Business people often believe that the only consequence of a tax
offence will be the claim for the outstanding (non-paid) taxes and
administrative penalties. The issue of potential criminal liability
of the chief executive officer is usually disregarded. This may be
a serious mistake of the affected company and its CEO as many
so-called "economic" criminal investigations are filed in
Russia for fraud and tax evasion.
Prior to autumn 2014 criminal cases were brought only following
the audit of the Russian tax authorities. Prosecution authorities
did not have enough power to file a criminal case absent the report
of the tax authorities. However, new developments dated October 22,
2014 to the Russian Code of Criminal Procedure have significantly
broadened the powers of the prosecution authorities. Now criminal
officers may file criminal cases for tax evasion if they believe
they have enough grounds. Audit report of the tax authorities is no
There are a few hints that may signal that the criminal case is
going to be filed shortly. For instance, the prosecution officer
from the Russian Department of Economic Security and Prevention of
Corruption present at interrogation of the company's employees
by a tax officer. At this stage, i.e. immediately prior to filing a
criminal case, it is important that the company has a solid
position explaining that despite certain facts of tax evasion those
facts do not constitute criminal case.
It is virtually impossible to eliminate a probability of filing
a criminal case against the chief executive officer of the affected
company. In order to prevent filing a criminal case the companies
shall undergo not only annual audit by professional auditors but
engage criminal expert to carry out tax audit from the standpoint
of potential criminal liability. The annual audit by auditors is
usually not enough to prevent a criminal case. The reason is that
auditors usually examine proper keeping of financial statement of
the company and unlike criminal experts do not emphasize on culpa,
or mens rea, of the offence.
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.
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