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On innovations in Russia’s Administrative Violations Code: Squelch them at once to save their suffering...

27 march 2019

As I see it, the "humanism" of the innovations introduced in Article 19.14. of Russia’s Administrative Violations Code (AVC) is in that business entities working with precious metals and precious stones were allowed not to suffer, being instead threatened to be squelched with just a few fines. For good.

Let's compare the norms and fines from Draft Article 19.14. of the AVC with the current version of this article:

analyt_27032019_eng.png

The penalties proposed by the bill are clearly disproportionate to the scale of the potential severity of possible offenses in this area - as a rule, there are no victims of such offenses.

Comparing the size of fines introduced by the bill with the current ones, it follows that the size of penalties for identical offenses under Part 1 of Article 19.14 of the AVC are increased in the following proportion:

- 23 ... 24 times for individuals;

- 46 ... 50 times for self-employed entrepreneurs;

- 20 ... 25 times for legal entities.

In the absence of a single set of established rules in the Russian legislation with a final and exhaustive list of mandatory requirements, it is highly probable that even experienced market players may commit an unintentional offense within the purview of the “Violations of the established rules for the extraction, production, use, circulation (trade, transportation, forwarding, mortgage transactions, transactions with banks and legal entities), receiving, accounting and storage of precious metals, pearls, precious stones or products containing them.” Moreover, there is a high risk of unintentional violations of the “established rules” by individuals, who are not familiar with the industry regulatory framework, as well as self-employed entrepreneurs and legal entities just starting their activities in the market of precious metals, precious stones and products containing them them.

Taking into account:

- the liquidation of “inspection vacations” under Federal Law 294-ФЗ for new (inexperienced) participants of the precious metals and precious stones market,

- the planned removal of restrictions on the number and frequency of scheduled inspections for business entities in the sphere of precious metals and precious stones circulation,

- the real (actual) increase in the intensity of unscheduled inspections of all market participants dealing with precious metals and precious stones,

 it is becoming easy and simple to be “caught” committing some petty offense.

Moreover, there is an ongoing discussion of creating a Federal Service for Control over the Circulation of Precious Metals and Precious Stones. Presumably, with its creation, the attention given to market participants will become even greater.

At the same time, the size of fines proposed by the bill is planned to be set at an exorbitant level for individuals, self-employed entrepreneurs and legal entities. Perhaps, the authors of the bill simply do not understand that even one fine in the amount of 500,000 to 700,000 rubles for a self-employed entrepreneur and a million-ruble fine for a small legal entity can turn out to be lethal for their business.

According to the Federal State Statistic Service, the average monthly salary in the Russian Federation in the first half of 2018 was 42,550 rubles, or 37,018 rubles after tax deduction. Thus, the proposed administrative fine, for example, for certain unintentionally committed violations of the rules for individuals regarding the use, trading in or forwarding precious metals, precious stones or products containing them, will be equal to the national average actual income of these individuals for the period from 3.2 to 4.6 months.

A similar picture emerges in relation to self-employed entrepreneurs and legal entities. So, according to the Federal State Statistics Service, the annual turnover of jewelry in trade is about 220 billion rubles, and there are about 18,000 jewelry stores in the country. Thus, an average jewelry store in Russia has a monthly turnover of 1,018 million rubles. At the same time, the proposed administrative penalty “for violation of the established rules” in the amount of 0.50 to 0.70 million rubles for self-employed entrepreneurs and 0.75 to 1 million rubles for legal entities will be equivalent to a complete loss of the monthly revenue earned by their jewelry store.

In addition, the bill introduces separate administrative responsibility for individuals, self-employed entrepreneurs and legal entities for refining extracted precious metals from impurities and related chemical elements by legal entities not included in the list approved by the Government of the Russian Federation (Part 2 of Article 19.14.).

Also, for individuals, self-employed entrepreneurs and legal entities, the bill introduces separate administrative responsibility in case of unauthorized extraction of precious metals and (or) precious stones (Part 3 of Article 19.14.).

On the one hand, the introduction of this norm is quite reasonable: if the AVC contains Article 7.5 “Unauthorized mining of amber, jade or other semi-precious stones”, then some administrative responsibility looks quite logical for some kind of unauthorized mining of precious metals and precious stones.

It is clear that the unfortunate term “unauthorized mining” requires an accurate and unambiguous explanation (this is also true for the Criminal Code of the Russian Federation). But the fundamental difference between the norms mentioned in Part 3 of Article 19.14 of the Administrative Violations Code and the norms introduced by the bill to Parts 1 and 2 of Article 191 of the Russian Federation Criminal Code is that the Administrative Violations Code will punish only for “unauthorized mining” of semiprecious stones, etc., while the Criminal Code will punish for “making transactions related to (semi-precious objects) knowingly mined without authorization …, as well as for their illegal storage, transportation and shipment in any form and condition."

It looks ridiculous: the punishment for transactions, transportation and storage of semiprecious stones mined without authorization is higher than for their unauthorized mining (criminal prosecution versus administrative prosecution). However, there are always two sides in making deals: the seller (who mined semiprecious stones without authorization, which means that he or she is already guilty under the AVC article) and the buyer, who may not even suspect that the stones being purchased were mined "without authorization." Meanwhile, according to Parts 1 and 2 of Article 191 of the Russian Federation Criminal Code, the seller (unauthorized miner) and the buyer (bona fide acquirer) may get the same punishment...

Again, this huge size of the fine... How would you like a fine of 120,000 to 170,000 rubles imposed on a hapless tourist, who had a bad luck to dig out some semi-precious (by name only) stone from the ground?

Concluding the review of the innovations introduced into the Russian Federation Criminal Code and Administrative Violations Code, I would like to express my belief in that these bills will remain in history as bills only, without becoming a law.

Vladimir Zboikov, Executive Director, ‘Business Russia’ Committee on Precious Metals and Stones, Jewellery Art and Handicraft Industry