In January 2012, Russia took another significant step to strengthen its legal framework for fighting corruption by ratifying the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which was originally adopted on November 21, 1997, by the member countries of the Organization for Economic Co-operation and Development (OECD) in Istanbul (the Convention).
Russia and the OECD have been negotiating the ratification of the Convention for three (3) years and, as noted by one OECD working group at the negotiations stage, the Russian legislation in force at the time of ratification already reflected the main guidelines of the Convention. Even so, ratification of the Convention is one of the conditions for Russia's entry into the OECD. Russia is the 39th member of the Convention, joining the USA, UK, Canada, Germany, France, Switzerland, Italy, Spain, Japan and other OECD members, as well as four non-member countries.
What is Active Corruption
The Convention addresses "active corruption" or "active bribery," which is a promise to give or actually giving a bribe to a public official, as contrasted with "passive bribery," which is the act of receiving a bribe.
Bribery is not only about money, and is broadly defined as the promise to give or giving any undue benefit or other advantage to a public official, directly or through intermediaries, in order to influence that official to act or refrain from acting in his/her official capacity, or in order to obtain or retain business or some other advantage.
Bribery is an offence irrespective of the value of the advantage, whether it worked, whether the local authorities routinely tolerate such payments, or the alleged necessity of the payment in order to obtain or retain business. However, the following actions are NOT regarded as an offense in accordance with the Convention:
- giving an advantage that is permitted or required by the written law or regulations of the foreign public official's country, including case law. A foreign public official is any appointed or elected person holding legislative, administrative or judicial office in a foreign country or in an international organization or any person exercising a public function or task in a foreign country; and
- "facilitation" payments to persuade public officials to perform their mandated official functions, such as, for example, issuing licenses or permits. The developers of the Convention assume that such payments are generally illegal, and therefore the Convention does not address those payments, reasoning that criminalization of these actions is not a practical or effective measure. Under Russian legislation, payments to public officials in exchange for a given act or an omission, whether or not the act of omission is the official's duty (i.e., including facilitation payments), are illegal.
Measures Against Corruption and Bribery
In addition to criminal measures against corruption, the Convention mandates fighting corruption with administrative and civil sanctions against legal entities if they are not already subject to criminal liability (as in Russia), including: exclusion from entitlement to public benefits or aid; temporary or permanent suspension from participating in public procurement or from engaging in other commercial activities; placement under judicial supervision, judicial winding-up, and others.
The Convention also imposes accounting, recordkeeping and disclosure requirements, needed to prevent companies from engaging in corrupt practices. These requirements are (1) prohibiting companies from making off-the-books transactions or keeping off-the-books accounts; (2) disclosing the full range of material contingent liabilities in a company's financial statements; (3) adequately sanctioning accounting omissions, falsifications and fraud; (4) maintaining adequate standards to ensure the independence of external auditors, so that the external auditors can provide objective assessments of company accounts, financial statements and internal controls. Independently, member countries should require auditors who discover indications of possible bribery to report their findings to management and, as appropriate, to corporate monitoring bodies. Member countries should also consider requiring the auditor to report indications of a possible illegal act of bribery to the competent authorities; and (5) adopting adequate internal company controls, including standards of conduct.
Impact of the Convention
The Convention is meant to serve as a framework that consolidates guidelines for national legislation to combat bribery in member countries. The liability for particular acts of bribery must be set and applied in accordance with the national legislation of each member country, taking into account the Convention rules for liability that would apply to acts of transnational violations. Therefore, countries that have jurisdiction over a given transnational offence must negotiate with the corresponding authorized bodies of other involved jurisdictions to determine the appropriate jurisdiction where the guilty party will be held liable. In Russia, the General Prosecutor's Office is responsible for these negotiations.
By ratifying the Convention, Russia could be viewed as having officially recognized the legitimacy of the Foreign Corrupt Practices Act of the USA and the UK Bribery Act, since Article 2 of the Convention provides that "each Party shall take such measures as may be necessary, in accordance with its legal principles, to establish the liability of legal persons for the bribery of foreign public officials."
Since ratifying the Convention, Russia has taken steps to further develop its campaign against corruption. On March 13, 2012, then-President Medvedev adopted a new Anticorruption National Plan (National Plan), which provides for a series of anticorruption measures to be implemented in 2012-2013. The National Plan provides for various legal and technical measures, including: (1) expanding the anticorruption standards that currently only apply to public officials to officials who are not regarded as public, but work in state organizations that are incorporated in accordance with Federal Laws; (2) developing a law on social control, which would officially give civil society the authority to conduct social control of the activities of the state authorities; (3) developing a law requiring public officials to report gifts/presents that they receive; (4) using the reports from oversight bodies and the mass media as new grounds to verify information about the property and income of public officials and their family members; (5) creating a unified website of the Russian government budget system to make it open to public oversight; and (6) providing the oversight agencies with modern programs that would allow them to verify information about property and income of public officials and their family members.
The latest amendments to Russian anticorruption legislation reflecting the requirements of the Convention were adopted in May 2011. The amendments were made to (i) the Russian Criminal Code, subjecting foreign officials to criminal liability for taking bribes and imposing liability for parties giving bribes to foreign officials; and in (ii) the RF Code on Administrative Offences, subjecting legal entities to administrative liability for giving illegal rewards to foreign officials.
Russia is now implementing strict anticorruption legislation reflecting these international standards and ensuring a more transparent system for addressing the problematic bribery of public officials and accounting standards. Currently, corruption is seen as the greatest impediment to investment into Russia. To the extent that the Convention helps ensure that Russian anti-bribery legislation is being enforced, investors in Russia will have more confidence in Russian institutions and will be keener to enter the market. We at Dechert will be closely following – and updating our friends and clients – on these developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.