Illegal Set-up of Companies with Illegal Use of Documents Now Criminally Punishable.

28.12.2011

Legal Update No. 304

Goltsblat BLP advises that Federal Law of 7 December 2011 No. 419-FZ "On Amendment of the Criminal Code of the Russian Federation and article 151 of the Criminal Procedure Code of the Russian Federation" came into effect on 19 December 2011.

The chapters on economic crimes in the Special Part of the Criminal Code of the Russian Federation are supplemented by two articles devoted to illegal set-up (creation, reorganisation) of a legal entity and illegal use of documents for this purpose.
Article 173.1 establishes punishment for set-up (creation, reorganisation) of a legal entity through front parties ranging from a fine or enforced or mandatory labour to deprivation of liberty for up to five years. In this article, the term front party is used as meaning persons that are founders of (participants in) a legal entity or management bodies of a legal entity that are misled in formation (set-up, reorganisation) of the legal entity.

Part 1, article 173.2 introduces criminal liability for presenting an identity document or issuing a Power of Attorney if performed for setting up (creating, reorganising) a legal entity for the purpose of committing one or several crimes associated with financial operations or transactions with cash or other property. Punishment is envisaged in the form of a fine or mandatory or corrective labour for up to two years.

Part 2 of this article criminalises acquisition of an identity document or use of personal data obtained unlawfully or performed for setting up (creating, reorganising) a legal entity for the purpose of committing one or several crimes associated with financial operations or transactions with cash or other property. The punishment envisages a fine or enforced labour or deprivation of liberty for up to three years. It is also established that acquisition of an identity document is understood in this article as its receipt for a consideration or gratuitously, misappropriation of an identity document found or stolen, and taking possession thereof by means of deceit or abuse of trust.

The amendments to article 151 of the Criminal Procedure Code of the Russian Federation determine the jurisdiction under which criminal cases involving the crimes specified in articles 173.1 and 173.2 of the Criminal Code of the Russian Federation fall.

The purpose of the amendments is to improve the legislation on combating economic crimes, since many such crimes, in particular evasion of tax payments, are committed by creating the impression of activities of fly-by-night firms. Even so, it is hardly possible to impose liability for the given new crimes unless the guilty parties are held criminally liable for the economic crime for the purpose of which such fly-by-night firms are set up or used.

For additional information, please contact:

to Anton Sitnikov,
Partner, Head of Corporate Practice/M&A,
Goltsblat BLP
T: +7 (495) 287 44 44,
E: info@gblplaw.com

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