Fraud in Ukraine: Trends, Tendencies and Old-New Methods

COVID-19, lockdown, economic recession. All these circumstances in 2020 undoubtedly have affected the growth of such a phenomenon as fraud. At the same time, it is not entirely correct to shift all the blame only to the epidemiological situation and quarantine measures, because there were also other factors also which implied their impact on the situation.

Nevertheless, we may find some positive aspects in all the aforementioned. Indeed, being in the constant fight with influential fraudsters, the system, the legislation, we, Ukrainian lawyers in the field of criminal law and White-Сollar Crime, with each new case get a unique experience in solving problems which might seem to have no solution. We have to be not only practicing lawyers, but also legislators, detectives, psychologists, PR specialists, and the like.

As an example, in spring of 2020, the Supreme Court issued a decree which significantly limited the rights of victims in criminal proceedings. In fact, with this decision, the Supreme Court has finally deprived the victims and their representatives of the opportunity to independently apply for temporary access to items and documents. Only investigators and prosecutors are allowed to do it from now on. This has put an end to the possibility of the victims and their representatives to conduct an independent investigation, compensate for the damage and bring the perpetrators to justice because in our realities it is almost impossible to expect this to be done by law-enforcement authorities. Thus, given that we have many clients (banks, enterprises, etc.) who are true victims, the Ario Law Firm team has initiated a broad public discussion regarding this issue and also has developed amendments to the Criminal Procedure Code of Ukraine in the context of the rights of victims. At the present moment our proposed amendments are being considered by the sectoral Committee of the Verkhovna Rada of Ukraine.

Financial Pyramids: Post-Traumatic COVID-19 Syndrome

At the beginning of 2020, the B2B Jewelry project reached a special heyday in Ukraine. Ukrainian cities were overloaded with advertizing of so-called jewelry stores network. The same advertisement with the slogan “to live in abundance” was broadcast from the radio receivers, TV screens, social networks. All of that developed at a time when the country was entering its first lockdown, multiplied by economic crisis and massive unemployment. The “golden” project promised Ukrainians super profits (more than 400% per year with weekly payments) for the purchase of special certificates.

One day a journalist of a well-known Ukrainian media outlet appealed to me with a request from a legal point of view to assess the risks for citizens to invest in B2B Jewelry certificates. So, I decided not just to prepare answers to the information request, but to really “get at the truth” of this business, which contradicts all laws of economics. So I bought one of these certificates worth UAH 1,000 (a little over 35 dollars) in order to monitor the dubious activities of the “golden” project from inside.

For the purchase of such a cardboard certificate, I haven’t received any single document or fiscal receipt. You could pay for the purchase only in cash — bank cards were not accepted in the jewelry store. When, after a few weeks, the promised payments stopped coming to my “personal” account, allegedly due to quarantine measures imposed connected with the coronavirus epidemic, I filed a corresponding statement with the police and became one of the first victims in the B2B Jewelry case. I actively covered all my procedural steps in social networks and in the media. My goal was simple — to educate the public about the dangers of such investments. For my active and public position, I have received dirty PR campaigns from the organizers of the “golden” scheme aimed at discrediting my professional reputation.

But at the same time, we have begun to receive numerous appeals from dozens of Ukrainians affected by the actions of the organizers of this financial pyramid. People from almost all corners of Ukraine turned to our team for legal assistance.

During the existence of B2B Jewelry, according to the Security Service of Ukraine, the organizers of the fraudulent scheme have acquired a whole island with real estate on the River Dnipro, dozens of luxury cars, and, according to rough estimates, were able to get about USD 250 million. Later, numerous searches were carried out in the B2B Jewelry chain of stores, but the organizer of the scheme and his crime partners were restrained with the measure of house arrest. Yet, later it was changed to a personal obligation. According to our information, while the pre-trial investigation continues, the organizers of the scheme have managed to spend a vacation on exotic islands, returned to Ukraine, and opened several new showrooms in different cities of our country.

In my opinion, the state is responsible to a greater extent that such a large-scale financial pyramid in Ukraine emerged and functioned. State authorities are in charge of financial market regulation, with the law-enforcement system, which has not prevented the organizers of B2B Jewelry from conducting a colossal communication campaign about the possibility of obtaining super profits from dubious investments and systematically expanded the chain of “jewelry stores”.

Already at this stage, as a representative of some victims in this financial pyramid, it is clear to me that the lion’s share of depositors will never be able to get back invested funds. Only those who were among the first to file a crime report and seek legal assistance have chances. Why? I will explain. While working on this project in the period of one year, we were convinced that neither the law-enforcement agencies nor the judicial system in the regions is interested in finding and bringing the perpetrators to justice. More or less chances for justice can be obtained in the capital. Today, our team is seeking the opportunity of seizure and transfer of the property seized within the framework of the B2B Jewelry production to the National Agency of Ukraine for finding, tracing, and management of assets. This is the first step, which opens up an opportunity to settle accounts with some defrauded depositors of the golden pyramid in the future. In turn, opponents are trying in every possible way to unnecessarily extend the trial, but we are not giving up.

So, we have cast discredit on the actions of the organizers of the gold project. We believe that they have committed not 2-3 crimes, but more. Now the defendants in the case have been charged with suspicion of committing three criminal offenses. The proceedings are opened based on my statement and the statements of the victims whom we are advising and are grounded on part 4 of Article 190 of the Criminal Code — fraud committed on a particularly large scale or by an organized group. The sanction of this article provides for up to 12 years of imprisonment with confiscation of property.

The active media position of our team regarding B2B Jewelry led to the fact that victims of other financial pyramids have begun to contact us.

In particular, by the same principle, our other clients were deceived when they invested in a network of electric filling stations and, as a result, they were left without stations and without their money. The situation is classic: law-enforcement officials are in no hurry to investigate the activities of the organizers of the scheme, and the chances of defrauded investors getting back their invested funds are diminishing over time.

Law-Enforcers Can When They Want

At the same time, to say that law-enforcement authorities do not know how and do not want to work would be a frank distortion of reality. When the representatives of law-enforcement agencies are ordered to perform a specific task from the authorities, the system works. It works like a road roller that crushes everything that comes its way, not disdaining any even illegal methods.

So, over the past year, we have recorded an increase of appeals to us from large business, which works absolutely transparently and legally, observing all the norms of the law. To a large extent, such appeals refer to the fact that law-enforcement officials unreasonably burst into such companies with searches. Typically, the purpose of these investigative actions is to intimidate and cause reputational damage to the company in the interests of competitors. Of course, we work ex post facto to minimize customer losses and bring to justice, including criminal liability, law-enforcement officials, whose actions are described above. However, in such matters it is necessary to act in advance and seek legal assistance before the business has suffered material and reputational damage from the actions of unscrupulous law-enforcement officials.

I cannot fail to mention here that from 2019 to 2021 I was a member of the commissions for the selection and re-certification of prosecutors in the Prosecutor-General`s Office, regional and local prosecutors. And if during the selection of prosecutors for the Prosecutor-General’s Office the level of preparation of candidates was quite high and I had a feeling that many candidates really showed understanding of why they have chosen such a difficult career, the situation with the certification of prosecutors of regional and local prosecutors’ offices was quite the opposite. I have clearly seen which global gaps exist today in terms of professional training of prosecutors and their motivation, in terms of understanding of their mission in this profession.

I am sure that a similar situation applies to most other law-enforcement agencies. That is why I am not surprised by such frequent cases when some representatives of the law-enforcement system carelessly fulfill obviously illegal orders of the management or higher bodies.

So, I can’t avoid mentioning one of the recent cases from my own practice.

I am the lawyer of the former president of a large construction company, who is accused of organizing an abduction. Frankly speaking, during my professional activity I have encountered various gross violations and manipulations by law-enforcement authorities, the use of administrative resources, pressure on clients and so on. But the pressure we face in this case has become unprecedented for me.

The whole case looks as if it was crafted in haste, with poor quality and illogically. Yes, my client is accused of allegedly organizing the abduction of a lawyer who owed him USD 800,000. But, as we have learned, the person who has been allegedly abducted has nothing to do with jurisprudence, has no legal education, and has never worked in law. This person does not have large fortunes, so it makes no sense to demand 800,000 dollars from him. In addition, with the help of technical experts, we were able to learn how to fake phone calls, which are partly based on the arguments of the prosecution. We held a press conference and demonstrated the possibilities of modern technologies, with the help of which anyone can be made a suspect in a crime.

The active public position of the defense did not go unnoticed and “in response” the lawyers received criminal proceedings allegedly for disclosing the data of the pre-trial investigation. Of course, we are initiating the prosecution of those involved in putting pressure on the defense.

The machinations and manipulations of law-enforcement officials in this case did not end there. But the opponents did not have enough imagination for something “new” and decided to put pressure on my client’s wife. Believe it or not, the Unified Register of Pre-trial Investigations registered proceedings on the fact of organizing the abduction of a child. The organizer is assertedly the client’s wife.

In addition, among the obvious violations and machinations of law-enforcement authorities within this case, the psychological pressure imposed directly on my client should be highlighted. He was arrested on a holiday night, an hour and a half before the New Year, and was held in a temporary detention center under constant video surveillance for no reason, although no investigative actions were being conducted with him. During the pre-trial investigation, most of the evidence of the prosecution, which was attached to the request to extend the pre-trial investigation, was obtained in December 2020 (at the very beginning of the investigation), and in January and February 2021 no investigative actions were conducted with the client. The fact of keeping a person in a temporary detention center presupposes that investigative actions with him should be carried out. In all other cases, the person to whom the precautionary measure in the form of detention has been applied should be sent to a pre-trial detention center.

UPD. On 12 March, 2021, Shevchenko District Court of Kyiv granted the petition of the defendants to change his preventive measure from detention to night house arrest.

Conclusions. Briefly

Unfortunately, in Ukraine, such a phenomenon as fraud does not simply exist with the tacit consent of law-enforcement authorities. Often it is the law-enforcement system itself that is the source of fraudulent transactions and schemes.

And that’s why I never get tired of repeating: in order to protect yourself from all kinds of fraud, you need to constantly improve your knowledge of Ukrainian legislation. If you see that the situation is getting out of control, and you or your business is in danger, then without the support of an experienced lawyer, you will not manage.