Lawsuits Initiated by the Prosecutor's Office

What is this legal alert about?

This alert focuses on the three “tools” through which prosecutors' offices have used to convert private assets into state assets for one reason or another.

• First, “anti-corruption” lawsuits are used to seize assets obtained in violation of anti-corruption laws.
• Second, lawsuits are used for “deprivatization”: the seizure of assets that were transferred into private ownership in violation of privatization laws.
• Third, the Prosecutor's Office can seize assets transferred under transactions that were conducted without obtaining the mandatory consent of the Government Commission. For convenience, these claims are labeled as claims for violation of Law No. 57.

We have analyzed the court decisions available to us on the claims of the prosecutor's office, and a separate section of the alert is devoted to each type of claim (please find the pdf at the end of the page). At the beginning of each section are the main conclusions based on the results of the analysis of the respective category of claims. The legal alert does not contain an exhaustive description of all possible claims of the prosecutor's office, but only some of the most high-profile categories of such claims.

“Anti-corruption” lawsuits

Key findings in this category:

• The prosecutor's office may initiate the seizure of private property due to violation of anti-corruption legislation. For example, clause 8 part. 1 Article 235 of the Civil Code of the Russian Federation allows for the seizure of property in cases where a person (for example, a state or municipal employee) cannot prove the legitimacy of the income with which such property was acquired:

• “Forcible seizure of property from the owner is not allowed, except in cases when on the grounds provided for by law are made: conversion by court decision to the income of the Russian Federation of property in respect of which no evidence of its acquisition on legitimate income is not presented in accordance with the legislation of the Russian Federation on combating corruption.”

• The Constitutional Court considered that the seizure of such property is intended to act as an adverse consequence for the receipt of proceeds from corrupt activities and to indicate the futility of acquiring property with illegal proceeds and corrupt behavior in general (Decisions of the Constitutional Court of the Russian Federation of 29.11.2016 No. 26-P).
• Most often, the basis for the application of Article 235 of the Civil Code of the RF is the violation of the Law “On Control over the Compliance of Expenses of Persons Holding Public Office and Other Persons with their Income” dated 03.12.2012 No. 230, but, in practice, the basis for the application of this article can be the violation of any anti-corruption law.
• The scope of the possible defendants is quite broad: civil servants, parliamentarians, individuals and legal entities – not related to state activity. The latter may be held liable for non-disclosure of a corruption offense known to them.
• The Supreme Court encouraged the lower courts to investigate the circumstances of the case in more detail, to check whether the prosecutor motivated the amount of the claim, and to consider whether the relevant anti-corruption law was in force on the date of the alleged violation.
• The Constitutional Court came to the conclusion that statutes of limitation are inapplicable to “anti-corruption” claims – the prosecutor's office is not limited by the time limit within which it can make a claim under Article 235 of the Civil Code of the Russian Federation (Decision of the Constitutional Court of the Russian Federation of 31.10.2024 No. 49-P).

“Deprivatization” lawsuits

Key findings in this category:

• In addition to “anti-corruption” lawsuits, the Prosecutor's Office is actively pursuing “deprivatization” claims. Acting in the interests of the Russian Federation, the prosecutor's office makes claims against the current owners of assets for their seizure in favor of the state. The grounds for satisfying such claims are violations of the privatization procedure that took place in the 1990s and 2000’s.
• Analysis of court acts allows to identify many examples of illegal privatization, including fraud, circumvention of mandatory procedures, transfer of property into private ownership in the absence of the right to such transfer.
• As a rule, the plaintiff asks to reclaim the property from someone else's unlawful possession, but there are also alternative claims that allow the plaintiff to more effectively oppose the defendants' arguments.
• In such disputes, the defendants object on the grounds that they could not have known that decades ago the disputed property was obtained by someone in violation of the rules on privatization. However, the courts do not agree with this objection of the defendants.
• The defendants also claim that the prosecutor's office has missed the statute of limitations for a privatization violation or the statute of limitations for criminal prosecution. However, neither the first nor the second objection allows the defendants to defend themselves effectively.

Claims for violation of the Law “On the Procedure for Foreign Investments in Business Entities of Strategic Importance for National Defense and State Security”

Key findings in this category:

• Another category of lawsuits filed by the prosecutor's office are claims to recover assets transferred under transactions made in the absence of the mandatory consent of the Government Commission. In these disputes, the parties to such transactions, according to the prosecutor's office, violate the Law “On the Procedure for Foreign Investments in Business Entities of Strategic Importance for National Defense and State Security” (“Law No. 57”). The consequence for violating this law may be the seizure of the asset transferred under the transaction to the state.
• In contrast to “nationalization” and “deprivatization” claims, not only the prosecutor's office but also the Federal Antimonopoly Service act on the plaintiff's side in this category of disputes, which makes the defendants' position particularly vulnerable.
• In order to satisfy the claims, the court must establish that the disputed transaction resulted in the transfer of control over an asset of strategic importance to Russia to a foreign entity without the parties to the transaction having obtained the consent of the Government Commission.
• In determining the transfer of control to a foreign person, the courts do not limit themselves to a formal assessment of the circumstances; the courts take into account, among other things, the interconnection of transactions and the possible fictitious nature of the defendants' actions. In addition, according to the courts, control is transferred not only as a result of the sale of an asset, but also if it is pledged.
• In determining the strategic importance of an asset, courts take into account its economic significance and its role in the market (dominant position or natural monopoly status).
• This claim is used relatively less frequently than others. At the moment, in all the disputes found, the courts have recovered the disputed assets for the state. At the same time, the asset may be claimed even in cases where the ultimate beneficiary of the transaction is a Russian citizen.