New Russian tax fraud statute raises prison exposure for pharma company directors to seven years
Over the past two years, regulatory managers at pharmaceutical companies evaluated risk in terms of fines and license suspensions. Criminal prosecution seemed like a scenario reserved for other sectors, such as banking or real estate development. Court practice between 2024 and 2026 demonstrates the opposite. The general director of a local pharma subsidiary is increasingly becoming a defendant over vendor selection or the terms of a drug supply contract with a state clinic. A manufacturing accident is rarely the cause.
Thresholds for criminal liability across most economic offenses have been adjusted upward alongside inflation. At the same time, the Criminal Code of the Russian Federation (hereinafter, CC RF) introduced a dedicated offense for organizers of fictitious VAT schemes, the Federal Antimonopoly Service intensified scrutiny of pharmaceutical distribution, and written instructions from a founder or beneficial owner have stopped working as a defense in court. Local management at international pharmaceutical companies will have to recalculate its personal risk model from scratch.
How Personal Risk Was Assessed Before the 2024 Reform
Before spring 2024, a pharma company director kept a relatively short list of statutes in mind. The main tax enforcement tool remained Article 199 of the CC RF, corporate tax evasion. The large-scale threshold stood at 15 million rubles over three consecutive financial years, and the particularly large-scale threshold stood at 45 million rubles.
Since 2022, a procedural safeguard has also applied: the only basis for opening a criminal case under Articles 198 through 199.2 of the CC RF is material that the tax authority itself transfers to investigators, following its own audit, through the established procedure. This limited arbitrary criminal proceedings launched solely on the initiative of law enforcement and gave a director time to resolve a dispute during the tax audit, before materials moved to the Investigative Committee.
A director rarely thought of subsidiary liability as a criminal risk. Recovering damages from an executive in corporate disputes was seen as a matter for the commercial (arbitrazh) court. A direct link between a civil damages claim and a parallel criminal case over asset stripping or deliberate bankruptcy remained the exception rather than the rule.
No separate offense existed yet for organizers of «paper» VAT, meaning the sale and purchase of fictitious tax deductions through shell companies. Such schemes were usually prosecuted as complicity in tax evasion under Article 199, or as fraud, which required prosecutors to prove a considerably more complex chain of intent.
Part 1.1 of Article 108 of the Criminal Procedure Code of the Russian Federation (hereinafter, CPC RF) bars pre-trial detention of entrepreneurs for most economic offenses, including Article 199. In practice, this meant a director named in a case was rarely placed in pre-trial detention (SIZO) during the investigative stage.
There was also a common belief that a written instruction from a founder or beneficial owner protected a director from personal liability. Lawyers had already pointed out the risks of relying on that position. There was not yet much case law disproving it directly.
The New Provision on Fictitious VAT Changes the Risk Calculation for Directors
Federal Law No. 406-FZ of November 23, 2024 (hereinafter, Law No. 406-FZ) introduced Article 173.3 into the CC RF: organizing the submission to tax authorities, and/or the sale, of knowingly forged invoices and tax declarations. The provision took effect on December 4, 2024.
The article covers organizing the sale or submission to tax authorities of invoices and declarations issued in the name of legal entities set up through front persons or using someone else’s personal data, where the documents contain false information about the shipment of goods, work performed, or services rendered. For a pharma director, risk arises both from direct use of such documents and from receiving income through counterparties who systematically supply «paper» deductions.
At the same time, Federal Law No. 79-FZ of April 6, 2024 raised the general large-scale and particularly large-scale thresholds for most offenses in Chapter 22 of the CC RF, including Article 173.3. Federal Law No. 78-FZ of March 18, 2023 lowered the maximum penalty under Part 2 of Article 199 from six years to five years of imprisonment, moving it into the category of medium-gravity offenses.
Recent research briefs on this topic often cite thresholds and penalties from 2022 to 2023, since those older figures are what dominates earlier legal commentary. Before publishing any specific amount or prison term, it is worth checking the current statutory text on ConsultantPlus or Garant. Wording from preliminary research does not substitute for that check.
For a regulatory manager or HR director at a pharma company, the change in thresholds also means revisiting the hiring process for a local general director. An indemnification clause in an employment contract or a separate agreement with the director needs to address specific statutes; a generic clause on reimbursing legal costs is not enough.
| Parameter | Art. 199 CC RF (tax evasion) | Art. 173.3 CC RF (paper VAT) |
|---|---|---|
| Large-scale threshold | 18,750,000 ₽ over 3 consecutive years | income exceeding 3,500,000 ₽ |
| Particularly large-scale threshold | 56,250,000 ₽ | income exceeding 13,500,000 ₽ |
| Maximum penalty | up to 5 years’ imprisonment | up to 7 years’ imprisonment |
| Bar on pre-trial detention for entrepreneurs | applies (Part 1.1, Art. 108 CPC RF) | does not apply |
| Exemption on repayment of damages | full payment of the tax arrears, penalties, and fine, first-time offenders only | Part 1 only, damages plus double the amount of income paid to the budget |
| Statute of limitations | 6 years (following the 2023 de-penalization) | up to 10 years under Part 2 |
The table shows that Article 173.3 is stricter than Article 199 on several counts at once: a lower entry threshold, no protection against pre-trial detention, and a longer statute of limitations. Part 2 applies where the offense is committed by a group acting in prior conspiracy, or where the income reaches the particularly large-scale threshold, and carries up to seven years’ imprisonment with a fine of up to 800,000 rubles.
Pharmaceutical Statutes in the CC RF Remain an Active Enforcement Tool
The specialized pharmaceutical offenses in the CC RF have barely changed between 2024 and 2026. What changed is how precisely they get applied. Article 238.1 of the CC RF covers the manufacture, sale, or import of counterfeit, substandard, and unregistered medicines and medical devices. The large-scale threshold is product value exceeding 100,000 rubles, a figure a wholesale drug shipment reaches almost every time.
The penalty under Part 1 of Article 238.1 runs from three to five years’ imprisonment. Part 2 applies where the offense is committed by an organized group or results in grave consequences, and carries five to eight years. Where the offense causes the death of two or more people, Part 3 raises the range to eight to twelve years. Investigators typically treat a director’s actual role in procurement decisions and supply chain design as the evidence of guilt. A formal job title makes almost no difference to that.
Article 235.1 of the CC RF singles out the illegal manufacture of medicines and medical devices without a required license as its own offense, while Article 238.1 covers the sale and import of finished counterfeit or unregistered product. Both statutes share the same large-scale threshold: product value above 100,000 rubles.
Article 235 of the CC RF penalizes practicing medicine or pharmacy without a required license where this negligently causes harm to a person’s health. Where the violation causes a patient’s death, a stricter part of the article applies, carrying up to five years’ imprisonment.
In January 2025, a law took effect removing medical care rendered by physicians from the scope of Article 238 of the CC RF, which covers goods and services that do not meet safety requirements. The amendment addresses clinical decisions made by medical staff specifically. It does not touch the manufacture, storage, or sale of medicines and medical devices by pharmaceutical companies. For manufacturing sites and distributors, Article 238 remains fully in force.
Antitrust investigations in distribution have become a risk of their own over the past two years. In January 2025, the Federal Antimonopoly Service (hereinafter, FAS Russia) opened a case against two distributors on suspicion of a cartel affecting 109 procurement procedures from 2022 to 2024, worth more than 1 billion rubles across 54 regions. In September 2025, FAS Russia found both companies in violation of Item 2, Part 1, Article 11 of the Federal Law «On the Protection of Competition,» establishing that they used shared infrastructure to take part in tenders for drugs on the list of vital and essential medicines. FAS Russia is entitled to forward case materials of this scale to investigators if the cartel participants’ income exceeds the threshold for criminal liability under Article 178 of the CC RF, restricting competition. A regulatory manager who oversees a company’s participation in public procurement should separately review any pattern of the same group of suppliers repeatedly winning tenders with a minimal price reduction, even where no formal collusion was recorded in writing.
A Founder’s Instruction No Longer Removes Personal Liability
Item 1 of Article 53.1 of the Civil Code of the Russian Federation requires a director to act reasonably and in good faith in the company’s interests. Item 3 of the same article extends that same duty to anyone with the actual ability to determine the company’s actions, even without formally holding the director’s position, meaning a founder or beneficial owner who gives instructions. Russian courts hearing disputes over damages from executives increasingly reject the argument that a disputed transaction was carried out on a founder’s or beneficial owner’s direct instruction, where the director knew or should have known it was unlawful. In criminal proceedings, the same logic is applied even more strictly: the director acts as the perpetrator of the offense, the founder acts as the organizer or instigator, and both bear liability independently.
A similar logic applies in bankruptcy. A person controlling the debtor, which includes the general director, is subject to subsidiary liability if their decisions left the company unable to settle with creditors. Such disputes in the commercial (arbitrazh) court often run in parallel with a review for signs of deliberate bankruptcy under Article 196 of the CC RF, and investigators use the material from one proceeding in the other.
Sanctions regulation creates a separate node of risk. Back in April 2022, draft law No. 102053-8 was submitted to the State Duma, proposing to add a qualifying element to Part 2 of Article 201 of the CC RF, abuse of authority, covering acts carried out to comply with a foreign state’s decision to impose restrictive measures against Russia. The government itself called the proposed penalty, up to ten years’ imprisonment, excessive in its very first review of the bill. As of mid-2026, the bill still has not passed its second reading. For local management at sanctioned or foreign-owned companies, this creates prolonged legal uncertainty rather than an immediate threat. Any decision to end a relationship with a counterparty for sanctions-related reasons is safer when backed by an independent commercial rationale, not one tied to the wording of a foreign regulator.
Against this backdrop, the market for directors’ and officers’ liability insurance, known as a D&O policy, is also growing. According to insurance brokers, the number of such policies written in Russia grew by more than 20 percent year over year in 2025 and reached a six-year high. Average coverage limits are estimated at around 300 million rubles for private companies and up to 3 billion rubles for public ones. A D&O policy typically covers legal and litigation costs. It does not replace a properly designed internal delegation of authority, and it does not remove a director’s personal duty to act reasonably and in good faith.
What To Do
Review the VAT deduction chain. Compile a list of counterparties whose transactions account for a significant share of deductions, and ask accounting to confirm that deliveries over the past three years were real. Pay particular attention to shell companies with no staff or production capacity.
Put the division of responsibility in writing. Assign tax, antitrust, and licensing risk to specific deputies through separate orders that spell out their exact authority and decision-making areas.
Introduce a second signature level for large transactions. Set a monetary threshold above which a decision requires collective approval, through the board of directors or a dedicated committee.
Commission an independent audit of counterparties and procurement procedures. Bring in outside auditors to review distributor contracts before the start of the tender season, especially where the company takes part in public procurement of drugs from the vital and essential medicines list.
Revisit the D&O policy and the indemnification clause in the director’s contract. Check with the insurer whether the policy covers defense costs under Articles 173.3 and 178 of the CC RF, and whether coverage extends to the local director of a foreign-owned company. When hiring or renewing a contract, set out the reimbursement of defense costs as its own clause. A general severance clause usually does not cover it.
Criminal compliance is no longer a matter for the legal department alone. For local management at pharmaceutical companies in Russia, it has become part of everyday operations, alongside auditing the registration dossier and the warehouse. A company that works through these risks in advance spends less time on it than one that has to explain itself to investigators after the fact.
Legal and Regulatory Basis:
1. Criminal Code of the Russian Federation No. 63-FZ of June 13, 1996 (Articles 173.3, 178, 196, 199, 235, 235.1, 238, 238.1)
2. Criminal Procedure Code of the Russian Federation No. 174-FZ of December 18, 2001 (Part 1.1, Article 108)
3. Civil Code of the Russian Federation, Article 53.1
4. Federal Law No. 406-FZ of November 23, 2024, «On Amendments to the Criminal Code of the Russian Federation and Articles 28.1 and 151 of the Criminal Procedure Code of the Russian Federation»
5. Federal Law No. 79-FZ of April 6, 2024 (indexation of large-scale and particularly large-scale thresholds under Chapter 22 of the CC RF)
6. Federal Law No. 78-FZ of March 18, 2023 (reduction of the maximum penalty under Part 2, Article 199 of the CC RF)
7. Federal Law No. 135-FZ of July 26, 2006, «On the Protection of Competition,» Article 11