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Evgeny A. Nagornyy attorney at law

Corruption law aspects of the privatisation of commercial immovable property by small and medium sized companies in Russia

Areas of Practice of the attorney at law / Anti-Corruption Advising and Compliance

 

I would like to express my deepest thanks to Marianne Klausberger for redrafting this article (http://de.linkedin.com/in/klausberger).

 

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Since the 90s, support for small and medium sized companies (SMEs) has been one of the main topics of Russian Government policy. However, despite much discussion, SMEs have not seen the promises materialise in the form of real support. On 22nd July 2008, an new law was enacted (under No 159-FZ): “about features of the state and municipal immovable property privatisation by the small and medium businesses that have been leasing this immovable property, and amending some Acts of Russian Federation”. In fact, this Act includes much ambiguity and confusion and some rules could be seen as creating further scope for corruption by local authorities.

The misuse of public property as part of the privatisation process is widely known. With extensive experience of widespread illegal transactions of immovable property in the 90s, mostly linked to corruption, it’s surprising that lawmakers would put in place rules that officials could use to dip their hands into the pockets of SMEs and abuse their power in the decision-making process. To say the least, the ambiguity and uncertainty in some parts of the Act illustrates a cultural acceptance of corruption as part of business transactions. To be genuinely effective in supporting SMEs, the Act’s rules need to be administered on a fair, transparent and efficient basis, actually clamping down on corruption rather than providing legal loopholes for municipal authorities.

Be that as it may, to support SMEs, the authorities need less talk and more action. They need to be consistent and encourage businessmen and lawyers, many of whom are aware of the problems created by the ambiguity and uncertainty of current applicable legislation, and indeed by the rules of this Act. This lack of action could be seen as one of the obstacles in the fight against corruption: i.e. not using civil law remedies to protect business interests from abuse of power by local authorities.

What’s more, the abuse of the power and improbity in the decision-making process based on application of the Act’s rules is widespread – a corruptive form of behaviour indulged in by local officials. To be effective, the state anti-corruption strategy should offer sound legal and ethical standards, and these should be reflected in the state and local administration in all its aspects – thus helping businessmen to surmount bureaucratic obstacles.

As a representative of SMEs who have the preferential right to purchase municipal immovable property, I have faced circumstances where my clients could obtain property at the proper value. But local officials sometimes then increased the value to block the transaction and sell the property to other businessmen that have offered bribes. My clients were usually reluctant to bring civil actions, owing to procedural difficulties connected with the enforcement of judgments, and therefore bought the property for the increased price.

Having closely analysed the Act’s rules, and believing, from lamentable experience, that the Act should be applied in a totally transparent way, I put forward amendments to the Act that would offer real support to SMEs and curb local authority misuse. Since the rules of the Act should be based on the principle that businesses and local government are equal before the law, the Act should include more clear rules and norms against corruption.

However, the only response I have had to my suggestions was an official of the Tver Administration stating that the provisions of the Act were adequate.

 

Evgeny A. Nagornyy
April 2010

 

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Corruption law aspects of the privatisation of commercial immovable property by small and medium sized companies in Russia