The Ministry of Labour has issued recommendations for identifying a personal interest in procurement

Pepeliaev Group advises that the Russian Ministry of Labour and Social Protection has published Guidelines for the identification of a personal interest in procurement.

These guidelines have been developed for entities involved in procurement activities in accordance with Federal Law No. 44-FZ “On the contractual system in the area of the procurement of goods, work and services to provide for state and municipal needs” dated 5 April 2013 and Federal Law No. 223-FZ “On the procurement of goods, work and services by specific types of legal entities” dated 18 July 2011. The guidelines have been designed to organise corporate activities aimed at identifying a personal interest of employees when procurement is being performed, which may lead to a conflict of interests.

As a reminder, it is stipulated, at the level of legislation, that conflicts of interests must be prevented between a participant in a procurement process and the customer[1]. The consequences of participants in a procurement process failing to comply with this requirement are quite severe. According to the Court Practice Overview of cases connected with disputes regarding application of article 31(1)(9) of Federal Law No. 44-FZ (as approved by the Supreme Court’s Presidium on 28 September 2016), a state (municipal) contract is considered void if it has been entered into when there is a conflict of interests between the successful bidder and the customer. Moreover, all companies, irrespective of their forms of ownership, must develop and take anti-corruption measures[2]. The latter comprise measures aimed at avoiding and settling a conflict of interests.

The Guidelines under consideration propose an algorithm for organising activities aimed at identifying a personal interest of employees in procurement. It is provided that the activities of the divisions of a company for preventing corruption and other violations of law may be divided into general preventive measures and analytical measures, depending on the conditions that are imposed for these divisions to perform their functions.

Preventive measures comprise actions aimed at:

• determining the list of positions to be filled by employees who, when in such positions, must provide information concerning their revenues, expenses, property and liabilities, as well as information concerning the revenues, expenses, property and liabilities of their spouse and minor children (if appropriate);
• conducting consultative and methodological conferences in order to inform the employees involved in procurement processes about the anti-corruption provisions of Russian legislation, including a yearly voluntary assessment of their knowledge.

Analytical activities comprise the following:

• analysing the information available to the body (organisation) which may contribute to identifying a personal interest;
• setting up a profile of an employee involved in procurement processes;
• setting up a profile of those who take part in procurement processes;
• performing a cross-analysis of the above profiles to identify personal interest.

A comprehensive implementation of the above measures should have a positive impact with regard to decreasing the number of violations in procurement processes and would mitigate the risks for an entity and its officers to be held liable for corrupt practices. The Guidelines are intended for employees (clerical staff) of the purchaser on whom legislation imposes liability for not complying with anti-corruption regulations (for instance, for dismissing personnel by virtue of article 81(1)(7.1.) of the Russian Labour Code). At the same time, with regard to suppliers, labour legislation does not provide for any grounds (except for a few cases) for applying disciplinary measures to employees for violating anti-corruption regulations. In practice, this means that an employee of the purchaser who violated procurement legislation and created significant risks for the company can often neither be dismissed nor be subjected to a disciplinary penalty in the form of a reprimand.

What to think about and what to do

To equip an employer with instruments for disciplinary action with regard to its employees, we recommend:

• devising internal regulations (policies and/or job descriptions) with a detailed description of employees’ duties in the sphere of anti-corruption, including taking into account the new Guidelines;
• regularly conducting training events clarifying the provisions of the above internal regulations, for instance, the rules for participating in procurement, types of conflicts of interests, etc.

Help from your adviser

Pepeliaev Group’s lawyers have all-round experience of handling issues relating to the implementation of anti-corruption compliance measures in major companies, conducting anti-corruption investigations, and participating in complicated labour disputes.

We are ready to provide the necessary legal support in the development and practical implementation of the necessary anti-corruption policies, internal regulations, and policies with respect to applying incentive and liability measures to employees when they perform or violate their duties in connection with preventing corruption.