Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Where Laws and Orders Collide

President Boris Yeltsin issued a decree last January allowing selected manufacturing companies a reduction on some import tariffs. Then, he signed a federal law which abolished all foreign trade privileges not specifically outlined in existing legislation -- effectively nullifying the earlier decree.

When Western businesses complain about Russia's confusing and constantly changing legal regime, this is what they are talking about. Wading through the maze of laws, orders, decrees, instructions, regulations and explanatory letters can be the most important part of making a business decision in Russia.

Although a basic hierarchy of legislation and administrative acts can be established, often it is ignored, and when that happens there is little recourse, according to attorney Dan Rothstein.

"There is a hierarchy in theory, but it is violated in practice," said Rothstein, a partner at the law firm Rothstein & Shaw. "And there are very few practical remedies."

In the pecking order, the 1993 Constitution reigns supreme, followed by federal and non-federal laws, presidential decrees, government resolutions and administrative acts put out by various ministries and federal bodies, said Yury Timokhov, an associate at Baker & McKenzie.

If only it were that simple.

Under the constitution, a presidential edict may not contradict a federal law or the constitution itself. But the decree could target a subject not already covered by existing legislation, giving it in effect the force of law. "If the president issues a decree on a subject that is not regulated by a federal law, or a decree that supplements a federal law, the decree has the same status as a law until a federal law comes along to contradict the federal decree," said Rothstein.

In the above example, then, the law should prevail over Yeltsin's decree, leaving any companies qualifying for the reduction -- such as U.S. convenience foods manufacturer Mars -- swaying in the breeze. But special circumstances could reapply the original privileges.

Companies affected by implementing legislation can fight specific fines or other penalties in an arbitration court, but seldom are the instructions themselves cancelled or reversed, said one attorney who declined to be identified.

What most often affects businesses is subsidiary, or administrative, legislation, which explains or expands existing legislation or decrees.

"The Central Bank issues a letter, sends it to commercial banks on how to deal with a problem, the banks get the letters and suddenly you can't operate the way you did yesterday," said Jamison Firestone, a partner in the law firm Firestone & Duncan.

In that case, he said, the instructions have the force of law unless they directly conflict with existing federal laws.

"The Central Bank affects every aspect of business because they send letters to all the banks, and if the banks don't play ball, you just stop," Firestone said. "A lot of our business is people who have been stopped by their banks."

Issuing implementing legislation is not unique to Russia. In the United States, the Environmental Protection Agency can issue a regulation relating to the Clean Water Act, for example.

The difference in Russia, lawyers say, is that state organs are issuing documents which are too broad in scope and which overlap with one another.

"In a more ordered system there is a relationship between the level of legislation and its scope," said Rothstein. "It gradually gets narrower and narrower as you go down the hierarchy, whereas here everything is all over the map."

A related problem, he said, is that the bodies issuing administrative legislation are not always specialists. "Different bureaucracies are working on the same areas," he said. "The presidential bureaucracy gets it into its head to meddle somewhere where they haven't meddled before, instead of the ministries normally in charge of implementing and drafting the law."

The result of all of this is more bits of legislation and non-legislative measures to explain previous documents, which only further muddies the waters. And the solution is clearer, more concise laws.

"The laws are not written precisely enough," said Timokhov. "It is necessary to eliminate such contradictions, to do it more carefully."

Easier said than done, according to Rothstein. "A lot of laws and decrees in Russia are just political statements of the organs who issue them," he said. "It really all comes down to politics. There's just no authority in this country."