On June 30, 2015, three Russian citizens (Mr. Anshakov, Mr. Otstavnykh and Mr. Seleznyov) filed a petition challenging the integration of Crimea (the Law “On acceptance of Crimea within the territory of the Russian Federation”) in the Constitutional Court of Russia.

They contended that the Law contradicted bilateral treaties between Russia and Ukraine regarding state border, under which Crimea should still be recognized as a part of Ukraine. Moreover, they argued that the Law violated the rights of applicants for association, as the Russian Ministry of Justice refused to register their international non-governmental organization called “Union in support of Russian-Ukraine friendship” established in Russia and Crimea with the latter named as a foreign territory (a part of Ukraine).

The Constitutional Court refused to review the petition (Order dated July 16, 2015, case No. 7261/15-01/2015) due to the following.

The right for association guaranteed by the Constitution of Russia does not imply the right to freely determine territorial scope of an association if it does not comply with the active legislation. Since the applicants’ rights for association are governed by the Federal Law “On non-governmental organizations,” rather than by the Law “On acceptance of Crimea within the territory of the Russian Federation,” the latter does not affect a person’s constitutional rights for association.

Moreover, the Court highlighted that, by formally contesting the Law, the applicants actually wanted to review Article 65 of the Russian Constitution (on integration of Crimea), which is beyond the competence of the Constitutional Court. Finally, the Court stated that the applicants actually challenge its Ruling No.6-P as of March 19, 2014 (on the international agreement between Russia and Crimea on its integration as a Russian territory) that is final and not subject to any review.

Meanwhile, Mr. Anshakov, who is also the head of the consumer rights protection society “Obshchestvenny control” (“public control”), is facing criminal prosecution. The case was commenced due to the unsatisfied judgments for 830.000—RUB and alleged illegal operations with the property under enforcement proceedings. As reported on October 1, 2015, Mr. Anshakov was detained and later released in his own custody.

He still has outstanding conviction of defaming the Fund of the Cathedral of Christ the Saviour for illegal trading on its territory (now challenged at the European Court of Human Rights), which may adversely affect the present criminal case.

Notably, the consumer rights protection society lead by Mr. Anshakov had its website blocked as calling for extremism, because it contained travel advisory for tourists visiting Crimea to enter the peninsula from the Ukrainian territory and to obtain a respective permit from the Ukrainian frontier service. 

In the present case the buyer paid for the goods, having transferred the money to the seller’s bank, but the seller did not receive the money, as the seller closed the relevant bank account (without having informed the buyer thereof) and as the bank’s license was thereafter revoked. The Supreme Court tried to resolve the following issue: can the buyer be deemed to have performed its payment obligations in full or should it pay for the goods once again? Lower instance courts concluded that the buyer should pay for the goods once again, as it was not diligent enough, whereas the transferred funds can be recovered in the bank’s insolvency proceedings. Nevertheless the Supreme Court reversed the lower courts’ rulings and ordered a re-trial of the case, so that the first instance court can decide, which of the parties showed sufficient diligence and good faith.

The present case deals with two issues - (i) when the buyer can be deemed to have performed its payment obligations, and (i) which standards of good faith and diligence should be taken by professional parties to civil transactions when doing business with each other.

As for the first question, Russian court practice has developed a clear approach with this regard. A monetary obligation is generally deemed to have been performed as of the moment the funds are credited to the correspondent account of the buyer’s bank, as the buyer is the one who chooses the bank and should bear the risks connected with the choice. However in the present case the situation was rather unusual, as formally relations between the seller and the bank were terminated due to the bank’s license revocation and as the seller closed its bank account. Due to this fact, lower courts concluded that payment to a closed bank account cannot be deemed proper performance, even if the payer had no knowledge of the fact that the bank account was closed. Thus, lower courts obliged the buyer to pay for the goods once again.

However the lower courts did not take into account that in the present case the seller failed to notify the buyer that the relevant bank account was closed and that its bank was declared bankrupt, thereby failing to perform its obligations on informational support directly connected with the general principle of good faith. On the other hand, according to the seller, the buyer did not show reasonable care by failing to check the seller’s bank details when making the money transfer. Which of these standards - good faith or due diligence - shall prevail is to be determined by lower courts in accordance with the instructions given by the Supreme Court.

This dispute shows that during the crisis parties should be especially diligent when dealing with their business partners, i.e. they are advised to control the change in business partners’ bank details and timely inform the latter of their own bank details’ changes.

An order confirming the introduction of a bill imposing administrative liability for the flagrant breach of accounting rules by companies was published on the official website of the Russian Government. A similar bill has been previously introduced by the Ministry of Finance. The bill was approved by the Russian Government on September 24, 2015. An order confirming the introduction of a bill imposing administrative liability for the flagrant breach of accounting rules by companies was published on the official website of the Russian Government. The bill was approved by the Russian Government on September 24, 2015.

The proposed bill provides for the following amendments:

• it increases liability for the flagrant breach of accounting rules by companies, such as creative accounting, performance of unaccounted transactions, use of forged documents, accounts’ falsification etc.
• it also imposes administrative liability for actions prohibited by accounting-related laws, such as record in accounts of facts that did not take place, record in accounts of fictitious objects, maintenance of accounts beyond the applicable ledgers etc.

We will keep our readers informed of the development of the said bill.

On September 29, 2015 the Supreme Court issued a Resolution clarifying a number of issues on limitation periods. Among other things, the Resolution provides that the limitation period starts when the injured party discovers the relevant violation. The moment when the prosecutor discovered the violation is irrelevant. Parties will not be able to extend the limitation period by addressing the prosecutor’s office.

Generally the claimant shall file a claim within 3 years as of the moment he or she discovers the relevant violation. Failure to file a claim within this period may result in the claim being barred. As regards companies, the limitation period is generally deemed to have started when the company’s general director finds out about the violation.

As the claim can be barred if the limitation period lapses, parties often argue with this regard. Previously, it was possible to avoid the general limitation period rule by asking the prosecutor to file a suit on behalf of the injured party. The prosecutor could allege that he or she discovered the violation much later than the injured party, thereby extending the limitation period. Thus, parties whose claims were already barred, could abuse their rights by addressing the prosecutor’s office.

The Supreme Court clarified that the limitation periods for the prosecutor and for the claimant start simultaneously. Therefore, even if the prosecutor finds out about the violation much later then the claimant, the limitation period will not be deemed extended.

The Government Legislative Bill Drafting Commission has approved a bill imposing criminal liability for non-payment of insurance contributions to state non-budget funds for consideration by the Cabinet of ministers. The bill provides for the inclusion of two new articles into the Criminal Code - non-payment of insurance contributions by individuals and non-payment of insurance contributions payable by companies. In accordance with the bill, a large-scale evasion committed by an individual may result in a fine of up to RUB 300 000 and an imprisonment of up to 1 year. An especially large-scale evasion committed by a company may result in a fine of up to RUB 500 000 and an imprisonment of up to 4 years.

The bill was prepared by the Russian Ministry of Justice and it aims at amending the Criminal and the Criminal Procedure Codes, a number of insurance related laws and the law regulating police activity.

The bill provides for the inclusion of two new articles into the Criminal Code - non-payment of insurance contributions by individuals (Article 199.3) and non-payment of insurance contributions by companies (Article 199.4).

Under the bill, non-payment of insurance contributions by individuals (both individual entrepreneurs and individuals without this status) may result in a fine amounting to up to RUB 200 000, however a large-scale evasion by an individual may result in a higher fine (up to RUB 300 000) and an imprisonment (up to 1 year).

The bill provides for more stringent penalties if the offence is committed by a company: a large-scale evasion may result in a fine of up to RUB 300 000 and an imprisonment of up to 1 year, whereas an especially large-scale evasion (or an evasion within a group) may result in a fine of up to RUB 500 000 and an imprisonment of up to 4 years. The said penalties are generally imposed upon the company’s general director or chief accountant.

Notably, first-time offenders and those who paid the contributions and the relevant fines in full will be able to avoid criminal liability.

In accordance with the bill and Article 199.3 of the Criminal Code that it proposes, an evasion shall be considered large-scale (i) if non-payment of insurance contributions exceeds RUB 600 000 within 3 financial years, provided that the percentage of the non-paid insurance contributions exceeds 10% of the total payable amount, or, alternatively, (ii) if the relevant non-payment exceeds RUB 1.8 mln within 3 years. An evasion shall be considered especially large-scale (i) if the non-payment exceeds RUB 3 mln within 3 consecutive years, provided that the percentage of the non-paid insurance contributions exceeds 20% of the total amount, or, alternatively, (ii) if the relevant non-payment exceeds RUB 9 mln.

In accordance with the bill and Article 199.4 of the Criminal Code that it proposes, an evasion shall be considered large-scale (i) if non-payment of insurance contributions exceeds RUB 2 mln within 3 financial years, provided that the percentage of the non-paid insurance contributions exceeds 10% of the total payable amount, or, alternatively (ii) if the relevant non-payment exceeds RUB 6 mln within 3 years. An evasion shall be considered especially large-scale, (i) if the non-payment exceeds RUB 10 mln within 3 consecutive years, provided that the percentage of the non-paid insurance contributions exceeds 20% of the total amount, or, alternatively, (ii) if the relevant non-payment exceeds RUB 30 mln.

The bill also proposes to extend the application of Article 199.2 of the Criminal Code (Concealment of monetary resources or property of the company or the individual entrepreneur that are to be used for  payment of taxes and (or) duties). Thus, the Article will also cover non-payment of insurance contributions. The bill further establishes higher penalties for the said offence: an imprisonment of up to 7 years, fines up to RUB 500 000 and RUB 2 mln.

Criminal cases will be initiated in the following way: (1) the crime investigator shall inform the tax authority of the alleged offence; (2) the tax authority will have 30 days to give its comments; (3) the Investigative Committee of Russia (ICR) will decide whether the case should be initiated. Notably, the ICR may initiate the case without having received a reply from the tax authority.

Importantly, after the Unified social tax had been abolished in 2010, no criminal liability was thereafter established for non-payment of insurance contributions. The Pension funds’ statistical data confirms that more than 8000 companies evaded insurance contributions’ payment from the beginning of 2012 until October 2014, which resulted in state budget losses amounting to RUB 96.6 bln.