Investigative actions without a proven violation: why the BEB’s practices are becoming a problem for investors

Ukraine is seeking nearly $600 billion in investment, but at the same time the Economic Security Bureau is establishing a practice whereby a criminal case can be initiated not after a tax violation has been established, but after an internal analytical report. For an international investor, it does not matter which law enforcement agency is pursuing the company. They see only one thing: the business has become the subject of a criminal investigation, and that immediately scares off partners, UNN writes.

According to the World Bank, rebuilding Ukraine will require approximately $588 billion, and the lion’s share of these funds should be provided by private investors, rather than international donors or governments. However, as the founder of a Ukrainian miltech fund and former member of the supervisory board of PrivatBank, Roman Shulzhyk, explains unwarranted investigative actions, including high-profile searches, scare off potential investors.

"If we now terrorize even this one or two billion that we are receiving (from foreign investors – ed.) with all sorts of SBI and ESB actions, then we are stealing our future victory," he said.

As Yaroslav Zhelezniak, First Deputy Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, explained, an international investor does not analyze the legal nuances of Ukraine’s law enforcement system.

"A foreign fund does not try to figure out what the law enforcement agency is called—the one that recently took the company they were considering for investment, quite literally and figuratively, and put it face-down on the floor while conducting a slew of searches and photographing all the documents. Whether it is the SBI, the SBU, or even the ESB. They see one thing: people in balaclavas have entered the company. This is obviously bad. In any part of the world, it means that some horrific, horrific crime is taking place there, because otherwise they would simply have sent a request. And, as you understand, no one cares whether there will be a verdict or not. They will not invest money in this company, and especially not in this sector, after that anyway," the lawmaker explained.

Today, almost every fifth complaint to the Business Ombudsman Council concerns precisely unwarranted actions by law enforcement agencies.

From an analytical report to a search

Pressure on business today does not always begin with people in balaclavas and searches. The first step may be a much less conspicuous document—a so-called analytical conclusion, which the Economic Security Bureau particularly often uses to launch a criminal investigation.

As Andrii Ishchyk, a lawyer at LCF Law Group, explains, a Bureau analyst processes information from electronic databases and other sources and prepares a document that may calculate the state’s probable losses or possible tax violations by a company.

"This document, on its own, does not establish the fact of a violation of tax legislation. However, it instantly becomes a legal trigger for freezing accounts, conducting searches, and paralyzing the enterprise," Ishchyk notes.

According to him, the logic behind the practical application of the ESB’s analytical products is often turned upside down.

Under the law, analytical work is supposed to be an auxiliary tool, and an analyst’s conclusions must be based on a comprehensive, complete, and impartial examination of information, including materials from criminal proceedings and operational-search activities.

Instead, the opposite may happen: first, an analytical conclusion is prepared; afterward, a detective or operative draws up a report on allegedly identified signs of a criminal offense; the information is entered into the Unified Register of Pretrial Investigations; and only then does a full-fledged criminal investigation begin.

"It is this document that is cited in motions for searches. It is this document that is used to justify the seizure of accounts. It is this document that is given to an expert so that they can verify the accuracy of the calculations," the lawyer explains.

Another similar approach used by the ESB involves analytical conclusions prepared by employees of the State Tax Service. Investigators likewise receive an analytical document containing assumptions about possible violations, but from representatives of the STS, which later becomes the basis for criminal proceedings against companies.

For a company, the consequences of such a mechanism may arise long before a court establishes that any violation has occurred: frozen accounts, seized equipment, searches at offices and the homes of managers, problems fulfilling contracts, and reputational losses.

BEB analytics do not prove a crime

The problem is particularly acute in criminal proceedings concerning tax evasion under Article 212 of the Criminal Code of Ukraine.

According to Ishchyk, the analytical product may become the central document around which investigators build a theory about unpaid taxes and losses to the state budget. At the same time, the Criminal Procedure Code clearly defines the procedural sources of evidence: testimony, physical evidence, documents, and expert opinions.

"The BEB analytical product is not included in this list. By its nature, it is closer to an expert's report, and such a report is not evidence in proceedings concerning crimes," the lawyer emphasizes.

According to him, this position has been supported by the Criminal Cassation Court within the Supreme Court in a number of cases.

That is, an analyst may identify a potential risk, propose their own calculation, or formulate an assumption, but this does not yet mean that the company actually violated tax legislation, let alone that its officials intentionally evaded paying taxes.

A tax dispute does not equal a criminal offense

Another fundamental problem, in the lawyer's view, is establishing the tax liability itself. After all, to bring someone to liability under Article 212 of the Criminal Code, it is not enough to claim that a certain amount of tax was unpaid. Intent must be proven: the person must have known about the specific obligation to pay tax in a specified amount and consciously failed to do so.

"An error in calculations, a debatable interpretation of a tax provision, or a different understanding of the legal nature of a transaction does not yet constitute tax evasion. Criminal liability begins where an intention not to pay has been proven, rather than where there is merely a different view of the tax consequences," the lawyer explains.

According to him, a BEB analytical memorandum or even an expert opinion cannot replace an agreed tax notification-decision issued by the tax service. They do not create an obligation for the taxpayer to pay the amount calculated by the analyst, Ishchyk emphasizes.

Aviation as an illustrative example

The consequences of this approach are clearly visible today in the example of Ukraine's aviation industry. The BEB is investigating cases involving at least 5 airlines, including MAU, "Constanta Airline," "Urga," N3Operations, and "Skyline," over the alleged failure to pay an additional 15% tax to the Ukrainian budget on income earned by nonresidents under aircraft and helicopter leasing agreements. Investigators equate lease payments with royalties and treat aircraft not as means of transport but as "equipment."

Investigators obtained the analytical conclusions after, in 2024, the previous leadership of the State Tax Service published an article proposing that leasing transactions involving transportation with nonresidents of Ukraine be taxed as royalties. The documents, which according to representatives of the aviation market resemble one another and appear to have been written "using the same template," formed the basis for criminal cases against air carriers.

However, according to lawyers interviewed by UNN, during the investigation the investigators ignore the current international conventions on the avoidance of double taxation. Treaties with foreign states ratified by the Verkhovna Rada take precedence over national legislation and determine in which state and at what rate the relevant income of a nonresident may be taxed. Therefore, the automatic imposition of an additional 15% tax in Ukraine without taking into account the provisions of a specific convention is at the very least debatable, experts emphasize.

It is worth noting that Ukrainian tax legislation concerning the taxation of leasing has not changed for decades. Moreover, according to the State Tax Service, the airlines underwent tax audits, and only one of them found a violation in the taxation of leasing. The remaining tax audits did not identify such violations.

"As a result of one audit of companies in the aviation sector, leasing payments were reclassified as royalties. Just one audit," said Viktoriia Kasian, Deputy Director of the Transfer Pricing Department of the State Tax Service of Ukraine.

However, the absence of violations did not prevent the Economic Security Bureau from opening criminal cases against airlines, claiming that they had failed to pay 15% royalties over the past seven years. At the same time, the list of airlines facing claims from law enforcement authorities over leasing  may expand at any moment, since approximately 40 air carriers use leasing. Thus, the entire civil aviation sector may come under threat.

As UNN reported, representatives of the aviation sector publicly stated that they were facing pressure from the Economic Security Bureau because investigators were interpreting aircraft leasing transactions as royalties, along with criminal proceedings and attempts to assess additional taxes for seven years. According to them, civil aviation has been threatened with destruction by the actions of state supervisory authorities, which could ultimately finish off companies that survived the closure of the airspace and relocation abroad due to the full-scale war.

Thus, ultimately, the claims are based on the interpretation of payments for the use of aircraft and helicopters leased from non-residents as payments that should be taxed as royalties. Such an interpretation does not fall within the competence of the Economic Security Bureau. The criminal cases were opened on the basis of analytical findings that have no legal force, while the fact that the airlines successfully passed tax audits was completely ignored by the investigators.

Thus, the aviation case demonstrates the main risk of the practice described by the lawyers: a tax dispute or differing interpretation of legislation may evolve into criminal prosecution even before the tax violation itself has been definitively established.

After the reopening of the airspace, Ukrainian carriers will need aircraft, lessors, insurance companies, banks, and foreign capital in order to recover. However, international partners will assess not only security risks, but also how predictably tax and criminal legislation is applied in Ukraine.

The paradox is that Ukraine is trying to persuade international businesses to invest billions in rebuilding the country, while within the state a tax dispute can turn into criminal proceedings based on the internal analysis of a law enforcement agency.

And that is precisely why the discussion surrounding the Economic Security Bureau’s methods of operation is no longer merely a matter of criminal procedure. It is a question of whether Ukraine will be able to create an environment in which a private investor will be willing to risk their money.