Navigating Business in Ukraine: the Challenge of Corruption and Regulatory Ambiguity

Since Russia launched its full-scale invasion of Ukraine almost two years ago, the West has responded by imposing economic sanctions and politically isolating Russia, aiming to mute its global influence, reduce the size of its war chest, and protect Ukraine’s economy amid the war.

However, there are concerns that the sanctions are increasingly being used as way of lending a veneer of credibility to a system of war profiteering and corporate raiding put in place by Ukraine’s corrupt and politically connected elite.

There appears to be a pattern emerging of corporate reordering, enabled by corrupt individuals within the Ukrainian government, with some companies now facing with dubious criminal charges or being added to Ukraine’s sanctions list on vague national security grounds, with assets inexplicably seized from their rightful owners.

Business leaders in Ukraine are voicing their concerns – both for the future of their companies, and for what the manipulation of corporate dynamics in the country might mean. Smart Holding, an investment company led by CEO Julia Kiryanova, recently found itself battling to save the company from what Kiryanova told POLITICO is a 'corporate raid.' Orchestrated by senior Ukrainian government officials, the move aimed to coerce the company into a fire sale – a distressing tactic that undermines fair business practices and the rule of law.

Just hours after being approached with a fire sale buyout proposal from foreign investors who lacked any track record in the sector, the company fell victim to police raids and unexplained asset seizure. The timing raises alarming questions about collusion between political figures and opportunistic actors exploiting the chaos and regulatory ambiguity that comes with war.

Yevhen Cherniak, the founder of Ukraine’s Global Spirits alcohol producer, appears to be the most recent target of Ukraine’s senseless corporate raiding. Despite revoking its product and distribution licenses in Russia immediately after Moscow launched its invasion of Ukraine in February 2022, the company nonetheless finds itself charged with ‘assisting the aggressor state,’ a charge that carries a maximum sentence of twelve years in prison.

Incriminated by the Security Service on these vague grounds, Cherniak told the Kyiv Independent that: ‘Neither I personally nor the company I founded have violated anything, but like many Ukrainian businesses, we find ourselves in a situation that I sincerely hope is a mistake rather than an attempt to pressure businesses with the goal of a raiding attack on the market leader.’

Ukraine’s aggressive corporate manoeuvres will have profound broader implications: serving to fuel deep distrust in Ukraine’s authorities at home and condemning Ukraine to a no-go zone for foreign investors, doing even more damage to its already struggling economy, complicated by what the Financial Times characterised as ‘the unreliability of Ukraine’s corrupt judicial system.’

The issue bears similarities to the one faced by the West some twenty years ago, when the Yukos case became the emblem of corrupt law enforcement in Russia. It is crucial that the West now takes decisive action to ensure that the flourishing corporate raiding in Ukraine, masked under the guise of sanctions, does not spill over and compromise the integrity of the Western legal system.

History makes clear that a recurring aspect of systematic corporate raiding is the filing of baseless criminal cases against targeted individuals and enforcing corruptly obtained judgments abroad. This raises important questions: should extradition requests for improperly targeted individuals be granted? Is there a need for a standardised approach to prevent the potential abuse of Interpol and judicial assistance systems, similar to the measures taken in cases involving Russia? Should the decisions of civil courts, forming part of the corrupt misappropriation of valuable assets, be enforced?

Ukraine’s pursuit of EU membership, a bloc founded on principles of integrity and collaboration, becomes more dubious each day. These crucial questions that confront Western judiciaries and law enforcement agencies persist and will continue to do so as the Ukrainian governance crisis unfolds.

At a time when the country needs unity the most, the powerful elite are exploiting the struggle and chaos of war to enrich themselves. Such actions of bad faith and improper use of regulatory, legislative, and judicial processes prove that Western investors cannot assume that the Ukrainian regime is comparable to the standards adhered to in their own jurisdictions, and should approach investment in the nation with extreme caution.