"Unavoidable Corruption": A Loophole to Snare the Unprepared?

Richard Young

In January, the Russian government proposed to make some corrupt acts exempt from punishment in “unavoidable” circumstances. Decision-makers in today’s global organizations have been left wondering what that might mean for their own operations in the country.

Is the Russian government opening up the mother of all loopholes for suspect activity?

Will companies operating under their own domestic anti-bribery and corruption (ABC) regulations be at an unfair disadvantage? Is the Russian government opening up the mother of all loopholes for suspect activity?

Based on some of the media coverage, that looks possible. The country’s Ministry of Justice plans to allow officials and public figures to be exempt from corruption laws if “objective circumstances” makes compliance impossible. The changes follow an anti-corruption plan proposed last year by President Vladimir Putin.

Once you dig deeper, the picture is a little more nuanced than some of the headlines suggest, of course. The new regulation, says the Ministry, is designed to prevent officials from being prosecuted “in certain circumstances [when] complying with restrictions and bans... to prevent or settle conflicts of interests… is impossible for objective reasons.”

Market Report: Fighting Bribery & Corruption on the Global Stage

The examples they cite include making decisions about factories in remote towns – where there’s a high likelihood of an official’s family working in the business – or failure to declare spousal income during divorce proceedings when relevant information is unavailable due to breakdown of communications.

In Transparency International’s 2018 Corruption Perceptions Index (CPI), the country scored a woeful 28/100 – far lower, even, than the Eastern Europe and Central Asia average of 35/100.

Those cases sound benign enough. But given the state of corruption in Russia, any weakening of ABC regulation looks troubling for organizations hoping to do business there. In Transparency International’s 2018 Corruption Perceptions Index (CPI), the country scored a woeful 28/100 – far lower, even, than the Eastern Europe and Central Asia average of 35/100.

Ilya Shumanov, deputy head of Transparency International in Russia, has gone on the record with her concerns about the way this “reform” might create new loopholes: “There’s not a single rational explanation for the use of exceptional circumstances when an official couldn’t declare a conflict of interest,” she told business daily Vedomosti.

That’s the real challenge for a non-Russian business operating in the country. At what point does your interaction with an official remain within scope of domestic rules – but indictable activity based on the corruption regulations of other nations where you do business?

ABC Checklist: Anti-Bribery and Corruption Risk Assessment Checklist

Equally important, how can you be sure that third parties conducting business on your behalf in the country aren’t engaging in, for them, allowable activities that might be transgressions for your own organization? More than 90 percent of all FCPA enforcement actions over the last 40 years have been linked to the misconduct of third parties – so this is far from a trivial question, especially as local regulations get more opaque.

The proposed rule is in the midst of its 15-day public comment period, so we’ll see if anyone else asks these questions as well. But as so often, the devil is in the details. Tweaking corruption laws for officials in remote, one-company towns in Siberia might not look like it has any bearing on your own ABC strategy. But when any legal change opens loopholes, there’s always a risk you might fall through one.


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