Back to basics


Law enforcement needs urgent reform. In the meantime, the Kremlin hopes to keep business out of its deadly grasp.

Law is full of prejudice and confusion. A legal system, we tend to assume, has to be just; yet quite often it is not so. What is more, many lawyers and sociologists argue, it does not even need to be: the essential function of the law, they say, is to stabilize people’s expectations through clear and predictable rules, justice is of secondary importance. Also, we are told, everyone has the right to a fair trial; yet in reality this is not always the case.

There is, though, something even more basic upon which law as an institution stands: a man accused of crime may not be put to death before he can speak for himself in front of a court.

That did not work for Sergey Magnitsky, a partner in the international law firm Firestone Duncan, who died in a prison hospital after 11 months spent in detention awaiting trial for tax evasion charges, an offence that at the time carried a maximum sentence of six years imprisonment.

They did not want him to die; this is not an ‘overcoming the monster’ story where the villain has a name and so can be identified and conquered. Here the monster has many heads: according to official data about 400 people die each year in pre-trial detention facilities. Voices in human rights organisations claim that the actual number maybe ten times higher.

The lawyer left a diary in which he meticulously described how he, a healthy 37 year-old man, was turned into a wreck and then died, an unfortunate Eloi captured by monstrous and relentless Morlocks. He died not because the system did not work but because it did.

Magnitsky’s death has shed light on a dysfunctional system which has not changed much since Stalin’s time in all its tattered glory frightening not only for those under arrest but also for those who bear the responsibility for reforming it. That is why the Kremlin, terrified by the monster it is supposed to keep under control, has decided to loosen its grip on those who commit economic crimes.

From 2010 Russia has declared a moratorium on prosecution of first time tax offenders if they pay tax, interest, and fines. It is now possible to buy freedom. This is a curious revisit of the practice that was once fairly widespread but was stopped in 2003 - so that Yukos could not get off the hook.

Moreover, pre-trial detention is expected to dwindle as the law does not allow it in tax cases and, generally speaking, now tends to impose other restrictions, for instance house arrest, as the principal instrument of law enforcement in economic crimes.

Yet, what looks like good news may be misleading. Pure tax evasion cases are rare. In practice they come with other charges. That is one reason why the new law would not have helped Sergey Magnitsky.


January 5, 2010
photo: Malchev -





TEXT: Sergei Zhestkov, partner, Baker & McKenzie

The main purpose of the suggested changes, in my view , is to bring the Criminal Code closer to life’s realities. Firstly, the amounts of money involved in tax offences inflicting large and especially large damage to qualify for criminal prosecution are currently not that big (the threshold is only 100,000 and 300,000 roubles (approximately $3,300 and $10,000), respectively, for individuals, and 0.5m to 1.5m roubles (approximately $16,700 to $50,000), respectively, for companies). Secondly, the treasury is in dire need of additional sources of revenue. Exemption from criminal liability to those caught for tax evasion for the first time should stimulate wrongdoers to pay tax, interests and fines to the budget to avoid criminal liability .

The ban on pre-trial detention is obviously based on the perception that tax offenders are less socially dangerous than those who commit a felony (thieves, murderers, rapists, etc.) Furthermore, the exemption is only permitted when a tax offender cooperates with investigators and does not attempt to evade prosecution or break pre-trial restrictions (e.g., pledge not to leave the town, bailment, etc.)

It is, generally speaking, a positive move that the Ministry of Internal Affairs and the tax authorities will now be under the obligation to coordinate their activities. Hopefully, this will reduce the number of cases when a taxpayer who has settled his tax liability (for example, he has paid tax or won his case in a commercial court) remains under criminal investigation.

The transfer of jurisdiction over tax crimes from the police to the General Prosecutor’s Office seeks to improve the quality of investigations in these – usually complex – cases, and to free the police of some of their duties. The change appears to be in line with recent initiatives of the President of Russia to reform the Ministry of Internal Affairs.



Law enforcement needs urgent reform. In the meantime, the Kremlin hopes to keep business out of its deadly grasp.