Towards Human Rights Due Diligence in Ukraine: Connections to Existing Anti-Corruption and Anti-Money Laundering Rules

Ihor Konopka, business and human rights lawyer, 26 August 2021

Ukrainian businesses, as much as their foreign counterparts, are familiar with various kinds of transactional due diligence, including, for instance, financial, tax, commercial, legal, integrity and even IT due diligence. Notably, the concept of HRDD was founded in particular on the transactional due diligence aiming at assessing, mitigating, managing risks and commonly used ‘for a new acquisition, partnership or investment’.

Although the National Baseline Assessment on Business and Human Rights identified in early 2019 that Ukrainian legislation does not require businesses to carry out HRDD (and that has not changed since then), the underlying concept of due diligence and other risk-based approaches are evidently not alien to Ukrainian legal frameworks. There are examples of legal rules on domestic violence prevention, contractual and non-contractual relations, anti-corruption and anti-money laundering in support of this statement. Below I briefly discuss the latter two examples to advance an argument that Ukrainian legislation indeed envisages due diligence regimes comparable by some elements to the foreign HRDD regimes and therefore offers a foundation to build on a national mandatory human rights due diligence (mHRDD) framework.

Anti-corruption due diligence

The entire Section X of the Law of Ukraine ‘On Prevention of Corruption’ is devoted to corruption prevention in legal entities’ activities. Special rules apply to state and communal enterprises, business enterprises, where the state or communal share exceeds 50%, with at least 50 employees, and gross income of at least UAH 70 mln, as well as to legal entities-bidders for public procurement contracts worth at least UAH 20 mln. These companies are obliged to develop and take measures to prevent and combat corruption through regular corruption risks assessment, conducting an anti-corruption audit (including by external experts), putting in place an anti-corruption programme and appointing a commissioner in charge of its implementation and reporting before shareholders). The law prescribes a set of detailed recommendations as to the content of an anti-corruption programme and requires it to be communicated to employees. The law also requires that an obligation to comply with the company’s anti-corruption provisions should be incorporated into employment contracts, its policies and may be included in contracts with third parties. As reported in 2019, only ‘some companies’ refer to anti-corruption programmes, commissioners and communication channels in their management reports while the level of reporting on the implementation of such programmes is ‘low’.

A close look at the above listed anti-corruption requirements reveals a strong similarity with HRDD requirements which equally encompass an ongoing process that includes risk assessment, taking preventive measures, communication, and reporting. HRDD is also carrying out to implement certain programme – human rights policy. Moreover, anti-corruption audit in practice is often treated as ‘anti-corruption due diligence’. As one commentator explained regarding the upcoming mHRDD, ‘[it] would look similar to the anti-corruption “adequate procedures” approach’. The key difference between the two sets of measures is probably the nature of risks at stake: HRDD aims at addressing risks to human rights, while anti-corruption is meant to address corruption risks to the company.

Nevertheless, there is interconnection. In recent years the nexus between corruption and human rights is getting more attention (see also: article, book) while the UN Working Group on Business and Human Rights notably considers this matter among those in focus and had its last report entirely devoted to connecting BHR and anti-corruption agendas. The Working Group recommends states to, inter alia, ‘[i]ntroduce regulations that require [HRDD] by business enterprises in line with the Guiding Principles, and provide guidance clarifying the connection between corruption and human rights risks and impacts’. At the same time, businesses are advised, in particular, to ‘[c]onsider how addressing corruption risks and business-related human rights abuses with a risk-to-people approach rather than a risk-to-business approach could help drive a corporate integrity culture’. These recommendations aptly conclude the interconnection between human rights and anti-corruption due diligence.

Anti-money laundering due diligence

Article 1(1)(53) of the Law of Ukraine ‘On Preventing and Counteracting to Legalization (Laundering) of the Proceeds of Crime, Terrorism Financing, and Financing Proliferation of Weapons of Mass Destruction’ prescribes financial monitoring to be built on the risk-based approach entailing risk assessment and taking appropriate risk management measures to mitigate identified risks. The application of this approach should be regulated by a subject of primary financial monitoring (banks and financial institutions; audit, accounting, tax consultancy and law firms; other companies providing certain financial services) in its internal policies and should be proportional to the nature and scope of its activities. The risks must be regularly reassessed while the information on them should be updated so the subject could ‘show its understanding of risks posed by its clients’. Finally, the subject of primary financial monitoring must, in specific cases, carry out customer due diligence, including identification, verification and monitoring.

Just as with anti-corruption due diligence, a specific kind of risks to the company/entity is at stake here. Notwithstanding, the risk-based approach, ongoing due diligence process and the ‘know and show’ principle strongly resemble the HRDD concept.

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The anti-corruption and anti-money laundering due diligence serves as the most illustrative examples of the application of the due diligence regime closely comparable by its constitutive elements to mandatory HRDD regimes. The crucial difference in the type of risks remains, but as ILO puts is puts it about the introduction of HRDD practices, companies need ‘to focus outward [hence] use a process with which they are familiar, for a purpose with which they may not be’.

Ultimately, the considered examples of implementation of the due diligence concept, along with lessons that may be learned from the designing and setting up mHRDD regimes in European countries, such as France, Germany, and Norway, provide a decent foundation for the development of the national one in Ukraine.

*This post is an adapted version of the section 4.1 of the author’s thesis, see:
Ihor Konopka, ‘Getting hard to resist: Prospect of mandatory human rights due diligence in Ukraine’ (Master’s thesis, Lund University, 2021)

For more information, you can email the author at ihor.konopka@gmail.com