23 May 2011 | By Joanne Harris
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Russia is tackling its notorious problem of corruption with a little help from overseas, says Joanne Harris
Russia is seen by many as one of the most corrupt of the emerging markets. In the 2010 Corruptions Perception Index released by global organisation Transparency International, the country languishes in 154th place out of 178 countries surveyed.
However, a sea change could be occurring, both through the efforts of Russia’s own government and legislation being introduced elsewhere in the world.
The two major jurisdictions having an impact on business practice in Russia are the US and the UK. Although the US’ Foreign Corrupt Practices Act (FCPA) was introduced in the 1970s, US authorities are ramping up their efforts to investigate companies that might be in breach of the law.
Meanwhile, the UK’s Act, set to come into force in July this year, is also attracting the attention of Russian businessmen. As a result, lawyers in Russia are seeing an increased demand for advice.
“The practice areas that I spend most of my time on now are compliance, anti-bribery and anti-corruption,” reports Paul Melling, founder of Baker & McKenzie’s Moscow office. “A lot of Russian clients are concerned about their exposure to the Bribery Act as a result of obtaining a listing in the UK. Many Russian companies - the smart ones anyway - see the increased focus on extraterritorial regulation of anti-corruption as an opportunity in many ways.”
Melling describes situations where Russian companies seeking business partners overseas or foreign investors are focusing on their compliance practices to reassure these potential partners that they are sticking to the new legislation.
“They can see that that gives them a distinct competitive advantage over Russian companies that don’t do it,” Melling says. “In a strange way, legal developments in the past few years in the UK and US are having an effect on business practice here - perhaps as much as the efforts that Russia’s president Dmitry Medvedev himself is making.
“In the long term it will be quite good news for companies doing business here. In the short term it creates headaches for multinational companies because Russia is one of the few emerging markets predicting revenue and profit growth, but it also has associated risks.”
Lawyers think some Russian companies are also examining the Bribery Act for other reasons. Astapov Lawyers partner Oleh Malskyy says there is a fear that competing corporations could use the legislation as a competitive weapon.
“It’s not to be compliant, it’s not because of the fear that UK authorities will go after them; it’s more looked at as a matter of security to protect against possible activities of competitors,” he says.
But the result is the same, with Russian clients attempting to comply with the Bribery Act’s provisions.
The structure of many Russian companies also leads to a need to keep an eye on UK legislation, Malskyy adds.
“Quite a lot of our clients use UK trading companies - they have UK entities in their structure for one reason or another,” he says. “That raises the question - do you have to comply?”
Not all the pressure is coming from outside Russia. As hinted at by Melling, President Medvedev is also toughening up the country’s legislation. Earlier this month Medvedev signed into law a new anti-corruption act that puts the emphasis on economic sanctions instead of prison sentences.
Although bribing a foreign official could still lead to imprisonment, this is now also punishable with a high financial penalty. Officials can also be punished through a prison sentence or a fine of 100 times the amount of the bribe. There is a four-tier system of fines for public corruption, based on the size of the bribe.
The new legislation could lead to Russia finally joining the Organisation for Economic Cooperation and Development’s (OECD) Anti-Bribery Convention. OECD secretary-general Angel Gurría said in a statement following Medvedev’s signing of the legislation that “it sends a clear signal of Russia’s commitment to upgrade their effort in the fight against international corruption.” Gurría said it could mean Russia becoming a member of the convention and the OECD’s working group on bribery as early as this week, during the OECD’s ministerial council meeting in Paris on 25-26 May.
These steps represent a significant move forward for Russia and are likely to help increase the country’s attractiveness as a place for foreigners to do business. But despite the changes, lawyers warn that care still needs to be taken.
“It’s still a high-risk market from that perspective for multinational companies,” concludes Melling.