Friday, 18 March 2011

Russia today: Government-organized crime and state corruption

Ashot Yegiazaryan, who has served as deputy from the Liberal Democratic Party in the State Duma since 1999, describes the absence of rule of law in Russia in an article in the Moscow Times:

Perverting the judicial system to abuse private property rights is, of course, not uncommon in countries with weak rule of law. But in Russia, it has been raised to an art form through a heavily centralized political system and a fusion of business and state interests clouded within an opaque environment. The loss of a distinction between personal interests and state interests at such a high level makes corporate raiding more efficient and devastating.
In a seminal 2008 article, “Criminal Corporate Raiding in Russia,” Thomas Firestone, legal adviser for the U.S. Justice Department at the U.S. Embassy in Moscow, writes that Russia’s raiding relies on “criminal methods such as fraud, blackmail, obstruction of justice and actual and threatened physical violence.” He notes that the raiders “rely on court orders, resolutions of shareholders and boards of directors, lawsuits, bankruptcy proceedings and other ostensibly ‘legal’ means as a cover for their criminal activity.”
Firestone defines the typical corporate raid in Russia:
  • the acquisition by the raiding company of a substantial portion of the target company’s debts;
  • the corrupt acquisition of control over the target company by falsifying internal corporate documents;
  • the filing of civil suits and “contracted” criminal cases against the target company;
  • the use of siloviki, including the police, private security forces, court bailiffs and hired thugs;
  • the transfer of illegally seized assets to a “good faith purchaser”’ using shell companies;
  • “black PR” involving the distribution of false information about the target through the media.
These tools will be sharpened and applied with greater vigor if the target tries to resist. After I started to fight back against the scheme to steal my assets, the authorities opened a criminal case against me, heightened physical threats against me and my family and initiated a vicious PR campaign branding me as a criminal.
It is a tragedy that Russia has created a business environment that is so open to abuse, one that has ruined the country’s investment climate.
This model of government-organized crimeis doomed, and the efforts to modernize Russia are a sham used to mask the status quo of rampant state corruption. To create a genuine basis for development, Russia urgently needs to separate business from executive power.

It is becoming more and more evident that corruption and the lack of rule of law is keeping international investors away from Russia:

Ikea, the world’s biggest home-furnishings retailer, is just the type of investor Russia needs — and isn’t getting — to overcome the lowest foreign investment rate among leading emerging-market economies. The Swedish company says it won’t build more stores outside the Moscow region until local officials stop withholding permission for two outlets in the central cities of Samara and Ufa. After investing $4bn in Russia over 10 years, Ikea placed a freeze on expansion in June 2009.
The reason the stores aren’t opening is that Ikea is refusing to pay bribes to safety inspectors, said Kirill Kabanov, head of the non-governmental National Anti-Corruption Committee in Moscow. “We have a zero tolerance on corruption and we have a very clear policy, and then things must take the time they take,” Ikea Russia Managing Director Per Wendschlag said in an interview. He said he had no specific complaint on the delay in permits in the two cities.
At stake is Russian President Dmitry Medvedev’s goal, expressed in a January 26 interview with Bloomberg Television, to match the economic growth rates of other BRIC nations. With barely more than one-tenth the population of China and India, Russia needs to attract non-energy investors to grow and diversify. Corruption has “penetrated all branches of power,” Medvedev said in the interview.
The president’s credibility as a graft-busting former lawyer working to improve the business environment was tarnished in December when a Moscow court handed a new jail sentence to Mikhail Khodorkovsky, the former Yukos Oil billionaire, said James Beadle, a Britain-based consultant for investors in Russia. Lack of progress risks harming Medvedev’s prospects a year ahead of presidential elections.
Foreign companies have repeatedly faced difficulties in Russia. Royal Dutch Shell, Europe’s largest oil company, in 2006 ceded control to state-run OAO Gazprom of its biggest project in the country, the $22bn Sakhalin-2 oil and gas development, amid threats by regulators to revoke the permits on environmental grounds. Russian health officials last year warned Nestle, the world’s largest food company, that it was violating safety rules at its Russian plants. A spokesman confirmed the warning last month. It was a move to favor local rivals or extort money, according to the anti-corruption committee’s Kabanov.

Read the entire arcticle here.

Kristiina Ojuland, Member of the European Parliament and foreign minister of Estonia from 2002 through 2005., has been very outspoken about the lack of human rights, rule of law and corruption in Russia. However, due to its energy dependence, the European Union has regrettably not been in the forefront in the fight against the rotten Russian system:

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