In late 2017 Ukrainian media was widely talking about the charitable foundation "International Anti-Corruption Courts" (IACC). The scale of their performance became noticeable enough for the prime minister of Ukraine to order two ministries to work on the problems the Foundation’s public statements created for a number of exporting businesses. Pobuzhsky Ferronickel Plant (PFP) became one of the entities mentioned in the complaints about the Foundation. Rustam Dzhamhurov, head of the PFP legal department, helped us to clarify the order of events and the essence of the claims the Charitable Foundation "International Anti-Corruption Courts" made.
When did your plant draw attention to the charitable foundation "International Anti-Corruption Courts" and what is the essence of its claims?
PFP became of interest to the IACC back in early 2016. That was way before the scale of their activity grew and badly influenced the rights and interests not only of a number of businesses but also the State image of Ukraine. IACC approached Presidential and Prime Minister’s offices in Ukraine six times, as well as a number of governmental entities of foreign countries. These appeals were based on quite a variety of topics. As far as I know, IACC representatives provided responsible state offices of Ukraine and a number of other countries with falsified information on PFP’s illegal performance in the area of environmental protection and ferronickel export. IACC also accused PFP of smuggling, illegal ore mining and its latent processing.
All these appeals are united by one common factor – none of the statements are backed up by facts. No objective proofs are attached to these claims. All of the IACC complaints are based on fictional stories created by the so-called anti-corruption activists. It all proves IACC performance is based on blackmailing and providing false facts about the operation of a number of export businesses to the respected state entities of Ukraine and foreign countries. Let me give you an example: in one of their appeals, IACC claimed that PFP uses illegally mined ore from Zapadno-Lashevsky deposit. Anyone can check the site of Ukrainian geology and mineral resources service to prove that PFP’s former contractor had a license authorizing these mining works. This information is public. But why bother? Instead, IACC provides falsified information on a non-existent crime. By doing so the foundation accuses not only us of conducting illegal deeds, but also the licensee, and also blames the Prime Minister, prosecutor’s office and national police of protecting non-existent crimes. We are very much looking forward to seeing the prosecutor acting as per Chapter 383 in Ukraine’s Criminal Code in this case. We are ready to provide the required proof that PFP is not using any Ukrainian ore at all since 2014 due to the low quality of the product.
How objective and truthful are the claims?
Unfortunately, respected state offices have never informed us on the output of processing IACC claims. In their latest appeals to the President’s office, IACC not only blamed PFP but also the Prime Minister, prosecutor’s office, and the national police. Judging from the fact that there was no response on that, the government did not consider those features to be truthful stories. We have delivered all the documents that show proof of environmental test results, describing modernizing activities and investments the plant implements to follow environmental protection standards, also we provided “Ukrvneshexpertiese” reports on where ferronickel is exported. According to the official statistics, Ukraine does not export any nickel to Russia. None. The Foundation’s claims happened to be an ill-conceived fiction that piggybacks on our country’s tragic events in the East.
In addition, our plant does not export ferronickel at all. It works according to the tolling system. Toll processing, or tolling, can be defined as performing a service on a customer’s product for a fee. PFP processes ore for an Estonian company that sells ferronickel within the EU. PFP operations are very transparent. Every month we have audits from environmental and fiscal authorities, and the customs control supervises our produced metal. In case there were any violations of the law, state authorities would know this, not because of the IACC but due to the state supervision of performance.
How often do the institutions like IACC attack your entity?
We have never experienced such an intense and well-organized attack. But if the State of Ukraine does not urgently enforce the regulation against public calumny, mudslinging will become acceptable. More people will become engaged in blackmailing businesses. I am not saying the Ministry of Jurisdiction or lawmakers do nothing about it. They just are not doing enough to stop these activities. Let me share a very representative example of you. Back in spring 2015 raiders illegally changed property ownership records in the state registry in their favor and tried to overtake PFP by force. Back then we stated in the media multiple times that in case the State does nothing, this behavior would turn into a pattern and there would be more and more cases like ours. Nowadays the media is full of stories about illegal takeovers of private and commercial properties through unauthorized changes in the state registry records. This actually shows that the measures taken to protect the registry are weak and ineffective. From my point of view, the lawmakers ignored the key principles of private property protection, so-called “the Torrence title”, while working on a set of regulations strengthening the registry’s security. Particularly the principle of insurance, where the State guarantees title and is usually supported by a compensation scheme for those who lose their title due to private fraud or error in the State's operation. Legal functionaries do not have personal responsibility. Therefore they can ignore problems of the property owners and pretend to be fighting the system of illegal property seizure instead of defending ownership rights.
The work of the prosecutor’s office and law-enforcement agencies is another story. I consider IACC fraud operations to be a natural narrative of the 2015-raiding story. It only became possible for the IACC to act now because the law enforcement agencies stayed inactive and indifferent back in 2015. IACC first filed its claims to the state authorities after raiders failed to succeed in seizing our property and stealing PFP from its legal owners by using a number of fake court decisions. Their aim was to initiate endless audits of the plant’s operational activities, open pre-trial investigations, block PFP’s daily operations including international ones and as a result damage our business reputation.
How did Ukraine’s state authorities respond to the IACC’s performance?
It is known that during the Cabinet of Ministers session, the executive director of the Federation of Employers of Ukraine has raised the question of IACC performance. In his turn, the PM of Ukraine, Vladimir Groysman, agreed that the said activities show all the signs of fraud and ordered the Ministry of Justice and the Ministry of Internal Affairs to look into the matter. He also encouraged the Department of Economic Protection to keep it under control because it entails the loss of state revenue.
This might stop further operations of the Foundation, but it does not set up legal regulations that impose responsibility for providing false facts to the national and international state authorities with the intent of causing business operations to fail and damaging reputations of investors. Without this set of rules, there will be more “activists” mudslinging goodwill taxpayers.
Overall, I would say the State stays passive and prefers not to interfere. State authorities accept any of the fiction features the Foundation provides. In many cases, the name of the entity and its registration details do not correspond to the actual records in the register. Nevertheless, the claim starts bureaucratic procedures such as anticorruption pre-trial application, systematic damage claim, statement of servitude etc. It also engages all sorts of ministries, prosecutor’s office, state administration, and the Presidential office. The financial burden falls on taxpayers for the state authorities to answer questions initiated by the charitable foundation "International Anti-Corruption Courts", but that is not directly related to the content of the Foundation’s request. And the whole story goes in rounds: IACC creates a new fictional story, state services initiate a new audit, businesses spend time collecting and providing proof that the facts created by the Foundation are false.
Most of the companies that attract IACC’s attention have foreign capital. Can we say that IACC activities are meant to compromise international investors in Ukraine?
We certainly can. By sending false statements IACC complicates the company’s business operations, initiates audits, puts administrative pressure on business. This can be seen as an attempt to devalue the business reputation of the companies in the spotlight and of their investors nationally and internationally. This limits access to the primary products, blocks export operations, decreases competitiveness, and jeopardizes the ability to complete contractual obligations in time; but I think the problem is much wider than that. Representatives of the foundation love using tragic events from the Eastern part of our country to form a connection between businesses they attack with the state aggressor. This is primitive emotional manipulation. Let’s ask "Cui prodest? Cui bono?" LLC Delta Wilmar CIS called a halt to the USD 150 mln investment project in the seaside commercial port Yuzhny. It was a forced choice following a number of IACC’s information attacks against the company in Ukraine and abroad. In the nearest future, all investors under attack will stop investing in Ukraine. Who will suffer? The State of Ukraine. The economy will be underfinanced; there will be no new jobs created and no taxes paid. Who is interested in weakening the country’s economy? Whose interests do the representatives of the Foundation consciously or unconsciously serve? I am sure the readers know the answers.
As if it is not enough, IACC activists are damaging the country’s reputation of being trustworthy to international onlookers. For example, in their appeal to the EU commissioner on European Neighborhood Policy and Enlargement Negotiations IACC blames the government of the Netherlands for creating a criminal community that in cooperation with Ukrainian fiscal authorities legalized billions of dollars of dirty money in order to finance terrorism. International perception of Ukraine as a country has been far from ideal for a long time. The results of the referendum where people of the Netherlands voted against Ukraine to be associated with the EU are still a fresh memory. It seems like it was not enough for the Foundation. Instead, they added some oil to the fire to worsen economic relationships with the Netherlands. This could possibly lead to banning Ukrainian goods as a security measure. This is why the Foundation’s behavior should be seen as a part of the hybrid war against Ukraine. The consequences of the IACC’s activities affect not only territories and areas of influence but also the economy. Therefore the state’s passive response to raiding, blackmailing, and mudslinging negatively influences healthy businesses and should be stopped as soon as possible. Those in power should realize these are no private cases but are questions of state security.
How do the PFP investors evaluate the current state of things?
We expect zero tolerance from the state when it comes to any form of illegal interference into business operations. We also expect the state to provide us, the goodwill taxpayers, with high-quality services that protect our rights and guard our interests as determined by the power of the law. Our aim is to continue honoring our obligations as both employer and business. In the current situation none of the investors can make any long-term plans; not without the state protecting the interests of the business and its reputation. This will always influence our decisions on whether to finance projects in Ukraine or not.
What do you think can prevent the possibility of IACC continuing to act this way in the future?
It is absolutely necessary to change the laws and approaches the state now exercises while dealing with the requests from organizations like IACC. It is worth establishing a system of reimbursing the costs caused by the falsified claims. Also, there should be clear straightforward guidelines obliging the authorities to make the swindlers accountable for the expenses caused by their actions. As well, there should be changes in the law regulating cases where the claimants have falsely accused citizens of criminal activities. It should be obvious to everyone that these types of cases can only be heard in the criminal courts. Other authorities should inform the claimants about their rights while reporting on the illegal deeds or criminal activities and the system of punishments for falsifying the facts these claims are based on (Chapters 214 and 383 of the Criminal Code of Ukraine). This will match the necessity to check all the facts before filing an appeal and to evaluate the consequences; otherwise, the claimants would go directly to the criminal court themselves.
As it turns out, those claims often go hand in hand with the illegal business or property seizures, or so-called raiding attacks. Although the word “raiding” is often used in a daily life, it has officially appeared only once since 2008 when it was used in the declaration of the budget by the cabinet of ministers. Raiding is explained as the seizure of state or corporate rights out of the privatizing processes or illegal takeover of business properties. There is a need for detailing what raiding actually is and to include this deed into the Criminal Code of Ukraine, especially when talking about the occurrence of such a high-level social danger. Currently, there is raiding, but there is no law that recognizes it as a criminal deed. This could be an annex to the Chapter 206 of the Criminal Code for example. At the moment illegal seizure does fall under this article. But the thing is – raiding is not only about transferring ownership and the request to stop business operations. It limits the rights to sign agreements and the ability to fulfill obligations under the previous agreements. This causes material damage and devaluates the rights to manage the business properly. It also comes with a physical threat to the business owner or his/her inner circle and damage caused to their property without any signs of blackmailing. It is the whole pack of criminal deeds performed by a group of people aiming to seize corporate and property rights from the legal owners. Raiding is an unlawful change of private ownership and the law should enforce obligatory responsibility for private and corporate units. On top of that, this group should be seen as an organized crime unit. As per today, there is no corporate responsibility for these types of deeds. This allows the use of the same corporate entities in a number of illegal seizures. International research on fighting organized crime such as corruption and takeovers shows that only collective responsibility of legal entities brings effectiveness into solving these cases. The USA uses the RICO Act for protecting businesses against takeovers. The RICO Act is a US federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. In France, they use Chapter 4 of the Commercial Code for the same purposes. These law amendments could help narrow down the group of criminals and identify the level of their involvement and degree of guilt in the crime. The fact that all personalities controlling the legal entity (officials and founders) might fall under investigation and be held responsible as ‘a gang’, even if there is no obvious connection between them and the illegal takeover, could be the reason for not using legal entities in these types of schemes.
Also, it is necessary to widen the interpretation of the concept of "counteraction". This would help the courts to identify the existence of unreasonable obstacles to economic activities based on fact falsification as counteraction, and act accordingly.
Considering all that has been said above, how would you evaluate the investment climate in Ukraine? What can international and local businesses do to increase the country’s investment attractiveness?
There are changes happening every day. In many cases, there is no need for business to deal directly with the authorities any more. Some registries went public, some changes were introduced to the laws; overall, information became transparent and easy to access. All of these changes are bringing us closer to the international business and life standards. According to the World Bank’s “Doing Business report” - the project that provides objective measures of business regulations and their enforcement across 189 economies and selected cities at the subnational and regional level – Ukraine holds the 77th position in the ranking. This certainly shows some progress in comparison with the results of 2013 when the country was ranked 137th.
For many people the speed of those changes is really disappointing. The government does not fulfill expectations of the citizens and foreign investors. It is important to understand that the old-fashioned corrupt system of the state management is not going to give up easily. Time, political wills, and the power of law and fair trial are should be synchronised to overcome this resistance. It is important to support formal actions aimed at creating such institutions of power such as anticorruption court, federal bureau of investigations etc. with high quality content. This means incorporating highly professional management whose duties would not only include solving crimes and fighting corruption but also serving the interests of those who are governed.