News

Compliance in Russia: Seven lessons from recent anti-bribery enforcement

03.06.2020

Anti-bribery enforcement by Russian agencies significantly differs from that of their foreign counterparts. This was once again confirmed by the 2019 enforcement statistics recently published by the Supreme Court[1] and the most recent case law. What lessons can companies with business connections to Russia draw from these developments?

Lesson 1: Bribery of public officials vigorously prosecuted

The Russian state is focusing its enforcement actions on bribery of domestic public officials. In 2019, a total of 344 legal entities were convicted of all types of bribery[2]. The black list of sanctioned companies gained 313 new entries[3]. As in the past years, most companies were fined for bribing domestic public officials, a category which also includes employees of the many state-owned companies characteristic of the Russian economy. Therefore, preventing such bribery offences should be a core element of any compliance management system in Russia.

Bribing public officials also involves the greatest liability risks for individuals as well. In 2019 there were 4,726 convictions for bribery of public officials (giving/taking a bribe)[4] compared to only 198 convictions for commercial bribery[5]. In addition, petty bribery prosecution rates are falling. In 2019, for the first time, more individuals were punished for offences involving bribes exceeding RUB 10,000 than for those below this threshold (2,842[6] vs. 1,884 convictions[7]). Apparently, the authorities are losing interest in prosecuting the widespread bribery of traffic policemen and teachers[8].

Lesson 2: The smaller the bribe, the higher the enforcement risk

The enforcement risk for companies is especially high in cases where rather small bribes are paid. In 2019, 307 companies were sentenced for paying bribes of up to RUB 1 million[9], while only 31 companies faced sentencing for large-scale bribery (from RUB 1 million)[10] and six companies for very large-scale bribery (from RUB 20 million)[11]. This ratio corresponds to those of the preceding years 2018 (425 cases of small-scale, 44 cases of large-scale and two cases of very large-scale bribery) and 2017 (429 cases of small-scale, 37 cases of large-scale and eleven cases of very large-scale bribery). Companies are therefore well advised to conduct internal investigations, even on suspicion of smaller offences, and to prevent further violations.

Lesson 3: Larger companies no longer untouchable

In 2019, the Russian Standard Bank was the first big-name company to be punished for bribery[12]. In a WhatsApp message, a bank employee in Crimea had offered to pay a bailiff 5% of all amounts which were collected from the bank’s defaulting debtors. In a trial which was fought through five instances up to the Supreme Court[13], the bank was sentenced to pay a fine of RUB 26.2 million for large-scale bribery of a domestic public official[14].

Given the difficulties that Russian authorities have in prosecuting cases involving sophisticated or cross-border organised bribery, this case will hardly be the first of many cases of extensive prosecution of Russian businesses for large-scale bribery. However, the conviction of the bank could be an indication that larger companies will no longer be shielded from prosecution, at least in simple cases which can easily be proven.

Lesson 4: Although companies do not have to pay crippling fines…

The fines which are usually imposed by the courts on delinquent companies are low not only compared to other countries. They are also far below the maximum fines under Russian law, which may range up to one hundred times the bribe sum[15]. As in the years before, most companies had to pay only the statutory minimum fine of RUB 1 million. The amount of the maximum fine imposed during the year, however, increased significantly, from RUB 30.5 million in 2018[16] to RUB 50 million in 2019[17]. In the latter case, the court of first instance even imposed a fine of RUB 100 million in addition to the confiscation of the RUB 56 million bribe[18]. This indicates that higher fines are not inconceivable.

One reason that the fines are low could have to do with another unique aspect of the Russian enforcement practice against corporate bribery – its preference for prosecuting smaller companies on which even the minimum fine of RUB 1 million can have a crippling effect. In many cases, the courts have had to decrease even the minimum amount due to financial difficulties on the part of the companies being fined[19].

Lesson 5: … they are exposed to internet shaming.

Thus, the toughest sanction for reputable companies is not the rather small fines, but being included in the blacklist of companies convicted of bribery. This list is published on the website of the general prosecutor’s office[20] and thus can also be accessed by foreign law enforcement agencies. For companies with international operations, being included in the blacklist not only results in a loss of reputation; it may also expose them to additional prosecution risks outside of Russia.

The actual purpose of the blacklist is to exclude punished companies from state procurement processes for two years. However, there is currently no automated procedure by means of which the data of excluded companies are transferred to the authorities responsible for state procurement[21]. Therefore, as the results of an investigation initiated by the general prosecutor’s office show, this exclusion is still not always properly enforced in practice. In 2019 for example, 22 blacklisted companies were able to enter into procurement contracts in 36 Russian regions[22].

Lesson 6: Even a few anti-corruption measures may suffice

In the above-mentioned prosecution of the Russian Standard Bank, case law on the benefits of a compliance management system was developed further. For the first time, a higher Russian court, i.e. the Fourth General Jurisdiction Court of Cassation, elaborated on the specific anti-corruption measures which a company must take in order to be excluded from liability for bribery[23]. Although the relevant decision was subsequently vacated on procedural grounds[24], it provides an interesting insight into the requirements that courts may place on compliance management systems.

In this particular case, the court was of the opinion that all necessary measures to prevent the offence had been implemented because the bank had adopted an internal anti-corruption regulation, familiarized the relevant employees with this regulation, and incorporated a general obligation to comply with such internal regulations into the employment agreement. This means that, in certain scenarios, even taking a few formal anti-corruption measures may suffice to shield a company from liability for bribery.

Lesson 7: Foreign companies soon in the crosshairs

Up to now, Russian anti-bribery enforcement actions have been limited almost entirely to purely domestic cases. Individuals who are not from CIS countries are punished only sporadically (49 convictions in 2019 and 59 in 2018); foreign companies are prosecuted only in exceptional cases. Despite Russia’s accession to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 2012, there seems to be no prosecution of bribery of foreign public officials.

At the end of 2019, legislative changes entered into force which are to enable the increased prosecution of foreign companies for bribery offences committed in or outside of Russia. In cases where the prosecutor’s office sends a letter rogatory to a foreign authority in the course of an investigation, the duration of the investigation can be extended from the previous maximum of two months to twelve months[25]. Legal assistance can be requested on the basis of the treaties on mutual legal assistance entered into with other countries, including many European countries[26]  and the United States[27]. In the current political climate, it is certainly questionable whether these legislative changes will indeed lead to intensified cooperation by Russian law enforcement agencies with their foreign counterparts. However, these changes definitely create a new risk for foreign companies operating in Russia of being exposed to drawn-out investigation proceedings following allegations of bribery.

 

__________________________

[1] http://www.cdep.ru/index.php?id=79
[2] According to Article 19.28 of the Russian Administrative Offences Code (Unlawful remuneration on behalf of legal entity).
[3] http://genproc.gov.ru/anticor/register-of-illegal-remuneration/1558822/
[4] According to Article 290 (Bribery by public official), 291 (Bribery of public official) und 291.2 (Less serious bribery offence involving public official) of the Russian Criminal Code.
[5] According to Article 204 of the Russian Criminal Code (Commercial bribery).
[6] According to Articles 290 und 291 of the Russian Criminal Code.
[7] According to Article 291.2 of the Russian Criminal Code.
[8] https://www.rbc.ru/society/30/04/2020/5e9daa0e9a794771cc07e9bd
[9] According to Section 1 of Article 19.28 of the Russian Administrative Offences Code.
[10] According to Section 2 of Article 19.28 of the Russian Administrative Offences Code.
[11] According to Section 3 of Article 19.28 of the Russian Administrative Offences Code.
[12] http://genproc.gov.ru/smi/news/archive/news-1658840/
[13] Decision of the Supreme Court of the Russian Federation of 20 February 2020 No. 18-AD20-3.
[14] According to Section 2 of Article 19.28 of the Russian Administrative Offences Code.
[15] In case of very large-scale bribery according to Section 3 of Article 19.28 of the Russian Administrative Of-fences Code.
[16] http://genproc.gov.ru/smi/news/archive/news-1358326/
[17] http://genproc.gov.ru/smi/news/archive/news-1693570/
[18] Decision of the Magistrate Court of Court District No. 23 of the Yuzhno-Kurilsky District of Sakhalin Oblast of 4 April 2019 in case No. 5-47/2019.
[19] According to Section 3 of Article 4.1 of the Russian Administrative Offences Code.
[20] http://genproc.gov.ru/anticor/register-of-illegal-remuneration/
[21] However, item 32a) of the National Anti-Corruption Plan for 2018-2020 provides for setting up an automated procedure for the receipt of data on excluded companies by authorities dealing with state procurement processes.
[22] http://genproc.gov.ru/smi/news/genproc/news-1831574/
[23] Decision of the Fourth General Jurisdiction Court of Cassation of 26 November 2019 No. 16-278/2019.
[24] Decision of the Supreme Court of the Russian Federation of 20 February 2020 No. 18-AD20-3.
[25] http://kremlin.ru/acts/news/62183
[26] European Convention on Mutual Assistance in Criminal Matters of 1959.
[27] Treaty Between the Russian Federation and the United States of America on Mutual Legal Assistance in Criminal Matters of 1999.


Compliance & Investigations

Share