20 years under Putin: a timeline

On December 3, a draft law entitled “On Measures to Protect the National Economy and to Limit Activities of Legal Entities and Citizens of Aggressor States in the Russian Federation” was submitted to the State Duma of the Russian Federation. IMR legal expert Ekaterina Mishina believes that if this law is passed, the consequences for Russia could be disastrous.


Russian legislators consider an aggressor any country that doesn’t like Russia’s actions in respect to Ukraine: the United States, European Union and some others. Photo: Shannon Stapleton / Reuters


I maintain that December is the month of the worst legislative indulgences among members of the Russian State Duma, who during this time consistently strive to provoke the public with the most shocking bills possible. On December 3, Lawyer’s Day, the State Duma introduced a new masterpiece: a draft federal law entitled “On Measures to Protect the National Economy of the Russian Federation and to Limit Activities of Legal Entities and Citizens of Aggressor States in the Russian Federation.”

According to Article 1 of this bill, “for the purposes of this federal law, ‘an Aggressor State’ shall be understood to mean a foreign state (an association of foreign states) that takes restrictive measures (sanctions) in respect to the Russian Federation, Russian citizens, and Russian legal entities.” (The authors’ unique style and grammar are intentionally preserved.)

The fact that Russian legislators consider an aggressor any country that doesn’t like Russia’s actions in respect to Ukraine is hardly surprising. It seems that deputies of the State Duma find it unbecoming to read international acts, that are part of the Russian national legal system by virtue of Article 15, Part 4, of the Constitution of the Russian Federation (which, by the way, they have not read either). It only downgrades the quality of their legislative activity and corrodes their moral authority. However, this attitude does nothing to negate the generally accepted definition of aggression contained in UN General Assembly Resolution No. 3314 (XXIX) of December 14, 1974.

The preamble of this resolution reads as follows:

The General Assembly of the United Nations . . .

Convinced that the adoption of a definition of aggression ought to have the effect of deterring a potential aggressor, would simplify the determination of acts of aggression and the implementation of measures to suppress them and would also facilitate the protection of the rights and lawful interests of, and the rendering of assistance to, the victim,

Believing that, although the question whether an act of aggression has been committed must be considered in the light of all the circumstances of each particular case, it is nevertheless desirable to formulate basic principles as guidance for such determination.

It then goes on to adopt the following definition of aggression: “Aggression is the use of armed force by a State against the sovereignty, territorial integrity or political independence of another State, or in any other manner inconsistent with the Charter of the United Nations, as set out in this Definition.”

Article 3 of the resolution determines the types of actions that would qualify as acts of aggression regardless of whether or not a war has been declared. These acts include “the invasion or attack by the armed forces of a State of the territory of another State, or any military occupation, however temporary, resulting from such invasion or attack, or any annexation by the use of force of the territory of another State or part thereof” as well as “the sending by or on behalf of a State of armed bands, groups, irregulars or mercenaries, which carry out acts of armed force against another State of such gravity as to amount to the acts listed above, or its substantial involvement therein.”

In any case, the countries that have imposed sanctions against Russia fall just short of achieving the status of aggressors as defined by the United Nations. But this does not prevent the top brains of the Russian State Duma from viewing reality through a distorting mirror. The proof of this warped perspective can be seen in

The authors of the bill do not seem to see any difference between those countries that have imposed sanctions against Russia and those that have not. The proposed actions could hit Russian businesses hard, scare away investors, and take the country back to the times of the Iron Curtain.

Article 2 of the recent legislative initiative, which requires the government of the Russian Federation, in pursuance of a number of noble goals (which range from preserving the constitutional order to protecting the domestic market and the national economy), to approve a “list of aggressor states within 30 days from the date of the adoption of restrictive measures (sanctions).” The authors of the bill are not much better at math than they are at grammar or international law. The 30-day time limit since the introduction of the first round of sanctions has expired several times over. So why put the government in the position of having already missed the deadline? It is not yet possible for the Duma to turn back the clock of history, no matter how much it wants to.

Article 3 of this initiative proposes prohibiting foreign legal entities registered in the aggressor states, citizens of these states, and Russian legal entities affiliated with or dependent on such foreign entities or individuals from “engaging in activities related to audit, provision of legal and other advisory services in the Russian Federation” (wording original).

It gets better. Article 4, which seems to be an addition to Article 5, para. 3, of the December 2008 federal law “On Auditing,” proposes that only those organizations “that do not have any foreign legal entities and citizens of other states, persons with dual citizenship and stateless persons among their affiliated (connected) organizations” should be allowed to carry out statutory audits of financial reports.

According to the provisions of Article 5 of the federal law “On Auditing,” a statutory audit is carried out in the following cases:

  1. When an organization is a joint-stock company (the most common legal form for large and medium-sized Russian businesses)

  2. When an organization’s stock is listed and traded in an established securities market

  3. When an organization is a credit institution, a credit bureau, a professional participant in the securities market, an insurance organization, a clearing organization, a mutual insurance company, a securities market operator, a private pension or other fund, a joint-stock investment fund, a manager of a joint-stock investment fund, a mutual fund, or a private pension fund (excluding state extrabudgetary funds)

This list of organizations subject to mandatory audit clearly shows that in Russia, there are not just many, but a great many such organizations in the country today. And in keeping with the aims of the bill’s authors, the privilege of auditing all of these organizations will be granted only to nationally pure entities, free not only from any foreign element, but also from any associations with one. In this case, based on the proposed wording of Article 4, the authors of the bill simply do not see any difference between the countries that have imposed sanctions on Russia and those that have not, and therefore, as a precaution, they want to forbid any contact with the rest of the world when it comes to statutory audits—just in case.

The same article of the bill provides a list of “affiliates,” which are defined in such a way as to include quite a wide range of legal entities and individuals, including individuals’ relatives, their adopted children, their guardians, and their trustees. At this point, I began to feel touched, because, judging from this wording, the authors of the bill believe that among these “affiliated” persons, there are incapable or partially incapable citizens who need to be guarded and protected under the provisions of Article 31 of the Civil Code of the Russian Federation.

The explanatory note to the bill, which is characterized by an emotional intensity approaching the level of that appearing in the 1938 Concise Course of the History of the Communist Party, colorfully explains the legislators’ intentions. These aims are legion, ranging from “the speedy formation of a strong, nationally oriented and sovereign economy” to “ensuring the confidentiality of accounting and financial records of leading Russian organizations.” Also included are observations about the atmosphere of unfair competition resulting from sanctions and the monopolization of the Russian business consulting structure by foreigners. The fact that the market for auditing services in Russia is obviously dominated by the four largest international auditing companies in the world (PriceWaterHouse Coopers, KPMG, Ernst & Young, and Deloitte & Touche) is considered a threat to Russia’s strategic interests. And although there are quite a few findings in the explanatory note, the main conclusion is essentially singular: foreigners should be kicked out of the Russian markets.

What the authors of the bill propose is something that, by the magnitude of its potential impact on the fate of the country, could be compared to the abolition of the New Economic Policy (NEP). By proclaiming the NEP in March 1921, the Soviet government formally recognized for the first time that its economic policy had failed. This same proclamation also for the first time showed how pliable the communist ideology could be: in the face of impending economic disaster, the “die-hard” fighters against “capitalist exploiters” and private property decided to allow the introduction of certain elements of entrepreneurship to the economy in order to prevent the country from plunging into chaos. In the shortest time possible, the NEP saved the economy and therefore became dangerous. It was later pushed aside and replaced with industrialization, collectivization, the famine of 1932–1933, and the Iron Curtain, which fenced off Russia from the outside world.

The implications of the proposed cleansing of foreign elements from the Russian economy are potentially catastrophic. If foreign auditing companies are pushed out of the Russian market, this will automatically result in a loss of foreign investors’ confidence in Russian companies. As another consequence, the market for such companies’ shares will inevitably collapse. The possible consequences of the expulsion of foreign law firms, which seem to have been grouped together with auditing firms, will be extremely severe for Russian business, and particularly for those companies whose relations with foreign counterparts are regulated not by Russian laws, but by those of some other country.