By Yaroslav Petrov, attorney-at-law, associate at Asters.
It is generally accepted that for some time the most widespread mechanisms for investors to obtain rights for subsoil use in Ukraine have been acquisition of a company holding a special permit for subsoil use (the "Special Permit") or by setting up an incorporated joint venture with such company. In practice, there are situations when investors after closing the deal become aware that the main asset – the Special Permit – was obtained through corruption. In such case the investor will raise concerns whether this circumstance triggers a statutory obligation on the investor to report corruption and whether this circumstance will affect validity of the Special Permit.
The newly adopted Law of Ukraine "On Principles of Preventing and Counteracting Corruption" No.3206-VI (the "Anti-Corruption Law"), effective from 1 July 2011, imposes an obligation on certain persons to report information about corruption offenses. In particular, Art. 5(7) of the Anti-Corruption Law provides: “Officers and officials of state bodies, officers of municipal bodies, legal entities, their structural divisions, should they identify a corrupt offence or get information on committing of such offence by employees of relevant state bodies, municipal bodies, legal entities, their structural divisions, shall in the scope of their powers undertake measures to terminate the offence and immediately notify in writing the specially designated authority in the area of fighting corruption about its committing.” Failure to report is subject to an administrative fine which ranges from UAH 850 to UAH 2040 (approximately USD 105 - 255).
Under conservative interpretation of the above provision of the Anti-Corruption Law the duty to report extends only to current instances of corruption because the duty implies (a) an obligation to terminate the corrupt offence and (b) an obligation to report the corrupt offence. However, it is possible to apply broader interpretation (which is informally favored by the Ministry of Justice) , i.e. that not only instances of current corruption, but also historic corruption is subject to reporting.
Despite of the reporting obligation it is necessary to draw more attention to potential consequences of corruption on validity of the Special Permit. According to Article 24 "Illegal legal acts and legal transactions" of the Anti-Corruption Law legal acts, decisions, which have been issued (adopted) as a result of the corrupt offence may be challenged by a body or an official, empowered to render or annul relevant acts or decisions. Alternatively, such acts or decisions may be challenged in courts by an interested person, NGO, legal entity, prosecutor, state or municipal body. It should be noted that provisions of the Anti-Corruption Law with respect to effects of bribery on issued Special Permits are applicable only to the Special Permits obtained since entering of the Anti-Corruption Law into force, i.e. 1 July 2011. Special Permits issued earlier will be subject to the provisions of the 1995 Law of Ukraine "On Fighting Corruption", which stated explicitly that legal acts and decisions affected by bribery shall be cancelled by the responsible regulatory authorities or challenged in courts. Consequently, in case bribes have been paid to obtain the Special Permit, there is a risk that it can be cancelled by regulatory authorities or challenged in courts, provided limitation periods have not expired.
Taking into consideration the above investor should more attentively analyze anticorruption risks at the initial due diligence stage.