State-owned companies are to be banned from dealing with relatives 

State-owned companies are to be banned from dealing with relatives

The Russian Ministry of Economic Development proposes to ban the transactions with companies that are directly or indirectly owned by relatives of employees at other state-owned companies.⁠

Ministry of Economic Development proposes to amend the Federal Law "On Procurement of state-owned companies (223-FZ)". The institution wants to ban them from purchasing goods and services from companies affiliated with the relatives of the officials responsible for procurement in the state-owned companies.

Two points are supposed to be added to the federal law — 7.1 and 7.2. The first states that "at each purchase the customer is obliged to establish the requirement of no conflict of interest between him and the procurement party." Meaning, the situations where the Head of the state company or the Head of the procurement service, a member of the commission on purchases or the contract manager is married to the payee or to the beneficiary of the executive company, or to the Head of a company or an individual entrepreneur, who serves as the procurement party. The paragraph 7.1 of the bill lists other links to relatives, which are regarded as a conflict of interest — parents and children, grandfathers/grandmothers and grandchildren, brothers and sisters (including half-blood), as well as adoptive parents and adoptees.

The bill specifies that the payee is an individual, who directly or indirectly owns more than 10% of the voting shares (stakes) of the company. The beneficiary is an individual, who can directly or indirectly control the company's actions. The paragraph 7.2 states that state companies are obliged to verify family ties with the help of registry offices and the Federal Tax Service.

It is noteworthy that the ban on participation in the procurement of individuals and legal entities, who have a conflict of interest with the client, already applies to the procurement of government agencies.

The Deputy General Director of Transparency International – Russia Ilya Shumanov commented to RBC that the novelty may result in an increased time of procurement conclusion, as customers will have to request the data from the tax and registry offices themselves. However, a member of the Rosseti assured that the new rules would not increase the companies’ expenses, and that inspections would not take a lot of time.

A number of state-owned companies are already checking their procurement contracts for conflicts of interests, their own interior services are carrying out these assignments, said procurement ombudsman Sergey Gabestro. For example, the Russian Railways, the RusHydro and Gazprom have already approved the regulations for excluding conflicts of interest, or have at least started identifying the risks associated with the possible affiliation of potential counterparties to the company's employees.

"In fact, the bill will simply secure the practice that already exists in the state-owned companies," the Rosseti employee said.

At the moment, the document is undergoing the procedure of public discussion and anti-corruption expertise, which will end on September 12.

Earlier, the Accounting Chamber drew attention to other imperfections of 223-FZ, which do not allow to stop a conflict of interest between customers and executors. In total, the results of inspections revealed violations of the law on corporate purchases worth more than 620 million rubles.

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