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Russia cannot turn off the road to hell

Russia cannot turn off the road to hell

30.05.2011 — Analysis

The expert group formed by the Russian President has prepared a set of statutory regulations aimed at fundamental changes in the civil legislation. Lawyers offer to formalize business and make provisions for governance mechanisms that would prevent violation of property rights of market participants. As the "RusBusinessNews" columnist has found it out, amendments to the Civil Code do not hearten most of the officials and lawyers who use deregulation slogans to secure total lawlessness in business.

Veniamin Yakovlev, Adviser to the Russian President, informed that Russia intends to revise conceptually its civil legislation at the fifth session of the European and Asian Judicial Congress. The changes primarily will be targeted at the Civil Code that was written about 20 years ago - in the country lacking experience in market economy. On the decline of the Soviet Union, it was commonly believed that the government interferes with the growth of business activities; therefore, the authors of the Code focused all their efforts on extending rights and freedom of market participants. Twenty years later it turned out that unregulated business activities means thriving fraudulent practices and impairment of rights of more unstable entrepreneurs. This circumstance caused the administration of Russian President Dmitry Medvedev to address improvement of legal regulation mechanisms operating in business.

Changes will primarily address personal liability for bankruptcy of businesses or for entering into knowingly unprofitable agreements (in the common law it is knows as lifting the corporate veil), perfection of the repudiation procedure as well as prevention of fraud in property transactions. At the moment, the revision concept for the Civil Code is prepared in the form of regulations that have been submitted to the Russian government for consideration.

V. Yakovlev states that the legislative proposals ran into fierce opposition from some ministers and part of the juridical community offering services in criminalized transactions. Fearing more intensive arbitrary behavior from the government, representatives of small business also showed a certain concern.

The consequences of the government's intervention in business were vividly described by Igor Mankovsky, a businessman and a lawyer from Belarus, where the government authorities have been practicing "manual" regulation of the economy for more than ten years. On the ground of eradication of fraud in business, Alexander Lukashenko, the Belarusian President, was granted the right to make amendments to legislative acts and adopt the new ones. In 2010, alone, the head of the state adopted 300 decrees addressing business regulation. According to I. Mankovsky, all of them generally focused on the fiscal function: the expert thinks that the Belarusian authorities replenish the budget using the simplest method, by imposing arbitrary exactions or confiscating the shipped goods at the customs on cooked-up grounds.

For example, officials obtained the right to register businesses based on economic feasibility. Small businesses were forbidden to use residential space as the registered address for their offices, thus, compelling them to lease premises from the government. Then, the number of properties operated by a sole proprietor was limited. Later, small-sized businesses had to be reregistered into private unitary enterprises. As a bonus, these enterprises were allowed to use private apartments for their registered address; however, at extra charge.

Vladimir Belykh, Head of the Business law Department at the Ural State Law Academy, thinks that the policy pursued by the Belarusian government has nothing to do with the legal regulation - it is a classical example of the government's intervention in business. Galina Shevchenko, Doctor of Juridical Science, thinks that regulation of business must be limited to creating of a level playing field for all players of the market. However, in this case, the power of the government must be absolute, as any weakness tends to turn into arbitrary treatment of those who are weak by those who are strong. The state, according to the Russian philosopher Nikolay Berdyaev, is not required to establish the earthy heaven, but to prevent establishment of hell.

Veniamin Yakovlev is convinced that Russia is already far ahead moving along the "wrong road". In his opinion, the Anglo-Saxon model of law that involves draconian sanctions for violation of laws on the part of business does not function in Russia due to high corruption, which results from concentration of power and property in one place. Fighting corruption is possible only through the legally capable government and law. "Negation of the government means negation of the law, states the adviser to Dmitry Medvedev. - It is destroyed by those who prefer to live beyond the laws". It is these people who loudly protest establishment of the common law in Russia, the law that is focused on prevention of crime and abuse in economy.

V. Yakovlev pins his hopes for the better law and order in the country on stronger participation of notaries that in a number of European countries not only register transactions, but also check them for any defects and imperfections. Legal due diligence, he states, results in dramatic reduction of crime in the property sector and prevents raiding. Therefore, Europeans decided to put all transactions through notaries. It does not result in material expenses incurred by business and individuals, as the government set moderate charges for notary services.

In Russia, the powerful lobby that has accumulated substantial resources in criminal transactions over the last 20 years calls for further liberalization of commercial legal relations. The lobbyists' gains will inevitably turn into increased social disparity, which will result in expansion of the non-legal space. In the opinion of Veniamin Yakovlev, investors are absolutely not interested in the country that is not able to provide equal opportunities to conduct business. It is here where the prime cause of Russian economic degradation should be looked for.

Vladimir Terletsky

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