The State Duma of the Russian Federation adopted a federal law on 22 November 2011 providing criminal liability for establishing “dummy” companies and for wrongful usage of documents for setting up such legal entities.
Amendments to the Criminal Code
The amendments provide two new articles to be incorporated in the Criminal Code of the Russian Federation (the “Code”).
Article 173.1 “Illegal establishment (incorporation or reorganization) of a legal entity”
The law imposes liability for establishing (incorporating or reorganizing) companies through front persons.
According to the law “front persons” include de-jure founders or participants of a company, as well as its corporate bodies (e.g. CEO) which have been misled in order to establish (incorporate or reorganize) a company.
The punishment set in this article may be by way of a fine, compulsory labor or imprisonment for a period of up to 5 years.
Notably, the criminal liability does not depend on the purpose for which a company is established. Thus, not only “dummy” companies, but also well-positioned and law-abiding entities are at risk in case they involve “front persons” in their corporate affairs.
A sufficient ground for a criminal liability to arise is that the entity was established (incorporated or reorganized) through “front persons”.
Article 173.2 “Illegal usage of documents for establishing (incorporating or reorganizing) a legal entity”
Subject to Article 173.2 (1) of the Code, an individual that provided an identity document or issued a power of attorney in order to establish (incorporate or reorganize) a company for the purpose of committing crime(s) connected with financial operations or asset transactions shall be criminally prosecuted.
Article 173.2 (2) of the Code provides for liability of an individual who acquired identity documents or used illegally obtained personal data in order to establish (incorporate or reorganize) a legal entity for the purpose of committing abovementioned types of crimes.
The law stipulates that “acquisition of an identity document” shall be understood as obtaining it for value or for free, appropriation of an identity document that has been found/stolen from another individual, or obtaining it by deceit or abuse of confidence.
The amendments to the Code shall come into force after the law is signed by the President and duly published.
It is expected that these developments will help to combating certain illegal practices, that are widely spread in different “shady” business activities.