Proposed changes to Russian legislation could reduce economic transparency

The government this week submitted to the Duma draft legislation that modifies rules on public disclosure of certain financial information. Protections from disclosure were earlier limited to state secrets. Under the bill, the government can define also other special cases for which it can restrict disclosure of financial information.

For corporations, the changes would affect e.g. financial reporting and auditing. Information related to the special cases determined by the government could not be published with financial reporting. If this information is impossible to decouple from other business activities, effectively all financial reporting could not be published. The same principle would apply to auditing as well. The government could define also for public procurements special cases for which information would not be publicly disclosed. Under current legislation, open tenders on internet must be arranged for most public procurements. In addition, the list and selection criteria for banks allowed to perform financial operations related to government defence orders would no longer be public.

The explanatory note for the draft proposal refers e.g. to national security and securing defence capabilities. Many observers see the proposal as a response to the threat of widened US sanctions against Russia. Anatoly Aksakov, chairman of the Duma's financial markets committee, said the bill would primarily concern companies operating in the defence industry, and possibly some other strategic companies. Some observers worry that the changes would promote abuses in public procurements and reduce transparency in business.

The proposal will be taken up by the Duma next month. The government is expected to prepare the specifying decrees for the bill by mid-December.