Weekly analytics for 13 — 19 December

Verkhovna Rada plans to legalize fair lobbying

Event

On December 13, the government’s draft law “On fair lobbying” (reg. № 10337) was registered in the Verkhovna Rada, in accordance with the Anti-Corruption Strategy for 2021-2025, the State Anti-Corruption Program for its implementation, the Action Plan for prevention of abuse of excessive influence of individuals who possess significant economic and political weight in public life (oligarchs) approved by the Cabinet of Ministers of Ukraine on November 24, 2021 № 1582-р, GRECO’s and the European Commission’s recommendations, and the EU-Ukraine Association Agreement. 

As stated in the explanatory note, the draft law aims to provide a legal framework for lobbying in Ukraine in accordance with international practices and standards, provide for legal regulation of interactions between officials of state authorities and local self-government bodies with stakeholders and lobbying entities, and establish transparent mechanisms to ensure the activities of lobbying entities, state and local self-government bodies officials, as well as mechanisms for controlling lobbying activities.

CPLR’s assessment 

The work on this draft law has been under public scrutiny for several months, including from experts of the Centre of Policy and Legal Reform. The main public concern involved the fact that the draft was prepared in a closed format, while the legislative proposals developed by the NACP pose threats for advocacy and exercise of constitutional rights and freedoms by the citizens.

Following two public discussions, which were somewhat pro forma, the NACP submitted the draft law “On fair lobbying and advocacy” to the Government for approval. However, after the Vice Prime Minister’s consultations with the public, the text of the draft law was significantly revised and the most controversial provisions were removed. In particular, the text of the document submitted to the Parliament clearly states that lobbying and advocacy are different concepts, and that advocacy will not be regulated by provisions of this law.

However, the draft law still contains some shortcomings. Primarily, these have to do with definition of the terms used in the text of the draft law. Thus, the concept of “advocacy entities” is extremely broad and allows for ambiguous interpretation, especially when contrasted with the concept of “lobbying entity”.

According to the draft law, the entities who carry out advocacy include citizens of Ukraine, non-residents, and stateless persons legally residing in Ukraine, as well as non-business companies that qualify as non-profit organizations under the law and public organizations that do not have the status of a legal entity.

Lobbying entities may be individuals or legal entities, as well as their employees who lobby in the interests of a client on the basis of a lobbying services agreement or in their own interests, provided that information regarding those is included in the transparency register.

According to Article 24 of the Civil Code of Ukraine (CCU), an individual is a human-being as a party to civil relations. Thus, an individual may be a citizen of Ukraine, a foreigner, or a stateless person. The definition of a lobbying entity stipulates that lobbying can be carried out both in the interests of a client and in one’s own interests. Therefore, in cases where an individual as a lobbying entity acts in his or her own interests, the only difference between an advocacy entity and a lobbying entity will be the availability of information in the register regarding the latter. Given the fact that the draft law provides for responsibility for violations of lobbying legislation, these definitions still pose a threat of persecution for civic activists.

Even more misunderstandings may be caused by the fact that the Ukrainian law does not define the concept of a non-business company, which is a non-profit organization.

According to Article 85 of the CCU, non-business companies are companies that do not seek profit for its subsequent distribution among participants. However, as follows from the provisions of Article 86 of this Code, such companies may carry out entrepreneurial activities, unless otherwise provided by the law and as long as such activities are consistent with the purpose for which these companies were established and contribute to its achievement.

According to clause 133.4.6 of Article 133 of the Tax Code of Ukraine, the following organizations may be classified as non-profit:

– budgetary institutions;

– public associations, political parties, creative associations, religious organizations, charitable organizations, and retirement funds;

– unions, associations, and other organizations of legal entities;

– housing cooperatives, dacha (summer cottage) cooperatives, and gardening and garage (garage construction) cooperatives (associations);

– associations of co-owners of multiapartment building and associations of owners of residential buildings;

– trade unions, their associations and trade union organizations, as well as employers’ organizations and their associations;

– agricultural service cooperatives and cooperative associations of agricultural service cooperatives;

– other legal entities whose activities meet the requirements of clause 133.4 of this Code.

As can be seen from this list, business associations that in practice often act as lobbying entities can be considered non-profit. Thus, the definition of an advocacy entity through such a broad and unclear concept as a non-business company that is a non-profit organization contains potential legislative loopholes for lobbying entities to avoid both the obligation to submit information to the transparency register and responsibility.

The draft law also has other shortcomings and gaps that require detailed analysis and further improvements. However, the main issue in the process of working on the text of the future law is to preserve the positive provisions introduced by the Government in cooperation with the public and to reach a balance between optimal regulation of lobbying and reducing the level of political corruption.

CPLR’s experts propose to finalize the draft law in an inclusive manner and include representatives of civil society and international organizations in the relevant working group.

It also should be noted that civil society organizations in their statement regarding adequate regulation of lobbying call for the adoption of the Law “On public consultations” (reg. № 4254 of October 23, 2020), which would provide for mandatory public consultations regarding draft laws submitted by MPs of Ukraine.

International financial assistance: to strengthen control or to block it?

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On December 13, along with the draft law on fair lobbying, another government initiative was registered in the Verkhovna Rada that caused no less public concern than attempts to regulate advocacy. The Draft Law “On amendments to certain laws of Ukraine on reporting within framework of attracting international assistance” (Reg. № 10339) is intended to ensure the effective and transparent use of financial assistance received from international financial organizations, donor agencies, and partner states to support the Ukraine’s recovery and reconstruction process. It provides for amendments to the laws “On audit of financial statements and on audit activities” and “On protection of interests of entities submitting reports and other documents during martial law or a state of war”.

In particular, it is proposed to:

– establish mandatory financial and audit reporting for legal entities that directly or indirectly manage, receive, and use international assistance funds;

– provide for the creation of an automated information system by the Ministry of Finance of Ukraine (MoF) for acceptance of such reports;

– empower the Ministry of Finance with authority to establish criteria for audit entities authorized to perform financial audit of legal entities that directly or indirectly manage, receive, and use international assistance funds.

CPLR’s expert assessment

The financial assistance provided by international organizations, donor agencies, and partner states for Ukraine’s recovery requires adequate control and audit. This is necessary because Ukraine is still developing an effective system of corruption prevention and is reforming all branches of government and local self-government bodies. The closure of public information under martial law also creates obstacles to public involvement in such control.

However, draft law № 10339 does not create an adequate control system, but rather creates an additional administrative burden for both the businesses and the public sector. The text of the draft law uses an extremely broad concept of a legal entity, which literally includes all enterprises, institutions, organizations, and entities – i.e., any participant of civil relations that has the status of a legal entity.

An important feature of this draft law is the direct or indirect administration, receipt, and use of international assistance. It is proposed that international assistance be understood as assistance provided by international financial organizations, foreign states, and foreign donors in the form of funds (except for international technical and humanitarian assistance). In other words, any legal entity that receives and uses these funds will be required to submit financial statements and/or other reporting information to the Ministry of Finance together with the auditor’s report.

For example, if a higher education institution receives a research grant from a foreign donor, it becomes an entity subject to these provisions. In addition, the scope of these provisions covers all leading civic and human rights organizations that cooperate with international and foreign partners. At the same time, the authors of the draft law do not take into account the fact that international organizations, states, and donors already conduct a fairly thorough inspection of recipient organizations’ activities at all stages of providing and using funds, so they do not need added intervention by the state.

Therefore, the draft law should be revised, in particular in terms of clarifying the following:

– the categories of legal entities that will be required to submit financial statements and undergo audits related to the receipt of international assistance;

– the concept of indirect administration, receipt, or use of international aid;

– the intended purpose of international aid in relation to which the obligation to submit financial statements and undergo an audit arises (only reconstruction aid should be covered by the regulation).

Historic Decision to Open Negotiations on Ukraine’s Accession to the EU: Process and Potential Challenges

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On 14-15 December, the European Council meeting was held in Brussels, where EU leaders decided to open accession negotiations with Ukraine and Moldova and to grant candidate status to Georgia. Despite all the obstacles, the European Council took a historic decision, marking a new milestone in EU-Ukraine relations.

CPLR experts’ assessment 

Undoubtedly, the upheld decision is a real reflection of the EU’s political will to expand eastwards, as well as a recognition of Ukraine’s right and opportunity to become part of the EU. However, it should be understood that the negotiation process includes both political and technical aspects. The effectiveness and outcome of the negotiation process will depend primarily on Ukraine’s efforts to implement reforms.

The accession negotiation process is quite structured, divided into clusters and chapters. The fundamental reforms cluster is currently the most challenging for Ukraine, but should be the most significant achievement on the way to the EU.  

As this cluster is the first to be opened for negotiations and the last to be closed, it has an impact on the implementation of other sectoral reforms as well as on the pace of the negotiation process as a whole. The reforms included in this cluster, in particular public administration reform, judicial reform, law and order bodies reform and anti-corruption reform, remain the most complex and challenging.

Another difference between this cluster and the others is that these reforms are largely based on international standards and are being implemented in all countries, taking into account the specificities of the legal system, while others are based on specific EU legislation. Therefore, the next important step for Ukraine is establishment of a negotiating framework and further benchmarking of fundamental reforms. The experience of some candidate countries at this stage shows the need to improve approaches to organising this process. In particular, it is necessary to avoid over-generalisation in the formulation of reform recommendations. Such recommendations should be clear to ensure their successful implementation. 

Another important factor in the effectiveness of the process is its openness and transparency. Civil society can effectively support both sides of the process, in particular by providing in-depth expertise in the development of the negotiating framework and recommendations, as well as by monitoring the progress of reforms.

According to the experts, a greater involvement of civil society and an improved methodology of enlargement will greatly simplify the implementation of the tasks for each of the parties, namely

– The European Commission will be able to organise the process of monitoring Ukraine’s implementation of its commitments more effectively;
– The Government of Ukraine will have a clear understanding of the steps it needs to take to achieve the desired outcome;
– Ukrainian civil society will be able to monitor reforms more effectively, respond to challenges and provide expert support to the government in the areas most relevant to European integration at different stages.

In addition, this approach will make the negotiation process more efficient and reduce the likelihood of political manoeuvring during the opening and/or closing of negotiation chapters. The political component of the negotiation process is most active at these stages, as the decision is taken at the European Council meetings. 

The opening of the negotiation process offers benefits and opportunities for both sides – Ukraine will get even more support from the EU and extra momentum for reform, while the EU will enhance its leading geostrategic role, experts said. However, there are objective risks that could negatively affect both the course and pace of the negotiation process and its final outcome. In particular, the following should be mentioned:
– Imitation of reform implementation in Ukraine. The analysis of reforms in Ukraine shows that one of the main threats to the EU is the lack of real desire and will on the part of politicians to implement reforms. We have seen time and again how initiatives aimed at real reform have failed precisely because of a lack of political will and leadership. In such cases, we can talk more about creating an image of reform that is not aimed at achieving real results, but only at formally demonstrating the activity of politicians in this direction or creating an impression of success among international partners.  At the stage of the negotiation process it is extremely important to understand that the results of reforms directly affect the results of the approximation of Ukrainian legislation to the EU acquis, and thus the European integration of Ukraine as a whole.
– Finding a balance between commitments and national interests in the negotiation process. During the negotiation process, it is almost inevitable that Ukraine’s interests will clash with those of individual member states. It should be understood that resistance can be expected both from countries that are consistently opposed to Ukraine and from countries that are friendly to us. Negotiations on each chapter may include challenges to Ukraine’s national interests. Such challenges may relate to a set of fundamental reforms, as in the case of national minority issues. Other potential challenges include specific sectors of the economy and the overall pace of development of EU-Ukraine relations. Some Member States may resist because of their own economic interests, or defend the interests and pace of accession of other candidate countries. Of course, in some cases it will be impossible to avoid compromises, but it is crucial that Ukraine’s negotiating teams have a consistent position and red lines in the context of the interests of the state and its citizens.
– European experts’ distorted understanding of the state of reforms in Ukraine and incorrect analogies with other candidate countries. The legal systems of each country have their own peculiarities and differences, and reform mechanisms that are effective in one country may pose a threat in another. The same applies to the monitoring and results of fundamental reforms. In most cases, there is no one right solution for all countries. Therefore, it is important to understand that sometimes the positions and/or recommendations of European experts are not applicable to Ukraine. Of course, Ukraine needs to take into account the experience of member states and candidate countries in the reform process, but it is extremely important to evaluate mechanisms and instruments, as well as to adapt such instruments or find unique solutions for Ukraine.

There is no doubt that the opening of accession negotiations shows that Ukraine is genuinely eligible for EU membership. However, it should be understood that the process will not be easy, given the technical and geopolitical components. European capitals are actively discussing the need for EU reform and its correlation with the accession of new countries. Therefore, the government must work to ensure sustainable and continuous progress in fundamental reforms, as well as to establish clear communication with citizens about the stages and results of the implementation of European integration tasks. At this stage, it is important to prevent frustration with reforms and a decline in citizens’ conviction about the necessity of Ukraine’s accession to the EU.