Russian government has ordered state-owned companies to disclose information on beneficiaries of their counter-parties.
In the end of the year 2011 Russian prime-minister demanded that the major Russian state-owned companies and companies majority-owned by Russian state, including RZD, Rosatom, Transneft, GAZPROM, Aeroflot, INTER RAO UES and others (a “State-owned company”), require their counter-parties under the existing contracts to disclose their ownership structures, which should also include ultimate beneficiaries, for further provision of such information to the respective federal authorities. A failure to disclose such information will prevent a State-owned company from entering into new contracts and retaining the existing ones.
The Order of the prime-minister No. VP-P13-9308 of December 28, 2011 (the “Order”) was widely reported and discussed. The key objective of this anticorruption initiative is to make State-owned companies more transparent and to eliminate the risk of them being affiliated with the counterparties.
Russian State-owned companies and their counterparties faced certain difficulties in complying with the Order. Practical enforcement of the Order led to further discussions because of a lack of unified procedure regarding the scope of information to be disclosed. Besides, the Order contradicts certain effective laws. For example, Russian Law On Data Protection prohibits the provision of information on individuals without their consent except in certain cases provided by law.
As such certain issues exist in connection with the execution of the Order. Due to some discrepancies between the provisions of the Order and the requirements of the effective legislation it is disputable whether the failure to provide the information on beneficiaries could be considered as a valid basis for terminating of the existing contracts. The issue related to future contracts seems to be more clear. Most State-owned companies have already amended their tender documentation setting forth the requirements with respect to the disclosure by their counterparties of the information on their beneficiaries. In case the potential party fails to disclose the information it will not be allowed to bid in such tender.
As of today the Order has not led to terminations of existing contracts concluded by the State-owned companies with third parties on any significant scale. However, the Order is considered to be the first step towards making of business arrangements more transparent. Certain amendments to the effective legislation which could make the discussed requirements legitimate should be expected in the nearest future.