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An amnesty for Russian business

September 2013

Fotobank www.lori.ru

In July the State Duma declared an economic amnesty - something that has never happened before in Russia's history. Russia's business ombudsman Boris Titov and those behind the amnesty estimate that as many as 100,000 people could stand to benefit, either by being released from prison, or seeing investigations into their activities, or charges against them, dropped. The chairman of the State Duma's Committee on Civil, Criminal, Arbitrational and Procedural Legislation, Pavel Krasheninnikov, is less optimistic: he expects something in the region of 10,000 businessmen to be affected.

On July 2, 2013, the State Duma approved the version of the economic amnesty introduced by the President, after three readings by a two thirds vote in the space of one day. It covers 27 articles of the Criminal Code, such as art. 146 "Infringement of copyright and related rights", and art. 194 "Avoiding customs payments".

The creators of the amnesty had particularly high hopes regarding article 159 "Fraud". It had been dubbed a "rubber" statute because it entitles the law enforcement agencies to hold businessmen accountable under any pretext. But this statute did not make it onto the list. Only those accused under articles 159.1 "Fraud in the field of lending" and 159.4 "Fraud in the field of entrepreneurial activity" can look forward to an amnesty. These articles themselves only saw the light of day on January 1, 2013, after six new sub-headings were drawn up under the general aegis of article 159 "Fraud".

Naturally, the majority of those charged with fraud are charged under the main statute. And now, in order for the amnesty to take effect on them, they will be required to go to court to have their cases reallocated. That will be far from easy: in the first month, only 8 entrepreneurs managed to achieve this. The amnesty will last six months.

Only those facing their first criminal charge are entitled to take advantage of the amnesty. It does not extend to those who have committed a violent crime or threatened to do so. A mandatory condition of the amnesty is that damages are paid. According to data from the office of the ombudsman for business, businessmen under investigation have paid out 43 mln rub. in compensation ($1.3 mln).

None of those in prison as a result of prominent cases, considered by many to be political, come under the amnesty: neither Mikhail Khodorkovsky, nor Platon Lebedev. They were charged under different articles.

The struggle with the business world

For a country which first set about constructing a market economy just 21 years ago, the task of narrowing the scope of criminal legislation as part of the regulating of business activity is extremely topical. The transition to a market economy began at a time when almost all business activity was banned. Up until 1993 there had been a statute which forbade citizens from engaging in operations involving foreign currency without going through the state banks. Under the Soviet Union, the maximum sentence for this crime was the death penalty. The first amnesty, which was termed a political and financial amnesty, was declared in early 1994 by the State Duma, which had just undergone a rebirth. But the key changes to the financial and criminal legislation came later.

The fact that the changes to Soviet legislation could not keep pace with the growth in market relations, and often got in their way, was not so much the issue. To this day, a negative attitude towards businessmen persists in the public consciousness, reinforcing and unofficially justifying a repressive attitude to them on the part of the law enforcement agencies. So when the law enforcement agencies find themselves unable to bring charges under one statute, they immediately hit upon another one.

But it doesn't end there. Russian business itself has learned to use the repressive approach of the law enforcement agencies as a weapon in the struggle to beat off the competition. "80% of "entrepreneurial" cases have at their heart internal disputes between businesses. It is only at a later stage in the process that the law enforcement agencies get involved - either at the request of one of the parties, or because they notice a conflict of some kind - and start to make use of this conflict to suit their objectives," Boris Titov, the ombudsman on business law, recently revealed in an interview he gave to the newspaper Kommersant.

Support for the amnesty is by no means unanimous among the public. According to a survey conducted by the Levada Centre, just 7% of Russians are "categorically" in favour of it, with another 25% "somewhat" in favour; 47% said they were against it. 73% of those questioned were of the opinion that it was not possible to make millions in Russia without being dishonest. According to another social survey centre, VTsIOM, 33% of Russians were prepared to back the amnesty for businessmen, while 36% were against it.

En route to an amnesty

During Dmitry Medvedev's presidency, sentences for financial crimes were made much more lenient. Specifically, a ban was brought in on arresting those accused under business statutes, the sentences for financial crimes were cut drastically, and courts were allowed to give sentences below the lower threshold. A person accused of financial crimes (or bribe-taking) for the first time was able to avoid a criminal sentence by paying full damages, plus five times that amount to the state as a penalty.

Admittedly, Russia's General Prosecutor, Yuri Chaika, spoke out against this last measure just recently. He described it as an ineffective piece of legislation: of the 19 billion roubles ($0.6 billion) worth of fines imposed by the courts for two years, only 19 million roubles ($0.6 million) were actually paid into the budget. And he suggested getting rid of the measure.

In late 2011, representatives of the business community demanded that the state bring an end to its repressive approach to regulating business and narrow the scope of criminal legislation in the financial sector. Back then, the experts put together a report which stated that for ten years from 2000 to 2009, 14.87% of business owners had been brought to account to face criminal charges. Roughly 70,000 criminal cases were brought each year in the financial sector. Per head of the population, this was three times greater even than in Kazakhstan. In two thirds of cases, the business against whose owner a criminal case was brought eventually went bankrupt.

According to data from the former deputy chairman of the Supreme Court Vladimir Radchenko, there were 100,000 businessmen and women behind bars at that time. Of these, 21% had been in business for less than 10 years; 47% had been in business for between 10 and 20 years; and 32% had been in business for between 20 and 26 years.

Mikhail Fedotov, chairman of the President's Council on the Development of Civil Society and Human Rights and an advisor to the head of state, is convinced that the law enforcement agencies need to adopt a different mindset. He points out that judges "won't be punished or even get a talking to" for handing out tougher sentences. Whereas lighter sentences are bound to provoke suspicion of corruption.

The number of cases brought against members of the business community first began to increase sharply in 2005. In the space of two years, the number of financial crimes was up by a quarter. "In the YUKOS affair, a large number of illegal practices were tested out, which were then extended throughout the country and used as precedents by the law enforcement agencies," asserts Tamara Morshchakova, a former judge in the Constitutional Court.

It was then that calls first began to be made for an amnesty on those charged with financial crimes. But at a meeting with Vladimir Putin, who was then Prime Minister, Sergei Borisov, the head of the public association of small and medium-sized businesses "Russia's Supports", suggested instituting a business ombudsman. Russia got its business ombudsman in June 2012. The first person to be appointed to the post was Boris Titov, head of the organization for medium-sized businesses, "Business Russia".

Almost his first suggestion after his appointment was to hold an amnesty for those charged with financial crimes. Although under the Constitution amnesties are declared by the State Duma, there can be no doubt the decision was taken at the very top - in the Kremlin. On May 23, Putin personally rejected the first version of the amnesty proposed by Titov, describing it as "undercooked". But on June 21, at the economic forum in St Petersburg, the president announced that he supported a truncated version of the amnesty. This caught even Titov by surprise, as he admitted to the press. The new version had been reduced in size by almost half: there were initially 52 statutes in Titov's draft law. A week later, a draft order on the declaration of an amnesty was taken before parliament on behalf of the president for the first time.

During discussions in the State Duma, the order on the declaration of an amnesty was beefed up a little more: several articles from the Criminal Code, which the amnesty initially extended to cover, were removed from it.

The initial results of the amnesty are less than impressive. In the space of a month, 29 businessmen have been released from jail, 61 have had the charges against them dropped and 10 have had suspended sentences or other types of sentence dropped. The business ombudsman had been expecting around 5000 to 6000 people to be released from prison.

Andrei Susarov,
correspondent from FinmarketInformational Agency,
Exclusively for Russian Survey

Andrei Shubin, director of the Centre for Analysis of Business Problems, "Russia's Supports"

"The amnesty is a sensible move, which gives an indication of the state's attitude to business in general. The amnesty covers accused who do not pose a threat to the life or health of other people, and have not caused particular harm to the state, or have compensated the state for any harm they have caused. In many cases they have also lost their business, and their means of providing for themselves and their families.

We have seen quite a few positive changes to our legislation in the last few years. We now have the institution of the business ombudsman, to whom entrepreneurs can appeal when their rights have been violated. There is far more public accountability. A huge number of irregularities in the actions of civil servants has been revealed, and cases brought. I think we will continue to see such changes.

For example, in the Criminal Code there is a statute "Hindering legitimate entrepreneurial activity", under which not a single case has been brought. It is aimed at those in positions of responsibility. There is a real need to bring a big case to set an example, and bring a civil servant to account, to show that the statute is back in play. We need to balance the rights and liability of businessmen and civil servants. Civil servants must take responsibility for everything they sign.

Will those entrepreneurs who are let off under the amnesty get back into business? Entrepreneurs are the kind of people who will always try to get their business going, come what may. It's not right to generalize; they have all been through a lot in their various ways, but most of them can't get along without generating various kinds of added value."

Andrei Yakovlev, director of the Institute for the Analysis of Companies and Markets at the Higher School of Economics

"The amnesty sends an important signal not only to entrepreneurs, but also, to a far greater degree, to the law enforcement bodies. It is a signal that the President intends to change the way they operate. What comes next will be no less important: to what extent the law enforcement agencies become more pliable at the hands of business and society.

The actual drafting of the amnesty: the form it took, the way it was discussed and altered, and truncated, and the fact that it is now on a totally different scale from that initially planned - that reflects the fact that this was a situation that needed to be looked at objectively, due to serious conflicts of interests between various factions within the elite in Russia.

On the one hand there is business, on which the country's economic growth depends. And we're not talking about companies owned by oligarchs, but the second tier, which expanded throughout the 2000's and can invest in Russia if the conditions are right. It is these companies that have come under the greatest pressure from the law enforcement agencies. On the other hand there are the men in epaulettes, who act not in the interests of society or the state, but in their own private interests.

We have yet to see any reshaping of the way the law enforcement agencies operate. It is still a closed system involving strong corporate traditions, and it doesn't like putting its dirty washing out in public. Change will not be possible unless we clean up the system and get rid of those who are only working for their own interests."

Maksim Koshkin, lawyer and director of practice at the criminal law firm for the protection of business "Pepeliaev group"

"This is the first amnesty specifically targeting financial crimes. Although past amnesties marking certain dates, such as the anniversary of victory in the Great Patriotic War, also touched upon financial statutes.

Compared to what was proposed in the draft version initially put forward by the ombudsman for entrepreneurs' rights Boris Titov, the amnesty has been somewhat truncated, and targets an extremely small number of people, who have either been charged or are being charged. But that's no bad thing. It's a compromise: from the state's point of view it's an act of forgiveness for those who have committed financial crimes.

It would be impossible to wipe out their criminal responsibility under the financial statutes altogether. But pressing criminal charges must be the state's last resort in response to any actions by guilty parties which may amount to violations of the law. In all such cases it must be established that such individuals had the premeditated intention (mens rea) to commit the crime, as an essential ingredient of it.

The problem is that as a rule, the law enforcement agencies jump to the conclusion that a crime has been committed purely on the basis that there may have been an infringement of the law. The subjective element of the crime, the issue of whether or not there was a clear intention to commit a financial crime on the part of the person responsible for the infringement, is totally overlooked by the law enforcement agencies when they bring criminal cases."