By Edward Bekeschenko and Alexander Monin (Baker McKenzie Russia)

I. Corporate liability deriving from criminal activity

1. Nature of the liability (criminal, administrative) and basis (crimes committed by directors or representatives, in the interest of or for the advantage of the company)

Russia is a traditional civil law country that does not espouse corporate criminal liability. Under Russian law, only individuals are subject to criminal liability. If directors or employees commit a crime, they can be prosecuted, but not the entity. Introduction of corporate criminal liability is currently being widely discussed and advocated by Russian law enforcement. However, the business community opposes it.

A company may be subject to administrative liability for violations of the Russian Code of Administrative Offenses (the “Administrative Code”). In practice, this is very similar to corporate criminal liability. According to the Administrative Code, a company can be held liable if it has the means to comply with the provisions of the Administrative Code but fails to take all measures within its power to do so. The Russian Supreme Court and the Russian Constitutional Court have repeatedly held that corporate liability should be analyzed, and if appropriate, established based on the individual facts of each particular case.

Company officials are also subject to administrative liability for failure to perform, or for improperly performing, their official duties. Under Russian law, administrative liability of the entity and its officers/directors are analyzed and established independently. Thus, the fact that the entity is held liable does not necessarily mean that the individuals will also be held liable, nor does it mean that they will not be held liable. Similarly, the fact that individuals are held liable does not necessarily mean that the entity will also be found liable, nor does it exempt the entity from potential liability.

If both the company and its officer are found guilty, they may both be held liable for the same violation. The rest of this discussion relates exclusively to an entity’s liability.

2. Type of crimes/administrative offenses from which, according to the legislation, corporate liability may arise

More than half of the offenses punishable under the Administrative Code apply to companies. The list that follows illustrates the main categories and is non-exhaustive:

Health and safety offences: Failure to meet the sanitary and epidemiological requirements (Administrative Code, Article 6.3); Violation of the rules on distribution of narcotic agents and psychotropic substances (Administrative Code, Article 6.16); Distribution of fake, substandard and unregistered medicines (Administrative Code, Article 6.33); etc.
Property offences: Unauthorised use or occupation of land plots, bodies of water, and forests (Administrative Code, Articles 7.1, 7.6 and 7.9); etc.
Environmental offences: Unauthorized air pollution (Administrative Code, Article 8.21); etc.
Construction and industrial offences: Violation of construction rules (Administrative Code, Articles 9.4, 9.5, 9.5.1); Violation of the rules on energy efficiency (Administrative Code, Article 9.16); etc.
Agricultural offences: Unlawful cultivation of plants containing narcotics, psychotropic substances or precursors thereof (Administrative Code,, Article 10.5.1); etc.
Transport offences: Violation of the rules on passenger transportation (Administrative Code, Articles 11.14.1 and 11.14.2); Violation of the rules related to loading and unloading of vessels (Administrative Code, Article 11.11); Violation of aviation rules (Administrative Code, Articles 11.3, 11.4 and 11.5); Violation of the transport safety rules (Administrative Code, Article 11.15.1); etc.
Traffic offences: Violation of the rules on placing registration signs on vehicles (Administrative Code, Article 12.2); etc
IT and telecommunication offences: Violation of personal data rules (Administrative Code, Article 13.11); Unlawful activities in the sphere of information protection (Administrative Code, Article 13.13); etc.
Commercial offences: Unlawful sale of alcohol (Administrative Code, Articles 14.16); Consumer fraud (Administrative Code, Article 14.7); Violation of the legislation on the turnover of medicines (Administrative Code, Article 14.4.2); Violation of the legislation on lotteries (Administrative Code, Article 14.27); etc.
Antitrust offences: Price manipulation in the electricity market (Administrative Code, Article 14.31.2); Abuse of dominant position in the commodities market (Administrative Code, Article 14.31); Entering into a competition-restraining agreement or coordination of economic activity (Administrative Code, Article 14.32); Unfair competition (Administrative Code, Article 14.33); etc.
Currency offences: Violation of the currency legislation (Administrative Code, Article 15.25); etc.
Insider trading and securities offences: Unlawful use of inside information (Administrative Code, Article 15.21); Market manipulation (Administrative Code, Article 15.30); etc.
Customs offences: Late payment of customs duties (Administrative Code, Article 16.22); Unlawful transportation of goods and vehicles across the border Administrative Code, Article 16.1); etc.
Corruption offences: Unlawful reward on behalf of a legal entity (Administrative Code, Article 19.28); etc.
Offences against state institutions: Disobeying a lawful order or demand of government officials (Administrative Code, Articles 19.3 and 19.4); etc.
Labour and offences: Violation of labor legislation (Administrative Code, Article 5.27); Hiring foreign citizens without obtaining the required permits or without notifying the relevant state authorities (Administrative Code, Article 18.15); etc.

Subjects of the Russian Federation may specify additional offenses in their administrative legislation.

3. Identification of companies and entities to which liability may apply

Administrative liability may apply to all types of legal entities, both Russian and foreign.

4. Corporate liability for crimes committed abroad by its representatives or subsidiaries

As a general rule, those administrative offenses that were committed in the Russian Federation entail liability under the Administrative Code. At the same time, in certain cases legal entities may become liable for administrative offenses committed abroad. Thus, international treaties may provide for such liability. As an example, in 2016 an extraterritorial application of Article 19.28 of the Administrative Code (unlawful remuneration on behalf of a legal entity) was introduced where the offense committed abroad was aimed against the interests of the Russian Federation, as well as in instances stipulated by the international treaty of the Russian Federation, unless this legal entity has already been held criminally or administratively liable for the same actions in a foreign state (Article 1.8(3) of the Administrative Code).

5. Successor corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

The Administrative Code specifically provides for the imposition of administrative liability in the event of the reorganisation of a company; in particular:

Transformation: If the company is transformed into a different type (eg, from a limited liability company into a joint stock company), the reorganized company will be liable for any administrative offenses committed before the date of transformation.
Merger: The company resulting from the merger is liable for any offences committed by the merged companies.
Joinder: The company joining another company continues to be liable for any administrative offences committed before the date of the joinder.
De-merger: The company which, as a result of a de-merger, obtains: (a) assets connected with the administrative offence; or (b) rights and obligations arising from a transaction connected with an administrative offence, bears the administrative liability for such offence.

II. Applicable sanctions

1. Type of sanctions applicable to the company

If a company is found liable for an administrative offence provided for in the Administrative Code, it may be subject to the following sanctions
(a) Administrative warning
An administrative warning is a written document containing a condemnation of the company’s actions.

This penalty is imposed for offenses that have not caused harm, risk of harm, threat of environmental or technological emergencies, or damage to property. Even where administrative warning is not stipulated by the Administrative Code as a sanction for a particular administrative offense, an administrative fine can in certain cases can be replaced with administrative warning. This happens if the administrative offense was committed for the first time and discovered in the course of exercising state or municipal supervision (Article 4.1.1. of the Administrative Code).

(b) Administrative fine
Administrative fines are the most widely used administrative penalty.

They generally range from a minimum of RUB 100 (~ EUR 1.6) to RUB 1 million (~ EUR 16,400).

The administrative fine for certain offenses, such as creating conditions for the distribution of fake, substandard and unregistered medicines, coordination of economic activity violating antitrust laws, and violation of antitrust laws in carrying out trade activity may amount to RUB 5 million (~ EUR 79,600).

The administrative fine for offenses in the sphere of protection of cultural heritage sites, terrorism and supervision of strategic companies may amount to RUB 60 million (~ EUR 955,000).

For certain offenses, the amount of the administrative fine is calculated as a multiple of the cost of the object of the offense, unpaid taxes and duties, unlawful currency operation, etc.

For example, the administrative fine for unlawful gain on behalf of a legal entity (Administrative Code, Article 19.28) is proportionate to the amount of such remuneration:

For a gain of up to RUB 1 million (~EUR 16,400), the fine is equal to three times the amount of the remuneration, but not less than RUB 1 million (~EUR 16,000).
For a gain of more than RUB 1 million (~EUR 16,000), up to RUB 20 million (~EUR 318,000), the fine is equal to 30 times the amount of the gain, but not less than RUB 20 million (~EUR 318,000).
For a gain of over RUB 20 million (~EUR 318,000), the fine is equal to 100 times the amount of the gain, but not less than RUB 100 million (~EUR 1,591,000).

As the legislation sets a minimum administrative fine for unlawful gain by a legal entity, the administrative fine may be significant.

(c) Compulsory suspension of company operations
Compulsory suspension is an extraordinary penalty imposed only in limited instances and only when a less strict sanction would not successfully prevent future offenses.

This penalty may be imposed for a period of up to 90 days. If the grounds for its imposition are eliminated, compulsory suspension may be cancelled earlier.

(d) Confiscation of instrument or target of the offense
The court may impose confiscation as the main punishment for an offense or in addition to one of the other punishments mentioned above.

The list of sanctions and rules on their application constitute federal legislation and may not be changed by the administrative legislation of the subjects of the Russian Federation.

If a sanction is imposed for non-fulfilment of an obligation, it does not exempt the company from fulfilling that obligation.

Additionally, the Russian Civil Code (the “Civil Code”) provides that a company may be liquidated by a court for carrying out activities prohibited by the laws or by the Constitution of the Russian Federation, as well as for carrying out activities without a proper license, permit or membership in a self-regulating organization if such license, permit or membership is required by law.

In practice, compulsory liquidation of a legal entity is rarely used in Russia, but it is a possibility in appropriate cases.

2. Interim measures, cease and desist orders, bans and confiscatory measures

Prior to imposing the above sanctions, the relevant authority may apply the following interim measures to companies:

(a) Compulsory relocation
The authorized government officials may relocate the instrumentalities of an administrative offense in order to issue a protocol relating to the offense if the protocol cannot be prepared at the place where the administrative offense was discovered.

(b) Inspection of premises, territories, and property and documents located therein
An inspection of premises and territories owned by the company and used in commercial activity, and the property and documents located therein may be carried out to stop an administrative offense and to locate instrumentalities, targets or evidence of the administrative offense.

(c) Seizure of property and documents
Seizure of the instrumentalities and targets of the offense, as well as documents having evidentiary value in administrative proceedings may be used to ensure that the evidence is available for subsequent confiscation and/or for investigative purposes.

(d) Arrest of property, vehicles and vessels
Arrest is a restriction on the use or disposal of property without its seizure. Property may be arrested if it cannot be physically seized (for instance, real estate/immovable property), or if seizure of the property may result in significant damage to such property, or if the preservation of the property may be achieved without seizure.

(e) Interim suspension of company operations
Interim suspension of company operations is an extraordinary short-term measure imposed only in limited instances and only when less severe preventive measures cannot be used.

This measure is available only against companies accused of offenses for which the compulsory suspension of company operations may be imposed as a sanction. Interim suspension is imposed for a period up to the completion of court or administrative proceedings.

The Administrative Code also stipulates other interim measures, which may be more relevant to officials than the company itself (eg, administrative detention, frisking, detention of vehicle or vessel, etc.).

Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

Russian law does not specifically address the liability of directors and managers for not having adopted measures to prevent the commission of a crime.

According to Article 53.1 of the Civil Code, a person authorized to act on behalf of a company (which may include directors and managers) may be liable for compensation of the company’s losses caused as a result of his or her breach of duty to act in the company’s interests reasonably and in good faith.

Based on that provision, the court, upon a claim by a shareholder or the company, may find the director or manager in breach of duty and order him or her to refund to the company the losses arising from the administrative fine imposed on the company.

The position that a company may recover losses arising from administrative liability from its director is supported by court cases.

III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)

A company may be subject to administrative liability if it fails to take all measures within its power to comply with rules, the violation of which triggers administrative liability. Thus, companies may mitigate the risk of incurring administrative liability by implementing effective measures and models of prevention.

The Administrative Code does not explicitly provide guidance on what measures should be taken by a company to avoid administrative liability, so such measures must be determined on a case-by-case basis.

Based on our experience, we believe that the following preventive measures may help a company avoid liability and/or reduce any applicable punishment:

Adopting a compliance program;
Conducting compliance training for employees;
Adopting a compliance due diligence policy before engaging new business partners;
Including the relevant compliance provisions in employment and commercial contracts;
Designating departments or officers who will be responsible for ensuring compliance;
Developing and implementing standards and procedures designed to ensure ethical business conduct;
Adopting a code of ethics and professional conduct;
Conducting regular external audits, etc.

Based on our experience, a company may raise as a defence any measures it has taken to prevent the administrative violation.

In addition, another Russian law imposes on companies affirmative obligations to implement measures that will prevent corruption. These measures are listed in Federal Law No. 273-FZ “On Combatting Corruption” (the “Anti-Corruption Law“) and include:

Designating structural units or officers as responsible for preventing corruption and related offences;
Cooperating with law enforcement authorities;
Developing and implementing standards and procedures designed to ensure ethical business conduct;
Adopting a code of ethics and professional conduct for all employees;
Preventing and resolving conflicts of interest; and
Preventing the creation of false reports and use of forged documents.

This list is non-exhaustive and the company may implement other measures to combat corruption.

If a compliance program meets these specified requirements, the company may cite these measures to argue in court that it should not be held liable, or, if it is held liable, to argue that the penalty should be reduced

The Russian Ministry of Labour, in cooperation with several public associations, prepared official guidelines on how companies should implement the measures stipulated in the Anti-Corruption Law.

This guidance includes clarifications of Russian, international and foreign legal frameworks, and practical recommendations for implementing measures and models of prevention.

It also provides that information on anti-corruption policies of the company should be consolidated in one document. In order to be enforceable, the policy must be adopted as a local corporate regulation in accordance with Russian legal requirements.

3. Monitoring: independent person or body to control/supervise with the purpose of verifying the correct application of the “model”; mode of operation of such person or body

The official guidelines prepared by the Ministry of Labour emphasize the importance of regular monitoring, referring to it as one of the key principles of the anti-corruption program.

According to the guidelines, companies should regularly monitor the implementation and effectiveness of their anti-corruption programs.

One of the corruption prevention measures listed in the Anti-Corruption Law (see Paragraph III. 1) is the designation of departments and employees who will be responsible for preventing corruption and related offenses. The official guidelines suggest that the designated officer or department should prepare an annual report that will be submitted to the company’s management. If the results of monitoring raise any doubt as to the effectiveness of the anti-corruption policy, the policy should be amended and supplemented.

The law does not specify the number of persons who should be made responsible for anti-corruption policy. Therefore, the number should simply be appropriate in light of the company’s size and the risks that it faces. The appointed persons may also carry out other functions, such as legal roles.

IV. Judicial proceedings to determine corporate liability

1. Court competent to decide the liability of, and penalties applicable to, the company

Administrative liability and penalties are imposed by state arbitrazh (commercial) courts and courts of general jurisdiction, magistrate courts and authorised government authorities and officials.

The Administrative Code provides an exhaustive list of government authorities and officials authorised to impose administrative liability on an offender, depending on the type of offence committed.

For some offences (i.e., corruption offences) liability may only be imposed by courts. With regard to other offences, the courts are authorised to impose any type of administrative penalty they see fit on a company, whilst other government authorities are authorised to impose only warnings and fines.

2. Possibility of the application of interim measures

Interim measures may be imposed to achieve the following goals:

To stop an administrative offence;
To identify the offender;
To issue a protocol on an administrative offence if it can not be issued at the place where the administrative offence was discovered;
To ensure timely and correct proceedings on the administrative case; and/or
To enforce the issued administrative decree.

The list of interim measures is specified in Paragraph II. 2.

3. Plea bargains and related effects on corporate liability

The Administrative Code contains no provisions on plea bargaining. However, it provides a non-exhaustive list of mitigating circumstances. Therefore, in practice, cooperating with the authorities can help companies mitigate any penalties that might be imposed on them.

A company may also mitigate its liability by preventing, eliminating or compensating for the harm caused by the offence, or by voluntarily fulfilling an order of the authorised authority to eliminate the violation.

4. Permanence of corporate liability if the crime is extinguished

The Administrative Code provides that the administrative liability of a company does not depend on the criminal liability of the individual whose actions triggered the administrative liability of the company. Therefore, if the crime committed by an individual is officially expunged, this will have no effect on the company’s administrative liability.

If the crime is extinguished due to the expiration of the statute of limitations, the statute of limitations applicable to the administrative offense of the company may lapse too, thus precluding corporate liability.

• To ensure timely and correct proceedings on the administrative case
• To enforce the issued administrative decree
The list of interim measures is specified in Paragraph II. 2.
3. Plea bargains and related effects on corporate liability
The Administrative Code contains no provisions on plea bargaining. However, it provides a non-exhaustive list of mitigating circumstances. Therefore, in practice, cooperating with the authorities can help companies mitigate any penalties that might be imposed on them.
A company may also mitigate its liability by preventing, eliminating or compensating for the harm caused by the offense, or by voluntarily fulfilling an order of the authorized authority to eliminate the violation.
4. Permanence of corporate liability if the crime is extinguished
The Administrative Code provides that the administrative liability of a company does not depend on the criminal liability of the individual whose actions triggered the administrative liability of the company. Therefore, if the crime committed by an individual is officially expunged, this will have no effect on the company’s administrative liability.
If the crime is extinguished due to the expiration of the statute of limitations, the statute of limitations applicable to the administrative offense of the company may lapse too, thus precluding corporate liability.

However, the statutes of limitations applicable to administrative offenses differ from those applicable to criminal offenses. In the case of a continuing administrative offense, the statute may be calculated from the day when the administrative offense was discovered. Therefore, a company may still be held administratively liable even if the statute of limitations on the underlying crime has expired.

V. Corporate liability in multinational groups

2. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

There is no specific provision of Russian law providing for the liability of a parent company for offenses committed by directors, managers or representatives of a local company or for the offenses of the local company itself.

However, in the event that the local company goes bankrupt, and the bankruptcy of the local company was caused by the parent company, the parent company bears joint liability for the debts of the local company, including public debts such as administrative fines, to the extent that such debts cannot be covered by the local company’s assets.

2. Basis of liability and applicable sanctions

Under Federal Law No. 127-FZ “On Insolvency (Bankruptcy),” a controlling person may be found liable for the bankruptcy of a company and be ordered to compensate creditors’ losses after all the assets of the insolvent company have been distributed. This is possible if the controlling person issued instructions that caused the bankruptcy.

VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1. Significant case law, if any

Resolution of the Plenum of the Supreme Court of the Russian Federation No. 5 dated 24 March 2005 (Paragraph 15): Based on the analysis of the case law on administrative offences, the Supreme Court clarified that if both a company and its official are liable for an offence, they may both be subject to liability for the same offense.
Decree of the Constitutional Court of the Russian Federation No. 2360-O dated 24 December 2012: Closed joint-stock company “Corporation “GRINN” alleged that Article 19.28 of the Administrative Code (providing for liability for unlawful reward on behalf of a legal entity) constituted a violation of constitutional rights because it allows administrative liability to be imposed on a legal entity before its official is held criminally liable. The court refused to accept the complaint for consideration. It reasoned that a legal entity can be found liable separately from its officers and can be held liable for an administrative offence as well if it is found to be culpable.
Resolution of Plenum of Supreme Arbitrazh Court of the Russian Federation No. 62 dated 30 July 2013 (Paragraph 4): Based on the analysis of the case law on compensation for losses caused by the actions and omissions of members of the governing bodies of a company, the Supreme Arbitrazh Court clarified that if a company is subject to public liability (tax, administrative, etc.) due to bad faith and/or the unreasonable actions of its director, the company may claim losses from the director.

2. Proposed or contemplated new legislation

In recent years, the issue of corporate criminal liability has been hotly debated in Russia. There are many scholarly publications arguing in favor of the introduction of corporate criminal liability. Moreover, the General Prosecutor’s Office and the Investigative Committee support the introduction of corporate criminal liability.

A draft law proposing the relevant amendments was presented to parliament in March 2015. As of March 2017, it has not been considered.¹

Another draft bill that has been under consideration by the State Duma since 2015 provides for the release from responsibility for an administrative offense under Article 19.28 of the Administrative Code (Unlawful remuneration on behalf of a legal entity) for a legal entity that has actively assisted in detecting and/or prosecuting the administrative offense or has reported the bribe on its behalf to the relevant state authority. ² However, the amendments are still draft bills and their future is uncertain.

¹ ^{– Please refer to Draft Bill No 750443-6, available at: http://asozd2.duma.gov.ru/main.nsf/(Spravka)?OpenAgent&RN=750443-6>

² ^{– Please refer to Draft Bill No 798912-6, available at: http://asozd2.duma.gov.ru/main.nsf/(Spravka)?OpenAgent&RN=798912-6>}}