In a Word

Government Will Pay for Crime

Feb 27, 2012:

The Investigative Committee, aka Russian FBI, has prepared a draft law ‘About Victims of Crime’. If passed, the bill will make the government financially responsible to victims of crime.

At the moment, money awarded by courts is collected from the offender’s property or withheld from his/her wage. Here, the state is nothing more but an intermediary. In practice, this means that an average victim receives nothing: only 16% of court-appointed payouts get recovered.

If the bill becomes a law, damages to the victims of crime will be paid by the government which will try, then, to recoup the expenses from offenders.

The bill concerns ‘general’ crimes. It does not apply to crimes caused to companies. In respect of foreign nationals, the law will operate on the principle of reciprocity. In other words, the compensation will be paid to citizens of those states where a similar rule applies to Russian citizens.

Why You Should Check Your Business Partners

Feb 23, 2012:

The major trend of Russian tax law, and the one that is still gaining momentum, is that you can be held responsible for someone else. If a company you dealt with does not pay tax, you can get the bill unless you can prove that you took necessary precautions and checked that this company was not a fraud.

The Commercial Court of the Ural District has ruled in favour of a company which was punished for dealing with a fraud. The company was refused to deduct the amounts it paid to the fraud – so they got extra income tax and VAT to pay plus interest and penalty.

However, the taxpayer has managed to get off the hook by showing that it took reasonable precautions and did due diligence of this counterpart.

PGNiG v Gazprom

Feb 22, 2012:

The Polish state oil and gas company PGNiG (Polskie Gornictwo Naftowe i Gazownictwo SA) has filed a suit in the Stockholm arbitration against Gazprom.

Poles want to renegotiate the formula for calculating the price of Russian natural gas. The formula has been pegged to international oil prices, which have risen significantly and pushed up the cost of gas imports.

PGNiG refers to the fact that Gazprom gave 15% discount to Latvia and Estonia, and introduced the spot component in the pricing formula for the E.On Ruhrgas, Gaz de France and Eni (effectively, cutting prices by 10%-15%).

If the tribunal rules in PGNiG’s favour, the company would save up to half a billion dollars.

So far, the question is not so much as whether the Polish company is going to win the case but whether the Russian gas leviathan is going to stand trial and risk defeat. Arbitration, in contrast to litigation, is confidential. The fact that there has been a leak to the press indicates that Poles are hoping that Russians would not take chances and settle.

The Constitutional Court Rules Against Homelessness

Feb 21, 2012:

An apartment or a house used as collateral for a consumer credit is exempt from debt collection if this property is the only place where a debtor can live, rules the Constitutional Court of Russia.

The Constitutional Court has handed down a ruling that the ban which exists in Russian law on the foreclosure of a debtor's only home complies with the Constitution.

Nomos RegionBank applied to the Constitutional Court challenging the constitutionality of the provision in the Code of Civil Procedure which forbids taking property if this is the only place where the debtor and his/her family can permanently live. The court has found that though there is nothing illegal in giving such property as a security for a loan, the ban is the guarantee of normal existence to people in trouble.

The Constitutional Court has specifically mentioned that the prohibition does not apply to the mortgaged property. Such premises can be collected if the debtor fails to pay on time.

RussianLawOnline.Com wrote about predatory practices in Russian lending business. Though the court’s decision may seem a bit harsh to banks, they should remember that their job, fundamentally, is not the multiplication of homelessness.

It is hard to believe, but today – in the year 2012! – Russia does not have a law on bankruptcy of individuals. In a country, where interest on a consumer loan can reach thousands percent a year and the lending business is effectively unregulated – newspapers are clogged with advertisements of easy loans from various entities – someone had to say: ‘Back off!’


Feb 20, 2012:

Russian Economy Minister Elvira Nabiullina has said that her Ministry takes a ‘super-tough position on large-scale privatization’: the privatization of energy companies must be inevitable; the timing must be fixed and followed except for the stock market crash.

Privatisation is seen as a way to replenish the treasury. The original plan has been to raise from the sale of state companies in the period 2011-2013 at least $30 billion. By 2017, the government intends to withdraw from the capital of a number of public companies, including Rosneft, Inter RAO UES, VTB, Sheremetyevo Airport, Sovcomflot, Agricultural Bank and the United Grain Company, leaving to itself only a ‘golden share’.

De facto Mrs Nabiullina has openly admitted that there is no unity in the government on the matter of privatization. In December last year, Deputy Prime Minister Igor Sechin sent a letter to Vladimir Putin in which he proposed to halt privatization because of the unpredictable situation on the capital markets.

Public Funding of Private Schools

Feb 17, 2012:

The State Duma has adopted a law about public funding of private schools and nurseries. The authors of the law believe that state support given to both private and public schools will add more choice and promote competition in education. True; but it will also add leverage – and a huge one - to the rapid stratification of Russian society and promote marginalization of children from poor families.

Tax Appeal

Feb 15, 2012:

Taxmen have prepared a draft law which would prevent disgruntled taxpayers from applying directly to court. An appeal to a higher tax authority on any tax matter or against any decision of a tax official will become mandatory before looking for a judicial review. According to tax collectors, the new system will only benefit taxpayers as it will ‘save time, money and reduce reputational risks’.

Currently, the appeal to a supervisory tax office is mandatory only against determinations made by the tax authorities during tax audits. In other cases, a taxpayer may go directly to court.

If adopted by Parliament, the law will become affective in 2014.

Russia Toughens Law Against Drug Dealers

Feb 15, 2012:

The State Duma, the lower chamber of Russian Parliament, has passed a law toughening penalties for drug dealing.

Those who sell drugs in schools, sports or entertainment facilities and prisons will spend 12 years behind bars. Large scale dealers will face life imprisonment. In addition, the use of drugs while committing other crimes will be considered an aggravating circumstance.

A convicted drug trafficker will become eligible for parole only after serving three-fourths of the sentence (currently, he or she can be released after spending just half of the term imposed).

A Little More of Taxes, A Lot More of Evasion

Feb 13, 2012:

Raising payroll tax has boosted revenue a bit and evasion a lot.

Income from compulsory social insurance contributions has grown by 1% of GDP. Is has been expected, though, that the tax hike from 26% to 34% would bring in a ‘much greater gain’, acknowledged Finance Minister Anton Siluanov.

The takings from income tax have fallen by tenth. Revenues are falling, said the Economic Development Minister Elvira Nabiullina, and more companies are switching to the ‘grey salaries’.

No More Gay Parades

Feb 9, 2012:

The law introducing fines for ‘promoting’ homosexuality has passed the second reading in St. Petersburg, Russia’s ‘cultural capital’ and the home of Peter Tchaikovsky, a great composer and a gay. At least three other regions have already adopted similar legislation: Ryazan, Kostroma and Arkhangelsk.

Male homosexual relationship was a criminal offence in Russia until 1993. Regional parliaments cannot bring it back to the Criminal Code, but they can impose penalties for conduct they consider unacceptable.