that gain special self-rule status. Sept. 20, during celebrations marking the city day. (AFP) Taruta also complained that it would be impossible to lure inves- tors to the war-torn area. He said the law, moreover, didn’t clarify how

28 #03/2014 [KYIV POST LEGAL QUARTERLY] Pro-Russian in- the border with Russian will be sealed off, which is cru- Therefore, the government will cover budget costs and surgents who had cial to stop the shipment of Russian arms and militants to collect taxes unless other procedures are established by been captured by Ukraine’s east. subsequent laws, the lawyers said. Ukrainian forces re- act after being freed The Kyiv Post asked three lawyers to analyze the new bill But the lawyers disagree on who is responsible for re- under the terms of and outline the main changes it foresees. Many of its claus- building Donbas. a ceasefi re deal be- es still need to be clarifi ed, lawyers said. Dmytro Nabugornov, a lawyer at Goldblum and Partners, tween Kyiv and the separatist forces on “It is rather a framework, a statement of intentions rath- said private and foreign investors predominantly will cov- a road near Donetsk er than full-blown and detailed piece of legislation,” Serhii er the expenses. “The Ukrainian state will only assist in on Sept. 20. (AFP) Uvarov, associate at Egorov Puginsky Afanasiev & Partners fundraising but not subsidizing,” he said. Gavrilov, howev- Ukraine, said. er, pointed out that the law specifi ed that the Cabinet of Firstly, the law doesn’t specify the exact territories where a Ministers should draw up the government program for re- special order would be applied. These territories will be designat- building infrastructure. ed by the anti-terrorist center chief and could be also changed But the most debated and ambiguous part is a provi- the same way, said Igor Gavrilov, head of the corporate practice sion calling for a “civil militia” to be created and controlled department Alekseev, Boyarchukov and Partners law fi rm. by local authorities with vaguely defi ned powers. A militia Even though Ukraine has no control over the occupied could function as a “neighborhood watch” or as a “people’s areas, state bodies will keep most of their powers and re- militia with light fi rearms” if it is created according to the sponsibilities, including fi nancing from the state budget. law on militia, Gavrilov said. Locally elected authorities will be involved in appoint- While the new law protects the use of “Russian and any ing the heads of local courts and prosecutor offi ces. But the other languages” on the specifi ed territories, it doesn’t actual appointment of judges, prosecutors, offi cers of other limit use of in education and pub- law enforcement agencies will be subordinated to Kyiv, ac- lic life. cording to Uvarov. But the law doesn’t defi ne the status of Russian or other The central government will keep control over the re- foreign fi ghters operating in Donbas areas or how to com- gional governments. “The system of local state adminis- pensate families of war victims, Nabugornov said trations in the respective districts will formally remain in The lawyers say the law will function for three years, but place, although it's currently unclear how they will function could undergo amendments. It could also be ruled uncon- in reality,” Gavrilov said. stitutional by the Constitutional Court.

[KYIV POST LEGAL QUARTERLY] #03/2014 29 Many companies located in the country’s east, including a number of hog enterprises, had their supply and shipping chains cut off because of warfare. (UNIAN) Party of Regions makes laws to save their businesses

It appears that some lawmakers are using war as an excuse to get taxpayers to compensate for their companies' weak performance.

By Olena Goncharova he once dominant and former ruling Party of Regions may not [email protected] be contesting seats in the snap Oct. 26 parliamentary elec- Ttions, but it does not mean that its members are not trying to use their incumbent status to their advantage until the end. Some are drafting legislation to seek monetary compensation from the govern- ment for damaged business located in the war zone in eastern Ukraine. Several such bills were registered in the Verkhovna Rada in mid-Au- gust. One was fi led by former Party of Regions lawmaker Serhiy Dunaev that suggests writing off the debt of the Lysychansk glass-making facto- ry in an area of Luhansk Oblast held by Ukrainian forces. Its explanatory note states that the factory is unique because it pro- duces energy-saving glass, laminated and tampered glass, and em- ploys more than 2,000 local residents in a city that used to have 100,000

30 #03/2014 [KYIV POST LEGAL QUARTERLY] residents before Russia’s unprovoked war against Ukraine. And because its assets were badly damaged during air strikes in late July, Dunaev is claiming compensation for damages sustained during the anti-terrorist operation. Dunaev owns 66 percent of the business. The glass-making plant, it seems, is steeped in debt. As of Aug. 21, it owed Hr 770 million to creditors, most- ly for gas supplies for its kilns, according to Nashi Groshi, a watchdog specializing in public procurement and corrup- tion-related issues. It also owed money to banks for loans taken out in previous years. Now the company wants to write off its bad debts. Oleksiy Khmara, head of corruption watchdog Transparency International Ukraine, says this is how some people take advantage of the war. “It’s one thing if they seek facilitation, but they want to write off the debts with a long track record that were not caused by the anti-terrorist operation. It means they just want environment,” says Oleh Malskyy, a partner at Astapov Party of Regions to make hay during the war,” Khmara said, adding that this is Lawyers. lawmaker Borys Kolesnikov inspects something that all political parties have in common. But it's not the general welfare they are concerned with, equipment at his Dunaev controls his share of the business via Cyprus- some critics say. Daryna Kaleniuk, an expert at Kyiv-based APK-Invest hog en- registered FG Plant Holdings Limited. He failed to respond Anti-Corruption Action Center, says the lawmakers “just terprise in eastern Ukraine. (apk-invest. to multiple requests for a comment for this story. want to shift responsibility from themselves to Ukrainian com.ua) Another Party of Regions lawmaker is seeking redress for taxpayers.” Kaleniuk says, “it is clear that APK-Invest will his problems in agribusiness. benefi t the most if the law is passed.” Denys Omelianovych, who heads the Verkhovna Rada's Malskyy also says that artifi cial support of business un- committee on agribusiness, registered a bill that aims to der any circumstances is a bad idea. “It is often the case minimize the negative impact of war on farmers in the east. that many companies or branches get so used to govern- The bill proposes to extend preferential treatment to mental support, that it creates a huge incentive for them to farmers in the war zone, and to restructure and prolong further lobby extension of such subsidies,” he explains. bank loans to such businesses. Volga Sheiko, a lawyer for Kyiv-based Asters law fi rm, Omelianovych is president of APK-Invest company, says that although it's important to protect agricultural owned by a Party of Regions leader Borys Kolesnikov. It op- business in principle, this particular law “does not clearly erates in the war zone. APK-Invest specializes in the pro- defi ne which enterprises fall under it.” APK-Invest com- duction of chilled pork. It runs a chain of meat stores and Khmara of Transparency International fears that the pany, owned by warehouses located mostly in eastern Ukraine and has an law might even get support if it comes up for a vote Party of Regions Borys Kolesnikov, 18 percent share of industrial pork production in Ukraine. ahead of the election because “in times of war people rely specializes in the Sales dropped by Hr 13 million in eastern Ukraine on emotions and their own profi t rather than common production of pork. this year due to the war. The company has assets locat- sense.” (apk-invest.com.ua) ed in Ukraine-held Chervonoarmiysky, Konstantinovskiy and Aleksandrovsky districts of Donetsk Oblast, home to 300,000 citizens. In numerous statements starting in July, APK-Invest said that it has a water shortage, which makes it diffi cult to re- sume production of pork and pay back loans. It has about Hr 1 billion in loans, according to Economichna Pravda website. Omelianovych’s offi ce did not respond to numer- ous phone calls for comments. As many companies get cut off their supply and shipping chains, Ukraine might lose up to 9 percent of its gross domes- tic product this year, mostly due to warfare in the east, accord- ing to the government's estimates. If Omelianovych’s law is backed by parliament, agri- cultural companies registered in the east can expect re- structuring of their debt, a moratorium on enforcement of pledges, and a general “softening of the regulatory tax

[KYIV POST LEGAL QUARTERLY] #03/2014 31 A delegate at the 13th Batkivshchyna party con- gress in Kyiv on Sept. 14. (UNIAN) How and why party fi nancing is hidden

In Ukraine, oligarchs and other wealthy backers sustain political parties with hidden cash, making it impossible for voters to learn who is backing parties and candidates, much less what has been promised in return for the cash. While laws require political parties to disclose their fi nances, penalties are non-existent.

By Oleksii Khmara he election campaign is in full steam In Ukraine, it's impossible to really check [email protected] now and very soon it will be time for party fi nancing. There are several reasons Tthe Central Election Commission to for it. There is no limit to how much money verify information about candidates and reg- any contributor can donate in Ukraine. At the ister them. This will be followed by a month same time, most European countries do have of promises of everything to everyone, gen- limits. Typically a person cannot donate more erously sponsored by the parties' and candi- than €1,000-€5,000 yearly. dates' benefactors. In Ukraine, one or two oligarchs sustain So, where does this money comes from? each party. This is the way of life for both the Who are the sponsors? And is the money government and the opposition. But it's not dirty? the biggest problem with party fi nancing.

32 #03/2014 [KYIV POST LEGAL QUARTERLY] Because of contradictory laws on elections and the law money available to candidates to be spent on their cam- on political parties, companies can make contributions to paign. This is why voters are bombarded with advertise- political parties without any restrictions as well. ments and showered with gifts of food and other goodies This is how it works: technically, legal entities cannot from candidates. make contributions to election funds. But it's easy enough Most European countries have the following restrictions to fool the system. Local party organizations do not fall un- on pre-election campaigns: limitations on the size of elec- der the law regulating the conduct of elections, and sets no tion funds (violations lead to loss of fi nancing from the such limitation. state); or ban on political advertising on TV and radio. In Ukraine, legal prohibitions for oligarchs to fi nance Even in cases when political parties publish parties and candidates don’t exist. Thus, there is little sur- prise that those who used to sponsor the Party of Regions fi nancial reports, they are made up of two and Communists have moved on to support post-Euro- lines: total income and expenses for a Maidan parties. particular year. No information about donors What about transparency? or sponsors is released. According to legislation, parties need to publicize their income and expense reports, as well as asset reports in the national media annually. It's not detailed out how it should For example, a business controlled by oligarch K makes be done, or in what media. There are no consequences if a Hr 1 million contribution to party S. The party moves this parties fail to oblige. money to its election fund, and it's counted as the party's As a result, even in cases when parties publish reports, own contribution, which does not count towards any le- they are made up of two lines: total income and expens- gal limits of value and number of contributions to the elec- es for a particular year. Of course, no information about tion fund. Thus, money from the business goes around the donors or sponsors is released. There is a requirement to system. publish reports during election times. Nevertheless, donors There is an offi cial limit to the size of an election fund a are not disclosed in this report. They only contain general party or a candidate can have. It's 90,000 minimum wages information about contributions from the party itself and (over Hr 100 million at the moment) and 4,000 minimum the general public. wages for candidates running in majority constituencies As a result, voters have no idea who donates money dur- (Hr 5 million). ing elections, to whom and how much. But there are two more laws that govern elections that Moreover, there is no satisfactory legal defi nition of do not support the restrictions. Basically, they allow all the the term “contribution” in Ukraine. Direct cash 

Prime Minister Arseniy Yatsenyuk during the National Front party congress in Kyiv on Sept. 10. (UNIAN)

[KYIV POST LEGAL QUARTERLY] #03/2014 33  contributions or indirect (in-kind) donations, such their sponsors. as discounts on goods and services, all fall under the term The new parliament has to adopt real changes to elector- “donations” in developed countries. al legislation. Including: In Ukraine, most contributions are cash. Discounts in • Defi ning “contribution.” Contribution should be de- media during elections are prohibited, but there are no re- fi ned as clearly as possible; indirect contributions strictions on discounts for other goods or services. Since it should be included into the defi nition. The prices is not considered to be a contribution, it is not refl ected in of indirect contributions should be linked to market the reports. prices. For accepting an illegal contribution the fi ne should be equal to the size of contribution. Ukraine does not have an independent body • Imposing limits on campaign expenses. We should not controlling campaign fi nance. Voters have be afraid to prohibit radio and TV advertisement at to be alert. They should ask political parties election time. A major part of election-related expens- es is spent on this type of advertisement. and candidats money-related questions. • A requirement of detailed reports should be intro- duced. Party reports should be publicized in offi - One reason for the fl aws is that there is no independent cial nationwide media and on party websites if they controlling body. In most countries, an independent anti- exist. Information about major donors and spon- corruption body or an entity similar to the Central Election sors (for instance, those who donated more than Hr Committee or Auditing Chamber controls political fi nancing. 10,000 in one year) should be disclosed. Effective In Ukraine, income and expenses of political parties are and proportional fi nes should be rolled out for fail- only controlled by the tax administration. Parties report to ure to comply. the tax administration as all nonprofi t organizations do. • Sanctions are needed. All violations should either car- The tax administration only checks whether the book- ry consequences or not be considered violations at all. keeping is done correctly and if all the taxes are paid, for Sanctions have to be proportional, effective, and pre- example. Given their non-profi t status, tax collectors are ventative – there should be no desire to violate. not interested in them too much. The CEC control of cam- The country has to allow state fi nancing of parties that paigns is just a formality. Also, there are no sanctions for have crossed the electoral threshold or almost reached failure to report cash fl ows or fi ling a false report. it (for example, reached 4 percent while the threshold is What should we do? 5 percent). This type of fi nancing should be limited and The new, post-revolution parliamentary majority that controlled. existed from May until August 2014 failed to address any Absence of state fi nancing leads to dependence on pri- of these issues. Although there was more than enough time vate contributions. This dependence, in turn, encourag- to do something, other people will have to correct their es keeping party lists closed and limits internal democracy mistakes. in the party. Voters have to be alert. They should ask parties and can- Oleksii Khmara is executive director of Transparency didates money-related questions. It’s worth remembering International Ukraine. He can be reached at khmara@ti- that we are not choosing just candidates or parties, but also ukraine.org.

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