Russia wants to be governed by the rule of law, but finds itself unable

20.06.2012 — Analysis

Russia will change its system of civil laws in September 2012. The Kremlin has sent a new version of the Civil Code to the State Duma. And the parliament has to contend with the positions taken by advocates of both the Anglo-Saxon and the Continental legislative models, which have resulted in fifteen hundred different amendments to the Code. As the columnist for RusBusinessNews has determined, the winners in this conflict are likely to be the Russian oligarchs, who are lobbying for both the entrepreneurial freedom found in Western law, combined with the lack of accountability provided by Russian legal practices.

Commenting on the civil-law reforms, Veniamin Yakovlev, Russian presidential advisor, told the participants in the Euro-Asian Legal Congress held in Ekaterinburg that the initiators of those reforms are trying to bring stability to the way business is conducted, protect private property from corporate raiders, and bring the law closer in line with economic realities.

V. Yakovlev believes that the Russian economic system is no longer being effectively governed by law. In recent decades, the world has witnessed the significant growth of financial services that have become self-sustaining businesses in their own right, instead of existing to serve the real economy. Moreover, that sector has set the tone for the entire economy and has even become a source of grief to industry. In fact, the tail has begun to wag the dog and the legal system has been unprepared to take a stand.

The advisor to the Russian president believes that the international community should join forces to reduce the imbalance between the legal and economic systems, because this is virtually impossible for a single country to accomplish on its own. The economic crisis of 2008 demonstrated that the world's economies are too tightly interwoven to make it practical to try to immunize national markets against the actions of speculators. Therefore, Russian lawyers have suggested that all interested countries should coordinate their civil legal systems, claiming that otherwise the domino effect will continue - no sooner will one country find itself in difficulty than problems will begin to crop up for everyone.

But coordinating laws will be no simple task. Traditionally there are two primary legal models in the world: Anglo-Saxon and Continental. The first is a more flexible system, allowing business to take any actions that are not specifically prohibited. However, it also implies strict liability for any infringement of the interests of business partners or for the violation of widely accepted norms. A judge is granted the prerogative to determine who is or is not in violation, and he even has the right to evaluate whether a statute conforms to public relations. The continental model tries to spell out the rights and obligations of the market players in precise detail, as well as regulate business procedures in order to prevent future disputes. Russia has proponents of both models, and it is extremely difficult for them to find common ground.

Veniamin Yakovlev is concerned that simply combining elements of the Continental and Anglo-Saxon models will turn the Russian Civil Code into a patchwork. Foreign legal conventions superimposed on a Russian mentality could ultimately undermine the consistency of business practices. Bronislav Gongalo, the chair of the department of civil law at the Ural State Law Academy, is concerned about the presence of evaluative categories in the bill, such as those defining good faith and frivolous lawsuits. These criteria are essential, of course, but their use presents special dangers, given the level of corruption in Russia. B. Gongalo fears that under the Anglo-Saxon model, an inept judge could greatly "blunt" the sword of justice.

Aleksei Timofeyev, the chairman of the board of the National Securities Market Association, claims that his colleagues do not share these concerns. He argues that the Anglo-Saxon model is making no headway in Russia. An inflexible, highly detailed legal system creates many obstacles to business because it is not possible to protect rights in situations that are not described in the law. The Russian legal model still retains a permissive quality. Experts attribute this to the fact that the legislators have little faith in the competence and integrity of judges, and so establish preliminary controls in an attempt to prevent future disputes. But this is putting a brake on the country's business activity, making investors hesitant to sink their money into Russia.

This fear of Themis is the biggest problem in Russian legislation. A. Timofeyev feels that if the Russians cannot learn to trust this blindfolded woman and her scales, they will never be able to create a flexible system of legal relationships that does not have to be rewritten every fifteen years. According to this expert, sooner or later Russia will settle on the Anglo-Saxon model, since evidence abounds that this is the system used by economically prosperous countries.

But the columnist for RusBusinessNews has convinced that foreign laws will find it no simple matter to make inroads into Russia. According to V. Yakovlev, a group of major industrialists is currently lobbying for a number of amendments that would allow more freedom of action in civil relations, but would not include the judicial control that is characteristic of the Anglo-Saxon legal model. Oligarchs are concerned that attempts are being made to create a registry of subsurface resources, to expand the list of property rights (relationships based on objects), and to use notary publics to formalize transactions to which at least one of the parties is a citizen. It is believed that this "invasion of the notaries" and registration of underground resources will deal a "blow" to the development of the Russian economy.

It is obvious to experts that the keen interest in the law evinced by Russian industrialists stems from a purely selfish motive - they do not need transparent economic relations. Even today, says Veniamin Yakovlev, the very concept of a legal entity in Russia is in serious crisis, as most income passes through shadowy, fly-by-night firms created by other companies. This is accomplished using secretive corporate agreements that major industrialists are attempting to legitimize. The Anglo-Saxon model is perfect for them as long as it does not include strict judicial oversight. So they are eager to create their own "Frankenstein system", gutting the substance of the foreign law.

Bronislav Gongalo thinks it is still possible that the industrialists' amendments will be accepted - there is too much money behind them, some of which is intended to "modernize" the law. But as usual, no one is lobbying for the interests of ordinary citizens, a category which includes the vast majority of the Russian population.

Vladimir Terletsky