In a dramatic move, Russia has enacted substantial amendments to its 1993 Constitution, effective 4 July 2020. The amendments affect many areas of Russia’s social and political landscape, including issues directly relating to the authority of the president and the possibility for Vladimir Putin to run again in the next presidential elections. In this LawFlash we summarize other amendments that are relevant to business dealings in Russia.
The amendments to Russia’s 1993 Constitution (Amendments) were first approved by a Federal Constitutional Law on 14 March 2020.[1] But their effectiveness was made subject to (1) approval by two-thirds of the Russian Federation’s constituent subjects (all of the 85 constituent subjects gave their approval by or about 13 March); and (2) a positive conclusion from the Constitutional Court (which was issued on 16 March[2]).
Further, the Amendments were stated to come into effect only if approved by popular vote of a majority of voters turning out at the polls, with no minimum voting percentage threshold established. Initially scheduled for 22 April, the vote was postponed due to the coronavirus (COVID-19) pandemic lockdown. The rescheduled vote commenced on 25 June with online voting in some regions (a first in Russia), and completed on 1 July with in-person polling sites. As reported by Russia’s Central Election Commission on 2 July, of those who voted in this referendum (a reported total of 68% of voters), 77.92% voted for, and 21.27% voted against.
The Russian Constitution was adopted by referendum in 1993. The Constitution has been amended four times previously (twice in 2008 and twice in 2014), but the prior amendments were far less extensive than this set of Amendments.
The original 1993 Constitution contained 137 articles. The Amendments have added five new articles, and 41 of the existing articles have been amended, including some quite significant changes and the introduction of several new concepts (although, as discussed below, some of the Amendments were foreshadowed by prior constitutional law developments). Also worthy of note, some of the Amendments call for the adoption of further laws to elaborate and develop the new rules and concepts.
The international law–related sections of the Amendments were perhaps the most actively discussed by the legal community. The discussion as to the appropriate role and priority of international law within the Russian legal system has been debated for several years at various levels and among many different interest groups in legal, political, and other spheres. This debate has focused heavily on the constitutional principle of the supremacy of international treaties to which Russia is a party over Russian domestic laws.
This principle of international law supremacy is set out in item 4 of Article 15 of the Constitution, which reads, “The universally-recognized norms of international law and international treaties and agreements of the Russian Federation shall be a component part of its legal system. If an international treaty or agreement of the Russian Federation fixes other rules than those envisaged by law, the rules of the international agreement shall be applied.” This norm is also reflected in many other Russian laws including the Civil Code (Article 7.2), the Tax Code (Article 7.1), the Subsoil Law (Article 52), and many others.
The supremacy of such international treaties is important, in particular, for large multinational investment projects in Russia, where the foreign investors rely in part on this constitutional principle for needed risk-mitigation defense in the event of an expropriation or other serious threat.
This supremacy principle has not been overturned by the Amendments as a general matter, as the key item 4 of Article 15 is left untouched. But at the same time, the Amendments added two provisions that may be viewed as contradicting the general principle:
The Constitutional Court reviewed the draft Amendments and held that these new provisions do not contradict the general principle of international law supremacy set out in item 4 of Article 15 because they do not provide for Russia's abdication of its international treaties or refusal to abide by interstate body decisions based on such treaties, but rather just create a constitutionally acceptable framework for performance/enforcement of such decisions in order to ensure the supremacy of the Constitution within the Russian legal system.[4]
But even if these new provisions don’t directly contradict the Article 15 international law supremacy principle, they still seem to create uncertainties as to the enforceability of international treaties. For example, it is unclear whether the Article 79 prohibition on enforcement of decisions of interstate bodies that are based on interpretations contrary to the Constitution could be determined by a court of any level (i.e., without a decision of the Constitutional Court), or for its application the Constitutional Court would have to first opine on whether there is a contradiction.
Further, with regard to rejection of the enforcement of a foreign court or arbitration decision on the basis of public policy (new sub-item (b) of item 5.1 of Article 125), it remains to be seen how the Constitutional Court will interpret the new rule given the broad and undefined nature of the public policy concept. As drafted, the new rule grants the Constitutional Court the right to prohibit the enforcement of treaty-based decisions by interstate bodies, also in addition to the decisions of various other international courts and arbitrations imposing obligations on Russia. (Of course, the public policy exception concept is generally accepted in the commercial arbitration enforcement context, e.g., under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.)
Note that here again the Amendments’ provisions on the Constitutional Court new authorities refer to a separate law, which needs to be adopted. Thus, it remains to be seen how these Amendments will be implemented in practice, in a new law, and in actual further practice of the Constitutional Court.
Amended item 4 of Article 125 sets out the new procedure by which a private party may request the Constitutional Court to determine whether a law or other legal act is constitution as applied to a particular case. Such Constitutional Court review will be possible now only "if all of the other domestic judicial remedies have been exhausted." Thus, before seeking a Constitutional Court opinion, a claimant must exhaust all of the stages of the appeal process for such case even if the relevant law or act is argued to be unconstitutional. The Constitutional Court Conclusion of 16 March affirms that this new rule conforms to the right of judicial protection established by item 1 of Article 46 of the Constitution. And, in fact, a somewhat similar approach has already been adopted in the prior pronouncements from the Constitutional Court.
The Amendments introduce various changes as to how the three branches of government—legislative, executive, and judicial—are to interact. These provisions appear to solidify the president's role as the head of the executive branch and provide more flexibility in the rules regarding the appointment and dismissal of the government. The balance of power has arguably shifted to the executive branch. At the same time, certain checks for the legislative authority were also amplified, including an increased role in the government formation and parliamentary control function now written into the Constitution (although the statutory basis for such control has already been established by federal laws). And the State Council’s expanded role (see below) should also be kept in mind.
The Amendments also introduce new restrictions for government and civil servants. Now, members of parliament and the government, as well judges and prosecutors, must have neither foreign bank accounts or cash or valuables in foreign banks nor foreign citizenship or residence permits.
For the president, the latter restriction is a bit fuller: the president must not have been a foreign citizen or permanent resident at any time prior to election. Again, some of these restrictions are not new as they have been provided for in certain other laws—but now they have been given constitutional status.
New item e.5 of Article 83 describes the role of the State Council (Gosudarstvennyi Soviet) within the Russian state power structure. Previously, the State Council was regulated only by a Presidential Decree[5]—which described it essentially as a consultative body reporting to the president.
In contrast, under the Amendments, the State Council is set to help coordinate the interactions of different branches of the government, and to determine the principal guidelines for domestic and international policy and for the priorities of social and economic development of the country.
The Amendments also envisage that upon the end of a presidential term, the president may become a life-time senator. It is also possible that the newly reinforced State Council may be headed by an ex-president.
The status of the State Council is to be further determined by a federal law. It remains to be seen how the State Council will fit into the evolving regulatory framework going forward.
Russia is divided into 85 federal subjects (constituent subjects or units). An Amendment to Article 67 provides for the possibility of establishing the so-called "federal territories," which are land areas that do not belong to any federal subject, but rather, are controlled only by the federal government. The status of such newly established federal territories is to be determined by federal law.
Prior to the Amendments, all of Russia’s land territory was divided among and belonged to the relevant federal subjects, and only Russia’s internal waters and territorial seas had such direct federal subordination. (Of course, even before the Amendments, certain land plots were federally owned, as designated by land laws; this regime would not be affected by the Amendments.)
The legal regime applicable to the federal territories is yet to be determined by contemplated special law. Most likely, businesses operating within such territories will not be subject to regional taxes such as, for example, the regional portion of the profit tax and the property tax. Some observers believe that these territories will be used for special investment attraction zones, similar to the currently existing special economic zones or advanced development territories. It is also possible that most significant nature preserves and other environmentally sensitive areas, such as in the Arctiс region, will become federal territories.
[1] Federal Constitutional Law No. 1-FKZ On Improving the Regulation of Certain Matters of Organization and Functioning of Public Power, dated 14 March 2002.
[2] Constitutional Court Conclusion No. 1-3, dated 16 March 2020.
[3] A interstate body would include various supranational dispute resolution forums including in the area of human rights, as well as bodies of authority of various supranational unions or confederations, such as the Eurasian Economic Union, in all cases based on Russia's relevant international treaties.
[4] In fact, the Constitutional Court’s position on this matter seems to have already been developing with the 2015 amendments to the Constitutional Court Law, which allowed the Constitutional Court to opine on the enforceability of the decisions of international human rights bodies—which then was followed by a handful of Constitutional Court decisions that refused the enforcement of international human rights body decisions arguing that the interpretation of the underlying treaty ran contrary to the Constitution.
[5] Presidential Decree No. 1602 dated 1 September 2000.