Risks of doing business with the state in procurement. How to avoid criminal liability?

Business cooperation with the state, especially in the field of supply of goods and services, repair work, is an important and profitable direction for many enterprises. However, interaction with the state in the field of public procurement is accompanied by significant criminal risks.

One of the biggest risks is the accusation of misappropriation of budget funds, provided for in Art. 191 of the Criminal Code of Ukraine. This is a "corruption article", and therefore a conditional term is not even provided for, which also increases the risks for the personal freedom of the director or other key participants of the company.

Every entrepreneur, before making a decision about working with the state and budget funds, should understand a simple rule: any purchase is under the close supervision of law enforcement officers.

Practice shows that almost every public procurement is an automatic criminal proceeding, as law enforcement officials say, "just in case," and it is very easy for law enforcement officers to find fake abuses.

As a result, the entrepreneur must be ready for crisis management in similar situations. Receiving requests, seizing documents, conducting interrogations is not all. Completely different consequences arise when it comes to the seizure of property and accounts, suspicion of the company's top managers, preventive measures in the form of detention and years of criminal proceedings.

We work with such cases and protect entrepreneurs in courts and law enforcement agencies. Therefore, in this article, I want to briefly tell what the main violations are recorded by law enforcement officers in criminal proceedings, and on which you need to pay special attention to if you have decided or are already working with the state. 

The main claims of law enforcement officers

1. Deliveries at inflated prices. Entrepreneurs are often accused of supplying goods or services at prices that are significantly higher than market prices. Such accusations are often based on the findings of audits and audits conducted by other regulatory bodies. On the basis of audits and revisions, the law enforcement officers conduct an economic examination, which essentially duplicates the conclusions of the controllers, but is already evidence in criminal proceedings.
2. Non-compliance of goods or services with tender requirements. If the supplied goods or services do not meet the conditions of the tender, this may be grounds for accusations of fraud or misappropriation of budget funds. In such cases, the customer may also be suspected of creating discriminatory conditions for other participants.
3. Violation of tender procedures. Violations in the conduct of tenders, procurement from one participant, unjustified classification of procurement as containing state secrets, in the opinion of law enforcement officers, may indicate to law enforcement officers a conspiracy between bidders, which may lead to criminal prosecution of both the participant and the customer.
4. Improper fulfillment of obligations. Non-fulfilment or improper fulfillment of contractual obligations after concluding a contract with a supplier can be considered as misappropriation of funds
5. Price increase after the conclusion of the contract. In case of an increase in the price of the contract after the procurement, the law enforcement officers see this as a conspiracy to seize the funds.

You can defend yourself and form an evidence base for each of the above points. But the process of defense in criminal proceedings is a painstaking and long-term affair, so it is better to follow the recommendations when concluding and executing contracts in public procurement.

Recommendations that will help minimize criminal risks:

1. Correct documentation. All documents must be issued in accordance with current legislation. It sounds formulaic, but in practice it may turn out that the winner of the procurement does not have documentary evidence of the purchase of goods from its counterparties or not all the necessary documentation is available. In this case, it is difficult to confirm exactly how the price of the product was formed. This applies to both tender documents and contracts for the supply of goods or services.
2. Market price analysis and expertise. Before submitting a tender offer, you should carefully analyze the market prices for goods or services to avoid accusations of overcharging.

If you become aware of a criminal proceeding, for example, in the case of receiving a request for documents from an investigator, then it is ideal to conduct a commodity examination with confirmation of market prices for the required items of goods. Expertise has the status of evidence in criminal proceedings and will be a valid argument for the court (yes, for the investigator it may not be an argument)

3. Control over the quality of supplies. It is necessary to ensure that all goods and services meet the terms of the contract and the technical requirements of the tender.

Examples from court practice:

1. The case regarding the supply of medicines. In one of the criminal cases investigated by the Main Investigative Department of the National Police of Ukraine, the company won a tender for the supply of medicines for a state hospital. After the delivery, it became clear that the prices of some drugs are significantly higher than the market prices. This led to the opening of criminal proceedings under Art. 191 of the Criminal Code of Ukraine (waste, appropriation of budget funds). During the investigation, it was found that the company did not conduct proper monitoring of market prices, which was the reason for the accusations.
2. The case regarding the construction of infrastructure facilities. The company won a tender for the construction of an infrastructure object for a state institution. As a result of the inspection, it was found that some construction materials did not meet the requirements of the tender documentation, which led to the opening of criminal proceedings for improper fulfillment of contractual obligations. Later, NABU detectives reported the suspicion to the customer and the director of the winning company of the procurement under Part 5 of Art. 191 of the Criminal Code of Ukraine – embezzlement, appropriation of budget funds in particularly large amounts.
3. The case regarding the supply of equipment. In one of the cases, the enterprise was accused of supplying equipment for military units at inflated prices. The conducted audit revealed that market prices for similar equipment were significantly lower than those specified in the contract. This became the basis for the opening of criminal proceedings under Art. 191 of the Criminal Code of Ukraine (waste, appropriation of budget funds in particularly large amounts).

Working with government contracts has business advantages, but also serious criminal risks. It is possible to avoid problems with law enforcement agencies by following the recommendations described above. Entrepreneurs must be ready for constant control by law enforcement officers and be ready to document the legality of their actions.

Source: Economic truth