The Russian Ministry of Finance will allow to classify information about the owners, directors and assets of more than 10 thousand legal entities that have already fallen or may fall under sanctions, the BBC found out. The list of companies whose data will be excluded from the register of legal entities will also be secret. The Russian government’s new anti-sanctions measures could encourage abuse, experts say, as civil society now uses the data to investigate corruption and businesses to vet their counterparties.

The Russian authorities have been trying to restrict access to open data about legal entities and individuals for several years now – since the introduction of the first sanctions by the United States in connection with the annexation of Crimea. After Russia’s military invasion of Ukraine, the trend towards non-transparency and secrecy intensified.

The draft government decree “On some features of restricting access to information” is published on the portal of draft regulations . The Ministry of Finance proposes to partially close the data of the state registers of legal entities (EGRLE) and the BFO (accounting and financial statements).

By law, access to these services of the Federal Tax Service (FTS) can be obtained free of charge by any Internet user. But in order to counteract Western sanctions, the Ministry of Finance will form a special list of legal entities from the risk group – they will be included there at their request or by the decision of the government.

The list will make it possible to withdraw from public access information about the managers, participants and shareholders of the companies included in it. Their name and TIN will remain in the Unified State Register of Legal Entities, but, for example, information about their owners will become closed.

In addition, companies from the list of the Ministry of Finance will be able to hide any information from their financial statements that they want. Now the Federal Tax Service publishes all data provided by legal entities – indicators of profit, revenue, debt and other financial results with textual explanations for them.

The list of persons whose data will be classified will also be secret. Based on the project of the Ministry of Finance, there may be more than 10 thousand.

According to the Federal Tax Service, more than 3.2 million legal entities are registered in Russia. At the same time, about 10 thousand legal entities and individuals were under sanctions and restrictions in April 2022, more than 7 thousand of them fell under sanctions during the Russian military operations in Ukraine. There are several hundred individuals from them according to various lists.

But the number of persons who, according to the project of the Ministry of Finance, can be included in the list for classification, theoretically can be much more.

The list for closing data from the Unified State Register of Legal Entities can include not only legal entities that are already subject to sanctions, but also those who are still threatened by this, including due to ties with a sanctioned person. The assessment of such risk will also be non-public.

The draft specifies that the threat concerns companies, as well as their owners, officials and employees, who may fall under “secondary sanctions”, including a ban on interacting with persons or objects. As such objects, the Ministry of Finance also indicates ships and aircraft that are subject to sanctions.

For example, the description of the package of sanctions that the United States adopted in February 2022 refers not only to large Russian banks and their subsidiaries, but also to a ban on serving a number of Russian ships.

You can get on the list for information restriction or leave it voluntarily by submitting an application to the Ministry of Finance with documents confirming the existence of sanctions or such threats. Or, accordingly, that the sanctions have been lifted and the threat has passed. In addition, the government itself can decide to include a company or enterprise in the list, if it finds grounds.

The scale of the withdrawal of information from public access cannot yet be assessed. Obviously, the list can include legal entities that have already fallen under sanctions and restrictions, plus those who are directly or indirectly associated with them – that is, up to several tens of thousands.

The law on registration of legal entities in Russia was adopted in 2001. At first, it was possible to get an extract about a company of interest for a small fee – such extracts were often ordered by investigative journalists.

In 2010, a rule was introduced into the law on the creation of the Unified State Register of Legal Entities on the Internet for free and free access. You can now get a company statement in real time.

Hiding data – for example, that a company is a “daughter” of a person under sanctions – can reduce the risks for its partners in Russia and other countries, one of the experts told the BBC on condition of anonymity, since he is not authorized to comment this topic.

Such partners in “unfriendly” countries will be paid less attention, and if they are accused of violating prohibitions, they will be able to prove that they did not know that their counterparty was associated with a person under sanctions, he argues.

“Russia has one of the world’s most open systems for accessing information about legal entities,” attorney Sergei Usoskin told the BBC. In his opinion, one of the reasons for its appearance more than ten years ago could be the desire of the state to increase its place in the international rankings of Doing Business (“Doing Business”).

“Closing information from the Unified State Register of Legal Entities is clearly an anti-sanction measure, but it will also make life easier for corrupt officials and complicate the conduct of normal business. For example, it will be easier for an official to register a state contract or a summer house for a company of relatives or third parties, whose data is closed due to the threat of sanctions. And it will be more difficult for a businessman to check the purity of the planned transaction and find out if the manager of the company is withdrawing money through his company,” Usoskin believes.

“Often funds are stolen from the company before bankruptcy. In bankruptcy cases and a number of others, confidential information about the owners will have to be claimed through the courts. All this will delay the processes,” the lawyer explains.

“Open information in the Unified State Register of Legal Entities is necessary not only for unfriendly states, but primarily within Russia for public and legal purposes. And obfuscation, concealment of information and opacity are often faithful companions of abuses and violations of the law,” the head of the law firm told the BBC. “Bartolius” Julius Tai. The publicity of the registry is set by law, and exceptions to it should also be clearly described in the law, he says.

Several BBC interlocutors noted that if access to some of the information in the Unified State Register of Legal Entities is officially closed, then at least its archived version can be bought on the black market. Such bases – “casts” of the Unified State Register of Legal Entities for a certain year – are now available for download.

In 2017, the Russian government prepared a list of 126 companies, including more than 10 private banks, whose purchases the authorities were going to classify due to a possible expansion of US sanctions. This (just as it is now) was explained by the risk that the sanctions would extend to structures affiliated with them.

The leaders of Gazprom and Rosneft, Alexei Miller and Igor Sechin, then sought to remove most of the transactions of state-owned companies from public procurement legislation, citing the risks that foreign authorities would be able to monitor how companies comply with the sanctions regime.

But in the end, state-owned companies were allowed to hide suppliers and contractors, and bank guarantees for government contracts are no longer published on the public procurement portal.

At the same time, the authorities still classified the information and reporting of legal entities, which is subject to disclosure by law, not according to lists, but according to categories of legal entities.

For example, after the Russian invasion of Ukraine, the Central Bank reduced the requirements for public reporting of banks, pension funds and insurance companies, RBC reported in April.

Companies that sell shares on the market to attract investment and must therefore publish annual and quarterly reports on their activities were allowed not to do so in case of threat of sanctions.

The Federal Tax Service no longer publishes explanations of non-public companies to accounting reports, and the Central Bank – the structure of international reserves. The volume of disclosed economic statistics has also decreased. All this slows down work on analysis and forecasting in the economy, RBC experts said.

In addition to public procurement, the most dissatisfied with the authorities and the security forces has always been the publicity of data on property owners – one of the important sources of anti-corruption investigations.

In April, a draft amendment to the laws “On Personal Data” and “On State Registration of Real Estate” was submitted to the State Duma. Deputies propose to restrict access to the Unified State Register of Real Estate (EGRN).

Now information from the USRN is provided at the request of any person and contains not only a description of the property, its exact address and restrictions (encumbrances) of rights to it, but also information about the copyright holder indicating his name.

Back in 2015, the FSB sought to restrict access to the USRN. Then the non-governmental organization Transparency International (in Russia it is classified as a “foreign agent”) opposed this project, insisting that real estate data is needed both to verify the purity of real estate transactions and for civil anti-corruption control. But initiatives to close the registry continued to emerge.

In 2017, FSO employees nevertheless received the right to “take measures to protect the personal data of state protection objects and members of their families.” This meant that any information about the president, the prime minister, the prosecutor general, the heads of the Investigative Committee, both houses of parliament, the Supreme and Constitutional courts and members of their families could be excluded from all public registers – the traffic police, Rosreestr, the Unified State Register of Legal Entities, the FSSP, the Federal Tax Service.

In 2020, the State Duma went even further and allowed law enforcement agencies to classify information about their employees, their families and property, even if there is no threat to their lives. The list of employees whose data must be kept confidential is determined by the head of the “security body”.

At the same time, President Putin canceled the decree on the disclosure of information to the FSB, issued during the presidency by Dmitry Medvedev. Putin issued a new decree, drastically reducing the amount of information to be disclosed.

Now a new round of secrecy has begun. The State Duma is preparing amendments regarding the processing and transfer of personal data of Russians in order to counteract the identification of military personnel and law enforcement officers. And the Russian Ministry of Defense proposed to classify data on the relatives of those who died during military operations, which would make information about the dead participants in the war in Ukraine more confidential.

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