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Martin Kenney: Are Russia’s moves against graft and money laundering for real?

In a post for the FCPA Blog, Kristina Furlet wrote that Russia has drafted a bill that would (finally) ratify the Council of Europe Warsaw Convention of 2005 on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime and on the Financing of Terrorism.

It would appear that Russia is endeavoring to raise its compliance game. But is this just Russia paying lip-service to the rest of the world’s fight against corruption and money laundering? Without wishing to offend our Russian friends, the fines for contravening the legislation are derisory.

Russia signed up to the Warsaw Convention in 2009. If enabling legislation is enacted, under this Convention, companies as well as individuals would bear “administrative liability” for money laundering.

Under existing legislation, legal entities are liable only for the rendering of financial services linked to the finance of terrorist attacks and related crimes. Offenses are punishable with a fine ranging from 10 million to 60 million roubles ($155,000 to $935,000). Multi-million dollar companies will not be shaking in their boots at these not-so-draconian costs.

In addition, a related bill has been presented to the Duma that would obligate Russian companies to report the identities of their ultimate beneficial owners to the state once a year. Fines for failing to comply with the beneficial ownership reporting requirement would range from 100,000 to 500,000 roubles ($1,500 to $7,800). These fines would only deter the very smallest of Russian businesses — lone window cleaners beware!

As an international asset recovery law firm, we ply our trade across the globe and have conducted investigations on behalf of both Russian and Western clients wronged by their respective counterparts. The Iron Curtain may well have fallen some years ago, but Russia remains an extremely difficult jurisdiction to operate in — for many of the same reasons that clouded the dismal times when the Iron Curtain was still there.

If Russia is serious about imposing genuine compliance on its businesses, and raising confidence in overseas businesses that want to trade there, then it needs to make the corporate fines fit the offense.

Likewise, if an overseas company commits to doing business with a Russian counterpart, it needs to know that Russian authorities will deal with any resultant complaint diligently. At the moment this area remains (if you pardon the pun) a game of Russian Roulette.

There have been many improvements over the years. But until the punishments fit the crime, jittery foreign investors will always have a seed of doubt that can deter business relations. Certainly the absence of a truly independent judiciary and the rule of law in Russia does not serve to comfort foreign investors either.

If what we are seeing are the first baby-steps towards meaningful Russian compliance, then I commend those proposing them. Russia needs overseas businesses, and vice versa. So the sooner Russia moves to resolve lingering doubts about its commitment to fight corruption and money laundering, the better.

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Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset retrieval practice focused on multi-jurisdictional fraud cases www.martinkenney.com |@MKSolicitors.

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