Trends and prospects for administrative law regulation of business in Russia

As 2013 begins, a clear trend has already developed in administrative law regulation: rhetoric proclaiming liberalism and a willingness to listen to business, stands side by side with ever harsher regulation. To this end, new regulatory obligations have been imposed, some going beyond what is standard for business and all increasing the state’s power over business. This trend is seen in antimonopoly regulation, tax and currency control, measures against insider dealing and market manipulation, technical regulation, consumer protection, industrial safety, fire safety and civil defence. It is most notable, though, in state regulation of the manufacture and sale of products containing alcohol and of tobacco.

In addition, the regulatory methods employed by the state are generally at odds with those purposes that are proclaimed by the state to justify more stringent regulation (anti-alcohol measures) or, at least, seem out of step with the state’s claims (currency regulation).

The state’s stricter control over business is accompanied by additional obligations for those involved in business. These serve no business purpose, while requiring companies and individual entrepreneurs to invest considerable resources to comply.

This ties in with stricter administrative and criminal law penalties for violating both the existing and newly imposed obligations for business. A striking example is the draft law (No. 196666-6) On amending certain items of Russian federal legislation to combat illegal financial transactions, which went before the State Duma at the end of 2012. It not only saddles business with various types of extra obligation but also imposes harsher penalties for existing offences and introduces new sanctions for failing to comply with them or not complying in full. 

Turnover-based penalties and fines in the millions of roubles for administrative offences in business are now becoming commonplace, as are executives being disqualified for up to 3 years and companies’ operations being suspended until a violation is eliminated.

Many administrative law regulatory decisions, ranging from laws to administrative regulations, contain provisions that are not well enough defined, are incomplete and are subject to frequent changes. When there is a framework law, subordinate legislation is complex and is continually amended. This creates an extraordinary burden on business bearing in mind the level of corruption in the country.

However, if there is no corruption in a particular case, the enforcement authorities display more or less sufficient understanding of the situation, since the drawbacks in legal regulation are offset by the means for those involved in business activity to defend their rights quite effectively, especially before tax authorities and in the commercial courts. This is shown by the approaches of the Russian Constitutional Court in evaluating substantial administrative fines being imposed when time limits are not met or for purely procedural violations. Here, the Court has considered that the punishments do not fit the crimes, and has told the legislature that legislation must be amended. An example was the stance the court took in its Resolution No. 1-P dated 17 January 2013 on an appeal by OOO Maslyansky Khlebopriemny Punkt regarding article 19.8(5) of the Code of Administrative Offences.

The high level of corruption in the law enforcement authorities and the criminal courts is certainly noteworthy. This allows unscrupulous business people to use corrupt methods to expand their sphere of influence and strengthen their market positions by article 159 of the Criminal Code against their competitors (this provision stipulates criminal liability for fraud). The same issue is being examined by a session of ‘Business Against Corruption’, a part of the nationwide ‘Business Russia’ public pressure group. The problem has also come to the attention of the Russian business affairs ombudsman Boris Titov with a view to being solved across the board. 

Elena Ovcharova specialises in administrative and financial law, including problems of regulatory control and proceedings in cases concerning administrative offences, data protection, taxation and currency regulation.

Elena has experience of working on major consulting projects to resolve complex difficulties in the areas of administrative liability, taxation and currency control. She has also been responsible for so-called “administrative audits”, i.e. internal control to ensure that administrative legal and regulatory rules are complied with, including in respect of tax, migration and currency law. She has created document management systems within organisations so as to eliminate administrative offences. She provides effective support to guide clients through inspections by various state authorities, including the tax authorities, the financial authority Rosfinnadzor, the Federal Antimonopoly Service and the Federal Migration Service. She successfully handles cases concerning administrative offences committed in the course of business activity. Elena has extensive experience of litigating disputes on administrative regulation as well as tax and currency disputes. She was a member of the team that worked on drafting the Russian Federation’s Code of Administrative Offences. She is a member of the Russian Supreme Court’s Scientific Advisory Council.