Corporate crime, fraud and investigations in Russian Federation: overview

A Q&A guide to corporate crime, fraud and investigations in the Russian Federation.

The Q&A gives a high level overview of matters relating to corporate fraud, bribery and corruption, insider dealing and market abuse, money laundering and terrorist financing, financial record keeping, due diligence, corporate liability, immunity and leniency, and whistleblowing.

To compare answers across multiple jurisdictions, visit the Financial Crime Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to corporate crime, fraud and investigations law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corporatecrime-mjg.

Alexey Borodak, Norton Rose Fulbright (Central Europe) LLP
Contents

Fraud

1. What are the main regulatory provisions and authorities responsible for investigating corporate or business fraud?

Russian law makes no distinction between corporate or business fraud and the criminal offences outlawed by the Russian Criminal Code No. 63-FZ, dated 13 June 1996 (as amended) (RCC). The criminal offences are:

  • Fraud (as a general crime).

  • Infliction of pecuniary damage (losses) by means of deceit and abuse of trust (it is not necessary for both elements (deceit and abuse of trust) to be present for this offence to be committed).

  • Embezzlement.

The main regulatory provisions relevant to general fraud are:

  • RCC.

  • Criminal Procedural Code No. 174-FZ, dated 18 December 2001 (RCPC) (as amended).

  • Code on Administrative Offences No. 195-FZ, dated 30 December 2001 (as amended) (AC).

All persons (natural and legal) and state and local authorities are obliged to comply with these regulations.

The preliminary investigation on a criminal case must be completed within two months from the day of notification of any criminal case.

Public prosecutors are responsible for prosecuting the above offences in the courts.

For more information on the regulatory authorities, see box: The regulatory authorities.

 

Offences

2. What are the specific offences relevant to corporate or business fraud?

The following criminal offences are prohibited by the Criminal Code (RCC):

  • Fraud (Article 159, RCC).

  • Fraud in business activity (Article 159.4, RCC).

  • Infliction of pecuniary damage (losses) by means of deceit or abuse of trust (Article 165, RCC).

  • Embezzlement (Article 160, RCC).

The following also constitute administrative offences under the Code on Administrative Offences (AC):

  • Minor larceny by means of fraud, embezzlement or theft (Article 7.27, AC).

  • Infliction of pecuniary damages (losses) by means of deceit or breach of confidence (Article 7.27.1, AC) (it is not necessary for both elements (deceit and abuse of trust) to be present for this offence to be committed).

Fraud is defined in Article 159 of the RCC as "misappropriation of, or acquisition of, rights to another's property by way of deceit or abuse of trust".

Fraud, the infliction of pecuniary damages by means of deceit or abuse of trust, and embezzlement are not strict liability offences as an element of intent is required to commit the offence.

Under Article 179 of the Civil Code a transaction made under the influence of fraud, coercion, threat or an agreement in bad faith by the representative of one party with another party may, on application by the deceived party, be declared invalid by the court. A fraudster may be liable to either:

  • Return property obtained illicitly to the deceived party.

  • Reimburse the deceived party and compensate the deceived party for consequential losses.

The Russian authorities can prosecute general fraud and embezzlement together with other offences. In that case, the offences are aggregated and are potentially subject to more severe punishment than one offence on its own would be, for example, where fraud (the first crime) is committed in the course of intentional bankruptcy (the second crime).

 

Enforcement

3. What are the regulator's powers of investigation, enforcement and prosecution in cases of corporate or business fraud and what are the consequences for non-compliance?

The regulator's powers of investigation, in the case of the Ministry of Internal Affairs are as follows:

  • Commencing criminal proceedings in compliance with Russian law.

  • Transferring criminal proceedings to the competent investigator.

  • Conducting investigations and managing criminal proceedings with or without taking various procedural measures (for example, interrogation, searches, examination of documents, seizures and so on).

  • Engaging:

    • specialists to conduct laboratory and other tests;

    • experts, officials and witnesses to disclose relevant information.

  • Appealing resolutions and other acts of the public prosecutor.

  • Exercising other powers contained in the Criminal Procedural Code (RCPC).

A Russian court has extra-territorial jurisdiction:

  • Against a Russian citizen who commits bribery or corruption outside the territory of the Russian Federation provided that:

    • such crimes are directed against the interests protected under the Criminal Code (RCC); and

    • there is no final foreign court decision on the case.

  • Against non-residents of the Russian Federation who commit bribery or corruption outside the territory of the Russian Federation provided that:

    • such crimes are directed against the interests of the Russian Federation or against a citizen of the Russian Federation or a stateless person permanently residing in the Russian Federation; and

    • there is no final foreign court decision on the case.

 

Penalties

4. What are the potential penalties or liabilities for participating in corporate or business fraud?

Civil/administrative proceedings or penalties

Administrative penalties imposed by the state or regulator may be applicable under the Code on Administrative Offences (AC). The size of the applicable penalty depends on the offence committed. Penalties can range from a fine of five times the value of the misappropriated items in the case of minor larceny (though this will not be less than RUB1,000) to administrative arrest for up to 15 days. In the case of infliction of pecuniary damages (losses) by means of deceit or breach of trust, a fine of five times the value of the misappropriated items can be imposed (though in this instance the fine imposed will not be less than RUB5,000). Administrative penalties can be applied against legal entities and individuals.

Criminal proceedings or penalties

Criminal penalties can only be applied against natural persons. Corporate bodies are not subject to criminal penalties or prosecution.

Sanctions for criminal liability (generally, without aggravating features) include fines and imprisonment. For example:

  • Under Article 159 of the Criminal Code (RCC) (ordinary fraud), the penalties range from:

    • a fine of up to RUB120,000 or the equivalent of one year's salary or other income;

    • obligatory work for up to 360 hours;

    • correctional work for up to one year;

    • restriction of freedom for up to two years;

    • compulsory work for up to two years;

    • arrest for up to four months;

    • imprisonment for up to two years.

  • Under Article 160 of the RCC (ordinary embezzlement), the penalties range from:

    • a fine of up to RUB120,000 or the equivalent of one year's salary or other income;

    • obligatory work for up to 240 hours;

    • correctional work for up to six months;

    • restriction of freedom for up to two years;

    • compulsory work for up to two years;

    • imprisonment for up to two years.

  • Under Article 165 of the RCC (infliction of pecuniary damage (losses) by means of deceit or abuse of trust) the penalties range from:

  • a fine of up to RUB300,000 or the equivalent of two years' salary or other income;

  • compulsory work for a term of up to two years with or without a restriction of freedom for up to one year;

  • imprisonment for up to two years with or without a fine of up to RUB80,000 or the equivalent of six months' salary or other income;

  • restriction of freedom for up to one year.

Civil suits

If a party suffers damage it can bring an action:

  • In the Russian state arbitration courts to obtain recovery if the claimant is a legal commercial entity or an entrepreneur (that is, a person carrying on a business activity).

  • In the Russian state court of general jurisdiction to obtain recovery if the claimant is a natural person.

It is possible to bring class actions in Russia in civil proceedings in state commercial arbitration courts under the Arbitration Procedure Code, but not in criminal or administrative proceedings.

 

Bribery and corruption

Regulatory provisions and authorities

5. What are the main regulatory provisions and authorities responsible for investigating bribery and corruption?

The main regulations governing bribery and corruption are:

  • Criminal Code (RCC).

  • Code on Administrative Offences (AC).

  • Federal Law No. 273-FZ, dated 25 December 2008 on Counteracting Corruption (as amended).

  • Federal Law No. 274-FZ, dated 25 December 2008 on Amendments to Certain Legislative Acts of the Russian Federation in Connection with the Adoption of the Federal Law on Counteracting Corruption (as amended).

  • Federal Law No. 79-FZ, dated 27 July 2004 on State Civil Service (as amended).

  • Federal Law No. 280-FZ, dated 25 December 2008 on Amendments to Certain Legislative Acts of the Russian Federation in Relation to Ratification of the UN Anti-bribery Convention dated 31 October 2003 and the Criminal Law Convention on Corruption dated 27 January 1999, and Adoption of the Federal Law on Counteracting Corruption (as amended).

  • Federal Law No. 172-FZ, dated 17 July 2009 on Anti-corruption Examination of Regulatory Acts and Drafts of Regulatory Acts.

  • Order of the President of the Russian Federation No. 925, dated 21 July 2010 on Measures for Implementation of Separate Provisions of the Federal Law on Counteracting Corruption.

  • Order of the President of the Russian Federation No. 821, dated 1 July 2010 on Commissions for State Federal Officers’ Conduct Compliance and on Conflicts of Interests Settlement.

  • Order of the President of the Russian Federation No. 226, dated 11 April 2014 on National plan for Counteracting Corruption for 2014-2015.

Russian legislation has several definitions of bribery. Each of Articles 204, 290, 291 and 291.1 of the RCC and Article 19.28 of the AC contain a separate definition of bribery that is used to determine whether an offence has been committed under the Article concerned.

The following best practice guidance should also be considered: Request No. VP-P13-9308 of the Chairman of the Government of the Russian Federation, dated 28 December 2011. This Request was addressed to a number of major state-owned companies and aims to increase the transparency of the business activity of state-owned companies. The main purpose of this Request was to obtain more detailed information in relation to:

  • The income and property of the top management of state-owned companies.

  • The beneficial ownership of the parties engaging in contracts with state-owned companies (in order to determine if there is any affiliation with the top management).

Note that this Request is only legally binding on state-owned companies.

The Ministry of Internal Affairs, Federal Security Service and Investigation Committee are responsible for investigating bribery and corruption in Russia.

 
6. What international anti-corruption conventions apply in your jurisdiction?

The following international anti-corruption conventions apply in Russia:

  • UN Convention against Corruption 2003 (Corruption Convention) (ratified by Russia in February 2006).

  • Council of Europe Criminal Law Convention on Corruption 1999 (ratified by Russia in July 2006).

  • Additional Protocol to the Criminal Law Convention on Corruption 2003 (Russia signed this on 7 May 2009, but has not ratified it yet).

  • OECD Convention on Combating Bribery of Foreign Public Officials 1997 (Russia joined on 17 April 2012).

Offences

7. What are the specific bribery and corruption offences in your jurisdiction?

The major offences are as follows:

  • Article 204 of the Criminal Code (RCC) (commercial bribery). This covers the illegal transfer or receipt of money, securities or any other assets, or the unlawful provision of services by an individual or group to a person who discharges managerial functions in a profit-making or any other organisation for the commission of actions or omissions in the interests of the giver, in connection with the official position held by the person discharging managerial functions.

  • Article 290 of the RCC (bribe-taking). This covers receipt by an official, a foreign official or an official of a public international organisation (whether personally or through an intermediary) of money, securities or any other assets, or the unlawful provision of services by an individual or group to the official for the purposes of taking action or performing an omission or offering patronage (unspecified future benefits) within the scope of the official's powers or matters that the official can influence through his official position.

  • Article 291 of the RCC (bribe-giving). This covers the giving to an official, a foreign official or an official of a public international organisation of a bribe in person or through an intermediary for the commission of illegal actions or omissions.

  • Article 291.1 of the RCC (facilitating bribery). This broadly covers acting as an intermediary in the course of bribery.

  • Article 19.28 of the Code on Administrative Offences (AC) (unlawful transfer). This covers the transfer, making of an offer or promise in the name of, or in favour of, a legal entity to an official, person carrying out managerial functions in a profit-making or other organisation, to a foreign official or to a functionary of an international public organisation of money, securities or other property or services in connection with the position held by that person or the official position.

All of the articles referred to above potentially apply to domestic public officials. Articles 290 and 291 of the RCC and Article 19.28 of the AC make specific reference to foreign public officials.

Penalties for bribery generally vary according to the sums involved. The law prohibits both the paying and receiving of a bribe, and the perpetrator must be aware of the bribe.

Foreign public officials

A foreign public official is a person, whether elected or appointed, who holds any position in a legislative, executive, administrative or judicial body of a foreign state, and any person performing a public function for a foreign state, including any public agency or public enterprise (note 2 to Article 290 of the RCC).

Domestic public officials

Under the RCC (Article 285), a domestic public official is a person who either:

  • Discharges the functions of a representative of a public authority on a permanent or temporary basis or by special authority.

  • Performs organisational and economic functions in:

    • state bodies;

    • local self-governing bodies; state and municipal institutions; state corporations;

    • the army of the Russian Federation, including its troops and military units.

Private commercial bribery

Commercial bribery is defined in Article 204 of the RCC as the illegal transfer or receipt of money, securities or any other assets, or the unlawful provision of services, by an individual or group to a person who discharges managerial functions in a profit-making or any other organisation for the commission of actions or omissions in the interests of the giver, in connection with the official position held by the person discharging managerial functions.

Defences

8. What defences, safe harbours or exemptions are available and who can qualify?

There are two statutory defences to the specific offences (that is, commercial bribery, bribe-giving and facilitating bribery) under the Criminal Code (RCC):

  • Extortion.

  • Voluntary reporting of the violation (whistleblowing).

A victim or whistleblower who demonstrates that an official extorted a bribe may be completely released from criminal liability. In each case, release of criminal liability is conditional on the victim or whistleblower fully co-operating in any subsequent investigation.

The RCC also specifies general defences that can apply to all crimes upon compliance with their requirements and which might exempt the defendant from criminal liability in criminal cases. These additional defences are as follows:

  • Execution of unlawful order or request.

  • Reasonable risk (that is, a risk that is justified for attaining a socially useful goal, for example, a life and death situation where some lives may be lost but others saved).

  • Extreme necessity.

  • Physical or mental compulsion.

There are no defences to an administrative claim under the Code on Administrative Offences (AC).

 
9. Can associated persons (such as spouses) and agents be liable for these offences and in what circumstances?

Associated persons and agents can be liable for all of the criminal and administrative offences listed above (see Question 7). An agent or a third party is criminally liable as an accessory or as a person assisting in a crime where he intentionally facilitates a bribe (Articles 33 and 34, Criminal Code (RCC)).

Effectively the law criminalises any improper payments to an official with the intention of influencing the exercise of his functions or obtaining a result that is dependent on the performance of their functions, regardless of the value of the payments involved or whether they are made through an associated person or a third party.

Enforcement

10. What are the regulator's powers of investigation, enforcement and prosecution in cases of bribery and corruption and what are the consequences of non-compliance?

The investigators of the Ministry of Internal Affairs have the following powers of investigation (Article 38, Criminal Procedural Code (RCPC)):

  • Commencing criminal proceedings.

  • Transferring criminal proceedings to a competent investigator.

  • Conducting investigations and direct criminal proceedings with or without taking various procedural measures (for example, interrogation, searches, examination of documents, seizures and so on).

  • Engaging:

    • specialists to conduct laboratory and other tests; and

    • experts, officials and witnesses to disclose relevant information.

  • Appealing resolutions and other acts of the general prosecutor.

  • Exercising other powers contained in the RCPC.

There are two types of criminal investigation under the Criminal Code (RCC) (Article 150, RCPC):

  • Enquiry (doznanie).

  • Preliminary investigation (predvaritelnoe sledstvie).

Generally, an enquiry (doznanie) is carried out by an investigator within 30 days from the date of commencement of the criminal case in relation to certain minor crimes, for example, slander, fraud, embezzlement, extortion and so on, which are not subject to preliminary investigation (predvaritelnoe sledstvie) (Article 223(3), RCPC).

A preliminary investigation (predvaritelnoe sledstvie) is generally carried out by an investigator within two months from the date of commencement of the criminal case in relation to certain major crimes, for example, commercial bribery, bribe-taking, bribe-giving, facilitating bribery and so on, which are not subject to an enquiry (doznanie) (Article 162, RCPC).

In the case of an enquiry (doznanie) and a preliminary investigation (predvaritelnoe sledstvie), once the investigator has completed his investigations and assuming that he has collected sufficient evidence of guilt, he must then prepare a bill of indictment and immediately forward it to the public prosecutor (Articles 220 and 225, RCPC).

The public prosecutor has ten days to endorse the bill of indictment or to return it to the investigator for additional investigation (Article 221(1), RCPC). After endorsing the bill of indictment the prosecutor forwards it to the court.

The court generally has 30 days (or 14 days if the accused is in custody) to commence trial of the criminal case from the date of receipt of the bill of indictment and all relevant documents (Article 227(3), RCPC). This term can be extended by the court where there is reasonable justification for the extension.

After reviewing all of the submitted documents for the criminal case, the court is entitled to make a decision on its merit by either declaring the defendant (Article 302(1), RCPC):

  • Guilty and passing the sentence the defendant must serve.

  • Not guilty.

Russian legislation and the Russian courts do not recognise the concept of an injunction in criminal proceedings, but Russian courts as well as investigators can pass certain preliminary orders applying interim measures to individuals in order to facilitate criminal proceedings and to protect the criminal investigation from interference (Article 111, RCPC). Examples include temporary suspension of a suspect from his position, arrest and so on.

A Russian court has extra-territorial jurisdiction (Article 12, RCC):

  • Against a Russian citizen who commits bribery or corruption outside the territory of the Russian Federation provided that:

    • such crimes are directed against the interests protected under the RCC; and

    • there is no final foreign court decision on the case.

  • Against non-residents of the Russian Federation who commit bribery or corruption outside the territory of the Russian Federation provided that:

    • such crimes are directed against the interests of the Russian Federation or against a citizen of the Russian Federation or a stateless person permanently residing in the Russian Federation; and

    • there is no final foreign court decision on the case.

Penalties

11. What are the potential penalties for participating in bribery and corruption?

Civil/administrative proceedings or penalties

Administrative proceedings and penalties are only applicable to legal entities.

The following penalties are available for unlawful remuneration on behalf of a legal entity:

  • On a normal scale bribe (see below), an administrative fine of up to three times the amount of the bribe (but not less than RUB1 million) and confiscation of the bribe.

  • On a large scale bribe, an administrative fine of up to 30 times the amount of the bribe (but not less than RUB20 million) and confiscation of the bribe.

  • On an especially large scale bribe, an administrative fine of up to 100 times the amount of the bribe (but not less than RUB100 million) and confiscation of the bribe.

The penalties for unlawful remuneration may be divided into three categories depending on the sum involved:

  • "Normal scale": up to RUB1 million.

  • "Large scale": from RUB1 million to RUB20 million.

  • "Especially large scale": over RUB20 million.

In civil proceedings, there is a general rule that any party incurring losses as a result of the bribery or corruption can recover losses from the perpetrator in court.

The following penalties can also be applied to the defaulting party:

  • Invalidation of the transaction.

  • Compensatory damages for the loss caused (Russian law does not apply punitive damages in civil proceedings).

  • Confiscation of property by the federal state authorities.

Criminal proceedings or penalties

The following penalties are only applicable to individuals, as corporate bodies cannot be held criminally liable.

The penalties for offences are categorised by reference to the amount of the bribe involved:

  • Normal scale: up to RUB25,000.

  • Substantial scale: from RUB25,000 to RUB150,000.

  • Large scale: from RUB150,000 to RUB1 million.

  • Especially large scale: over RUB1 million.

Commercial bribery

The following penalties apply to cases involving commercial bribery:

  • For bribe-giving by individuals:

    • a fine of up to 50 times the amount of the bribe together with deprivation of the right to hold office or engage in certain activity for up to two years;

    • restriction of freedom for up to two years;

    • compulsory work for up to three years; or

    • imprisonment for up to three years.

  • For bribe-giving by a group of persons acting in concert, or by an organised group:

    • a fine of up to 70 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • compulsory work for up to four years;

    • arrest for up to six months; or

    • imprisonment for up to six years.

  • For bribe-taking by individuals:

    • a fine of up to 70 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • compulsory work for up to five years with or without deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to seven years with a fine of up to 40 times the amount of the bribe.

  • For bribe-taking by a group of persons acting in concert, or by an organised group, attended by bribe extortion and being made to encourage an illegal action:

    • a fine of up to 90 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • imprisonment for up to 12 years with a fine of up to 50 times the amount of the bribe.

Bribe-taking

The following penalties apply to cases involving bribe-taking:

  • By a functionary, foreign official or functionary of an international public organisation:

    • a fine of up to 50 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • compulsory work for up to five years together with deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to three years with a fine of up to 20 times the amount of the bribe.

  • By a functionary, foreign official or functionary of an international public organisation for a bribe of a considerable amount:

    • a fine of up to 60 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • imprisonment for up to six years with a fine of up to 30 times the amount of the bribe.

  • By a functionary, foreign official or functionary of an international public organisation for illegal actions (or omissions):

    • a fine of up to 70 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • imprisonment for up to seven years with a fine of up to 40 times the bribe amount.

  • Any of the above acts committed by a person who holds a government position of the Russian Federation or a government position of a subject of the Russian Federation, or by the head of a local self-government body:

    • a fine of up to 80 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • imprisonment for up to ten years with a fine of up to 50 times the amount of the bribe.

  • Acts committed by a group of persons in concert, or by an organised group, involving extortion of a bribe or involving a large scale bribe:

    • a fine of up to 90 times the bribe amount; or

    • imprisonment for up to 12 years with a fine of up to 60 times the amount of the bribe and with deprivation of the right to hold office or engage in certain activity for up to three years.

  • Acts committed by any of the above involving an especially large scale bribe:

    • a fine of up to 100 times the amount of the bribe together with deprivation of the right to hold office or engage in certain activity for up to three years;

    • imprisonment for up to 15 years with a fine of up to 70 times the amount of the bribe.

Bribe-giving

The following penalties apply to cases involving bribe-giving:

  • To a functionary, foreign official or functionary of an international public organisation:

    • a fine of up to 30 times the amount of the bribe;

    • compulsory work for up to three years; or

    • imprisonment for up to two years with a fine of up to ten times the amount of the bribe.

  • To a functionary, foreign official or functionary of an international public organisation on a substantial scale:

    • a fine of up to 40 times the amount of the bribe; or

    • imprisonment for up to three years with a fine of up to 15 times the amount of the bribe.

  • To a functionary, foreign official or functionary of an international public organisation for illegal actions (or omissions):

    • a fine of up to 60 times the amount of the bribe; or

    • imprisonment for up to eight years with a fine of up to 30 times the amount of the bribe.

  • By a group of persons in concert, or by an organised group, or on a large scale:

    • a fine of up to 80 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to ten years with a fine of up to 60 times the amount of the bribe.

  • Acts committed by any of the above involving an especially large scale bribe:

    • a fine of up to 90 times the amount of the bribe; or

    • imprisonment for up to 12 years with a fine of up to 70 times the amount of the bribe.

Facilitating bribery

The following penalties apply to cases involving facilitating bribery:

  • Facilitating bribery:

    • a fine of up to 40 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to five years with a fine of up to 20 times the bribe amount.

  • Facilitating bribery to encourage illegal actions (or omissions), or the abuse by a person of their official position:

    • a fine of up to 60 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to seven years with a fine of up to 30 times the amount of the bribe.

  • Facilitating bribery by a group of persons in concert, or by an organised group, or on a large scale:

    • a fine of up to 80 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to 12 years with a fine of up to 60 times the amount of the bribe.

  • Facilitating bribery on an especially large scale:

    • a fine of up to 90 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to 12 years with a fine of up to 70 times the amount of the bribe.

  • Promise or offer of facilitating bribery:

    • a fine of up to 70 times the amount of the bribe with deprivation of the right to hold office or engage in certain activity for up to three years;

    • a fine in the amount of up to RUB500 million with deprivation of the right to hold office or engage in certain activity for up to three years; or

    • imprisonment for up to seven years with a fine of up to 60 times the amount of the bribe.

Tax treatment

12. Are there any circumstances under which payments such as bribes, ransoms or other payments arising from blackmail or extortion are tax-deductible as a business expense?

There are no circumstances under which these types of payments can be tax-deductible as a business expense.

All deductible expenditures are expressly specified in the Tax Code of the Russian Federation (part II) (dated 5 August 2000, No.117-FZ). These types of payments are not included in the Tax Code. Furthermore, the giving or receiving of bribes is considered to be an invalid transaction under the Civil Code. Invalid transactions cannot be used by a taxpayer as the basis for tax reimbursement or tax deduction.

 

Insider dealing and market abuse

Regulatory provisions and authorities

13. What are the main regulatory provisions and authorities responsible for investigating insider dealing and market abuse?

Insider dealing and market abuse are regulated by the following main provisions:

  • Federal Law No. 224-FZ "On Counteracting the Abuse of Inside Information and Market Manipulation and Amendment of Certain Legislative Acts of the Russian Federation" dated 27 July 2010 (as amended) (Law on Inside Information), which prohibits the use of inside information when:

    • dealing in financial instruments, currencies and commodities in the regulated market;

    • recommending, obliging or inducing third parties to deal in financial instruments, currencies or commodities;

    • the transfer of inside information to third parties (other than to persons on an insider's list in connection with the performance of their obligations under the law on labour or civil contracts).

    The Law on Inside Information does not apply to the operations of the Bank of Russia relating to state monetary and credit policy, or in support of the rouble exchange rate, or to public debt management operations of state and municipal authorities.

  • Federal Law No. 39-FZ "On the Securities Market" dated 22 April 1996 (as amended) (Securities Law), a core act regulating the financial markets in Russia. It was amended in 2011 to be consistent with the Law on Inside Information.

  • Federal Law No. 395-1 "On Banks and Banking Activity" dated 2 December 1990 (as amended) (Banking Law).

  • Federal Law No. 86-FZ "On the Central Bank of the Russian Federation (Bank of Russia)" dated 10 July 2002 (as amended) (Central Bank Law).

  • Criminal Code (RCC). The RCC specifies the penalties for both:

    • market manipulation;

    • illegal use of inside information.

  • Code on Administrative Offences (AC). The AC establishes certain non-criminal administrative offences:

    • market manipulation;

    • illegal use of inside information;

    • breach of legal requirements for counteracting illegal use of inside information.

    The AC specifies the penalties for these offences.

  • Order of the Federal Service for the Financial Market (FSFM) No. 12-9/pz-n "On procedure and terms for disclosure of inside information by persons specified in items 1- 4, 11 and 12 of Article 4 of the Law on Inside Information" dated 28 February 2012.

  • Order of the FSFM No. 11-18/pz-n "On endorsing the list of inside information related to persons specified in items 1- 4, 11 and 12 of Article 4 of the Law on Inside Information" dated 12 May 2011 (as amended).

These provisions are mandatory and apply to all persons, natural and legal, irrespective of their status as state, private or local authority entities.

The FSFM has also issued the following legal guidance on inside information:

  • Information Letter of the FSFM No. 11-DP- 10-37974 "On guidelines relating to specific questions in respect of application of the Law on Inside Information" dated 28 December 2011 (Guidelines).

  • Information Letter of the FSFM "On measures for implementation of the Law on Inside Information" dated 27 January 2011.

There are no legal consequences for failing to follow the legal guidance.

The FSFM (whose functions are now performed by the Bank of Russia) regularly published on its website answers to questions on the procedures for maintaining a list of insiders, and guidelines to the Law on Inside Information (www.fcsm.ru).

The main authorities responsible for investigating insider dealing and market abuse are:

  • Bank of Russia.

  • Federal Antimonopoly Service (FAS) (in particular, regarding market abuse).

  • Self-regulating organisations (SRO) (in particular, relating to violations of the financial markets by professional market participants).

Offences

14. What are the specific insider dealing and market abuse offences?

Under Russian law the specific insider dealing and market abuse offences are as follows:

  • Market manipulation.

  • Illegal use of inside information.

  • Breach of legal requirements for counteracting illegal use of inside information.

Market manipulation

This refers to action(s) causing the price, supply, demand or volume of trading in a financial instrument(s) to materially change from what it would have been had such action(s) not been taken.

Seven types of price manipulation are identified in the Law on Inside Information:

  • Wilful distribution of deliberately false information via publicly available sources.

  • Entering into transaction(s) involving financial instruments, currencies or commodities where parties to the transaction(s) have a pre-existing agreement to undertake the transaction(s).

  • Entering into transactions where the same person is the ultimate beneficiary on both sides of the transaction.

  • Submitting buy and sell orders for, or on behalf of, the same person where the price of the buy order is equal to or greater than the price of the sell order.

  • During a single trading day repeatedly executing transactions for, or on behalf of, the same person on the basis of orders having, at the moment of their submission, the highest purchase price or the lowest selling price.

  • During a single trading day repeatedly executing transactions on account of, or for the benefit of, the same person in bad faith and with the purpose of misleading other market participants about the price of financial instruments, currencies or commodities.

  • Repeatedly entering into transactions involving the same financial instruments, currencies or commodities with no intention of performing them.

This is not a strict liability offence. The offence carries administrative liability where the loss suffered by the victim is RUB2.5 million or less, and carries criminal liability where the loss suffered exceeds RUB2.5 million.

Illegal use of inside information

Inside information means precise, material, non-public information, that may materially influence the price of financial instruments, foreign currencies or commodities and which is of a type specified by the Federal Service for the Financial Market (FSFM), the Bank of Russia and other relevant public authorities, including:

  • Commercial information, official information, bank secrets, confidential communication or other protected data.

  • Information relating to financial instruments, foreign currencies and commodities.

  • Information relating to:

    • issuers;

    • asset management companies managing investment funds or unit investment funds.

The following information is not considered inside information:

  • Information already disclosed to the public.

  • Research, forecasts, estimates and recommendations in respect of financial instruments, foreign currency and commodities, and other types of recommendations.

  • Offers to enter into a transaction involving financial instruments, foreign currencies and commodities.

This is not a strict liability offence. Administrative liability exists only if the loss suffered by the victim is RUB2.5 million or less, and potential criminal liability where the loss suffered exceeds RUB2.5 million.

Breach of legal requirements for counteracting illegal use of inside information

The key elements of this administrative only offence are a failure to disclose, or improper disclosure, by a person required to disclose inside information through the correct sources for public dissemination of inside information. It is not a strict liability offence.

Defences

15. What defences, safe harbours or exemptions are available and who can qualify?

There are no specific defences, safe harbours or exemptions with respect to market manipulation, illegal use of inside information and breach of legal requirements for counteracting illegal use of inside information.

A person is generally under no obligation to disclose know-how (that is, secret commercial information that is not available to the public, possession of which enables a person to increase their profit and avoid losses and retain position in the market). However, the rules on the protection of know-how may contradict the rules requiring public dissemination of inside information.

Russian law does not use the mechanism of "blackout periods", which in some jurisdictions prohibit persons with access to inside information from trading in securities in the period prior to the release of certain types of information.

Enforcement

16. What are the regulator's powers of investigation, enforcement and prosecution and what are the consequences of non-compliance?

The Central Bank can:

  • Identify, prevent, investigate and impose administrative liability (save for administrative disqualification, which can be only imposed by the court) for breaching Russian legislation.

  • Check compliance with legislation.

  • Require disclosure and provision of information, documents and data.

  • Issue injunctions to stop unlawful actions and to suspend trading.

  • Annul (suspend) licensing for professional market participants.

  • Appear in court with respect to administrative proceedings and criminal proceedings regarding the illegal use of insider information and market manipulation.

Generally the Central Bank has 15 days to investigate a potential administrative offence to decide whether an administrative offence has been committed and what penalties ought to be applied (Article 29.6, Code on Administrative Offences (AC)).

The court generally has 30 days (or 14 days if the accused is in custody) to commence trial of the criminal case from the date of receipt of the bill of indictment and all relevant documents. This term can be extended by the court where there is reasonable justification for the extension.

Russian courts, the Central Bank and other regulators do not have extra-territorial jurisdiction with respect to the Law on Inside Information.

Penalties

17. What are the potential penalties for participating in insider dealing and market abuse?

Civil/administrative proceedings or penalties

Market manipulation. Market manipulation that does not amount to a criminal offence can have the following penalties applied:

  • For individuals, a fine of up to RUB5,000.

  • For officials, a fine of up to RUB50,000 or disqualification of up to two years.

  • For legal entities, a fine in the amount of the excessive profit gained or losses avoided but not less than RUB700,000.

Illegal use of inside information. Administrative penalties for the illegal use of inside information have been in effect since 27 January 2011.

The illegal use of inside information that does not amount to a criminal offence can have the same penalties applied as for the administrative offences under market manipulation (see above, Market manipulation: Administrative penalties).

Criminal proceedings or penalties

Market manipulation. Market manipulation that has caused major damage to individuals, legal entities or the state or that has gained excessive profit (the difference between income with the unlawful activity and income without the unlawful activity), or has enabled a person to avoid major level damage or losses (over RUB2.5 million), can have the following penalties applied:

  • A fine of up to RUB500,000 or equivalent of up to three years' salary or other income.

  • Compulsory work for up to four years with or without deprivation of the right to hold office or engage in certain activity for up to three years.

  • Imprisonment for up to four years with or without either:

    • a fine of up to RUB50,000 or equivalent of up to three months' salary or other income; or

    • deprivation of the right to hold office or engage in certain activity for up to three years.

The same crime committed by an unlawful organised group, or which has caused particularly major damage (over RUB10 million), can have the following more severe penalties applied:

  • A fine of up to RUB1 million or equivalent to five years' salary or other income.

  • Compulsory work for up to five years with or without deprivation of the right to hold office or engage in certain activity for up to three years.

  • Imprisonment for up to seven years with or without a fine, which is either RUB1 million or the equivalent of up to three years' salary or other income.

  • Deprivation of the right to hold office or engage in certain activity for up to three years.

Illegal use of inside information. Criminal penalties for illegal use of inside information became effective from 1 August 2013. Illegal use of inside information (including solicitation to buy or sell such information by a third party) is punishable by:

  • A fine, which is either up to RUB500,000 or the equivalent of up to three years' salary or other income.

  • Compulsory work for up to four years with or without deprivation of the right to hold office or engage in certain activity for up to three years.

  • Imprisonment for up to four years with a fine of up to RUB50,000 or equivalent of up to three months' salary or other income with or without deprivation of the right to hold office or engage in a certain activity for up to three years.

The wilful tipping of inside information to a third party is punishable by more severe penalties, including:

  • A fine of up to RUB1 million or the equivalent of up to four years' salary or other income.

  • Compulsory work for up to four years with or without deprivation of the right to hold office or engage in certain activity for up to four years.

  • Imprisonment for up to six years with or without a fine of up to RUB100,000 or the equivalent of up to three years' salary or other income, with or without deprivation of the right to hold office or engage in a certain activity for up to four years.

Breach of legal requirements for counteracting illegal use of inside information. Only the following administrative penalties apply:

  • Failure to perform obligations to disclose inside information, or improper performance of those obligations can have the following penalties applied:

    • for officials, a fine of up to RUB30,000 or disqualification for up to one year; and

    • for legal entities, a fine of up to RUB700,000.

  • Failure, by persons obliged by law, to list insiders and notify persons included in the list of insiders can involve:

    • for officials, a fine of up to RUB30,000;

    • for legal entities, a fine of up to RUB500,000.

  • Failure to notify the Central Bank of transactions conducted with respect to financial instruments, securities, foreign currency and/or commodities (or improper performance of that obligation) can have the following penalties applied:

    • for individuals, a fine of up to RUB5,000;

    • for officials, a fine of up to RUB30,000;

    • for legal entities, a fine of up to RUB500,000.

  • Failure to take all measures required by law to reveal and prevent abuses (or improper performance of that obligation) can have the following penalties applied:

    • for officials, a fine of up to RUB30,000 or disqualification for up to one year;

    • for legal entities, a fine of up to RUB700,000.

Civil suits

For all the above offences, the victim can institute civil proceedings to claim recovery of all losses suffered under Article 7(7) of the Law on Inside Information.

 

Money laundering and terrorist financing and financial/trade sanctions

Regulatory provisions and authorities

18. What are the main regulatory provisions and authorities responsible for investigating money laundering, terrorist financing and/or breach of financial/trade penalties?

Money laundering

The regulatory provisions concerning money laundering and terrorist financing are as follows:

  • Federal law No. 115-FZ "On Counteracting Criminal Money Laundering and Terrorist Financing" dated 7 August 2001 (as amended) (Law on Money Laundering and Terrorist Financing).

    The Law on Money Laundering and Terrorist Financing is a core act regulating transactions with cash and monetary funds conducted by foreign and Russian citizens, legal entities and their branches (representative offices) and subsidiaries and state authorities in Russia and outside of Russia, for the purpose of revealing and counteracting (by applying specific measures) criminal money laundering and terrorist financing.

    Banks, financial institutions participating in the securities market, insurance and leasing companies, pawn shops, post offices, betting shops, companies managing investments and pension funds, jewellery and precious metals retailers are obliged to report transactions with a value exceeding RUB600,000, in particular:

    • cash payments;

    • bank deposits;

    • precious stones and metals;

    • payment under life insurance policies;

    • betting.

  • The Criminal Code (RCC) provides penalties for specific crimes connected with money laundering and terrorist financing.

  • The Code on Administrative Offences (AC) provides penalties for administrative offences regarding money laundering and terrorist financing.

  • Agreement on Counteracting Criminal Money Laundering and Terrorist Financing When Transferring Cash and/or Monetary Funds through the Customs Borders of the Customs Union between the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation dated 19 December 2011. This agreement indicates the basis for joint measures (including information collaboration by state authorities) for countering money laundering and terrorist financing within the territory of the Customs Union.

  • The Banking Law, which obliges Russian banks to control transactions with regards to specific electronic funds transfer, currency exchange and the provision of other banks' products and services.

  • The Central Banking Law, which specifies:

    • the banking rules and controls over banks and other credit institutions;

    • the relevant negative consequences for non-compliance with the Central Bank's rules and regulations.

The primary regulatory authorities responsible for investigating money laundering and terrorist financing are as follows:

  • Federal Financial Monitoring Service (Rosfinmonitoring).

  • Central Bank.

  • Federal Customs Service.

  • Ministry of Internal Affairs.

For more information on the regulatory authorities, see box: The regulatory authorities.

Terrorist financing

See above, Money Laundering.

Financial/trade sanctions

Financial/trade sanctions are regulated by the following acts:

  • Federal law No. 281-FZ "On special economic measures" dated 30 December 2006.

  • Federal law No. 390 "On security" dated 28 December 2010.

  • Decrees of the President of the Russian Federation (for example, Decree No. 560 "On application of the special economic measures for the purposes of the security of the Russian Federation" dated 6 August 2014).

The import restrictions (trade sanctions) are usually clarified by the Government of the Russian Federation (such as the recent list of food, which restricted food from being imported by states that have imposed sanctions against the Russian Federation (Resolution of the Government of the Russian Federation "On enforcing the Decree of the President of the Russian Federation No. 560" and "On application of the special economic measures for the purposes of the security of the Russian Federation" dated 6 August 2014).

The primary regulatory authorities responsible for regulating the sphere of financial/trade sanctions and/or investigating these types of offences are the:

  • Federal Customs Service.

  • Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor).

  • Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor).

  • Central Bank.

For more information on the regulatory authorities, see box: The regulatory authorities.

Offences

19. What are the specific offences relating to money laundering, terrorist financing and/or breach of financial/trade sanctions?

Money laundering and terrorist financing are prohibited and subject to criminal and administrative sanctions under both the Criminal Code (RCC) and the Code on Administrative Offences (AC).

Money laundering

Articles 174 and 174.1 of the RCC provide criminal sanctions for committing money laundering.

Under these articles, money laundering means carrying out financial transactions and other transactions with monetary funds and other properties, which are illegally acquired by other persons or acquired as a result of committing a crime, for the purpose of enhancing the legality of use, possession and disposition of the underlying monetary funds and other properties.

The underlying crimes are not strict liability offences as they require criminal intent.

Article 15.27 of the AC provides the following elements of the administrative offence, namely failure to implement the legal requirements for counteracting both illegal money laundering and terrorist financing:

  • Failure:

    • to have internal controls regarding financial transactions suspected to be used for the purpose of money laundering and/or terrorist financing;

    • to provide the controlling authorities with conforming documents within the specified time frame.

  • Providing false documents to the controlling authorities about financial transactions.

  • Obstructing any required inspections that must be carried out on the legal entity conducting financial transactions.

  • Failure to perform mandatory orders given by the controlling authorities in respect of financial transactions.

Terrorist financing

Article 205.1 of the RCC specifies the sanctions for terrorist financing (that is, collecting and providing monetary funds and other property, including providing financial services, for the purpose of assisting, soliciting or committing various terrorist acts). Criminal sanctions are only applied to officials, entrepreneurs and other natural persons (not to legal entities and their corporate bodies). The underlying crimes are not strict liability offences as they require criminal intent.

Article 15.27 of the AC provides sanctions for failing to implement measures to counteract terrorist financing (see above, Money laundering).

Financial/trade sanctions

Article 15.25 of the AC sets out the penalties for breaches of financial/trade sanctions in relation to exchange control restrictions.

Articles 16.1 and 16.3 of the AC sets out the penalties for illegally importing goods, and the failure to comply with import restrictions.

For more information on the regulatory authorities, see box: The regulatory authorities.

Defences

20. What defences, safe harbours or exemptions are available and who can qualify?

There are no specific defences or safe harbours available. However, financial transactions with a value of less than RUB600,000 and real estate transactions with a value not exceeding RUB3 million are not subject to the Federal Financial Monitoring Service's mandatory control.

Enforcement

21. What are the regulator's powers of investigation, enforcement and prosecution and what are the consequences of non-compliance?

Money laundering

The Federal Financial Monitoring Service is responsible for:

  • Counteracting and investigating illegal money laundering and terrorist financing.

  • Drafting regulations.

  • Co-ordinating and collaborating with other federal executive bodies and the Central Bank.

The Federal Financial Monitoring Service can, among other things:

  • Investigate the administrative offences contained in Article 15.27 of the Code on Administrative Offences (AC) and impose penalties.

  • Suspend (for up to five working days) the performance of suspicious financial transactions connected with money laundering and terrorist financing (to check the background of these transactions).

  • Collect information and documents linked with illegal money laundering and terrorist financing, and provide law enforcement bodies with them for the purpose of investigating and prosecuting these crimes.

  • Require legal entities and other persons to disclose specific information connected with suspicious financial transactions.

Under Article 29.6 of the AC, the Federal Financial Monitoring Service generally has 15 days to investigate administrative offences to decide whether an administrative offence has been committed and what penalties should be applied.

Under certain international treaties (for example, the International Convention for the Suppression of Financing of Terrorism 1999), the Law on Money Laundering and Terrorist Financing has extra territorial effect and is applicable to natural persons and legal entities conducting transactions with monetary funds and other properties outside the Russian Federation.

Terrorist financing

See above, Money laundering.

Financial/trade sanctions

The Central Bank and the Federal Customs Service are entitled to perform administrative investigations into breaches of financial/trade sanctions.

Penalties

22. What are the penalties for participating in money laundering, terrorist financing offences and/or breaches of financial/trade sanctions?

Money laundering and terrorist financing

Civil/administrative proceedings or penalties. There are several penalties imposed by the state or regulator for administrative offences, depending on the offence:

  • Failure to have internal controls regarding financial transactions that are suspected of being used for the purposes of money laundering and/or terrorist financing, and failure to provide the controlling authorities with conforming documents in the relevant time frame is subject to the following fines:

    • for officials, up to RUB30,000;

    • for legal entities, up to RUB100,000.

  • Providing false documents to the controlling authorities about financial transactions or failure to provide such documents is subject to the following fines:

    • for officials, up to RUB50,000;

    • for legal entities, up to RUB400,000 or administrative suspension of the ability to carry out activities for up to 60 days.

  • Obstructing inspections to be carried out with respect to legal entities conducting financial transactions or failure to perform mandatory orders given by the controlling authorities in respect of financial transactions is subject to the following fines:

    • for officials, up to RUB50,000 or disqualification for up to three years;

    • for legal entities, up to RUB1 million or administrative suspension of the ability to carry out activities for up to 90 days;

  • Failure to perform anti-money laundering law requirements that resulted in money laundering or terrorist financing is subject to the following fines:

    • for officials, up to RUB50,000 or disqualification for up to three years;

    • for legal entities, up to RUB1 million or administrative suspension of the ability to carry out activities for up to 90 days.

Criminal proceedings. The Criminal Code (RCC) provides the following penalties for committing money laundering in Articles 174 and 174.1:

  • A fine of up to RUB120,000 or the equivalent of up to one year's salary or other income.

  • Where the total value of the financial transactions conducted is over RUB1.5 million but does not exceed RUB6 million, either:

    • a fine of up to RUB200,000 or the equivalent of up to two years' salary or other income; or

    • compulsory work for up to two years; or

    • imprisonment for up to two years with or without a fine of up to RUB50,000 or the equivalent of up to three months' salary or other income;

  • Where the total value of the financial transactions conducted is over RUB1.5 million but does not exceed RUB6 million and they are committed in concert or by persons using their employment position:

    • compulsory work for up to three years with or without restriction of freedom for up to two years and deprivation of the right to hold certain positions or perform certain activities for up to three years; or

    • imprisonment for up to five years with or without a fine of up to RUB500,000 or equivalent to up to three years' salary or other income with or without restriction of freedom for up to two years;

  • Where the total value of the financial transactions conducted is over RUB6 million or they are conducted by an illegal organised group:

    • compulsory work for up to five years with or without restriction of freedom for up to two years and deprivation of the right to hold certain positions or perform certain activities for up to three years; or

    • imprisonment for up to seven years with or without a fine of up to RUB1 million or the equivalent of up to five years' salary or other income and restriction of freedom for up to five years and deprivation of the right to hold certain positions or perform certain activities for up to five years.

Financial/trade sanctions

Article 15.25 AC sets out the penalties for violations of financial/trade sanctions in relation to breaches of exchange of control restrictions. For both individuals and legal entities, the penalties are a fine of between one third to the whole amount of the illegal transaction.

Articles 16.1 and 16.3 AC set out the penalties for the illegal import of the goods and the failure to comply with the import restrictions, as follows:

  • For individuals, the penalty is a fine of up to RUB20,000.

  • For legal entities, the penalty is a fine of up to RUB300,000, or up to three times the amount of the illegally imported goods.

Since the special economic measures are enforced by the orders of the President of the Russian Federation, such orders sometimes contain the general framework of penalties for the respective wrongdoings.

 

Financial record keeping

23. What are the general requirements for financial record keeping and disclosure?

Retention of accounting documents

Generally, companies must retain accounting documents for the period stipulated in the List of Typical Management Documents Created in the Process of Operation of State Authorities, Municipal Authorities and Organisations, with the relevant retention periods being approved by Order of the Ministry of Culture of the Russian Federation No. 558 dated 25 August 2010 but, in any case, for a period of not less than five years.

The working plan of accounts, other accounting policy documents, the coding procedures and data processing software programs (with an indication of their duration) must be retained by an organisation for a period of at least five years. Financial reports must be retained for the following periods:

  • Annual financial reports/statements: permanently.

  • Quarterly financial reports/statements: for a period of not less than five years.

  • Monthly financial reports/statements: for a period of not less than one year.

The general director is responsible for a company's retention of accounting documents, accounting ledgers and bookkeeping reporting.

There are specific rules on document retention for joint stock companies (JSC). In accordance with the JSC Law and Regulation on Procedure and Terms of Storage of Documents of Joint Stock Companies, approved by Resolution of the Federal Commission for the Securities Market No. 03-33/ps dated 16 July 2003, a JSC must retain:

  • Accounting documents for a period of not less than five years.

  • Annual financial reports/statements (permanently).

  • Quarterly financial reports/statements for a period of not less than five years.

  • Monthly financial reports/statements for a period of not less than one year.

Disclosure requirements

In general, JSCs must provide their shareholders with documents concerning the preparation for, calling and holding of general shareholders' meetings. This includes, among others, annual reports, auditors' reports and internal auditor reports.

Shareholders holding an aggregate of at least 25% of the voting shares in a JSC have a right of access to the accounting documents. If a special right of participation of the Russian Federation, a Russian region or a municipal entity in the management of a company (golden share) is being exercised in respect of that company, access must be given to all of the company's documents to such a party.

Open JSCs must disclose their annual report and annual financial statements, as must closed companies and limited liability companies if they float bonds or other securities.

Open JSCs, banks and other credit organisations, state corporations, insurance organisations, the trading authority, investment and certain other funds must publish annual bookkeeping reporting within the terms specified by the legislation.

 
24. What are the penalties for failure to keep or disclose accurate financial records?

In insolvency cases, criminal liability applies for concealing or falsifying accounting and other records reflecting the economic activity of a legal entity or individual entrepreneur, where these actions have been committed in the presence of signs of impending insolvency and/or have caused large-scale damage. Sanctions can include both imprisonment and a fine.

Officials can be subject to an administrative fine of between RUB2,000 and RUB3,000 where they have committed a gross violation of the rules concerning bookkeeping.

 
25. Are the financial record keeping rules used to prosecute white-collar crimes?

There are provisions contained in both the Criminal Code (RCC) and the Code on Administrative Offences (AC) that allow the financial record keeping rules to be used to prosecute white-collar crimes.

 

Due diligence

26. What are the general due diligence requirements and procedures in relation to corruption, fraud or money laundering when contracting with external parties?

There is no "one size fits all" approach for due diligence when contracting with external parties. The level of due diligence required depends on the business sector, the nature of the proposed contract, and who the parties are who are seeking to contract. For example, if one of the parties has international operations then it may have to apply the stricter legal requirements of its home jurisdiction, or that of its parent company. If one of the parties is in the financial sector then it may be subject to stricter requirements regarding the verification of client identity and procedures for the prevention of money laundering.

Generally, the appropriate scope of anti-corruption, fraud or money laundering due diligence will depend upon the number and severity of the risks identified. Ultimately, it is a company's commercial judgment that determines the procedure and its application in any particular case. Companies that have been subject to heavy penalties (for example, under the US Foreign Corrupt Practices Act (FCPA)) for failing to abide with laws on corruption, fraud or money laundering generally have stronger procedures in place than companies that have not.

It is increasingly common to see clauses in contracts dealing with anti-corruption issues, particularly where one of the parties may be subject (or potentially become subject) to the FCPA or the UK Bribery Act 2010.

The Russian government is also keen to reduce corruption and fraud within state enterprises, and has introduced requirements. For example, it recently passed Request No. VPP-II13-9308 of the Chairman of the Government of the Russian Federation dated 28 December 2011. This Request was addressed to a number of major state-owned companies and aims to increase the transparency of the business activity of state-owned companies (see Question 5).

 

Corporate liability

27. Under what circumstances can a corporate body itself be subject to criminal liability?

Corporate bodies are not criminally liable in Russia. There is no equivalent to the English law offence of corporate manslaughter.

However, the Criminal Code (RCC) does make reference to the fact that the head of a corporate body can be held liable (for example, the general director) if certain provisions are breached by the corporate body.

 

Cartels

28. Are cartels prohibited in your jurisdiction? How are cartel offences defined? Under what circumstances can a corporate body be subject to criminal liability for cartel offences?

This question was added in the 2015/16 edition of the guide.

 

Immunity and leniency

29. In what circumstances is it possible to obtain immunity/leniency for co-operation with the authorities?

A person committing a crime of light or medium gravity for the first time may be released from criminal liability if, after committing the offence, he:

  • Surrenders to the authorities.

  • Assists in the exposure and investigation of the crime.

  • Compensates for the damage inflicted, or in any other way effects restitution for the damage caused as a result of the crime.

  • Shows that he has ceased to be a danger to society and is actively repentant.

A person who gives a bribe or solicits in bribery will not be criminally liable if:

  • He actively assists in the detection and/or investigation of the crime committed.

  • The official extorted a person to give him a bribe.

  • Upon committing a crime a person voluntarily reported bribe-giving to the authorities responsible for investigating that crime.

Liability for committing an administrative offence may be reduced if the person who committed the offence co-operates with the relevant authorities.

In the case of a prospective criminal case the prosecution and defendant can enter into a prejudicial co-operation agreement in which the conditions for reducing potential criminal liability can be set out.

 

Cross-border co-operation

30. What international agreements and legal instruments are available for local authorities?

Obtaining evidence

Russia is party to the following major global and European treaties:

  • UN Convention against Corruption 2003 (Corruption Convention).

  • International Convention for the Suppression of the Financing of Terrorism 1999.

  • Council of Europe Criminal Law Convention on Corruption 1999.

  • Council of Europe Convention on Money Laundering, Search, Seizure and Confiscation of the Proceeds from Crime 1990.

  • European Convention on Extradition 1957.

  • UN Convention against Transnational Organised Crime 2000.

  • Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters 1970.

  • European Convention on Mutual Assistance in Criminal Matters 1959.

Russia is also subject to direct international agreements with other countries in relation to co-operation in criminal cases.

The specific rules governing obtaining evidence during the course of the investigation of a crime are usually set out in mutual covenants agreed between Russia and another country. Special mechanisms may also be contained in international treaties. For example, under specific agreements with the US, evidence can be provided upon written request, but in urgent situations the "Central Authority" (as used in the convention) of the party requested to provide information can accept the request for information in another form.

Where there is no applicable agreement or international treaty with another country, for the purposes of co-operation the principle of reciprocity applies.

Seizing assets

The specific rules governing seizing assets during the course of the investigation of a crime are usually set out in mutual covenants agreed between Russia and other countries. Special mechanisms can also be contained in international treaties.

Where there is no applicable agreement or international treaty with another country, for the purposes of co-operation the principle of reciprocity applies.

Sharing information

Sharing information is set out in Article 4 of the Federal Law "On Counteracting Corruption mentions sharing of information as a particular mean of international co-operation in counteracting corruption". Therefore, voluntary notification to the authorities in other jurisdictions where an individual/legal entity carries on business is allowed.

However, the legal obligation to perform such notification (if any), as well as the general regulation of international co-operation in administrative and criminal cases, depend on the rules of the particular bilateral or multilateral agreements of the Russian Federation in relation to legal co-operation.

 
31. In what circumstance will domestic criminal courts assert extra-territorial jurisdiction?

The general rule, in accordance with the Criminal Code (RCC) is that any person who has committed a crime on the territory of the Russian Federation is criminally liable under the RCC.

The domestic criminal courts assert extra-territorial jurisdiction in respect of crimes committed in the following circumstances:

  • Within the limits of the territorial sea or the airspace of the Russian Federation; these are deemed to have been performed on the territory of the Russian Federation. The RCC also extends to offences committed on the continental shelf and in the exclusive economic zone of the Russian Federation.

  • On a craft registered in a port of the Russian Federation and situated on the open sea or in the airspace outside the Russian Federation, unless it is otherwise stipulated by an international agreement to which the Russian Federation is a party. Under the RCC, criminal liability is also incurred by a person who has committed an offence on board a Russian warship or military aircraft, regardless of its place of location.

  • By Russian citizens and stateless persons permanently residing in the Russian Federation who have committed a crime outside the Russian Federation against the interests guarded by the RCC, unless a relevant decision of a foreign state's court exists.

  • By servicemen of Russian military units located outside the Russian Federation for crimes committed in foreign territories, unless otherwise stipulated by international agreements to which the Russian Federation is a party.

  • By foreign nationals and stateless persons who do not permanently reside in the Russian Federation and who have committed crimes outside the boundaries of the Russian Federation (unless already convicted in a foreign state) where the crimes are:

    • against the interests of the Russian Federation;

    • against a citizen of the Russian Federation or a stateless person permanently residing in the Russian Federation;

    • cases provided for by international agreements to which the Russian Federation is a party.

The question of the criminal liability of diplomatic representatives of foreign states and other individuals who enjoy immunity for committed crimes on the territory of the Russian Federation is settled in conformity with the standards of international law.

 
32. Does your jurisdiction have any statutes aimed at blocking the assertion of foreign jurisdictions within your territory?

Russian citizens who have committed crimes in foreign states are not subject to extradition to these states (Article 13, Criminal Code (RCC)).

Foreign citizens and stateless persons who have committed offences outside the boundaries of the Russian Federation and who are found on the territory of the Russian Federation can be extradited to a foreign state in accordance with international agreements to which the Russian Federation is a party.

In addition, Article 472 of the Criminal Procedural Code (RCPC) sets out the general rule in respect of the criminal liability of a Russian citizen who has committed offences abroad.

The court can issue a ruling refusing to recognise the sentence of the foreign state's court:

  • If it concludes that the action for which the Russian citizen was convicted is not a crime under the laws of the Russian Federation or the sentence of the foreign state's court cannot be executed by virtue of the expiry of the limitation period.

  • For any other reason provided by laws of the Russian Federation or an international treaty to which the Russian Federation is a party.

When considering the sentence of the foreign state's court, the domestic court follows the rules on relevant penalties of the RCC.

 

Whistleblowing

33. Are whistleblowers given statutory protection?

Where the suspect or the accused has concluded a pre-judicial co-operation agreement, security measures can be applied where the suspect or the accused (or his close relatives or friends) are in need of those security measures (Article 317.9, Criminal Procedural Code (RCPC)). The same security measures will be applied as would be applied for victims, witnesses and other parties in criminal judicial proceedings.

However, there is no protection for whistleblowers who are not involved in the trial. To gain protection, whistleblowers must go public and participate in the trial.

The protection of the participants in criminal judicial proceedings is regulated by Federal Law No. 119- FZ dated 20 August 2004 "On state protection of victims, witnesses and other participants of criminal procedure".

The following participants are given statutory protection:

  • Victims.

  • Witnesses.

  • Private prosecutors (claimant).

  • Suspected persons, accused persons, their defence lawyers and legal representatives, convicted offenders, persons declared not guilty, persons in respect of whom a criminal case or criminal proceeding has been dismissed.

  • Experts, specialists, translators, identifying witnesses, psychologists and teachers.

  • Civil claimants, civil defendants.

  • Legal representatives, representatives of a victim, civil claimants, civil defendants and private prosecutors.

 

Reform, trends and developments

34. Are there any impending developments or proposals for reform?

Russia continues to implement the "Concept of long-term social-economic development of Russian Federation for a period until 2020" adopted by the Order of the Government of the Russian Federation dated 17 November 2008 (No. 1662-r).

Recent initiatives since September 2008 include:

  • The release from punishment for economic crimes in certain cases where damages were recovered by the offender.

  • A decrease in the maximum punishment for money laundering.

  • Stronger regulation to counteract bribery of foreign officials and other amendments to the Criminal Code (RCC).

  • The accession of the Russian Federation to the OECD Convention on Combating Bribery of Foreign Public Officials 1997.

  • The adoption of the Federal Law "On Counteracting Corruption".

  • The issuance of an internal Order addressed to certain government agencies, ministries and large state-owned companies requiring the disclosure of information on the beneficial owners of counterparties.

  • The introduction of a system of penalties into the Code on Administrative Offences (AC) that is linked to the amount of a bribe, together with an increased limitation period for administrative offences.

  • The introduction into Russian legislation of a requirement for candidates applying for a position in state employment to disclose certain tax and banking secrets.

  • The introduction of an obligation for public officers to inform the relevant state authorities if they are approached to commit any form of corruption.

There are also the following proposals for reform:

  • A draft law imposing criminal liability on legal entities (unlikely to be introduced in the near future).

  • The ratification of Article 20 (Illicit enrichment) of the UN Convention "On Counteracting Corruption" is also being discussed.

 

Market practice

35. What are the main steps foreign and local companies are taking to manage their exposure to corruption/corporate crime?

In general terms, companies can take a range of steps to manage their exposure. The steps ultimately taken are a commercial issue, but commonly include the following:

  • Improving client verification, due diligence and contracting procedures.

  • Requiring contractors to improve their anti-corruption policies and procedures through contract, and where contracts have been dishonestly obtained, terminating them.

  • Widening duties of staff to include compliance functions.

  • Conducting internal audits and dismissing or reprimanding staff who have breached compliance requirements.

  • Conducting risk assessments to identify where the greatest risks exist and taking measures to counteract them.

  • Appointing compliance officers.

  • Changing reporting lines with respect to compliance and anti-corruption issues to ensure they are treated seriously.

  • Introducing ethical codes of conduct and other corporate regulations, and disseminating them to the organisation and external parties (for example, via the website).

  • Introducing and improving staff training.

  • Verifying the beneficial ownership of counter-parties.

 

The regulatory authorities

General Prosecutor's Office

W www.genproc.gov.ru/

Status. Governmental organisation.

Principal responsibilities. The General Prosecutor of the Russian Federation and the prosecutors reporting to it:

  • Co-ordinate within the scope of their powers the activities of the internal affairs bodies of the Russian Federation, the federal security service bodies, and the customs bodies of the Russian Federation.

  • Provide anti-corruption expertise on legislative acts.

  • Make decisions on applications received in relation to breaches of law.

Investigation Committee of the Russian Federation

W www.sledcom.ru

Status. Governmental organisation.

Principal responsibilities. Investigation of crimes.

Ministry of Internal Affairs

W www.mvd.ru

Status. Governmental organisation.

Principal responsibilities. Investigation of crimes.

Federal Security Service

W www.fsb.ru

Status. Governmental organisation.

Principal responsibilities. The FSS is responsible for the internal security of the Russian state, safeguarding the economic security of the country.

Federal Punitive Service

W www.fsin.su

Status. Governmental organisation.

Principal responsibilities. Execution of, in accordance with Russian penal legislation, the detention of persons suspected or accused of committing crimes, and defendants.

Federal Bailiff Service

W www.fssprus.ru

Status. Governmental organisation.

Principal responsibilities. Enforcement.

Federal Financial Monitoring Service

W www.fedsfm.ru

Status. Governmental organisation.

Principal responsibilities. Responsible for investigating money laundering and terrorist financing.

Central Bank

W www.cbr.ru

Status. Governmental organisation.

Principal responsibilities. These include:

  • Identifying, preventing, investigating and imposing administrative liability (save for administrative disqualification which can be only imposed by the court) for breaching Russian legislation.

  • Checking compliance with legislation generally.

  • Requiring the disclosure and provision of information, documents and data.

  • Issuing injunctions to stop unlawful actions and to suspend trading.

  • Annulling (suspending) licensing.

  • Appearing in court with respect to administrative proceedings and criminal proceedings regarding the illegal use of insider information and market manipulation.

  • Investigating money laundering and terrorist financing.

Federal Customs Service

W www.customs.ru

Status. Governmental organisation.

Principal responsibilities. Responsible for investigating money laundering and terrorist financing.



Online resources

There is no single official website where the legislation referred to in this article can be obtained. Some legislation can be found on the official government sites (see box, The regulatory authorities). English-language translations are not widely available on the official sites.

Russian lawyers generally use the websites below as well as other legal databases (which are not official sites) for obtaining legislation:

GARANT

W www.garant.ru

Description. Unofficial legal database, usually up-to-date. Not all of the legislation may be publicly available. English-language versions of some legislation may be purchased. Translations are for guidance only and never binding.

ConsultantPlus

W www.consultant.ru

Description. See above.



Contributor profile

Alexey Borodak, Senior Associate

Norton Rose Fulbright (Central Europe) LLP

T +7 499 924 5101
F +7 499 924 5102
E alexey.borodak@nortonrosefulbright.com
W www.nortonrosefulbright.com

Professional qualifications. Russia

Areas of practice. Dispute resolution; anti-bribery and corruption; corporate crime and investigations; insurance disputes.

Recent transactions

  • Represents clients before the Russian state commercial courts and courts of general jurisdiction.
  • Broad experience of general commercial, corporate and regulatory disputes.
  • Significant expertise in insurance litigation.
  • Advises on anti-bribery and corruption procedures, internal investigations and compliancy.

Languages. Russian, English

Professional associations/memberships. Reporter of the Arbitration court for resolution of economic disputes at the Chamber of Commerce and Industry of the Russian Federation; member of Insurance and Pensions Committee of Association of European Businesses.


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