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Russia: Supreme Court Lifts Confiscation Clause

(June 2, 2008) On May 18, 2008, the Supreme Court of Arbitration of the Russian Federation, the highest judicial body in the country to resolve commercial disputes, announced its ruling regarding the application of article 169 of the Civil Code, which allows confiscation in the state's favor of revenues from transactions running counter to the fundamental principles of law and morality. This provision was often used by the tax collection authorities to confiscate companies' revenues obtained from transactions aimed at tax evasion. The ruling prohibits this practice and lists specific operations when punishment in the form of confiscation can be applied; namely, deals related to the production and sale of weapons, ammunition, narcotic drugs, and other products hazardous to people's health. The Court stated that the definition of “immoral” may include those businesses related to the production and circulation of literature or other products propagating war or ethnic, racial, or religious enmity or those businesses related to the manufacture or sale of counterfeit documents or securities. The Court's ruling specifies that in tax evasion prosecutions, revenues can be confiscated in cases related to control over the circulation of ethyl alcohol or substances containing alcohol, as they are hazardous to people's health. The Court ruled that in all other cases, the confiscation “is not a measure aimed at ensuring the collection of taxes in the budget.” (Ruling of the Russian Federation Supreme Court of Arbitration No. 22, NOVOSTI [NEWS], Apr. 10, 2008, available at Russian Federation Supreme Court of Arbitration official Web site.)