Today in Russia modernization is driven by a mix of the old and the new. The country urgently has to reduce its dependence on natural resources, while heavy industry needs a serious shake-up. The renewal of Russia’s economic structure requires not only a transfer of knowledge and technology, but also localization and increasing collaboration along the entire value chain. When looking for win-win business models to support this transformation in Russia, however, foreign investors continually raise questions about regulatory compliance, legal security and corruption. While it tends to be associated with anti-corruption measures, compliance is far more than that. Compliance programs include all measures of adhering to all external legal and regulatory provisions, and also to the internal regulations and principles in place at a company. Analysis of a company’s existing risks should be based on the current situation, in particular the legal requirements that influence the business. After identifying typical risk areas for business, executives can develop special tools, such as clear instructions on how to proceed in certain situations.
In Russia, at least five aspects must be addressed:
(1) risk analysis
(2) commitment
(3) communications
(4) organization
(5) documentation
To find out in advance whether a Russian company can be considered a suitable partner, there are several publicly accessible sources. These include the company’s electronic registration certificate (www.nalog.ru), information on current court cases (www.arbitr.ru) and on insolvency proceedings (www.kommersant.ru/bankrupcy or www.arbitr.ru), information on scheduled state audits (http://genproc.gov.ru/) and on compliance with personal data legislation (http://www.rsoc.ru/personal-data/register/).
In Russia, the compliance due diligence process is essential to identify potential infringements that could have taken place prior to the planned acquisition of the company. When performed together with typical due diligence procedures, special compliance due diligence enables executives to identify potential risks more effectively. It should cover a number of aspects, such as: whether or not the target has its own compliance program, has participated in public tenders, is subject to monopoly issues or has acted through middlemen and service providers.
In general, company compliance rules can only be implemented as an optional measure. To become obligatory, they have to be translated into Russian, approved by the general director or another authorized representative of the company as local acts (by issuing a written order in this respect) and signed by every employee – then, any violation may then be treated as a disciplinary offense. It is important for company management to lead the way in practical application and through the demonstration of clear, everyday commitments to compliant behavior. In addition, effective compliance requires a clear organizational structure with information and communication rules established by internal bylaws. These regulations distribute certain competences between members of company bodies and departments, creating the horizontal and vertical distribution of responsibilities and powers.
Finally, as is the case with everything in Russia, all internal rules, bylaws, signing procedures or other processes must be properly documented. As in any other country, legal and regulatory requirements must be followed in Russia. It is simply not an option to avoid investing in proper compliance structures. And while it is easy to blame the "Russian factor" as the cause of difficulties that arise during a project, these difficulties are instead often attributable to insufficient preparation.
Every foreign investor that pays serious attention to regulatory compliance and legal security will be able to leverage opportunities to achieve very successful gains with their investment projects in Russia.
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