In Ukraine, in addition to the challenges of the war, businesses face law enforcement pressure: seizure of accounts, searches and criminal proceedings.

The detention of Ihor Mazepa at the beginning of the year prompted a moratorium on investigations into businesses. The Business Council was established, and 19% of proceedings were closed, but the problem remains relevant. Our founding partner, Denys Bugay, spoke to Forbes about its scale and solutions.

Statistics show that law enforcement is putting increasing pressure on business

— Denys, tell us what the exact problem of pressure on business is as of the end of 2024.

Pressure on business from law enforcement agencies is growing and is expressed in three ways:

    1. Law enforcers pose a threat to businesses by opening artificial criminal proceedings against entrepreneurs. Businesses are constantly under the potential and real threat of unpredictable investigative actions, unannounced searches, seizure of property and summonses for interrogations. This distracts businesses from doing business, forcing companies with a good reputation, paid taxes and transparent operations to put all their efforts into fighting law enforcement pressure.
    2. Law enforcers, mainly from the Economic Security Bureau of Ukraine (ESBU), single out one transaction, give it their own interpretation, and accuse the business of being illegal. This sets off a legal flywheel that businesses are forced to resist, proving that they are operating legally.
    3. Law enforcers pick up old cases that have not been investigated for five to eight years and are about to be archived and start a new wave of activity.

In addition, there are no more so-called sacred cows for law enforcement. Five years ago, law enforcement officers did not go to companies with foreign investments or IT businesses. Today, they will come there with a search and arrest. They don’t care if it’s a public, transparent international company listed in New York or London.

— Has the situation worsened compared to 2022, 2023 and early 2024?

Unfortunately, yes. At the beginning of the year, the case of Igor Mazepa brought the problem in relations between business and law enforcement to the level of the president, and the National Security and Defence Council imposed a three-month moratorium on investigations against business. The situation did improve, the pressure decreased, and companies could operate in peace. But the moratorium ended and old practices returned. This is evidenced by this year’s cases within the practice of Ukrainian lawyers and by public statistics on criminal proceedings from the ESBU and the Prosecutor General’s Office.

For example, in the first nine months of 2024, the State Bureau of Investigation registered 161 criminal proceedings against businesses. Yes, there are proceedings that fall within the SBI’s jurisdiction and have merits, but most of them are interference in business. The situation with tax evasion proceedings has also deteriorated: The ESBU registered 697 such proceedings in 2023, and 599 in the first nine months of this year. This year, the SBI has opened 16 cases of tax evasion, which also indicates interference in business. Thus, the Security Service of Ukraine (SSU) and the SBI – the bodies that are supposed to investigate criminal activity against the state, officials and law enforcement officers – spend resources on cases against businesses.

In view of this, businesses are complaining more actively about the actions of law enforcement agencies. For example, in 2023, 158 complaints were recorded, and in the first half of 2024, there were already 82. According to the Business Ombudsman Council, the number of complaints about the actions of ESBU officers has increased. While there were 11 in all of 2023, there were already 14 in the first half of 2024.

In addition, law enforcement agencies are actively using all possible means of pressure and conducting covert investigations against businesses.

— What exactly does this mean?

These are actions related to the seizure of property, wiretapping, and monitoring of emails and business accounts. This is evidenced by open statistics from the Prosecutor General’s Office and the Business Ombudsman Council. The number of initiated seizures of property in ESBU cases has increased. In the first nine months of 2024, 323 relevant petitions were filed with the court, compared to 282 in the whole of 2023. Searches remain a key element of pressure. In the first nine months of 2024, the ESBU applied for a warrant at least 120 times, compared to 187 times in all of 2023.

Every year, the frequency of covert investigative actions by law enforcement agencies is increasing. In 2022, the court issued 143 permits  to carry out covert investigative actions in cases of ESBU, and in 2023, it issued 1798! 2024 was a record year in this regard, with 2696 court permits obtained in just nine months.

«All of this shows that the ESBU is leaning towards forceful investigative methods rather than analytical ones,’ explains Denys Bugay.»

— What do you think is the reason for the deterioration of the situation in Ukraine in recent years?

I identify three reasons for this:

    1. There is a lack of desire on the part of the leaders in law enforcement agencies to stop the pressure, while the president and the government undoubtedly have such a desire.
    2. Lack of an effective system of control and personal responsibility: no one in law enforcement is punished for putting pressure on business.
    3. Law enforcement agencies are filled with old-style personnel who are not ready to consider business as a partner, but only as a field where they can make money. There is no transparent system for appointing managers and no meritocratic system for developing the careers of honest and qualified law enforcement officers.

— How do the problems identified earlier harm Ukraine’s economy?

The actions of law enforcement officers involved in putting pressure on business reduce Ukraine’s GDP and kill entrepreneurial initiative. Business loses motivation to work, business thinks: ‘Here an entrepreneur was pressured, there he was detained. Why do I need this? I’ll stay away from it.’ And finally, the investment climate is deteriorating.

In private, ambassadors of Western European countries say that, given the pressure on entrepreneurs, they will not recommend Ukraine as a location for business in their countries,’ says Denys.

— What kind of requests and problems in the context of pressure do businesses most often turn to you as a lawyer?

Entrepreneurs come to VB Partners when they have a feeling that criminal proceedings are about to be opened or they know for sure that they exist. Businesses are worried and scared – and with good reason. The ESBU generates a large amount of work for lawyers by opening criminal proceedings for tax evasion. It’s a paradox: sometimes, the tax authorities have no claims against a business regarding the legality of tax payments, but criminal proceedings are initiated. There are hundreds of cases across Ukraine. There are also many issues related to the use of land plots. It happens that a business has long ago acquired a land plot where it started building a facility, and the SBI opens proceedings to prove that the land plot was allegedly illegally withdrawn from state ownership 12 years ago. The company that has now bought the land did not exist when the plot was privatised, and there are claims against it.

— How many requests have you received recently?

This is evidenced not so much by numbers as by the expansion of VB Partners’ staff. We specialise in White-Collar Crime, and in recent years we have doubled the number of lawyers with expertise in providing legal assistance to businesses in criminal proceedings.

In general, all law firms in Ukraine have launched this practice over the past three to five years. Even job resources clearly show a sharp increase in demand for the services of lawyers specialising in handling cases involving proceedings against businesses.

— What initiatives do you, as a lawyer, take to protect businesses from pressure from law enforcement?

At VB Partners, we regularly monitor the media space and legal processes. This helps to identify risks at an early stage – it is better to neutralise them in their infancy than to give law enforcement officers time to gather evidence and start the pressure machine.

We also provide businesses with a process audit to identify criminal and legal risks. This helps to identify potential risks and change business processes to prevent these risks from materialising. We also monitor trends in law enforcement. If, for example, they have successfully applied a new model of pressure on business, for example, in the Kyiv region, it means that in six months they will apply it in Lviv or Dnipro. Therefore, we need to warn the business community about such risks in time.

Ways to solve the problem

— What do you see as the ways to solve or at least mitigate the problems?

We need political will from the heads of law enforcement agencies, changes to legislation, in particular the Criminal Procedure Code, and the expansion of the powers of the Business Ombudsman. If we think deeper, we need an actual reboot of the ESBU, not just on paper.

— What levers of influence do you see to motivate law enforcement to reduce pressure on business?

I see three tools:

    1. Introducing disciplinary liability for prosecutors for violating the standard of prosecutorial activity.
    2. Responsibility of investigating judges, on whose approval a large share of investigative actions, searches, and seizures of property depend. Investigating judges are no longer controllers who are supposed to stop law enforcement officers from using excessive force against businesses.
    3. Ensure that the Prosecutor General’s Office controls all criminal proceedings conducted by the ESBU, SBI, SSU and National Police.

— What should the authorities do to make businesses feel protected and trust the state?

First and foremost, it is the public and effective punishment of those who exerted unlawful pressure. Society has never seen such cases before. The government must also show that it is ready to resolve the problem. Steps on this path will include extending the moratorium on investigations into businesses, changing the Criminal Procedure Code, and making prosecutors and judges more accountable.

Another tool to mitigate the situation is constant communication between the government and the business community: unions and associations, as well as the Business Ombudsman.

«The authorities should learn about emerging problems before they turn into pressure and scandal,» Denys emphasises.

— What should businesses do to avoid falling under the hot hand of law enforcement and protect themselves from their pressure?

Firstly, it is necessary to control potential risks and regularly neutralise them. To do this, you need to have professional in-house lawyers and external lawyers. Secondly, to be public. Publicity protects and is a weapon of business that helps build communication with the state. Thirdly, be an active member of several business associations, communicate with colleagues, competitors, and clients on social media, and share information in a simple and straightforward manner. When a crisis comes in the form of law enforcement agency, a well-developed and popular social media page will allow you to quickly and effectively report the problem at the national level.

— What will Ukraine’s economy gain if the pressure on business disappears or is significantly reduced?

Optimisation of business processes, increased business development, a qualitative change in the investment climate and Ukraine’s rise in international business rankings. As a result, large foreign businesses will enter Ukraine and bring billions of dollars in investment.

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