Such Wanted Agency ~ U-Tax Blog

Friday, May 12, 2017

Such Wanted Agency

In March 2017 the Cabinet of Ministers of Ukraine approved a bill on the establishment of the Service of Financial Investigations (the “Service”). The main purpose of this bill is to eliminate the Tax Police and optimize the system of law-enforcement agencies dealing with financial crimes.

Currently, there are four law-enforcement agencies in Ukraine counteracting financial crimes:

- the Tax Police;
- the Department of Economic Security of the National Police;
- the Department of Counter-Intelligence Economic Security of the Security Service of Ukraine (the “SSU”);
- The investigative bodies of the State Prosecutor’s Office.

Once the law is adopted, the Service will be richly endowed with all the powers as to detection and pre-trial investigation of crimes in  economic, financial and tax areas. Thus, there will arise “a monster” taking on all the powers on combating crimes in the economic sphere.

The establishment of the Service will mean not only “extermination” of the Tax Police, but also the elimination of the Department of Economic Security of the National Police.  In the meanwhile, the powers of the Department of Counter-Intelligence Economic Security  of the SSU will be considerably narrowed.
Co-authored by Anton Havryk 
It is planned that the Service will investigate crimes related to the use of financial resources, tax and the turnover of excisable goods, to name but a few.
Approximately thirty sections of the Criminal Code of Ukraine will fall under the jurisdiction of  the Service,  including such popular ones, as:

- section 191 - misappropriation of property through the abuse of office; 
- section 212 - tax evasion;
- section 222 - financial fraud;
- section 358 - forgery of documents, seals, stamps and forms, sale or use of forged - documents, stamps, seals.

The establishment of the Service can be regarded as a certain kind of lustration process aimed at the Tax Police and other law enforcement agencies concerned with financial crimes. 

The bill provides that the Service will filled by quite a new staff. Persons who have been working at law-enforcement agencies counteracting financial crimes since 2010 onwards will not be admitted to the recruitment process.

In our opinion, the admission criteria are not clearly formulated. 

If, for instance, to talk of once employees of the National Police (former Militia), one may take note of the following. The road to the Service is surely opened  for district inspectors  (sheriffs). On the contrary, this road is  unequivocally closed for former servicemen of the Department of Economic Security of National Police. The latter are considered to be former employees of a law-enforcement agency concerned with financial crimes. 

There is a much more difficult situation with investigating officers and former employees of the once legendary Organised Crime Department of the National Police. Those two categories of the servicemen were only  partially involved in dealing with financial crimes (along with dealing with ordinary crimes). The moot point here is whether they can be allowed to the recruitment process.

The officers of the Service, just as those of National Anti-Corruption Bureau of Ukraine (the “NABU”), will be called detectives. There will be no intelligence and investigating officers as they currently exist in the Tax Police and other law-enforcement agencies responsible for financial crimes.

It is planned that the detectives of the Service will have decent salaries. For example, the usual detective’s salary will be 20 living wages, which is about 32 000 hryvnias. This approach is used following the example of the NABU to reduce the temptation of the Service’s detectives to continue “deep rooted corrupt practices”.

In our opinion, the creation of the Service may be of a great benefit to Ukraine.  At least, the beneficial effect is visible in the concentration of powers to investigate financial crimes in one body. This will lead to the elimination of the duplication of the functions of law-enforcement agencies and may improve the efficiency of investigation.

For example, it is well possible today that the same criminal offences, say, related to taxation, are being investigated by different law-enforcement agencies. If information on a VAT evasion gets to the National Police, the offence may be qualified and investigated under section 191 of the Criminal Code of Ukraine (misappropriation of property through the abuse of office). If the same information gets to the Tax Police, the offence may be qualified and investigated under section 212 of the Criminal Code of Ukraine (tax evasion). The creation of the Service must bring an end to such a wrongful practice.

However, the real and much more significant beneficial effect will take place, if only the reform fully succeeds. Instead of the currently existing law-enforcement agencies with excellent “corruption track records” we will have the new independent agency totally free from corrupt practices.

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