Business ombudsman: the new guardian of Russian entrepreneurs

Anyone involved in business activities in Russia is justifiably concerned about the lack of adequate protection for entrepreneurs and their companies from the arbitrary behaviors and even outright illegal conducts of authorities at all levels. Dmitry Medvedev, the former Russian president that is currently the nation’s prime minister, once called such practices “subjugation or turning the lives of business owners into nightmare by law enforcement agencies and authorities.”  

Speaking about the establishment of the Entrepreneurs’ Rights Protection Commission, a new phenomenon in Russia, President Vladimir Putin said the new state agency will be granted a broad spectrum of sweeping powers, including the rights to stop arbitrary departmental or regulatory acts, use courts to quickly halt inappropriate actions by bureaucrats or law enforcement bodies, amongst others. 

Creation of a Situational Center to respond to entrepreneurs’ problems

During his first official press conference in his new position held in late July, the first Russian business ombudsman presented his views on how he plans to put Kremlin’s objectives into practice. At first, the Entrepreneurs’ Rights Protection Commission will establish a central administrative office consisting of 35 employees. However, representative offices will be opened in all regions across the country. About 1,000 people will be employed on a voluntary basis to protect entrepreneurs from extortions and corrupt use of powers by bureaucrats or law enforcement authorities.

“In addition to issues related to criminal prosecutions, our experts will deal with all areas, where businesses encounter arbitrary behaviors in the course of their relationships with the state.”

Also on the agenda is a plan to create a system of public organizations that will comprise lawyers and human rights advocates in the field of corporate law and general protection of businessmen’s rights. The system will comprise mainly of so-called Situational Centers, created on the basis of the Business Against Corruption Center. Any offended entrepreneurs and investors can file their claims with this Center, which will engage lawyers, other relevant experts and specialists to back up and promote the implementation of different initiatives to solve those problems. 

Moreover, separate offices for such business activities as customs, taxation, securing licensing for certain types of entrepreneurial activities, as well as offices handling foreign investors’ issues, defending Russian investors’ interests abroad, interests of consumers of financial services, etc. will be established. Each of these activities will have its own institutional setting to be headed by a public ombudsman. Efforts of lawyers and expert opinions will be backed up by the activities of volunteers, which are not to replace or revoke court decisions, but to be used as weighty arguments in court proceedings.

“Any entrepreneurs that feel the authorities or their legal representatives have infringed on their rights can apply to these bodies. In addition to issues related to criminal prosecutions, our experts, mainly lawyers, will deal with all areas, where businesses encounter arbitrary behaviors in the course of their relationships with the state or its legal representatives,” Titov said.

Mechanism of actions and interrelations between protection structures

Highlighting the mechanisms for actions and the interrelations between protection structures being laid down by the Entrepreneurs’ Rights Protection Commission, the ombudsman explained how the new state agency plans to protect businessmen’s rights. “At first, an offended entrepreneur or investor has to file complaints against the “alleged arbitrary actions” of the state authorities. Thereafter, the claims will be reviewed and subject to legal audit, including using the Public Council system. If it is confirmed that a businessman’s rights had been violated and help is needed, such cases will be transferred to the ombudsman for the appropriate actions.”  

Of course, the entrepreneur seeking the ombudsman’s support will have to prove that his/her innocence. “This is because the ombudsman must be sure that the entrepreneur is right. So far, we have examined over 150 cases, and only 30 of them got the ombudsman’s support,” he said.

Moreover, the Russian Union of Industrialists and Entrepreneurs Ethics Commission and Arbitration Panel will also fit into the entrepreneurs’ rights protection system that is now being put in place. “We will possibly use the positive experience accumulated by the Russian Commerce and Industry Chamber’s Arbitration Panel, albeit with certain changes and amendments,” the ombudsman said. “We must create an independent Arbitration Commission. The one created by the Commerce and Industry Chamber can also be used, but its procedures need to be seriously amended and their efficacy must be improved.”

Another line of activities aimed at defending entrepreneurs’ rights is the acceleration of the process of reviewing the criminal cases against the so-called “wrongfully convicted entrepreneurs.” This includes seeking amendments to the legislations regulating entrepreneurial activities in Russia so that no criminal proceedings could be initiated against business owners without civil court injunctions. Also, the ombudsman plans to pursue as matters of top-priority measures issues related to the accelerated improvement of the entire judicial system regulating all entrepreneurial activities and the arbitration court system that handles commercial disputes.

Regulating search procedures for entrepreneurs

Also, the business ombudsman plans to seek for the right to be present during special investigation activities concerning entrepreneurs, including during searches of their premises.  “Our intention is to keep the ombudsman informed in advance that law enforcement authorities are going to take such measures instead of being informed post-factum, after they have already been initiated. Also, the ombudsman plans to take part in further procedures that will based on the results of such searches or other measures that need to be taken,” Titov said. 

“The new state agency will be granted a broad spectrum of sweeping powers, including the rights to stop arbitrary departmental or regulatory acts, use courts to quickly halt inappropriate actions by bureaucrats or law enforcement bodies.”

At the same time, the ombudsman noted that he fully understands the “extreme delicacy” of a situation when, on the one hand, it is necessary to protect entrepreneurs’ rights and, on the other hand, one needs not interfere with the law-enforcement authorities performing their lawful activities to fight violations by entrepreneurs. “Today, we are not in a position to prevent law enforcement authorities from taking such measures because they must swiftly respond to all violations of the laws, including criminal ones. Prompt actions are often needed to prevent offences,” Titov said. “At the same time, there are certain loopholes in the current legislations that have made it possible for law enforcement authorities to abuse the rights of entrepreneurs at will.” 

The new ombudsman sees the way out of this situation in a more detailed regulation with respect to law enforcement authorities entitled to issue permits for searches, seizures of valuable business materials, equipment, including computers, and other documents in the course of special investigation activities being conducted by law enforcement authorities. “The current law about special investigation activities provides middle, and even lower level, officers with broad authorities, instead of limiting such privileges to the heads of those agencies,” the ombudsman said. 

Of a specially troubling nature is the seizure of entrepreneurs’ business documents. “According to the current legislation, documents seized in the course of searches can be kept for 30 days, but in reality, the authorities often exceed such timelines,” Titov said. “As a result of such actions, companies’ activities are often paralyzed, as their legal operations are blocked. This problem can be solved if copies of official documents are seized, instead of the originals. This also applies to computers. We are currently discussing this issue with the Internal Affairs Ministry and other law enforcement authorities.” 

Expectedly, the case of the former Yukos chief, Mikhail Khodorkovsky, propped up during the press conference. Fielding these questions, the business ombudsman abstained from commenting on the legality of the charges and guilty verdicts against the ex-oil baron. However, he noted that he would examine this issue, if Khodorkovsky would file a request in an appropriate order. “Like any other allegedly offended businessman, Khodorkovsky also needs to file an application in accordance with the existing procedures because we treat all entrepreneurs on an equal basis,” he added. “Therefore, we shall treat him on an equal term with others. If he wants the office of the Entrepreneurs’ Protection Rights Commissioner to help him, he needs to act according to the laid-down procedures that everyone else follows.” 

In conclusion, the ombudsman noted that successful implementation of all intended measures would help the new state agency in its activities and efforts aimed at unswerving protection of Russian investors, business owners and their companies in the country.  Business is no longer going to be a “cash cow” for racketeers such as light-fingered officers from regulatory authorities any longer.

This means it is going to be easier for entrepreneurs to work and interact with the authorities and or their legal representatives, namely, the fiscal and law enforcement authorities. This will help contribute to further prosperity of Russian businesses in particular and its economy and society in general.