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A Federal Law has been adopted to adjust criminal liability for tax and currency crimes

Pepeliaev Group advises that the Russian President has signed Federal Law No. 73-FZ dated 1 April 2020 to amend the Russian Criminal Code concerning liability for tax and currency crimes.

1. Amendments concerning tax crimes

Federal Law No. 73-FZ “On amending the Criminal Code of the Russian Federation and article 28.1 of the Criminal Procedure Code of the Russian Federation” dated 1 April 2020 (“Federal Law No. 73-FZ dated 1 April 2020”) has amended the notes to articles 198[1], 199[2], 199.1[3], 199.3[4] and 199.4[5] of the Russian Criminal Code (the “Criminal Code”). The notes determine a large and an especially large extent of an act which needs to be established to classify a relevant act as a criminal act. According to the introduced amendments, the legislature has elected not to calculate relative amounts (a percentage) when a large and especially large extent is determined, but to preserve fixed thresholds which can be exceeded only within three consecutive years.

Specifically, the new version of note 1 to article 199 of the Criminal Code defines the amount of taxes, charges and insurance contributions (the “taxes”) which exceeds RUB 15 million for three consecutive years for a large extent and which exceeds RUB 45 million for three consecutive years for an especially large extent.

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We note that the original version of draft Federal Law No. 73-FZ dated 1 April 2020 which the Russian President submitted to the State Duma (the lower chamber of Russia's parliament) for consideration defined a large and especially large extent solely as an excess of the threshold amount without any peg to a time period. Accordingly, the original version of the draft law provided an opportunity to law enforcement authorities to take into account a period of time of up to 10 years (the statute of limitations for imposing liability for felonies) when they determine a large or an especially large extent.

During the second reading of the draft law, when a large and especially large extent was determined, reference was additionally made to the period during which such large and especially large extent was to be determined, namely three consecutive financial years. This addition to the original version of the draft of Federal Law No. 73-FZ dated 1 April 2020 virtually pegged the calculation of the threshold amounts, when classifying an act as criminal, to the results of a tax audit which goes back as far as three years.

Nevertheless, without prejudice to the relevance of the draft law itself and the amendment adopted when it was considered in the State Duma, the amendments introduced are most relevant for small- and medium-sized businesses and less so for large businesses which pay tens and hundreds of million roubles to the state budget.

2. Amendments concerning currency crimes

Federal Law No. 73-FZ dated 1 April 2020 has considerably amended article 193 of the Criminal Code, which establishes liability for evading the obligations concerning the repatriation of monetary funds in either foreign currency or Russian roubles. These amendments relate to two factors which influence the classification of an act as criminal.

The first amendment concerns a multiple increase of threshold amounts treated as a large and especially large extent. In the new version, a large extent means an amount of monetary funds either in foreign currency or Russian roubles which was not credited or returned under a single or under recurring transactions within one year and which exceeds RUB 100 million, or RUB 150 million if we refer to an especially large extent (the figures were formerly RUB 9 million and RUB 45 million, respectively).

The second amendment concerns an additional condition established for imposing liability for committing a crime to a large extent (article 193(1) of the Criminal Code). This condition implies that liability can be imposed on a person who earlier received an administrative penalty for acts for which article 15.25(5.2) of the Russian Code of Administrative Offences provides.

To impose liability for a crime committed to an especially large extent (article 193(2) of the Criminal Code) it is not required to impose administrative liability under article 15.25(5.2) of the Code of Administrative Offences.

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Now, a person who allowed significant currency revenues not to be returned may not fear criminal prosecution “without a warning”. Administrative liability will serve as such a warning.

3. Other amendments relating to business activity

Federal Law No. 73-FZ dated 1 April 2020 has introduced a note to article 210 of the Criminal Code (providing for liability for setting up or participating in an organised crime group) which precludes the application of this article to crimes connected with conducting legal business activity.

In accordance with this newly introduced note 1 to article 210 of the Criminal Code, founders, members, CEOs, members of management and employees of a company registered as a legal entity, and/or CEOs and employees of a structural division of it cannot have criminal liability imposed on them under article 210 of the Criminal Code only by virtue of the organisational structure and staffing of the company and/or of a structural division of it and the commission of a crime when they manage the company or when the company carries out its business or other economic activity, except for cases when the company and/or a structural division of it were knowingly established to commit one or several grave or especially grave crimes.

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The amendment that has been introduced is aimed at countering the law enforcement practice that has developed when actions of a company’s founders, CEOs and employees who were engaged in ordinary business operations and had nothing to do with organised crime were additionally classified under article 210 of the Criminal Code.

Such additional imputation under article 210 of the Criminal Code allowed for such pre-trial restrictions as pre-trial detention to be applied to persons suspected and accused of committing white-collar crimes; the prohibition on applying this sanction with respect to entrepreneurs has been established by article 108(1.1) of the Criminal Procedure Code.

We believe that the amendments made to article 210 of the Criminal Code will help to more effectively counter malpractice which has been established when the above body of a crime is imputed against businessmen engaged in legal economic activities.

Conclusions

The amendments made to the Criminal Code remove the criminality of some actions in the sphere of tax and currency legislation and have retroactive effect under article 10(1) of the Criminal Code. In other words, they can be extended to persons who committed relevant acts before Federal Law No. 73-FZ dated 1 April 2020 came into legal force. With Federal Law No. 73-FZ dated 1 April 2020 having a retroactive effect, it is impossible to instigate criminal cases, while it is required to terminate those already instigated to the extent that such cases have been decriminalised, provided, of course, that the actions at hand do not demonstrate signs of the bodies of crimes even considering the above amendments. We note that the termination of a criminal case owing to the law being adopted which removes criminality of the acts serves as a non-exonerative ground; nor does it give rise to rights on the part of a suspect, an accused or a person found guilty to seek compensation for property damage and the removal of the consequences of moral harm.

Help from your adviser

With extensive experience in protecting companies' CEOs and employees from the perspective of criminal law at all stages of a criminal prosecution, from a pre-investigation inspection (a summons to provide explanations, handling of requests for information, etc.) to defence in court, Pepeliaev Group’s specialists can assist with evaluating criminal law risks in connection with the amendments in the Criminal Code concerning tax and currency crimes.

We can provide you with legal and methodological support within the framework of the development and practical implementation of compliance systems within a company; we can further issue recommendations on how to mitigate criminal law and tax risks in the existing corporate structure and decision-making processes.



[1] Article 198 of the Criminal Code provides for liability for the evasion of taxes and charges by an individual and/or for the evasion of insurance contributions by a payer of such insurance contributions;

[2] Article 199 of the Criminal Code provides for liability for the evasion of taxes and charges that are due and payable by an organisation and/or for the evasion of insurance contributions due and payable by an organisation;

[3] Article 199.1 of the Criminal Code provides for liability for the failure to perform the duties of a tax agent;

[4] Article 199.3 of the Criminal Code provides for liability for the evasion by an individual insurer of insurance contributions towards mandatory social insurance against workplace accidents and occupational diseases which is payable to the state extra-budgetary fund;

[5] Article 199.4 of the Criminal Code provides liability for the evasion by a corporate insurer of insurance contributions towards mandatory social insurance against workplace accidents and occupational diseases which is payable to the state extra-budgetary fund;

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