03.04.2016 — The Panama Papers Scandal

The Panama Papers contain over 11.5m files from the database of Mossack Fonseca, the world’s fourth biggest offshore law firm. These records are called the biggest offshore leak in history revealing offshore taxation schemes used by over a hundred politicians and world leaders. The leak is likely to negatively affect the offshore business and schemes used worldwide.

The data was published by the International Consortium of Investigative Journalists (ICIJ) and is now publicly available. ICIJ received the database from the German newspaper Süddeutsche Zeitung, the latter obtaining it from an anonymous source. The Papers share information on twelve national leaders and over a hundred politicians, their families and close associates who have been using offshore tax regimes to hide their assets.

Mossack Fonseca is a Panama-based law firm rendering services for incorporation of companies in offshore jurisdictions, for example, the BVI or Cyprus, as well as for asset management. According to the Panama Papers, the law firm acted as registered agent for over 200,000 companies.

After the Panama Papers being revealed, the reliability of offshore schemes is undermined. The biggest offshore leak seriously questions the commonly used legal instruments offered by offshore law firms. For instance, businesses and individuals should carefully think about the agreements, liability and security measures applied in offshore jurisdictions. Most likely, if due security precautions are taken the legal costs of implementing an offshore scheme will equal to those incurred when using a lawful one, without any offshore company involved.

01.04.2016 — May Holidays Schedule

The Russians will be celebrating the International Labour Day longer than ever before. The Federal Labour and Employment Agency fixed four public holidays in a row, starting from April 30th until and including May 3rd. 

The holidays are starting on April 30th, Saturday, the 1st of May falls on Sunday, thus the public holiday is being shifted on Monday. And the public holiday initially falling on January 2nd was reserved on the 3rd of May.

Moreover, celebrations of the Victory Day will include three nonworking days, from the 7th until the 9th of May.

31.03.2016 — Banks to Verify the Source of Clients’ Assets

Starting from June 2016, the Central Bank of Russia is planning to tighten control over lawful capital transfers and oblige commercial banks to take additional measures to verify the source of their clients’ assets. Having reasonable doubt, banks will be entitled to refuse to open bank accounts, conduct transactions and even rescind a bank account agreement. Unless a bank complies with these rules, it may lose its licence or face certain restrictions.

Therefore, the Central Bank of Russia is going to enhance measures for financial monitoring and promote verification of the source of clients’ assets received by the banks. Previously, banks were entitled to demand that clients submit reports proving the legality of funds they received. However, there were no clear criteria and the banks could determine, at their own discretion, the cases where such verification is required as well as the list of the documents to be submitted by entities in this respect. Generally, companies provide banks with agreements, accounting records and financial statements as verifying documents.

If the client refuses to verify the lawful source of funds the bank will be entitled to refuse to open a bank account and conduct transactions, or rescind a bank account agreement. A failure to comply with the financial monitoring rules might result in adverse consequences for the bank, for instance, restrictions on banking operations, exclusion of the bank from the deposit insurance system, or withdrawal of a licence.

30.03.2016 — Minority Shareholders to Have Limited Access to Corporate Documents

The Russian Ministry of Justice has drafted a bill substantially limiting rights of minority shareholders to access the information on company’s business. Shareholders owning less than 2% of shares will have access to a limited number of main corporate documents, such as company’s charter, annual reports, accounting records. Commercially important information, in particular, agreements being major or affiliated parties transactions, or documents confirming company’s rights to property will be available solely to shareholders owning more than 25% of company shares.

To prevent possible abuse by minority shareholders, an entity might refuse to provide commercially important information, if the request does not state a business purpose, or the shareholder has requested information the dissemination of which might harm the company, or in case such information is publicly available, in particular, posted on the company’s website or released via public disclosure.

Private joint-stock companies and limited liability companies will as well be entitled to set forth their own information disclosure rules in the charter. The amendments suggested by the Ministry of Justice reflect the existing case law developed by the highest court instances. 

29.03.2016 — Supreme Court Lowered Standard for Proving Lost Profit

The Plenum of the Supreme Court of Russia clarified that calculation of lost profit may be based not only on measures and arrangements the party took to gain profit, subject to § 4 Article 393 of the Civil Code of Russia, but also on any other evidence showing the possibility of gaining such profit.  

A recent Resolution of the Plenum of the Supreme Court of Russia allows for submitting any evidence to prove the calculation of lost profit. As an example, the Resolution states that the plaintiff’s financial data on the profit gained in same period may be submitted as evidence of the calculated lost profit. Nonetheless, the defendant may still object to this evidence and prove that the claimed profit could not have been gained in the period in question.

The formerly existing approach provided that to indemnify lost profit in full a plaintiff had to prove his losses completely, meaning the plaintiff who failed to show evidence of his losses would not possibly be awarded the full amount of claimed lost profit. Such approach limited the possibilities for proving lost profit and infringed on plaintiffs’ interests, the latter having difficulties in showing specific measures and arrangements they took to gain lost profit in a precise period of time. 

28.03.2016 — The Court Cancelled Controversial Decision on Case Vimpelkom vs Tizpribor

On March 28, 2016 the ninth arbitration appeal court cancelled the former decision of the Moscow Arbitrazh court regarding rent rate review of the lease contract between Vimpelkom and Tizpribor. According to the court, employing a floating exchange rate regime and the subsequent devaluation of the ruble in fact cannot be assessed as a fundamental change of circumstances sufficient for amendment or cancellation of the contract in a judicial proceeding.

Vimpelkom filed a suit against the lessor referring to article 451 of the Civil code which deems fundamental change of circumstances as amendatory matter for amendment or cancellation of the contract concluded between economic entities. On December 29, 2015 the Moscow Arbitrazh court upheld partially the claim of Vimpelcom and fixed the foreign currency exchange rate between 30 and 42 RUR to USD, i.e. actually rectifying the contract amending the rent calculation formula. Such decision could have been a landmark decision for cases on lease agreements where the rent is established in a foreign currency.

However, the decision of the ninth arbitration appeal court declares that "according to part 1 of the article 2 of the Civil code of the Russian Federation, business activity is carried out at its own risk and responsibility. Therefore, the party interested in amending the controversial contract, in this case — PJSC Vimpel-Kommunikatsii has to bear the risk of change of circumstances.”

The full version of the decision is not available yet.