Global Investigations Review - The law and practice of international investigations

The Practitioner’s Guide to Global Investigations, Third Edition

Russia

03 January 2019

Hogan Lovells (Moscow)

General context and principles

1 Identify the highest-profile corporate investigation under way in your country, describing and commenting on its most noteworthy aspects as it relates to your country.

One of the most recent high-profile corporate investigations has been carried out by the Russian state corporation Deposit Insurance Agency (DIA), which acts as the mandatory state liquidator of insolvent banks and oversaw the investigation of the £1 billion collapse of Mezhprombank. It led to the subsequent anti-fraud, insolvency and asset-tracing litigation in Russia and overseas against the bank’s beneficial owners and directors, including Mr Sergei Viktorovich Pugachev, who has been referred to as ‘Putin’s banker’. (The author’s firm acted as lead counsel for the DIA and Mezhprombank.)

The substantive claims were brought in Russia on the grounds that Mr Pugachev was a shadow director and beneficiary of Mezhprombank (one of the major private banks in Russia at the time) and caused its collapse by procuring loans to shell companies under his control. The Russian judgment for more than £1 billion, the largest of its kind, has given rise to the first precedent in Russian jurisprudence of holding a shadow director and beneficiary vicariously liable as a ‘controlling person’ for a bank’s debts.

In parallel English proceedings, the DIA was recognised as a ‘foreign liquidator’ under Cross-Border Insolvency Rules, becoming the first liquidator from the CIS region to be recognised in England and Wales. The DIA sought and obtained a freezing injunction from the UK High Court against Mr Pugachev for £1.17 billion in support of substantive proceedings in Russia.

At the end of 2017, a development in the matter broke new ground as the High Court of England and Wales ruled that the DIA could enforce against the valuable assets purportedly settled into discretionary trusts of which Mr Pugachev was a ‘protector’. It has become a precedent-setting case in English law as well as international jurisprudence of penetrating trusts and related structures aimed at shielding assets from creditors’ claims. Further, in 2018, the High Court ordered that the trust assets could be transferred directly into the estate of Mezhprombank, thus dispensing with the need to appoint costly receivers, who would normally have to sell the asset and transfer the sale proceeds to the creditor.

The continuing corporate investigation in Russia into the collapse of Mezhprombank revealed evidence that was crucial to the successful pursuit of the court proceedings against Mr Pugachev both domestically and internationally. This was done despite Mr Pugachev’s efforts to conceal and destroy evidence relating, in particular, to such crucial spheres as his de facto control of the bank (he had no formal official position with the bank but implemented a shadow decision-making control system with his personal special stamps for authorising key decisions) and his role in the bank’s insolvency, including his actions in siphoning funds out of the bank, placing them beyond the reach of the bank’s creditors, in multiple jurisdictions using a complex web of offshore companies and trusts.

The status of the DIA (acting on behalf of Mezhprombank) as an injured party in the Russian criminal investigation allowed it to use the witness statements and other evidence obtained in the course of the Russian criminal proceedings (with the permission of the investigators) in support of the DIA’s civil law claims in Russia and overseas. It has proved to be extremely useful and allowed it to create a strong prima facie case of fraud necessary to obtain crucial injunctive relief and prevent dissipation of assets.

This case highlights the fact that it is possible to set up a robust system of inter-jurisdictional evidence and information flows. It enabled the DIA to pursue both Russian and international proceedings simultaneously while complying both with the complex requirements of Russian criminal law limiting the scope of the use of the information obtained in the ongoing criminal investigation, and the English court’s ‘confidentiality club’ restrictions for the use of information obtained in the English proceedings.

2 Outline the legal framework for corporate liability in your country.

Although Russia has ratified the 2003 UN Convention Against Corruption and the 1999 Criminal Law Convention on Corruption, legal entities under Russian law cannot be held criminally liable for any contravention of Russian criminal law; only individuals can be criminally liable.

Russian law provides for the administrative liability of legal entities, including fines in the amount up to 100 times the value of a bribe but not less than 100 million roubles, under the Russian Code of Administrative Offences.

3 In your country, what law enforcement authorities regulate corporations? How is jurisdiction between the authorities allocated? Do the authorities have policies relating to the prosecution of corporations?

In addition to the law enforcement authorities with investigative powers applying to all persons, including corporations, depending on the type of crime (such as the Investigation Committee, the General Prosecutor’s Office, the Ministry of Internal Affairs and the Federal Security Service), a number of state bodies are competent to regulate corporations. These include, among others, the Central Bank, the Federal Antimonopoly Service, the Federal Tax Service and multiple federal services and departments in specific economic sectors (e.g., transport, security, healthcare and education). We are not aware of publicly available policies specifically relating to the prosecution of corporations.

4 What grounds must the authorities in your country have to initiate an investigation? Is a certain threshold of suspicion necessary to trigger an investigation?

Russian criminal and administrative law does not specify the exact threshold of suspicion to initiate an investigation. Broadly, it lies within the relevant authority’s discretion and should be based on a reasonable belief of certain facts or grounds supported by evidence. This should give grounds to suspect that there has been a contravention of the law or infringements of a person’s rights (e.g., based on someone’s application, audit and tax reports, or information in the media).

5 Does double jeopardy, or a similar concept, apply to prevent a corporation from facing criminal exposure in your country after it resolves charges on the same core set of facts in another country?

Russian law establishes a general principle of justice, according to which no one can be held liable twice for the same offence (ne bis in idem). This provision is enshrined in the Russian Constitution, the Criminal Code and the Code of Administrative Offences. A legal entity that commits an offence outside Russia may be prosecuted in Russia if the offence is contrary to the interests of the Russian Federation, and in cases stipulated in the respective international legal treaty, provided that the legal entity was not found criminally or administratively liable for an offence in a foreign state.

6 Does criminal law have general extraterritorial effect in your country? To the extent that extraterritorial effect is limited to specific offences, describe those which have extraterritorial effect, the statutory basis and any conditions that must be met for extraterritoriality to apply.

The Criminal Code is generally applicable in the territory of the Russian Federation but also has extraterritorial effect in specific cases identified therein. The Code includes a special provision dealing with the application of criminal law in relation to persons committing a crime outside the Russian Federation (Article 12).

As regards Russian citizens and stateless persons permanently residing in Russia who have committed a crime outside Russia that falls within the ambit of the Russian Criminal Code, they shall be held criminally liable if no foreign court judgment was made concerning the crime in respect of such persons.

Foreign nationals and stateless persons who do not reside permanently in Russia, who have committed a crime outside Russia that falls within the ambit of the Russian Criminal Code, and for which they are prosecuted in Russia, are subject to criminal liability in Russia (1) if the committed crime is directed against the interests of the Russian Federation, a Russian citizen or a stateless person permanently residing in Russia (which is quite a vague definition and has not been sufficiently clarified in law and practice), or (2) unless such persons were held criminally liable for the crime in a foreign state. Criminal liability in Russia for crimes committed overseas is also possible in cases provided by international agreements of the Russian Federation or international legal documents that have obligations accepted by Russian Federation.

7 Describe the principal challenges in your country that arise in cross-border investigations, and explain whether and how such challenges are dependent on other countries involved.

One of the major challenges in relation to cross-border investigations is with regard to the transfer of information outside Russia. There is a plethora of issues in this respect, mostly connected with the strict regulations protecting various categories of classified information of Russian persons (such as personal data, personal privacy information, personal correspondence, commercial and state secrets). The processing of classified information often requires the prior express written consent of a data subject. For example, any processing of personal data requires the express written consent of an employee before it is processed, and includes special requirements for the export of personal data to jurisdictions not considered to provide adequate protection for personal data subjects (such as the United States). A failure to observe personal privacy, business and state secrets rules could trigger criminal liability, whereas a breach of personal data requirements would invoke administrative liability.

The routine practice of the US Department of Justice and Securities Exchange Commission is to request production of information directly from Russian entities in the course of their global anti-corruption investigations, circumventing the Russian authorities through which such requests should normally be made under the 1999 Russia–US Treaty on Mutual Legal Assistance in Criminal Matters. This practice has caused significant concerns on the Russian side, especially at a time of heightened geopolitical tension and the ongoing rounds of sanctions and counter-sanctions. Various legislative projects of blocking statutes have been circulated for consideration to put an end to this practice.

In this context, in May 2018, the Russian parliament adopted at the first reading a draft law prohibiting (under the threat of criminal prosecution) the implementation in Russia of any anti-Russian sanctions, including any transfer of information overseas relating to sanctions compliance and investigations. Owing to significant concerns within the business community, the adoption of this law was suspended; nevertheless, it remains on the legislative agenda.

Another problem relates to the existing tensions between Russian antimonopoly regulation and US and other extraterritorial anti-corruption statutes. In some Russian court and regulatory cases, it has been held that Russian subsidiaries of foreign companies should comply in the first place with local regulations on antimonopoly and anti-corruption, and not with foreign laws on anti-corruption, which have a wider effect than Russian regulations. For example, if a seller enjoys a dominant market position, there is a risk that such use of anti-corruption measures could be regarded as an abuse of dominant position if they are not properly structured (e.g., a request for an anti-corruption audit of a distributor, refusal to contract with an unqualified party, termination of a contract or suspension of deliveries post-audit, or incorporation of such terms into contracts and policies).

8 What bearing do the decisions of foreign authorities have on an investigation of the same matter in your country?

Russia is a party to various international conventions on co-operation and mutual assistance in the areas of crime prevention, anti-corruption, anti-fraud, among others. If the decisions of foreign authorities fall within the ambit of the respective convention, the Russian authorities will accept and work with the materials and evidence received from abroad, and execute requests for legal co-operation, including providing documents, records and other items; executing requests for searches and seizures; locating and immobilising assets for purposes of forfeiture, restitution, or collection of fines; extradition; and recognition and enforcement of civil judgments in criminal matters relating to compensation for damages.

9 Do your country’s law enforcement authorities have regard to corporate culture in assessing a company’s liability for misconduct?

Corporate culture issues have become more important and must be considered in the assessment of anti-corruption compliance measures by companies in Russia. This practice is still emerging, as the authorities are only taking their first steps in this direction.

10 What are the top priorities for your country’s law enforcement authorities?

The top priorities for Russian law enforcement authorities in the economic sector include prevention of financing terrorist activities and money laundering, fighting corruption and bribery, combating tax evasion and the prevention of fraud.

11 How are internal investigations viewed by local enforcement bodies in your country?

Internal investigations aimed at uncovering infringements or misconduct and crimes in corporate entities, and at ensuring compliance, are welcomed by the Russian authorities and regarded as an important part in accomplishing state goals for fighting bribery and anti-corruption, and improving the business environment. The sharing of their results with law enforcement bodies had been regarded as a desirable, rather than mandatory, step in the company trying to earn credit for co-operation with the authorities. However, amendments to the Russian Code of Administrative Offences in March 2018 provide that a legal person shall be exempt from administrative liability for bribery if it has assisted in uncovering the offence in question or any related crime and carrying out the administrative investigation, which often takes place in the context of an internal investigation reported to the authorities.

Before an internal investigation

12 How do allegations of misconduct most often come to light in companies in your country?

The most effective and common sources of information on misconduct allegations tend to be whistleblowers, standard screening processes, tax reporting and compliance. Russian law encourages companies to introduce whistleblowing programmes, such as help desks and reporting lines to which employees can submit information about any alleged non-compliance. However, there is no formal protection of whistleblowers similar to that found in other foreign jurisdictions. Although various measures to stimulate whistleblower rewards similar to US measures have been constantly discussed in Russia, they have not yet been implemented for fear of a flood of applications. The only meaningful development has been the adoption by the Ministry of Interior of Order No. 356, dated 6 June 2018, implementing the regulation on the fixing and payment by the police of remuneration for assistance in uncovering crimes and detaining those who committed them. The regulation establishes a system of monetary awards ranging between 500,000 and 3 million roubles (roughly US$7,500 to US$45,000) – the larger amount only being payable on the personal order of the Minister of Interior – which are granted to police co-operators and whistleblowers. Although it is a general regulation that is not directly tied to corruption, it has quite tough triggers and is a welcome step in the right direction.

Audit reviews have been less relevant, as auditors, both external and internal, on the one hand, are mostly dependent on the information provided by the company’s management; furthermore, there is a sizeable supply of ‘puppet’ auditors. The auditors’ activism has not been helped by the underdeveloped and overly rigid court practice of holding auditors liable for professional negligence.

Major Russian companies have developed sophisticated screening processes and compliance functions; however, for a significant number of other companies, who can only allocate small or a zero budget to these processes, it remains a box-ticking exercise. Against this background, the internal audit plays a relatively more important role, as its function, if it operates effectively in the corporate structure, is well established, as opposed to the compliance function, which often has to prove its purpose and its usefulness in many Russian companies.

13 Does your country have a data protection regime?

Yes, Russia has a data protection regime that covers personal data, privacy information and certain classified information regimes for commercial and state secrets. The protection of personal data is centred around the Federal Law on Protection of Personal Data, which is based on the Council of Europe 1981 Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, and generally follows in the wave of the EU legal model and developments in this sphere but with the less stringent regulatory provisions and less severe penalties. ‘Personal data’ is understood to include identifying information such as a person’s name, address, email address, contact telephone number, instant messenger accounts, among others. Any use of such information, including collection, recording, systematisation, storage, update, amendment, recovery, use or transfer, requires the data subject’s prior express written consent. The storage of personal data relating to Russian citizens shall be carried out in Russia.

Similarly, the right of privacy is protected under the Constitution, the Civil Code and the Criminal Code. Any collection, storage, use or dissemination of information about the private life of a person, including any review of his or her correspondence or telephone conversations, requires his or her prior consent. This consent should be obtained before taking any action that could lead to obtaining such information.

The protection of state or commercial secrets is subject to special legislation. Any access to such information requires a licence or permit from state authorities (if it relates to a state secret) or the consent of the holder of the information (if it relates to a commercial secret).

14 How is the data protection regime enforced?

There has been a trend to strengthen regulatory pressure, increase fines and limit the outflow of sensitive information from Russia and to broaden the scope of the information available to law enforcement agencies without court approval. The whole enforcement picture is slightly contradictory and inconsistent. On the one hand, the sanctions for non-compliance with personal data protection are relatively seldom enforced by the Russian regulatory agency (Roskomnadzor), and if they are monetary fines rather than injunctions, they are fairly minor (administrative fines are up to 75,000 roubles (roughly US$1,120). On the other hand, the state has significantly raised its enforcement activity against offenders, especially major Russian or foreign offenders. In the past couple of years, the state has carried out a number of very high-profile investigations and public ‘whippings’, having punished major companies by blocking their services in Russia (with mixed success as an e-embargo proved difficult to implement because of the global reach of the internet). For example, LinkedIn’s activities in Russia were blocked following a breach of the legislation requiring social networks to store the personal data of Russian citizens on Russian web servers. In 2018, Roskomnadzor also entered an ongoing tug-of-war by blocking the Russian services of Telegram, an international social messenger service with more than 200 million users, which refused to provide its users’ information to Russian law enforcement agencies. Facebook also seems to have been targeted by Roskomnadzor and has been threatened with a permanent injunction unless it complies with the mandatory storage of information on Russian servers and the requirement to block certain types of information. State prosecutions for privacy breaches remain extremely rare, whereas criminal cases for the breach of state secrets legislation seem to be on the rise.

15 Are there any data protection issues that cause particular concern in internal investigations in your country?

Russian data protection regulations do not directly address internal investigations, but that does not mean they do not apply. In fact, they can play a major role in drawing the line between lawful and unlawful investigative measures. A necessary element of internal investigations is the analysis of documents and correspondence of employees working in the organisation under investigation. Typically such documents could cover data stored on servers and individual users’ computers as well as data from corporate mobile devices. Such information always contains a wide range of personal data. Any processing of personal data requires the prior express written consent of an employee before it is processed. It also includes special requirements for the export of personal data to jurisdictions not considered to provide adequate protection for personal data subjects as well as for further personal data maintenance. A failure to observe personal privacy could trigger criminal liability, whereas a breach of personal data requirements would invoke administrative liability, which is being tightened due to the significance attached to the protection of personal data in Russia and its multiple breaches in day-to-day business and other processing.

16 Are search warrants or dawn raids on companies a feature of law enforcement in your country? Describe any legal limitations on authorities executing search warrants or dawn raids, and what redress the company has if those limits are exceeded.

Search warrants and dawn raids are one of the most frequently used investigation tools in Russia. They are often associated not only with the collection of evidence but, in the case of ‘black raids’, they are used for other purposes, for example, in the case of a corporate conflict to deter or even eliminate competitors. Searches must be executed on the investigator’s order, or the court’s authorisation if the action is taken on premises where people live. The Criminal Procedure Code sets out the limitations on executing a search warrant or dawn raid:

  • It should not cause damage to property.
  • Private and family life circumstances must not be disclosed.
  • The owner of the premises and at least two attesting witnesses must participate during the execution of the search.
  • An advocate of the person in whose premises the search is carried out may be present.
  • It should not be carried at night unless there is an urgent need.

In the event of a violation of rights during searches and dawn raids, such actions may be challenged in court and damages awarded if it is established that there has been an infringement of the law.

17 How can privileged material be lawfully protected from seizure during a dawn raid or in response to a search warrant in your country?

In December 2015, the significant Ruling No. 33-P of the Russian Constitutional Court specifically dealt with the protection to be granted and respected by law enforcement agencies during searches in relation to privileged materials. Searches of and access to privileged information are only possible under a court order specifying the search objects exactly; no sweep search is allowed. It is also forbidden to take information from advocates’ files, which have to be marked accordingly, unless the information directly relates to criminal violations by either advocates or their clients or other third parties’ crimes; or constitutes instruments of crime or objects whose circulation is limited under the law. No video, photo or other recording relating to privileged information is allowed during the search.

In April 2017, amendments were introduced to the Criminal Procedure Code reflecting this approach, which were welcomed by the Russian Bar as a significant step forward. The Federal Bar Chamber, in its 2017 analysis of the Russian Bar, reported that the law enforcement’s interference in the activities of advocates seemed to be on the rise, with a 71.4 per cent increase (from 98 cases in 2016 to 168 in 2017) in unlawful summons of advocates to be questioned about their clients’ matters by law enforcement agencies, a 126.7 per cent increase (from 15 cases in 2016 to 34 in 2017) of unlawful searches in advocates’ premises, and a more than threefold increase (from eight cases to 26) in illegal supervision of advocates’ activities by law enforcement authorities.

18 Are there any privileges in your country that would prevent an individual or company from providing testimony? Under what circumstances may an individual’s testimony be compelled in your country? What consequences flow in your country from such compelled testimony?

It is a basic constitutional right that persons may refuse to provide information that would incriminate themselves, their spouse or close relatives. There are also certain categories of persons who enjoy immunity from giving testimony, including judges and jurors in relation to the circumstances of their activities on a case; priests in relation to the circumstances that come to their knowledge in confession; parliamentarians (unless they give consent) in relation to their activities; and tax officers, in relation to the information from voluntary declarations of taxpayers. Apart from the foregoing, a witness or a victim of crime shall not refuse to testify under the penalty of criminal liability in the course of the criminal investigation or if ordered by the court in all other circumstances. The law does not specifically differentiate between whether the testimony is voluntary or compelled but leaves it to the judge’s discretion to attach such evidentiary weight as it thinks proper depending on the circumstances.

19 What legal protections are in place for whistleblowers in your country?

Unless a whistleblower acts in the context of a criminal case and is threatened, he or she does not have specific protection under the law. The Criminal Procedure Code provides a general rule under which, if a witness is threatened with any illegal actions (including murder, violence and property damage), the court, the prosecutor and investigating officers shall take all security measures to protect such person: anonymisation of the person, monitoring of telephone calls, providing bodyguards and property security, among other things. A special draft law strengthening the protection of whistleblowers by ensuring full confidentiality, free legal assistance and immunity for two years from termination or downgrading has been limited to state and municipal employees only and not expanded to the whole corporate sector as was initially contemplated. The draft law has passed the first of three readings in the Russian parliament but the period within which it could become a statute is not entirely clear.

20 What rights do employees possess under local employment law that determine how they are treated within a company if their conduct is within the scope of an investigation? What employment rights would attach if they are deemed to have engaged in misconduct? Does it differ for officers and directors of the company?

The rights of an officer or director affected by an investigation do not differ. In the course of the investigation, the employee continues to enjoy the rights of confidentiality and data privacy (e.g., it is illegal to review his or her emails without express written consent; private emails should not be reviewed or stored separately). The affected employee charged with misconduct may be informed about the subject matter of an investigation, and the right to be provided with explanations and evidence in support of its case, and to challenge its results, among other things.

21 Are there disciplinary or other steps that a company must take in your country when an employee is implicated or suspected of misconduct, such as suspension or in relation to compensation? Can an employee be dismissed for refusing to participate in an internal investigation?

An employee must co-operate and provide written explanations in connection with investigated matters if he or she is implicated or suspected of misconduct. An employer should request explanations from an employee on the fact of misconduct. The employee’s refusal to participate in an internal investigation shall not by itself be a reason for dismissal or other disciplinary action. There are no disciplinary or other official steps provided in the Labour Code when an employee is implicated or suspected of misconduct, such as suspension or in relation to compensation. In practice, however, employers normally suspend the suspected employee using other legal provisions, such as providing additional paid leave, and if the employee consents, changing the employee’s place of work to home or another location.

Commencing an internal investigation

22 Is it common practice in your country to prepare a document setting out terms of reference or investigatory scope before commencing an internal investigation? What issues would it cover?

Normally, Russian companies issue internal orders signed by their general directors setting out the scope of an investigation, the investigated conduct and the committee and its members who will be investigating and reporting back to the director general within a prescribed time frame.

23 If an issue comes to light prior to the authorities in your country becoming aware or engaged, what internal steps should a company take? Are there internal steps that a company is legally or ethically required to take?

The best practice is for the company to investigate the issue and assess whether it should be reported to the authorities. A company itself or its investigators are not legally obliged to report the uncovered issue to anyone, including the state authorities, except in certain situations. The duty to report may arise when the issue relates to a very serious crime that is punishable with 10 or more years in prison. In this case, under specific conditions, a failure to report could trigger criminal liability for concealing a crime (Article 316 of the Criminal Code). Also, in cases where the issue could affect the price of the publicly traded securities of a company, it has to be disclosed in the company’s official financial reporting as provided for under the Federal Law on the Securities Market No. 39-FZ, dated 22 April 1996. Failure to do so may result in civil, administrative and, in some cases, criminal liability. There is no culture of proactive reporting in Russia. In practice, companies take individual decisions about whether to report, based on the circumstances.

24 At what point must a company in your country publicly disclose the existence of an internal investigation or contact from law enforcement?

There is no legal obligation for a company to disclose the existence of an internal investigation or contact from law enforcement officials, apart from in the situations described in question 23.

25 When would management typically brief the board of a company in your country about an internal investigation or contact from law enforcement officials?

Under Russian corporate law, directors must act in good faith and reasonably, and in the interests of their company. Any serious issue that could expose the company and affects its share value, provided that no further standards and limits are established in the company’s board regulations and internal corporate documents, will be brought to the attention of the board for further consideration without unreasonable delay.

26 What internal steps should a company in your country take if it receives a notice or subpoena from a law enforcement authority seeking the production or preservation of documents or data?

Notices to preserve documents or data from the Russian law enforcement authorities are not usual. Such notices could actually prompt the destroying of documents, and therefore Russian authorities tend to be proactive in seizing important documents and information without notice. If a company receives a document production request from authorities that is lawful, it must comply with it or seek its extension or variation if necessary. Typically, such requests are handled by the company’s in-house counsel, who assesses their legality, and finds and preserves the relevant data. The appointment of a document custodian is not standard practice.

27 How can the lawfulness or scope of a notice or subpoena from a law enforcement authority be challenged in your country?

Russian law provides a right to challenge, in the courts or in an administrative forum, actions and decisions of state authorities, including law enforcement bodies, if those authorities or bodies violate the company’s rights or interests, or create obstacles to the conduct of activities and the exercise of rights, or unjustly impose any obligations.

Attorney–client privilege

28 May attorney–client privilege be claimed over any aspects of internal investigations in your country? What steps should a company take in your country to protect the privilege or confidentiality of an internal investigation?

The attorney–client privilege is known in Russia as ‘advocate secrecy’. Advocate secrecy applies to any information related to the legal advice provided by a lawyer admitted to the Russian Bar who has the status of an ‘advocate’. If an internal investigation is conducted by a duly retained advocate, it is likely that the information regarding the investigation and obtained in an investigation will be protected by advocate secrecy. It is highly recommended to mark all the documents produced or obtained in the course of an internal investigation as ‘confidential’ and ‘subject to advocate secrecy’, and to keep the most important documents and information in the offices or on the servers of the advocates to reduce the risk of their seizure by the authorities.

29 Set out the key principles or elements of the attorney–client privilege in your country as it relates to corporations. Who is the holder of the privilege? Are there any differences when the client is an individual?

The status of advocate is required mostly for court representation, especially for criminal cases. The majority of corporate lawyers in Russia are not advocates and the advocate secrecy privilege does not cover information and documents relating to legal advice provided by lawyers who are not advocates.

Any information obtained from any client that relates to the relationship of the client with an advocate is covered by advocate secrecy. The advocate shall not be compelled to disclose information covered by advocate secrecy to any state body or be examined as a witness regarding such information. Search and seizure in the offices of an advocate must be authorised by a court. Documents seized from an advocate’s offices may not be used as evidence unless an exception applies (see question 31). There is no difference regarding the advocate secrecy privilege as to whether the client is an individual or a company.

30 Does the attorney–client privilege apply equally to in-house and external counsel in your country?

The privilege only applies to advocates, not lawyers who are not advocates, whether they are in-house or external counsel. Advocates may only practise law as self-employed practitioners through specific Bar institutions; they are not allowed to be employed.

31 To what extent is waiver of the attorney–client privilege regarded as a co-operative step in your country? Are there any contexts where privilege waiver is mandatory or required?

The waiver of advocate secrecy may be regarded as amounting to active assistance in the disclosure and investigation of crimes and, as such, considered as a co-operative step leading to a less severe criminal penalty. It is not typical in practice though. Advocate secrecy is not applicable if:

  • the information in question relates to money laundering;
  • the information in question directly relates to criminal violations by an advocate, an advocate’s client or third parties;
  • the information in question relates to instruments of crime;
  • the information in question relates to goods restricted from circulation in Russia (e.g., drugs or weapons); or
  • it is expressly waived by the client.

We are not aware of any other context in which a waiver of privilege is mandatory or required (e.g., to obtain credit for co-operation).

32 Does the concept of limited waiver of privilege exist as a concept in your jurisdiction? What is its scope?

Such a concept does not exist in Russia.

33 If privilege has been waived on a limited basis in another country, can privilege be maintained in your own country?

Russian law has no provisions or relevant precedents in this regard. Nevertheless, we think there are arguments to claim that privilege in this case could be maintained in Russia to the extent that it has not been waived in another country.

34 Do common interest privileges exist as concepts in your country? What are the requirements and scope?

No, these privileges do not exist in Russia.

35 Can privilege be claimed over the assistance given by third parties to lawyers?

There is no express guidance on this in Russian law. It may be possible, if such assistance is directly linked to the advice provided by the advocate to the client, which is itself covered by advocate secrecy privilege.

Witness interviews

36 Does your country permit the interviewing of witnesses as part of an internal investigation?

Yes, it is permitted. Employee interviews are widely used during internal investigations in Russia.

37 Can the attorney–client privilege be claimed over internal witness interviews or attorney reports in your country?

Yes, if the interview is performed and the reports are produced by an advocate in the course of providing services to the client.

38 When conducting a witness interview of an employee in your country, what legal or ethical requirements or guidance must be adhered to? Are there different requirements when interviewing third parties?

There is no formal legal requirement similar to the Upjohn warning that has to be made to the interviewed employee in the course of an internal investigation. However, it is expected that the general principles of law should be followed, such as protection of the individual, avoiding conflicts of interest and breaches of law, and maintaining confidentiality. If an interview is to be relied on in court as evidence, it must be in writing and personally signed by the employee. To enhance its evidentiary force, it should be conducted by an advocate who must warn the employee before it starts (and it shall be reflected in the interview protocol) that he or she has the right not to testify against himself or herself, or his or her relatives. The employee must also be made aware of the possibility of facing criminal liability for giving false evidence. The requirements are the same when interviewing third parties or bringing in an interpreter.

39 How is an internal interview typically conducted in your country? Are documents put to the witness? May or must employees in your country have their own legal representation at the interview?

Normally the investigator begins the interview with a brief introduction that includes the reason for the interview, appropriate disclosures and planned use of the information obtained during the interview. To assure the impartiality and objectivity of an interview, and its privileged status, it is good practice to engage, for an interview, an advocate as an external counsel as well as HR and compliance representatives.

When asking the questions, an investigator should always remain neutral and never appear to take sides. The investigator should remain focused, keep the interview on track and move forward to obtain as much information as possible. Relevant issues can be explored with the aid of open-ended or leading questions, where appropriate. After witnesses answer the questions, it is recommended to put the evidence and documents to them and to ask them to provide explanations, especially if there are discrepancies between their answers and the evidence. The investigator should encourage witnesses to contact him or her, or the company’s management, after the interview if they think of anything else that might be relevant to the case. The investigator should also remind the witness of the importance of confidentiality. If necessary, the investigator should prepare the protocol of the interview and ask the witness to sign it. Employees may have their own legal representation at the internal interview but, in practice, such requests are relatively rare, and normally employees insist on legal representation only in exceptional cases.

Reporting to the authorities

40 Are there circumstances under which reporting misconduct to law enforcement authorities is mandatory in your country?

See question 23.

41 In what circumstances might you advise a company to self-report to law enforcement even if it has no legal obligation to do so? In what circumstances would that advice to self-report extend to countries beyond your country?

Even if there is no legal duty to self-report in Russia, it might be advisable to do so when there is a duty of self-reporting in relation to the issue in a foreign jurisdiction, for example, because of the global nature of the company’s business. It might be advisable to consider self-reporting when it is the company’s policy to do so or it is in the company’s interests to inform public investigative authorities, for example, if there is a need to co-operate with the competent authorities to complete the investigation and make it more effective or prevent crimes from taking place. It may also be advisable to self-report when there is a significant risk of leaks about the issue and such self-reporting is a part of the risk mitigation strategy. It may also be advisable in cases where public interests and third-party rights and legal interests are significantly affected and non-disclosure generates significant risks.

42 What are the practical steps you need to take to self-report to law enforcement in your country?

It is possible to file a written application to the competent authority identifying the issue with contact details. It is important to make sure that such a filing is duly recorded.

Responding to the authorities

43 In practice, how does a company in your country respond to a notice or subpoena from a law enforcement authority? Is it possible to enter into dialogue with the authorities to address their concerns before or even after charges are brought? How?

It is very important to enter into dialogue with the authorities to address their concerns before charges are brought. This could allow the controlling of the communication and testing it in real time as well as checking the intentions, which might not be evident, and the reaction of the law enforcement authority. If this is done, the chances of avoiding prosecution are much higher than if the charges have already been brought. Very often such dialogue is started by telephone and carried out through personal meetings.

44 Are ongoing authority investigations subject to challenge before the courts?

Yes, a party to an investigation usually has the right to challenge the decision of an authority on commencement, or at various procedural steps during the investigation, before a court.

45 In the event that authorities in your country and one or more other countries issue separate notices or subpoenas regarding the same facts or allegations, how should the company approach this?

There are no general blocking statutes in Russia, except for separate regulations that require ‘strategic’ companies (state-owned companies that are especially important for the development of Russian economy) to get permission to provide information to foreign authorities. There is also the law on the protection of personal data and other related laws (see question 13). The company would have to deal separately with each notice complying with the laws of the Russian Federation in the first place.

46 If a notice or subpoena from the authorities in your country seeks production of material relating to a particular matter that crosses borders, must the company search for and produce material in other countries to satisfy the request? What are the difficulties in that regard?

Although the scope of the information production request is normally limited to the territory of Russia, the company must still provide Russian authorities with the information within its ownership, possession or control abroad, for example, in a foreign branch or representative office. Russian law enforcement may require translation of the documents or impose comparatively short terms for the production of information.

47 Does law enforcement in your country routinely share information or investigative materials with law enforcement in other countries? What framework is in place in your country for co-operation with foreign authorities?

Russian authorities usually share information with the law enforcement agencies of foreign countries if there is a relevant framework in place and reciprocity in handling Russian requests for legal co-operation. Russia has a significant number of international and regional agreements and treaties that deal with various aspects of law enforcement with the competent authorities in other countries relating to crime prevention, tax, antitrust, criminal and civil enforcement, extradition, among others.

48 Do law enforcement authorities in your country have any confidentiality obligations in relation to information received during an investigation or onward disclosure and use of that information by third parties?

Law enforcement authorities in Russia have certain confidentiality obligations in relation to information received during an investigation or onward disclosure and use of that information by third parties. For example, according to Article 5 of the Federal Law on the Public Prosecution Office of the Russian Federation No. 2202-1, dated 17 January 1992, material obtained from inspections carried out by the prosecutor’s office is not disclosable without specific permission from the prosecutor. In the case of the institution of a criminal investigation, Russian law also prohibits any disclosure of preliminary investigation data without the permission of an investigator, as the information about the preliminary investigation is not disclosable (Article 161 of the Criminal Procedure Code). The disclosure of information about the investigation shall not contradict the interests of the preliminary investigation and shall not violate the rights and interests of parties to criminal proceedings. In this regard, obtaining the permission of the investigator is mandatory for disclosure of information relating to the preliminary investigation in any form. In practice, it is often recommended to state that the information provided by parties to the investigators or other law enforcement authorities is confidential. It is important to identify specific legal grounds for its confidentiality and legal protection, and to mark or stamp it accordingly (e.g., that it is information comprising ‘commercial secrets’). This would expressly signal to law enforcement authorities how the information should be handled. This is likely to reduce the risk of such information being passed to third parties without any unauthorised transfer or allowing access to it by law enforcement authorities.

49 How would you advise a company that has received a request from a law enforcement authority in your country seeking documents from another country, where production would violate the laws of that other country?

We would point out to the Russian authorities the risks of production of documents in a foreign country and rely on the respective legal opinion of foreign lawyers to prove our case and identify the risks in the dialogue with the Russian authorities. At the same time, we would explore the possibility of obtaining a waiver of the information transfer to the Russian authorities in the foreign jurisdiction in question.

50 Does your country have blocking statutes? What related issues are implicated by complying with a notice or subpoena?

Russia has data protection laws (laws on personal data protection, privilege, commercial secrets, etc.) and certain blocking regulations that affect major state-owned companies. Normally a legal notice or subpoena requiring the production of information trumps any specific requirements for the disclosure of classified information with limited access.

51 What are the risks in voluntary production versus compelled production of material to authorities in your country? Is this material discoverable by third parties? Is there any confidentiality attached to productions to law enforcement in your country?

The refusal to provide information voluntarily could incur penalties imposed by Russian authorities (e.g., fines) and the use of enforcement measures to actually obtain the requested information, including searches, or other negative consequences (e.g., the authority may take into account the unwillingness of the company to co-operate when rendering the final decision on the matter). The provided material is discoverable by third parties (usually by other parties to the proceedings) unless it is specifically identified that such materials are confidential, in which case access to the file could be restricted. In criminal matters, all files have restricted access.

Global settlements

52 Prior to any settlement with a law enforcement authority in your country, what considerations should companies be aware of?

Companies need to ensure their settlement is final and enforceable and confirmed as such by the court. Under Article 190 of the Commercial Procedure Code, it is possible to settle a dispute arising from public and administrative relations. However, a company willing to make a settlement with a law enforcement authority in Russia should keep in mind that such settlements shall be made in full compliance with the law and not violate the rights and interests of third parties, otherwise the Russian court will not recognise them.

53 What types of penalties may companies or their directors, officers or employees face for misconduct in your country?

Companies may incur official warnings, fines, debarment from public procurement, or disqualification or suspension of operations. In relation to individuals (directors, officers or employees), in addition to the penalties under the Code of Administrative Offences, which apply where appropriate, the Criminal Code provides for removal of the right to hold specific employment positions, compulsory community service, corrective or compulsory labour, confiscation, restriction of liberty, arrest and jail. Also, from 1 January 2018, information relating to state officials removed from their positions for ‘loss of trust’ as a result of their involvement in corruption shall be officially published on the internet as part of a ‘name and shame’ state anti-corruption policy.

54 What do the authorities in your country take into account when fixing penalties?

Application of an administrative penalty in relation to the company depends on the nature of a violation, the property and the financial circumstances, as well as the respective mitigating and aggravating circumstances.

As for the application of penalties in relation to individuals, the following circumstances are considered: the nature of the crime and the character of the guilty person, mitigating and aggravating circumstances, and the effect of a penalty on the person’s family (the latter is taken into account in criminal proceedings).

55 Are non-prosecution agreements or deferred prosecution agreements available in your jurisdiction for corporations?

Such agreements are not yet available for corporations in Russia.

56 Is there a regime for suspension and debarment from government contracts in your country? Where there is a risk of suspension or debarment or other restrictions on continuing business in your country, what are the options available to a corporate wanting to settle in another country?

If a company has been held liable for administrative misconduct and its operations have been suspended, it cannot participate in any public procurement. Debarment from government contracts applies if a company’s director, a member of the executive board or its chief accountant are disqualified for an administrative offence or held liable for economic crimes (disqualified officers). On expiry of the sanction, such restrictions are not applicable to the company. If there is a risk of suspension or debarment or other restrictions on continuing business in Russia, it could be possible to conduct business from another corporate entity from abroad, provided that the disqualified officers are not associated with it (bearing in mind that companies in offshore jurisdictions are generally not allowed to participate in bids for Russian state procurement). Also, Russian law does not allow redomiciliation of an existing company.

57 Are ‘global’ settlements common in your country? What are the practical considerations?

Global settlements have not yet become a common practice in Russia, but there are no restrictions to having such settlements, provided they comply with Russian law.

58 Are parallel private actions allowed? May private plaintiffs gain access to the authorities’ files?

It is a basic constitutional principle that everybody has a right to find, obtain, transfer and share information. Persons willing to investigate any matters do so using their own resources, including any open public resources. Injured parties may enter criminal proceedings, and familiarise themselves with all case materials upon completion of a preliminary investigation. Parties may bring a civil claim as private civil claimants against an accused person in criminal proceedings to compensate for the damage caused by the crime.

Publicity and reputational issues

59 Outline the law in your country surrounding publicity of criminal cases at the investigatory stage and once a case is before a court.

Information about a preliminary investigation is confidential and not subject to disclosure according to the Criminal Procedure Code, unless it is provided with the investigator’s consent. Upon release of a judgment, the court shall post it to ensure that all personal data and information on state, commercial and other secrets is excluded. In addition, there is a list of cases for which the publication of judgments is prohibited (such as public safety and sexual crimes).

60 What steps do you take to manage corporate communications in your country? Is it common for companies to use a public relations firm to manage a corporate crisis in your country?

Public relations firms are often used by major Russian companies to manage a corporate crisis in Russia. Medium-sized and smaller firms usually handle such matters in-house.

61 How is publicity managed when there are ongoing, related proceedings?

Publicity should be tightly managed, having regard to any orders of the court, interests of parties without infringing the procedural rights of all participants, the nature of the proceedings (open or closed) and with careful consideration of the effect of publicity on each proceeding.

Duty to the market

62 Is disclosure to the market in circumstances where a settlement has been agreed but not yet made public mandatory?

If the settlement could affect the price of the publicly traded securities of a company, one has to consider the need to disclose it in the company’s official financial reporting under the Federal Law on the Securities Market No. 39-FZ, dated 22 April 1996.


Footnotes

Alexei Dudko is a partner at Hogan Lovells CIS.

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