Derek A. Bloom, Partner of Capital Legal Services

Years of litigation with insurance companies which would not pay a claim for the loss of the insured aircraft or the lives onboard, the loss of tens of millions of dollars of cash and securities to repay bank financing pursuant to personal and corporate guarantees, the imposition of multi-million dollar fines in Russia, criminal investigations in Russia, and uninsured liability to third parties would be the likely consequences if something goes significantly wrong on one of the regularly occurring illegal flights within Russia of foreign-registered business jets.

These risks seem so huge that no responsible person would consciously take such risks if he were fully aware of them. But, the evidence is that these risks are taken every day in Russian business aviation. It appears that reform of these prevailing business practices to conform to the law, or reform of the law to match these business practices, will not come until after a disaster has occurred, and maybe not even then. But, even today, there are ways for risk averse owners and charter operators to accomplish their purposes prudently and in accordance with Russian law as it is.

As in many other industries in Russia since 1991, the competition in the business aviation marketplace is between apparently lower cost grey market models of conducting business and fully legal arrangements which are more expensive in the short term. The grey market transactions contain potential hugely expensive adverse consequences that are not supposed to happen, and which do not happen most of the time, creating a false sense of safety. In the absence of law enforcement, or if incidents of law enforcement can be quickly hushed up and believed to be examples of selective enforcement of laws against persons who were specially targeted which can be disregarded by the great majority of participants in the market, then the grey market transactions can continue to appear to offer advantages over fully legal transactions.

In many other industries in Russia where grey market schemes have been predominant in years past, the economic reality was that the savings of grey market schemes were more than offset by the fees payable to the participants in the schemes and the costs of unexpected developments when they occurred. In the context of aviation transactions, it will likely be shown over time that a fully law-abiding transaction can compete economically with a grey market transaction.

The removal of customs duties for many types of corporate aircraft imported to Russia helps to level the playing field between grey market and legal aviation transactions, but fully legal transactions, as described below, remain more expensive in the short term due to the continued applicability of import VAT, and the need to pay a licensed aviation enterprise to place a foreign registered aircraft on to its certificate, if such a structure is used. Also, it is likely that, as in other Russian industries since 1991, the vested interest of the participants in the prevailing grey market schemes are delaying an adjustment in the aviation market to doing things by the book.

In any case, if you think compliance with Russian law for legal flights within Russia of foreign-registered aircraft is expensive, consider the case of an accident during a grey cabotage flight.

What is Cabotage?

The term "cabotage" refers to the use of a foreign registered aircraft to fly passengers, their baggage, and cargo picked up in Russia between two locations within Russia, with (or without) direct compensation for the flight [1].  "Cabotage" is defined in Article 7 of the Convention on International Civil Aviation (the "Chicago Convention") which sets out the rules for registration of aircraft and the flight of aircraft between and within separate countries. Article 7 provides that "Each contracting State [Russia] shall have the right to refuse permission to the aircraft of other contracting States to take on in its territory passengers, mail and cargo carried for remuneration or hire and destined for another point within its territory."

Paragraph 5 of Article 63 of the Air Code of the Russian Federation provides that foreign aviation enterprises are not entitled to take on board in the territory of the Russian Federation any passengers, baggage or cargo for air carriage in Russia unless otherwise provided in an agreement of the government of the Russian Federation, or a one-time permission issued by an authorized agency of the Russian government. No procedure for issuances of permissions by an authorized agency of the Russian government is currently in effect, though one is proposed. [2] 

The rules of the Russian Federal Air Navigation Authority also prohibit commercial flights within Russia of foreign registered aircraft. Section 3.15 of the Rules of the Russian Federal Air Navigation Authority provides: "Permission (agreement, confirmation, approval) for any irregular flights by foreign air enterprises connected with the carriage of commercial cargo on the territory of Russia are not issued unless otherwise provided in multi-lateral agreements with foreign governments." [3]

Note that it is not prohibited for a foreign registered aircraft to be brought into Russia and flown for the aircraft owner's own non-commercial purposes, although in order to fly an aircraft imported into Russia it is necessary to go through the process of certification of the aircraft and of the user. Accordingly, all aircraft belonging to foreign aviation enterprises that are flown into Russia for use in prohibited cabotage flights are brought into Russia pursuant to declarations indicating the aircraft are to be used for private, not commercial purposes. [4]

The Scale of Grey Aviation in Russia

For the last several years, it is an open secret that there are a very substantial number of illegal cabotage flights in Russia of chartered corporate aircraft. False customs filings are regularly made indicating that foreign-registered aircraft are being flown in Russia for private, and not for commercial purposes, and even that the owner of the aircraft is actually on board the aircraft when he is not. This phenomenon is widely discussed in the internet and in certain industry publications. For example, the National Association of Business Aviation of Russia (NADA) stated in August 2007 that domestic Russian air carriers are unable to compete with foreign carriers which are allowed to engage on, a very large scale, in prohibited cabotage flights in Russia. [5] 

The NADA report indicates that, in 2006, there were more than 40,000 flights of business aircraft in Russia and the percentage of these flights completed by Russian carriers was not more than 5% to 6% of these flights, and there was a clear tendency toward a further diminishment of the percentage of flights conducted by Russian carriers. The NADA report provides that:

Among the factors in the loss of "normal) (market) competition, and this negative tendency are: (a) the formation and strengthening of so-called "grey" cabotage, the source of which is the universal practice of the issuance of permits for the carrying out of cabotage flights in the territory of Russia by aircraft of foreign countries, each time "as an exception" (b) the "necessary tradition" of foreign registration of the aircraft used in business aviation which are acquired and registered by national corporations and individuals through foreign subsidiary and affiliated companies; and (c) the unprotectionist policy of state agencies about the question of domination on the Russian market for business aviation of foreign operators, and other reasons.

The NADA report argues that:

Strengthening of the legal base regulating the activities of business aviation will facilitate an increase in the attractiveness for investment of this sector of the national and world market for civil aviation, including the creation of modern specialized ground and air infrastructure, of specialized technical centers for the support and maintenance of aircraft involved in business aviation, teaching centers for the training and retraining of aviation specialists for the needs of business aviation, etc.


With regard to the year 2005, RosBusinessConsulting noted that:

Notwithstanding the confidentiality and absence of accurate statistics in this sphere, in the opinion of experts, the annual growth of the volume of business aviation was about 40% to 50%... On the basis of research, "grey cabotage" is prospering on the Russian market for business aviation. The matter is that domestic aircraft ... do not correspond to Western standards for noise and pollution. Of the contemporary Yak-42's only about 10 have been delivered to the market. It turns out that for foreign flights there are no alternatives to Western business aircraft... Such aircraft may not fly inside Russia on a legal basis, although this practice is violated in a large number of cases. According to research, today in Russia 140 to 150 aircraft are used in business aviation, and out of them 20 are registered in Russia. [6] 

In other words, in 2005, 130 of 150 business aircraft used in Russia, or 86%, were foreign registered, and 14% were Russia. In September 2008, only 8% of the over 280 foreign-manufactured business jets owned directly or indirectly by Russian businesses and individuals are registered in Russia [7] In November 2009, it is said there are approximately 400 foreign aircraft owned by Russian businesses and individuals, and the number of those registered here in Russia has reportedly remained constant at approximately 20.

Elsewhere in the internet one sees references that "in the Russian aviation society, specialized on the organization of VIP flights, there is a subject about which it is not very accepted to speak. This is cabotage, the flights of aircraft of foreign operators within our country."  [8]  Some are more pointed in their comments, stating that, "the conduct of the majority of business flights by foreign operators has been materially increased by the corruption of the process of organizing and carrying out flights in the Russian Federation.[9]"  

Since 2007, during 2008 and 2009, there has been a noticeable drop off in discussions of "grey cabotage" in the Russian internet, which is itself an interesting development, as though the industry is seeking to hide in plain sight the apparent great discrepancy between what is required and prohibited by Russian law, and the actual conduct of day-to-day business in business aviation in Russia. One would suppose the discrepancy between law and practice cannot go on forever and there must be a shift in the market or in the law to accommodate one with the other, or vice versa,

The Legal Risks of Grey Aviation

If the scope and practices of "grey cabotage" are unclear, the legal risks involved in "grey cabotage" are clear and very substantial, to the degree that one is left to wonder how it can be that these risks are accepted by those who are bearing them.

Insurance Risks

Take for example, the very unfortunate story of the crash of a Cessna 208 Caravan aircraft on approach to Domodedovo airport on November 19, 2005 which destroyed the aircraft and killed all onboard. [10] The consequences of this crash have been the subject of five or six court decisions, with the most recent one given on January 26, 2009 by the Supreme Arbitration Court of the Russian Federation. These court decisions have all held that the insurance company insuring the aircraft did not have to pay any amount of insurance since the aircraft was being used in violation of the restriction in Russian law on the use of a foreign-registered aircraft in a cabotage flight within Russia.[11] 

The appeals court decision of the Ninth Arbitration Appeals Court was clear in stating that: "... according to Paragraph 1 of Section V of the insurance policy, that the insurer does not bear responsibility if the aircraft is used for any illegal purposes or for purposes that are different than those provided in the contents of the agreement in its terms and definitions, if the aircraft is used not within the geographic limitations for flights; the aircraft is piloted by any persons not having a legal right to do so..." The court cited Section 3.15 of Part 1.2-10 of the General Provisions of the Rules of the Federal Air Navigation Authority (Section 3.15) of the Rules of the Russian Federal Air Navigation Authority, mentioned above, and said:

In accordance with Section 3.15, foreign aviation enterprises conducting any irregular [not regularly scheduled] flights are prohibited from carrying any commercial cargo picked up on the territory of Russia (cabotage carriage). In addition, it was established during the official investigation that, in fact, there was a carriage of passengers [on this flight]... which, according to Article 21 of the Air Code may be considered to be commercial air carriage... An analysis of the documents in relation to the organization of the flight of the insured aircraft on November 19, 2005 shows that there was no legal basis for having on board and the carriage of six passengers pursuant to the flight permit ... issued by RosAviatsia for the carrying out of this "private noncommercial flight"... The official investigation established the fact that the illegal use of the Cessna Caravan aircraft... was a basis for excusing the insurer from responsibility pursuant to [the relevant provision of the] policy... Considering the foregoing, the argument of the plaintiff that the carriage of passengers on the aircraft was conducted in accordance with the requirements of the insurance policy, issued for private flights, cannot be accepted by the court.[12]

The earlier decision of the Federal Arbitration Court of the Moscow District, which was already the fourth court to hear the case, cast further light on the failed legal arguments of the aircraft insurance policy holders. The court discussed that:

... the plaintiff indicates in its complaint that the arbitration courts when taking the decisions which are being appealed came to an unjustified conclusion that the flight in question, which was conducted with a flight permit from RosAviatsia, was a commercial flight, and the complaint clarified that, in accordance with Point 3 of Article 101 of the Air Code of the Russian Federation, commercial air carriage is air carriage delivered for payment, however, in the opinion of the plaintiff this flight was conducted without he collection of any payment from the passengers (compensation) and with the use of the aircraft for personal purposes and for recreation, in connection with which the Company "Denton" concludes that the flight was private, referring to point 26 of Part 1 "General Provisions" of the Agreement of the parties which provided that a private flight is understood to be use of the aircraft only for personal purposes and for recreation, but not for business or professional interests, for hire or for compensation  

These arguments were rejected. Thus, it is a clear risk in grey cabotage that, if anything goes wrong, the insurance company will likely try very hard not to pay any amount under the aircraft's insurance policies, and the insurance company will probably win, if it can be shown that there are fair questions about why passengers were onboard a private flight.

Banking and Other Financial Risks

A modern Western business jet may cost from $20 million to $50 million. Let's suppose a Russian businessman has bought one for $30 million. Typically, as large a portion of the value of the aircraft as possible will be financed, and the international bank will provide this financing that has a pre-existing and substantial banking relationship with the Russian businessman. The bank will require a pledge of the aircraft as security for the loan, and also a guarantee from a corporate entity outside of Russia that is owned or controlled by the Russian businessman and which is strong enough to support the entire amount of the credit extended for the aircraft. The bank will be able to seize liquid assets, such as cash and marketable securities, that guarantee the corporate guarantee, and it would be able to seize the aircraft, in the event of a default. The loan would be payable in full in the event of the destruction of the aircraft. The banks may also look at a pledge of some assets under management in combination with a personal guarantee.

Assuming the Russian businessman has a stellar reputation and a strong credit rating, and depending on the strength of the guarantee, a standard financing solution would be 60-80% of current fair market value of the aircraft for a 5 year term, with a balloon payment at the end of the term. The aircraft would be required to be managed by a reputable Western aircraft manager, responsible for all flights of the aircraft, and covered by an engine maintenance plan.

On the foregoing assumptions, assuming the Russian businessman has obtained 80% financing, then he has a bank loan secured by the aircraft, liquid securities and a corporate and personal guarantee, in the amount of $24 million, and he has $6 million invested in the aircraft. He also has expensive long-term commitments for the hangaring, maintenance and crew of the aircraft.

In the event of the destruction of the aircraft, the Russian businessman and/or his estate would look to all risks aircraft hull insurance in the amount of $30 million naming the owner and the bank, the first lien mortgage holder, as loss payees; and also bodily injury and property damage liability insurance in an amount equal to perhaps $50 million for the benefit of the aircraft operator and the registered owner of the aircraft. These insurances are intended to pay for the damage caused by the loss of life onboard the aircraft, damage to other aircraft, and damage and loss of life that may be caused on the ground if the aircraft strikes another object. The total coverage available may be $80 million, and this is not a ceiling on the potential liability of the owner.

In the event of a calamitous disaster causing complete destruction of the aircraft, the loss of 8 lives, including 6 highly compensated persons, and the destruction of an occupied building on the ground and the loss of additional lives there, for conversation's sake, the total liability may reach $50 million.

However, it turns out the aircraft was on an illegal cabotage flight, and the insurance company will not pay any amount. The bank seizes $24 million of liquid assets. The $6 million of cash invested by the Russian businessman into the aircraft is a write-off. The businessman, or his estate, is left with a complicated and expensive liabilities which are likely to grow as more claimants appear, and years of litigation to sort it out, and there is no insurance to cover these expenses.

Customs Risks

Let's take a happier case that does not involve an air crash. Let's suppose that an aircraft flies on an illegal cabotage flight from Moscow to an airport inside Russia and lands safely at its destination. There, its passengers and customs documents are inspected by the local customs officials.

Before the aircraft took off from a Moscow airport, a transportation declaration was filed with the Russian Customs Service stating that the owner of the aircraft was onboard and the flight was a private flight not for commercial purposes. [13] In fact, the owner was not onboard and there were six passengers onboard who had paid to a Moscow based charter company a substantial sum for a roundtrip flight on this aircraft to a domestic Russian destination and back to Moscow. An investigation reveals that a Customs official accepted a cash payment to accept this transportation declaration and not check who was onboard the flight.

Russian law provides that a violation of the rules for the use of an aircraft on the customs territory of Russia may result in an administrative fine imposed on the responsible individual or legal entity in the amount from one half to two times the value of the aircraft, and the confiscation of the aircraft. [14] There are published cases where Russian Customs has indeed arrested aircraft and imposed very substantial administrative fines, and there are more cases that are known in the corporate aircraft business community that were settled without publicity and without official reports and without press reports, but with the payment of large fines. Among the reported cases is an older case in which Customs fines were successfully overturned in litigation. [15] There is a current case in which the Samara Customs office has seized an aircraft for violating Paragraph 2 of Article 16.2 of the Code of the Russian Federation about Administrative Violations due to a customs form found to contain false information.

In 2008, the Arbitration Court of the Khanti-Mansinsk Autonomous Region overturned an attempt by Russian Customs at Nukuoro to impose a fine on the Russian airline Uteri in an amount equal to three times the value of an ATR 42-300 aircraft in a case where the pilots took off without proper customs documents due to a communications error. The case includes a detailed discussion of the potential administrative liability. [16]

Curiously, there are no reports currently to be found in the internet of Russian customs officials arresting business jets in Russian cities away from Moscow, though several such cases are known to have occurred. Great efforts are made to deal with such situations very quietly and to keep them out of the press, which itself gives rise to the suspicion about how such situations are resolved. There are published cases, however, about customs officials seizing aircraft in Belorus and Ukraine on the grounds that an aircraft ostensibly in the country for private use is being used for commercial flights, showing how such cases could develop in Russia.

Criminal and Administrative Risks

Let's suppose it comes out in an investigation that the owner of the aircraft is not onboard the aircraft when it lands safely in a Siberian city. The owner is actually not in Russia at all and is safe in London. He has been there for the last month and was not in Moscow when the papers were filed with customs indicating he would be on board the flight to the Siberian city. To make matters worse, an investigation reveals that a customs official received compensation for accepting a Transportation Declaration indicating the owner was onboard the aircraft when he was not, and there is a pattern of numerous such filings.

The Criminal Code of the Russian Federation provides it is a crime for a government official to accept a bribe directly or indirectly for actions or inactions to benefit the payor of the bribe.[17]  An aircraft that is in Russia illegally may be declared to be contraband, resulting in fines and imprisonment of the responsible persons for up to five years.[18]

In addition, unlicensed activity may be considered to be illegal entrepreneurship which may have criminal law consequences pursuant to Article 171 of the Criminal Code and Articles 14.1 и 19.20 of the Code of the Russian Federation on Administrative Violations.

Structures Allowing Legal Flights Within Russia of Foreign-Registered Aircraft

Plan A:    Private Use Only

As noted earlier in this article, it is not prohibited cabotage for a foreign registered aircraft to be brought into Russia and flown for the aircraft owner's own non-commercial purposes, provided the aircraft is properly certified in Russia. This is the exception to the general prohibition on cabotage that is exploited by operators in grey aviation. Accordingly, a corporate aircraft may be owned by a foreign legal entity, crewed by a foreign charter company, and flown to Russia and within Russia for the owner's own personal use.

There appears to be no written guidance about the scope of use that may be considered legitimate private use. The National Association for Business Aviation proposed in 2007 the creation of international rules for the permitted use of business aircraft. That very broad goal could be replaced by a more narrow proposal to develop a definition of permitted private use of an aircraft in Russia, defining what categories of passengers may be on board and prohibiting use of an aircraft brought into the country for private use to be used for commercial purposes.

    The proposal made by the National Association for Business Aviation in 2007 referred to an attempt in 1996 to develop regulation of business aviation in Russia, which was abandoned in favor of the new Air Code which came into effect in 1997 and provided no special regulation for business aviation in Russia. [19] Since the attempt to develop a special set of regulations for business aviation was abandoned in 1997, and apparently again in 2007, business aviation has remained in its present condition where charter operators need either to comply with the full set of rules that apply to aviation enterprises engaged in commercial aviation, at a time when the Russian government seems set upon limiting the number of new licenses issued for new aviation enterprises, or charter operators have been forced to operate in a grey area giving rise to the current state of affairs where the entire charter industry is continually operating on the basis of one-time exceptions from the applicable law, and all operators are more or less forced to operate in a semi-illegal manner in order to conduct their businesses.

In the absence of further guidance in the form of additional laws or regulations in Russia governing the scope of permitted use that does not cross the border and become prohibited cabotage, it appears the prevailing practice today is that one is on safe ground if the same persons travel into Russia and between Russian cities on an aircraft, and no new passengers or cargo are taken onboard while the aircraft is in Russia.

Plan B: Customs Clear, Maintain Foreign Registration

Lease to a Russian Aviation Enterprise

Better then the potential grey zone of Plan A, a much safer, clearly legal, and more flexible arrangement is lease a foreign registered aircraft to a Russian charter company. That Russian charter company should be a certified operator of commercial aircraft and should place the foreign registered aircraft on its Russian operator's certificate.

The rules governing the placement of an aircraft on to commercial operator's certificate are set out in R.F. Ministry of Transportation Order No. 11. [20] These rules set out the standard form of an Air Operator's Certificate, and, in Part B, the list of aircraft permitted to be operated by the operator.

It should be possible to plan to take advantage of recent exemptions from customs duties for certain corporate aircraft. Russia has introduced certain narrowly-drawn exemptions from Russian customs duties for certain models of foreign aircraft. The exemptions exclude most popular models of aircraft. One exemption signed into law on April 30, 2009 is for civil aircraft having a weight from 2,000 to 20,000 kilograms and seating for no more than 19 passengers. [21] The exemptions from customs duties do not extend to import VAT, which is still payable. The import VAT, and customs duties, if any, may be payable over three years at the rate of 3 percent per month, if the temporary import regime is selected, as opposed to the payment of import VAT in full when the aircraft is imported.

The foreign-registered aircraft, once it is placed on to the certificate of a licensed operator here in Russia may be flown freely within Russia without concern about the cabotage limitations, although the aircraft may retain its foreign registration. It would be necessary in this case to add reference to the aircraft to the relevant attachment to the agreement between Russia and the country of registration of the aircraft dividing responsibility for supervising the safety of flights. This ownership arrangement is in use with a limited number of corporate aircraft today, and is in use by certain commercial airlines in Russia with regard to their use of foreign registered aircraft on domestic routes in Russia.[22]

If this approach is used then the aircraft may be flown by its owner in Russia with payment to the Russian operator of a monthly fee for its services, plus all operating costs. For example, the fee may be $10,000 per month to have a large corporate jet placed on the certificate of a Russian operator. It should be possible to arrange for all operating expenses to be passed through at cost, and with no mark-up.

Plan C: Create or Acquire Your Own Russian Aviation Enterprise

We can provide a detailed discussion of the most ambitious and costly approach, to create your own air enterprise or aircraft operator, upon your request. The Russian government has taken steps to limit the number of licensed operators, and it is understood that accomplishing the steps involved to create a new company may require a budget approaching $1 million, and a year of lead-time. An alternative is to acquire a Russian company that holds the necessary license. They are few in number, but can be identified and acquired if an acquirer, or a group of acquirers, would like to do so. In this context, it should be noted that according to the requirements of the Air Code of the Russian Federation, the share of foreign capital in the charter capital of a Russian Aviation Enterprise may not exceed 49 per cent.

_____________________________

[1] Russian courts have held that a flight of passengers, purportedly without any compensation, was nonetheless a cabotage flight. See the discussion below under “Insurance Risks” and see  Decision No.09AP-7034/2008 of the Ninth Commercial Arbitration Appeals Court dated June 25, 2008 and Decision No.KG-A40/9094-08 of the Federal Commercial Arbitration Court of the Moscow Circuit dated September 30, 2008.

[2] There is a draft Decree of the Government of the Russian Federation concerning the procedure for issuance of one-time permits. See: http://www.mintrans.ru/pressa/Zakon_Avia/Archiv/Avia_Proekt.htm.

[3] See Paragraph 3.15 of General Provisions (Gen) 1.2-10 of the Aeronautical Information Publication (AIP) Russia and CIS.

[4] It follows that customs forms filed with regard to domestic commercial flights of such aircraft are reportedly frequently false and indicate that an aircraft is being used for private purposes, when it has actually been chartered out to a paying customer. Anecdotal evidence is that false customs filings are apparently widely used in domestic air charter companies, with customs officials routinely looking the other way.

[5] See Proposal of the National Association of Business Aviation of Russia about the preparation and adoption by the international community of a special convention on unifying the rules for the conduct of international business aviation. See http://www.avia.ru/editor/?id=242.

[6] See The Aviation Business: Results of Research by RosBusinessConsulting: http://old.e-xecutive.ru/publications/analysis/surveys/article_3725/.

[7] See “Russian-Owned Bizjet Fleet” http://www.jets.ru/stat/2008/09/11/russian_fleet.

[8] See "Grey Cabotage" http://www.jetcharter.ru/new/articles.php?id=28 This article discusses "It is logical to suppose that a Russian businessman who has decided to buy his own aircraft needs to fly within Russia, however, since the aircraft is registered at a foreign operator, he cannot do this legally. Of course, he is able to fly, for example, to Moscow or to St. Petersburg on his own aircraft, and then use the services of a domestic company. But, according to the words of Russian operators, very few do that."

[9] See Special Interview for BizavNews: http://www.avianews.com/portal/content/view/796/72. This article discusses that when RossAeroNavigation issues a flight permit, it does not inquire whether the flight is commercial or not, while this is commonly asked in other countries subject to the Chicago Convention.

[10] See http://www.kommersant.com/p628064/r_500/American_Cessna_Fails_to_Cope_With_Russia’s_Snow/.

[11] See Decision of the Supreme Arbitration Court of the Russian Federation, No. 17423/08, dated January 26, 2009. The court found that the aircraft was used for the carrying of passengers in violation of the permit given by RosAviatsia. The aircraft was used for purposes different than stated in the insurance policy. The aircraft was registered in Aruba but not operated according to Aruba law as well as Russian law. The pilot certificates indicating the pilots were certified to fly in Aruba were falsified.

[12] See Decision of the Ninth Arbitration Appeals Court, No. 09 AP-7034/2008-GK, dated June 25, 2008.

[13] See the form of Transportation Declaration appended to Order No. 916 of the State Customs Committee of the Russian Federation, dated August 21, 2008.

[14]  See Article 16.21 of the Code of the Russian Federation about Administrative Violations, as amended by Federal Law No. 116-F3, dated June 22, 2007.

[15] See Decision of the Federal Arbitration Court of the Moscow District, No. KA-A40/929-01, dated March 14, 2001.

[16] See Decision of the Arbitration Court of the Khanti-Mansinsk Autonomous Region, No. A75-4494/2008, dated October 27, 2008.

[17] See Article 290 of the Criminal Code of the Russian Federation.

[18] See Article 188 of the Criminal Code of the Russian Federation, and also the Decree of the Plenum of the Supreme Court of the Russian Federation on Court Practice in Cases concerning Contraband, No. 6, dated May 27, 2008.

[19] See Footnote 19 in the National Association for Business Aviation report referred to in footnote 2 above. Footnote 19 refers to a Decree of the Government of the Russian Federation, No. 996, dated August 13, 1996.

[20] See R.F. Ministry of Transportation Order No. 11, dated February 4, 2003.

[21] See Section 8802 30 000 and 8802 40 000 of the Customs Tariff of the Russian Federation, approved by Decision of the Government of the Russian Federation dated 27.11.2006 No. 718 (as amended, including by Decision of the Government of the Russian Federation dated 31.12.2008, No. 1093 "On Amending Customs Tariff of the Russian Federation in respect with certain types of aircraft", and by Decision of the Government of the Russian Federation dated 30.04.2009, No. 379 "On Approval of rates of import customs duties in respect with certain types of civilian aircraft".

[22] See two decisions of the Federal Arbitration Court of the Moscow Region, ZAO “Nebesny Express” (ZAO “Sky Express”) vs. Vnukovsky Customs, dated March 28 and March 29, 2009, Nos. KA-A40/4481-09-P and KA-A40/3573-09-P-2. See also press reports, including RBC Daily, February 11, 2009.