A draft law has been put before the State Duma regarding criminal liability for compliance with foreign sanctions in Russia

A draft federal law has been submitted to the State Duma according to which compliance with anti-Russian sanctions will be treated as a severe form of an abuse of powers [1].

What is proposed to be changed

It is proposed that part 2 of article 201 “Abuse of powers” of the Criminal Code be supplemented with the following classifying element: “committed in furtherance of a resolution of a foreign state, an association of foreign states or an international organisation that has introduced restrictive measures against the Russian Federation”. Punishment of up to 10 years of imprisonment is proposed to be introduced for such acts, the same as for a felony (the statute of limitations for such category of cases is 10 years).

Therefore, enhanced liability will emerge provided that the following conditions have been met:

  1. the crime was committed by a person who exercises managerial functions in a business or another entity;

  2. the person used his powers contrary to the company’s legitimate interests;

  3. the person’s actions caused material damage to the rights and legitimate interests of the public or of companies, or to the interests of a company or the state that are protected by law, and such actions simultaneously pursued two goals:

  • to obtain benefits and advantages for such person or for others or to cause harm to them;

  • to fulfil a resolution of a state, an association of foreign states or an international organisation that introduced restrictive measures against Russia.

Despite a number of conditions set forth in article 201 of the Criminal Code and in the light of broad interpretation, as suggested by the Draft, of an abuse of powers, virtually any action (an omission) by a company’s management aimed at complying with external sanctions can be under suspicion where a threat persists of a criminal case being initiated. For example, this can be termination of contractual relationships with a designated person or the inclusion of a special clause in a draft contract for potential contractors.

The purpose of complying with sanctions can be implied in situations which are typical of ordinary business practice. For example, when actions have been performed which the management usually performs when company’s financial and economic position is unstable (dismisses employees, terminates business, or reduces investments).

Perpetrators of a crime under article 201 of the Criminal Code

According to Note 1 to article 201 of the Criminal Code, persons performing management functions in a business or another entity are persons who perform the functions of a single-member executive body, of a member of the board of directors or any other collective executive body, or a person having permanent, temporary or special powers to perform organisational, management or administrative functions in such entities. Actions of officers in state-owned corporations where the state has more than 50 % ownership do not fall within the scope of such legal provisions.

The liability applies to both Russian and foreign nationals.

A conflict of opinions

According to a promoter of the Draft, when companies comply with foreign sanctions within the country this serves as indirect evidence of such business’s support of sanctions. The initiative to introduce liability for complying with sanctions was announced back in 2018. The business community, however, was adamantly opposed to it. Thus, according to the Russian Union of Industrialists and Entrepreneurs (in Russian, abbreviated to ‘RSPP’), the draft law could have restricted relationships with foreign partners and investors, deteriorated the business climate, and reduced investments in the national economy. Again, the RSPP does not support the new legislative initiative. Members of the RSPP are concerned over the double (external and internal) pressure on the entrepreneurial sector which will ultimately trigger an accelerated and large-scale withdrawal of companies fr om the Russian market.

Movement of the Draft

Draft laws amending the Criminal Code must be accompanied by a favourable report from the Russian Supreme Court and the Russian Government. A favourable report of the Supreme Court is enclosed to the set of documents. However, there is no such report of the Russian Government indicated on the file of the draft law.

According to business media outlets, on 4 April the Draft was considered during a session of the Government Commission for Legislative Drafting. The Rossiyskaya Gazeta, the official bulletin of the Russian Government, summarises the report as follows: “There are no fundamental objections with regard to the stated criminal sanctions since the state may establish criminal liability for socially dangerous acts which cause material damage and cannot be prevented with the use of other legal means”. The official media outlet asserts that government experts have made a number of technical remarks which should be taken into account when the draw law is finalised in the State Duma.

We should wait for the official report of the Russian Government to be published. The prospects of the Draft depend heavily on the content of the report. However, irrespective of the outcome when the Draft is considered in the State Duma, the extremely broad interpretation of an abuse of powers that it proposes gives reason to law enforcement authorities to believe that wh ere sanctions are complied with liability under article 201 of the Criminal Code can be imposed even now. This follows from the logic of the Draft itself. It proposes not that new liability be introduced but to enhance the allegedly existing liability. Meanwhile, the 2018 draft law proposed that a totally new article 284.2 be included in the Criminal Code: “Restricting or refusing ordinary business dealings or transactions in order to facilitate implementing restrictive measures introduced by a foreign state, an association of foreign states or an international organisation”.

Help from your adviser

Pepeliaev Group’s lawyers are ready to assess actions of a company’s management from the perspective of risks of criminal law liability taking into account current changes in legislation and its interpretation, and also to devise measures for the rights and legitimate interests of a company and its management executives to be protected.

[1] Draft Federal Law No. 102053-8 “On amending article 201 of the Russian Criminal Code” (the ‘Draft’); https://sozd.duma.gov.ru/bill/102053-8.

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