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Explanations of the Supreme Court of the Russian Federation regarding specific features of liability for economic crimes

Law firm Pepeliaev Group reports that the Plenum of the Russian Supreme Court has adopted a Resolution*
explaining contentious points that arise when criminal cases on economic offences are investigated.

Specified persons have a right to file statements with law enforcement authorities regarding a crime being committed in the area of business activity.

The Plenum of the Russian Supreme Court noted that criminal cases for crimes relating to a private-public prosecution can be initiated solely further to an application of a victim.

PG comments: Private-public prosecutions are, in particular, crimes in the area of business activity. Examples are fraud (articles 159-159.6 of the Russian Criminal Code), embezzlement or misappropriation (article 160 of the Criminal Code), causing property damage by deceiving a victim or abusing his/her trust (article 165 of the Criminal Code).

In this regard the Resolution provides for specific persons to have the right to act on behalf of an organisation as applicants when contacting the law enforcement authorities in cases of a private public prosecution:

  • the sole chief executive officer of the organisation;
  • the head of a collegial executive body (for example, the chairman of the board of a joint stock company);
  • a person authorised by the CEO of a commercial organisation to represent it in criminal proceedings.

If the suspect is the CEO of the company, then the following persons or bodies can act as an applicant:

  • a management body whose competence includes choosing and appointing the CEO and/or terminating his/her powers (for example, a board of directors);
  • a person authorised by this body to file such an application.

If the application filed with the law enforcement authorities have been signed by other persons, including employees of the organisation, then this application will not serve as a ground for initiating criminal proceedings.


The Supreme Court has again drawn attention to the concept of committing a crime in the area of business activity

Earlier the Plenum of the Supreme Court in Resolution No. 41 dated 19 December 2013 (as amended on 24 May 2016) already explained the issues of classifying the crimes under article 159-159.6, 160 and 165 of the Criminal Code as committed in the area of business activity.

Therefore, the following actions are classified as committed in the area of business activity: those committed by a person performing business activity on his/her own or participating in business activity performed by a legal entity when such crimes are directly connected with the specified activity. Such persons include:

  • individual entrepreneurs if they commit a crime in connection with performing business activity and/or managing the property belonging to them that is used for business purposes;
  • members of a company’s management bodies in connection with exercising their powers to manage the company or when the company performs business activity.

In the Resolution in question the Supreme Court again pointed to the criteria to classify the specified crime as committed in the area of business activity, repeating in essence the previous position. At the same time the Court has given examples of persons who are classified as members of the company’s management body:
  • a member of the board of directors (supervisory council);
  • a member of the company’s collegial executive body (for example, the board of a joint stock company);
  • a person fulfilling the functions of the sole executive body (director, general director, chairman of a production co-operative and similar).


The presence of grounds to choose detention as a pre-trial restriction is not an unconditional ground to apply this measure

Detention as a pre-trial restriction is not applied to a person suspected or accused of a crime in the area of business and other economic activity, including in a case of evasion of taxes and levies, except for certain circumstances.

Such circumstances include:

  • the suspect or accused has no permanent residence in Russia;
  • his/her identity is not established;
  • he/she has breached a previous pre-trial restriction;
  • he/she has evaded pre-investigation authorities or the court.

PG comments: In practice, the presence at least one of the specified circumstances leads to detention being applied as a pre-trial restriction.

However, the Supreme Court stated that even in the presence of specified circumstances that allow detention to be applied as a pre-trial restriction, it is necessary to proceed from each specific case and consider the possibility of choosing a less severe pre-trial restriction.

According to the position of the Plenum of the Supreme Court, a pre-trial restriction can be chosen with regard to not only individual entrepreneurs or members of a company’s management bodies, but also their joint offenders, such as an organiser, abettor and accomplice.


The Supreme Court has again returned to the concept of a first-time offender

The concept of a first-time offender was defined in clause 2 of Resolution No. 19 of the Plenum of the Supreme Court dated 27 June 2013 (as amended on 15 November 2016) “On the courts applying the legislation regulating the grounds and procedure for a release from criminal liability” according to which this person is one:

a) who has committed one or several crimes (irrespective of whether or not such crimes are classified under the same article, part of an article or several articles of the Criminal Code) for none of which he/she has been convicted before;
b) for whom a previous sentence had not come into legal force as at the time when the new crime was committed;
c) for whom the previous sentence had come into legal force as at the time when the new crime was committed; however, by the time the crime was committed, one of the circumstances had come into being that cancel the legal consequences of criminal liability being imposed on the person (for instance, the person was relieved from serving the sentence because the period of limitation for the enforcement of the previous guilty verdict expired; the criminal record was cancelled or cleared);
d) for whom the previous sentence had come into legal force; however as at the time of court proceedings the criminality in the act for which the person had been convicted was cleared;
e) who has been released from criminal liability before.

In the Resolution in question, the Supreme Court again returned to this concept, stating that a person is considered as a first-time offender if he/she has no unexpunged criminal record or unspent convictions for an offence under the same article under which he/she is being released from liability.

PG comments: The constitutional principle (article 49(1) of the Constitution of the Russian Federation) underlies this position. According to this principle each person accused of committing a crime is deemed innocent until his/her guilt is proved pursuant to the procedure provided for by federal law and established by a court sentence that has come into full legal force. The removal or clearance of the conviction annuls all legal consequences under the Criminal Code connected with the conviction (article 86(6) of the Criminal Code).


Damage can be reimbursed and/or monetary compensation can be paid by other persons

To obtain the possibility of being released from criminal liability in cases for crimes in the area of economic activity, a first-time offender needs to reimburse damage and/or make monetary compensation (article 76.1 of the Criminal Code).

The Supreme Court has allowed the opportunity for damage to be reimbursed and/or monetary compensation to be made not only by the offender, but also by other persons at his/her request (with his/her consent). Further, it is stated (citing clause 2 of the notes to article 199 of the Criminal Code), that for crimes associated with the evasion of taxes, the damage can be compensated by a company with respect to which the offender evaded paying taxes.

Please note that on 30 November 2016 the Russian President signed Federal Law No. 401-FZ, which supplements article 45 of the Tax Code. This provision allows other persons to pay taxes for a taxpayer. The amounts of tax paid by other person should be netted by the tax authority against the obligation of the taxpayer to pay tax, including if the other person pays tax to compensate the damage caused as a result of crimes provided for by articles 198 – 199.2 of the Criminal Code.

PG comments: The above new development also eliminates uncertainty when the tax authority classifies monetary funds it has received that have been paid by another person to compensate damage for a tax crime.


A definition has been given to the term ‘income’ used when releasing a person from criminal liability

One of the alternative conditions for a person to be released from criminal liability in cases of crimes in the area of economic activity specified in article 76.1(2) (evasion of customs duties, unlawful actions during a bankruptcy,deliberate bankruptcy, and fictitious bankruptcy among others) is transferring to the federal budget the income received as a result of committing the crime and monetary compensation of double the amount of the income received as a result of committing the crime.

The Plenum of the Russian Federation has determined that for the purposes of monetary compensation income is deemed the total amount of unlawful enrichment received as a result of committing a crime without deducting any expenses. In other words, it means gross income, and not net income.

PG comments: Such a wide definition of income in practice may lead to it being impossible to be released from liability under article 76.1(2) of the Criminal Code.


What to think about and what to do

The Resolution of the Plenum of Supreme Court gives explanations about a range of issues that have arisen in practice in relation to the investigation of criminal cases involving economic offences. This should have a positive impact on the assessment of criminal law risks and legal consequences.

However it must be said that certain positions of the Supreme Court have already been stated in other resolutions. This may evidence that they are especially relevant and need attention drawn to them once again.

The adopted Resolution allows for an increase in the accuracy of assessing criminal law risks associated with an inspection or investigation conducted by the law enforcement authorities in criminal cases in the area of business activity. It also means persons can be more effectively defended when they are in the risk zone for economic crimes.


Help from your adviser

Pepeliaev Group's lawyers have extensive experience of defending CEOs and employees of companies and employees in criminal cases at all stages of criminal prosecution from the date on which the pre-investigation check started (being summoned for interrogation, receiving a request from the police to provide information, etc.) through to to defending clients in courts. Our lawyers can also help to protect the rights and lawful interests of a company when they are breached by third parties.


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*Resolution No. 48 of the Plenum of the Supreme Court of the Russian Federation dated 15 November 2016 “On the practice of courts applying the legislation regulating specific aspects of criminal liability for crimes in the area of business and other economic activity”.


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