Russian Experience and Practice on Civil Law Consequences of Corruption
© Springer International Publishing Switzerland 2015
Michael Joachim Bonell and Olaf Meyer (eds.)The Impact of Corruption on International Commercial ContractsIus Comparatum – Global Studies in Comparative Law1110.1007/978-3-319-19054-9_1313. Russian Experience and Practice on Civil Law Consequences of Corruption
(1)
Lomonosov Moscow State University, Ivanyan & Partners, Bolshaya Dmitrovka 10/4 3rd floor, 107031 Moscow, Russian Federation
Abstract
The chapter discusses the civil law consequences of corruption under Russian law. It addresses potential challenges to validity of transactions procured by corruption as well as contracts between the ultimate bribe-giver and an intermediary. It also looks at whether an affected party can bring a claim for compensation of damages against the bribe-giver. Interaction between civil law and criminal law remedies is also discussed.
13.1 Introduction
The experience of the Russian Federation with combating corruption is a mixed one. The Russian Federation is ranked 136 out of 175 in Transparency International’s Corruption Perception Index.1 At the same time Russian authorities take significant steps to address the issue. For example, according to the spokesman of the Investigative Committee of the Russian Federation2 during 2014 the Russian authorities pursued 26,000 corruption-related criminal cases.3
When it comes to civil law cases there is no statistics available to assess how frequently parties use civil law remedies to address the consequences of corruption. Below we will endeavor to demonstrate that as a matter of principle the Russian law has these remedies in place. While there may be no special provisions addressing corruption in particular affected parties may use general civil law rules to protect their interests.
Practical problems arise when such cases come before courts. Firstly, corruption is always hard to prove and with Russian courts’ generally exacting approach to evidence and claimant’s burden of proof the affected party may find it difficult if not impossible to prove corruption. Secondly, where the claimant relies on the respondent’s action, which constitutes a criminal offence, Russian commercial courts tend to defer to the results of criminal investigations (and refuse to go into the matter if there has been no such investigation). As we will demonstrate below this approach is not mandated by law, but nevertheless may present a significant hurdle for the affected party.
The Russian Federation has ratified a number of conventions dealing with corruption, including the United Nations Convention against Corruption, the Criminal Law Convention on Corruption and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Under the Constitution of the Russian Federation, the provisions of these conventions have direct effect in Russian law and override any contrary provisions of Russian law.4 Notably, for the present purposes, the Russian Federation has not yet ratified the Council of Europe Civil Law Convention on Corruption.
Russian law contains extensive set of provisions banning and outlawing corruption both in public and in private sectors. It criminalizes giving and receiving bribes as well as facilitation of bribery. In civil law context more general notions of illegality and transactions contrary to law and public morals render transactions procured by corruption void or voidable. In addition to provisions dealing directly with corruption Russian law and practice have developed a number of rules prohibiting transactions that may encourage or cover corrupt practices. For example, the Russian Constitutional Court confirmed constitutionality of the ban on “success fees” in contracts envisaging interaction with state authorities, including “success fees” in contracts for legal representation in litigation, stressing that such contract contradict Russian public policy, since they may encourage corruption.5
In the Russian Federation as in many other countries, civil and criminal laws work in tandem in addressing the consequences of corruption. Corruption having initially emerged in Russian law as a criminal law offence, civil law rules will frequently look (or refer) back at the criminal law definitions of corruption. It is for this reason that we propose to first look briefly at the criminal law provisions dealing with corruption before turning to the civil law ones.
13.2 Criminal Law Definition and Consequences of Corruption
Russian law criminalizes both public sector and private sector corruption. Both giving and receiving a bribe are criminal offences.
Public sector bribery is defined as providing (i) money, securities, other property or services of pecuniary nature or assignment of property rights (“bribe”) to (ii) a public official, a foreign public official or an official of an international organization (iii) in order for that person to perform an action for the benefit of the person paying the bribe, where the recipient of the bribe may using her office to take certain action directly or facilitate taking of this action by another person6 (for example, by ordering the person to take such an action or persuading the person to do so).7
In turn, private sector8 bribery is defined more narrowly as (i) providing money, securities, other property or services of pecuniary nature or assignment of property rights to (ii) a person performing management functions in a commercial legal entity or any other legal entity (iii) in order for that person to exercise (or refrain from exercising) certain powers arising from the person’s office to the benefit of the person paying the bribe.9 The notion of a person performing management functions encompasses the chief executive officer of a company, members of its board of directors and other collective management bodies as well as any other person performing management functions.10
Russian law does not provide for criminal responsibility stricto sensu of legal entities for any crimes. However, legal entities are subject to the administrative liability, which for practical purposes may be equaled to the criminal one. A legal entity commits an administrative offence if it gives, offers or promises a bribe to a public official, foreign public official or an official of an international organization or to a person performing management functions in a legal entity for the person to perform to the benefit of the person giving the bribe an action using the powers of the person’s office.11
13.3 Civil Law Consequences of Corruption
There are two principal civil law consequences of corruption. The first consequence is that a corruption-related contract may be unenforceable due to being either void ab initio or after being declared void by a court. In this respect, an important difference exists between contracts where corruption is the primary object (such as a contract between a bribe-giver and an intermediary – “primary contracts”) and contracts procured by corruption (“secondary contracts”). Each of these two categories is examined separately. Secondly, an act of corruption may be viewed as a tort (delict) giving rise to a claim for compensation of damages by the affected party.
13.3.1 Primary Contracts
Where the primary object of the contract is to corrupt a public official of an officer of a private company such a contract would not be enforceable under Russian law. As noted above, Russian law bans giving bribes to both public officials and officers of private companies. In turn, a contract to commit an illegal action is invalid as a matter of Russian law.12
A court or another dispute settlement body (such as an arbitral tribunal) may rely on this ground of invalidity irrespective of whether a party to the dispute invokes it. Russian law permits a court to invalidate a transaction on its own initiative, where the transaction affects public interests and contracts for corruption appear to be a prime example of transactions falling within this category.13
However, the situation becomes less clear when it comes to the consequences of invalidity. The default rule under the Russian law is that where the court finds a transaction invalid both parties shall return what they have received in performance of the transaction.14 However, a special rule (applicable to transactions parties entered into before 1 September 2013) provided for confiscation of any performance under the transaction, where the transaction contravenes fundamental principles of public order or good morals and both parties intended the transaction to have such an effect. Russian courts have previously found contracts for corruption to contradict fundamental rules of public order,15 therefore any payment (or other performance) under such a contract may be subject to confiscation. From 1 September 2013 the relevant provision of Art 169 has been amended, and now the court may only order confiscation, where such a special law provides for such a consequence of illegality. There is currently no special law to this effect with respect to contracts for corruption.
13.3.2 Contracts Procured by Corruption
Russian law provides no special standalone ground for invalidity of transactions procured by corruption. Rather general rules governing illegality of transactions apply.16 The Russian Civil Code contains several provisions that a party or a court may invoke to challenge validity of a contract procured by corruption.