The Supreme Court has summarised case law on illegal gratification paid on behalf of a legal entity
Pepeliaev Group advises that the Presidium of the Supreme Court has approved an Overview of case law (the “Overview”) concerning administrative liability imposed under articles 19.28 of the Russian Code of Administrative Offences (the “Administrative Code”).
1. General information
 | Article 19.28 of the Administrative Code emerged in Russian law in connection with international obligations of Russia, which required that liability for corrupt practices be established for legal entities. |
Please find below a schematic representation of the body of the offence under article 19.28 of the Administrative Code:
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Actions for which liability has been established |
Persons who receive illegal gratification |
Subject matter of illegal gratification |
Purpose of illegal gratification |
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Most legal positions the Supreme Court set forth in the Overview are not ground-breaking, as courts of various levels have been supporting them for a long time already. Nevertheless, the Overview became the first regulation dedicated to the challenges of applying article 19.28 of the Administration Code.
| The Russian General Prosecutor’s Office maintains the Register of legal entities held liable under article 19.28 of the Administrative Code, according to which relevant liability has been imposed on more than 1,300 legal entities. |
2. Companies’ liability for corrupt practices
The correlation between administrative and criminal liability
In the Overview, the Supreme Court upholds the well-established practice in accordance with which the absence of a guilty verdict with respect to an individual acting on behalf/for the benefit of a legal entity does not preclude liability from being imposed on the legal entity for providing illegal gratification.
The Overview cites a case where the facts signify that the criminal case against the company’s officer was not referred to the court, yet the court found that the files related to the administrative case were sufficient to prove the fact that the bribe had been transferred for the company’s benefit and by doing so held that the company was guilty of the offence under article 19.28 of the Administrative Code.
At the same time, the converse is also true: if an individual is held criminally liable, it does not release the company on whose behalf/for whose benefit the individual acted from the administrative liability for providing illegal gratification.
In support of the above position, the Overview cites the case where a court of the Russian constituent entity overruled the decision of the lower court that the case under article 19.28 of the Administrative Code should be terminated because the criminal case had been initiated against the company’s officer regarding the bribe.
The logic that administrative liability should be separate from criminal liability has also been reflected in the part dedicated to the release from the liability: when an individual is released from liability for the bribe, it does not constitute sufficient ground for the company to be released from administrative liability for providing illegal gratification.
Amount of the fine
The Overview reminds that the sanction under article 19.28 of the Administrative Code is subject to the general rules for imposing an administrative penalty (article 4.1(3.3.)(3.2) of the Administrative Code). By these rules, the court may, under exceptional circumstances related to the nature of the offence, its consequences and the financial status of the company, reduce the amount of the fine by charging at least 50% of the amount for which the sanction provides.
| Please be reminded that if a corruption offence is identified in the form of illegal gratification being provided on behalf of a legal entity, the company could face a fine ranging from RUB 1 million to RUB 100 million and even higher (article 19.28 of the Administrative Code). |
Forfeiture
| To improve the situation with poorly collected fines under article 19.28 of the Administrative Code, the prosecution authorities recently have been widely applying a new development that came into force in 2018, i.e. article 27.20 of the Administrative Code (forfeiture to ensure execution of a ruling imposing administrative penalty for illegal gratification on behalf of a legal entity). |
With regard to the forfeiture under article 27.20 of the Administrative Code, the Supreme Court states that the fact of the subject matter of an administrative offence being included in the criminal case files or its appropriation by the state does not preclude the forfeiture. In this case, whether the property is to be forfeited should be considered within the scope of enforcement proceedings.
Relief
According to note 5 to article 19.28 of the Administrative Code, a legal entity shall be released from administrative liability for corrupt practices if the legal entity provided assistance in such offence being identified, facilitated the administrative investigation and/or helped to identify, uncover and investigate the crime connected with the offence, or if extortion took place with respect to the legal entity.
The Supreme Court points out that a court must evaluate the entire body of the actions owing to which the legal entity can be released from administrative liability. For this reason, it is not sufficient for the legal entity to perform only one of the actions stated in the note in order to get a relief.
3. Classification of actions as actions performed on behalf/for the benefit of a legal entity
The Supreme Court specifies the elements which most likely prove that a person acted on behalf of the legal entity:
- the person represents the company by virtue of law, the company’s charter or power of attorney;
- the person is a company’s officer or carries out managerial functions within the company.
In turn, an instruction to perform such actions or awareness or approval of them by persons authorised to act on behalf of the company prove that the person acted for the benefit of the company.
In this regard, it must be proven that the company has economic or another interest in the action for which the individual handed over/offered/promised illegal gratification.
4. Offer and promise of illegal gratification
Under article 19.28 of the Administrative Code, not only actions that constitute the transfer of the illegal gratification, but also those that amount to an offer/promise of such illegal gratification are subject to administrative liability. The Supreme Court clarifies what an offer/promise of illegal gratification implies.
An offer of illegal gratification should be understood as a message expressed in any form and conveyed by any means regarding the potential provision of illegal gratification. A promise of illegal gratification should be understood as a voluntary obligation of the person to provide illegal gratification immediately or in future.
For an offer/promise of illegal gratification to be treated as an administrative offence, it must:
- have an express form;
- be addressed to a specific person;
- have unambiguous content.
| Please be reminded that an offer/promise of illegal gratification is treated as a completed offence once the relevant action has been performed independently of whether such offer/promise was realised. |
5. Transfer of the gratification by stages or repeatedly
If the illegal gratification was provided by stages or repeatedly but within the same arrangement, the classification of the relevant actions should be based on the total amount of funds transferred or the total value of services supplied/rights granted.
The court jurisdiction in such cases should be determined based on the last location where such illegal gratification was provided.
What to think about and what to do
To mitigate the likelihood of administrative liability for corrupt practices being imposed on the company, it appears essential to analyse and assess potential corruption risks inherent in the company’s operations (by drawing up a corruption risk map), to initiate the development/updating of internal anti-corruption regulations and to arrange training for employees on the basics of combating corruption offences.
It should be emphasised that if a company has an efficient compliance system, it may help the company bring into effect a special ground for relief, i.e. providing assistance in the offence being identified, facilitating investigation and helping to solve the offence or a related crime.
Help from your adviser
Pepeliaev Group’s lawyers have all-round experience of handling issues relating to the implementation of anti-corruption compliance measures in major companies, conducting anti-corruption investigations, and participating in complicated labour disputes.
We are ready to provide the necessary legal support in the development and practical implementation of the necessary anti-corruption policies, internal regulations, and policies with respect to applying incentive and liability measures to employees when they perform or violate their duties in connection with preventing corruption.