In a Word

After Dinner Comes the Reckoning

Dec 20, 2011:

When a company takes on social duties, it must be compensated for the loss of revenues. Unless, of course, this is a Russian airline which itself came into existence as a result of murky privatisation of the 1990s.

This is, basically, the idea behind the decision of the Constitutional Court of Russia in a dispute where airlines asked money for discounted tickets they had to sell to children.

According to Russia’s Air Code children aged 2 to 12 years old can travel at half price. At the same time, the government does not compensate the airlines. They must absorb the losses or, what seems more likely, pass them on other passengers.

Three airlines complained to the court asking to abolish this law as unconstitutional. Earlier, they tried to collect money from the treasury, but the commercial courts did not back them up.

The judges of the Constitutional Court recognized the problem but did not dare to oblige the government to pay. The court referred to the fact that the law have existed since the beginning of times, that is, from the days of the Soviet Union. Then, however, there was only one airline and it belonged to the state.

What the court wanted to say was that once you got your company in the privatization binge, you shouldn’t complain that there are some drawbacks attached and take the whole package.

Like Woman, Like Man

Dec 15, 2011:

The Constitutional Court has ruled that if a man is a sole breadwinner for a family with several children including at least one younger than three years old, he cannot be fired.

The case concerned article 261 of the Labour Code of Russia. According to this norm, women with children under the age of three cannot be dismissed from work without their consent. The Constitutional Court has ruled that this protection should be extended to men.

The court's decisions have the force of law and from now on men with young children are safe.

Although the ruling has a lot of talk about family protection, it hinges on the idea of gender discrimination rather than on the ideals of the social state. Applied mechanically, the concept of sex equality has become a powerful force. In fact, the Constitutional Court had no choice: even if it decided otherwise, the European Court of Human Rights would have almost certainly supported the father.

We, therefore, must conclude that the ruling will apply in a much wider context than stated. A prudent employer should assume that any favour given to women must also include men.

To what extent this approach protects young fathers and to what extent it creates additional difficulties for them in finding employment is a debatable issue. RussianLawOnline.Com believes that the latter is more likely.

Setting Sham Companies is a Crime, At Last

Dec 14, 2011:

President Dmitry Medvedev has signed a law which can send behind bars those who establish sham companies. The idea is to make fighting tax evasion and financial fraud easier. Now, the law enforcement agencies will not need to investigate and prove the whole criminal scheme. The very fact of setting a company on someone else’s name – a homeless, a drug addict or an unfortunate who lost his passport – is a crime. Also, the law criminalizes giving (or taking) IDs for setting sham structures. Criminals will be fined up to $10,000 or sentenced to three years in prison.

Every second company in Russia is created for tax evasion. The talks of fighting sham organisations as instruments of fraud and corruption have been going on for at least 15 years. In modern Russia, which came into existence in 1991, it means almost the same as ‘since the beginning of times’.

At last, there is a small chance that those behind ‘one-day’ companies and those crackpots who lend their passports to criminals will face punishment.

Russia is to Start the Public Sector Carousel

Dec 8, 2011:

The Russian president has signed a law introducing the compulsory rotation of government officials. The purpose of the rotation is to combat corruption by limiting the time that a civil servant may be in office - a regime similar to that which exists in many countries in relation to diplomatic personnel.

Bureaucrats will be forced to move to a new post every 3-5 years. The pay, and other perks, on the new place shouldn’t be less than before. Plus, the state will foot the bill of relocation for the official and his or her family.

Taking into account the huge number of civil servants in Russia - incommensurate with the diplomatic corps of any existing state - this may well be the case when good intentions lead straight to hell.

On Accounting

Dec 7, 2011:

The Federal Law of December 6, 2011 N 402-FZ ‘On Accounting’, with effect from 1 January 2013, permits branches of foreign companies not to keep accounting records in Russia (the duty to keep tax records remains). The companies that receive the status of participant in the ‘Skolkovo’ project will be able to use the same simplified method of accounting as that used by entities of small business.

Reporting Suspicious Clients

Dec 7, 2011:

Russia’s Ministry of Finance has proposed a bill amending the Code of Administrative Violations. According to the document lawyers, auditors, notaries as well as ‘all those who provide legal, accounting or auditing services’ will be fined if they do not report transactions suspected of being linked to money laundering or even the suspicious behaviour of a client. Consultants will not be allowed to inform the client when they disclose such information to authorities.

Intellectual Property Court

Dec 7, 2011:

A special court for intellectual property disputes is to be set up by February 2013. This court, embedded in the system of commercial (arbitrazh) courts, will hear cases on intellectual property rights, including those challenging statutory instruments on IP, in the first instance and cassation. Thereafter cases can be brought to the Supreme Commercial Court for an appeal.

At the moment, courts of law have several divisions comprised of judges who specialize in certain categories of disputes, like companies, taxes, contracts and so on. The idea of the Intellectual Property Court seems to be that this specialization isn’t good enough and that the IP trials need a structure of their own.

As well as focusing competent resources in one place, the creation of the patent court – as it has been dubbed - has the reputated purpose to show that copyright issues are taken seriously. This court located in Skolkovo near Moscow - a long way from the traditional research centres in St. Petersburg, Novosibirsk or Snezhinsk in the Urals but close to foreign investors.

Capital Requirement for Credit Institutions will be Increased

Dec 6, 2011:

The minimal capital requirement for credit institutions will be increased almost twice, from 180 million roubles (app. 4.2 million euro) to 300 million roubles (app. 7.1 million euro), in January 1, 2012. Existing banks will have to bring their capital up to this level by 2015. There are over 100 credit institutions in Russia which do not comply with this requirement.

The minimal capital needed to obtain the general license, which entitles the organization to accept deposits from individuals and companies, remains unaffected - 900 million roubles (app. 21.4 million euro).

Retail Law in Action

Dec 2, 2011:

The Federal Antimonopoly Service is about to punish a retailer for breach of the retail trade law – the first time this has ever happened. According to the anti-trust watchdog, Metro Cash & Carry charged its suppliers for promotion according to turnover without consideration of the amount or complexity of the services - a violation of the law on state regulation in retail trade, which came into effect in February 2010.

The company may have to pay a fine of 50,000 - 120,000 euro. In 2010, Metro’s sales in Russia were 2.93 billion euro; worldwide – 31 billion euro.

This seems to be the first time that a retailer has been punished - but not the last. Recently, the Antimonopoly Service launched a case against ‘Auchan’ and ‘Attack’, the Russian branch of the French group Auchan. The hearing is scheduled for December 19. The FAS has also issued a warning to X5 Retail Group, the largest retailer in Russia.

Investment Partnerships

Dec 1, 2011:

Should equity funds investing in Russia actually be based in Russia is a provocative question. It leads to a myriad of hazy issues – only a small fraction of which are, in fact, legal - that make up the dazzling but evasive world of venture capital. Whether Russian law isn’t good enough or fund managers just prefer, for some other reason, to stay away from Russia’s shores, most if not all private equity funds here are set up under foreign law.

The new bill ‘On Investment Partnerships’, approved by the Council of the Federation and signed into law by the President, seeks to prepare the ground so that investors, both foreign and Russian, could at least start thinking about moving their offshore vehicles into the jurisdiction of local courts.

New business structure, called an investment partnership is a kind of limited partnership specifically for dealing with shares, bonds and derivate financial instruments. Investment partnerships are not, strictly speaking, legal entities and, unlike Russian general and limited partnerships, are fiscally transparent for investors.