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Russia

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Russia risk report

Updated: Thursday. October 10, 2024

Corruption significantly impedes businesses operating or planning to invest in Russia. High-level and petty corruption are common, especially in the judicial system and public procurement. The business environment suffers from inconsistent application of laws and a lack of transparency and accountability in the public administration. Russia’s regulatory inefficiency substantially increases the cost of doing business and has a negative effect on market competition. The Russian Federal Anti-Corruption Law (in Russian) requires companies to actively implement anti-corruption compliance programs. However, compliance with these provisions in practice is lagging behind. Russian law criminalizes active and passive bribery, facilitation payments, gifts and other benefits. However, effective enforcement of anti-corruption legislation is hindered by a politicized and corrupt judicial system. 

On February 24th 2022, Russia invaded Ukraine, drastically reducing the attractiveness of doing business in the country. The Russian economy has since suffered from the cost of the war as well as sanctions by Western countries. Compliance with the sanctions can be challenging, especially for larger international firms subject to different jurisdictions. Furthermore, since the invasion, the Russian government has rapidly introduced policies that are fundamentally harmful to foreign investors and the private sector (ITA 2022). As of June 2023, the EU has introduced 11 different sequential packages of sanctions against Russia targeting its economy and wealthy individuals, all packages combined the EU has sanctioned Russia for a total value of  EUR 43 billion (EC 2023, White & Case, Jul. 2023)

Judicial system iconJudicial system

Very high risk

Companies dealing with the Russian judicial system contend with high corruption risks. Corruption in the courts takes many forms, including bribery and the fabrication of evidence. In general, the Russian Judiciary is heavily biased in favour of the state (ICS 2021). Bribes and irregular payments are widely exchanged (GCR 2017-2018). While the law provides for an independent judiciary, this independence is often disputed, particularly in criminal cases, where the system is biased toward conviction; In fact, fewer than 0.5% of criminal cases in Russia end in acquittal (ICS 2021). Judges are subject to undue influence from politicians, the executive branch, the military and other security forces (HRR 2023) this is particularly true for the lower courts (BTI 2022). 

Corruption is prevalent in high-profile or politically sensitive cases and lower courts often favor local politicians when settling disputes (BTI 2022; HRR 2020). Independent dispute resolutions can be difficult to obtain. Critics do not perceive the courts as independent and describe the legal framework as inefficient in settling disputes and challenging government regulations, leaving investors with little to no recourse (ICS 2021). Potential investors should be aware of the risk that commercial disputes might be criminalized (ICS 2021). While court rulings in inter-firm cases are perceived as fair, those against state agencies are not (BTI 2022). Thus, companies are advised to include foreign arbitration clauses in their contracts to minimize the role of the Russian legal system. 

Russia does not have specialist arbitration courts, arbitration-related cases fall within the scope of the Arbitrazh (commercial) courts of Russia. Russian courts do support international arbitration and foreign providers of arbitration can operate within Russian jurisdiction. There have recently, however, been contradictory rulings (GAR 2022).

Russia has signed and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and is also signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).

In August 2020, Putin’s primary political rival Alexei Navalny was poisoned with the Novichok nerve agent and hospitalized in critical condition (BBC News, August 2022). Upon returning to Russia in January 2021, he was detained for allegedly violating parole conditions from a 2014 sentence, leading to a 2.5-year prison term. In March 2022, Navalny received an additional nine-year sentence on charges of embezzlement and contempt of court (BBC News Mar. 2022; Rane Feb. 2021; The Independent Jun. 2022). In February 2024, Navalny died at the Arctic prison, raising widespread international concern over his treatment and the circumstances surrounding his imprisonment (Reuters, Feb. 2024; Amnesty International, Oct. 2023).

Russians have in large numbers been barred from and sentenced for protesting the Russo-Ukrainian war, which carries fines of up to 1.5M RUB or imprisonment of up to 15 years on the charge of “discrediting the armed forces” (NDTV Mar. 2022, NBC News, Jun. 2022). 

Police iconPolice

Very high risk

Corruption is rife within the security sector in Russia which has manifested itself in many forms including bribery, abuse of power, and extortion among other (HRR 2023). Corruption of police officers is common. According to the Prosecutor General's office, a third of bribery cases regarded as "petty bribery" amounting to less than RUB 10.000 (USD 135) paid to the police, but also school teachers and prison authorities (HR 2021). The police also fill an instrumental role within the regime, it is often reported that the police suppresses human rights by for example detaining protestors, futhermore, there have been reports that law enforcement officers engage in torture, abuse, and violence to coerce confessions from suspects (HRR 2023). The Russian police are considered moderately reliable in protecting companies from crime (GCR 2019).

Cases of large-scale corruption regularly make the headlines, in 2021, for example 6 police officers, including the head of traffic police in southern Stavropol were arrested for issuing fake permits to businesses, during the raids of enormous villas with gilded interiors, large sums of money were found (BBC News Jul. 2021).

Russian police have been deployed in great numbers to crack down on anti-war protests. As of September 2023, the Russian police have arrested 19,814 since teh start of the invitation in February 2022 (HRR 2023). Furthermore, reports have surfaced of ill-treatment and even torture of protestors by the Russian police (Reliefweb Mar. 2022).  

Public services iconPublic services

Very high risk

Corruption is a high risk in the public services sector. Bureaucracy, corruption and a lack of funds, render the operations of the public administration erratic (BTI 2022). In effect, companies consider corruption as the biggest obstacle to doing business in Russia, and very often encounter irregular payments and bribes when applying for public utilities (GCR 2017- 2018).

In terms of economies’ transformation readiness, i.e. their ability to integrate social, environmental and institutional targets into their economic systems, Russia’s institutions are among the lowest-scoring countries (WEF 2020). 

Although the Russian government offers relatively transparent policies on all levels, their implementation remains inconsistent and some programs lead to burdensome regulations that give an advantage to domestic producers (ICS, 2021). Starting a business in Russia takes around 11 days and is less costly than the regional average (DB 2021). 

Land administration iconLand administration

Moderate risk

Except for the annexed region of Crimea, there are few reported risks of corruption in Russia’s land administration sectors. However, considering the problems of bribery and corruption in other public services, companies should be aware that corruption might occur in this sector as well. Property rights are adequately defined in the legislation, but effective enforcement remains a challenge (BTI 2022). The provisions are not consistently implemented or adequately safeguarded (BTI 2022). In strategic sectors, such as the oil industry, the state systematically reduces the share of private owners through administrative pressures, leading to confiscations or negotiated sales (BTI 2022).  

Foreign investors cannot own real property located in border areas or specifically assigned territories (ICS 2021). Likewise, only 50% of a plot of agricultural land can be purchased by foreigners or foreign legal entities (ICS 2021).

Investors should beware of expropriation risks, as these are particularly common at the sub-federal level, where authorities have failed to protect investors’ rights due to local government interference and poor enforcement of court decisions (ICS 2021). Expropriation often takes place through informal means or ‘creeping’, often through domestic political disputes (ICS 2021). 

In the wake of the 2022 Russian invasion of Ukraine, news reports from Russia have advised that assets of foreign investors may be expropriated or nationalized, even when these actions are in breach of existing bilateral or multilateral agreements (JD Supra 2022).  

Indigenous groups in Russia faced state-sponsored harassment and employment discrimination, particularly in regions rich in natural resources. Although these communities had legal rights to their traditional lands, the state retained control over the land and its resources. While companies were required to compensate Indigenous populations for resource exploitation, local authorities often failed to enforce these regulations. Activists highlighted ongoing conflicts between corporate interests and Indigenous rights, underscoring a lack of oversight and systemic corruption that allowed corporations to avoid proper compensation and exploit natural resources at the expense of local communities (HRR 2023)

Tax administration iconTax administration

Very high risk

The tax administration carries high corruption risks for companies. Tax rates and regulations are among the most problematic factors to doing business and companies report that bribes and irregular payments are often exchanged when meeting with tax officials (GCR 2017-2018).

Russia has strengthened its investor protections by requiring greater corporate transparency, furthermore, it has made paying taxes easier by shortening the review period of the tax authority of applications for VAT refunds, they have also improved tax and payroll preparation software (ICS 2021). Border clearance efficiency is considered moderately low (GCR 2019). 

Dealing with tax payments in Russia is less time-consuming compared to the regional average (DB 2021). Furthermore, most tax payments are filed online, decreasing the possibility of bribery through physical encounters (DB 2021).

Customs administration iconCustoms administration

Very high risk

Companies operating at the Russian border face high corruption risks when dealing with the customs administration. Companies report that the border administration is inefficient and non-transparent, with irregular payments and bribes being commonly exchanged (GETR 2016). When exporting and importing, border compliance is much more costly and time-consuming in Russia compared to other neighboring countries (DB 2021). 

Authorities in Russia have occasionally prosecuted officials on corruption charges, though these cases are often selective. In one notable example from March, a Moscow court sentenced Aleksandr Kizlyk, the former head of the Investigations Department of the Federal Customs Service, to 10 years in prison. Kizlyk was convicted of abuse of authority after being accused of assisting others in smuggling large sums of currency through Moscow airports. Despite this case, systemic corruption remains prevalent, with enforcement seen as sporadic (HRR 2023)

Public procurement iconPublic procurement

Very high risk

The public procurement sector in Russia carries high corruption risks for investors. Bribes, kickbacks, and other irregular payments are often exchanged to secure personal profit (HRR 2023). Companies report favoritism in decisions of government officials, and public funds are frequently diverted due to corruption (GCR, 2017-2018). The government introduced mandatory tenders, which have improved procurement regulations and the transparency of the process; however, the latter still remains complex and protracted and may be subject to manipulation (BTI 2022).

When it comes to its ability to rethink competition and its anti-trust frameworks, both of which are prerequisites in the fourth industrial revolution to ensure market access, Russia has the lowest score (WEF 2020). Businesses are likely to experience approval for investments depending on their relationships with government officials and demonstration of commitment to the Russian market (ICS 2021).

As part of its WTO Protocol, Russia has agreed that it will eliminate parts of its policy that are inconsistent with the ‘Trade-Related Investment Measures (TRIMS) hence, Russia has removed industry-specific local content requirements (LCRs) that benefited domestically produced goods over imports (ICS 2021).  

Information regarding public procurement regulations is available on the official public procurement website (in Russian). Companies are recommended to implement special due diligence procedures to counter the likelihood of encountering corruption in the procurement process.

Natural resources iconNatural resources

Very high risk

High-levels of political influence in the energy sector creates a risk for businesses in Russia. Russia is among the largest oil producers but due to deficient government reporting, ambiguous laws, and a weak judicial system, there is a lack of contract and revenue transparency in the extractive sector (RGI, 2017).

Senior government officials are allowed to serve on boards of state-owned energy companies, and Rosneft, Gazprom, and Transneft now have Ministers and Deputy Prime Ministers on their boards (ICS 2016).  

In one of its earlier packets of sanctions, the European Union accused CEO of petroleum giant Rosneft Igor Sechin as being part of Putin’s inner circle who benefit financially for their loyalty, as such, according to the EU, in return for having performed important tasks in the past he has been rewarded with the leadership of Rosneft (FP Mar. 2022). Furthermore, Russian energy companies are known to “cheat the system to gain control of natural resources”, leading to rampant corruption including political bribery (ACFE 2022)

Legislation iconLegislation

Despite Russia’s comprehensive anti-corruption legal framework, enforcement is inconsistent and government officials often engage in corruption with impunity (HRR 2023). The  Federal Anti-Corruption Law  criminalizes active and passive bribery, abuse of office, conflict of interest, commercial bribery, trading in influence in the public and private sector, as well as corruption by agents. The law also prohibits facilitation payments and restricts gifts worth more than RUB 3,000 (CMS 2021). Money laundering is criminalized according to the Federal Law On Combating the Legislation of the Proceeds of Crime (Money Laundering) and Terrorist Financing. Further, provisions in the Federal Anti-Corruption Law stipulate that companies must affirmatively develop anti-corruption compliance measures, such as mechanisms for cooperation with law enforcement authorities, means for identifying, preventing and resolving conflicts of interest, and adopting a code of professional conduct for all employees. Companies are advised to use the Russian Law Compliance Guide.

Senior government officials are not prohibited from serving on the boards of state-owned enterprises, and several, including deputy prime ministers and ministers, have seats on the boards of the major state-owned enterprises in Russia (ICS 2016). Russia has passed a series of laws that impose penalties such as fines and prison sentences for a wide range of activities, including criticizing the government, spreading information deemed false, committing libel, and sharing personal information about judges and law enforcement officers. These laws have become stricter and are enforced more aggressively, especially since Russia's full-scale invasion of Ukraine in February 2022, targeting individuals who use social media to discuss corruption and criticize state authorities (FitW 2024).

Russia is a signatory to the United Nations Convention against Corruption and the Council of Europe Criminal Law Convention on Corruption, and has ratified the OECD Anti-Bribery Convention. Russia is also a member to the Council of Europe Group of States Against Corruption (GRECO).

Civil society iconCivil society

The media is heavily restricted and controlled by the state, and incorporated into the Kremlin’s policy efforts (FitW 2024). The corrupt and biased courts are frequently used by officials and the government to harass and silence journalists trying to highlight abuse of office and corruption (FitW 2024). The few independent media outlets in the country face pressure from authorities and struggle to maintain operations (FitW, 2024). This particularly applies to outlets exposing government abuses (HRR, 2021). The government actively censored and restricted media content through the application of various laws and decrees (HRR, 2023).  Since the invasion of Ukraine in February 2022, Russian media outlets have been instructed by Roskomnadzor to follow only Defense Ministry reports and avoid terms like "war" or "invasion," referring instead to the conflict as a "special military operation." The government has also restricted access to numerous websites, including those of both domestic and international news organizations, leading over 300 media outlets to suspend operations under these tightened restrictions (FiTW 2024). 

According to law, citizens may request access to government information unless classified as confidential; nevertheless, in practice, such requests have been blocked by the Kremlin (HRR 2023).  Access to the internet was heavily restricted by the government (HRR 2023). The media environment in Russia is described as ‘not free’ (FitW 2024). 

A culture of participation in public life has not yet developed and views opposing the government are usually labeled as ‘foreign agents’ (FitW 2022). The law provides for freedom of assembly, yet these rights are restricted in practice (HRR 2023). Civil society organizations are too weak to have a substantial impact on the fight against corruption in Russia, while NGOs are systematically discouraged from actively engaging in any anti-corruption effort or public integrity issues (BTI 2022).

Sources iconSources