The way to criminalize smuggling without prejudicing the interests of the business

Vytenis Ališauskas, International Key Expert on Customs of the EU Public Finance Management Support Programme for Ukraine, provided an overview of the need to criminalize smuggling in Ukraine. It is high time to act.

Vytenis Ališauskas
International Key Expert on Customs

Ukraine is declaring that it is on the path to Europe, is increasingly actively developing its relations with the EU, and is adapting its legislation to the EU norms. And large-scale smuggling is criminalized in all EU countries (and in almost all developed countries of the world).

In addition, smuggling is a historical problem for Ukraine due to its geopolitical position as a hub of world trade routes.

Regarding experience and its accounting.

Many can deny arguing that there has already been a negative experience of the period before 2011 when smuggling of excise goods was criminalized but the success was doubtful. But the analysis indicates that these arguments are based on a confusion of causal links.

The negative experience was not due to the fact that smuggling was criminalized, but due to ineffective work on combating smuggling. Although the customs office had much more rights than now, it still could conduct only inquiries instead of full-fledged pre-trial investigations. The interaction with other authorities was far from being perfect as well. Of course, that experience must be taken into account in today’s realities not to repeat past mistakes.

But we should take into account the 10-year experience of decriminalization in Ukraine: the expectation that it would be easier to bring criminals to justice for smuggling as an administrative rather than a criminal offense failed as the statistics showed.

How to expand the powers of the customs office…

By the way of characterizing Draft Law No. 5420 adopted in the first reading, some lawyers call for expanding the powers of the customs office instead of just «putting everyone to prison». Despite the polemical extremes, there are reasonable arguments herein.

Indeed, the customs office just needs to expand its powers. In general, in most EU countries crimes related to the illegal movement of goods across borders are investigated by customs authorities. Most cases of smuggling are detected by customs authorities. Cases of smuggling related to concealment from customs control and false declaration of goods can be detected only by customs authorities.

… while eliminating risks for the business

The survey was conducted on 1,200 respondents aged 18 and older, reflecting the society in which there are more elderly people than young people, the level of education, and so on. In addition, the same questions were addressed to 300 business representatives, selected according to activities, geography, and their business size.

Let us now speak about the fear of business of the prospect of «putting everyone to prison». Actually, there are grounds for such fear. Criminal liability is a legal restriction of human rights and liberties, which is permissible only in special cases. And, accordingly, it poses a risk that someone will abuse such powers. Therefore, the expansion of powers of law enforcement agencies, which often abuse their rights, is considered by businesses and individuals as absolute risk. And this risk will exist until the criminal justice system in Ukraine is being reformed.

In addition, the risk lies in too broad an option to interpret the provisions of the Draft Law. The first case is a suggestion to transfer the fact of completion of a crime from the moment of its completion to the moment of the attempt to commit a crime or even to the moment of preparation for a commitment of a crime. Moreover, a broad interpretation of the phrase «any action aimed at…» is used herein.

In fact, the authors just copied the words from the current rules of the Customs Code regulating administrative liability. However, there are certain concepts in the Criminal Code, such as «an attempt to commit a crime» and «preparation for a commitment of a crime», and the specifics of punishment for such actions are regulated individually in criminal law. The second point is the proposed Article 201-4 on false declarations. This article is written in such a way that it can be interpreted very broadly. Although there is no sense in this article since the false declaration of goods at customs clearance can be punished criminally under Article 222 of the Criminal Code «Fraud with Financial Resources», regarding which there are specific explanations of the Plenum of the Supreme Court.

Each EU country has its own rules in its national law. However, the approach is very similar in general. The false declaration can be punished either as smuggling in some countries or as an individual type of financial fraud. But in any case, there is a single general approach, namely, the investigation must prove that it was a deliberate act aimed at obtaining any benefit. Inaccuracy may be unintentional.

So, it is often difficult to prove intent, but it is justice. Only those whose guilt has been proven in court can be punished.

There will be no immediate financial benefit from the confiscation of smuggled goods.

Based on the European experience, I would like to warn against expectations of financial benefits from the confiscation of smuggled goods. They show the misunderstanding of the criminalization of smuggling by many people in Ukraine. Even in the current Draft Law, we can see an attempt to charge huge penalties for smuggling, in fact, the Criminal Code does not provide such large penalties for any crime. And we have heard repeatedly that the penalty should be comparable with the damage caused and compensate for it.

It is a fundamentally wrong approach. The purpose of criminal punishment is not to receive compensation for damage. It is just the punishment for a crime. We should distinguish between the criminal penalty and the financial component of losses to the State and compensation of those losses.

The State will spend a lot on the storage of seized goods. Some goods do not have a long shelf life, they will become unfit, and they will also need to be disposed of at the expense of the State. Therefore, there is no point to talk about any economic benefit for the State from the sale of confiscated smuggled goods.

It is about a strategic vision. The economic benefit of the State should be different: after the criminalization of smuggling, its volumes should decrease in the medium term, and, as a result, the number of customs duties will increase. This is the way for the State to receive lost profits. All the discussions about profits from the sale of confiscated smuggled goods are just someone’s assumptions.

While low thresholds are a disadvantage

Another disadvantage of Draft Law No. 5420 is that the thresholds for criminal liability are definitely too low. I agree with the fears of some People’s Deputies that a criminal proceeding can be initiated against a person who evaded the payment of taxes in the amount of UAH 30 thousand. Indeed, the cost of investigating the crime may be higher than the number of unpaid duties. But the State must perform the function of combating crime and ensuring the inevitability of justice. Budget expenditures are required for the investigation of any crime. The investigation of most crimes does not yield any commercial benefits to the State.

But the lower the threshold of a criminal offense (UAH 113,500 under the Draft Law), the more crimes will be recorded. It is always more difficult to investigate major crimes committed by criminal groups, especially in cases of corruption than minor ones. However, it is obvious that the damage caused by major crimes is incomparable with the damage caused by minor crimes. But in the conditions of a large number of cases and excessive workload, any investigator will be tempted to investigate simpler crimes first. Thus, successful statistics will be created, namely, many facts of smuggling will be detected and smugglers will be punished. But it will actually turn out that most of those smugglers are people who bought something in foreign online stores and decided to save money on customs duties or suitcase traders that carry a couple of blocks of cigarettes across the border. Meanwhile, organized criminal groups engaged in large-scale smuggling will remain unpunished. Since the investigator will not physically have time to investigate large schemes.

Moreover, it should be taken into account that a large number of criminal cases can simply paralyze the work of the law enforcement agency investigating cases of smuggling.

The customs service should have the functions of law enforcement intelligence operations and investigation.

The State Customs Service of Ukraine should have the right to conduct criminal investigations and law enforcement intelligence operations, like in most EU countries. This is an opportunity to actually and effectively combat smuggling. It is an opportunity to receive a huge volume of information about potential crimes due to information exchange with the customs authorities of other states. Now the customs authorities of the EU just do not have the right to share operational information directly with the State Customs Service of Ukraine since it is not a law enforcement agency. It is an opportunity to detect professional cases of fraud with declarations (as mentioned above, a non-professional cannot do it). It is an opportunity to detect organized groups of smugglers, organizers, and customers of smuggling, using the methods of law enforcement intelligence operations. And much more.

law enforcement agency. It is an opportunity to detect professional cases of fraud with declarations (as mentioned above, a non-professional cannot do it). It is an opportunity to detect organized groups of smugglers, organizers, and customers of smuggling, using the methods of law enforcement intelligence operations. And much more.

Combating smuggling should have a comprehensive nature.

It is doubtful that the criminalization of smuggling will have a positive effect without a set of other measures, such as minimizing the human factor during customs control, strengthening border protection in areas outside checkpoints, etc.

Combating smuggling is not about the introduction of a new article into the Criminal Code. Combating smuggling is a whole set of measures. To combat it effectively, many measures should be taken, from improving the work of the customs service to global issues such as improving the living standards of citizens.

The criminalization of smuggling in itself is just a single step. There is a need for reforming the customs service, improving its capacity to detect smuggling, reducing the human factor, etc. Such measures, in fact, will play a preventive role. After all, the better the capacity of the customs office to detect smuggling, the less sense it makes to smuggle goods.

But a reform alone, especially if we are talking only about the staff, will not solve the problem. The customs office needs effective tools to work and the possibility to bring smugglers to liability, and the legislative criminalization of smuggling is one of such tools.

Vitjanis Ališauskas

International Key Expert on Customs Reform