Important draft laws. Issue 16: changes to land management procedures, increase in army funding, and legalization of private military companies

Important draft laws. Issue 16: changes to land management procedures, increase in army funding, and legalization of private military companies

Photo: flickr.com / Юлія Березовська / Прес-центр НБУ
2 May 2024
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A review of draft laws registered from April 15 to 28, 2024 

During this period, 49 legislative drafts were registered, including four presidential, 13 governmental, and 32 from people’s deputies. In their legislative drafts, MPs did not overlook the issue of supporting the military and increasing funding opportunities for the Armed Forces of Ukraine. Several bills aim to strengthen the protection of property rights of landowners or shares of enterprises—more on this and other topics in the overview.

Asset recovery: striking a balance between sanctions and property rights

When the Ukrainian government imposes sanctions against certain individuals and prohibits them from using their assets, these assets often reside in other countries under the control of foreign and Ukrainian companies or individuals who are not subject to Ukrainian sanctions. So, how can the state access these assets without violating the rights of sanctions-free owners? 

To address this issue and ensure the rights of third-party (sanctions-free) individuals, people’s deputies have introduced Bill No. 11195, which proposes the following steps for the seizure of shares or other securities belonging to companies in which both sanctioned and sanctions-free persons have ownership:

  1. Identifying the ownership shares of the company belonging to sanctioned and sanctions-free individuals.
  2. Transferring the accounting of these ownership shares to a special accounting system controlled by the State Property Fund and the Central Depository.
  3. Creating special escrow accounts to hold securities or shares of companies belonging to persons not subject to sanctions would allow sanctions-free individuals to own assets that were previously blocked due to sanctions.
  4. Informing sanctions-free individuals of the need to formalize their rights to these assets.
  5. Transferring rights to these assets to sanctions-free individuals if they express a desire to own them.
  6. If sanctions-free individuals do not exercise their rights to these assets within five years, they may be transferred to state ownership.

In our opinion, the draft law should include a detailed mechanism for assessing the shares of property belonging to sanctioned and sanctions-free individuals, the functioning of special accounts, and the process of transferring (returning) property shares to those not subject to sanctions. Insufficient control and transparency during the seizure and redistribution of assets may contribute to abuses by officials or other interested parties.

Protection of bona fide property buyers from unlawful confiscation

Bill No. 11185 aims to protect bona fide property buyers. It stipulates that property cannot be taken away from such buyers if:

  • More than five years have passed since the registration of the ownership rights of the first buyer (bona fide acquirer) to state or communal property;
  • More than five years have passed since the transfer of the property to the first buyer if, at that time, state registration of ownership rights was not provided for.

The accompanying documents to the project need to justify why exactly five years were chosen. Moreover, these provisions entail certain risks. For instance, some individuals who obtained state or communal property illegally over five years ago would evade accountability if this project were adopted. Therefore, if the draft law is passed, it may create conditions for legalizing property acquired illegally.

Changes in the procedure for land plot utilization

Bill No. 11184 proposes changing specific procedures related to land management, namely:

  • Extend the period (up to two years after the cancellation or cessation of martial law) within which ownership rights to land plots (shares) obtained by citizens during the redistribution of collective farmlands or inheritance must be formalized. Under the current law, ownership rights to land plots must be formalized by January 1, 2025 (otherwise, it will be considered that the owner or heir has relinquished the land plot).
  • Require government authorities and local self-government bodies to consider requests for land management permits according to their receipt.
  • Allow changes in the land use designation by the plot owner in the absence of urban planning documentation but with a reasoned conclusion from the relevant metropolitan planning authority. In this case, there are significant risks that owners would change the land use designation at their discretion (e.g., from agricultural land to residential and public development) without considering the city’s development needs, which may lead to corruption and chaotic urban development, disregarding the needs of the community and the environment.
  • During martial law, changes in the land use designation for plots without urban planning documentation should be allowed for industrial or infrastructure objects outside of settlements and residential and non-residential buildings, including within settlements. This provision would significantly expand the possibilities for development in cities and villages.
  • Allow developers who did not conclude agreements with local authorities on the payment of share contributions before January 1,  2021, but started construction before this date not to pay share contributions. Share contributions were abolished at the end of 2019. Developers were required to fulfill agreements on the payment of share contributions signed before January 1, 2021, and not to sign such contracts after this date. Apparently, some developers stopped signing such agreements immediately after the relevant law was adopted, so this change aligns the legislation with reality.

The draft law contains both necessary and potentially harmful provisions. Postponing the procedure for formalizing land shares is required because not all citizens can do this during wartime. At the same time, allowing changes in land use designation without urban planning documentation may lead to chaotic development and create corruption risks.

Ban advertising and special labeling for products manufactured by companies operating in Russia

Key provisions of Bill No. 11183 include:

Labeling of goods and packaging: Sellers would be required to label price tags and packaging of goods from companies that still operate in Russia (the penalty for selling these goods without proper labeling is proposed at 200% of the value of the batch of goods received for sale, but not less than UAH 17,000).

Posting information in offices: Companies operating in the territory of Russia or paying taxes to its budget must post information about this in their offices in a prominent place (the penalty for failure to post such information is proposed at UAH 170,000).

Labeling of advertising media: Alongside the company’s name or logo on all media (signboards, corporate clothing, etc.), the relevant message must be displayed (the penalty for absence of labeling is also proposed at UAH 170,000).

The phrase “<company> conducts business activities in the territory of the aggressor state and pays taxes to its budget” must be in red letters on a white background. The size of the text must be at least 30% of the area of the medium.

Additionally, the draft law proposes prohibiting the advertisement of goods or services from manufacturers who operate in Russia and have not placed such labeling on their products. The government would be required to inform the population monthly about companies operating in Russia through the websites of relevant Ministries.  

The authors justify adopting this draft law to protect consumer rights, particularly the right to know which manufacturers’ goods are produced in the aggressor country. However, envisioning the practical implementation of this law is quite challenging. For instance, the National Anti-Corruption Bureau (NABU) has previously compiled a (partial) list of international sponsors of the war. Later, the government closed this list due to the absence of a regulatory framework for the inclusion and exclusion of companies and the legal consequences of being on it. Some governments (such as the Hungarian government) resorted to blackmailing the Ukrainian government to exclude their companies from the list.

Protection of research subjects during clinical trials of medicinal products

Bill No. 11181 proposes changes in liability for violations of the established procedures for preclinical studies, clinical trials, and state registration/reregistration of medicinal products. Specifically, the project includes:

Terminology update: using the term “informed consent” instead of simply “consent” and the term “subject” instead of “patient.” This is because not only patients but also healthy volunteers may participate in clinical trials.

Protection of subjects’ rights: establishing liability (fines) for failure to comply with legislative requirements to ensure the safety of subjects in case of temporary or complete suspension of the trial. If the trial of a medicinal product is suspended without proper control and implementation of safety measures, this can lead to severe complications or even death of the trial participants.

The Criminal Code (Article 321-2) stipulates that “intentional violation of the procedure for preclinical studies, clinical trials of medicinal products, falsification of their results, as well as violation of the established procedure for state registration of medicinal products, are punishable by imprisonment for a term of three to five years with deprivation of the right to hold certain positions or engage in certain activities for a period of one to three years.” 

The draft law proposes to mitigate penalties for some of these violations. Specifically, intentional falsification of registration dossier materials for a medicinal product, illegal market entry (state registration) of a medicinal product, conducting clinical trials (studies) without permission from the Ministry of Health, as well as falsification of data or results of clinical trials (studies), would be punishable by a fine ranging from UAH 51,000 to UAH 170,000 or imprisonment for a term of three to five years.

Such a wide range of criminal liability (from a fine of UAH 51,000 to 5 years of imprisonment) may lead to judges’ subjective approach to determining punishment and, consequently, to corruption. 

Regulation of political party finances and support for the Armed Forces

Over the past two years, four political parties, namely Servant of the People, European Solidarity, Batkivshchyna, and Holos, have received state funding totaling over UAH 1.6 billion (UAH 885 million in 2022 and UAH 753 million in 2023). According to people’s deputies, this is a significant amount that could be used to strengthen Ukraine’s Armed Forces and defense capabilities. Two draft laws (No. 11189 and No. 11197) have been registered in Parliament to address this. The first proposes that funds from the State Budget of Ukraine allocated for financing political parties be entirely redirected to the Armed Forces of Ukraine.

The second project proposes allowing political parties to purchase “military bonds” with them within one year of receiving state funds and receiving corresponding income. It also suggests permitting parties to procure goods and services directly and provide financial assistance to civil organizations that help ensure Ukraine’s defense and population security. The current law allows parties to spend their funds on defense and population security needs but prohibits charitable donations.

Another draft law (No. 11190) proposes redistributing funds from the Special Fund of the State Budget. Specifically, it suggests “transferring” UAH 9.6 billion from the amount allocated for purchasing special equipment and gear by the State Service of Special Communications and Information Protection to the material and technical support of the Armed Forces of Ukraine and other military formations. Accordingly, expenditures on the first budget program would decrease from UAH 43.3 to 37.7 billion, while spending on the second program would increase from UAH 9.6 to 19.3 billion. Since the source of these funds is the PIT paid from the monetary provision of service members and police officers, such a change seems logical. 

Creation and regulation of private military companies

Bill No. 11214 proposes allowing the creation of International Defense Companies (IDCs) in Ukraine and defines the principles of their operation. According to the bill’s authors, such companies would enhance Ukraine’s external and internal security. They would be able to engage citizens of Ukraine and foreigners with experience in Ukrainian military formations (including demobilized Ukrainian defenders) in their activities.

The project defines an international defense company as a business entity (private enterprise) established and registered in Ukraine, which pays taxes under the general system and provides defense services outside Ukraine. 

Such companies would operate based on a license issued by the State Service of Ukraine for International Defense Companies (a government body subordinate to the Main Intelligence Directorate of the Ministry of Defense of Ukraine, which would need to be created). The Service would be responsible for the registration, accounting, and oversight of these companies’ activities and approve contracts for the provision of defense services.

The bill does not address the economic and financial activities of IDCs nor establish minimum requirements for the financial security of military personnel working in such companies.

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