At the beginning of December, 2012, Russian President Vladimir Putin signed into law Federal Law No. 230-FZ, “On control over consistency of expenditures of persons holding government offices and of other persons to their incomes” (the “Law”). The Law requires certain disclosures by government officials’ regarding their expenditures and is viewed as the next important step in countering corruption in Russia.
The Law applies to individuals whose expenditures should be subject to control. These include employees of state-owned enterprises, state non-budgetary funds, federal, regional and municipal state authorities, members of the Board of Directors of the Central Bank of Russia, and a few others (“Controlled Persons”).
Pursuant to the Law, Controlled Persons are required to report on certain expenditures by them their spouses and underage children related to acquisitions of immovable property, vehicles, securities, equities, as well as of the sources of income used for spending. Specifically, they are required to report their entry into transactions in which the amount paid by them exceeds the aggregate income of the Controlled Persons and their spouses during the previous three years.
According to the Law the authorized state body undertakes the verifications in respect to the expenditures of the Controlled Person. Such verifications can be undertaken on the basis of the information that the Controlled Person has entered into a transaction with the amount exceeding the threshold. The information can be disclosed by the Controlled Person himself or can come from law-enforcement and other state authorities, employees of the Central Bank of Russia, non-budgetary funds, Public Chamber, all-Russian mass media and others. It should be noted that information from unidentified sources cannot be accepted by the appropriate state officials entitled to initiate the verifications as the basis for undertaking verifications. It is also stated by the Law that Controlled Person has to be notified of the verifications in writing.
In accordance with the Law, the verifications should include requests for information from the Controlled Person, confirmation that such information is complete and accurate, and a determination as to whether the expenditures of the Controlled Person were consistent with the aggregate income of the Controlled Person and his spouse. The Controlled Person is required to provide to the persons carrying out the verification all necessary information regarding the transaction and the sources of the relevant income, as well as specific details of the transaction and additional documents if needed. Failure of a Controlled Person to provide information is considered an offence and will result in discharge of the Controlled Person from public service.
If it is discovered that there is an inconsistency between the Controlled Person’s reported expenditures and his and his spouse’s aggregate income, the verification report is to be sent to the Prosecutor’s Office. If the Prosecutor’s Office discovers any illegality, the report will be sent to the relevant government agencies. The Law provides for confiscation of property by the government in the event an inconsistency is discovered between the Controlled Person’s expenditures and his and his spouse’s aggregate income.
Certain amendments have been introduced into a number of other Russian legal acts to help implement the Law, including the Russian Criminal Code. Payment of a penalty will be the principal punishment for a Controlled Person who failed to prove that the source of his income is lawful, and deliberate failure to pay such penalty will result in further liability of the Controlled Person.
The Law will become effective on January 1, 2013. However, the Law requires reporting of transactions that occurred on or after December 1, 2012. The proponents of the Law believe that the Law will strongly discourage corrupt behavior and attempts to hide assets.