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Regular version of the site

Liberalisation for Entrepreneurs

Opinion piece by Alexander Nadmitov, managing partner of Nadmitov, Ivanov & Partners, that appeared today in Vedomosti

The regularity of news about yet another high-profile criminal case testifies to the need to liberalise Russian criminal and criminal procedure legislation.


In theory of law, criminal liability, in its content and consequences, is the most severe type of legal liability, which affects the basic constitutional rights and freedoms of the citizen. Regrettably, criminal prosecution is often used as a means to put pressure on businesses and resolve disputes of economic entities, while liability imposed for committing crimes arising from business and other economic activities does not always correspond in its severity to the gravity of such crimes.


Obviously, this does not contribute to the achievement of the goals of criminal punishment (restoration of social justice, correction of the convicted person and prevention of new crimes) and extremely negatively affects the creation and maintenance of a favourable business and investment climate in Russia, which the President regularly speaks about in his addresses to the Federal Assembly.


It is true that much has been done in recent years to humanize the criminal law, establish additional substantive and procedural guarantees to ensure the rights and legitimate interests of entrepreneurs brought to criminal liability in economic cases. But these measures are not enough. This is evidenced, in particular, by data on a significant proportion of violations of the rights of entrepreneurs during their criminal prosecution — a fact noted by the business ombudsman in his annual reports.


In my opinion, there are several specific measures that could improve the legal regulation in this area.


Firstly, the possibility to qualify the actions of entrepreneurs under Article 210 of the Criminal Code (“Organization of a criminal community”) must be restricted. In the beginning of April, the president signed into law a bill toughening criminal liability for the creation of a criminal community, participation in and management of such a community. The maximum penalty for this article is life imprisonment. But in practice, the elements stipulated by this article are often imputed not only to those who belong to criminal circles, but also to businessmen, while employees of one organization are often deemed “a group of persons in collusion” for the simple reason that they are employed by the same organization.


There is no doubt that any legal entity is an organization: the actions of its employees are subject to certain regulations, the company is set up as a hierarchy, and so on. There is a temptation, then, to consider that everything that is done within the company is an activity of an organised group of persons in collusion or to view such an organization as a criminal community.


In its current version, Article 210 of the Criminal Code allows the investigating authorities to aggravate the severity of charges, to increase the term of detention of the accused, and to “persuade” the latter to make a plea bargain as an alternative to a potentially severe punishment. At the same time, according to the judicial statistics of the Judicial Department of the Supreme Court, within the period from 2015 to the first half of 2018, as few as 60% of those in respect of whom criminal cases under Article 210 were brought before the court were found guilty and convicted. For the remaining 40%, the cases were terminated or the accused were acquitted. As a rule, the accused under this article are held in detention, which means that even those acquitted find their business destroyed. At the same time, most of the offences contemplated by Chapter 22 of the Criminal Code (“Crimes in the sphere of economic activity”) require that the respective actions be committed by a group of persons (in collusion, in an organized group, etc.). To prevent abuse, it would be useful to specify in Article 210 that its scope does not extend to persons who are prosecuted under one of the Chapter 22 articles.


Secondly, in my opinion, it would be useful to consider limiting to six years the maximum term under the statute of limitations applying to criminal prosecution for crimes in the sphere of entrepreneurial and other economic activities (it may now go to as high as 10 years). The president also spoke about this in his 2019 address: “A good faith business should not live under a constant fear criminal or administrative punishment. Today, nearly half of the cases (44.5%) opened against businessmen are terminated before they reach the court.” One of the reasons for this number is the expiration of the statute of limitations for criminal liability.


In practice, as the business ombudsman noted in a 2017 letter to the Academy of the Prosecutor General’s Office, criminal cases are often opened (or criminal prosecution continued) against entrepreneurs even after the limitation period has expired. It is not rare that, in order to overcome the expired statute of limitations, a case is opened under an article which contemplates a graver crime, only to be re-classified and terminated later.


But the gap in time between the commission of a crime and punishment is of fundamental importance in criminal law. As well-known Russian lawyer Nikolai Tagantsev noted back in 1904, “the all-encompassing power of time erases the harmful traces left by the crime, calms the agitated public conscience, makes punishment an act of purposeless retaliation, inconsistent with the essence and dignity of punitive state justice.” This still holds true.


With the course of time, the danger of the act to the public diminishes, the prevention objectives can no longer be achieved, procedural difficulties arise, which are related, in particular, to the disappearance of the traces of the crime, the loss of evidence (information known to witnesses, victims, etc. is forgotten or distorted), the offender’s personal characteristics change. In these circumstances, the application of criminal sanctions to the offender becomes both difficult and meaningless. This testifies to the high importance of the statute of limitations for the timely solution of crimes and investigation of criminal cases in the economic sphere, for the application of criminal law measures to persons who committed the crimes, and for legal certainty in further relations.


Which is why it makes sense, in my opinion, to reduce the statute of limitations for bringing to criminal liability for crimes in the sphere of entrepreneurial and other economic activities, in cases when the suspect did not hide, limiting it to six years. I believe that if the victim did not discover the damage and did not turn to the law enforcement agencies within this time, there is no reason to consider this damage so significant for the victim as to put in motion the criminal justice machine.


Thirdly, in order to reduce administrative pressure on business, it would be reasonable to announce an amnesty on the occasion of the 75th anniversary of the victory in the Great Patriotic War, extending to the “business” articles of the Criminal Code, including Articles 159, 174, 210, for acts committed before 1 March 2014.


Fourthly, in my opinion, limitation of the possibility to hold entrepreneurs to criminally liable under Articles 174, 174.1 of the Criminal Code (legalization) should be considered. A significant part of such crimes is inextricably linked with entrepreneurial and other economic activities, which creates opportunities for a potential use of these articles to put additional pressure on business.


Academic literature debated the expediency of decriminalization and categorization as administrative offences of certain crimes in the sphere of economic activity that do not represent a great danger to the public, including those under Article 174 parts 1, 2 and Article 174.1 of the Criminal Code. Scientifically grounded criminological and administrative law studies will of course be needed to determine the possibility of replacing criminal liability with administrative liability.


Fifthly, I think it advisable to limit the possibility of bringing entrepreneurs to responsibility under Article 159 part 4 of the Criminal Code (“Fraud committed by an organised group or on a large scale”). One of the main problems in the application of this article is the deliberate conversion of ordinary disputes between businesses into criminal prosecution in order to exert pressure on businesses, including for corruption reasons. Similar to Article 210 of the Criminal Code, since economic activity is impossible without the participation of third parties, any act can be interpreted as committed by a group of persons, i.e. deemed to be graver than it is. In this regard, it would make sense to limit the application of this article to entrepreneurs to its parts 5 to 7.


Sixthly, it is necessary, in my opinion, to exclude the possibility for circumvention of the requirements of Article 108 part 1.1 of the Criminal Procedure Code, which prohibits the use of detention as a preventive measure against businessmen. In the Resolution of its Plenum of 15 November 2016, the Supreme Court has explained to the courts that this article should be understood as a prohibition, an explicit and unconditional one, to detain entrepreneurs, and stressed that even the formal presence of the elements listed in the article does automatically entail imprisonment, since it does not relieve the court of the duty in each case to discuss the possibility of applying a different, more lenient, preventive measure. However, in practice this prohibition is very often violated. According to the business ombudsman, while 3,840 businessmen were detained and placed in a pre-trial detention centre as of April 2012, five years later this number increased to 6,138.


It appears that the problem with the implementation of the prohibition on imprisonment of businessmen suspected of entrepreneurial crimes arises to a large extent from the application of the law that distorts its meaning. I believe that the strengthening of the role of the prosecutor’s office may positively affect the situation, if the latter is vested with additional powers to approve the motions of investigators and preliminary investigation authorities to apply detention as a preventive measure.


Finally, there is the problem of an overlap of jurisdiction of law enforcement authorities. It would be useful to more clearly delineate the jurisdiction in relation to criminal cases so as to exclude the possibility of two law enforcement authorities or two departments of the same authority opening and investigating the same acts.

In my opinion, such liberalisation of criminal and criminal procedure legislation in combination with an amnesty should have a positive impact on the business climate in the country.


Published in Vedomosti on 21 May 2019