Russian State Officials' Assets Abroad

Two months later, President Putin's anti-corruption initiatives were developed further when, on Feb. 12, 2013, he submitted to the State Duma two bills, which will become law if adopted by the State Duma in three separate readings, approved by the Federation Council, signed by President Putin, and then officially published. These bills are:

1) Bill No. 220675-6, on the Prohibition for Certain Categories of Persons to Open and Maintain Accounts/Deposits and Cash in Foreign Banks Located Abroad and Hold Securities of Foreign Issuers (the “Bill”). (Bill No. 220675-6 (2013), http://tinyurl.com/cymwe86 [Russian]; 2) Bill No. 220666-6, Amendments to Article 11 of the Federal Constitutional Law on the Government of the Russian Federation (“Bill No. 220666-6″). (Amending Article 11 of the Federal Constitutional Law “On the Government of the Russian Federation,” Bill No. 220666-6 (2013), http://tinyurl.com/d63agjs%20[Russian].)

The Bill prohibits Officials ' as defined in Russian law and the proposal ' and their spouses and minor children from:

1. Opening and operating accounts/ deposits with foreign banks located outside Russia;
2. Keeping cash in foreign banks located outside Russia; and
3. Holding state securities of other foreign states, or bonds and shares of foreign issuers (jointly referred to as “foreign securities”).

In addition to these prohibitions, when reporting information on income, property, and property obligations in accordance with legal requirements (On the Measures of Counteracting Corruption, Federal Law No. 273-FZ (Dec. 25, 2008)), the Bill requires that Officials provide information on immovable property located abroad which they, their spouses, or minor children own; the sources of financing of the acquisition of such immovable property; and their, their spouses' and minor children's property obligations abroad. Bill No. 220675-6, note 5, supra at Art. 4.

According to the Bill, these prohibitions are being introduced to ensure the national security of the Russian Federation, regulate lobbying activity, increase investments in the national economy, and improve efficiency in counteracting corruption. Id. at Art. 1.

If adopted, the Bill will also require:

1. Current Officials, their spouses, and minor children to close their bank accounts with foreign banks located abroad, discontinue keeping cash in foreign banks located abroad, and/or dispose of their foreign securities within three months following the coming into force of the Bill;
2. Persons who wish to become Officials to disclose information on their, their spouses', and minor children's bank accounts/deposits and cash in foreign banks located abroad and foreign securities; and
3. Elected/appointed Officials, their spouses, and minor children to close the relevant accounts, withdraw cash, and dispose of any foreign securities within three months following election/appointment. Id. at Art. 3-4.

Violation of the prohibitions established by the Bill will result in the termination of the Official's employment/service.

Verification of an Official's compliance with the requirements established by the Bill may be initiated based on information provided by law enforcement and other state authorities of the Russian Federation, political parties and public organizations, the Public Chamber of the Russian Federation, or the national media. However, the information that forms a basis for action cannot be based on an anonymous source.

Not the First

It is worth noting that this Bill is not the first to address the issue of Officials' assets abroad. On Aug. 1, 2012, Bill No. 120809-6 on Amendments to Certain Legislative Acts prohibiting Officials from having accounts/deposits with foreign banks abroad and/or owning immovable property abroad and or holding securities of foreign companies had been submitted for the review of the State Duma and considered by it in the first reading on Dec. 21, 2012. On Amendments to Certain Legislative Acts of the Russian Federation, Bill No. 120809-6 (2013), http://tinyurl.com/d63agjs. These two bills ' although aimed at regulation of the same matter ' differ from each other. For example, their definitions of the terms “officials,” “foreign securities,” and “timing of the closing of bank accounts/disposal of other prohibited assets abroad” are not the same. The principal differences between Bill No. 120809-6 and the Bill submitted recently by President Putin are:

1. Bill No. 120809-6 extends the prohibitions to ownership of immovable property abroad (Bill No. 120809-6, note 16, supra at Art. 1.), rather than merely requiring that it be declared and information provided on the sources of income used to acquire it, as President Putin's Bill does; and
2. Bill No. 120809-6 establishes criminal liability ( Id. At Art. 2) for violation of the prohibitions on having accounts, deposits, securities, and immovable property abroad, ranging from administrative liability up to imprisonment, and not merely termination of employment/service as Mr. Putin's Bill does.

Which Alternative?

In the explanatory note to his Bill, President Putin specified that it must be considered and adopted in conjunction with Bill No. 120809-6. Given that these bills regulate the same matter, it is not yet clear how the two will be reconciled. As Mr. Putin is the sponsor of one of the bills and State Duma representatives are already presenting his Bill as the more fundamental one addressing not only corruption, but other important issues including national security, there are good chances that it will be the one ultimately adopted, with or without taking into consideration the proposals included in Bill No. 120809-6. Eugene Levishchenko, “State Duma Security Committee recommended a bill to ban the foreign bank accounts of officials,” Parliament Gazette (Feb. 18, 2013), http://www.pnp.ru/news/detail/12178 [Russian].

The Bill was considered recently by the State Duma upon its first reading on Feb. 22. “Committee of the State Duma approved a ban on foreign accounts of state officials,” Grani.ru (Feb. 18, 2013). According to the publicly available information, the Bill was discussed by the State Duma Committee on Security and Anti-corruption in April 2013 and was planned to be considered by the State Duma in the second reading on the week of April 15, 2013.

Paul R. Berger s a partner in the Washington, DC, office of Debevoise & Plimpton LLP. He is a member of the Litigation Department and the White Collar Litigation Practice Group. Alyona N. Kucher is a partner and Anna V. Maximenko is an associate in the firm's Moscow office. The authors may be reached at [email protected], [email protected]%20'and [email protected], respectively.

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On Dec. 12, 2012, during the annual Presidential Address to the Federal Assembly, Russian President Vladimir Putin proposed reducing public corruption by establishing various methods of control over the actions of public officials. “Address to the Federal Assembly,” President of Russia (Dec. 12, 2012), http://eng.kremlin.ru/news/4739. He questioned how the public could' have “confidence in an official or politician who says high-sounding words about the national good but at the same time tries to take his money and assets out of the country,” and he sought support for a legislative proposal limiting the rights of state officials and politicians to hold foreign accounts and foreign securities.

Putin advocated that this requirement apply to all officials who make key decisions: the top leaders of state and federal government, senior staff in the Presidential Executive Office, members of the Federation Council and State Duma deputies and their immediate families. He also made note of foreign real estate owned by state officials and said that it must be declared in accordance with the law, including a report on the value of the property and sources of the funds used to purchase it.

Putin Takes Action

Two months later, President Putin's anti-corruption initiatives were developed further when, on Feb. 12, 2013, he submitted to the State Duma two bills, which will become law if adopted by the State Duma in three separate readings, approved by the Federation Council, signed by President Putin, and then officially published. These bills are:

1) Bill No. 220675-6, on the Prohibition for Certain Categories of Persons to Open and Maintain Accounts/Deposits and Cash in Foreign Banks Located Abroad and Hold Securities of Foreign Issuers (the “Bill”). (Bill No. 220675-6 (2013), http://tinyurl.com/cymwe86 [Russian]; 2) Bill No. 220666-6, Amendments to Article 11 of the Federal Constitutional Law on the Government of the Russian Federation (“Bill No. 220666-6″). (Amending Article 11 of the Federal Constitutional Law “On the Government of the Russian Federation,” Bill No. 220666-6 (2013), http://tinyurl.com/d63agjs%20[Russian].)

The Bill prohibits Officials ' as defined in Russian law and the proposal ' and their spouses and minor children from:

1. Opening and operating accounts/ deposits with foreign banks located outside Russia;
2. Keeping cash in foreign banks located outside Russia; and
3. Holding state securities of other foreign states, or bonds and shares of foreign issuers (jointly referred to as “foreign securities”).

In addition to these prohibitions, when reporting information on income, property, and property obligations in accordance with legal requirements (On the Measures of Counteracting Corruption, Federal Law No. 273-FZ (Dec. 25, 2008)), the Bill requires that Officials provide information on immovable property located abroad which they, their spouses, or minor children own; the sources of financing of the acquisition of such immovable property; and their, their spouses' and minor children's property obligations abroad. Bill No. 220675-6, note 5, supra at Art. 4.

According to the Bill, these prohibitions are being introduced to ensure the national security of the Russian Federation, regulate lobbying activity, increase investments in the national economy, and improve efficiency in counteracting corruption. Id. at Art. 1.

If adopted, the Bill will also require:

1. Current Officials, their spouses, and minor children to close their bank accounts with foreign banks located abroad, discontinue keeping cash in foreign banks located abroad, and/or dispose of their foreign securities within three months following the coming into force of the Bill;
2. Persons who wish to become Officials to disclose information on their, their spouses', and minor children's bank accounts/deposits and cash in foreign banks located abroad and foreign securities; and
3. Elected/appointed Officials, their spouses, and minor children to close the relevant accounts, withdraw cash, and dispose of any foreign securities within three months following election/appointment. Id. at Art. 3-4.

Violation of the prohibitions established by the Bill will result in the termination of the Official's employment/service.

Verification of an Official's compliance with the requirements established by the Bill may be initiated based on information provided by law enforcement and other state authorities of the Russian Federation, political parties and public organizations, the Public Chamber of the Russian Federation, or the national media. However, the information that forms a basis for action cannot be based on an anonymous source.

Not the First

It is worth noting that this Bill is not the first to address the issue of Officials' assets abroad. On Aug. 1, 2012, Bill No. 120809-6 on Amendments to Certain Legislative Acts prohibiting Officials from having accounts/deposits with foreign banks abroad and/or owning immovable property abroad and or holding securities of foreign companies had been submitted for the review of the State Duma and considered by it in the first reading on Dec. 21, 2012. On Amendments to Certain Legislative Acts of the Russian Federation, Bill No. 120809-6 (2013), http://tinyurl.com/d63agjs. These two bills ' although aimed at regulation of the same matter ' differ from each other. For example, their definitions of the terms “officials,” “foreign securities,” and “timing of the closing of bank accounts/disposal of other prohibited assets abroad” are not the same. The principal differences between Bill No. 120809-6 and the Bill submitted recently by President Putin are:

1. Bill No. 120809-6 extends the prohibitions to ownership of immovable property abroad (Bill No. 120809-6, note 16, supra at Art. 1.), rather than merely requiring that it be declared and information provided on the sources of income used to acquire it, as President Putin's Bill does; and
2. Bill No. 120809-6 establishes criminal liability ( Id. At Art. 2) for violation of the prohibitions on having accounts, deposits, securities, and immovable property abroad, ranging from administrative liability up to imprisonment, and not merely termination of employment/service as Mr. Putin's Bill does.

Which Alternative?

In the explanatory note to his Bill, President Putin specified that it must be considered and adopted in conjunction with Bill No. 120809-6. Given that these bills regulate the same matter, it is not yet clear how the two will be reconciled. As Mr. Putin is the sponsor of one of the bills and State Duma representatives are already presenting his Bill as the more fundamental one addressing not only corruption, but other important issues including national security, there are good chances that it will be the one ultimately adopted, with or without taking into consideration the proposals included in Bill No. 120809-6. Eugene Levishchenko, “State Duma Security Committee recommended a bill to ban the foreign bank accounts of officials,” Parliament Gazette (Feb. 18, 2013), http://www.pnp.ru/news/detail/12178 [Russian].

The Bill was considered recently by the State Duma upon its first reading on Feb. 22. “Committee of the State Duma approved a ban on foreign accounts of state officials,” Grani.ru (Feb. 18, 2013). According to the publicly available information, the Bill was discussed by the State Duma Committee on Security and Anti-corruption in April 2013 and was planned to be considered by the State Duma in the second reading on the week of April 15, 2013.

Paul R. Berger s a partner in the Washington, DC, office of Debevoise & Plimpton LLP. He is a member of the Litigation Department and the White Collar Litigation Practice Group. Alyona N. Kucher is a partner and Anna V. Maximenko is an associate in the firm's Moscow office. The authors may be reached at [email protected], [email protected]%20'and [email protected], respectively.

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