Weekly analytics for 21 — 27 February

The Verkhovna Rada rejected the government’s version of reform of the Bureau of Economic Security

Event

On February 23, the Verkhovna Rada of Ukraine rejected the draft Law on amendments to the Law of Ukraine “On Bureau of Economic Security of Ukraine” on improving the work of the Bureau (Reg. №10439 of January 29, 2024). The draft law received 221 votes out of 226 votes needed to pass by a simple majority decision and was remanded for a repeat first reading.

The BES reform is necessary to implement the fiscal structural reforms envisioned by the Memoranda on economic and financial policies of March 24, 2023 and June 19, 2023, in order to improve the legal framework for the BES activities. Under the updated $17.5 billion Extended Fund Facility (EFF) program, the respective legislative initiative to “reset the BES” should be adopted by the end of June 2024.

CPLR’s assessment

The issue of reforming the BES has been on the agenda during the past six months, which was previously  mentioned in analytical points on the analysis of the prerequisites and reasons for reforming the BES, as well as on the NSDC’s Decision of January 23, 2024 “On urgent measures to ensure economic security for the period of martial law”, enacted by the Presidential Decree of January 23, 2024 No. 21/2024.

The European Commission’s Enlargement Policy Report of November 8, 2023 states that Ukraine should introduce legislation to allow for a competitive, transparent selection of the new head and other staff of the Bureau of Economic Security, including credible integrity checks.

Since then, the BES reform has appeared more frequently in public policy documents and has been the subject of discussions with Ukraine’s international partners in the context of structural reforms. The aforementioned NSDC Decision of January 23, 2024, as well as the Reform Matrix prepared by the Government of Ukraine in cooperation with the World Bank are focused on the reform of the BES and the Security Service of Ukraine as on the main issues relating to reform of the law and order agencies.

Prior the consideration of the Government’s draft law №10439, the G7 ambassadors sent a letter to the Speaker of the Verkhovna Rada Ruslan Stefanchuk insisting that the BES reform should include a reboot of its leadership through a transparent competition and integrity vetting of other employees of the body. The letter emphasized that the adoption of any draft law without these elements will negatively affect the country’s fiscal stability and fulfillment of the terms of the IMF program and European integration.

The reason for such a letter was the criticism of the Government’s draft law №10439 by civil society, business associations, and experts in this area, since this version of the BES reform provided for only partial change in the procedure for electing the director of the Bureau and did not provide for the vetting of BES employees at all. At the same time, the draft laws on the reform of the BES that were initiated earlier by the MPs (“On priority measures to reform the BES” №10088 and №10088-1) contain relevant provisions.

Before the voting on the Parliament’s floor, the Minister of Justice Denys Maliuska promised that the Government would take into account all recommendations of international partners during finalization of the draft law for the second reading and noted that the re-certification of BES employees is possible only after the end of the war. The Minister asked the Parliament to adopt the draft law in the first reading. Thus, despite all the criticism, including from international partners, the Government’s draft law is currently the primary one in the area of reforming the BES.

At the same time, both versions (the MPs’ and the Government’s) seem to be one-sided, as they address only a few aspects of the BES reform: changing the leadership, changing the procedure for appointing the leadership, certifying employees, and introducing an audit. However, the issues of comprehensive reform, such as improving the organizational and legal status, clarifying the grounds and procedures for disciplinary action, strengthening employee security guarantees, clarifying provisions for public oversight over the BES, etc. are not addressed. Undoubtedly, the change of leadership, audit of the Bureau’s activities, and verification of the quality of competitions already held must be a priority. Yet, given the short timeframe for reform adoption and the need to achieve a real effect, we must be speaking now about a comprehensive reform of the BES, rather than just addressing personnel issues, which may not have a long-term effect on the results of this agency’s work.

The Government’s vision of other issues related to economic security should also be noted: draft law №10440 introduced in the Parliament contains unrealistic proposals for amendments to the Criminal Procedure Code, which require mandatory presence of representatives of the Business Ombudsman Council during the searches and application of such interim measures as temporary seizure and arrest of property. Such representatives must arrive within 4 hours. According to clause 8 of the Regulation on the Business Ombudsman Council (CMU Resolution № 691 of November 26, 2014), the Council consists of the Business Ombudsman, two deputies, and office staff. The Regulations provide that complaints are considered by analysts (the Business Ombudsman’s website states that the office has 14 inspectors and 4 junior inspectors). There is also an administration and a communications specialist. In total, there are 31 staff. Even if the entire staff of the Business Ombudsman Council is involved in the proceedings, given the fact that there are thousands of criminal proceedings against businesses, such changes are unreasonable and unrealistic. Other changes, although more moderate, will hardly achieve the same effect, as the problems with abuse in criminal proceedings have to do with weak judicial control and lack of response by law enforcements to complaints within the system rather than with criminal procedure legislation.

Thus, the reform of the BES requires not only priority steps to address personnel issues, but also further comprehensive reform. Unfortunately, the Government, MPs, and civil society have no common vision, so the reform of the BES that should have been implemented long ago is being delayed, which does not contribute to the achievement of economic security in the country in difficult times of war.

There shall be (?) lobbying in Ukraine

Event

On February 23, the Verkhovna Rada adopted the Law “On lobbying”, which is expected to become operational by the end of this year. On the same day, a related draft law № 10373 on amendments to the Code of Ukraine on Administrative Offenses (CAO) to introduce responsibility for lobbying offenses was passed in the first reading.

CPLR’s expert assessment

The Law on Lobbying passed a significant evolutionary path from the legislative proposal of the National Agency on Corruption Prevention (NACP) to the actual law. However, its final version still looks more like a formal fulfillment of the European Commission’s requirements necessary to launch negotiations on Ukraine’s membership in the EU rather than an attempt to bring the market for representation services out of the shadow.

A positive aspect of this law is that the Verkhovna Rada, contrary to the Government and the NACP, rejected the attempt to commingle private and public interest and removed the concept of advocacy from the draft law. This problem was emphasized by civil society organizations in their joint statements in November of last year and in January of this year. The CPLR experts analyzed the shortcomings of the definition of lobbying and advocacy after adoption of the draft law on lobbying in the first reading. Since then, MPs have significantly improved its text by removing the concepts related to advocacy and connecting lobbying to a commercial interest of a beneficiary.

However, the very concept of commercial interest proposed by the Parliament remains unclear and does not eliminate all risks of unjustified persecution of civic activists, as this concept covers, among others, the possibility of obtaining personal advantages, privileges, and other non-material benefits. In practice, this may lead to the fact that, say, a veterans’ organization, which includes former military personnel and is trying to improve social security of combatants, will be recognized as a lobbying organization and will be forced to influence the resolution of such vital issues for post-war Ukraine in accordance with the Law on lobbying. However, there is no commercial interest in improving the state policy on veterans as such, and the society as a whole will stand to benefit – not just the individual veterans representing the organization.

During the finalization of the draft law, important provisions were added that define the principles of lobbying, simplify the reporting procedure for lobbying entities, and introduce mechanisms for suspending and terminating the registration of lobbyists, which serve as elements of their disciplinary responsibility. However, the lawmakers failed to deny the state’s ability to prescribe rules of ethical behavior for representatives of the private sector (even though lobbying is, in fact, one of the types of representational business, the rules of which should be governed by corporate norms) and preserved the provisions according to which the lobbyists’ ethics will be prescribed by the Cabinet of Ministers.

Other significant positive improvements of the Law on lobbying include amendments to the Law “On the bar and practice of law”, which will prevent engagement in lobbying under the guise of providing legal services, as might have happened in our country. The MPs also rejected the excessive and unjustified expansion of the concept of a “corruption-related offense” contained in the Law “On corruption prevention”. This change was proposed by the NACP, which was seeking further enhancement of its powers and control functions by artificially inflating Chapter 13-A of the CAO.

After these changes and finalization, the related draft law 10373, which proposes to supplement the CAO with new offenses, seems more like a fifth wheel on a cart, as its content now contradicts both the Law “On corruption prevention” and the Law “On lobbying”.

In its opinion on this draft law, the Main scientific and expert department of the Verkhovna Rada made a good and very important remark regarding the impossibility of assessing the effectiveness of responsibility for offenses in the absence of statistics on these offenses. In this context, it seems that the amendments to the CAO and the introduction of administrative responsibility for lobbying-related offenses are premature, far ahead of the practice of application of relevant law, and can lead to a pile-up of articles in the Code.

It is worth reminding that the primary purpose of legislative regulation of lobbying in Ukraine was neither to launch the European integration process nor to create a new type of representative activity. First and foremost, this law was originally intended to make the decision-making processes of public authorities more transparent and understandable to the public. Does the law adopted last Friday achieve this goal? The answer is more likely no than yes, because it does not affect the ability of politicians to continue the practice of backroom deals, does not motivate lobbyists to come out of the shadows, and creates a risk of illegal persecution of civil society organizations, including human rights organizations. Currently, the prospects of this law are the same as those of the Law “On prevention of threats to national security associated with undue influence by individuals who hold significant economic and political weight in public life (oligarchs)” – it exists on paper, but does not work in practice.

But even under the most optimistic scenario, according to which the Law on lobbying will work properly and the transparency register will be rapidly filled with information on lobbying entities, the public will still face a choice: either to turn into lobbyists in order to interact with the authorities without breaking the law, or to silently observe the state processes from the sidelines, since the draft law “On public consultations”, which defines citizens participation in public policy making, has been languishing for more than three years in a different, less active and capable Parliament’s committee than the one responsible for the Law on lobbying.