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Open up, it’s the police! Or What Do Policemen Look for in the Office?

September 2012

Even after implementation of the reform the Russian police still have relatively broad powers when conducting audits at businesses. Now the police are responsible for performing special investigation activities after limitations on initiating “tax-related” cases which now can only be initiated upon agreement with the internal revenue service and the Investigation Committee, a government authority of higher instance, now investigates such cases. These investigation activities are exactly what can create a lot of problems for businesses. Is it possible to avoid such problems?

Fotobank www.lori.ru

Audits vary

Theoretically, it is possible to divide all the audits that policemen can perform into three big categories. The first group includes activities related to gathering information about the firm. These activities may be disclosed (phone tapping, reading mail, etc.) and undisclosed—policemen can send requests about procuring documents. Such requests may be addressed to the audited organisation, its counteragents or to the banks where it has accounts, etc.

The purpose of such activities is to determine whether or not the company’s activities demonstrate any signs of unlawful actions. To achieve these ends the police will try to ascertain who is the owner, the director general of the company, who actually manages the company, whether or not there are any mutually-dependent or affiliated structures, how its financial activities are organised, how money flow is distributed, how the company saves on taxes, etc.

During this stage coordination between the police and the company is minimal and generally boils down to document exchange. Department of Internal Affairs employees send organisations written and official requests, while the organisations answer such requests in the same manner, attaching certified copies (if necessary) of various documents.

The second category of activities are the natural continuation of the first, if when analysing the company’s documents and activities the police believes there are grounds for further investigation on a possible infringement of the law. In this case policemen must start collecting proof on the basis of which an investigation officer or prosecutor will make a decision about initiating or not initiating legal proceedings.

During this stage all the legal methods of investigating are put into action including examination, withdrawal, etc. This means that it is inevitable that special agents will visit the company’s office.

Finally, the third category of activities in which policemen can participate are those which are conducted according to the orders of various government bodies. For example, tax authorities may seek the assistance of policemen for performing audits. An investigation officer who has already initiated criminal proceedings may also give policemen orders.

So, it seems as though we are clear about the general theory, now it is time to take a look at the rights and obligations that auditors and audited companies have during each of these three phases.

Is it necessary to answer a request that has been received?

Let’s start from the correspondence stage during which a company receives particular requests from policemen. The right to send requests to companies for collecting information is directly outlined in the current Russian law; meaning that such a request must be fulfilled by the date specified in the request. The organisation which directly does not provide such information in accordance with the request, including not providing such information on-time is subject to a fine of 3,000-5,000 roubles. The organisation director may also be fined 300-500 roubles.

Meanwhile, upon receiving such a request one should always keep in mind that unlike tax authorities which gather information solely to check whether or not taxes have been paid correctly, the police requests documents to gather proof about a possible crime. Therefore, before fulfilling a request coming from the Department of Internal Affairs one should carefully weigh all the possible risks and consequences. If, after conducting such analysis, you come to the conclusion that the requested documents may be used against you, then it is worth looking for ways (which are legal) of not providing these documents.

Naturally, in order to do so one must thoroughly study the request itself. According to the Russian law policemen have the right to request documents in connection with an audit of registered statements and messages (which have been made in accordance with established procedure) about crimes. Using this logic one can say that in the request which your organisation has received there should be data about why exactly the audit is being conducted. Simply speaking, the number of the audit materials, the basis for why it is being conducted and which company is being audited must be specified in the request. But generally auditors do not trouble themselves with specifying all this information. This means that the organisation has a formal reason for ignoring such a request.

However, one should remember that liability for answering a request ensues after one does not fulfil a legally-binding demand or request made by a government body. But a request not containing information about why it is being sent is not legally-binding, meaning that one cannot be fined for not fulfilling such a request.

Policemen in the office

Generally policemen come to the office for conducting two types of activities—examining premises and conducting a survey. During an examination police officers have the right to withdraw documents and objects which may serve as evidence during court proceedings.

According to the law, an examination can only be performed after receiving a written order from the head of the police or his/her deputy. The purpose of examining premises is to find and withdraw evidence which may be documents, computers, etc. Unfortunately, the law does not directly address whether or not these activities can be conducted without the consent of the director or other representative of the company. Therefore, generally examination is performed even when the director of the organisation or another authorised employee clearly states that he/she does not consent to the performing of these activities. No matter what it is best to establish in writing that one does not consent to such activities. It is possible to do so in the order on conducting the examination which the auditors must present when starting such activities. The most important thing is that under no circumstances should you physically impede the policemen since this is a criminally punishable act.

Before letting policemen into your office building it is necessary to check their ID badges and write down all their data, including the expiration date. If a policeman refuses to provide documents for some reason or does not allow you to write down data from his/her badge, inform the call centre by dialling 02. All calls on this number are automatically recorded and are passed along to the appropriate instances for response. Therefore, a complaint call made to this number generally keeps policemen in check.

The next step is to check the reasons for conducting the examination. By law the examination must be conducted on the basis of a written order by the head of the police or his/her deputy. The auditors must present this order to a representative of the company. However, a representative of the organisation means any person being related in any way to its activities (director, head accountant, founders, organisation employees, attorney-in-fact, lawyer, etc.). Therefore, the fact that the organisation’s director is absent will not serve as a valid reason for suspending the examination.

It is particularly important to pay attention to who exactly is specified in the order regarding the people conducting the examination. Naturally, it should only be the people who showed you their police ID badges. It is also advisable to check whether or not the address and name of the company corresponds to the details of your organisation. It is worth noting that policemen can examine not only office spaces, but also they can examine storage areas, points of sales, etc.

First of all you should state any discovered discrepancies to the auditors, but if they do not take the appropriate measures, then you should document this in the order on conducting the audit and inform the call centre by dialling 02.

Later the organisation’s director or another authorised person should sign the order, confirming that he/she is familiar with its contents. It is pointless to refuse to sign the order since this will in no way impact the examination, while one will relinquish the opportunity to document his/her lack of consent to auditors’ actions. Therefore, even if one does feel the examination is legal, he/she should sign the order, writing roughly the following: “I do not give my consent to conducting special investigative activities in the form of examining premises” with a reason for such lack of consent.

Also, we would like to point out that auditors must give a representative of the organisation a copy of this order.

After the policemen have presented their documents and the order on conducting the examination and provided a copy to the organisation’s management, then they have the right to start the examination itself. One should keep in mind that policemen do not have the right to open up locked premises during the examination. They can request that they be opened; however, representatives of the company have the right to refuse without any negative consequences.

The same is true for documents and objects. Policemen have the right to withdraw those documents which can be freely accessed—they are on the desks, in unlocked cabinets, etc. Policemen do not have the right to break into any safes, cabinets, desk drawers and other places during the examination—they can merely ask company employees to do so which they can refuse to do without any negative consequences.

Withdrawal must be documented

All the actions that the police take when examining the premises must be conducted in the presence of two witnesses, that is to say, people not involved in the investigation. Policemen must formally explain to these people about their right to be present during the examination, as well as their obligation to certify that the examination took place, its contents and results.

Based on the results of the examination the auditors draw up a statement which documents all the circumstances of these activities: the date, time and place, all people involved (the police officers themselves and representatives of the organisation, as well as witnesses). Also, the statement specifies the information about the premises in which the examination was performed and its results: objects and documents found specifying the exact location and circumstances of their discovery.

The police have the right to withdraw the discovered documents and objects. At the same time they are required to draw up one more document - a report containing a list of the withdrawn objects and documents. The police are supposed to make copies which the police officer drawing up the report must certify. The transfer of such copies should be noted in the report. If for some reason it is impossible to make a copy on the scene, the police must make an appropriate entry in the report. In this case they are required to prepare and transmit a copy to the organisation not later than five days after the withdrawal. Similar rules are set for material withdrawal from computers and other digital media.

Fotobank www.lori.ru

Issues vary

Now let’s move onto the survey. The main point of this activity boils down to the policeman talking with people who may be aware of the information relevant for the audit. One should keep in mind that the survey is always carried out only with the consent of the interviewee. Simply put, the interviewee is not obligated to answer the policeman’s questions. Given this, he/she is not obligated to explain his/her reasoning for not desiring to answer the policeman’s questions, just like he/she is not obligated to reference such legal regulations which give him/her the right to do so. On the contrary, the policeman, before starting the survey, must explain to the interviewee about his/her right to remain silent and to obtain written consent to the testimony provided.

We would also like to point out that such a right is not only granted to the organisation’s directors, but also any employee, people who are not employees of the audited organisation (clients, counteragents, etc.) have the same right. We recommend that all employers make their employees aware of this right.

Aleksei Krainev,
Exclusively for Russian Survey