Despite its long history of enacting anti-corruption legislation,1 Russia has faced enormous corruption problems as it has entered the twenty-first century. In 2005, the year prior to Russia’s ratification of the United Nations Convention Against Corruption (“UNCAC”), Russia scored 2.4 points out of 10 on Transparency International’s Corruption Perceptions Index (“CPI”) and shared a rank of 126 (out of 159 countries) with Albania, Niger, and Sierra Leone.2 In 2008, then-President Dmitry Medvedev adopted the first National Plan for Counteracting Corruption (the “National Plan 2008”), providing a legislative basis for an anti-corruption policy. In 2010, the newly formulated National Strategy for Counteracting Corruption declared the necessity of further development of the legislative framework, enforcement of anti-corruption laws, and strict penalties for their violation. These aims were developed in the National Plans for Counteracting Corruption, enacted biannually ever since (collectively, the “Plans”). Though not comprehensive, the Plans led to some improvement in Russia’s rankings: in 2008, when the National Plan for Counteracting Corruption was launched, Russia scored the equivalent of 21 out of 100 points on the CPI (ranking in a tie for 147 out of 180 countries)3 ; in 2013, Russia scored 28 out of 100 points (ranking in a tie for 127 out of 177 countries),4 the highest score it has reached in recent years. It remains to be seen whether this positive trend, however slight, will continue in light of the worsening economic climate in Russia and the tense relations with the West, which have combined to make robust cross-border cooperation in the anticorruption field unlikely in the near future. Establishing the Legal Framework In order to implement UNCAC and the National Plan 2008, in December 2008, Russian State Duma adopted Federal Law No. 273-FZ on Counteracting Corruption (the “Anti-Corruption Law”), Russia’s first comprehensive anti-corruption legislation. 1. See, e.g., Sean Hecker, Bruce E. Yannett, Anna S. Dulova, Aaron M. Tidman, and Alexey L. Konovalov, “Developments in Russian AntiCorruption Laws,” FCPA Update, Vol. 2, No. 10 (May 2011), http://www.debevoise.com/~/media/files/insights/publications/2011/05/ fcpa%20update/files/view%20the%20update/fileattachment/fcpaupdatemay2011.pdf. 2. Transparency International, “Corruption Perceptions Index 2005,” http://www.transparency.org/research/cpi/cpi_2005#results. 3. Transparency International, “Corruption Perceptions Index 2008,” http://www.transparency.org/research/cpi/cpi_2008#results. 4. Transparency International, “Corruption Perceptions Index 2013,” http://www.transparency.org/cpi2013/results. Continued on page 18 www.debevoise.com FCPA Update 18 June 2015 Volume 6 Number 11 The Anti-Corruption Law sets forth basic principles of anti-corruption policy as well as restrictions on public officials. It provides for disclosure of income and assets of public officials and their spouses and dependents, restrictions on employment of former public officials, and rules with respect to conflicts of interest, among other reforms. Although necessary to counteract corruption, the Anti-Corruption Law quickly proved to be insufficient. The National Plan 2010 triggered the drafting of additional anti-corruption laws, which were for the most part adopted in 2011 and 2012. In 2011, the new legislation tightened income disclosure requirements, applying them not only to public officials, but also to officials of the Russian Central Bank, state funds, and state corporations.5 In 2012, a new law introduced limited control over expenditures by the above-mentioned officials.6 In addition, the government launched a specialized review of all bills and regulations to assess their potential for exacerbating (or ameliorating) corruption; one result of these anti-corruption reviews could be the prevention or delay in the enactment of the bill or regulation. Following the launch of anti-corruption reviews, almost 20,000 regulations were suspended pending this specialized review.7 The adoption of the Anti-Corruption Law also affected criminal and administrative liability for bribery, including by introducing the administrative offense of providing illegal remuneration on behalf of a legal entity. But more significant changes to the Criminal Code and the Code of Administrative Offenses were adopted in 2011, in light of Russia’s desire to join the Organization for Economic Cooperation and Development (“OECD”). The 2011 amendments criminalized bribery of not only Russian, but also foreign (non-Russian) officials and introduced calculations of fines based on the bribe amount, which could yield penalties many times that amount.8 Following this set of amendments, Russia acceded to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions on April 17, 2012.9 Continued on page 19 5. Federal Law No. 329-FZ on Amendments to Certain Legislative Acts of the Russian Federation in respect of Improvement of State AntiCorruption Regulation (Nov. 21, 2011). For more information, see Hecker et al., note 1, supra. 6. For more information, see Bruce E. Yannett, Alyona N. Kucher, Anna V. Maximenko, and Michael T. Leigh, “Russia’s Turn Toward AntiCorruption Enforcement?,” FCPA Update, Vol. 3, No. 7 (Feb. 2012), http://www.debevoise.com/~/media/files/insights/publications/2012/02/ fcpa%20update/files/view%20the%20update/fileattachment/fcpa_update_feb_2012.pdf; Bruce E. Yannett, Alyona N. Kucher, Anna V. Maximenko, and Michael T. Leigh, “More Developments in Russian Anti-Corruption Efforts”, FCPA Update, Vol. 3, No. 10 (May 2012), http://www.debevoise.com/~/media/files/insights/publications/2012/05/fcpa%20update/files/view%20the%20update/fileattachment/ fcpa_update_may_2012.pdf. 7. “Thousands of Regulations Did Not Pass Anti-Corruption Review,” RAPSI (Nov. 21, 2012), http://rapsinews.ru/anticorruption_ news/20121121/265448231.html?wb48617274=5C794432 [Russian]. 8. See Hecker et al., note 1, supra. 9. “Russia Joins OECD Anti-Bribery Convention,” OECD (Feb. 17, 2012), http://www.oecd.org/russia/russiajoinsoecdanti-briberyconvention.htm. Evolution and Revolution in Anti-Corruption Regulation in Russia Continued from page 17 www.debevoise.com FCPA Update 19 June 2015 Volume 6 Number 11 As a result of these legal measures, Russia came close to bringing its anti-corruption legislation, as written, in line with international standards.10 Russia now faces what has proved to be a greater challenge – enforcing its new legislation. Improving Enforcement The National Plan 2012, in contrast to the 2008 and 2010 Plans, shifted the focus from developing anti-corruption legislation to its enforcement. In line with this change of priorities, several major corruption cases were initiated in 2012.11 The most significant and notorious was the Oboronservis matter, which was ultimately resolved in 2015. Former Defense Ministry official, Yevgeniya Vasilyeva, as well as four of her ex-colleagues, were convicted of fraud, money laundering, and exceeding and abusing their authority in the sale of extremely underpriced Defense Ministry property through the state-owned OJSC Oboronservis. The state alleged that the damages incurred equaled approximately $60 million. Ms. Vasilyeva was sentenced to five years’ imprisonment; her accomplices received lesser terms.12 The former Minister of Defense, who some alleged was implicated in the case, was cleared of all charges. In addition, in December 2013, a Russian court for the first time upheld Russia’s obligation to combat corruption under UNCAC, enforcing a judgment set by an Irish court in the Demesne case.13 The Irish court found a creditor agreement contract Continued on page 20 “In a move that may prove more successful than combating corruption from the top, the Russian government has encouraged public and private companies to implement anti-corruption measures themselves, thereby establishing a basis for anti-corruption enforcement ‘from the bottom.”’ 10. See, e.g., Viktor Khamraev, “What Hampers Russia’s Anti-Corruption Legislation,” Russia & India Report (May 22, 2013), http://in.rbth.com/ society/2013/05/22/what_hampers_russias_anti-corruption_legislation_25229.html?wb48617274=5C794432. 11. See Paul R. Berger, Sean Hecker, Andrew M. Levine, Bruce E. Yannett, Samantha J. Rowe, and Amanda M. Bartlett, “The FCPA in 2012: Release of the Government’s Guidance Caps a Year of Disparate Developments,” Section VI.B, FCPA Update, Vol. 4, No. 6 (Jan. 2013), http://www.debevoise.com/~/media/files/insights/publications/2013/01/fcpa%20update/files/view%20the%20update/fileattachment/ fcpaupdatejan2013.pdf. 12. “Former Defense Official Vasilyeva Gets 5 Years in Prison,” The Moscow Times (May 8, 2015), http://www.themoscowtimes.com/ article/520396.html. 13. See Presidium of the Supreme Arbitrazh Court of the Russian Federation Decision, No. 6004/13 (Oct. 8, 2013), http://www.arbitr.ru/bras. net/f.aspx?id_casedoc=1_1_55f3c2b9-745c-40c3-a9cd-d8526867530f [Russian]. Evolution and Revolution in Anti-Corruption Regulation in Russia Continued from page 18 www.debevoise.com FCPA Update 20 June 2015 Volume 6 Number 11 to be invalid on the basis of corrupt procurement.14 The Russian court upheld the ruling on comity principles, ruling that the Irish court set forth circumstances suggesting suspicious activities surrounding the contested transactions.15 The Russian court viewed its decision as vindicating Russia’s “obligations under international law, particularly the implementation of the pledge in paragraph 5 of Article 14 of the Convention against Corruption to cooperate among judicial, law enforcement, and financial regulatory authorities to combat the illegal obtainment of funds.”16 The Oboronservis and Demesne cases can be viewed as examples of anti-corruption enforcement “from the top.” It remains to be seen whether these cases will stand out as exceptions – or as a beginning of a trend. The fact that, three years after Russia’s reform efforts started in earnest, the Oboronservis and Demesne cases stand out as the only ones of their kind sends mixed signals at best. In a move that may prove more successful than combating corruption from the top, the Russian government has encouraged public and private companies to implement anti-corruption measures themselves, thereby establishing a basis for anti-corruption enforcement “from the bottom.” First, in the beginning of 2013, the Anti-Corruption Law was supplemented by the new Article 13.3, which requires companies to take anti-corruption measures, making anti-corruption compliance compulsory for companies operating in Russia.17 In November 2013, the Ministry of Labor issued detailed recommendations on implementation of Article 13.3.18 These new measures have already yielded some results. Prosecutors in several Russian regions have successfully challenged in a number of court proceedings companies’ failure to implement all or some of the anti-corruption measures mandated by Article 13.3. The courts in those cases ordered the companies to remedy the violations, in some cases within fixed periods of time.19 Russian courts have also begun to recognize anti-corruption compliance programs as a defense in bribery cases brought by the government against companies. In a case in which Continued on page 21 14. See id. at 3. 15. See id. at 9. 16. Id. at 10. 17. For more information, see Paul R. Berger, Dmitry V. Nikiforov, Bruce E. Yannett, Jane Shvets, and Anna V. Maximenko, “Anticorruption Compliance Programs under Russian Law: Article 13.3 and the FCPA/UKBA Experience,” FCPA Update, Vol. 4, No. 9 (Apr. 2013), http://www.debevoise.com/~/media/files/insights/publications/2013/04/fcpa%20update/files/view%20the%20update/fileattachment/ fcpa_update_apr_2013_proof_3.pdf. 18. For more information, see Dmitry V. Nikiforov, Bruce E. Yannett, Anna V. Maximenko, and Jane Shvets, “Russia Issues Detailed Recommendations on Compliance with Russian Anti-Corruption Law,” FCPA Update, Vol. 5, No. 5 (Dec. 2013), http://www.debevoise.com/~/ media/files/insights/publications/2013/12/fcpa%20update/files/view%20fcpa%20update/fileattachment/fcpa_update_dec2013.pdf. 19. See, e.g., Proletarsky District Court (Tver) Judgment, Case No. 2-2459/2014 (Dec. 19, 2014); Inzensk District Court (Ulianovsk Region) Judgment, Case No. 2-1099/2014 (May 19, 2014). Evolution and Revolution in Anti-Corruption Regulation in Russia Continued from page 19 www.debevoise.com FCPA Update 21 June 2015 Volume 6 Number 11 20. See Syktyvkar City Court Judgment, Case No. 12-235/2014 (Mar. 14, 2014). 21. The Charter is available at http://against-corruption.ru/images/documents/Anti-Corruption_Charter_of_the_Russian_Business.pdf. 22. For more details see Sean Hecker, Alyona N. Kucher, Jane Shvets, Anna V. Maximenko, and Alisa Melekhina, “Between a Rock and a Hard Place: Anti-Corruption Compliance and Antitrust Law in Russia,” FCPA Update, Vol. 6, No. 8 (Mar. 2015), http://www.debevoise.com/~/ media/files/insights/publications/2015/03/fcpa_update_march_2015.pdf. 23. See Paul R. Berger, Alyona N. Kucher, and Anna V. Maximenko, “Russian State Officials’ Assets Abroad: Proposed Ban on Foreign Accounts, Deposits and Securities,” FCPA Update, Vol. 4, No. 7 (Feb. 2013), http://www.debevoise.com/~/media/files/insights/publications/2013/02/ fcpa%20update/files/view%20the%20update/fileattachment/fcpa_update_feb_022713_final.pdf. the company defendant had introduced anti-corruption measures in its internal regulations and the bribe-giving employee was notified of those measures, the company was found not guilty of bribery.20 Russian businesses have also established their own mechanisms for anticorruption compliance. For example, the Anti-Corruption Charter of Russian Business has recently opened its membership to all companies doing business in Russia. The Charter covers best practices for third-party risk assessment and due diligence, financial and commercial controls, cooperation with law enforcement, and other issues.21 Notwithstanding this good news, administrative and court practice has some way to go in aligning with global anti-corruption best practices. The Federal Antimonopoly Service (“FAS”) has initiated several cases against international pharmaceutical companies dominant in the Russian market, challenging their third-party due diligence practices as violating Russian competition law. Although they present a challenge, the FAS’s and Russian courts’ interpretations of Russian antitrust law leave an opening for companies to comply with their FCPA or other anti-corruption obligations while staying on the right side of Russian law.22 From Globalization to Domestication The global political context in which Russia finds itself has had indirect effects on transparency in another realm – with regard to the management of company assets and data. Undertaken against a backdrop of multiple concerns, one of the Russian government’s first efforts to promote “economic domestication” began on May 7, 2013, when the Russian State Duma adopted Federal Law No. 79-FZ on the Prohibition for Certain Categories of Persons to Open and Maintain Accounts/ Deposits and Cash in Foreign Banks Located Abroad and Hold Securities of Foreign Issuers. The law prohibits public officials from holding cash and deposits in foreign banks or securities of foreign issuers. The government considered banning foreign real estate holdings by state and municipal officials, their spouses and minor children, but that proposal was replaced with a less restrictive obligation to disclose information about such property.23 Continued on page 22 Evolution and Revolution in Anti-Corruption Regulation in Russia Continued from page 20 www.debevoise.com FCPA Update 22 June 2015 Volume 6 Number 11 24. Federal Law No. 242-FZ on Amendments to Certain Legislative Acts of the Russian Federation in respect of Processing of Personal Data in Information and Telecommunication Networks (July 21, 2014). 25. See Alan V. Kartashkin, Andrew M. Levine, Dmitry V. Nikiforov, Anna V. Maximenko, and Jane Shvets, “Bringing Money and Data Back to Russia, FCPA Update, Vol. 5, No. 12 (July 2014), http://www.debevoise.com/~/media/files/insights/publications/2014/07/fcpa%20update/ files/view%20fcpa%20update/fileattachment/fcpa_update_ july2014.pdf. 26. Federal Law No. 376-FZ on Amendments to the First and the Second Part of the Tax Code of the Russian Federation Tax Code in respect of Taxation of Profit of Controlled Foreign Companies and Income of Foreign Organizations (Nov. 24, 2014). 27. See Kartashkin et al., note 25, supra. In 2014, the government’s domestication program reached private parties. At first, the Duma prohibited processing of personal data of Russian citizens through databases located abroad. The original deadline for transfer of such data to Russia-based servers was September 1, 2016, but the deadline has been shortened by one year.24 A violation of this data law can lead to blocking of the server used for the illegal processing. Compliance with this new law has proved a challenge for many companies, and may make it more difficult if not impossible for them to comply with foreign regulatory requests, handle internal investigations and audits, or perform even routine operations.25 Other “domestication” initiatives have proved more positive for transparency and anti-corruption compliance. The November 2014 tax code amendments attempt to address the widely discussed need to reverse the offshoring of the Russian economy and to repatriate funds to Russia.26 Though they have a mainly fiscal purpose, the amendments have the potential of removing assets from offshore jurisdictions with confidentiality regimes that have long hindered anti-corruption and other investigations. As such, the new law, if aggressively enforced, could make business transactions more transparent and illegal income harder to conceal.27 Looking Forward The outcome of Russia’s anti-corruption efforts will likely depend on broader political and economic developments. Although the National Plan 2014 continued to emphasize the importance of anti-corruption legislation and enforcement, the government has competing priorities oriented toward enhancing national security and strengthening the country’s faltering economy. Continued on page 23 Evolution and Revolution in Anti-Corruption Regulation in Russia Continued from page 21 www.debevoise.com FCPA Update 23 June 2015 Volume 6 Number 11 The current political climate may make Russia disinclined to promote cross-border cooperation in the anti-corruption area or other fields, but the Russian government may well realize that boosting the private sector’s trust in the Russian economy is crucial for purely domestic reasons, as well as for attracting foreign capital.