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Prosecutors are being vested with the right to challenge business entities’ transactions closed in violation of russian legislation

Pepeliaev Group advises that the State Duma has passed the law to considerably extend the supervisory functions of prosecutors in controlling transactions in terms of their compliance with sanctions[1], anti-money laundering, customs, tax and currency legislation.

At the time this alert was drafted the law had been submitted to the Federation Council (the upper chamber of Russia's Parliament) for approval[2].

The law extends the powers of prosecutors under commercial (civil) procedures by conferring a right on them to apply to a court with claims to have transactions invalidated which were closed in violation of anti-money laundering or any of the above legislation.

In addition to expanding the powers of prosecutors, the specific feature of the law lies in enshrining two forms of procedural participation of prosecutors in commercial (civil) proceedings.

First, based on the new wording of article 52 of the Commercial Procedure Code and article 45 of the Civil Procedure Code, a prosecutor may independently initiate a lawsuit claiming to have a transaction invalidated and to have the consequences applied of it being held invalid in cases when such transaction violates the requirements of sanctions, anti-money laundering, customs, tax and currency legislation.

Second, following the procedure set out in article 52(5) of the Commercial Procedure Code, a prosecutor may join a lawsuit initiated by other parties and have the rights of a party to the lawsuit, at any stage of the commercial (civil) proceedings, including when a court considers an application for a writ of execution to be issued to enforce the decision of an arbitral tribunal.

Impact of the law on corporate relationships

The fact that the law at hand is coming into effect can definitely affect the sphere of corporate relationships. Thus, it remains not entirely clear whether a prosecutor will be able to challenge resolutions of general meetings of business entities (to which legal provisions regarding transactions apply, taking into account the Supreme Court’s Ruling dated 11 June 2020 in case No. A65-3053/2019) in connection with them being at odds with sanctions, anti-money laundering, customs, tax and currency legislation.

What to think about and what to do

Before the law at hand comes into effect it needs to be approved by the Federation Council and be signed by the Russian President. It is advisable to monitor this point, including so as to determine the date when the new powers of prosecutors start to have effect.

Companies are recommended to undertake steps to assess transactions they make in terms of such transactions' compliance with current legislation; and, where necessary, bring them in line with statutory requirements.

The early detection and elimination of violations of the law will help to reduce legal risks and possible additional expenses.

Help from your adviser

Pepeliaev Group’s experts will on a continual basis monitor activities of Russian prosecutors offices to the extent relating to challenging transactions.

We are ready to provide comprehensive legal support to companies that operate (are planning to operate) in Russia.

Pepeliaev Group provides the following types of services:

  • providing legal support for various aspects of business regarding corporate legislation;

  • representing companies’ interests in their interactions with state authorities and officials, and other services.

[1] Here and below ‘sanctions legislation’ is understood to mean, among other things, legislation that establishes special economic measures and retaliatory measures (counter-measures) in response to hostile actions of foreign states.

[2] Federal Law “On amending article 52 of the Russian Commercial Procedure Code and article 45 of the Russian Civil Procedure Code”. Draft law No. 1192314-7, for electronic access please go to: https://sozd.duma.gov.ru/bill/1192314-7#bh_histras.

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