BGP Litigation attorney Georgy Baganov commented for Pravo.Ru on the main criminal risks for business

“Sometimes the officers of the Investigation Committee and the police construe non-fulfillment of obligations of civil nature as a crime including by “order” of competitors,” BGP Litigation attorney Georgy Baganov expresses his point of view.

“Baganov believes that the cases of fraud are very popular due to the elastic nature of the regulations provided for in Article 159 of the Criminal Code: “It repeatedly led to nearly absurd cases, when, for example, the works for a governmental authority that were not completed were paid for in full, notwithstanding their incompletion, because the customer had to implement annual budget. After that a commission inspection usually established actual non-fulfillment of the paid works and criminal proceedings were initiated against the businessman for receiving money “fraudulently”, despite the continuing works and near project completion”. 

Adding to the answer to the question in respect of what cases and articles criminal proceedings are initiated against companies, Georgy Baganov noted, that every branch may have its “own” specific crime components. For example, if materials of poor quality used by a tenant builder cause failure or loss of life, the actions of construction workers may be qualified under Article 238 of the Criminal Code of the Russian Federation (execution of works or provision of services failing to meet safety requirements). 

During the period when the licensing legislation is changing, Georgy Baganov pointed out, there often are cases where liability arises pursuant to Article 171 of the Criminal Code of the Russian Federation (illegal enterprise). If the activities of an enterprise became licensed “imperceptibly” for its management, the enforcers may qualify the receipt of income amounting to RUB 2.25 million and more (the “limit”, after which the income is considered high today) by such enterprise, namely, pursuant to this article of the law.

A frequent trouble spot is negligence of employees, BGP Litigation attorney noted. For example for the same tenant builder harm to health caused by fall of an incorrectly fastened load block results in a labour inspection of the construction company; a loan to a fly-by-night company approved by the bank security service results is a visit of the Central Bank or investigators.

Georgy Baganov brought to notice the fact that nominally criminal risks for business may be “legal” and “nonlegal”.

There are three legal risks. First, the changes in the criminal legislation. It includes situations related to blanket provisions (when actions in the Criminal Code are connected with the violation of rules of other areas of law – for example, of industrial regulatory system in the field of construction, finance, fire safety, etc.), introduction of new crime components and harsher punishment (for example, “business” fraud in large and especially large amounts was transferred to the category of serious crimes). Second, the cases when the provisions of laws outside the criminal law are changed, but their violation results in liability under the Criminal Code of the Russian Federation (for instance, activity in some field became subject to licensing. If the head fails to notice it on time, the formal signs of illegal business operations are evident.) Third, the cases of hidden difference between civil and criminal risks and consequences, sometimes a violent interpretation of related provisions of law by governmental authorities (for example, non-fulfillment of obligations). 

Number of “nonlegal” risks is higher and as a rule they are not related to deliberate violation of law by a business entity. The first one represents a situation between contractors. Suppose, that a company claimed to recover VAT on the basis of a contractor’s acts. Later it is found out that actually the acts were not performed and the right to the tax advantages did not arise. The second one represents internal disputes between the partners resulting sometimes in compromising information leak. The third one represents misconduct of competitors. The fourth one is violation of law by employees resulting in employer’s liability (an example: a construction manager is held criminally liable pursuant to Article 143 of the Criminal Code of the Russian Federation for an injury of a subordinate, it results in proceedings against the company, labour inspection, etc.).

Initiated criminal proceedings are very seldom resolved by themselves, underlined Georgy Baganov. In all cases the general recommendation is to consult a professional attorney.

To defend the client professionally, BGP Litigation attorney pointed out, one needs to evaluate the risks before the pre-investigation check starts or criminal proceedings are initiated. When you visit an attorney, as a rule a confidentiality agreement is signed. In all cases the attorney-at-law has no right to disclose any data, received from the client, including if such agreement is not signed. The punishment for the violation is rather severe – up to disbarment.

In the course of conversations with the client, analysis of documents, Georgy Baganov noted, the defense evaluates possible directions of actions of law-enforcement agencies, questions they will be interested in, and works out the tactics of defensive actions for each direction together with the client. An attorney has the right to send a request obligatory for performance to different organizations, collect evidence and has a range of other powers advantageous for the defendant. Corporate counsels have no such powers as a rule, they are not aware of details of criminal law and procedure. 

Georgy Baganov concluded: only an attorney has the right to perform defense in criminal cases and materials of pre-investigation checks. If after the delivery of the sentence it is found out that the “attorney” has in fact no such status, it will result in recognizing the sentence illegal and its quashing, for both an acquittal and a conviction.

The full article (in Russian) is available here: "Была бы компания: юристы раскрыли уголовные риски для бизнеса".