This project was prepared in cooperation with UNIC
What does it mean?
What is compliance

And why it’s essential for business, even during wartime

A business with grey zones working with partners, business integrity, taxation, and debts is weak. It’s constantly endangered: are these dubious facts to be known, a company will suffer a blow to its reputation of such magnitude that it’ll be challenging to get back on its feet. It also means fines, sanctions, and broken relations with its partners. These problems are often caused not by design but by oversight, mistakes, and legislation confusion. A full-scale Russian attack on Ukraine added some challenges for Ukrainian companies, both legislative and ethical. For example, related to partnerships with Russian companies and new sanctions.

To feel secure and confident, the business world created a tool called compliance control. It helps companies to play by rules, comply with the laws and ethics, prove their trustworthiness to their international partners and rest assured that during a crisis truth is on your side.

Together with UNIC AIN.UA is telling about the compliance experts, who they  are, where are they trained, and what value they offer for the business.

Rings a bell, but not quite sure. What is compliance?

Not to get in trouble (fines, reputation stains, financial losses) every company has to follow certain rules. Legislative rules above all. That’s what compliance is about — whether a company complies with all the necessary principles and strictly follows all the laws: from labor law to business integrity while working with partners, from international and local legislation to internal company rules. As a result, the business is getting a solid reputation on the market and gaining its clients’ trust.

More specifically, compliance is a set of measures aimed at preventing its staff from breaking corporate ethics or the law. It is about risk management and control related to breaking the law, rules, standards, and recommendations (in particular issued by regulatory bodies).

Compliance is built around:

Compliance helps businesses to minimize the risks and cover all bases, to avoid complaints from authorities, partners, clients, or investors. It grants an opportunity to find and deal with flaws before others spot them. For all this to work efficiently, all the staff has to comply with it, starting from top management and to the C-level managers.

Why invent a new definition? Isn’t it enough to just follow all the laws?

International and local laws and standards have become very complex and entangled, and it is getting more and more challenging for an employee to follow all the updates and comply with all the terms. This matter has to be treated systematically and with the utmost attention. That is why compliance is necessary for every business.

There’s more to it: some unofficial ethical issues might emerge. They are not qualified by law, but they can cause future problems and risks for a company. Nepotism is an example.

Compliance officer does not follow all the legislative updates (other experts cover that), they define all the possible risks that could emerge in various domains: human relations, cybersecurity, human rights, reputation, etc.

Is it some sort of new and temporarily fashionable buzzword?

No, the notion of compliance is more than 50 years old. It began with a series of corruption scandals in the USA in 1970s. Tax evasion, debt cover-ups, antitrust law breaches — all of that came into the spotlight, caused a fuss, and led to headline court trials. So businesses decided that these cases should be prevented and that a company's reputation is something to nurture.

First compliance officers began working at American companies in 1980s. They monitored the company’s compliance with all legislative terms and ethical rules. Nowadays, compliance control is on in almost all American and European companies. Internal departments are monitoring how well the company follows the laws and ethical rules.

Is it essential for Ukrainian companies?

The trend for business integrity and transparency is getting more and more followers in Ukraine every year. Entrepreneurial ethics is becoming a crucial part of our business culture. One of the reasons for it is that Ukrainian companies go global and get international investors and partners, and participate in American and European accelerators and shows. For these markets, Reputation is King.

It is especially vital for Ukrainian companies now. Even those businesses that hadn’t planned to go to global are now integrating compliance in their strategy. Building compliance processes within the company does take time, so it is essential to launch it right now, to prepare your business for scaling globally. The war added risks and businesses have to be even more cautious in choosing partners and contractors, as well as and signing papers with foreign companies.

A lot of Ukrainian companies launch compliance control departments. Such as in Datagroup, Kernel, Nova Poshta, and MAU. Ukrainian offices of global companies — Kyivstar, Carlsberg, AB InBev Efes, Agro-Region Ukraine, Gudwalley Ukraine — also have such ones.

European Business Association poll shows that nearly half of Ukrainian businesses from various industries are serious about compliance, inviting outside experts to help with it.

Actually, that’s precisely what clients are asking of Ukrainian businesses. UNIC poll shows that almost 70% of Ukrainians are ready to pay more for goods and services if they buy from an integrity business.

How will my business benefit from it?

Not complying can lead to financial reputational losses. By breaking the rules (even unintentionally) a business can receive a fine or lose a license. If it is about ethical misconduct, it will lead to boycotting by future partners or big clients.

During wartime and after victory, compliance helps to prevent reputational and financial losses related to working with Russian and sanctioned companies. For example, Nestle and Coca-Cola haven’t calculated the risks and received multimillion losses, because they postponed their exit from the Russian market.

On the other hand, playing by the rules helps businesses to go global, get funding and deepen employees’ trust (which will help with the recruiting process), elevate the company’s reputation. Most importantly, compliance will aid in calculating possible risks and preventing troubles.

It is crucial that compliance processes are not only outlined on paper but are corresponding to the company's values and actions. Only then it will bring fruit.

OK, and what about the real cases of compliance failure?

Nominally, they can be classified into three types: financial, operational, and business violations. For example, a company can pay a non-official bonus to other company’s top managers so that they choose a suitable contractor. Violating fire protection security protocols, labor law, and tax optimization — are compliance violations that lead to business disastrous outcomes.

How does it work in real life:

"Once, a client asked us how they could legally fire a CEO of a Ukrainian company and his wife-, the accountant. The couple had a side project their employer was ignorant about. The company began to lose revenue and contracts for reasons unknown. The management revised the issue and found out that the CEO and his wife had been luring clients to their own company.

The company managed to bid farewell to these employees just in time to preserve its business. After this case, it realized the compliance importance and established a compliance system for the prevention and swift detection of suchlike problems. Timely checkup on conflict of interest and outside employment would show the issue earlier or totally prevent it."

Arzinger Law Firm

"A responsible approach to compliance in Ukrenergo is found in different areas, from transparent and competitive procurement to improved control over the supply chain, as it happened in the case of the informant’s message. It improves the company’s reputation and financial score.

One of the effective compliance substantial elements is an anonymous hotline for violations. In Ukrenergo it was launched in 2019 as a part of the corruption zero-tolerance policy.

We intentionally trained people on what are conflicts of interest and violations, how to spot them, and what should be done in case a violation is exposed. It brought fruit: employees started to adjust their behaviour and the hotline helped to prevent several violations that could lead to financial losses and operational disruption.

For example, an anonymous tip helped us find out that insulating oil has been stolen. If not prevented, this could result in damaging of the expensive machinery and multimillion losses for the company."

NPC Ukrenergo

If I have a small team of 30 people, do we actually need this?

Compliance is good for every company, regardless of its size. For a small company, a huge fine might mean the ruination of its business. And a reputational loss can be a final one.

And for a big company risk management is a necessity, for every misstep could cause multimillion losses.

Can I manage without compliance? It is not demanded by Ukrainian law…

There’s yet no law that would force every Ukrainian business to maintain compliance control. But if you are working with foreign partners, you can't avoid it.

Some markets (banking, finances) do have such regulations, but with the war and its risks, the demands for compliance can broaden.

For example, if a Ukrainian company opens an account in a foreign bank, its reputation will be accessed by foreign standards. And the company will have to go through compliance to prove it.

Even though the law does not dictate that Ukrainian companies have to hire compliance officers, every boss has to think about risk management. First and foremost compliance is important for the business itself, not for regulatory purposes.

What member of a team could be responsible for compliance?

Huge companies have compliance control departments, smaller ones hire compliance officers or train their own employees. Often this is the responsibility of the security service, law or finance departments, lawyers and accountants who have the corresponding knowledge.

Last year's polls show that 50% of Ukrainian companies who do compliance have teams of 2-5 people responsible for it. In 35% of companies, only one person is responsible for compliance, and in 15% of cases, there are more than 10 compliance specialists on board.

They have expertise in legislation and its updates, and they monitor compliance codex implementation in their companies, conveying this information to other team members, and making sure that everybody follows the rules.

Looks like my business needs it, where do I start?

First of all, it has to be seen as a priority at C-level, the company’s management and founders have to set an example of understanding compliance value and share resources on it.

After that, you have to search for weak points and find the people responsible for this search. They have to assess risks, create compliance policies and train all the other employees to follow them. Policies about conflict of interest, client relationships, gift-making policy, and so on.

No one on my team knows anything about it. Where can they learn about compliance?

Compliance is a relatively new idea for Ukraine and the educational institutions for training compliance officers on large scale are still absent.

But last year UNIC launched the Academy of Business Integrity. It is the first and only educational platform that has a systematic approach to training compliance experts in Ukraine.

The UNIC Academy already offers training for HR, marketing, and sales specialists. Next year, it is planned to launch a several-month program on the Basics of Compliance and other short-term training. The UNIC constantly holds events, discussions, and conferences with leading practitioners of Ukraine and international experts, has many open educational materials, guides, digests. In September, UNIC launched grant support for Ukrainian medium and small businesses seeking to build or strengthen their compliance system. Therefore, even beginners who do not know the word "compliance" will be able to acquire this knowledge after studying the materials, completing training at the Academy, or applying for a grant program.

Tetiana Honchenko
Mariia Ektova
Dariia Kornieieva
Anastasiia Mykhaliuk
Antonina Prudko