Alert on criminal liability for compliance with foreign sanctions
A bill that provides for criminal liability for compliance with the sanctions imposed against Russia and envisages a prison term of up to 10 years[1] has been introduced to the Russian Parliament.
The initiative to criminalize compliance with so-called anti-Russian sanctions in Russia was first voiced as early as May 2018, but did not gain any significant momentum.[2] At the time, it caused serious concerns, especially among the heads of Russian offices of foreign companies in view of risks of prosecution that might arise, if, as requested by their headquarters, foreign companies were to halt their operations in Russia or stop doing business with certain Russian counterparties. This initiative was revived in mid-March because of the EU and US sanctions introduced in light of the events in Ukraine.[3]
The bill is to amend Article 201 of the Russian Criminal Code that provides for liability for the abuse of authority by adding a special provision regarding liability for compliance with sanctions (Article 201(2) of the Russian Criminal Code). Article 201 of the Russian Criminal Code deals crimes against the business of commercial or other organizations when a person discharging managerial functions uses his authority against the legitimate interests of the organization and for deriving benefits and advantages for himself or other persons or for inflicting harm on other persons[4]. The bill expands the general criminal liability of persons discharging managerial functions for any abuse of authority by adding liability for the abuse of authority committed for the implementation of restrictive measures introduced against Russia by a foreign state, a group of foreign states or an international organization (Article 201(2) of the Russian Criminal Code).
As regards the bill, it is important to note that:
- Based on the text of the bill, the restrictive measures, for compliance with which it provides for liability, must be imposed by a foreign state, a group of foreign states or an international organization. This definition makes it possible to conclude that, for instance, decisions of private companies to stop their operations in Russia, for which there are no sanctions or restrictions to do so, and the implementation of these decisions in Russia must not in itself be qualified as a crime (in the absence of any indications of the abuse of authority under the general provisions of Article 201(1) of the Russian Criminal Code).
- The bill deals with the introduction of restrictive measures against Russia, but does not specify whether this term also includes the restrictive measures imposed against certain Russian companies and individuals. The authors of the bill believe that criminal liability must be borne by persons who decide “to limit the rights and freedoms of Russian citizens, legal entities, bodies or organizations”[5]. Accordingly, the authors initially aimed at covering a rather wide range of those subject to foreign sanctions. For this reason we believe that although from a point of view of civil law, Russia is an independent subject of civil law[6], in practice liability under the draft bill may also apply to compliance with the sanctions imposed against Russian companies and individuals.
- In our opinion, compliance with foreign sanctions against Russia in itself is not sufficient for being charged with liability. The entirety of other circumstances must also be proven:
- First, the abuse of authority must take place—i.e., actions that although were directly connected with the exercise by a person of his rights and obligations, but were not caused by a business need and objectively contradicted the legitimate interests of the organization and the goals and objectives, for the achievement of which this person was granted relevant authority;
- Second, there must be the purpose of deriving benefits and advantages for himself or other persons or inflicting harm on other persons; and
- Third, the actions have resulted in inflicting substantial damage to the rights and legitimate interests of individuals or organizations or the legally-protected interests of society or the state[7].
In other words, in the absence of those indications, compliance by an executive officer with foreign sanctions must not be qualified as a crime.
- As opposed to the general abuse of authority prohibited by Article 201(1), Article 201(2) of the Russian Criminal Code to be amended by the bill does not deal with cases of so-called private-public prosecution. Cases of private-public prosecution are criminal cases that are initiated only upon an application of an aggrieved person or his legal representative.[8] Where the actions have inflicted damage solely to the interests of the organization or have not inflicted any damage to the interests of other organizations, individuals, society or the state, a criminal case will be initiated upon an application of the executive officer of that organization or with her/his consent[9].
Article 201(2) to be introduced by the bill to the Russian Criminal Code deals with cases of public prosecution that may be initiated without an application of an aggrieved person. This fact contributes to the risk of a potential prosecution for complying with sanctions.
Many transnational companies are considering pulling out of the Russian market or temporarily suspending their operations in Russia. The draft bill poses serious risks of prosecution for officers (executives, board members) of the companies that are suspending their operations in Russia, refusing to do business with Russian companies or planning to do so because of the sanctions imposed against Russia.
Accordingly, foreign companies are finding themselves between the beetle of sanctions and liability for incompliance with them and the block of Russian criminal liability for compliance with foreign sanctions against Russia. To mitigate these risks, we can offer you our interim shareholding and management services. This would enable you to minimize potential risks of continuing your operations in Russia and leave open the possibility of coming back to the Russian market or negotiate the sale of your Russian subsidiary or assets without undue haste.
We would be pleased to answer any questions that you may have.
If you have any questions left or you would like to discuss something, please send an email to Robert Gurdyumov or Anton Kabakov.
Sincerely,
[1] Draft Bill No. 102053-8 On the Amendment of Article 201 of the Russian Criminal Code (introduced on April 7, 2022)
[2] Draft Federal Bill No. 464757-7 On the Amendment of the Russian Criminal Code (as amended by the state Duma of the Federal Assembly of the Russian Federation during the 1st reading on May 15, 2018)
[3] https://www.interfax.ru/russia/828102
[4] Article 201( 1) of the Russian Criminal Code
[5] Explanatory Note to Draft Bill No. 102053-8 On the Amendment of Article 201 of the Russian Criminal Code (introduced on April 7, 2022)
[6] Article 124 of the Russian Civil Code
[7] Ruling of the Plenum of the Russian Supreme Court No. 21 On Certain Issues of Judicial Practice in Cases of Crimes Against the Interests of Service in Commercial and Other Organizations (Articles 201, 201.1, 202, and 203 of the Russian Criminal Code) dated June 29, 2021
[8] Article 20(3) of the Russian Code of Criminal Procedure
[9] Article 23 of the Russian Code of Criminal Procedure