By the End of 2018 Russia can enter The Top 10 Countries Easiest to Start a Business In. While Russian banks can learn a new mediating function as GR

 (# 2 in the series of articles «The Anatomy of Reforms in Russia»)

On July 16, 2015 in an unremarkable 3-storey building located in the Center of Moscow on Skatertny Lane an important event took place. The bankers, the representatives from the Bank of Russia, Rosfinmonitoring, as well as other authorities came together to discuss the possibility of implementing in Russia the mechanism for online opening bank accounts.As it was stated on the meeting the main obstacles for remote open were strict rules for customer identification set in consideration with Anti-Money laundering rules (AML/CTF), other regulations of the Bank of Russia and the lack of electronic communication with government agencies.

The roundtable discussion quickly turned into a confrontation between the 2 main positions – to leave as it is or to begin the difficult work of finding a compromise between security and usability, of changing the related legislation and processes. An informal voting was the culmination of the meeting. The main question whether to support reform or not the majority of the banking community responded affirmatively. The representative of the Bank of Russia concluded that «the situation is evolving in the right direction, fully corresponding to world experience and best foreign practices».

In this way the work that had been carried out in Moscow beginning from 2013 moved up to the new federal level. Possibly that meeting turned a page in the history of the reform of the procedures for starting a business in Russia.

On November 1, 2016 a pilot project whereby customers of the two state owned banks (Sberbank and VTB) can register a limited liability company or get the status of an individual entrepreneur without face-to-face contacts with tax authorities has started throughout Russia. The distinctive feature of starting a business considering legal issues is a new mediator appeared between the budding entrepreneur and the State, who undertakes building relations and interaction with the tax authorities. Bank’s interest is a new entrepreneur to work with. For the Customer starting a business means quick and easy process at One Window with professional consultants. The state in that case also benefits cause presumed more effective private company (Bank) assumes the professional communication with the entrepreneur at the initial stage of its activity. Ideally, the tax authorities will be excluded from the interaction with the budding entrepreneur from the beginning, and will serve only as a back-office.

In Russia the same principle is used in One Window Service Offices — basically known as Multi-function Centers for providing civil services – which operate for citizens preferably, not businesses. The concept of creating a One Window Service Office in favor of businessmen (separated or integrated entity with common Multi-function Centers) is yet to be discussed in Russian government. On the other hand, the advantages of opening business in the Russian Federation through 2 banks do exist today. Hopefully the next year the new service will start implementing other banks, private owned as well.

At the same time Russia runs a simplified mechanism of remote registration of a bank (current) account in favor of customers who registered legal entity or got status of an individual entrepreneur in the tax authorities by themselves. That option is available for those who were clients of the Bank as individuals and previously passed personal identification. The new rules were adopted by federal laws № 191-FL (dated June 23, 2016) and № 241-FL (dated July 3, 2016). Both came into force from September 1.

It is interesting to note that the Russian authorities have chosen a «moderate» way in implementing the mechanism of opening a bank account online because of security considerations and the upcoming inspection by the FATF.  In some other countries, whether physical client identification is not required (e.g., Skype communications enough), or state bodies provide commercial banks with all the necessary information on newly registered businesses.

Easy procedure for opening a business as well as a bank account would positively affect the investment attractiveness of Russia and country’s position in the prestigious ranking «Doing Business» of the World Bank. Moreover, the implementation of the reforms started due to above mentioned international ranking and the Russian President’s Decree No. 596 in 2012 year.

Already in the autumn of the year 2018 Russia can enter the top 10 countries easiest to start a business in due to predicted effect of the ongoing reforms. (Background: according to the report «Doing Business 2017» Russia took place 26 out of 190 countries for the index «Starting a business»).

Several views of the future as the resulting effect of the reforms I want to show.
So, it’s the year 2018:
1)    You’re lying on a beach near the warm southern sea. Yesterday you met with an interesting company during the descent by canoe. During the talking, it appeared that you, a programmer, the doctor and the insurance agent, came up with an innovative insurance product for travelers and lovers of active lifestyle. At rest you have some time to discuss the business plan and make first steps today. You open the laptop, enter necessary data, pay through online banking registration fee and half an hour later you’re entrepreneurs, founders of the limited liability company. You can do business now!

2)     You have always dreamed of, but don’t know how to start your own business. You are afraid of bureaucrats and red tape. Reading laws plunges you into horror, but you like the Bank «N», in which comfortable service and friendly staff. Today you came after work to the bank and have spoken to an employee at the entrance about you dream and plan to start a business. A few hours later you have told relatives that you now are the registered individual entrepreneur and have business plan with pre-approved funding from the Bank. Just need to resign from current work and begin new life.

That future is near. Russia implemented the positive and progressive reforms which could bring Russia in the top 10 of the world’s countries with ease procedures for starting a business in the 2018 year. The successful conduction of the reforms opens awesome features for potential entrepreneurs who could in only 30 minutes register a Russian company or get special status of an individual entrepreneur.

The side effect of the ongoing pilot project may become the new trend of development of the banking sector. Russian banks may be transformed into business support centers mostly for small and medium sized companies, offering not only financial products, but also consulting services. Perhaps banks will interact with government agencies on the issue of effective delivery of public services to the business or even will play the role of One Window Service Office.

It is interesting to note the reforms could not be realized. A chain of coincidences and personal initiatives led to the achieved and forecasted results as it is known from the acknowledgeable people. I wonder how many opportunities to improve the business environment in the country have been lost due to centralized decision-making.

Therefore, I believe that several political centers and institutions formed on the professional base should develop, implement and control conducting of the reforms in the field of business regulation and economic policy. This, in my opinion, is the essence of the proposal of Alexei Kudrin to create the Center for reforms independent from the Government. Earlier in my articles I have written that reforms in Russia should be dealt with by the Law Center, in close collaboration with the Ministry of Justice.

Some assumptions:
-  Reform discussed in the article is one of the few positive and effective changes that truly simplify the business environment for starting a business in Russia.
-  Life cycle of conducting the «moderate» reform is 5-7 years, on average. The conception of the reform discussed in the article appeared in 2013-14 and it took 3 years to push it forward and adopt the law. Plus, one more year is necessary to run the pilot project (starting from November 1). Also it will take several years to penetrate the reform in society and business.
-   Regulatory reforms are vulnerable because affects interests of many and ruins «status quo». Even reformers can suppress ideas and initiatives of others just to avoid possible competition. Actually, the reform discussed in that article might have been disappeared. It wasn’t listed among approved reforms in the «road map» of the National Business Initiative.  Even Agency for Strategic Initiatives – state funded organization which is positioned as only one effective center for regulatory reforms in Russia — could make mistakes.

P.S. «Predresheno» — means in Russian language that the result is determined by something or somebody, e.g. by destiny. The success of the reforms in Russia is usually «predreshen»

(c) The author of the article is Vadim Cherdantsev
Moscow, November 20, 2016
Digital image was found on the internet 20.11.2016 «How to start a business: What you need to know» http://startups.co.uk

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