Russian Legal Revamp May Free 100,000 Entrepreneurs
By Ilya Arkhipov
July 2 (Bloomberg) -- Russian lawmakers say they plan to overhaul the law on economic crimes, resulting in the early release of as many as 100,000 imprisoned executives and entrepreneurs as the government seeks to attract investors.
Andrei Nazarov, deputy head of the committee that handles civil and criminal legislation in the lower house of parliament, on June 30 introduced amendments to the criminal code designed to implement a decree by President Dmitry Medvedev. Nazarov said he will offer further amendments, including one ending pre-trial detention for economic offenses.
“We are taking economic amnesty not as one law but as a series of legal changes,” Nazarov said in a phone interview. “At least 100,000 businessmen will be released from prison or will have to spend less time in jail. This will happen within the next year and a half.”
Medvedev is trying to show investors their rights will be protected as he asks Apple Inc. Chief Executive Officer Steve Jobs and Citigroup Inc. CEO Vikram Pandit to help diversify the economy. Concern about the legal system is one reason Russia got one-fifth the investment of China and Brazil and half that of India in the past three years, according to EPFR Global of Cambridge, Massachusetts, which tracks $13 trillion of assets.
Legislation isn’t enough to change the “predatory” culture of police, prosecutors and judges, according to Yana Yakovleva. The co-owner of Moscow chemical distributor Sofex Co. spent seven months in jail awaiting trial in 2006-07 before she was acquitted of trafficking in dangerous substances.
“The current environment is like swimming with crocodiles in a pool of sulfuric acid,” said Yakovleva, 38. “There’s a war on business people in Russia, and it’s purely business for officials. They can charge you with any crime and incarcerate you to extort money.”
Slow Implementation
Medvedev’s April 7 decree eased penalties for white-collar crimes, ended pre-trial detention for those charged with economic offenses and expanded the use of bail. Law enforcement officials were “slow” to implement the law, Supreme Court President Vyacheslav Lebedev said in an interview.
The president, a former lawyer, in December fired Moscow’s chief criminal investigator, the head of the city’s tax crimes unit and 20 federal prison officials after escalating reports of abuse, including the death of 37-year-old tax lawyer Sergei Magnitsky while in custody.
About one fourth of the 900,000 people in Russian jails are accountants, entrepreneurs, legal advisers or mid-level managers, Nazarov said.
Supreme Court statistics show that 97.3 percent of criminal defendants were convicted last year in Russia. The U.K. rate was 83 percent in 2008, according to the Ministry of Justice.
Justice, Not Punishment
Russia’s legal system is a remnant of Soviet times, when courts were seen as primarily punitive, Lebedev said.
“But a court shouldn’t be about punishment, it should be about justice,” he said. “Justice should reign supreme.”
The best way to fight misuse of the law is to make information public, Lebedev said. All court documents will be available on the Internet as the result of a law that took effect July 1, he said.
“The main thing is to make courts to perform professionally and honestly,” Lebedev said. “If we have transparency then we can see whether a judge was mistaken or there is intentional misconduct.”
Confidence Wanes
The number of business owners who saw the courts as the best place to protect their rights dropped to 66 percent in 2009 from 80 percent a year earlier, according to a survey of 1,200 entrepreneurs conducted in September by the Moscow-based All- Russian Center for the Study of Public Opinion.
While Navarov’s changes could apply to Russia’s best-known inmate, Mikhail Khodorkovsky, his case is too politically sensitive, said Andrei Piontkovsky, a senior researcher at the Russian Academy of Sciences in Moscow and author of “Another Look Into Putin’s Soul” (Hudson Institute, 2006).
Khodorkovsky, the former CEO of OAO Yukos Oil Co., is serving eight years for fraud and tax evasion. Yukos went bankrupt after Khodorkovsky was arrested in 2003 and the government sold its assets to recover more than $30 billion in taxes when Prime Minister Vladimir Putin was president. Khodorkovsky, 47, says he was targeted because he opposed Putin.
“Khodorkovsky is a clear example of double standards and selective enforcement,” Piontkovsky said.
Death in Custody
The initiative comes too late for Magnitsky, a lawyer for London-based Hermitage Capital Management Ltd. Magnitsky was arrested in 2008 and charged with tax evasion after alleging that police stole money from Hermitage. He died in November after almost a year in pre-trial detention when “his rights to timely medical attention were violated,” according to a government investigation.
The Magnitsky case was “a very sad story,” First Deputy Prime Minister Igor Shuvalov said in an interview at his office.
“Both the president and prime minister say the whole system should be changed,” Shuvalov said. “We will need time for this. We cannot just fire all these people.”
Medvedev today signed legislation giving human rights activists more access to suspects in custody. Another measure signed by the president is designed to protect companies from illegal property seizures, “especially when these crimes are committed with involvement of law enforcement officers.”
Yakovleva founded Moscow-based Business Solidarity to lobby for the rights of entrepreneurs after her release. While a few business people have been freed since April 7, most have seen no change, Yakovleva said. She cited the case ofOleg Yanechko, who is spending his 10th month in a Yekaterinburg jail awaiting trial on charges of fraud related to a decade-old property deal.
“Until you change the whole mentality of law enforcement officers you cannot succeed with humanization of this system,” said Natalia Taubina, director of the Public Verdict Foundation, a Moscow-based human rights group.
To contact the reporter on this story: Ilya Arkhipov in Moscow atiarkhipov@bloomberg.net