Russian Law Enforcers' Meddling in Private Sector on the Rise

        Russian Law Enforcers' Meddling in Private Sector on the Rise

PR Newswire

MOSCOW, March 4, 2013

MOSCOW, March 4, 2013 /PRNewswire/ --The year 2012 was a record year for
Russian law enforcement agencies' meddling in the private sector, RUXX
Analytics Center reports. The number of searches, police raids, corporate
records withdrawals, and criminal cases against entrepreneurs is up more than
20% year-over-year, to a level exceeding even that seen in the 1990s, when law
enforcers were frequently used as a tool for pressuring competition and to
oust current owners from a desirable company.

"On the surface, it would seem that the government's pressure on the private
sector has increased recently, through increasingly active involvement of law
enforcement agencies," says RUXX analyst Michael Thompson. "However, this is
not actually the case: law enforcers are just a tool some private industrial
groups are using to gain control over assets of other private groups. The
government is not exercising more stringent control; in fact, if anything, it
has become weaker," Thompson adds.

The most recent egregious example of law enforcers brought in to solve a
commercial dispute between private parties is the conflict between core
shareholders in Tolyattiazot, a major global ammonia producer, and Uralchem
Holding Company and its affiliated company Belport Investments Limited
registered in the British Virgin Islands. Tolyattiazot's lawyers have sent an
open letter to Chairman of Russia's Investigative Committee Alexander
Bastrykin after the local police investigators initiated criminal proceedings
against the company based on Belport's unverified claims, which may cost the
ammonia producer $200 million in additional expenses. The significant amount
at stake is typical of a corporate blackmailers' "raid," when core
shareholders are usually offered a chance to see charges dropped for a smaller
amount.

In another high-profile case, the conflict between key partners in TNK-BP, a
Russian-British major oil joint venture, has seen many police searches, denied
and withdrawn Russian entry visas, and other actions by law enforcers to
stymie the efforts of British executives at the company and BP as a major
shareholder to promote their strategy for the joint venture.

"There are numerous examples of the authorities putting pressure on Russian
business," says Thompson: "Take the well-publicized case against
Arbat-Prestige, a retail cosmetics outlet which led to the incarceration of
the retailer's founder Vladimir Nekrasov and subsequent bankruptcy of the
company despite that the court had later dismissed the case against
Arbat-Prestige and found no wrongdoing. Also, a criminal case against Euroset,
Russia's largest mobile phone retail network, that led Eugeny Chichvarkin,
Euroset's founder, to flee the country and fire-sell the company only to see
the court dismiss the charges several years later."

Business ombudsmen, an institution recently established in Russia to protect
business rights, is swamped with complaints. More than 700 companies have
turned to business ombudsmen in a year, predominantly with complaints against
law enforcers. The Russian leadership is attempting to win back the trust of
domestic and international companies and entrepreneurs by improving the
available infrastructure and enacting new business-friendly laws, but until
the corrupt link between the private sector and law enforcers is broken or at
least severely limited, trumped-up criminal charges, even if they do not stand
up in court, still can damage the reputation of companies and their managers,
and will interfere with operation of both Russian companies and international
investors in Russia.

"Criminal investigations against industrial companies have become a fact of
life in 2013 Russia. The mere fact of a criminal investigation can cause
trouble for a company by making debt more difficult to procure, and affect the
stock price, and corporate raiders take advantage of that," Michael Thompson
comments on the general situation. According to the RUXX Index, which includes
a majority of publicly traded Russian companies, inflow of investment in
Russia is on decline. "We explain this primarily by the pressure from law
enforcement agencies getting out of control."

RUXX Index
Michael Thompson
Michael.thompson@ruxxindex.com
+1 646 257 2003
www.ruxxindex.com



SOURCE RUXX Index

Website: http://www.ruxxindex.com