Corporate Fraud & Corruption 2021: Russia

20 April 2021

Financier Worldwide canvasses the opinions of leading professionals around the world on the latest trends in corporate fraud & corruption.

Sergei Petrosov has more than 20 years of experience as a forensic, audit and assurance services professional for major international firms, including six years of international experience in the US and the UK. Over this time, he has been actively involved and led numerous assurance and consulting projects in various industries, including forensic investigations, dispute and litigation support, anti-bribery and anti-corruption compliance, business intelligence, internal controls evaluation and  implementation, and  the audit  of US GAAP and  IFRS financial statements.

Q. To what extent have you seen a notable rise in the level of corporate fraud, bribery and corruption uncovered in the Russian Federation?

A. We have not seen notable rise in the level of corporate fraud, bribery and corruption uncovered in Russia. The related risks remain rather high compared to many other countries.

Q. Have there been any legal and regulatory changes implemented in the Russian Federation designed to combat fraud and corruption? What penalties do companies face for failure to comply?

A. While there have been no recent significant legal and regulatory changes implemented in Russia designed to combat fraud and corruption, there have been some changes. Measures have been strengthened to ensure the confidentiality of information in relation to individuals subject to state protection. According to the amendments, the confidentiality of information in relation to these individuals should now be protected even without an explicit threat to their life, health or property. Also, the Russian Ministry of Labour has prepared detailed guidelines for identifying the personal interests of state and municipal employees, as well as employees involved with public procurement. Some of the anti-corruption requirements and restrictions imposed on elected officials and people holding public office within the constituent entities of the Russian Federation have also been clarified. In particular, the prohibition on officials participating in the management of a commercial or non-commercial organisation does not apply if they are exercising their powers on a temporary basis. In general, the punishment for fraud can range from a fine to imprisonment.

Punishment for individuals who commit criminal acts using their official position includes more significant fines, and possibly imprisonment for up to six years. The Criminal Code of the Russian Federation also provides for imprisonment for up to eight years, either for giving or receiving a bribe. If a bribe is transferred through an intermediary, then that third party is also subject to criminal liability for complicity in giving a bribe.

Q. In your opinion, do regulators in the Russian Federation have sufcient resources to enforce the law in this area? Are they making inroads?

A. It is hard to say whether regulators in Russia have sufficient resources, or whether corruption persists due to a lack of resources or the inherent difficulty of fighting corruption, or both. For instance, there is an established state programme to ensure public order and combat corruption, which has funding of around US$9.5bn. At the same time, according to the available reports of local governments, most of these funds are devoted to preventative measures related to violations other than corruption and to general public welfare topics. Still, there is generally greater awareness of corruption matters, especially in bigger cities. There has been a noticeable increase in public service announcements and social advertising promoting ethical behaviour of late.

Q. If a company nds itself subject to a government investigation or dawn raid, how should it respond?

A. Any company subject to an investigation should respond by fully cooperating with the authorities.

Q. What role are whistleblowers playing in the ght against corporate fraud and corruption? How important is it to train staff to identify and report potentially fraudulent activity?

A. Publicly available research generally shows that tips from employees are the most common source of fraud detection. While my experience of investigations in Russia upholds this theory, there have been many situations where whistleblowers have acted out of other interests, rather than simply fighting fraud and corruption. Such motivations include personal retaliation, assisting outsiders in hostile takeovers, creating advantageous career opportunities, and even blackmail and creating an opportunity to commit fraud themselves. So, it is very important to train staff to identify and report potentially fraudulent activity. But it is also very important, while acting diligently on any whistleblower report, to understand the reasons why the individual is blowing the whistle.

Q. What advice can you offer to companies on conducting an internal investigation to follow up on suspicions of fraud or corruption?

A. The main advice we can offer to companies conducting an internal investigation is to ensure that it is independent and impartial. In Russia, some companies still have very powerful security departments which could act with their own agenda, which may be different from the goals of shareholders or senior management. So, depending on the nature of the investigation, options such as involving outside consultants or investigators should be considered.

Q. What general steps can companies take to proactively prevent corruption and fraud within their organisation?

A. Generally, companies should develop an anti-corruption compliance system and reliable system of internal controls and establish an ethics code. The extent of these measures should obviously depend on the company’s risks, size, complexity, industry, regulatory requirements, and the results of a cost-benefit analysis.