Authorities set ‘more humane legal rules’ for private businesses in Russia

It needs to be specifically noted here that this positive trend owns its origin to the liberal-minded Russian president, Dmitry Medvedev, himself a victim of impregnable officialdom, absolute lawlessness and legal nihilism among government officials that regulated the business sector in the chaotic 1990s, has made the protection of private entrepreneurship one of his priorities. Indeed, since his famous public statement “barring corrupt bureaucrats from ‘terrorizing’ businesses,” the president has spearheaded a lot of groundbreaking initiatives aimed at creating a more favorable, business-friendly atmosphere for private entrepreneurship activities in the country. 

And, Russia, being a nation, where bureaucrats always emulate or act in accordance with the direction of flow of the prevalent ‘political winds’ from the Kremlin, it was, therefore, not entirely surprising that the presidential initiatives have not only received the mandatory endorsements from subordinates, but are also being replicated by the other arms of government, namely, the legislative and judiciary, which have also followed up their rhetoric on business protection with concrete legislative and court actions. 

The beginning of real liberalization of Russian corporate laws 

The end result of such joint efforts has been the adoption of several new laws and initiatives designed to make corporate life much easier for businesses. One of the Russian president’s first initiatives in this direction was a bill on liberalization of the current Criminal Penal Code (CPC) on economic crimes committed by businesses. Specifically, the initiative, which has long been enacted into law, envisages revoking questionable clauses on so-called ‘false entrepreneurship,’ reduction of prison terms for money laundering and increasing the threshold for economic crimes that can henceforth be qualified as ‘capital crimes of exceptional proportions.’  

“The end result of such joint efforts has been the adoption of several new laws and initiatives designed to make corporate life much easier for businesses.”

Other positively amended clauses in the CPC include Article 171 (licensing terms and conditions) and Article 172 (illegal banking activity), citing vague formulations that often lead to bureaucratic abuses by corrupt officials in charge of their enforcement. Similarly, money laundering, which falls under the jurisdiction of Clause 1 of Article 174, was radically reedited to include more clear-cut defining features aimed at depriving corrupt officials the ‘pseudo-legal loopholes’ for extracting bribes. Thus, for actions to qualify as ‘money laundering’ under the new clause, they must involve ‘proved deliberate attempts to legalize the ownership, dispensation and/or allocation of the funds under legal scrutiny.’ Such qualifications were starkly absent in the previous edition of this legal provision.

Other novelties in the Kremlin’s initiatives included what the president, by the way, one of the country’s best corporate lawyers by education, expertise and experience, having personally authored some of the existing the corporate laws, and other legal luminaries have called ‘long overdue humanization’ of the legal penalties for entrepreneurs, who under the previous business laws, were often treated like typical ‘diehard’ criminals. Thus, the new punishment for money laundering now ranges from three to a maximum of 10 years, instead of the previous five to a maximum of 15 years. Similarly, the new legal threshold for qualifying the scale of economic transgressions as ‘capital crimes of exceptional dimensions’ had been upgraded by six times to 1.5mln rubles for ‘capital crimes’ and 6mln rubles for the ‘most serious economic law violations of exceptionally large dimensions.’

Other landmark revolutionary changes in corporate laws

But the most revolutionary changes were the redefinition of the conditions for pretrial detentions, which will now be used only in ‘exceptional circumstances’ against economic crime suspects and the introduction of bails, in lieu of pretrial detentions, for a substantial number of business-related crimes, as long as the charges do involve other aggravating factors and/or lead to serious negative consequences that would qualify them as ‘severe violations.’ Thus, suspects accused of ‘minor economic crimes can post a bail of up to 100,000 rubles, while those facing ‘more serious economic criminal charges will have to pay at least 500,000 rubles. 

However, bails will not only be bankrolled exclusively by physical cash, as the new edition of the law allows landed and non-landed properties, company stocks, bonds and other valuable corporate assets to be used in lieu of money. These measures are based on the premises that those accused of ‘purely economic crimes’ usually do not pose any threat to society while waiting for their days in court. Commenting on these new legal novelties in Russian corporate laws, Anatoly Lyskov, the chairman of the Legal and Judiciary Affairs Committee of the Federation Council, said pretrial detentions for suspects indicted for purely economic crimes will “henceforth be used as an exclusive judicial measure and only in extremely rare cases.”  

Indeed, majority of legal and human rights advocates have argued that the old practice of holding this category of suspects behind bars while awaiting trials that often end without real jail term verdicts are exceptionally ruthless and unjustified legal procedures. In the same vein, this new amendment, including a moratorium on pretrial detentions for some categories of economic crimes, will prevent law enforcers from unnecessarily indulging in this practice, when alternative more ‘humane’ options would be more effective. The blanket use of the pretrial detention measure has always been a bone of contention, given the well-known fact law enforcers usually do not bother themselves with meticulous collection of hard evidences to put suspects behind bars. Instead, most often prefer to simply persuade judges to issue arrest warrants against such accused on flimsy excuses such as such suspects could abscond from the country, intimidate witnesses, destroy evidences, etc, again without justifying these claims with hard facts. 

Another reason for the lopsidedly rampant use of pretrial detentions, according to defense lawyers, stems from the Soviet-era practice of using these pretrial detentions as a means of ‘pressuring suspects,’ or to use the law enforcers’ jargon to ‘condition suspects into the required state, and thus get them to confess under duress to crimes that they might not have committed. The widespread use of this tactic is better illustrated in Russian movies. In one of such films, an idealistic young recruit asked to extract ‘positive confessions by all means possible’ from a pretrial detainee inquired from his superiors how he could get such confessions when hard facts point to the contrary. The senior officials retorted by asking what he was taught in his five years in the police academy. 

Expectedly, judges usually order pretrial detentions against the accused, even in the absence of excruciating evidences. This probably explains the high rates of pretrial detention rulings. For instance, 188,000 out of 208,000 court petitions for arrest warrants, or almost 90% of such requests, were granted nationwide in 2009. Similarly, the petitions for extending these questionable arrests are also easily granted by courts, evident from the fact that 208,000 out of 212,000 of such requests, or almost 100% of such petitions, were honored by courts, according to the Russian Supreme Court’s figures released after a review of this policy implementation in 2009. 

It is, therefore, not surprising that this practice has led to a hike in prison population in the country, making it comparable to the population of a big city. For instance, according to the Prosecutor’s Office, the number of prisoners in Russia, including those serving terms for purely ‘economic crimes’ currently stands at over 860,000. Now, the Supreme Court has ordered all courts to henceforth abide fully with its Resolution No. 4 issued on March 22, 2005 that requires courts to base their pretrial detention rulings solely on legal grounds, hard facts and evidences of cases under review that constitutionally justify the use of such legal measure against suspects. 

Bureaucrats to come under fire for illegally meddling with businesses 

In a related development, serious punitive provisions have been added in the new law to prevent bureaucrats from unnecessarily, and most importantly, illegally meddling with business procedures and other corporate practices in the economy. Thus, the new penalty for government officials caught of violating these requirements has now been increased from 200,000 rubles to 500,000 rubles or a ban on holding certain government posts for three to five years.

After shielding businesses from corrupt bureaucrats and law-enforcement officials, the government shifted its focus to other serious problems facing private entrepreneurs in the country, especially those with little or no connections in the right places in the highest corridors of political powers. One of these evils is the rising incidences of raiders’ attacks on businesses. In June, the State Duma, acting on a nod from the Kremlin, passed in its first reading a bill completely outlawing this practice and providing for drastic penalties against those that will defy the law by engaging, supporting, conniving and/or bankrolling such illegal encroachments on businesses. 

Usually, raiders use falsification of companies’ corporate data in government registry or companies’ stocks registry, etc. These illegal manipulations are specifically aimed at creating pseudo-legal grounds for challenging the lawful owners’ rights over such companies or stocks in courts, where corporate raiders, using their backers’ wealth and corrupt connections in courts and other law-enforcement agencies, usually ending up ‘legally expropriating’ these assets from their rightful proprietors without any consequences.

However, with this bill, such manipulations will now attract serious penalties from 100,000 rubles to 300,000 rubles, or a real jail term of up to two years and a fine of 100,000 rubles. However, if any of these violations is accompanied by physical harms to companies’ owners and/or threats of such force, then the penalties increase up to a jail term of 3-7 years and a fine of 500,000 rubles. Similarly, government officials involved in such crimes will also face the music, as the law envisages punishments, ranging from a fine of 80,000 rubles, a ban on holding certain government jobs for three years and/or a jail terms of up to four years. And, finally, if these actions are carried out by a group of interested or organized crime group, then the punishments will range from a fine of 500,000 rubles, a ban on certain government posts from six months to 3.5 years to jail terms, varying from six months to 10 years, depending on the severity of the consequences of such actions. 

All these and other measures, including those adopted at the peak of the ongoing crisis to help businesses successfully weather the current rough financial storms, are expected to create normal and civilized conditions, an investment-friendly business climate for private entrepreneurship to thrive freely in the country, and thus, maximize its overall contribution to the nation’s development and citizens’ wellbeing. 

One only hopes that these good initiatives would not fall victims to aged Russian traditions, where outstanding laws and other innovative and revolutionary official policy measures are usually undermined by their poor executions.