Forfeiture of property on corruption-related or other grounds
Pepeliaev Group advises that practice has expanded of private assets being forfeited in the framework of anti-corruption and neighbouring legislation.
Since 2022, eighty-four cases have been recorded in Russia of a compulsory loss of control over their businesses by Russian and foreign individuals and companies. This resulted in the ownership or control of these companies being transferred to the state.https://www.forbes.ru/biznes/518787-s-2022-goda-v-rossii-proveli-84-dela-po-nacionalizacii-castnyh-kompanij?ysclid=lzr4qy3qme6750467
The first category of cases comprises assets that had belonged to foreign businesses and fell under provisional administration under the Russian President's decree. On 25 April 2023 Decree No. 302 was published, under which assets of certain foreign companies were transferred under the provisional administration of the Russian Federal Agency for State Property Management (known by the Russian acronym ‘Rosimuschestvo’). In total, this category includes 9 cases.
The second category is the nationalisation of enterprises further to claims of the Russian General Prosecutor’s Office. Such decisions are made by Russian courts, both courts of general jurisdiction and state commercial (‘arbitration’) courts. This category includes 12 cases. Four of them resulted in a compulsory sale by foreigners of their assets and, in the remaining eight, the courts made decisions that the property be forfeited, primarily on the grounds of the foreign owners of these assets being classified as members of criminal and extremist groups.
The third category of cases is when property was forfeited because of corruption-related charges. Based on Law No. 230 “On overseeing whether expenses of persons in public service and of other persons correspond to their income” and article 235 of the Russian Civil Code, the General Prosecutor's Office may, acting through the court, seize assets which state officials and their close relatives have obtained through corruption. This group includes 17 cases and most of them have resulted in the businessmen being defeated, with the judgments, when they were coming into force, being performed by assets being seized. In some of these cases, owners still hope to have the judgments set aside which have come into legal force. The Russian Supreme Court referred two more cases in this category to be reconsidered by first instance courts.
Unlawful ownership of assets which previously belonged to the state has become one more ground for property to be forfeited (so-called “deprivatisation”). In total, this group includes 28 cases and is the most numerous one. There has not been a single decision in these disputes in favour of the defendants, but in six cases the proceedings are still ongoing. In two cases it is as yet unknown whether the hearings which took place in the beginning of August 2024 have resulted in court judgements.
Reaction of the business community
The Russian Union of Industrialists and Entrepreneurs has proposed amendments to anti-corruption legislation in order to offer protection against nationalisation to owners of property which previously belonged to corrupt state officials.
The Union has proposed amendments to article 17 of the Law “On overseeing whether expenses of persons in public service and of other persons correspond to their income” and article 14 of the Law “On combating corruption”https://www.forbes.ru/biznes/506813-rspp-razrabotal-popravki-dla-zasity-biznesa-ot-deprivatizacii?ysclid=lzr599m0z6120631417
. The amendments provide that a right to nationalise an item purchased from a corrupt official can arise only if the conditions are met as follows:
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if the state official transferred it against a consideration unequal to its value or free of charge;
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if the buyer of the assets knew that the seller had no proof that the latter had acquired such property using their legal income.
Tendencies of legal regulation
One of the measures in combating corruption-related crimes is the compulsory seizure without consideration of property obtained as a result of crimes, with it being transferred into state ownership (in other words, being forfeited). At present, a tendency can be seen that rules are becoming more stringent concerning property forfeitures.
For example on 25 February 2024 a Federal LawFederal Law No. 11-FZ dated 14 February 2024 "On amending the Criminal Code of the Russian Federation and the Criminal Procedure Code of the Russian Federation".
came into force which expands the list of crimes for which property may be forfeited.
The list of crimes has expanded in convictions for which the forfeiture of property may be applied under article 104.1 of the Russian Criminal Code. Article 104.1(1)(a) of the Criminal Code provides for the forfeiture of property obtained as a result of crimes. Money, jewellery and other property may now be forfeited for disseminating fake information about the army (article 207.3 of the Criminal Code) and for public calls for acts to be directed against the state's security (article 280.4 of the Criminal Code). This includes calls for treason against the state, for participation in the activities of an undesirable organisation and for an unlawful crossing of the border.
Article 104.1(1)(c) of the Criminal Code provides for the forfeiture of property used or intended to be used for committing a crime against the security of the Russian Federation.
At the same time, increased criminal liability is established under article 280.4 of the Criminal Code when such crimes are committed out of greed or for hire, as well as on motives of political, ideological, racial, national or religious hatred or enmity, or based on motives of hatred or enmity towards any social group. Also, activities aimed against the security of the Russian Federation now include all crimes having the nature of sabotage (articles from 281 to 281.3 of the Criminal Code).
What property may be forfeited?
The law does not set a specific list of property that may be forfeited for the crimes mentioned above. When courts pass their judgements, they will determine this property in each specific case.
What to think about and what to do
Companies operating in the Russian market may need a professional qualified assessment of business decisions they are making and of other organisational and legal actions in the context of economic activity.