The idea of creating a financial police unit in charge of investigating economic crimes has businesses worried that already excessive government pressure could increase further. While the project has been stalled after widespread criticism, lawmakers note that it may soon resurface in a new form.
Recent years have been marked by a steady fall in investment, most
recently by 26 percent in 2012. The European Bank for Reconstruction and
Development, Ukraine’s largest financial investor recently warned it could
scale down investment if the business climate does not improve.
One of the problems frequently cited by businesses is aggressive tax and
other controls that interrupt normal business. This partly due to a smaller and
reinvigorated tax service, which has broken with tradition by seriously trying
to tackle tax evasion and reduce the shadow economy.
But many also complain about excessive pressure on behalf of sprawling
law enforcement agencies, whose headcount has grown to half a million in recent
years.
Instead of relaxing its grip on the economy, though, the government is
eying the creation of a new service responsible for the investigation of
economic crimes that combines the functions of the tax police, customs and
security services, state financial inspectors and two Interior Ministry
divisions responsible for investigating economic crimes.
Initially planned to be created on the basis of the newly set up
Ministry of Revenues and Duties, the project was recently canceled by Prime
Minister Mykola Azarov. However, lawmakers say the new service is now ordered
to be formed on the basis of Interior Ministry.
“The interior minister is instructed to create a project for the
creation of a financial investigation service,” says Oksana Prodan, first
deputy head of the Tax and Customs Policy Committee and a Ukrainian
Democratic Alliance for Reform (UDAR) party deputy.
Proposed by Azarov but developed by first Deputy Prime Minister Sergiy
Arbuzov in February, the initiative has already attracted a lot of criticism
both in Ukraine and abroad.
Documents from the European Court of Human Rights, obtained by the Kyiv
Post, warn that the project would go against the Criminal Code of Ukraine and
the European Convention on Human Rights. Additionally, Ukraine’s foreign
business community has raised concerns about the new unit’s wide-reaching
powers.
“The proposed scheme implies that the new body can become a real player
vested with plenary powers – all the way to the right of search,
weapons-bearing, arrest and much more. Businesses are sensitive and worried
about this format of the financial police and about the package of powers the
new body may have,” said Anna Derevyanko, head of the European Business
Association.
The project has also come under harsh criticism from the opposition,
which claims it is a way for the government to extend its control and influence
over businesses working in Ukraine.
“In recent years law enforcement bodies have been used either to put
pressure on political opponents or business competitors,” says Viktor Chumak,
the head of the Organized
Crime Control and Anti-Corruption
Committee in the Verkhovna Rada and member of Vitali Klitschko’s opposition
United Democratic Alliance for Reforms. “That’s why the creation of this police is
pursuing the same aim,” he adds.
Despite improvements in the state tax service, the nation still lags far
behind global standards.
Still considered “free” in 2009, according to Freedom House, a think
tank, Ukraine has been “partly free” for the past three years. Moreover, last
year’s elections were heavily criticized by Western organizations, while
endemic corruption resulted in Ukraine ranking 144th out of 176 in Transparency
International’s 2012 Corruption Perception Index.
Judging by general situation with the rule of law and democracy in
Ukraine, a new state investigative service will not work effectively here if it
is created, according to Chumak.
“Financial police is operating in many countries and it doesn’t make any
problems there. It really works there where law enforcement bodies are doing
their job (in accordance with the law). But creating it in a country where
there are no rules is creating another way to pressure society,” Chumak said.
With Ukraine entering 2013 in a recession, some say the timing of the
initiative is also misguided.
“I don’t think we need to create additional services to increase the tax
revenue when we have tax police
and
other institutions. Moreover, the
expenses for its creation could significantly exceed the revenue it brings in,”
said Oleksandr Zholud, analyst at International Center for Policy Studies.
Kyiv Post staff writer Anastasia Forina can be reached at [email protected]
