Business people often believe that the only consequence of a tax offence will be the claim for the outstanding (non-paid) taxes and administrative penalties. The issue of potential criminal liability of the chief executive officer is usually disregarded. This may be a serious mistake of the affected company and its CEO as many so-called "economic" criminal investigations are filed in Russia for fraud and tax evasion.
Prior to autumn 2014 criminal cases were brought only following the audit of the Russian tax authorities. Prosecution authorities did not have enough power to file a criminal case absent the report of the tax authorities. However, new developments dated October 22, 2014 to the Russian Code of Criminal Procedure have significantly broadened the powers of the prosecution authorities. Now criminal officers may file criminal cases for tax evasion if they believe they have enough grounds. Audit report of the tax authorities is no longer required.
There are a few hints that may signal that the criminal case is going to be filed shortly. For instance, the prosecution officer from the Russian Department of Economic Security and Prevention of Corruption present at interrogation of the company's employees by a tax officer. At this stage, i.e. immediately prior to filing a criminal case, it is important that the company has a solid position explaining that despite certain facts of tax evasion those facts do not constitute criminal case.
It is virtually impossible to eliminate a probability of filing a criminal case against the chief executive officer of the affected company. In order to prevent filing a criminal case the companies shall undergo not only annual audit by professional auditors but engage criminal expert to carry out tax audit from the standpoint of potential criminal liability. The annual audit by auditors is usually not enough to prevent a criminal case. The reason is that auditors usually examine proper keeping of financial statement of the company and unlike criminal experts do not emphasize on culpa, or mens rea, of the offence.
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