Future of background screening in Russia (part 1)

New Year fiesta is a period of high hopes. Traditionally during these days divination is very popular and (if true believers don’t cheat) more reliable. That’s why I decided to send this post at the very beginning of 2011.

What trends will change the face of background screening and due diligence in Russia during 2011? Can we expect that in the nearest future dealing with Russian companies will be less dangerous with the help of background screening, due diligence or risk-management professionals? 

 

Let’s play that I’m the Delphi oracle (who also was said to be “not quite good in Greek grammar”) and listen to my answers.

Development of Background screening as a service. The strongest disease of background screening in Russia is that it is still treated by mid-sized enterprises as a kind of semi-governmental, partially-legal (i.e. corrupted) activity which is aimed on gathering data about partners and employees in militia’s databases. The funniest thing is that in most cases (except for identity and criminal records checks) these databases are useless for the client. I expect that in 2011 most innovators of the market will at last understand that if background screening won’t be considered as a service which brings value to the customer they will be forced to leave the market. What’s in background screening report will bring value to Russian customers? – The answer will dramatically change the face of Russian background screening market in the year 2011. 

Changes in informational structure of Russian databases and availability of information. Until 2009 there were no open for public official databases in Russia. Ones I had a chance to ask reliable informant “Why we keep all the data classified? Isn’t it reasonable to move towards the US or European practice in management personal and corporate information?” The answer was simple “we simply can’t define what should be kept classified and what should be opened for public. That’s why we protect everything we know”. Some news in current legislation of Russian Federation, development of Electronic government and infromatization of State agencies brings hope that in 2011 we will see new opened for public databases. By the end of 2011 these databases will cover 20-35% of standard background screening report of regular Russian risk-management company. There still some questions (including reliability of these open for public databases) and it shouldn’t be expected that in general background screening prices will be reduced but I assume that newcomers of the market will use these new sources to start damping of the  market. With no doubt these databases will simplify remote background screening of Russian companies by foreign professionals. 

Aging of illegal databases and decrease of small-sized background screening companies. As you have probably seen in my previous blog posts, there are several illegal databases available at the black market and torrents of Russian Federation.  Until 2008-2009 these databases (also known as Cronos databases) were widely used by small and mid-sized market players in background screening processes.  It is obvious that without regular update these databases are aging every day. If it was acceptable for regular customer to buy 2007 expired information during 2008-2010, in 2011 it won’t work.  At the same time I can’t decline that these illegal databases will be extremely helpful in enhanced due diligence projects mostly related with origin of capital. Being offline source these databases can’t be edited by politician or businessmen’s wish. Anyway, Russian companies relying on illegal offline databases will be forced to search for a new source. Will they find free of charge databases? I doubt. 

Rising of legal background screening. I know that most of my readers are skeptical and hardly believe that in a short period Russian business will become more transparent and legal but in my opinion this exact market has a strong potential of legal growth in nearest future. I think that during 2011 we will see the rise of innovating companies who will use only legal procedures in background screening projects. Doing my part in 2011 I’ll try to show simplest methods of legal gathering of information on my blog. 

I wish you all the best and good luck in 2011!

Direct links to statistical data of Russian Federation

Sometimes it is required to include simple benchmarking analysis to your background screening project. One knows that valid data requires fresh investigation (research) but if we need to have a general view of the market some statistic can be enough for decision maker.
Where can we get this data if we deal with the Subject from Russian Federation? Our first step is the Federal State Statistics Service.

On this site you will find general statistical data about population, economy, regional development of the country etc. English version of the Federal State Statistics Service site is less informative and knowledge of Russian language is essential. 

If your Subject is involved in international trade some important statistical data and regulations can be found at Federal Customs Service. English version of the site is also poor.

The link to the Superior Arbitrage Court of Russian Federation on-line broadcasting

Referring to my previous post, I’d like to post direct link to the on-line broadcasting section of the Superior Arbitrage Court of Russian Federation Internet site. http://arbitr.ru/po_test/
There you’ll also find the list of the nearest sessions of the Court.

Superior Arbitrage Court of Russian Federation will broadcast its sessions on-line

Since June 2010 the Superior Arbitrage Court of Russian Federation will broadcast its sessions on-line. It is a remarkable step towards transparent court practice. It is expected that sessions will be available online the next day after the meeting.
According to the official site of the Superior Arbitrage Court of Russian Federation the first on-line session will be the Case number A65-4758/2009-SG1-18 Arbitration Court of the Republic of Tatarstan. "Vodokanalservis" against "Tatenergosbyt". If there won’t be any technical problems, I’ll mandatory put the link to this historical session to this blog.
Prior to the on-line broadcasting most of Russian arbitrage courts had databases of courts decisions. Since June all courts (civil, arbitrage, criminal) of Russian Federation will host databases of their decisions on-line.
According to Russian media, in July Constitutional court of Russian Federation will also start on-line broadcasting of its sessions.
All documents and on-line video will be in Russian language only. The Superior Arbitrage Court of Russian Federation has "Microsoft translator" applet for non-Russian speaking visitors.

Basic background check of Russian companies (add on)

In my previous post I forget to mention that in the process of the subject identification it is also reasonable to use database from the Uniform State Register of Legal Entities of Russian Federation (ЕГРЮЛ database).
In this database you can verify if the subject was duly incorporated, get it INN and OKPO codes.
I'd like to thank Mr. Ludo Block for his kind remark about this database. I rare use ЕГРЮЛ database in my everyday work but it can be recommended as valid and up to date informational source.

Basic background check of Russian companies

It was my decision to start this blog with articles about basic background screening of private persons. With no doubt it is a regular business task for every PI or Risk Management corporation. My mission was simply to inform you about legal procedures and types of data which can be collected by Russian local PIs without in-depth investigation or illegal activity. I can assure you that I will continue this theme in my future articles.

Today, following recent international projects, I plan to show you first steps of legal body background screening process in Russia. I believe this data will be helpful ether for professional investigators and competitive intelligence specialists interested in effective and legal cooperation with Russian colleagues.

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As usual, my first words will be about the Law and its requirements.

Every Russian PI agency is regulated by the “Federal Law about private detective and security services” (21.03.2002 N 31-ФЗ, 10.01.2003 N 15-ФЗ, 06.06.2005 N 59-ФЗ, 18.07.2006 N 118-ФЗ, 24.07.2007 N 214-ФЗ, 22.12.2008 N 272-ФЗ). This Law is a subject of constant debates between PI professionals and police authorities of Russian Federation. In general, the problem is in comparatively poor effectiveness of investigations leaded by the Ministry of Internal Affairs and numerous offences of Russian private agencies. Thank god this law is regulating mostly means of investigations (follow-up services, eavesdrops etc.) and doesn’t limit the scope of investigations. Uncommon for the world practice is that this law also regulates “marketing researches, negotiations support and credit status checks”. There are several hundreds of marketing companies in Russia (including representative offices of well-known foreign companies) acting without PI license and in my opinion this section of the Law must be treated as “recommended but not required”.

“Trade secret protection Law” (29.07.2004 г. N 98-ФЗ). This Law is similar to EU regulations. The only difference is that the victim can apply to the Russian court only if it had “trade secret protection regime” and acted in compliance with its regulations when the trade secret was stolen.

“The law about State secret” (06.10.1997 N 131-ФЗ, от 30.06.2003 N 86-ФЗ, от 11.11.2003 N 153-ФЗ, от 29.06.2004 N 58-ФЗ, от 22.08.2004 N 122-ФЗ, от 01.12.2007 N 294-ФЗ, от 01.12.2007 N 318-ФЗ 27.03.1996 N 8-П, 10.11.2002 N 293-О, 10.11.2002 N 314-О) regulates protection and management of State secrets. It is important to know that private company can have the license to work with governmental secrets (most shipyards, ammo factories, some software developers etc.). In this case your request will be mandatory declined by every reliable professional.

STEP 1 – IDENTIFICATION OF THE SUBJECT

Background screening project usually starts from the subject identification. Today we will limit the scope of the article to the case where the company corresponds to the only legal body. In fact it is rare for Russian business. Most Russian companies have several legal bodies united by shareholders or even unaffiliated.
If you know legal name of the Subject – you can proceed to Step 2.

Our aim is to find indicators which can help us to identify the legal body. In Russia these indicators are Tax ID (INN, ИНН), legal name and type of ownership. If this data is unavailable, the only 2 methods we can use are OSI and database screening. Usually if the company is acting and duly registered, at least one legal body can be identified by the OSI. Most Russian companies place their Tax ID and legal name on their Internet sites.

I BEG YOU NEVER EVER MAKE THE FOLLOWING CONCLUSION: IF THE SUBJECT HAS A GOOD WEBSITE - IT IS A DULY INCORPORATED COMPANY. THERE ARE NUMEROUS RUSSIAN FAKE SITES DESIGNED WITH THE ONLY INTENTION – TO ASSURE YOU THAT THE COMPANY REALLY EXISTS. THESE SCAMERS ACT MOSTLY IN INTERNATIONAL OIL&GAS BUSINESS, BUT I SAW ALSO SCAM DISTRIBUTORS AND EVEN SCAM DETECTIVE AGENCIES SITES.

If OSI can’t help in the Subject identification, database screening is the final chance. In case the company has a unique name, it is possible that you will succeed, if it is not (for example the name of the company is “Omega”) you will have to consider in-depth investigation as the only chance to identify the Subject.

STEP 2 – DATABASE SCREENING

When the Subject is identified, the process of basic background screening is simple: check and cross analysis of legal database records.
There are several reliable and legal databases of Russian companies. Most popular are:
SPARK (System of Professional Analysis of Markets and Companies) This database includes records about Russian, Ukrainian and Kazakhstan companies

Database of National Credit Bureau Comparatively with SPARK it has stronger financial reporting system but Ukrainian and Kazakhstan companies are not listed in this database.

These databases are formed by data exported from Federal Statistics Service, Federal Financial Markets Service, Federal Tax Service data. These informational sources with no doubt are very reliable, but at the same time they limit the ability of investigator to get up to date information.

E.g. by this time SPARK gives accounting data issued by the end of 2009 (for several companies even 2008!). The problem is in traditionally poor reporting system of Russian companies and delays in information analysis. Even now many Russian companies have double reporting system: first (legal) for taxation, second (informal) for internal control and financial analysis. That’s why even if the structure of the subject financial balance in above mentioned databases is strong; in fact the company can be on the edge of bankruptcy.

Anyway these databases can give us reliable and comparatively up to date information about:
1. Short name of the subject
2. Full name of the subject (Russian and English)
3. Foundation date
4. Reg. Number (OGRN)
5. TAX number (INN)
6. OKPO Code
7. Type of Ownership (OKFS code)
8. Legal form (OKOPF code)
9. OKATO
10. Line of business
11. General Director
12. Legal address
13. Shareholders
14. Affiliated bodies
15. As it was mentioned before, accounting balance is also available.

STEP 3 – ARBITRAGE RECORDS SCREENING

Among reliable open for public databases the database of Arbitrage court is one of the best. During basic background screening it is reasonable to check if the subject was claimed as unreliable debtor or even in the process of bankruptcy.
Every regional court has its own database. Probably later I’ll publish its links in this blog.


SEVERAL HINTS FOR PERSONS WHO WISH TO MAKE BACKGROUND SCREENING FREE OF CHARGE

1. SPARK and National Credit Bureau has limited free access. You can check if the company was duly registered and the name of the general manager
2. There are simple methods of bank account and TAX-ID validation. Some of them is available for free at the Internet
3. Old data is available on several illegal on-line databases. If you’ll be lucky you will find one before it will be erased from the Internet.
4. If the subject is a Joint Stock Company (Russian OAO) it is obliged to disclose information about its shareholders and affiliated bodies. It is a good and legal source of important information.


I’m sorry that my post is much longer than usual, but I hope this data will be interesting and helpful.

As it was mentioned before it is rare when the company (business) has only one legal body and it is hard even for “Russian made” professional to identify the whole structure of legal bodies involved in the business of the company. That’s why I’m sure that when you’ll face the challenge of Russian company background screening you will make a good decision and won’t try to do this without professional support.