ROUND TABLE OF RUSSIAN CORPORATE COUNSEL ASSOCIATION WITH REPRESENTATIVES OF THE OFFICE OF THE GENERAL PROSECUTOR, THE MINISTRY OF INTERIOR AND FAS
Its participants discussed anti-corruption measures, including antimonopoly compliance
On 29 November 2018, Deputy Head of the Department for Enforcement of Anti-Corruption Legislation, the General Prosecutor’s Office of the Russian Federation, Aslan Yusufov; Senior Prosecutor, Department for Enforcement of Anti-Corruption Legislation, the General Prosecutor’s Office of the Russian Federation, Alla Dubrovskaya; Chief Expert-Auditor of the VI Unit, II Division of the Main Department fro Economic Security and Anti-Corruption Enforcement, Russian Ministry of Interior, Elena Shubochkina; and Head of FAS Anti-Cartel Department Andrey Tenishev took part in the Round Table “Anti-Corruption Compliance. The practice of holding companies and top-executive liable for corruption offences”. The Round Table was organized by the Corporate Counsel Association with support from “Baker McKenzie” International Law Firm.
In her welcoming remarks to the Round Table, Alexandra Nesterenko, President of the Corporate Counsel Association said: “The established practice of holding liable for corruption offences exposed the need for improving the anti-corruption law. It is essential to achieve efficient interaction between private companies and the law enforcement bodies in such a manner that it increases the clearance rate of corruption offences without adverse consequences for bona fide businessmen and companies. A discussion of representatives of the law enforcement bodies and business community will help determine the right direction for further development of anti-corruption law and enforcement”.
Opening the discussion on anti-corruption compliance, Eduard Bekeschenko, a partner at “Baker McKenzie” International Law Firm, pointed out that for companies it is especially important to understand the approaches used by the law enforcement bodies to hold criminally and administratively liable for corruption offences in order to improve in-house systems of anti-corruption compliance.
At the outset of his report, Aslan Yusufov drew attention to the importance of legal education and informing the population about the anti-corruption norms of the law. He pointed out that the General Prosecutor’s Office of the Russian Federation devised the Guidelines regarding the basic anti-corruption standards (an “Anticorruption Memo for businessmen). For example, in 2016 the Criminal Code was added the norms on criminal liability for minor bribes and corrupt business practices, which delineated liability for systemic and minor anti-corruption offences.
Then Aslan Yusufov presented the latest statistical data on holding criminally and administratively liable for corruption offences. In the 9 months of 2018, more than 25,000 corruption offences were registered; majority of such cases are opened for bribery (Articles 290-291 of the Criminal Code of the Russian Federation). Criminal prosecution often is administered for fraud (Article 159 of the Criminal Code), misappropriation and embezzlement (Article 160 of the Criminal Code). The areas most vulnerable to corruption include allocation and management of budgetary funds, participation in public procurement, transport, the housing-and-utility sector, etc. In the 9 months of 2018, prosecutors opened around 413 administrative cases for unlawful remuneration on behalf of or in the interests of a particular legal entity (Article 19.28 of the Code on Administrative Violations); as a result of investigating those cases 371 legal entities were held administratively liable; the total sum of the imposed fines exceeded 786 million RUB and the amount of collected fines – more than 243 million RUB. Aslan Yusufov pointed out that a fine upon a legal entity can reach up to 100 million RUB. At the same time, since August 2018, fines should be paid within seven days after a fine order comes into force.
A trend is observed for improving the fine collection process. The reason is that the law allows arrests of property of legal entities. For instance, arrest is limited by property value, not exceeding the size of a potential fine. Since there is a risk of paralyzing operations of legal entities as a result of arresting accounts, the latter is an extreme measure employed only if a legal entity does not have other property that can be penalized. Evaluating property and calculating fines, the prosecutor’s offices are guided by the cadastre value of property. Continuing discussion an arresting property of legal entities, Aslan Yusufov mentioned that the law does not provide a possibility for legal entities to take part in considering prosecutors’ statements to arrest property of legal entities.
Aslan Yusufov also described an initiative of the General Prosecutor’s Office for creating an electronic Register of companies held liable under Article 19.28 of the Code on Administrative Violations, in order to increase transparency of public procurement. Under Clause 7.1 Part 1 Article 31 of the Law on contractual system Закона, for example, there is the following mandatory requirement for procurement participants: a legal entity must not be held administratively liable under Article 19.28 of the Code on Administrative Violations within two years prior to filing an application for participating in procurement. In 2017, 20 legal entities were exposed that took part in procurement in breach of Clause 7.1 Part 1 Article 31 of the Law on contractual system. It is essential that in case of failure to include the requirement for procurement participants in the tender documentation, an ordering party shall be held liable for breaching the procurement procedure (Article 7.30 of the Code on Administrative Violations).
Regarding corruption offences committed by corporate staff, it was established that companies are most frequently held liable under Article 19.28 of the Code on Administrative Violations when its personnel offers bribes to officials in exchange for refusal to impose administrative liability. If a staff members acts in the corporate rather than personal interests, the company can be held administratively liable under Article 19.28 of the Code on Administrative Violations.
Alla Dubrovskaya emphasized that a promise of remuneration constitutes an offence under Article 19.28 of the Code on Administrative Violations. In this case there is no need to prove a fact of handing over money. Nevertheless, the practice of holding administratively liable for such incidents is not widespread.
Eduard Bekeschenko highlighted an aspect of changing judicial approaches to recognizing companies not guilty under Article 19.28 of the Code on Administrative Violations. Currently Courts are reluctant to recognize measures undertaken by companies to prevent violations as sufficient. Courts not more consider sufficient the standard measures of anti-corruption compliance (like staff training) and request companies to adopt some special measures aimed at corruption prevention. Thus, a growing popularity of anti-corruption compliance among companies has also led to negative consequences in the form of tightening approaches to judicial interpretation of innocence.
At the same time, the law sets only general requirements to measures that companies should adopt. General norms give freedom to legal entities to choose particular anti-corruption measures and allow Courts to rule whether a person is innocent in view of the circumstances on the case-by-case-basis.
Aslan Yusufov informed that changes will be made to Article 13.3 of the Anticorruption Law. In particular, the minimum standard will be introduced, i.e., a list of mandatory anticorruption measures that will depend on whether a company is private or state-run and on the size of the company.
Discussing practical issues of anticorruption compliance, Eduard Bekeschenko pointed out that anticorruption offences committed by the staff are often exposed during internal audits. Still, companies are reluctant to report the fact of violations to the Prosecutor’s Offices and fire unfair workers because there is a risk of opening proceedings against the company. Alla Dubrovskaya responded that in such a case the worker could have also acted in the corporate interests. Therefore, personal; interest does not exclude corporate interest so holding liable under Article 19.28 of the Code on Administrative Violations depends on evidence and proofs in a particular case.
Regarding liability relief (Note 5 to Article 19.28 of the Code on Administrative Violations) and anti-corruption measures (Article 13.3 of the Anti-Corruption Law), Aslan Yusufov explained that Notes to Article 19.28 of the Code on Administrative Violations is designed for cooperation between the law enforcement bodies for the purposes of exposing violations and holding violators liable. Alla Dubrovskaya added that liability relief under Article 19.28 of the Code on Administrative Violations was introduced to stimulate voluntary information disclosure by companies about violations and increase violations exposure.
Aslan Yusufov highlighted that cooperation and information exchange between Russian and foreign law enforcement bodies are underdeveloped. Cooperation and legal assistance at the international level is formalized exclusively for criminal proceedings; for administrative cases cooperation is non-regulatory.
Discussing administrative liability for unlawful employment of a public or municipal servant or a former public or municipal servant, or in carrying out works, rendering services (Article 19.29 of the Code on Administrative Violations), Alla Dubrovskaya explained that a company must undertake all necessary measures, particular, act in accord with the local regulations. A company that was not aware and could not be aware that the employed person is / was a public or municipal servant, however, cannot be held liable under Article 19.29 of the Code on Administrative Violations.
At the same time, an employment agreement with an employee who concealed information about the latest place of work must be terminated as concluded in breach of the statutory requirements.
During the discussion of criminal prosecution for corruption offences, Elena Shubochkina clarified that the procedure for opening a criminal case depends of the form of company ownership. If the authorizes capital includes a share of state property, a criminal case is opened proactively. If a company does not have state property, the procedure for opening criminal cases on corruption offences are opened upon filing statements. Explanations are given under the frame of the Law on operational-and-investigative activities (No.144-FZ Federal Law of 12.08.1995), which allows covert observations during operational-and-investigative activities, and monitoring of telephone conversations, but only when there is a Court ruling permitting such measures. In the course of investigative actions computers can be temporary seized from a company as well as various financial documents (that are to be returned after copying).
Andrey Tenishev answered questions about relations between the antimonopoly and anticorruption laws and on the problems experiences by the antimonopoly bodies throughout enforcement. One of such issues for the antimonopoly bodies is restricting access to information with secrecy of communication.
Why is this so important? First of all, because the overwhelming majority of public procurement takes place in the electronic form. In view of the latest changes to the law on procurement, all competitive methods of determining supplies are also transferred into к the electronic form. This, in its turn, increased the significance of electronic evidence used to prove bid-rigging cartels and collusions (for instance, use of the same IP-addresses by competitors).
At the same time, a transition form stationary PCs with a stationary IP-addresses to mobile internet and dynamic IP-addresses generates a problem of accessing the above data under secrecy of communication.
Since the existing law does not clarify precisely what falls under secrecy of communication (shortcoming of the wording of Article 63 of the Law on communications), the relevant protection regime covers data and information that is related to secrecy of communication, for example, communications channels.
Therefore, to increase the share of using mobile internet, particularly to take part in competitive bidding, without access to secrecy of communication, we risk to totally losing control over electronic procurement. Evaluating the established practice, FAS has drafted a law on providing access to the antimonopoly body, particularly, to secrecy of communication.
FAS has also drafted a law assigning the antimonopoly body the right of access to data obtained through intelligence-and-surveillance and properly declassified to exercise the powers for control and supervision over compliance with the antimonopoly law. It should be pointed out that such powers are already granted by the Law Enforcement Operations Act to tax officers for the cases on violating the tax law.
Andrey Tenishev emphasized that around 85% of all cartels are formed at auctions and tenders as a result of which the initial maximum contact price is not decreased at all or is reduced within что 0.5%. At the same time, when auctions / tenders ore organized in accord with the Law “On Protection of Competition” the initial maximum contact price reduces by 20-22 % or sometimes up to 40%.
In 2017, FAS exposed 340 bid-rigging cartels and 262 collusions with the authorities. Collusion with a government customer can be classified as bribery or abuse of office. For example, participating in collusion an official of a government customer can be held liable for abuse of office.
Furthermore, judicial practice shows that restricting competition during bidding inflicts considerable harm upon the society and particular economic entities since competition is a Constitutional value. In some cases bid-rigging collusion can happen within an organized criminal community which is also criminally liable (Article 210 of the Criminal Code).
Finally, Andrey Tenishev pointed out that bid-rigging cartels are a threat to national security. In this context, FAS drafted a law on criminal liability for collusion between competitors – bidders and the ordering party (the relevant amendments are proposed to Article 178 of the Criminal Code).
Alexandra Nesterenko thanked Aslan Yusufov, Alla Dubrovskaya, Elena Shubochkina, Andrey Tenishev and Eduard Bekeschenko for the informative and useful and, on behalf of the Corporate Counsel Association, expressed readiness to continue cooperation for explaining the enforcement practice.