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In brief

Russia’s Supreme Court confirmed that a company can be liable under Article 19.28 of the Administrative Procedure Code (“Illegal remuneration on behalf of a legal entity”) for the actions of third parties with whom that company has no formal contractual, employment, or other legal relationship.1

The court clarified that a company may be held liable if its officers either knew about such actions, or approved or instructed the respective third parties with regard to such actions. Another requirement for prosecution is that the company must have an “economic or other material interest (for example, a reputational one)” in the performance of such actions.

In light of this clarification, companies now face increased risk under Article 19.28 for the illegal actions of persons such as employees of their dealers, distributors and other counterparties.


Contents

In order to reduce the risk of such liability, we recommend the following:

  • Companies should monitor the Register of legal entities charged with an administrative violation for illegal remuneration to see if any of their contracting partners appear in it, and if so, they should check whether the court judgment contains any indication that their company had an economic or other material interest in committing the violation (for example, reference to their company or its products, participation of the company’s contractors in a tender, etc.).
  •  If no “material interest” is identifiable in the text of the court judgment, the company should contact the respective counterparty for clarification.
  • If signs of a “material interest” are present, the company should conduct a thorough internal investigation to determine whether there was any instruction, approval, or awareness on the part of the company’s employees regarding the illegal remuneration. The results of this internal investigation may be used for the company’s legal defence in the event it is charged with an administrative violation under Article 19.28.
  • Companies should review their compliance control systems to ensure adequacy of due diligence and monitoring procedures related to their counterparties.

1. Overview of court practice in cases involving administrative liability as stipulated by Article 19.28 of the Administrative Procedure Code of the Russian Federation, 10 July 2020.

 

For the Russian version, please click here.

Author

Edward Bekeschenko is a partner in Baker & McKenzie's Moscow office. He is ranked as a leading lawyer in dispute resolution by Chambers and Legal 500. Prior to joining the Firm in 2001, Mr. Bekeschenko headed the legal department of a major Russian metallurgical company and was vice president of a Belarusian law firm.

Author

Anton Subbot heads the Antitrust & Competition Practice Group in Baker McKenzie's Moscow office. Prior to joining Baker McKenzie, he worked as a legal adviser in a Russian firm. Mr. Subbot has been ranked by Chambers Europe and recognized in Global Competition Review’s GCR 100 for his work on antitrust matters.

Author

Roman Butenko is an associate in Baker Mckenzie's Moscow office. Mr. Botenko specializes in the area of compliance and dispute resolution.

Author

Maxim Kalinin serves as managing partner of Baker & McKenzie’s St. Petersburg office and head of the Mergers & Acquisitions, Corporate, Real Estate & Construction and Employment practice groups. He was named a European legal expert in Russia by European Legal Experts 2008, and was recognized by Chambers Europe "for his expertise in M&A and real estate work". He is also cited by Legal 500, Who’s Who Legal 2009, The International Who’s Who of Real Estate Lawyers 2008 and the Private Equity Handbook 2007/2008 for his corporate and real estate work