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“Regulatory guillotine” for precious stones can be “nipped in the bud”?

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“The rigidity of Russian laws is mitigated by the non-bindingness of their observance”

N. E. Saltykov-Shchedrin (1826-1889)

Some people believe, referring to P. A. Vyazemsky (1792-1878), that the idea in the epigraph was expressed earlier by P. I. Poletika (1778-1849), an official of the Russian Ministry of Foreign Affairs. In fact, it sounded a little differently - "In Russia, from bad measures taken by the government, there is a salvation: their bad execution."

It is not so important whose priority of this saying should be kept in the history. It is important that the described state of things is, one might say, a “historical national feature”, and the Russian intellectuals were always well aware of the excessive rigidity of the Russian legislation, in fact, justifying the failure to comply with its silly norms. Although it is clear that in most cases, the "stupidity" of the statutes of the law is not the stupidity of the legislators, yet. It’s just that these norms serve to create favorable conditions for gaining benefits and advantages by well-defined groups of society...

Sometimes, the Russian and Soviet society faced the attempts taken by the authorities themselves to eliminate the stupid current legislation. In the recent history of Russia, the legislation reforms sometimes were global for the economy, for example, the introduction of the private entrepreneurial initiative and private ownership of the means of production - in fact the main element of capitalism - in the socialist economy by M. S. Gorbachev. Neither he nor B. N. Yeltsin managed to bring the full-fledged structure of the capitalist legislation of the new Russia to the logical end - the processes began that eventually resulted in establishing the state capitalism in the country, with market economy elements.

And as the state played a crucial role in the economy, there seemed to be no special need to improve the legislation in the market direction. It was until the stagnation of the economy as a whole - if nothing would have been changed - became a clear and inevitable prospect. And then ideas came up to improve - without affecting the current state of things globally – the economic legislation so that even outright stupidity could be reduced in it ...

The ideas of "improving something somehow" stemmed from the logic that if silly norms are not implemented in practice, then it is reasonable to eliminate them in the industry regulatory framework. And then, the business will have no reason to “execute poorly” the remaining norms - the strictness of the responsibility for the implementation of the updated legislation can be strengthened “with a clear conscience”. And this can be achieved with the help of administrative (Administrative Code), and criminal (Criminal Code) legislations.

In short, on January 15, 2019, Chairman of the Government of the Russian Federation D. A. Medvedev voiced the idea of ​​the “regulatory guillotine” of the economic legislation of Russia. More precisely, the idea of launching the “regulatory guillotine” mechanism, which provides for a large-scale review and revision of the existing economic regulatory acts in the sectors and in general. The plans to cut off obsolete industry standards by creating a new legislative regulatory framework in the industries are reflected in the instructions to the government to prepare a “road map” of reforms.

The President supported the initiative, V. V. Putin instructed the government to introduce amendments to the legislation - involving the leading business associations of entrepreneurs - which envisages the abolition, from January 1, 2021, of all regulatory legal acts establishing the requirements, the implementation of which must be checked during the state control and supervision, as well as the introduction of new standards containing updated requirements that were developed with account of the risk-oriented approach and the current level of the technological development in their respective fields. However, on April 24, 2019, President of Russia V. V. Putin noted, with a reservation, that one should not go to extremes - neither control the business too tightly, nor excessively weaken the control.

So, on June 4, 2019, D. A. Medvedev approved the “road map” for implementing the “regulatory guillotine” mechanism, which provides for the preparation of a new law on the control and supervision activities, a new regulatory structure for each sphere of public relations or a type of control, and which updates and systematizes the mandatory requirements, including those in certain areas.

However, not all the departments met the idea of ​​cleaning the regulatory framework with a bang. On June 26, 2019, at the meeting in the government, several departments and services, including the Ministry of Justice of the Russian Federation, the Ministry of Finance of the Russian Federation, the Federal Security Service (FSS), the Federal National Guard Troops Service (Russian Guard) and the Federal Anti-Monopoly Service (FAMS), asked that the “regulatory guillotine” should not be binding on them. They explained their request by saying that the business had no complaints about their checks.

The Prime Minister heeded the requests, but, nevertheless, on July 4, 2019 he approved a document with a long title “The List of Federal Executive Bodies Exercising Legal and Regulatory Functions in the Spheres of the State Control (Supervision) ... Types of the Federal State Control (Supervision) ... to which the mechanism of the “regulatory guillotine” should be applied”. The FSS and the Russian Guard are not in the list (at their request), but the Ministry of Finance of Russia - so important for the PMPS sector - is in the list. Moreover, the issue of the participation of the Rosfinmonitoring in the “regulatory guillotine” mechanism regarding the control of the income legalization is still under discussion, which is also relevant for businesses working in the PMPS field.

Section 2 of the document lists the types of control and supervision under consideration that fell under the “regulatory guillotine”, and paragraph 19 reads: “The Ministry of Finance of the Russian Federation, ... Federal State Assay Supervision, Federal State Control over the import of precious metals, precious stones and raw materials containing precious metals into the Russian Federation from the countries outside the Eurasian Economic Union, and their export from the Russian Federation to the states outside the Eurasian Economic Union."

Great! The industry business community operating in the PMPS field has repeatedly expressed its extreme interest in analyzing the applicability of a large list of the current standards in the PMPS field. Many times, the business has expressed its view that the “novelty” of the current norms in the PMPS sphere consists only in reaffirming the archaic provisions that were in force during the socialist economy, which did not allow private ownership in the production and trade sector and did not have private entrepreneurs as market participants. The opinion of the industry business that most of the norms, and, as a result, the whole set of the industry laws and regulations in the PMPS field are essentially rudiments that hinder the competitiveness of the industry, is well known in the Ministry of Finance of Russia. In the PMPS sphere, the entire legislative and regulatory framework in fact is a “copy” of the USSR norms, having absorbed the spirit and letter of the socialist approaches to the economy!

Moreover, the industry business emphasized that the measures of the “regulatory guillotine” were aimed not only at reducing the costs of the business itself in fulfilling control and supervisory requirements, but also at reducing the state’s expenses for monitoring compliance - not in the form, but in the essence of outdated acts.

However, last week the leading all-Russian public organizations received letters from the Ministry of Finance by mail, in which the ministry appealed to the Government of the Russian Federation with a proposal not to apply the “regulatory guillotine” in the PMPS field, and in general, the ministry believed that “the inclusion of the Ministry of Finance of Russia and its subordinate organizations in the list of the federal executive bodies involved in the mechanism of the “regulatory guillotine” was inappropriate, and there was no need to map out a course of action (“road maps”) for the implementation of the “regulatory guillotine” mechanism.”

Surprisingly, the above letters were mailed to the public organizations on August 5, and there were two letters from the Ministry of Finance, the first of which (No.01-02-02/03-10871) was dated February 20, 2019. That is, it was on the day preceding the approval of the aforementioned "List of Federal Executive Bodies, ... types of the federal state control (supervision) ... to which the "regulatory guillotine" mechanism should be applied”.

It would seem, why should they have attached the letter, that had no relevance any more - as the decision on the participation of the Ministry of Finance of Russia and the assay supervision in the “regulatory guillotine” at the time of the distribution of the letters was already taken by the Russian Government (July 4, 2019), and it was too late to ask for “taking no part”?

The second letter of the Ministry of Finance (01-02-02/05-54612 dated July 23, 2019) substantiated the ministry’s point of view on the “inappropriate use of the mechanism of the “regulatory guillotine” to the control over the implementation of the “anti-money laundering” (AML/CFT) legislation in the field of the PMPS”.

Really, Rosfinmonitoring itself is not in the “List ...”. However, the purpose of the “regulatory guillotine” is to increase the competitiveness of individual enterprises and the industry as a whole by reducing the unreasonable administrative burden on the business and improving the business climate. And the “regulatory guillotine” provides for two stages - first, a large-scale analysis of the effectiveness and usefulness of the existing norms, and only then, a selective review of the existing regulatory legal acts. And it is the Assay Chamber of Russia being under the jurisdiction of the Ministry of Finance of Russia that gained the authorities for the AML/CFT in the PMPS field. This means that it is the Ministry of Finance of Russia represented by the Assay Chamber of Russia that has direct interaction with the entities under control, and it is the Ministry of Finance of Russia that is able to assess the effectiveness of certain existing AML/CFT standards supported by the facts, and based on an in-depth analysis of the effectiveness and usefulness of these standards, is able to develop recommendations for Rosfinmonitoring on their appropriate or inappropriate application for each of the existing AML/CFT standards.

Moreover, the Russian AML/CFT standards in the PMPS field are extremely redundant and greatly exceed the norms recommended by the FATF, which results in significant reduction of the competitiveness of the Russian companies operating in the PMPS sphere. Moreover, the AML/CFT standards apply not only to entities engaged in the PMPS market “buying up, buying and selling precious metals and precious stones, jewelry made of them and scrap of such products”, but also to the companies engaged in manufacturing activities, which is not mentioned in the letter.

Also, in the letter, the Ministry of Finance of Russia expresses its opinion that it is advisable not to extend the “regulatory guillotine” to federal state control when importing the PMPS into the Russian Federation from states outside the EAEU and exporting them from the Russian Federation to the states outside the EAEU.

This request of the Ministry of Finance of Russia looks strange, because the interests of the Russian Federation are also present at the level of interstate cooperation within the framework of the Eurasian Economic Union. The Russian Federation takes an active part in the formation of the regulatory framework of the EAEU, and, of course, is interested in the development of exports from the Russian Federation, including the PMPS exports.

Carrying out the above federal state control when importing and exporting the PMPS to/from the Russian Federation, the Ministry of Finance of Russia cannot be indifferent to how effective or justified these or those standards are.

Earlier, the industry business has repeatedly drawn the attention of the Ministry of Finance of Russia to the need to simplify the jewelry export procedures, to the redundancy of the existing norms controlled by the Ministry of Finance of Russia.

It is all the more important that the industry uses a “regulatory guillotine”, as the industry is on the verge of the total implementation of the turnover traceability system (SIIS PMPS) in the field of the PMPS. New digital technologies will eliminate a huge number of control functions, which are becoming completely useless, duplicating, but costly for business and the state under the new conditions.

It should be noted that instructions No.PR-2167 dated October 25, 2017 of the President of the Russian Federation and No.ISh-P13-7283 dated October 30, 2017 of the Government of the Russian Federation mentioned in letter 01-02-02/03-10871 dated February 20, 2019, voiced the necessary measures to prepare for the introduction of a new digital system for controlling the circulation of the PMPS in the country. It should be taken into account that the emphasis in these documents is on the need to ensure a full coverage of all the PMPS market participants by the system, for which, first of all, the instructions strengthened the measures to control over the registration of the participants in the circulation and their submission of the information about their transactions. That is, the instructions do not mean strengthening the control as such, but the introduction of a “smart”, effective control. It is, of course, impossible without an audit of the entire existing industry regulatory framework. Obviously, the plans to create the Federal Service for Monitoring the Circulation of the PMPS are aimed at the same goal.

Thus, the use of the “regulatory guillotine” tool in the PMPS field does not contradict the essence of the above instructions, but also, on the contrary, makes the use of the “regulatory guillotine” in the PMPS field the only possible prerequisite for the actual achievement of the goals set by the instructions.

So, what will the outcome be, will the “regulatory guillotine” in the PMPS field work and eliminate all “bad measures”, or will it be “nipped in the bud” and everything will remain as it is? Time will tell…

Vladimir Zboikov for Rough&Polished