A draft law has been registered in the Verkhovna Rada that proposes criminal liability for significant mark-ups on goods during the war. Why is this a bad idea?
Source: Ekonomichna Pravda
"To some, war is like mother nature! ’ - unfortunately, there are many cases in Ukraine to which this expression can be applied.
An example of this was the outrageous incident when the Epicentre sold bulletproof vests that had been manufactured in Ukraine by an NGO and were to be transferred to the defence needs through the Cherkasy Military Administration.
The consequences of fuel price speculation could be seen at many petrol stations, when the price of diesel exceeded 80 hryvnias.
MP Serhiy Kuzminykh proposed a radical way to combat such phenomena, registering a draft law.
The idea of the draft law is to establish criminal liability for offences in the areas of formation and application of prices and tariffs for socially important goods, as well as illegal acquisition and subsequent sale of products that have signs of military use.
The Institute of Legislative Ideas analysed the draft law and figured out what and how the lawmakers propose to punish and whether the proposed mechanism will be effective in combating those who profit from the war.
Responsibility for 20% markup on basic goods
It is proposed to supplement the Criminal Code (hereinafter - the CC) with a new Article 236 and establish liability for violation of the procedure for the formation, establishment and application of prices and tariffs, as well as discounts, markups and surcharges to them, committed under the conditions of a state of emergency or martial law for goods ofsignificant social importance, the list of which is determined by the Cabinet of Ministers of Ukraine, if the price exceedsmore than 1.2 times the price level determined by the Cabinet of Ministers of Ukraine for such goods.
In short, mark-ups of more than 20% on certain goods will be punishable.
According to the CMU Resolution No. 341 of 22.04.2020, the goods of significant social importance include, for example, wheat flour of the highest grade, pasteurised milk with a fat content of 2.5% (in film), rye-wheat bread, chicken eggs of category C1, poultry (chicken carcass, quarter chicken carcass).
Paragraph 41-12 of the CMU Resolution No. 1236 of 09.12.2020 stipulates that the maximum level of trade margin (mark-up) for these goods should not exceed 10%.
Thus, if an entrepreneur sets the price of, for example, premium wheat flour at 20% higher than the wholesale selling price of such flour, he or she will face imprisonment for a term of three to five years.
Diesel fuel and petrol are also included in the list of goods of significant social importance. However, such liability for price gouging will not be imposed at the moment, as the government temporarily stopped regulating fuel prices in May.
In fact, Ukraine already has administrative liability for speculators. According to Article 165-2 of the Code of Administrative Offences, a fine of up to UAH 4,250 can be imposed for inflating prices for socially important goods.
While acknowledging the inadmissibility of making excessive profits by inflating prices, especially in times of war, the proposal to punish this with imprisonment is quite controversial.
The commission of this offence, even in a state of emergency or martial law, does not reach the level of public danger that would indicate the need for criminal repression.
In practice, such an act cannot objectively cause significant damage to public relations.
Therefore, the proposed changes are a manifestation of excessive criminalisation. If there is a need to increase liability, the existing administrative fine could be increased to begin with.
Since the author of the draft law does not provide objective data that would indicate the insufficiency of administrative penalties for such acts, we can talk about a violation of the ultima ratio principle, according to which criminal liability should be introduced only when other means of influencing negative behaviour have proved ineffective or insufficient.
Resale of ammunition
The draft law also proposes to add Art. 201-3 to the Criminal Code, which will punish the illegal purchase and sale of products that have signs of military use.
Such products are proposed to be understood as bulletproof vests, plates for bulletproof vests, protective helmets, property and other equipment (except weapons) purchased centrally at the expense of the state budget for the needs of the Armed Forces of Ukraine and/or other military formations established in accordance with the legislation of Ukraine, or transferred as aid from international partners or charitable organisations.
Despite the unquestioning support for combating the theft of military ammunition, the proposed approach has significant drawbacks that may create problems in law enforcement.
Firstly, the definition of products that have features of military goods lacks legal certainty, as it is impossible to unambiguously establish what is meant by ‘material property and other equipment’.
A person will not be able to predict whether he or she will be held criminally liable for the illegal acquisition and sale of boot laces donated by benefactors, just as he or she will not be able to determine whether glasses or socks will be considered equipment.
Predictability is one of the elements of legal certainty that must be observed in the formulation of criminal law.
Secondly, it is actually a case of resale: the purchase of military products that were purchased with budgetary funds or donated as aid and their subsequent sale.
Therefore, even though the disposition does not contain a reference to the purpose of making a profit, it follows from the interpretation of this provision. This creates artificial competition with Art. 201-2 of the CC, which establishes liability for the illegal use of humanitarian aid, charitable donations or free aid for profit.
In most cases, the actions described in the proposed Article 201-3 of the CC will fall under the elements of Article 201-2 of the CC, which will create problems for law enforcement and generally casts doubt on the need for such an innovation.
In addition, since the sanctions in these articles are different, there are grounds for abuse in the qualification of the offence, when a lighter article will be charged for the unlawful benefit.
To conclude.
As a result, we have a draft law of poor quality, which is a manifestation of excessive criminalisation and may create problems in its application.
Of course, the facts of speculation should be severely suppressed. But there is already a tool for this - administrative fines. To begin with, this mechanism should be used effectively, adhering to the principle of inevitability of punishment.
Anyone who detects evidence of price speculation, if prices increase by more than 20%, can call the police to draw up an administrative report. It is not the best way to frighten business with prison, especially in times of war when its normal functioning is critical for the country.
It is interesting to note that the MP who, according to the investigation, takes kickbacks of 30% for overpricing by more than 20% proposes to imprison people. On 28 January, NABU detectives, together with the State Bureau of Investigation , exposed Serhiy Kuzminykh for taking a bribe.
The MP guaranteed a local company to win tenders for the supply of medical equipment to state hospitals and demanded 30% of the contract amount in return.
As for the separate article for resale of military products, the proposed mechanism may be problematic to apply and creates corruption risks.
There is no doubt that war requires tough measures to deal with lawbreakers. However, the criminal law must be of high quality and effective and not become an instrument of excessive repression.
Solving all problems by imprisonment for many years is the method of our ‘bad’ neighbours, so we should not learn bad things from our enemies.
The Institute of Legislative Ideas continues to analyse the legislation adopted during the war and make sure that each law is another step towards our victory.