In January 2013, the Russian government amended the anti-corruption reforms that were first put into place in December 2008. These measures represent unprecedented activity in Russia’s battle with corruption and achieve a high degree of parity with other prominent national anti-corruption laws. Further clarity and predictability will be provided through the course of enforcement, but it is apparent that the Russian government views corruption as a substantial economic impediment to the nation’s continued growth.
Measuring Corruption Levels
The level of corruption in Russia is estimated to reach, and possibly exceed, $300 billion each year. The Business Environment and Enterprise Performance Survey (“BEEPS”), a survey by the World Bank, found that in 2008 corruption was the 3rd most frequently cited problem for firms doing business in Russia. This disconcerting figure garners even more attention when considering that it increased to the 2nd most cited problem in 2011, overtaking complaints of an inadequately educated workforce. The measures characterizing corruption in Russia demonstrate that, although some areas have improved, corruption remains a significant problem in doing business. In fact, although the number of firms being required to pay bribes has reportedly decreased between 2008 and 2011, the amount of the average bribe has increased.
Despite the recent legislation, Transparency International, a non-governmental organization that publishes a yearly Corruption Perception Index, recently ranked Russia 127th out of 177 countries, where number 1 has the least perceived corruption and number 177 the most. This represents only a modest improvement from 2008 when Russia ranked 147th. Although its trend on the Corruption Perception Index has been positive, Russia continues to find itself among a group of countries struggling with endemic violence and political unrest.
The 2008 Anti-Corruption Law
To address corruption, Russia’s government, under President Medvedev, passed the centerpiece of recent anti-corruption efforts on December 25, 2008: “On Corruption Counteraction” (“Anti-Corruption Law”). The law was a component of President Medvedev’s National Plan for Counteraction of Corruption adopted earlier that year. These laws followed Russia’s ratification of the Council of Europe’s “Criminal Law Convention on Corruption.”
The 2008 Law included policy statements intolerant of corruption, created high level directives and responsibilities for official offices in combating corruption, and created reporting requirements, such as an official’s income and attempts to induce corrupt acts. The law also amended other areas of Russian law to harmonize and clarify definitions, such as outlining permissible versus impermissible gifts, and the associated penalties. However, the Anti-Corruption Law did little to define the metes and bounds for corporate compliance, leaving substantial uncertainty for foreign entities and persons seeking to do business in Russia.
The 2013 Amendment – Article 13.3
On January 1, 2013, the Anti-Corruption Law was amended to include Article 13.3, which provides a greater degree of guidance. The amendment requires organizations doing business in Russia to implement anti-corruption measures. However, it appears from the amendment to Article 13 that a requirement for preventive measures will not serve as an independent basis for liability, as evidenced by the absence of a defined sanction without reference to a corrupt act. Further, it is likely, but not ultimately clear, that the preventive measures will serve as a defense to charges of corruption, which would be more akin to the United Kingdom Bribery Act (“UKBA”), rather than mitigation under the United State’s Foreign Corrupt Practices Act (“FCPA”).
Although the extent of the required measures remain unclear, the amendment appears to provide at least a set of minimum requirements for most businesses. Article 13.3 states that organizations are required to take steps to prevent corruption, and that measures may include the following:
• Appointment of subdivisions or officials responsible for preventing corruption and other offences;
• Cooperation with law enforcement bodies;
• Development and practical application of standards and procedures aimed at ensuring the organization’s fair functioning;
• Adoption of a code of ethics and official conduct by an organization’s employees;
• Prevention and settlement of conflicts of interest; and
• Prevention of the creation of unofficial reports or statements and of the use of forged documents.
Despite being enumerated in Article 13.3, the law does not make clear that compliance mechanisms in these areas are sufficient. The law simply requires implementation of measures aimed at the prevention of corruption. If a violation occurs and one of these mechanisms was not in place, it may be determined that appropriate measures had not been taken. However, no court case to date has defined the extent of the required measures. Thus, it behooves those doing business in Russia to assess their existing internal compliance mechanisms and consider implementation of any enumerated mechanism in the law that may be lacking. Although the implications of failing to implement these listed measures has not been made clear, it is likely that failing to do so may deprive a business of potential defenses or mitigation strategies.
It is also important to note that the requirements may be interpreted to extend to third parties and non-Russian businesses. Thus, if a business in Russia has implemented the compliance mechanisms enumerated in Article 13.3, but has agents or deals with third parties who have not implemented such policies, it is possible that the business may have failed to take appropriate measures to prevent corrupt acts by these agents or third parties, especially where such agents or third parties act “on behalf of or in the interest of” the business. This may have far-reaching consequences, so businesses should take steps to assess potential exposure through third parties and agents, and, where practicable, encourage these organizations to implement compliance mechanisms. Further, the law does not require that a company be based in Russia to be subject to the compliance requirements; as such, businesses based outside of Russia but doing business there should assess exposures and existing compliance mechanisms.
Ultimately, Article 13.3 appears to bring anti-corruption laws more into accord with U.S. and U.K. laws. The message is clear that Russian authorities are taking corruption seriously, although it remains to be seen how enforcement over time will effectuate true institutional and cultural change, both within enforcement authorities, government offices, and businesses.
Russian Ministry of Labor’s Guidance
The Ministry of Labor and Social Protection of the Russian Federation (“Ministry of Labor”) has provided welcome guidance (“Recommendations”) on the requirements set forth in the Anti-Corruption Law, and in particular Article 13.3. The Recommendations provide detailed information on measures, procedures, and policies meant to guide businesses in implementing adequate programs. Businesses looking to the Recommendations will find helpful information on implementation and examples of corruption problems, providing more illustrative direction as to what actions are considered corrupt acts, how to assess risks, and templates for compliance mechanisms.
Importantly, the Recommendations clarify that the necessary measures will differ between organizations and risks. For example, the Ministry of Labor has explained that the creation of an anti-corruption department for a small business may be unreasonable. Thus, it appears that the elements set forth in Article 13.3 may not be fully prescriptive for all organizations. It may be prudent, however, for businesses to tailor an alternative compliance mechanism as closely as possible to the listed compliance mechanisms of Article 13.3, as failure to do say may not comply with the appropriate measures requirement.
Additionally, comments by officials in the Ministry of Labor have pointed to the agreement between Russia’s new anti-corruption laws and those of foreign countries. The compliance measures required under the Anti-Corruption Law appears to largely track U.K. and U.S. anti-corruption laws, which is welcome news for businesses already subject to, and in compliance with, these other international standards. The Recommendations provide some level of clarity on the parallels between the Anti-Corruption Law and other foreign anti-corruption regulations, at points even discussing the FCPA and UKBA. However, it is important to note there is not strict agreement between the laws.
FCPA, UKBA, and the Anti-Corruption Law
The Anti-Corruption Law has clear parallels to other important anti-corruption legislation in foreign countries, and the Ministry of Labor has acknowledged that the Recommendations derive, at least in part, from the experiences of foreign regulators. The Recommendations therefore will be a valuable resource for businesses, both to confirm the agreement with anti-corruption laws of other countries as well as to provide additional guidance on implementation of proposed measures. However, the Anti-Corruption Law does not exactly parallel other regulatory regimes and businesses should recognize potential differences for enforcement, exposure due to third parties, and the cost and benefits of adhering closely to the law and the associated Recommendations.
As noted above, the Anti-Corruption Law appears to harmonize with the FCPA and UKBA in that the regulatory regimes penalize the failure to institute compliance measures only in the event of a violation. For example, the UKBA states that if an organization has implemented “adequate procedures” against corrupt acts, the business may have a full defense against enterprise liability for the wrongful act. Thus, if a business subject to the UKBA does not have a compliance program but also does not come under charges of corruption, there should be no liability. Similarly, the Anti-Corruption Law does not envisage sanctions for failing to institute an anti-corruption program in absence of any charges of corruption. However, the Anti-Corruption Law does not clarify the standard for sufficiency of anti-corruption measures.
The FCPA and UKBA articulate slightly different extents of jurisdictional reach as compared to the Anti-Corruption Law. The FCPA is generally limited to reaching U.S. businesses or persons and their foreign subsidiaries, foreign businesses that have issued securities on a U.S. stock exchange, and non-U.S. businesses and persons making certain transactions within the U.S. Importantly, although the FCPA may not explicitly provide for extra-territoriality for non-U.S. businesses and persons, the Department of Justice has pursued non-U.S. businesses for corrupt acts abroad based upon relatively minimal contacts with the U.S. This fact highlights the importance of recognizing the potential differences between black letter law and the law as enforced. Similarly, the UKBA may reach a non-U.K. entity carrying on business with a “close connection” to the U.K. and hold that the non-U.K. entity is liable for acts carried out beyond the U.K. based on the failure to prevent corrupt acts. The Anti-Corruption Law, by contrast, simply reaches all “organizations” doing business in Russia. The Russian law’s jurisdictional authority does not require the use of certain interstate means or through the additional theory of failure to prevent. In effect, these articulations of regulatory reach may not differ greatly despite the vague and broad extent of the Russian law’s wording. As with other uncertainty surrounding this law, the tone and extent of enforcement efforts will clarify the practical reach and necessity to implement preventive measures.
Finally, the effect of compliance with the requirements of the Anti-Corruption Law is not yet clear. The FCPA provides for the mitigation of fines and penalties in circumstances when a business has implemented the proper corruption prevention mechanisms and a violation occurs. The UKBA provides an even more robust incentive to implement the preventive measures by creating a complete defense against a corruption charge. In the U.K. a company need only demonstrate that they had “adequate procedures” to prevent violations in order to avoid liability. In contrast, the Anti-Corruption Law is unclear about what type of benefit a business may gain from compliance. It appears unlikely for independent liability to attach for a failure to institute sufficient anti-corruption mechanisms, but the law does not indicate whether mitigation or a complete defense may result. Given the similarities between the Anti-Corruption Law and foreign laws, it is possible that some level of defense akin to the UKBA will be available to businesses that can demonstrate compliance with the law. It is important once again to note that strict compliance with mechanisms specifically provided in Article 13.3 may not guarantee exemption from liability for corruption acts.
The Anti-Bribery Act and the 2013 amendment, in particular Article 13.3, represent a substantial step toward addressing corruption in the Russian Federation. Given the relative ambiguity in numerous areas of the law, it may be difficult to predict and develop a regulatory and compliance environment over the short term. The Recommendations by the Ministry of Labor go a great distance in helping to create a normative compliance environment, but realistically it will be enforcement over time that will provide a true picture of the extent and effect of the Anti-Corruption Law on Russian politics and business. For those subject to the FCPA and UKBA, compliance with the new Russian law may not require a substantial change, but it remains important to analyze how such organizations’ anti-corruption measures appear to comply with the Russian law.