Corporate raiding devastating Russian economy, seminar told

Criminal prosecutions have been opened against more than 100,000 businesspeople in Russia in the first half of this year as part of a growing problem that is devastating the Russian economy, an expert on the topic has told a Dublin audience.

The prosecutions are linked to the ever-increasing phenomenon of corporate raiding, where the assets of the business people are being targeted for confiscation in a process that often uses forged documents and unjustified court rulings, said Prof Louise Shelley, of the school of policy and government in George Mason University, in Virginia.

The criminal charges are usually brought “because you can structure a defence for yourself much better if you are not in prison”.

Assets seized

The raids often lead to businesses being closed and their assets seized, with devastating consequences not just for the original owners, but for employees, suppliers, and the Russian economy generally.

“Probably more than one million people a year are losing their jobs or their income,” she said. The phenomenon is fuelling capital flight from Russia, and also driving entrepreneurs, including highly skilled people in the area of new technology, into non-productive, criminal activities, such as cybercrime.

The overall result is long term decline, with massive underinvestment in infrastructure and education that the Russian people need.

Banks selling information

The regulatory and banking sectors are involved, with some banks selling information about clients to people who would be interested in raiding their assets.

Often the proceeds of this activity end up in western banks and western real estate, Prof Shelley told a public lecture in Trinity College, Dublin, on Tuesday.

Prof Shelley is the co-author of a recent report on the rise of Reiderstov (asset-grabbing) and its implications for Russia and the West.

Neil Robertson, Professor of comparative politics at the University of Limerick and an expert on Russia, said the phenomenon was stymying the modernisation of the Russian economy. It was also an indicator of how much instability there existed in Russia.

Vladimir Putin’s power in Russia was often overestimated. “Putin’s Russia is in fact very disordered.”

Often raiding was being sanctioned by powerful, regional figures over whom Putin had limited control.

Huge problem for Putin

Prof Robertson

said Russian leaders always had a problem with feeding the requirements of the state while also feeding the requirements of the regime. At the moment “we have a regime-supporting economy rather than a State-supporting economy and that is a huge problem for Putin”.

Prof Shelley said “what we are looking at is long term decline”, with Russia failing to invest in the areas it knew it needed to if it was going to develop.

She said that even companies that are strategically important for Russia’s defence industry and national security have been subjected to corporate raids.

In her paper, Prof Shelley said the scale of corporate raiding in Russia was undermining its ability to attract foreign investment, limiting economic growth, and integration with the international economy.

While in the past it was criminal groups who were behind the practice, now it was more government officials and businessmen who used criminals as part of an overall strategy that included use of the courts. Russia’s economy cannot hope to recover without addressing the issue, according to the paper.

High Court proceedings

One of the cases mentioned in the paper, involving a $3 billion Russian chemical company called Toaz, is the subject of High Court proceedings initiated in Dublin last week.

Some years ago Russian and Ukrainian property holding companies associated with the family of Seán Quinn were subjected to raider attacks after the State-owned Irish Bank Resolution Corporation tried to assert legal rights over them.

The State, as a result, lost tens of millions of euro in rental income and in legal costs. The overall cost to the State is likely to have been well in excess of €100 million because the IBRC’s interest in the assets is now worth much less than when it first sought to seize them.