Corporate raiding has been a widespread problem in Russia since the collapse of the Soviet Union, undermining confidence within the corporate community and negatively affecting the investment climate. Until recently, Russian legislation did little to prevent such crimes, since the law enforcement bodies did not have sufficient tools to counteract the development of such crimes in their early stages. After many years, the Russian government has finally recognized that amendments to current laws are long overdue.
Effective as of July 1, 2010, the Russian government approved the new Federal Law No. 147-FZ (the “Corporate Raiding Law”), which amends the Criminal Code and the Criminal Procedure Code of the Russian Federation, introducing new measures to counter corporate raids on Russian companies.
One of the most important features of the Corporate Raiding Law is the introduction of the definition of “raiding”. Since this concept had previously been absent from Russian law, corporate raiders were able to avoid punishment or received nominal prison sentences for lesser offences. In practice, perpetrators were mostly charged with falsification of documents and fraud. Furthermore, due to inability to detect and counteract raiding attempts at early stages, the law enforcement agents had to deal with the legal challenges of returning seized property to the victims, since Russian law also protects the rights of good faith purchasers.
The Corporate Raiding Law has introduced criminal liability for the falsification of the Unified State Register of Legal Entities, the register of security holders and various corporate documents, including the resolutions of general meetings of shareholders and the resolutions of boards of directors.
A person who knowingly submits documents containing false statements to the entity responsible for the state registration of legal entities or knowingly enters false data into the register of security holders or a securities depository system may now face a prison sentence of up to two years, which may be combined with a fine ranging from RUB100,000 to RUB300,000, or a fine equal to the raider’s earnings over a period of up to six months. If a similar crime involves violence or threat of violence against the victim, the punishment becomes more severe: the raider may now face a prison sentence of three to seven years, which may be combined with a fine of up to RUB500,000, or a fine equal to the raider’s earnings over a period of up to three years. If a raider’s actions cause grave consequences, such as destruction of property or bodily harm, the raider may be sentenced to jail for up to 10 years.
A person who falsifies resolutions of general meetings of shareholders or resolutions of the boards of directors will be punished by a fine and/or a prison sentence. For example, if the falsification was committed by way of undue influence exerted upon a shareholder or a director to vote in a certain manner or refrain from voting, aggravated by blackmail or threat of violence or destruction of property, the prison sentence may reach up to five years and be combined with a fine ranging from RUB100,000 to RUB500,000. In addition, a willful distortion of voting results of a general meeting of shareholders also constitutes criminal conduct.
The legal community has had a mixed reaction to adoption of the Corporate Raiding Law. While it is clear that it represents a major step forward in trying to combat this pernicious problem, it remains unclear to what extent the law will be consistently applied in practice. If the law is applied systematically, it would clearly achieve one of the major goals of President Medvedev and make investment in Russia more attractive.