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Russian Law Enforcers' Meddling In Private Sector On The Rise

"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  +1 646 257 2003


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