Doing business in Russia

Introduction

Russia, the major part of the former Soviet Union, is located in Eurasia, bordering the Arctic Ocean, between Europe and the North Pacific Ocean. With a total area of 17,316,000 km², Russia is the largest country in the world by territory. Its land boundaries stretch as far as 20,017km. Russia's border countries are Azerbaijan, Belarus, China, Estonia, Finland, Georgia, Kazakhstan, North Korea, Latvia, Lithuania, Mongolia, Norway, Poland and Ukraine. Its coastline is 37,653km, its territorial sea is 12nm, its exclusive economic zone is 200nm and its continental shelf is 200m depth or to the depth of exploitation.

Climate in Russia ranges from steppes in the south to humid continental in much of European Russia and subarctic in Siberia to tundra climate in the polar north. Winters are cool along the Black Sea coast and frigid in Siberia. Summers are warm in the steppes and cool along Arctic coast. Terrain is mostly plain with low hills west of Urals. There is vast coniferous forest and tundra in Siberia, uplands and mountains are along southern border regions. The lowest point in Russia is Caspian Sea at 28m, and the highest mountain is Elbrus, 5,633m, which is also the tallest peak in Europe.

Russia has a wide range of natural resources including oil, natural gas, coal, minerals and timber. However, there are climatic impediments to the exploitation of these resources: permafrost, spring floods and summer/autumn forest fires in Siberia; a too dry or too cold climate; and a lack of proper soil for agriculture.

Russia is party to a number of international agreements on environment: Air Pollution, Air Pollution – Nitrogen Oxides, Air Pollution – Sulfur 85, Antarctic – Environmental Protocol, Antarctic – Marine Living Resources, Antarctic Seals, Antarctic Treaty, Biodiversity, Climate Change, Climate Change Kyoto Protocol, Paris Agreement, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Wetlands and Whaling.

General

The national currency is the Russian ruble, which consists of 100 kopecks. The currency code is RUR. Exchange rates for 13 June 2024 were: Russian rubles per US $1–88; Russian rubles per UK £1–112; Russian rubles per €1–94.

General

1–2 January – New Year; 7 January – Orthodox Christmas; 23 February – Defenders of the Motherland Day; 8 March – International Women's Day; 1 May – Labour Day; 9 May – Victory Day; 12 June – Independence Day; 4 November – National Unity Day.

General

The main issue of the political transformation in the last three decades in Russia has been the legitimation of state power in society. The first time Russia faced similar problems was at the cusp between the 16th and 17th centuries when, after murder of Prince Dimitry, the major branch of the ruling dynasty of Ryurickovich ceased to exist. A new monarch, Boris Godunov, had «no God-given right to rule» in the eyes of common Russians and had to find a way to secure support in society. An attempt to legitimise power through the State Council where top clergy and dignitaries and more than 500 representatives from all over Russia were present was not particularly successful. Russia went into a long period of social disturbance and complete disintegration of state. The next similar crisis followed Nicholas II's abdication from the throne in February 1917. The February revolution destroyed monarchy as such. It appeared that Russia was not ready for the democratic reorganisation of society during the World War I, and the radical party of Bolsheviks took over the state. They founded their power on promise of peace and prosperity to war-torn people which was based on the communistic ideology, charisma of leaders and the following terror.

Today's political structure in Russia was not formed according to a predetermined plan; rather, it is the result of short-term trends of political rivalry. It is, therefore, important to consider not only how the system works on a functional level, but why it operates like that.

Mikhail Gorbachev, the last leader of the Communist Party of the USSR, realised that his power was not unlimited. It was strong enough to keep up the communist regime, but it was not for the transformation of the country. He needed sources of support in society, and so the system of free election to the councils of people's delegates was implemented. In the Soviet Union councils of people's delegates possessed the supreme power de jure, but in reality all power belonged to the Communist Party and the system of ispolkoms, executive bodies acting under the party's control. The idea was that the elected councils of people's delegates would weaken the Communist Party and support reforms. At the same time it was a way to preserve succession to the Soviet State. However, as the councils of people's delegates were originally designed as a mere window dressing for the power of the Communist Party, they were incapable to act in the real world and only accelerated the disintegration of the Soviet Union.

At the beginning of 1991 the first President of Russia, Boris Yeltsin, was in conflict with the federal centre. For him, a President elected directly by all citizens was a way to secure public support amidst this rivalry. The presidency was quite a new idea to Russian political life, and at the same time it was a move towards tradition for Russian personified power. The system, however, soon caused conflict between the President on one side and the Supreme Council, the Assembly of the People's Delegates, the legislative bodies and the vice-president on the other. The Supreme Council had the advantage in terms of legal power. Nevertheless in 1993 President Yeltsin managed to end the two-year rivalry by a series of non-constitutional acts, starting from the order for the dismissal of the Supreme Council and the Assembly of the People's Delegates and ending with an armed storm of the building with delegates.

Political system

As a result of Russia's turbulent history, the political system established by the Constitution of 1993 provides the President with substantial superiority over other branches of the state. The position of vice-president was abolished. The State Duma, the successor of the Supreme Council, became the lower chamber of the Parliament with very limited capacities. It lost control over the executive branch and could only approve or disapprove a Prime Minister suggested by the President. However, even this possibility is limited. After three consecutive disapprovals of his candidate, a President can dismiss the State Duma. A President is entitled to veto laws approved by the Duma. This veto can only be overcome by the qualified majority of the Duma members. Judges of the constitutional court are appointed by the Council of the Federation (the upper chamber of the Parliament), but only from those candidates introduced by the President. A similar procedure has been established as regards the heads of other judicial bodies. The procedure for amending the constitution has become practically impossible without the President's consent. Similarly, the impeachment of the President, theoretically possible under the current constitution, is hardly achievable in practice.

The President is elected for a term of six years by the citizens of the Russian Federation on the basis of general, equal and direct vote by a secret ballot. No one may hold the office of President for more than two terms in succession; still, being a president for more than two times total is legally possible. A candidate for the President of the Russian Federation can be nominated by a political party (or electoral block) or by the candidate personally. In the later case the candidate must have an initiative group of 500 supporters. An electoral block or an initiative voters' group that has nominated a candidate for the office of the President must collect no less than 300,00 voters' signatures in support of the candidate, with no more than 7,500 signatures falling on one subject of the Russian Federation. (A candidate nominated by a political party that is represented in the Parliament does not need to collect signatures). Political parties not represented in Parliament will have to collect only 100,000 signatures in support of their candidates, and independent candidates will have to provide 300,000 such signatures.

Russian law restricts the amount of candidates' expenditures for the election campaign. At present no more than RUR 400 million (around £3.9 million), or RUR 500 million (around £4.9 million) in the case of a two-round election, can be spent. A candidate cannot accept money for financing his or her campaign from foreign or international organisations or individuals, persons without citizenship, minors, domestic companies with foreign shareholders, charities and state or municipal bodies. A candidate who receives more than one half of the votes is considered elected. If no candidate is elected in the first round, the Central Election Commission sets the second round of election for the two candidates who received the greatest number of votes. A candidate who received the greater number of voters in the second round as compared with the number of votes cast for another candidate is considered elected, provided that the number of votes cast for this candidate is greater than the number of votes cast against all candidates.

The Federal Assembly, the Parliament of the Russian Federation, is the supreme legislative body of the Russian Federation. The Federal Assembly consists of two chambers: the Federation Council and the State Duma. The State Duma is elected for a term of four years. It consists of 450 deputies. From 2007 all deputies are elected in proportion to the number of votes cast for the lists of candidates nominated by political parties. The Federation Council consists of two representatives from each subject of the federation, one from the representative and one from the executive bodies of the State authority.

Deputies to the Federation Council and deputies to the State Duma possess immunity throughout their term in office. A deputy may not be detained, arrested or searched except when detained in the act of perpetrating a crime, and may not be subject to personal search except when such search is authorised by law to ensure safety of other people. The question of stripping a deputy of immunity is decided on the recommendation of the Prosecutor-General of the Russian Federation by the corresponding chamber of the Federal Assembly.

The Government consists of the Chairman of the Government, the Deputy Chairman of the Government and Federal Ministers. The Chairman is appointed by the President with consent of the State Duma. If the State Duma thrice rejects candidates for the Chairman of the Government nominated by the President, the President appoints a Chairman of the Government, dissolves the State Duma and calls a new election.

The Prosecutor's Office of the Russian Federation is a single centralised system in which lower prosecutors are subordinated to higher prosecutors and the Prosecutor-General. The Prosecutor-General is appointed to the post and relieved from it by the Federation Council on nomination by the President. Prosecutors are appointed by the Prosecutor-General.

Legislative process

The legislative process in Russia includes three hearings in the State Duma, then approval by the Council of the Federation and the President. The laws adopted by the State Duma are passed to the Council of the Federation for review. A federal law is considered passed by the Council of the Federation if more than half of its deputies vote for it or if within 14 days it has not been considered. In the event that the State Duma disagrees with the decision of the Federation Council, a federal law is considered adopted if, after a second vote, at least two-thirds of the total number of deputies to the State Duma vote for it. Then, however, laws must be considered by the Council of the Federation. These are laws that deal with the issues of: the federal budget; federal taxes and duties; financial, monetary, credit and customs regulations and money transmission; the ratification and withdrawal from international treaties; the status and protection of the state border; and issues of war and peace.

The adopted federal law is sent to the President. If the President rejects a federal law the State Duma and the Federation Council must again consider the law. If, during the second hearings, the federal law is approved in its earlier draft by a majority of not less than two-thirds of the total number of deputies of the Council of the Federation and the State Duma, it must be signed by the President.

Federation

Russia is a federation with capital in Moscow (population – approximately 13,149,800). It used to consist of 83 subjects before the accession of Crimea, and currently there are 89 subjects following the accession of new territories in 2022 Currently there are 48 Oblasts, 24 Republics, 4 Autonomous Okrugs, 9 Krais, 3 Federal cities, and 1 Autonomous Oblast. These subjects of the federation (regions) are deemed to have equal political rights but they are not equal in area, population or economic development.

They are (administrative divisions have the same names as their administrative centres, exceptions have the administrative centre name following in parentheses):

(1) Oblasts:

Amur (capital – Blagoveshchensk), Arkhangelsk, Astrakhan, Belgorod, Bryansk, Chelyabinsk, Chita, Irkutsk, Ivanovo, Kaliningrad, Kaluga, Kemerovo, Kirov, Kostroma, Kurgan, Kursk, Kharkiv Leningrad, Lipetsk, Magadan, Moscow, Murmansk, Nizhniy Novgorod, Novgorod, Novosibirsk, Omsk, Orenburg, Orel, Penza, Pskov, Rostov, Ryazan, Sakhalin (capital – Yuzhno-Sakhalinsk), Samara, Saratov, Smolensk, Sverdlovsk (capital – Yekaterinburg), Tambov, Tomsk, Tula, Tver, Tyumen, Ulyanovsk, Vladimir, Volgograd, Vologda, Voronezh, Yaroslavl, Zaporozia.

(2) Republics:

Adygeya (capital – Maykop), Altay (capital – Gorno-Altaysk), Bashkortostan (capital – Ufa), Buryatiya (capital – Ulan-Ude), Chechnya (capital – Groznyy), Chuvashiya (capital – Cheboksary), Crimea (capital – Simferopol), Dagestan (capital – Makhachkala), Donetsakaya (capital – Donetsk), Ingushetiya (capital – Magas), Kabardino-Balkariya (capital – Nalchik), Kalmykiya (capital – Elista), Karachayevo-Cherkesiya (capital – Cherkessk), Kareliya (capital – Petrozavodsk), Khakasiya (capital – Abakan), Komi (capital – Syktyvkar), Lughanskaya (capital – Lughansk) Mariy-El (capital – Yoshkar-Ola), Mordoviya (capital – Saransk), Sakha [Yakutiya] (capital – Yakutsk), North Ossetia (capital – Vladikavkaz), Tatarstan (capital – Kazan), Tyva (capital – Kyzyl), Udmurtiya (capital – Izhevsk).

(3) Autonomous Okrugs:

Chukotka (capital – Anadyr), Khanty-Mansi, Komi-Permyak (capital – Kudymkar), Nenets (capital – Naryan-Mar), Yamalo-Nenets (capital – Salekhard).

(4) Krais:

Altay (capital – Barnaul), Kamchatskiy (capital – Petropavlovsk – Kamchatskiy), Khabarovsk, Krasnodar, Krasnoyarsk, Perm, Primorskiy (capital – Vladivostok), Stavropol, Zabaykalsk (capital – Chita).

(5) Federal cities:

Moscow, Saint Petersburg, Sevastopol.

(6) Autonomous Oblast:

Yevrey [Jewish] (capital – Birobidzhan).

Subjects of the federation have their legislatures and governments, who act within the competence determined by the constitution and, in some cases, an agreement between the federation and the region. It is supposed that outside of the jurisdiction of the federation and the joint jurisdiction of the federation and the subjects of the federation, the regions exercise the entire spectrum of state power. In reality most of the Russian laws are in the federal competence and as such have superiority over regional legal acts. Another complication of relations between the federation and the regions is the composition of the tax and budget systems. At the moment the majority of regions receive financial assistance from the federal budget.

Municipalities

There are over 240,000 municipalities in Russia. The structure of a municipal government is determined by the regional legislation under the legal framework established by the federal laws and includes a legislative body at local level.

Law in Russian society

The Russian legal system in its main features follows those of the European countries. The principles and ideas lying in its foundation are the inviolability of ownership, freedom of contract and the judicial protection of rights along with others that are recognised and shared by modern Western society. Most Russians share Western social values. Moreover, they truly consider themselves to be a part of the Western culture. However, Russia has somewhat different experiences and its own answers to historical challenges.

For those doing business in Russia or with Russians an understanding of the role of law in Russian society is of important practical value. It is likewise important to understand the difference not only between law and repression but between law and other forms of regulation of the human relations like, for example, economic or social pressure, religious beliefs or family relationships. Law is the product of long historical experience and not merely a product of the legislative power of the sovereign. The idea that the law-maker may enact any law it pleases has ignored the fact that law in a deeper sense, like other social institutions, is a living tradition. Law is a part of a culture and as such it is intimately connected to the whole historical experience of a nation.

According to a leading sociologist, Talcott Parsons, Western social institutions are based on the institutions of ancient Greece and Rome. This relation has three main «bridges». First of all, the Western Christian Church kept an idea of formal equality of all people as an example for the whole society – a society where there are no privileges, and everybody is equal in the sight of God, who appreciates them according to their individual qualities. On the other hand, the Western Church was always a unified institution, with the centre in Rome, independent from civil government. Secondly, the organisation of Western medieval cities, just as in a modern society, was based on principles other than personal relationship or origin. A medieval city with private property and market became a point of growth for modern economical institutions. Thirdly is the legacy of a Roman-Greek legal structure with professional bureaucracy, an army and uniform law for the whole country.

Russian social and legal institutions emerged from a background very similar to that of the Western Europeans. The Slavonic tribes, predecessors of Russians, seem to have had a social order not essentially different from that of Germanic tribes who settled in the West. The laws of ancient Russia were similar to the Anglo-Saxon or Germanic or Frankish law at this time. Russians as well as West Europeans were converted from paganism to Christianity and despite provincial differences shared the ideas of the Western Church. However, if we view Russian history as a whole and compare it with the history of the West we see that perhaps the most striking difference between the two histories is the relative deficiency of the role of law in the Russian social relations. The historical choice of the Russian society was that the law as an institute of the formal rules and procedures did not supersede completely the informal rules and regulation.

When the Bolsheviks came to power as the result of the Socialist Revolution in 1917 they considered law as the instrument of class exploitation. The People's Commissariat of Justice enacted in 1919 «Leading Principles of Criminal Law», which stated:

«only with the final smashing of the opposing overthrown bourgeois and middle classes and with the realization of the communist social order will the proletariat annihilate both the state as an organization of coercion, and law as a function of the state.»

Moreover, they saw a legal system as a reflection of the market and expected that the abolition of the market and of economic individualism would bring about «the withering away of law in general, that is the gradual disappearance of the juridical element from human relations» (E. Pashukanis, The General Theory of Law and Marxism (Transaction Publishers, 2001)).

Despite the fact that the Communists soon set aside the idea of the inevitable withering away of law in the Soviet Union, a large part of social relations was outside of the legal regulation. Moreover, many forms of commercial activity were directly outlawed. For example, for private entrepreneurship one could be imprisoned for up to five years with confiscation of all property; for speculation, which was effectively a trading operation, where profit is made on the margin between purchase and selling prices, one could be imprisoned for up to seven years; for transactions with foreign currency, one could have been sentenced for up to eight years. Land, real estate, machinery and other means of production were by far owned by the state. The institute of proprietorship was abolished, and the inheritance was made unjustly complicated.

That said, however, it does not mean that there is no law at all in Russia or that law is just a window dressing for a system of hierarchical subordination backed up by force and corruption. On the contrary, Russian law stands on determined and clear legal principles following in its main features the legal principles of the modern Western society. Moreover, in this writer's view, rule of law is still and was possible even during the darkest years of Russia's history.

The truth probably is that in Russia the law is competing with other forms of social regulation to a much larger extent than that in most Western countries. This conflict being a part of the everyday life, it largly influences the way business is done in this country and those considering undertaking business in Russia should be prepared for the cumbersome and ineffective work of some governmental bodies, even though in recent years the availability and speed of most government services provided improved drastically, mostly because of widespread governmental e-services; there is a tendency of state authorities and even courts to interpret Russian laws narrowly, reducing one's private rights, and there is a negligence of the law by certain parts of Russian society. It also shall be taken in account that in recent years protectionist tendencies and so-called «protection of traditional values» are on the rise.

Sources of Russian law

The framework of the Russian legal system is created by the constitution, constitutions of the subjects of the federation, decisions of the constitutional court, decisions and directives of the Supreme Court, international treaties, federal constitutional laws and federal laws, regional laws and ordinances, municipal legal acts, directives and statements of the Central Bank and government ministries and state authorities.

The conflict of legal acts is resolved according to the juridical power of the legal acts. The constitution has supreme power over the whole territory of Russia. Codes and federal constitutional laws have more power than federal laws. A conflict between regional and federal laws is decided in favour of a regional law if one is admitted within the regional competence and vice versa. An international treaty that has been ratified has direct effect and precedence over domestic legislation.

Russia is a civil law country; decisions rendered by courts are not binding on other courts. However, the lower courts generally follow the principles established by the Supreme Courts. Moreover, according to art.304 of the Code of Procedure in commercial courts, the Economic Panel of the Supreme Court (until 2014–Supreme Commercial Court) can set aside a decision of a lower court on the grounds that this decision contravenes uniformity in interpretation of law as established by case law. In practice precedents of the higher courts are becoming an important source of Russian law.