Large Russian companies are donating significant amounts to the fight against the still escalating coronavirus crisis1. In addition, other companies have been invited by the authorities to donate to non-commercial funds to procure urgently needed medical equipment2. However, such charitable contributions may entail increased compliance risks for several reasons:
- It is not uncommon in practice for companies to be directly asked by the authorities to make payments to specific non-commercial funds. The authorities may lend weight to this request by threatening to take or refuse official actions.
- Often the funds have been established by the authorities themselves or state entities. The management bodies of these funds are frequently staffed by public officials.
- The decision-making processes within the funds are not transparent. The funds provide only high-level reports on the spending of the received contributions, if they report at all.
- Notwithstanding the high corruption risk in Russia and statutory requirements, probably none of these funds has implemented a compliance management system.
In certain scenarios, payments to non-commercial funds may therefore breach Russian anti-corruption laws as well as potentially those of other countries (in particular, the US FCPA and the UK Bribery Act). In the worst case scenario, the company may face investigation and enforcement risks, especially in cases where the charitable contribution is tied to official actions or public officials have ultimately benefited from the payment.
In order to reduce potential risks, companies should take at least basic compliance measures when they make charitable contributions to a fund:
- Carry out a background check on the fund: This check should focus on the staffing of management bodies (usually managing director, board of directors and trustee board) by public officials and whether these public officials may take decisions relating to the company's business.
- Strengthen the donation agreement: The fund's typical standard donation agreement will be a rather rudimentary document. Companies should include anti-corruption language, detailed reporting obligations of the fund regarding the donated funds' use as well as audit and termination rights of the donor.
- Monitor the funds' use: The reporting by the fund should allow the company to monitor the actual use of the donated funds. Here it may be necessary to instruct the fund's personnel, who will not be used to such reporting.
In addition, medical and pharmaceutical companies should make any charitable contributions only in compliance with the specific Russian legal restrictions regarding gifts and hospitality for healthcare professionals.
Footnotes
1 https://www.kommersant.ru/doc/4307948
2 https://www.kommersant.ru/doc/4311235
Originally published 24 April, 2020
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