ABC (anti-bribery and corruption) enforcement in Russia and the former Soviet republics in 2017 was marked by foreign multinational actions against international companies for large-scale offences. The pressure from abroad was increased by the World Bank which de-barred persons from these regions from further financing projects due to fraud. ABC enforcement against companies enjoyed less support from the Russian side, with domestic enforcement actions focusing on small-scale bribery and slowing down slightly. The Russian legislator on the other hand has been quite active and the legislative outlook for 2018 is promising.
- US, UK, Dutch and Swedish authorities completed several, partly multinational, enforcement actions in Russia and former Soviet republics. For the first time, the UK Serious Fraud Office concluded a deferred prosecution agreement (DPA) for violations of the UK Bribery Act extending to Russia. As in 2016, the US Securities and Exchange Commission and the US Department of Justice completed a number of investigations of violations of the Foreign Corrupt Practices Act in former Soviet republics. Most foreign investigations targeted large-scale bribery in the energy, telecommunications and infrastructure sectors.
- The World Bank's Integrity Vice Presidency (INT) debarred or cross-debarred 18 companies and individuals from former Soviet republics from further World Bank projects following fraud and corruption investigations, and opened eight new cases in these regions.
- Russian enforcement actions in 2017 still focused on small-scale bribery committed by Russian companies. Compared to 2016, the number of convictions of legal entities for bribery offences decreased slightly (from 397 to 325). Many offences occurred in the construction, transportation, oil and gas, and retail sectors across Russia. Apparently, no major company has been held liable for corruption or bribery.
- Russian prosecutors continued to actively perform inspections of Russian companies to verify the implementation of anti-corruption measures. The need for these checks was confirmed in a survey by Transparency International Russia, which revealed that Russia's 200 largest companies have so far failed to take basic anti-corruption measures.
- Following legislative changes in Russia, corrupt companies are now debarred from state procurement contracts. There will be an online register of state employees who have been dismissed from public service due to corruption. In response to US sanctions, the Russian government is now authorized to restrict the disclosure of information by Russian sources (notaries, companies, public registers, bank, share issuers etc.). Important legislative initiatives for 2018 include the adoption of a whistleblower law and the development of binding anti-corruption standards for private companies.
FOREIGN ENFORCEMENT ACTIONS IN RUSSIA & FORMER SOVIET REPUBLICS
US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) – Kazakhstan, Azerbaijan, Uzbekistan and Georgia
Throughout 2017, the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) completed, partly jointly with UK, Dutch and Swedish law enforcement authorities, a number of investigations for violations of the Foreign Corrupt Practices Act (FCPA) in Kazakhstan, Azerbaijan, Uzbekistan and Georgia.
Most of these investigations targeted large-scale bribery in the energy, telecommunications and infrastructure sectors, and resulted in the payment of significant fines. The underlying corruption schemes included:
- commission payments to intermediaries, knowing that the intermediaries intended to use at least a portion of the commission payments to bribe foreign officials in order to win contracts;
- engaging a local distributor of parts and services, knowing that the distributor was beneficially owned by a high-ranking government official with decision-making authority over the ability to continue operating in the relevant market and to win contracts;
- payment of bribes to a shell company beneficially owned by a close relative of a high-ranking government official under the guise of lobbying and consulting services that were never provided;
- sharing the profits from the acquisition and subsequent operation of a state-owned industrial facility with high-level government officials by way of setting-up a joint venture company and entering into a management agreement with companies indirectly partly owned by the officials.
UK Serious Fraud Office (SFO) – Russia
In January 2017, the UK Serious Fraud Office (SFO) concluded for the first time a deferred prosecution agreement (DPA) for violations of the UK Bribery Act extending to, among other, Russia.
With respect to Russia, the charges under the DPA related to payments to intermediaries for bribing an official of a state-owned company to award a supply contract. At the time of the award, there was no formal contract in place with either intermediary, and the appropriate due diligence on them had not been completed.
World Bank – Uzbekistan, Kazakhstan, Kyrgyzstan, Azerbaijan and Tajikistan
Throughout 2017, the World Bank's Integrity Vice Presidency (INT) opened eight new cases for full investigations of fraud and corruption in World Bank Group-financed activities in Europe and Central Asia.
The World Bank statistics do not disclose to what extent these cases concern projects in Russia and the former Soviet republics. However, in 2017, in total 18 companies and individuals from former Soviet republics (Uzbekistan, Kazakhstan, Kyrgyzstan, Azerbaijan and Tajikistan) were, as a result of completed INT investigations, debarred or, following debarment by other development banks, cross-debarred from further projects financed by the World Bank Group. It is therefore likely that some of the new cases also relate to projects in former Soviet republics.
RUSSIAN ENFORCEMENT ACTIONS AGAINST LEGAL ENTITIES
Continued focus on small-scale bribery
According to information published by the general prosecutor's office for 2017, legal entities were held liable for bribery offences in 325 cases (based on Article 19.28 of the Administrative Offences Code, i.e. unlawful remuneration on behalf of a legal entity). That means that, compared to 2016 (397 cases), Russian investigations slowed down slightly in 2017. Since some legal entities have been convicted repeatedly under different case numbers, the actual number of convicted legal entities is even less than 325.
Almost all cases – predominantly dealing with illegal payments to civil servants or employees of other companies – resulted in the imposition of a fine. Depending on the bribe sum, the law provides for fines of up to RUB 100m (approx. USD 1.7m) or more. In most cases only the statutory minimum fine of RUB 1m was imposed. Often, the minimum fines were further reduced by the courts of appeal. That means that Russian ABC enforcement actions against legal entities continue to focus on small-scale bribery.
As an additional sanction, since January 2017 all legal entities convicted of bribery offences according to Article 19.28 of the Administrative Offences Code will be prohibited from bidding in state procurement tenders for a period of two years from the date of conviction.
The published information shows that, as in 2016, the ABC enforcement actions targeted exclusively small and medium-sized Russian companies with Russian beneficiaries (many in the construction, transportation, oil and gas, and retail sectors across Russia). No major Russian company has been held liable. Apparently, there have been no convictions of Russian subsidiaries of foreign companies or of foreign companies themselves.
None of the foreign enforcement actions based on bribery and corruption offences related to Russia (e.g. under US FCPA or UK Bribery Act) seem to have triggered any subsequent ABC investigations by Russian law enforcement authorities.
Anti-corruption measures as defence
Legal entities can be held liable under Article 19.28 of the Administrative Offences Code (unlawful remuneration on behalf of a legal entity) if the prosecutor can prove that they have not taken all measures necessary to prevent such bribery being committed by their employees or agents.
Since its introduction in 2013, these measures arguably include the raft of anti-corruption measures which must be taken by Russian organizations according to Article 13.3 of the Anti-Corruption Law (appointment of a compliance officer, adoption of a compliance code, cooperation with law enforcement authorities etc.).
However, the available court practice still gives no guidance on how legal entities must implement the anti-corruption measures in order to be exempted from administrative liability. Currently, the courts regularly establish the failure of legal entities to take the necessary measures to prevent bribery without further reference to the anti-corruption measures.
Inspections of legal entities by prosecutors
Outside of ABC investigations, public prosecutors continued in 2017 to actively perform inspections of Russian legal entities to check whether they have actually adopted the anti-corruption measures of Article 13.3 of the Anti-Corruption Law.
Russian law does not specify sanctions for non-compliance with the requirements of Article 13.3 of the Anti-Corruption Law. Therefore, the prosecutors filed civil law claims against the companies "in the interest of an indefinite number of persons" which were processed by the courts. As in 2016, these claims resulted in numerous court orders obliging companies to implement anti-corruption measures within a certain time period (usually one month). In a few cases, the general directors of these companies had to pay small fines for failure to com-ply with the prosecutors' instructions to implement the missing anti-corruption measures.
Practice shows that Russian subsidiaries of foreign companies are also frequently subject to such checks.
Large companies' failure to take anti-corruption measures
That there is an actual need to monitor the anti-corruption measures adopted by Russian legal entities is confirmed by Transparency International Russia's report, "Transparency in Corporate Reporting: Assessing the Russian's Largest Companies", which was published on 25 January 2018 (https://transparency.org.ru/special/trac2018russia/en/).
This report reveals that most of Russia's 200 largest companies by revenue have so far failed to take basic anti-corruption measures:
- Only 115 companies have anti-corruption rules which are publicly accessible on their website;
- Most of the reviewed compliance documents do not include sufficient hospitality provisions (e.g. requirement to report gifts or thresholds for acceptable gifts);
- Only 20% of the companies expressly prohibit facilitation payments (which may qualify as bribery under Russian law);
- Only 26% of the companies extend their anti-corruption policies to agents and consultants;
- 60% of the companies do not have an anonymous hotline for whistleblower reports;
- Most companies either do not conduct anti-corruption training at all, or organize it only on an irregular basis.
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