Peter H. Solomon, Jr. Improving criminal law in the Russian Federation
Improving criminal law in the Russian Federation:
Business crimes and humanization
This essay represents a personal reaction to an important and timely initiative on the part of a group of scholars – jurists and economists in the Russian Federation to rethink as the role of criminal law in the regulation of business and the appropriate levels of repression in a modern Russia. It is based on a reading of key documents relating to this initiative, including the Basic Principles of a Draft Conception of Modernizing the Criminal Code of the RF in the Economic sphere and a version of the conception itself, and by personal experience studying the development of criminal justice in Russia and abroad.
I agree fully with the validity and urgency of the two main problems identified in the initiative:
– in Russia there has emerged both overuse and misuse of the criminal law in the regulation of business activity, involving violations of legal principles and finding its reflection not only in laws and court decisions but also in the practice of law enforcement;
– as of 2010 the sanctions applied by courts in Russia are inappropriately harsh with respect to property crimes of all kinds, including theft.
Both the overuse of the criminal law and the excessive severity of punishments found in Russia are out of line with best international practices. Both of these defects in the criminal realm hurt the economic development of the country and for this reason contradict state interests.
The changes in the Criminal Code RF proposed in this initiative constitute important first steps in addressing these problems. In all probability further efforts will prove necessary to adopt a criminal law that actually protects and helps business, including changes in the incentives shaping the conduct of law enforcement officials, to be accomplished through reform of the police.
I will start by examining briefly the situation with business crimes in Russia including the origins of prohibitions and offenses that now seem obsolete, and some of the ways that their purposes have been distorted in the practice of law enforcement, adding some perspective on how other countries deal with business crimes. I will then examine the sanctions used for property crimes in Russia in comparative context, especially common offenses like theft, and give strong support to general reduction in punishments for property crimes in the Russian Federation, including through eliminating the use of the terms “group” and “organized group” as bases for qualifying an offense. Finally, I will address the specific proposals for change in the Criminal Code RF, relating to both general principles and specific crimes.
Business crimes in Russia
The habit of an expansive use of the criminal law in managing the economy was a powerful legacy of the Soviet experience. As the authors of the Conception stress, Soviet leaders used the criminal law to make most forms of private business illegal. But this was not all. They used it also as a tool for managing the state owned and administered economy. Especially in the 1930s at Stalin’s behest kolkhoz chairmen and factory directors who failed to fulfil plans were regularly convicted of negligence. In the post Stalin period directors who managed funds and bookkeeping in creative ways to fulfil the plan sometimes faced charges of misuse of authority, and in the last years of the Soviet economy there was movement to protect managers from prosecution for illegal actions that might be considered a justifiable risk. From the 1940s on there were many instances of the government defining actions as criminal without adding them to the criminal code and with mere directions to law enforcement personel to qualify these or the other actions as criminal.
The first piece of the arsenal that would become Chapter 22 of the Criminal Code of 1996 was the criminalization of “illegal business activity”, an early version of which was added to the Criminal Code of the RSFSR in August 1993 in the redaction of Articles 162.4 and 162.5. In the redaction of article 171 of the CC 1996 this offense took a form that to a foreign observer was remarkably broad and vague but fully in line with Soviet traditions. As explained in commentaries and a series of Guiding Explanations of the Supreme Court, this offense came to refer mainly to violations of the rules of registration and licensing. But these rules, themselves part of administrative law, were subject to frequent change, and also administrative sanctioning (the normal way of enforcing rules of registration of business firms in Western countries). The introduction of this offense in the mid 1990s provided authorities with a new instrument for trying to regain control of economic activity after the collapse of state owned industry and spontaneous privatization, a large part of which took place, at least partially, outside of the law. Whether or not this crime was needed at the time (its peak of enforcement came between 1998 and 2002), the original grounds for criminalizing violation of administrative rules no longer exist.
Another questionable offense that threatened normal business operations was “self-laundering”, or spending money that was allegedly obtained as a result of criminal activity by the accused. This offense entered Russian law in 2001 as part of a response to demands from abroad that Russia live up to its obligations in the fight against organized crime. The problem is that the charge was hardly ever used against persons involved in organized crime or terrorism but rather as a tool in the regulation of banking and even more control of business. Charges were brought typically against owners of small businesses for the simple act of spending money that some authority decided post factum had been obtained illegally (and not necessarily criminally, or criminally only because violations of regulations could be defined as crimes). Often this happened on the heels of a prosecution according to Article 171 for a technical violation of registration forms, and regardless of whether there had been any intent to give legitimate appearance to the resources that had some violation of legality associated with them. Stories of abuse of this provision are legendary (guiding explanations of the Supreme Court notwithstanding), and it serves as a sterling example of how the importation of a provision from another legal system can produce unanticipated consequences (in this instance the import was American).
The nature of law enforcement practice for these two crimes, for many other crimes in chapter 22, and for fraud (article 159) and embezzlement (160) when they involve business people, reinforce the case for removing from the Criminal Code as many as possible of economic crimes. The problem is that at least for the past eight to ten years, the enforcers of these offenses have used them as levers to threaten business people and often to extract payments from them in exchange for dropping charges. How else to explain the extraordinary gap existing in Russia between the number of cases opened for economic crimes (or fraud or embezzlement) and the number of persons convicted, on the order of four to one starting in 2004 and reaching much higher levels in the years 2008 and 2009. The practices probably began earlier, but through 2003 the composite data for chapter 22 included cases of deceiving customers, an offense removed from the Criminal Code in 2003, and that offense made it hard to find signs of this dynamic in the composite data. To be sure, in the USA, there is usually a gap between the number of cases investigated and the number of convictions, but for Russia the data for business related crimes stands in marked contrast to those for the majority of other crimes.
Some of the cases of business crimes did not originate with actions of investigators or procurators, but represented initiatives of rival firms, which themselves “ordered” prosecutions on the basis of either connections or money or both. The Russian press in recent years has been full of stories of so called commissioned cases, initiated either to harm a rival firm or even to engineer a takeover of it and thus qualify as corporate raiding. Sometimes, police take money from one entrepreneur to open a case against a rival and encourage the latter to pay them, in order to close this case. One reason that these cases can be started was the gaps and conceptual ambiguities between civil and criminal law, which the authors of the current initiative want addressed. The success of prosecutions on order in pressuring the victims is furthered by the two month period of investigation during which pressure can be brought upon the accused, all the more so when he or she is in custody. A law has now been adopted banning the use of pretrial detention for most crimes in chapter 22, and this stands to remove at least this advantage.
The manipulation of the criminal law in practice, in the personal interests of law enforcement and the interests of particular business players to the detriment of others, along with the substitution of criminal prosecution for civil claims, calls into question the whole package of business related crimes in the Criminal Code. In practice, too many of these have proven damaging to the climate for business and investment, and it makes sense to decriminalize any and all offenses that have not wholly justified themselves.
It is worth stressing the use of the criminal law in regulating business in Russia not only has Soviet roots but it differs fundamentally from normal Western practices as well. Most Western countries have taken a careful approach to using criminal law in the regulation of business, reserving the criminal sanction for obvious and serious breaches of normal criminal prohibitions (e.g. fraud; falsification of books, forgery of trademarks, breach of contracting causing danger to life etc.), as opposed to narrow specialized prohibitions, of the kind found in chapter 22 of the Criminal Code of the Russian Federation. Moreover, Western criminal law usually requires the presence of clear intent on the part of the persons suspected of having committed a crime. This approach remains the norm in Western Europe and Canada, and in the laws of most states of the United States. To be sure, the federal government of the USA has over the past few decades introduced criminal liability into the regulation of business, including for legal persons (corporations) and has noticeably watered down the requirements of mens rea (intent), and this practice has attracted strong criticism. But nevertheless, the greater part of the given criminalization connects to the public good, by the possibility of applying the criminal sanction for blatant violations of regulations on the environment or public health. In the unusual situations where a new crime is vague, the Supreme Court may well rule it unconstitutional, as it did in spring 2010 with the requirement contained in a 1988 law that business people provide “honest services” to their shareholders.
In Europe there is a controversy over the question of corporate criminal responsibility, as some countries, including France and Austria, have started allowing the imposition of fines on corporations (but not imprisonment on their executives). The position of the EU is to allow countries to choose their approach, and Germany in particular (and Poland with it) has insisted on keeping the criminal law separated from corporate actions, because corporations cannot be moral or immoral and to avoid collective responsibility. Individual officers of a corporation can be held liable but only for committing real crimes themselves. Breaches of administrative and civil law regulations do not entail criminal prosecution, nor do firms initiate prosecutions.
In short, as Russia re-examines its broad and harmful use of the criminal law in the regulation of business, it should look mainly to Western Europe for models, rather than to the United States, where populist politics sometimes produces distortions.
Punishment for property crimes
The Concept on the Modernization of Criminal Law in Russia addresses not only the overuse of the criminal law relative to business but also the extreme severity in Russia of the liability for property crime in general. This is indeed a problem, and one that calls for both changes in the range of punishment provided for particular offenses and changes in the qualifiers that make an act more serious and entail more severe punishments. Although convictions for many of the crimes in chapter 22 usually lead to a fine (there is a law as well banning pretrial detention for these offenses), the situation with regular property crimes established in chapter 21 is different. A significant portion of them, including punishments for theft, result in deprivation of freedom and for terms whose length does not correspond to the real harm caused by the offense. As a result, Russia has one of largest prison populations in the world, both in absolute terms and relative to its population. The costs of so much incarceration are both financial (prisons in Russia are no longer self supporting institutions) and criminogenic, as persons held in confinement are more likely to recidivate than those who receive shorter terms or non custodial sanctions.
Choices about punishments stipulated by the law reflect penal values, which in turn are products of history and of the politics dynamics of a country in a particular period. It is not easy to explain (race relations is only one explanation) why the United States has the largest per capita prison population and uses long sentences, in contrast to the situation in Western Europe, where imprisonment is used far less often and has much shorter terms. Both Russia and the United States have extraordinarily large prison populations of over 700 persons per 100,000 population; the norm in Western European countries falls between 50 and 100; in former communist countries of Central and Eastern Europe (Hungary, Czech republic, Slovakia, Romania) between 150 and 199 (with Poland as outlier with an indicator of 299). In other countries of the former USSR this number comprises between 200 and 400 (Lithuania – at 235; Moldova – at 297; and Ukraine – at 398.
If the modernization of criminal law in the Russian Federation is to involve authentic humanization, then it is to European models that Russia must look. In Germany the majority of theftsentail fines, and the custodial sanctions when imposed are much shorter than those commonly used in Russia for similar offenses. In Germany two years for theft is an unusually harsh punishment; in Russia a relatively mild one.
One country that has recently made a “transition” to European norms of imprisonment is Finland. During and after World War II, Finland had 250 prisoners per 100,000; the figure went down to 150 by 1955, and down to 66 in 2005. The drops reflected changes in penal policy (not rates of crime). Thus, in 1950 the average custodial sentence for theft was twelve months imprisonment; in 1971, seven months; in 1991, three months!
To bring Russia closer to the European standard of punishment calls for encouraging judges to use non custodial sanctions whenever this is possible, while adjustments in ranges of punishment and changes in the concepts used to qualify an act as serious ought to be introduced as well. Minimum levels of deprivation of freedom should be removed from the two top categories of theft (for large and for especially large amounts); while the sum that determines what constitutes large and especially large amounts ought also be adjusted upwards (probably by a factor of three). Most important, as the authors of the Conception stress, the use of the concepts of a “group” and an “organized group” as defining attributes of the more serious forms of theft (and other property offenses) should be stopped and references to the features of a group removed from the Code.
It is one thing to criminalize membership or participation in the activities of real organized criminal business, as captured by the Russian term “criminal society” elaborated in article 35 para 4. It is another thing entirely to classify as of especially gravity any crimes where two or more persons planned an event or were involved in a series of crimes. The Russian definition of “organized group” is easily (and sad to say regularly) applied to juvenile gangs and to boards of directors of firms that approve some measure that later on is classified as being criminal. And the consequences of treating a set of offenders as constituting as organized group are extraordinary. This qualification alone raises theft to the most serious category for which the punishment is five to ten years deprivation of freedom (with no non custodial alternatives)! Yet many thefts that cause no major harm to society are committed by what are defined as “organized groups”, a concept that in the Russian definition has nothing to do with authentic organized crime or mafia.
I know of no other country that so demonizes the collective nature of theft or other criminal activity, in Europe or elsewhere. In Russia itself the designation of thefts committed by groups as extraordinarily serious events, as well as a loose definition of what constitutes a group, date back to a specific initiative of Joseph Stalin himself. As historians of Russian criminal law are well aware, the infamous edicts of April 4, 1947 treated commission of thefts by an “organized group (gang)” as a factor that could double the length of imprisonment. The laws, dictated and edited by the Leader himself, did not define exactly what was meant by “organized group”, and a leading criminal law scholar Professor N.D. Durmanov gave a narrow interpretation that stressed the element of stability and implied that the group had to have an existence prior to the crime in question. For this he received official condemnation and the USSR Supreme Court defined an organized group as “two or more persons, organized in advance to commit one or more thefts”. Unfortunately, Stalin’s personal fear of criminal groups and gangs led to a lasting fetishization with this common feature of criminal activity, to the detriment of fairness and humanity in Soviet and post Soviet Russian criminal law.
The definition of “organized criminal groups” as something far removed from common understandings of “organized crime” or “mafia” have served the interests of law enforcement agencies in Russia, which regularly claim to have “uncovered and destroyed” dozens of such groups each year (although the estimated total number of such groups numbers in the thousands). The data suggest that the police have dealt a blow to real organized crime, but the definition of “criminal groups” is too broad to justify this inference.
Recommendations in the Conception
The Conception proposes changes in both concepts contained in both the general and special parts of the Criminal Court and in the concrete offenses in the special part. While all of the recommendations make sense, I fear that some may not by themselves achieve their intended purposes.
First changes to principles found in the general part and in chapters 21 and 22.
1. The proposed ban on “broad interpretation of the criminal law, except to exclude criminal responsibility or reduce punishments” constitutes an appropriate response to the practice of interpretations that expand the reach of the criminal law or make punishments more severe. But will this language actually restrain judges, procurators or investigators? How will they know what is broad or expansive? My guess is that the practice will continue, but that the language might give judges a tool for ruling some interpretations of investigators and procurators out of bounds.
2. The call for using terminology in the Criminal Code that is drawn from other branches of law in the same meaning as it is found there also represents a good principle, but will sometimes prove hard to apply in practice because concepts and terms are not used consistently in the other branches of law. Thus, the concept of “property” is broad in constitutional law than it is in civil law. Tax law may diverge from civil law over some terms, and arbitrazh courts disagree with courts of general jurisdiction over the meanings of some terms. Still, every effort should be made to achieve consistency of terminology. Along with stating general principles, though, it may be appropriate to specify the meanings of terms in particular articles or contexts.
3. The principle that doubts, contradictions, and unclarity in the criminal law, and also in other laws and regulations applied in a criminal case, should be interpreted in favour of the accused is consistent not only with adversarialism but also with basic fairness. It should be included in the Code.
4. The idea of limiting broad constructions of the term property not only diverges from classical principles; it responds to the misuse in Russian law enforcement practice of discretion given a broad interpretation of the notion of property, not only in cases of theft but also in prosecutions for fraud. Yet, if property covered by theft or fraud refers only to movable things , then it will be necessary to develop specific new offenses to deal with misappropriation of intangibles that connect to proprietary rights. Otherwise, limiting theft to movable property would leave gaps in the law. Moreover, there would remain the matter of defining what are “movable things”. Who would have that power? There is a list in the Civil Code, Article 130, that does not include items like ships, aircraft, or space objects.
5. The proposal to limit some prosecutions in chapter 22 to situations where the victim has suffered real losses and initiatives the claim sounds like a way to cut down on self interested prosecutions on the part of the law enforcement officials. But this change may not achieve its goal. Investigators can encourage victims to denounce their competitors, even falsely, and the door would be open to an increase in ordered cases (even though the collusion might have a different sequence).
6. Proposals to reduce the seriousness of offenses through exclusion of qualifying marks deserve support. This applies first of all to the exclusion of profits derived from “illegal activities” from the indicator of an offense equated with harm, as well as to the designation of offenses as committed by “groups” or “organized groups”, as has already been discussed above.
7. The elimination of criminal responsibility for business people for offenses not connected with the imposition of loss or harm goes without saying, and should serve as a basis for the decriminalization of specific offenses. To use the criminal law purely as a regulatory instrument that serves no public purpose.
The proposals to exclude particular offenses from the Criminal Code seem to make good sense and can be justified by both legal principles and criminological analysis of their use and practical effects. Many of the offenses identified as problematic were added to the Criminal Code in the new millennium, and some are barely used (e.g. articles 172, 178, 185.1, and 190, each of which produced less than four convictions in 2005. Of course, lack of use is not by itself a reason or removing an article from the code (consider the tiny number of convictions for Article 299, prosecution of a person known to be innocent, which in theory could be applied against many investigators who pursue ordered cases). But when such offenses also have unacceptable characteristics for a criminal offense, such as criminalizing unspecified administrative violations or causing no direct harm, it is hard to justify their continuation in the Criminal Code.
The offense that most clearly needs to be removed from the Code is “illegal entrepreneurship” (article 171), which despite a drop in rate of convictions led to over eleven hundred convictions in 2005. As we have already explained, this offense is too vaguely defined, criminalizes breaches in the realm of administrative and civil law, even when unintentional, is used in combination with Article 174.1 to criminalize ordinary financial transactions, and is also used as a threat to business firms for extortion or as part of attempted takeovers. As a rule, any crime that is framed in vague language such as “violations of the rules of” does not belong in the Criminal Code, and this applies to Article 172 illegal banking activity and to 176 illegal obtaining of credit) and 191 (unlawful trade in previous metals). This principle would apply even for those rules that have social justification (e.g. rules to protect the environment, or public health, or safety of workers). In those situations, violations that are so serious as to require criminalization should be specified in a clear way in the criminal code and, as a rule, have direct intent.
Article 174.1, or self laundering of funds, is a superfluous offense that allows law enforcement officials to pursue persons for other alleged crimes where they do not have sufficient evidence. As such, even without the abuses, it is inherently unfair, and an offense that is not included in the criminal law of many European countries, such as Germany. It is a sad example of the transplanting of language from US federal law, where it is used to combat the activities of criminal societies into the legislation of Russia, where it is used as a way to pursue ordinary business people.
Some of the offenses identified for decriminalization are relations better regulated by the norms of administrative law because they do not cause such significant harm as to deserve criminal status, or in serious enough form to be criminal would be covered by other crimes like fraud. These applies to articles 176, 177, 178, 191, and 193.
If one takes the convictions recorded in 2005 (the last year for which I have such specific data) for the full list of crimes proposed for removal from the Code and compares them to the total number of convictions under chapter 22, one learns that the decriminalization of the full list would result in a drop of convictions of 17.1%, or around one sixth. In so doing a lot of convictions of business people would still remain, more proportionately than occurs in other countries, but the offenses that are most egregious and are most often subject to misuse and abuse would be removed from the Code. Drafters of reform legislation might consider narrowing and reducing liability for other business crimes as well. A business crime should only rarely lead to deprivation of freedom. The author would like to thank Alexandra Orlova and Alexei Trochev for advice and comments, as well as Jessica Gingrich-Lawton for research assistance and Nailya Kurmasheva for translation into the Russian language.  “Osnovnye polozheniia proekta Kontseptsii modernizatsii UK RF v ekonomicheskoi sfere” (gotovilsia v sootvetstvii s Prochueniiem Prezidenta No. PR-3169 ot 28 XI 2009; “Kontseptsiia modernizatsii ugolovnogo zakonodatelstva v ekonomicheskoi sfere,” (version of July 15, 2010); V.M. Zhukov, E.V. Novikova, et al., eds. “Verkhovenstvo prava i problemy ego obespecheniia v pravoprimenitelnoi praktike” (M.: Status, 2009).
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See, for example, Thornburgh D. Overcriminalization and the Need for Legislative Reform, testimony before the Subcommittee on Crime, Terrorism, and Homeland Security, Committee on the Judicairy, U.S. House of Representatives, 22 July 2009; Walsh B., Joslyn T. Without Intent: How Congress is Eroding the Criminal Intent Requirement in Federal Law (Washington: Heritage Foundation and National Association of Defense Lawyers, 2010); Hasnas J. Up from Flatland: Business Ethics in the Age of Divergence // Business Ethics Quarterly, 17:3 (2007), P. 399-426.. There is also a trend toward introducing civil penalties that are the functional equivalent of criminalization. See Lynch G.E. The Role of Criminal Law in Policing Corporate Misconduct // Law and Contemporary Problems, 60:3-4 (1997), P. 23-65.
“Black et al. v. United States”, Supreme Court of the United States, 2010, 561.
Weigend T. Societas delinquere non potest? A German Perspective // Journal of International Criminal Justice, 6 (2008), P. 927-45; Hetzer W. Corruption as Business Practice? Criminal Responsibility of Enterprises in the European Union // ERA Forum, 9 (2008), P. 387-398; Luna E. The Curious Case of Corporate Criminality // The American Criminal Law Review, 46 (2009). P. 1514.
Brodeur J.-P. Comparative Penology in Perspective // M. Tonry, ed. Crime, Punishment, and Politics in Comparative Perspective (Izdatelstvo universiteta Chikago, 2007), P. 49-92, esp.77-80; Solomon, Jr. P.H., Foglesong T.S. Crime, Criminal Justice, and Criminology in Post-Soviet Ukraine (www.ncjrs.gov, then search with authors’ names).
Lappi-Seppala T. Penal Policy in Scandinavia // Crime, Punishment and Politics. 2007. Vol. 36. P. 217–295.
Solomon, Jr. P.H. Soviet Criminologists and Criminal Policy: Specialists in Policy-Making. (New York: Columbia University Press, 1978, Chapter 2); Solomon P. Sovetskaia iustitsiia pri Staline, Chapter 12.
Between 1997 and 2003 the number of persons convicted of Article 299 ranged from 0 to 3 annually for a total of 13 in 7 years. See A.V. Galakhova, ed. Prestupleniia protiv pravosudiia (M.: Norma, 2005), P. 126-127.