Meeting of Committee on Preventing and Combating Corruption

At the meeting, the Committee considered 163 draft legal acts, where corruptogenicity factors were not  found out and 17 found are acknowledged not to meet anti-corruption legislation, including:

- sickness fund  (Reg. # 1377);

- non-admission of   prosecution, criminal and administrative responsibility and punishment of persons-participants of events in the Donetsk, Lugansk regions (reg. # 2425);

- on special regimes of investment and innovation activity using the principle of subsidiarity in Ukraine (reg. #umber 3544);

- on amendments to the Tax Code of Ukraine (concerning the introduction of special regimes of investment and innovation activity using the principle of subsidiarity in Ukraine) (reg. #3545);

- on amendments to the Customs Code of Ukraine (concerning the introduction of special regimes of investment and innovation activity using the principle of subsidiarity in Ukraine) (reg. # 3546);

- on amendments to the Tax Code of Ukraine (concerning the promotion of innovation activity) (reg. #3797);

- on amendments to Customs Code of Ukraine (concerning the promotion of innovation activity) (reg. № 3817) and others.

In particular, in the draft law on special regimes of investment and innovation activity using the principle of subsidiarity in Ukraine (reg. #umber 3544) there were found out corruptogenic factors.

The purpose of the legislative initiative is to attract and realize investments in priority fields of development for the local economy and use of special regime for investment and innovation activity.

This draft law by its norms  actually provides for the establishment of special economic zones in individual regions of Ukraine where it is already foreseen and regulated by the Law of Ukraine "On general principles of creation and functioning of special (free) economic zones", including Section II of the Law on the order of creating of a special (free ) economic zone. Principles of the draft law contradict the mentioned Law.

This draft law is not attached with resolution and proper financial and economic assessment (at least preliminary calculations) of the Cabinet of Ministers of Ukraine on the future effectiveness of the special regimes of economic, investment and innovation activity and whether the further stimulation will take place of the development of real needs of the territory.

However, the legislative proposal contains some corruptogenic risks.

In particular, the rules of Article 2 of the draft law of  regional and city councils in violation of their status and provisions of the existing Law of Ukraine "On local government in Ukraine" by their decisions can form a body of special regime of investment and innovation activity (SRBA), which, in turn, according to the provisions of Article 3 "The content of special regime of investment activity" is endowed with excessive discretionary powers, in particular, to determine the conditions and manner of organization and implementation of investment activity in priority for local development sectors of the economy and so on.

Draft law norms  do not set a personal administrative procedures of personal establishment  of the said Body as an organ with significant powers.

Among the powers of said Body specified in paragraph 1 of mentioned article is of discretion to determine the order of the  organization of activity - "other forms of state support."

Devolving  to regional and local councils the right to form a kind of "free economic zones" with the possibility   in its sole discretion to determine the "priority sectors of economy" can lead to total corruption and conflict of interest because many local councils include representatives of local businesses who pursuing own objectives would  set numerous advantages, that will result in losses to the state and local budgets.

As part 3 of article 4 of  "Conditions of application of SRIID" reads the Body of SRPD and conditions of its activity can be applied in the territories "which are recognized  as depressed or occupied."

The result of the said rules, which do not contain a clear definition of the of formation SRPD by local councils on the temporally occupied  territories, the order of operation at the presence of privileges and control over activities of local councils in the temporarily occupied territories, can create grounds for an offshore.

Rules of Article 7 ("SRIID Board") bears the risks as follows:

-  it is not provided the entry to its membership representatives of business (only officials at all levels) and therefore the need for the election of chairman of the Board only on the basis of open and transparent voting by the Board, and not the appointment of a "useful person" by  regional or city councils;

-  there is not designated a clear administrative procedure of "expertise of investment projects to determine the reasons for their implementation in terms of special regime" which must clearly defined functions of said Board to ensure and conducting such expertise and transparent rules and publicity at inviting experts, including international ones, because a whole expertise will be conducted at the expense of the state budget of Ukraine;

-  the principles of transparency of sources of financing SRIID management are not clearly defined.

 Only part 9 of an article 7 "SRIID Board " reads that maintenance facilities of this Board can be secured at  costs of local and regional budgets and SRIID  objects. The deduction amount shall be set by the Board. Providing SRIID Board  a right  at its own discretion to set the amount of these deductions creates corruption risks of abuse of this right.

Part 3 of an  article 11 "Responsibility  for breach of SRIID terms and conditions" provide the SRIID  Board in its Regulation "On SRIID and the SRIID Board " with  extended discretion  powers for the sole person to set "other violations" (i.e. insignificant) for termination of contracts (part 2 of the same Article has clearly established significant violations for which there appears  responsibility). Thus, new powers are going to be conferred which allow to take management decisions and  at its own discretion to initiate appearance of legal relations.

In addition, part 5 of this Article embodies a norm at which breach of performances and terms of implementation of the project, that are not essential,  subjects of SRIID on the ground of SRIID  Board decision shall bear responsibility in the form of operational economic sanctions. However, legal status and an exhaustive list of "operational economic sanctions" are not defined.

Part 3 of an article 26 "Compensation and indemnity of losses by SRIID subjects" are being establishes by application of specific definitions at compensation and indemnity of losses to be paid to a subject of SRIID - "prompt, adequate and effective". The understanding  of "prompt, adequacy and effectiveness" at indemnity of  losses is quite a value, which can lead to corruption risks.

Article 31 "Peculiarities  of the application of legislation on state procurement" implies not use the terms and conditions of the legislation on transparency and honesty in public procurement by SRIID entities. This is a direct path to corruption and abuse.

According to the rules of part 3 of Article 32 "Labor resources of SRIID subjects" these subjects "at the involvement of labor must follow the norm of ratio of employment of citizens of Ukraine and foreigners and / or stateless persons, namely 75 percent to 25 percent respectively" .

However, this provision contradicts part 2 of the same article - " citizens of Ukraine have priority right ...... " and also it is not clear what a reasonable quota of 25% for foreigners and how it will be used in the occupied territories, which is also proposed to introduce SRIID.

Considering the above said, the Committee decided to recommend to the subject of legislative initiative to revise the matters.

In addition, the Committee, at its meeting, according to the Verkhovna Rada’s commission, reviewed and discussed the letter with suggestions of director of "LEAGUE LAW" Shestakova A.B. on the implementation in the Verkhovna Rada of Ukraine and its bodies, for people's deputies of Ukraine and their assistants of the software «LIGA: ZAKON» as a "present to the state" or "charitable help (donations)"; by "purchasing a license to use" this product or any other (paid or free) way.