IT BUSINESS PROTECTION FEATURES DURING THE SEARCH AND INSPECTIONS

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Artem Kovalev

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IT BUSINESS PROTECTION FEATURES DURING THE SEARCH AND INSPECTIONS

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IT BUSINESS PROTECTION FEATURES DURING THE SEARCH AND INSPECTIONS - zahist it biznesu 300x300 1Almost every month, the news feed is full of reports that another SBU IT company or DFS bodies are searching and seizing equipment. Unfortunately, over the past two years, statistics show that more than 30 Ukrainian IT companies have directly experienced all the “charms” of searches and inspections by regulatory authorities.

 According to the official version, voiced by law enforcement officials, investigative actions are carried out to identify terrorists or malicious taxpayers, or those who use special technical means of silently obtaining information in violation of current law.
 In order to identify the latter in the Unified State Register of Pre-trial Investigations (hereinafter – the EDDR), they submit information under Art. 359 of the Criminal Code of Ukraine (hereinafter referred to as the Criminal Code of Ukraine) for the purpose of identifying “special technical means of secretly obtaining information” used to track other persons. The disposition of Art. 359 of the Criminal Code of Ukraine specifies that responsibility can be taken not only for the use and creation, but also for the possession of these special means.
 Importantly! Ukrainian law does not explicitly define “special means of communication”, so each time during a search, the investigator is empowered to determine independently what software, household appliances (baby monitor, smartphone, external surveillance cameras, etc.) should be removed. Unfortunately, the final decision on the fate of the withdrawn is made by an examination conducted only by the SBU.
 Therefore, it is obvious that from the prospect of a search under Art. 359 of the Criminal Code of Ukraine is not insured by any IT company because of the specifics of activity. For example, in the spring of 2017, the IT company YouControl was accused of selling “special means of communication”, and in May of that year, the Prime Minister of Ukraine even interrupted a meeting of the Cabinet of Ministers of Ukraine through searches conducted by the SBU in an investment company Dragon Capital to search for “spyware specific to communications”.
 An example of “terrorist financing” in Ukraine, according to law enforcement agencies, is the use of “farms” that grow cryptocurrency and “banned in Ukraine” (according to an official press release of the Prosecutor General of Ukraine on searches at the enterprise “Quasar”.) Qiwi and Yandex.Money wallets.
 But if suddenly in the actions of the crowds they saw the composition of the crime under Art. 212 of the Criminal Code of Ukraine (tax evasion and other mandatory payments), it almost always indicates the minimization of taxation through the organization of the company with the use of individuals – entrepreneurs.
 Importantly! The legal grounds and motives for conducting searches at an IT company may be diverse and not directly related to its activities. It is possible to minimize the negative effects of the search by carrying out preliminary work on data protection against the possibility of removal and by enhancing the legal culture of the personnel in order to ensure the normal operation of the company.
Who is authorized to come with the check?
IT companies are often subject to audits of business activities by the bodies of the State Labor or the State Tax Service.
 It should be borne in mind that the State Labor bodies (after the decision of the Sixth Administrative Court of Appeal in Case No. 826/8917/17) are authorized to carry out audits of IT-business only in accordance with the procedure established by the Law of Ukraine “On basic principles of state supervision (control) in the sphere of economic activity “On the basis of the procedure of defining criteria for risks from business activity, approved by the Cabinet of Ministers of Ukraine, which will also indicate the frequency of inspections.
 The rules of the aforementioned Law of Ukraine stipulate planned (no more than once a year, duration from 5 to 10 days depending on the number of employees) and unscheduled business checks (the criteria for which are clearly defined in Article 6 of the Law).
Prior to the start of the inspection, the State Labor Inspector is obliged to inform the enterprise about the legal grounds, type and term of the inspection.
 Importantly! The decision to allow the auditor to actually conduct the audit should be based on the notice of the start of the audit. It will also not be superfluous to evaluate the legal consequences of the non-admission of the examiner and the failure to comply with his legal requirements.
In case of violations of the legislation during the inspection, the State Labor Inspector draws up an order that the employer can appeal to the administrative (the head of the relevant body of the State Labor) or in court.
Usually, a company is released from liability if it eliminates the violations of labor law specified in the order in time. This rule does not apply to:
– violations related to the use of work of persons not in employment with the enterprise;
– late and incomplete remuneration;
– breach of minimum guarantees in remuneration (in terms of terms and amount of remuneration).

 In this case, at the same time as the prescription to the offender may apply penalties, the amount of which depends on the seriousness of the offense (from 1 minimum wage and up to 30 mins for the admission of an employee without registration of labor relations).
 Importantly! The bodies of the State Labor are authorized to check compliance with labor law only. Usually, in the IT sphere, employees interact with companies as sole proprietors (simply FOPs), so companies cannot be held responsible for violating labor laws by FOPs themselves.
Other cases with the State Tax Service bodies authorized to carry out audits of compliance with the tax legislation.
 Yes, Art. 77 of the Tax Code of Ukraine and the Procedure of forming a schedule of documentary checks of taxpayers, approved by the order of the Ministry of Finance of Ukraine dated 02.06.2015 No. 524, formed the principle that the smaller the risks of taxpayer’s business activity, the less they have carry out audits of tax authorities.
 The set of risk criteria defined by the State Tax Service divides the enterprises into groups of low (which is inspected not more than once every three years), high (may be subject to audit each year) and medium level of risk. At the same time, one of the mandatory conditions for the validity of the audit is the submission of the company in the schedule of inspections for the next calendar year, approved by the Cabinet of Ministers of Ukraine, which will be published on the website of the State Fiscal Service by December 25 this year.
 Analyzing the order of formation of the audit schedule, we can assume that most of the IT companies by criteria are quite fit into the high-risk group, because they all have a number of indicators, for example:
– the volume of income of many companies is from 20 to 100 million UAH;
– the amount of purchase of FOP services is more than 5% of the revenue from other revenues of the company;
– the difference between the cost of services provided by the company does not exceed 10% of the company’s net income;
– conducting foreign economic activity through the founders, etc.
 Importantly! A tax audit of a business is inevitable, so it should be prepared on a daily basis, bringing the activity into compliance with the law. It will not be superfluous to periodically check on the website of the State Tax Service the (non) entry of the company in the schedule of carrying out inspections for the calendar year, since there are often cases and changes.
What shall I do?
 If a law enforcement agency has been searched by an IT company, it is important to:
– to contact the lawyer immediately (Article 236 of the Criminal Procedure Code of Ukraine (hereinafter – the CPC of Ukraine) obliges the investigator to admit the lawyer at any stage of the search);
– by the time of the lawyer’s arrival, independently begin video recording of the investigative action;
– find out which law enforcement officer will conduct the search and record his data (in accordance with Article 236 of the CPC of Ukraine and the decision of the Armed Forces in the case № 466/896/17 of 29.01.2019 only investigator is authorized to conduct the search);
– carefully read the search warrant and obtain a second copy;
– record in the search record the facts of the seizure of property by the investigators, which is not expressly provided for in the search warrant.
 Importantly! A search is conducted to identify and record information about the circumstances of the crime. According to Art. 234 of the CPC of Ukraine, the request of the prosecutor for a search should indicate the individual or generic characteristics of the things, documents or persons for which he is being identified. In addition, the removal of electronic information systems or parts thereof, mobile communication terminals not expressly specified in the search warrant, is prohibited Part 1 of Art. 168 CPC of Ukraine. Since any software, server, hardware has its own individual characteristics (proxy addresses, ip address), according to Part 2 of Art. 235, Part 1, Art. 168 of the CPC of Ukraine, the investigating judge must indicate them in the text of the search warrant.
“It is forbidden to temporarily remove electronic information systems or their parts, mobile terminals of communication systems, unless their provision together with the information contained therein is a necessary condition for conducting expert research, or if such objects are obtained as a result of committing a criminal offense whether it is a means or an instrument of its commission, and also if access to them is restricted by their owner, owner or holder or is related to overcoming the system of logical protection “. 2 h. 2 tbsp. 168 CPC of Ukraine
 Importantly! Even if the investigator made the decision to remove the hardware or software on the basis of Part 2 of Art. 168 of the CPC of Ukraine (for compulsory expert examination, or if such objects are obtained as a result of a criminal offense, or are a means, an instrument of its commission, or if the owner restricts access to them), make sure to ask the investigator in the record a search on the basis of which the norm is their seizure.

If no such information is found in the search warrant, the property of the company has the legal status of the temporarily seized property and can be returned to the rightful owner:
– on the basis of the decision of the prosecutor, if he / she finds such removal unjustified;
– upon the order of the investigating judge in case of refusal to satisfy the prosecutor’s request for the seizure of temporarily seized property;
– on the basis of Part 5 of Art. 171, part 6 of Art. 173 of the CPC of Ukraine (violation of the terms of the petition for seizure of property);
– in case of cancellation of the arrest, even if the property was admitted as material evidence (as an example – the decision of the Court of Appeal of Kyiv of 10.05.2018 in case No. 11-cc / 796/1803/2018).

CONCLUSION:

 Of course, the conduct of audits and searches of IT-companies has its specificity in view of the special professional activity of the latter. Business owners should be taken as a fact that searches and audits are inevitable in any company, the main thing is to be able to protect their rights and reputation.

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