The Institution of a Nominee Director in Russian Law
By Roman Makarov, Nektorov, Saveliev & Partners
The nominee director of the organisation is a fictitious leader. He may have a solid position, a good salary, but he is not the actual head of the company.
Common reasons for the need to attract a fictitious manager in Russia include:
- A new company is opened, and the owner is not entirely sure of its success. He hires a “director” to run the company so as not to ruin his own reputation if the project fails.
- “Optimisation” of tax. Used to open a business in offshore zones. Appointing a local citizen to an associate and subsidiary significantly reduces the tax burden.
- Special status of a businessman. For example, if he is member of the parliament, an employee of the prosecutor’s offce or law enforcement agencies, then in accordance with the current legislation, he is not entitled to occupy such positions. To support the business, he needs a “director”.
- Creation of fraudulent organisations for the implementation of illegal schemes, e.g., money laundering and tax evasion. To remove responsibility from stakeholders, a person responsible for this is required.
There is no clear legal definition of a “nominee director” in Russian legislation, but there is criminal and civil liability for such a status.
Providing one’s services as a nominee director qualifies as the transfer of a personal passport to third parties for a fee, and this is an article of the Criminal Code: “Illegal use of documents for the creation (reorganisation) of a legal entity.” The maximum sentence can be up to three years in prison.
At the same time, in case of the bankruptcy of a legal entity, the nominee can avoid liability in whole or in part for the debts of the company if it reveals the real beneficiary and his assets. Otherwise, he will be liable for all the difference between assets and liabilities to creditors if he does not prove his innocence.
When a formal leader is used to create a fictitious business with the goal of tax evasion, fraud, and other questionable activities, the liability can be much more serious.
How to determine a nominee?
A nominee director is one of the persons of the organisation who is legally responsible for its activity.
Most often, this kind of manager is required to sign the charter documents and to use his personal information: passports, TIN, and domicile. He receives a monthly bonus without appearing in the organisation.
As a rule, such a person is not able to answer questions about the activities of the enterprise, the number of employees, their duties and interaction with contractors. He has no idea how the company is managed and what documents are being signed.
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Nektorov, Saveliev & Partners is a law firm established in 2006 in Moscow, Russia, and focuses on providing comprehensive legal solutions to corporate and private clients under Russian and English law. Their main practice areas are tax, corporate and M&A, arbitration and litigation, banking and finance, investments, public-private partnership, and real estate. They provide legal support to clients in Russia, CIS countries (Belarus, Kazakhstan, Ukraine), and worldwide.
Roman Makarov specialises in dispute settlement and complex bankruptcy cases. Roman develops strategies and tactics of legal defence in court.
Published: Debt Collection, Restructuring & Insolvency Newsletter, No. 13, Spring 2021 l Photo: Andrew Bayda - stock.adobe.com