Russia Anti-Bribery Law Sets New Compliance Standards

Given Russia's dark cloud of business corruption, it's hard to believe it would enact the most onerous and stringent anti-corruption law in the world to date.

Well, believe it.

Russia's new anti-corruption law goes where none, including the U.K. Bribery Act or the U.S. Foreign Corrupt Practices Act, have gone before by requiring organizations that operate in Russia to implement measures to combat corruption. “It's the first law anywhere in the world that actually puts an affirmative obligation on companies to have compliance programs,” says Thomas Firestone, a senior counsel in the Moscow office of law firm Baker & McKenzie.

In comparison, while U.S. enforcement authorities encourage companies to establish compliance programs, no such affirmative obligation exists under the FCPA. Only if a company is caught engaging in bribery and doesn't have a compliance program in place, does it then become a problem, says Firestone.

Moreover, the new law applies to all organizations operating in Russia—no matter whether they are public or private companies, non-governmental organizations, non-profits, or political parties.

The new law, which went into effect at the start of the year, amends an umbrella anti-corruption law enacted in December 2008 under former Russian President Dmitry Medvedev, which set out an overall framework for combating corruption.

Still, there is plenty of skepticism that the new requirements will be enforced evenly. “The anti-corruption policies are there on paper, but you can't really say in terms of implementation that there's been a lot of progress,” says Delphine Nougayrède, a partner in the Moscow office of law firm DLA Piper. “Enforcement is still very erratic.”

The amendment to Article 13.3 lays out a roadmap of anti-corruption measures that companies operating in Russia must have in place, including:

·         Designating departments and officers responsible for preventing bribery and related offenses;

·         Developing mechanisms for cooperation with law enforcement;

·         Developing and implementing policies and procedures designed to ensure ethical business conduct;

·         Adopting a Code of Ethics that is rolled out to all employees;

·         Establishing a means for identifying, preventing, and resolving conflicts of interest; and

·         Preventing the creation and use of false and altered documents, including false accounting.

Inclusion of these compliance recommendations within the law itself effectively mean that the adoption of such measures no longer remains an area of discretion for organizations as they were under previous law.

“To ensure compliance, organizations should in fact adopt these measures as a minimum and supplement them with additional measures if desirable or required by the organization's group standards,” advises Dmitri Nikiforov, a partner and chair of the Moscow office at law firm Debevoise & Plimpton.

Although violations under Article 13.3 do not establish liability, “failure to comply with it will deprive the legal entity from claiming it is not guilty of an administrative anti-corruption offense,” Nikiforov adds.

Nougayrède emphasizes that Article 13.3 should not be read on its own. “It must be read together with the Criminal Code and the Code of Administrative Violations,” she says.

Russia's Criminal Code, which was amended in May 2011, prohibits the receiving and offering of bribes to government officials. Furthermore, Article 19.28 under the Code of Administrative Offenses imposes fines against companies of up to 100 times the amount of any bribe offered or made on behalf of a company.

“It's the first law anywhere in the world that actually puts an affirmative obligation on companies to have compliance programs.”

—Thomas Firestone,

Senior Counsel,

Baker & McKenzie

Putting all of these pieces together, Firestone says, the new law could have broad implications for multinational companies with subsidiaries in Russia. If an employee or third party acting on behalf of a company pays or offers a bribe, and the company doesn't have all the recommended Article 13.3 measures in place, it arguably hasn't done everything in its power to prevent corruption and could face a significant administrative fine, he says.

At least under the FCPA and the U.K. Bribery Act, companies have an “adequate procedures” defense if they have compliance measures in place; that's not the case with Russia's anti-corruption law. “It's essentially the U.K. Bribery Act's strict liability without the adequate procedures defense,” says Firestone.

Lessons learned from enforcement actions brought by the Department of Justice and the Securities and Exchange Commission “show that the companies implementing effective anti-corruption programs are much less likely to incur substantial penalties levied for corruption violations,” Nikiforov says.

Proactive Measures

For U.S. companies conducting business in Russia, Nikiforov offers a list of proactive steps that companies should take in response to the law:

·         Audit existing anti-corruption measures and re-evaluate their sufficiency;

·         Update existing anti-corruption compliance programs as necessary, making sure they include anti-corruption measures listed under Article 13.3;

·         Undertake due diligence to ensure third parties comply with the requirements of the Article 13.3; and

·         Train employees on anti-corruption measures and requirements of the anti-corruption compliance program.

Nougayrède encourages senior management to get directly involved in any contracts that involve government authorities. “It's a matter of acknowledging the problem and being on the front lines,” she says.

EXECUTIVE ORDER

Below is the executive order on Russia's 2012-2013 National Anti-Corruption Plan.

Dmitry Medvedev signed Executive Order On the National Anti-Corruption Plan for 2012–2013 and Amendments to Certain Acts of the President of the Russian Federation on Countering Corruption.

The Executive Order approves the National Anti-Corruption Plan for 2012–2013 and also includes corresponding instructions and recommendations to the heads of federal executive bodies, other government agencies, and the Supreme Court of the Russian Federation.

The Civic Chamber, the Chamber of Commerce and Industry, the Russian Non-Commercial Organization Association of Lawyers of Russia, political parties, self-regulating organizations, and public unions and associations of industrialists and entrepreneurs are invited to develop a draft federal law on public oversight of the work of federal executive bodies, as well as regional and municipal government bodies, and to continue efforts to establish a countrywide culture of intolerance to corrupt behavior.

Amendments were also made to certain acts of the President of Russia on anti-corruption issues.

Source: President of Russia.

“Given compliance programs are not static and need constant monitoring to be effective, updating and testing these efforts should be part of the companies' compliance efforts,” Nikiforov says. “For the companies without existing anti-corruption compliance programs, this is a time to create them without any delay.”

What's Next

While ultimate proof of Russia's commitment to anti-bribery enforcement lies in implementation, last year proved to be a year of progress toward the country's anti-corruption efforts.

In March 2012, Russia signed into law then-President Medvedev's proposal for a National Anti-Corruption Plan for 2012 and 2013. The plan imposes various tasks on the Russian government, including tasks to issue new regulations requiring disclosure by public officials of gifts received and business trips made as public officials, to devise proposals for Russia's first lobbying regulations and to devise strategies to better identify and resolve public officials' potential conflicts of interest.

Firestone says it would be unfair to say that Russia is passing laws just for show with no intent to implement them. “They are implementing them,” he says.

According to an analysis by Baker & Mckenzie, 114 cases have been brought against companies for violations of Article 19.28. Of those cases, 63 resulted in fines and punishments, says Firestone. In comparison, not a single prosecution, to date, has been brought under the U.K. Bribery Act.

Because of the enormity of the problem and the sheer size of Russia's bureaucracy, the overall corruption environment isn't going to change overnight, “but I do think there is a serious intent on the part of the government to combat corruption,” Firestone adds. “Whether or not they'll succeed is a different story.”