Property Rights and Criminal Law in Russia

Posted: November 28, 2012 at 4:11 pm, Last Updated: November 28, 2012 at 4:18 pm

by Aaron Beitman

Russia’s “cowboy” capitalist phase in the 1990s saw the growth of organized crime amidst rapid privatization of state property and a massive retreat of the state from its formerly commanding place in society.  With these processes in mind, Dr. Louise Shelley notes that the emergence of large-scale private property in the 1990s in Russia recalls the need for protection, which had facilitated the rise of the mafia in Sicily over a century ago.  Russian businessmen, according to Shelley, appear willing to pay “protection” because of the state’s failure to do so.

The marketization of Russia’s economy, one might say, was bound to be accompanied by challenges.  However, there appears to have been little improvement in this situation.  According to a recent news report on capital flight out of Russia, Russian deputy finance minister Alexei Moisseev admitted that “…There are many things we need to improve, but the biggest problem is the quality of the market infrastructure.  As well as [improving] property rights protection [and] the courts system.”

Even as property rights protections remain problematic in Russia, analysts have chronicled troubling trends with respect to the relationship between criminal law and property rights.  In an article commissioned by TraCCC’s Saratov Center, Professor A.G. Bezverkhov of Samara State University suggests that changes in Russian criminal law appear to be conditioned on economic trends.  Once in place, these modifications of criminal law serve to negatively impact economic outcomes.

Broadly, Professor Bezverkhov suggests that Russia is continuing to go through the difficult process of building a market economy, albeit with adequate “social” protections.

As such, necessary economic regulations should be implemented, as should adequate criminal-legal protections of the social market system.  Of course, history has shown that a proper balance between public and private interests should be struck.

Nevertheless, Professor Bezverkhov’s research reveals curious trends in recent modifications of the Russian criminal code.  In particular, it appears that “economic” crimes are considered worse than crimes against property, even though the former crimes appear to be a special “variety” of the latter.  Economic crimes, as outlined in Chapter 21 of the Russian criminal code, include fraud (Part 3 of Article 159), property damage (Part 2 of Article 165), illegally obtaining credit (Article 176), smuggling (Article 188), customs duty evasion (Article 194), and tax crimes (Articles 198 and 199).  Property crimes, noted in Chapter 22 of the code, include money laundering (Article 174), monopolistic activities (Article 178), and counterfeiting (Article 186 and 187).  In addition, Professor Bezverkhov notes that economic crimes committed by non-economic actors are considered more damaging than those by “active market participants with existing property.”  Why this further differentiation is the case remains unclear.

While the reasoning behind the above hierarchy of crimes remains puzzling, Professor Bezverkhov suggests that the reason why economic crimes and crimes against property rights are so closely linked in the Russian criminal code has to do largely with changing economic circumstances.  As such, legislators have maintained existing frameworks governing economic crimes, while constructing new rules to be consistent with new criminal realities.  However, the connections between old and new laws are not consistently obvious.  The result is that changing legal structures appear to foster greater uncertainty in the marketplace.

Moreover, Professor Bezverkhov suggests that the preponderance of criminal law in economic regulation, as opposed to civil and arbitrage law, has led to corruption, inefficient use of government resources, and abuse of authority by law enforcement and judicial bodies.  Quoting a Russian proverb, Professor Bezverkhov sees this practice akin to “shooting sparrows with a cannon.”

Taking a step back, we might consider the implications of Russia’s continuing property rights problem.  Hernando de Soto’s influential book from 2000, The Mystery of Capital, argues that property rights are essential to the development of a market economy.  In nations where entrepreneurs are unable to seek relief for business disputes in courts, refuge is taken in the shadow economy, which then spawns a myriad of related social, economic, and political problems.  Echoing de Soto’s argument, Anna Nadgrodkiewicz of the Center for International Private Enterprise, suggests that pervasive economic exclusion in the form of the absence of property rights also leads to a weak rule of law and corruption.  This context, as it were, is ripe for the damaging practice of corporate raiding.  The relationship between a lack of property rights protections and corporate raiding will be explored here in a subsequent post.

It should be clear that measures to address Russia’s property rights problem are needed, as this issue has significant implications for the country’s political, economic, and social life.  How the Putin administration will respond to this challenge remains to be seen.

Write to traccc at traccc@gmu.edu