Khazov Alexander points out new trends in criminal law concerning business crime, the risk of entrepreneurs having business in Russia and the possibilities to mitigate the punishment for committed crime
1. What trends, in terms of activity or focus, have you seen in the prosecution of business crimes in your jurisdiction in the last 12 months?
In recent years, one of the major trends in the field of suppression and investigation of business crimes has become a significant intensification of enforcement agencies in the fight against the theft of budget funds, corruption offenses, as well as the legalisation of proceeds from crime, against the backdrop of the upcoming general liberalisation of criminal legislation, aimed at protecting the interests of business.
In our opinion, this is largely due to the significant strengthening of the control over the expenditure of funds allocated for the military-industrial complex and the construction of sports facilities for the World Cup 2018, as well as the unprecedented efforts of the Government and the Presidential Administration to combat the illegal withdrawal of capital and shadow cash flows.
While strengthening efforts to counter the operation of the black market is intended to heal the difficult economic situation, the inertia of enforcement agencies in the field of suppression of corruption crimes on the other hand creates a sort of "legal tick" for the business community, when use of old corruption mechanisms becomes more and more difficult every day and the new mechanism – a more transparent structure of doing business (especially involving budget funding) – is still not built in a truly understandable way.
Moreover, during the past year, Russia adhered to maintaining its deoffshorisation policy: the necessary legislative acts were adopted; and measures of tax and financial amnesty were taken.
2. Are enforcement agencies particularly focused on any specific industries or crimes?
In addition to the increased attention to the investigation and suppression of crimes related to embezzlement of budget funds in the construction of strategic facilities, enforcement agencies are actively investigating crimes related to the legalisation of funds obtained by illegal means.
In this regard, it establishes a special monitoring of financial transactions. The Federal Financial Monitoring Service – a body whose mandate includes the regulation of policies to counter the legalisation of money obtained by criminal means – in recent years, expanded the list of organisations that are required to provide reports on the fulfillment of suspicious transactions.
There has been significantly increased activity of enforcement agencies to curb the illegal withdrawal of capital from the Russian Federation and illegal cash withdrawals. It is clear that the termination of capital flight and the withdrawal of the cash flows of the shadow is a priority for the country's leadership. Thus, according to forecasts of the Central Bank of Russia, capital outflow in 2016 will amount to $ 30-40 billion, which is significantly lower than those in 2015 ($ 56.9 billion) and 2014 ($ 153 billion).
The work to prevent the illegal circulation of cash and the functioning of the "one-day" firms involved not only law enforcement and tax authorities but the entire banking system. There have been significantly tightened requirements to representatives of business when registering newly formed companies and appointment of heads of businesses. The tax authorities set up special registers in which individuals suspected of providing the service of nominee owners and corporate executives are entered (formerly in Russian criminal legislation introduced responsibility for the use and provision of nominee service).
3. Are enforcement agencies more or less focused on pursuing cases against corporations or individuals?
The Russian legislation does not provide criminal liability for corporations directly, but founders and leaders of an organisation can be brought to justice. Thus, crimes committed in the sphere of business by individuals and legal entities are primarily used as a tool contributing to profit from crime.
4. Does the legal framework concerning the prosecution of business crimes allow for extraterritorial enforcement? Are such matters being pursued?
Russian criminal law allows the prosecution of crimes committed outside of Russia in several cases. Firstly, the crime must be committed by a Russian citizen. Secondly, the crime must be committed against the interest of the Russian Federation or Russian citizens regardless of offender nationality.
The law allowing extraterritorial jurisdiction is very abstract and does not contain a list of offenses to those applicable. On the one hand, it does not mean that business crimes are under extraterritorial jurisdiction, on the other hand, an unfixed list of crimes allows the use of extraterritorial principle for all crimes listed in the Criminal Code, including business crimes.
Moreover, Russian criminal law doesn’t determine the term “interests of Russian Federation”. Thus, committing such crimes in the sphere of business, such as the withdrawal of capital from the country and the theft of budget funds could also be qualified as crimes against Russian interests.
In 2014, Russian Federal Antimonopoly Service (FAS) based on extraterritorial jurisdiction took a unique decision against two foreign entities. Two large mobile operators of Uzbekistan - «Uzmobile» and «Rubicon Wireless Communication» - signed an anti-competitive agreement. As a result of the signed agreement, the subsidiary of the large Russian operator functioning in Uzbekistan became bankrupt and part of its facilities were transferred to participants of anti-competitive agreements. The FAS acknowledged the agreement was illegal, because it caused damage to a Russian entity and had a significant impact on competition in Russia.
5. What judicial or legislative developments have impacted the prosecution of business crimes in your jurisdiction in the last 12 months? Are there any significant proposals for reform of the legal framework that governs business crimes in your jurisdiction?
Over the past year, business representatives insisted on the liberalisation of criminal legislation in the field of business, since 2015 has become one of the most challenging things for businesses. As a result, a law introducing a number of changes in the field of economic crime was signed on July 3, 2016. In particular significant amendments were made to Chapter 76.1 of the Criminal Code, which stipulates exemption from criminal responsibility of the person who has committed the crime in the sphere of business for the first time and compensated damage to a private person or legal entity. In addition, the amount of fine (which is an alternative to more severe punishment) was reduced from five to two times the amount of the damage to the state budget.
The list of crimes falling under Chapter 76.1 of the Criminal Code has also been broadened. Previously, these provisions applied to such crimes as tax evasion, illegal business, illegal banking activities, misconduct in bankruptcy and some others. The new version of the law extends the application of Chapter 76.1 of the Criminal Code to crimes in the sphere of the restriction of competition, misuse of insider information, offense in the illicit loan and others.
Moreover, the amount of damage for which a deadbeat can be prosecuted for tax crimes was increased.
6. How common is it for enforcement agencies in your jurisdiction to exchange information and cooperate internationally with other agencies? What are the consequences of cross-border cooperation on prosecutions of entities and individuals in your jurisdiction?
Cross-border cooperation of Russian law enforcement agencies with their foreign counterparts takes place on the basis of international bilateral and multilateral treaties. Cross-border cooperation in prosecuting business crimes is traditionally more developed with CIS countries but the trend of simplification of communication with Western countries was also noticed over the last few years.
Legally, a request for information necessary to disclose a crime or an order to conduct certain investigative actions can only be made through a very time-demanding procedure because any international cooperation of enforcement agencies is carried out by the Prosecutor General of the Russian Federation, which forwards the request to the Prosecutor of the respondent country.
In practice, though cross-border collaboration of law enforcement agencies looks complicated with a number of procedural aspects, there are cases of direct cooperation between Russian investigative units and partners from other countries. One such example is the cooperation between the Russian Federal Security Service (FSB) and the FBI colleagues in the area of disclosure and suppression of illegal activities of cyber criminals, in particular – specialised in the theft of money from bank accounts and plastic card accounts of individuals around the world. A special feature of this interaction is a direct agreement between these departments to bypass complicated bureaucratic procedures applicable in both countries.
Although extradition of Russian citizens out of the country prohibited by Russian law and extradition of foreign citizens being persecuted abroad, as well as extradition of persons persecuted in Russia, is allowed, this is only on the basis of international agreements. Cases of joint effort from the operating units of Russia and other countries on the identification and prosecution of criminals, operating in the field of telecommunication technologies started appearing more often. Enforcement agencies often find opportunity to accelerate or ignore bureaucratic procedures, in cases where this is in their mutual interests but also there is a possibility of tightening extradition of a suspect if (s)he argues about being pursued for political reasons.
7. What unique challenges do entities or individuals face when enforcement agencies in your jurisdiction initiate an investigation?
When criminal proceeding is open, certain restrictions of constitutional rights may be imposed on a person suspected of committing crimes. Some of those can be applied on the stage of preliminary investigation (special pre-trial procedure performed by an investigator). These include such essential actions like search and seizure of evidence. Restrictions on a private person’s rights are the prerogative of the courts (under investigator’s request), these restrictions are usually related to telephone conversation recordings, obtaining billing information, seizure of documents containing secrets protected by law, etc.
In contrast – the private interests of a legal entity can be legally violated without the court’s permission by the sole decision of an investigator. Thus, in frames of a criminal proceeding, all documents, computers and memory storage devices potentially containing the necessary information for disclosure of the crime can be impounded by the enforcement agency. Since those electronic devices and documents contain essential information for running business and managing bank accounts for example, many enforcement executives can’t resist the temptation to exceed their authority and use criminal proceedings as a handle for extorting bribes or ruining the entire business in favour of competitors.
Moreover, when the Russian legal system entitles investigative and detective departments with an exclusive authority to determine the way each investigation goes, the courts usually tend to uphold all their requests at the stage of preliminary investigation without going deep into the evidence produced and arguments of the legal entity representatives.
Obviously, criminal proceedings against founders and leaders of a business can cause serious damage to the reputation and relationships with partners and contractors, although this factor is not as critical as in European countries.
8. Do enforcement agencies in your jurisdiction provide incentives for individuals or entities to self-report a business crime or otherwise provide assistance to the government? If so, what factors should individuals or entities consider when assessing whether to self-report a business crime or cooperate with a government investigation?
Self-report, surrender and active assistance in detection and investigation of a crime are taken into account by the court as circumstances mitigating criminal liability. It’s worth noting that a person may be exempted completely from criminal responsibility only for certain types of crimes.
So, a person who has given a bribe, then reported this act, and exposed the person who received the funds would be fully-exempted from criminal liability. There is a similar situation with regards to tax evasion – after repayment of debt and reparations prosecution must be terminated without any negative impact on the defaulter.
9. Do enforcement agencies in your jurisdiction use non-prosecution agreements ("NPA") or deferred prosecution agreements ("DPA")? If so, how do such agreements work in practice and what can entities or individuals do to reach an NPA or a DPA with enforcement agencies? If not, do you believe it is likely that such agreements will become part of the legal framework in the next five years.
Since 2009 Russian prosecution institutions have widely use pre-trial agreement which is an agreement containing the mutual responsibilities of the accused and the accuser. Thus, the defendant agrees to cooperate actively with enforcement agencies and usually promote not only comprehensive information about the crime committed, but also other information on any criminal activity he is aware of. As a result, he receives substantial mitigation of punishment for his crime.
It should be noted that pre-trial agreement with the prosecutor is a relatively young institution in the modern criminal trial, but given the trends associated with the liberalisation of criminal legislation in recent years, it is possible to assume that in the future there will be agreements on the stay of execution of punishment or of no prosecution for committing a crime at all.