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The author of this article has already written about the update of the administrative punishment for offenses in the field of precious metals and precious stones (PMPS). This issue is so important for the entire Russian market, and the way the bill was moving so vividly reflects the nature - sometimes a detective nature - of the confrontation between the regulator and industry business in the Russian PMPS market, that it makes sense to review it in detail.

Ups-and-downs of business hopes to mitigate the state punishment for - at least - economically insignificant offenses. We describe all the most important stages of the movement of the bill. 

STAGE 1 - The authorities scared the business with fines of up to 250 thousand rubles.

The first version of the bill prepared by the Ministry of Finance of the Russian Federation was posted on the website for regulatory impact assessment (RIA) on December 29, 2017 (https://regulation.gov.ru/projects#npa=77204).

A distinctive feature of the proposed amendments was a clear orientation towards solving the task of the still mysterious Instruction of the President Pr-2167, to which reference was made to justify the development of the bill - i.e., to prepare a unified PMPS circulation traceability information system to be introduced.

The very first draft included a special article of the Code of Administrative Offenses – the punishment for failure to provide information and documents by the PMPS market participants to the Russian State Assay Chamber, and an increase in fines of up to 250 thousand rubles for the violation of mandatory requirements in the field of the PMPS from their mining to their production, use and circulation.

At this stage, public business organizations indicated to lawmakers that about 98% of enterprises in the PMPS market are small and micro enterprises, and on average their monthly profit does not exceed 200 thousand rubles. New fines will be disastrous for them.

In addition, the business advocated the differentiation of the size of administrative fines depending on the specific type of offense, its public danger level and possible negative outcomes.

STAGE 2 - The government cooperated and introduced the differentiation of offenses and reduced fines slightly

In June 2018, after discussions of the proposed innovations by the business, the regulator (the Ministry of Finance of the Russian Federation) proposed a new, generally less stringent version of the bill. It was proposed to eliminate Article 19.14 of the Code of Administrative Offenses, and all amendments should be introduced into three new articles 15.43 - 15.45, having the following subsections:

- violation of the deadline for filing an application for a special registration (a fine of up to 140 thousand rubles);

- violation of the mandatory requirements regarding the transfer of ownership in the field of the PMPS (a fine equal to up to 4 times the value of the PMPS);

- violation of the mandatory requirements during the PMPS mining and production, changes in the physical condition of the PMPS (a fine of up to 240 thousand rubles);

- violation of the mandatory requirements when moving the PMPS (a fine equal to up to 4 times the value of the PMPS);

- violation of the mandatory requirements for registering and storage of the PMPS (a fine of up to 150 thousand rubles).

STAGE 3 - Choice of ‘the least of the possible evils’ by business

On August 8, 2018, the third version of the draft law was presented on the regulatory impact assessment website, in which the offenses were more carefully differentiated and separated - it was proposed to introduce 5 new articles of the Code of Administrative Offenses (15.43 - 15.47). However, the maximum fine was raised to 280 thousand rubles compared with the previous version.

In the comments in the framework of the RIA to the bill, the representatives of the industry business and its public organizations drew the regulator’s attention to the fact that the Code of Administrative Offenses under consideration proposed to move from the concept of the ‘violation of established rules’ to the concept of the ‘violation of mandatory requirements’, while there existed no set of legal acts that covered the entire list of mandatory requirements (Code, etc.). Scattered over hundreds of documents of various levels, the requirements are sometimes contradictory, and sometimes they are not specified at all.

It was also noted that the unintentional ‘provision of false information’ is especially dangerous for business, taking into account the introduction of the PMPS traceability system, the illegality of the application of penalties was pointed out in terms of the violation of the mandatory requirements for jewelry circulation, the circulation of which actually was not restricted by law, the ambiguity of the term ‘change in the physical condition of the PMPS’, used in the bill was pointed out, as well as the confiscation of vehicles involved in the commission of offenses related to the transportation and shipment of the PMPS was opposed. The need not to add jewelry to the list of the mandatory transportation requirements was pointed out, as the current legislation does not provide for the mandatory protection and use of special vehicles for their transportation.

The business pointed out that the punishment for violating the mandatory requirements regarding the circulation of the PMPS facilities that are privately owned and associated with the confiscation of these facilities looks like an encroachment by the state on this private property. And in general, the public danger of the offenses related to the non-compliance with the established rules regarding the circulation of the PMPS and products made of them is unclear when it comes to privately owned property.

And, most importantly, the Code of Administrative Offenses should distinguish between the unintentional (innocent) provision of false information and the willful one.

Summing up the RIA results, on October 12, 2018, the Ministry of Economic Development of the Russian Federation issued a negative opinion on the bill. However, after numerous consultations held by the industry business organizations with the Ministry of Finance of the Russian Federation, it became clear that, alas, it would not be possible to weaken the new version of the Code of Administrative Offenses for the PMPS sector - the security forces would not allow this. And on December 7, 2018, at the meeting at the Ministry of Finance of the Russian Federation, sectoral business organizations had to support the current version of the bill as ‘the least of the possible evils’.

But on December 13, 2018, at the meeting on the draft Code of Administrative Offenses at the Office of the Government of the Russian Federation, the draft law was sharply criticized by the plenipotentiary representative of the Government of the Russian Federation at the highest judicial instances M. Yu. Barshchevsky and co-chair of the Delovaya Rossiya A. V. Danilov-Danilyan.

STAGE 4 - Authorities punish for criticism

After critical comments at the meeting at the Government Office of the Russian Federation, held on January 21, 2019, at the session of the Commission on Legislative Activities of the Government of the Russian Federation, when considering the bill it was proposed to supplement the bill with norms for the refining and unauthorized mining of the PMPS. In fact, the bill was returned to the very first version (differentiation by type of offense was eliminated, instead of the proposed 5 new articles 15.43 - 15.47), and it was also decided to increase the fines under current article 19.14 manifold (up to 1.5 million rubles).

The bill has become not just bad, it became ‘destructive’ for business. Not yet submitted to the State Duma of the Russian Federation, the bill was criticized by business, which was expected.

Once again, it was pointed out that in the absence of a single set of established rules with a closed and exhaustive list of mandatory requirements in the field of the PMPS, it is very easy to commit an unintentional offense. At the same time, the amount of fines is planned to be set at an exorbitant level for both individuals and individual entrepreneurs and legal entities: according to the Federal State Statistics Service, the average monthly salary in the Russian Federation in the first half of 2018 amounted to 37,018 rubles after tax, and a fine for individuals for unintentional offenses in the field of use, trade and shipment of the PMPS or products made of them will make the average national income of these individuals for a period of 3.2 to 4.6 months. The same is true in relation to individual entrepreneurs and legal entities. The average monthly turnover of a jewelry store is 1.018 million rubles, and the administrative fine ‘for the violation of established rules’ proposed by the bill in the amount of up to 1.0 million rubles will be equivalent to the total loss of the jewelry store’s monthly revenue.

Obviously, such a change in the Code of Administrative Offenses does not contribute to the support of small- and medium-scale enterprises, and is contrary to the requirements of the President of the Russian Federation V.V. Putin regarding supporting small businesses, as indicated in the 2018 May Decrees.

The industry business suggested that for cases of unintentional offenses and those committed for the first time, the lower level of fines should remain at a level that complies with the current norms of article 19.14., and the upper levels of fines should be reduced to a level approximately equal to 30% of the average monthly income of individuals, individual entrepreneurs and legal entities.

However, on February 5, 2019, a bill containing only three sections of one article 19.14. - now under new number 638854-7 - was submitted by the Government of the Russian Federation to the State Duma of the Russian Federation (https://sozd.duma.gov.ru/bill/638854 -7). It is without differentiation of offenses, with fines of up to 1.5 million rubles.

STAGE 5 - The Ministry of Finance of the Russian Federation understands the catastrophic consequences of the adoption of the bill and cooperates with business

On May 19, 2019, a meeting on the bill was held at the Chamber of Commerce and Industry of the Russian Federation. And already on May 22, 2019, an agreement was reached at the Ministry of Finance of the Russian Federation and a new text of the bill was agreed upon, which actually returns to a less ‘draconian’ version for the business. In the text agreed with the Ministry of Finance of the Russian Federation, it was proposed to introduce 5 new articles (15.43 - 15.47) with a maximum fine of up to 280 thousand rubles instead of the current effective article 19.14 of the Administrative Code of the Russian Federation.

In fact, the parties to the agreement ‘rolled back’ to the text of the draft law that was amended on August 8, 2018.

STAGE 6 - Disaster is not excluded!

In theory, the result of the agreement between the business and the regulator on the outcome of the last meeting at the Chamber of Commerce and Industry of the Russian Federation should have led to withdrawing bill No. 638854-7 by the Government of the Russian Federation from the State Duma of the Russian Federation and introducing a new bill with the agreed text.

However, something went wrong, and on July 17, 2019, the State Duma of the Russian Federation held the first reading of the bill (https://sozd.duma.gov.ru/bill/638854-7) as it was introduced. The Government of the Russian Federation has not withdrawn the previously submitted wording, and it was voted on.

Amendments at the second reading, bringing the bill text to an acceptable form already agreed upon with the RF Ministry of Finance, is possible, but there is a danger that, due to the replacement of two articles of the draft law with five new ones and a significant decrease in the fine for them, objections will be made allegedly about a conceptual change in the essence of the law followed by rejection.

And then the disaster in the Russian PMPS market will become almost inevitable.

Vladimir Zboikov for Rough&Polished