There are no statistics of illegal takeovers in Ukraine. How to measure the effectiveness of new “anti-raider” laws?
Raiding in Ukraine has a long history being based mainly on gaps in laws related to state registration procedures.
The essence of raiding remains unchanged: criminals commit some offenses (forgery or theft of documents, fraud, etc.) that allow them to gain control over the entrepreneur’s assets on allegedly legal grounds.
As the concept of “raiding” is not enshrined in law, sometimes those who do not commit illegal acts are blamed on it.
Often, the parties to a corporate conflict or debtors who do not want to return the property to its lawful owner use the raiding concept to manipulate public opinion. Such manipulations make it somewhat difficult to monitor real raiding cases.
According to the International Property Rights Index, in 2019, Ukraine ranked 109th out of 129 countries under study in terms of the quality of the private property rights protection system.
Due to the lack of protection of property owners and corporate rights from criminal acts, entrepreneurs are forced to spend significant additional resources to defend their rights and interests.
The lack of the rule of law in society creates social tensions, and Ukrainian and foreign investors do not see Ukraine as the location to invest.
During Ukraine’s independence, raiders regularly improved their schemes. Legislative changes usually provided a framework for this. Let’s take an example of the reform of administrative services in state registration of business and real estate that was carried out in 2015.
As a result, the “most popular” schemes of recent years involve seizing businesses and assets by illegally interfering with the operation of state registers and manipulating their information. Thus, the so-called “registration raiding” reached a new organized criminal level.
Raiders enter information about a new owner of corporate rights or real estate in state registers on the basis of forged documents or use the fact that other documents are not available in the database.
After gaining control over the entrepreneur’s assets, raiders usually alienate them through a fictitious person to an “honest” acquirer or a chain of such acquirers.
The state registration legislation has been amended several times over the past five years. Such legislative changes include the “anti-raiding” law No. 159-IX, which was drafted with the participation of the Better Regulation Delivery Office (BRDO).
But how to find out whether the “anti-raiding” legal amendments have resulted in a reduced number of raider seizures of businesses?
Today, the statistics of illegal takeovers in Ukraine are not kept. However, in late September, the Opendatabot open data platform estimated the raiding dynamics in Ukraine based on the number of registered criminal proceedings under the “raiding” articles of the Criminal Code (Articles 205-1, 206 and 206-2) per year and the number of cases heard in courts.
As of August 2020, 606 criminal proceedings have already been registered in Ukraine, 786 criminal proceedings — in 2019, and 500 —in 2018, so the Opendatabot concluded that the number of raider attacks increased annually in Ukraine.
However, the increase or decrease of criminal proceedings under “raiding” articles do not allow to come to an unambiguous conclusion about the increase or decrease in raiding cases. And there are several reasons for this.
First, not all pre-trial investigations of crimes related to raider attacks are conducted under “raiding” articles of the Criminal Code.
Due to the lack of unified approaches, investigations of raiding-related crimes are often conducted on the grounds of crimes under other articles of the Criminal Code: 187 (robbery), 190 (fraud), 191 (property misappropriation or embezzlement, or taking the property by means of the official position abuse), 356 (unsanctioned actions), 357 (theft of documents), 358 (forgery of documents) and 365-2 (abuse of power by a person providing public services).
Secondly, complaints on the crime commission filed with law-enforcement agencies are only one of the tools to protect against raider attacks. The highest priority task of entrepreneurs facing illegal takeovers is to cancel illegal registration actions.
To this end, businesses apply to the court or the State Registration Complaints Board at the Ministry of Justice of Ukraine.
Criminal proceedings are often initiated to strengthen the legal position in a commercial, civil or administrative case by filing a conviction in such criminal proceedings as evidence in the case.
Third, the number of criminal proceedings under both “raiding” and the above articles of the Criminal Code does not necessarily correlate with the number of raider attacks.
Being primarily interested in the immediate cancelation of a registration action, an entrepreneur will not always report to law enforcement agencies, because it may take years before the court delivers its verdict.
Therefore, a more illustrative indicator of the raiding increase or decrease is the ratio between the registration actions performed and the registration actions that were canceled through judicial and administrative procedures.
In such a way, a more complete conclusion about the raiding dynamics can be based on indicators that take into account the number of performed and canceled registration actions, as well as all the tools of entrepreneurs to protect their private property rights and compare such indicators over time.
Complaining to the State Registration Complaints Board at the Ministry of Justice of Ukraine is one of the most effective and quick ways to protect against raider attacks.
From September 2019 to September 2020, the Board at the Ministry of Justice considered 2,741 complaints from entrepreneurs, and this amount exceeds the annual number of criminal proceedings under “raiding” articles of the Criminal Code.
Accordingly, the conclusion on the raiding dynamics increase or decrease cannot be made without taking into account the performance indicators of the Board at the Ministry of Justice.
When assessing them, we should also bear in mind that the number of complaints received and considered by the Board at the Ministry of Justice may have been affected by the reformatting of its activity that took place in autumn 2019.
Thus, the Board increased the transparency of its activities (sound and video recording of meetings, regular publication of decisions), eliminated the practice of refusing to satisfy complaints of entrepreneurs on formal grounds.
This could help increase the confidence of expert circles in the institution and, consequently, increase the number of appeals from businesses and citizens during the end of 2019-2020.
In addition, we should take into account that the difference between the day of filing a complaint with the Board at the Ministry of Justice and the day of the registration action performed may be months or even years.
As a result, some of the complaints received by the Board at the Ministry of Justice today relate to appeals against registration actions taken in previous years, but not earlier than January 2016.
Moreover, businesses also use judicial mechanisms to protect their rights from raider attacks, despite the lengthy court proceedings.
The raiding dynamics can be seen due to the number of court decisions in cases of appeals against registration actions, which are considered by local administrative, commercial and general courts (depending on the subject matter and the parties involved in the dispute).
Another way to protect against illegal takeovers is to file a complaint with the Business Ombudsman Council (Council) that represents and defends the business interests in government agencies.
Business owners file a complaint with the Council to appeal against actions of state registrars, improper consideration of complaints by the Board at the Ministry of Justice, and inaction of pre-trial investigation bodies.
In its report for 2019, the Council reported on 114 raiding-related complaints from entrepreneurs during 2015-2019, with a trend of increasing the number of appeals for the third consecutive year. Therefore, it is also necessary to take into account the Council’s performance indicators to assess the raiding dynamics.
In such a way, conclusions on the increase or decrease of raiding in Ukraine cannot be based purely on the number of criminal proceedings under “raiding” articles of the Criminal Code.
Fighting against a raider attack, an entrepreneur or any citizen is primarily interested in the cancelation of illegal registration actions and tends to use all available legal remedies for this purpose.
Therefore, the calculation of the raiding dynamics in Ukraine and the effectiveness of government agencies should be based on comprehensive statistics on the number of performed and canceled registration actions, as well as consideration of appeals from citizens or businesses by relevant government agencies and institutions.
To this end, the Better Regulation Delivery Office announces the creation of a RaidBarometer, which is an index that most fully reflects the situation with raiding in Ukraine in recent years. The indicator itself and the calculation methodology will be presented soon.
Understanding the real situation with raiding, the state will be able to use the most optimal tools to ensure the private property right, while society will be able to assess the success or failure of legislative initiatives adopted in recent years to combat raiding.