In this week’s blog post
I will examine a particularly troublesome issue that has become a sad reality
of doing business in Russia. While the death and ripple effect of Mr.
Magnitsky’s death in 2009 has been widely discussed, this example is only a
microcosm of Mr. Putin’s control of Russia. This week Russian authorizes have
announced new fraud charges against U.S.-born investor William Browder. He is
the CEO and co-founder of Hermitage Capital Management, a fund that had made
millions by investing in Russia. Some of those investments included owning 131
million shares in OAO Gazprom, Russia’s most prized possession. Mr. Browder was
once one of the largest foreign investors in Russia, but in 2005 he was
stripped of his Russian visa on the typical charge of unspecified national-
security reasons. After this, he promptly pulled most of his funds out of
Russia. This week the Kremlin accused him of illegally acquiring those shares
of Gazprom and the allegations state that his “illegal” acquisition has damaged
the Russian government to a tune of $97.5 million. Moreover, the allegations
state that Browder sought not only ‘personal enrichment’ but sought to
penetrate and influence Gazprom.
Mr. Browder acquired his shares between 1999 and 2004, at
a time when special permission was required to purchase the shares and they
were selling for far below their valued price. While he was a shareholder, he
sought to improve transparency and the financial performance of the stock by
rallying shareholders to take an activist position. He even attempted to win a
seat on the board of directors, which was unsuccessful. These actions resulted
in the revocation of his Visa. During the next few years the Moscow police
routinely raided the offices of Hermitage capital and confiscated documents and
computers. One of the lawyers who worked for Hermitage was Magnitsky.
While all of these actions by the Russian government seem
unjustified, Browder himself undoubtedly had to break the law at some point to
attain a substantial number of shares in Gazprom and successfully invest in
Russia. To infer that the “special permission” he had to obtain required paying
certain official is not beyond the bounds of reasons. Moreover, tax laws are routinely breeched by
Russian business, creating an environment where if all the other companies are
doing it Browder’s companies would not be able to remain competitive if they
did not.
This is precisely how Putin is able to control the
business environment in Russia. It is quite simple and rather ingenious, he has
created a system where everyone must pay bribes to officials a violate tax code
to remain competitive. The catch is that people must not step out of line, such
as Magnitsky in reporting the $230 million fraud. If one does decide to report officials
with violating the bribery the Kremlin has a simple solution, charge the
individual for a crime. This has been routine practice for Putin’s government
and examples are not hard to find, such as the imprisonment of Khodorkovsky,
one of Putin’s fiercest opponents. The beauty – or hopelessness of the
situation depending on which side you are coming from – is that to do business
in Russia an individual must toe the lines of the law. Many laws can be
circumvented, and when one attempts to move out of step with Kremlin policy, Putin
has the power to legally reprimand investors. As twisted as this may seem to
American investors it is the present reality in Russia and will keep Putin in
power for the foreseeable future.
http://www.forbes.ru/investitsii-column/tsennye-bumagi/231115-bolnaya-spina-kak-investitsionnyi-faktor
No comments:
Post a Comment