Raids In Russia
Understing ‘Reiderstvo’: Raids On the Rise
Illegal, uncompensated, forceful takeovers of Russian companies — the practice known as reiderstvo — are rooted in a mentality of corruption that pervades the country’s worlds of business and government.
Transparency International highlighted the problem in the corporate world by releasing a report in 2018 on the lack of transparency at a whopping 84 percent of Russia’s top 200 public companies.
Its findings painted a discouraging picture for foreign companies considering entering the Russian market by investing in established enterprises there.
The median score of the companies that Transparency International assessed was 2.6 on a 10-point scale — a D on an A-through-F grading system. Only 32 of the enterprises, or 16 percent, had a score of 5 or higher.
The team that compiled the report looked at three practices — the companies’ public disclosure of taxes and other payments to the government, the information they made available to the public on their subsidiaries and overseas operations, and their anti-corruption programs.
The most disheartening finding was that 41 companies scored zero on all three criteria.
The kind of mentality that prompts publicly held companies to hide key information from the public is the same kind that encourages reiderstvo. A combination of a climate of secrecy and a public-be-damned attitude is a major reason that many Russian enterprises avoid paying their fair share of revenue and refuse to be held accountable to the rest of society. The same thought process allows raiders to plan and pull off uncompensated, forceful thefts of companies ranging from the very small, with a handful of employees, to multi-billion-dollar behemoths.
The companies that Transparency International studied account for more than 70 percent of Russia’s national income, which means their taxes are crucial to the state budget.
But the vast majority’s climate of secrecy ensures that many pay a lot less tax than they should.
It is easy for companies that lack a conscience to move from ducking taxes and avoiding public accountability to stealing other people’s operations, with or without the help of authorities and in many instances with the use of force.
So any program to combat reiderstvo needs to include efforts to address the mentality of corruption that pervades Russia’s corporate world.
It’s Time to End Raids in Russia
In the West the term corporate raiding means acquiring enough shares of a publicly held company to either take it over or affect its policies in a way that boosts your profits.
In Russia it has a more sinister meaning: using brute force, orders from paid-off judges and officials, trumped-up criminal charges against company leaders, black PR and other illegal or unethical tactics to steal a company without compensating its owners.
It’s become so widespread in Russia that there’s a term for it — reiderstvo, which is close enough to the English term raiding that non-Russians have no trouble understanding what it means.
Experts say thousands of companies, big and small, have fallen victim to reiderstvo across the former Soviet Union, but the vast majority of cases have been in Russia. Media there estimate that raiders gobble up a staggering 70,000 Russian companies a year, which makes it theft on a trillion-dollar scale.
My Moscow-focused real estate company SDI Group is a reiderstvo victim. My own multi-million-dollar loss prompted me to found a center to spotlight the threat of reiderstvo and try to get something done about it. I’ve named it the Center for Business Transparency and Countering Corporate Raids in Russia.
The Russian government has paid lip service to the reiderstvo problem by decrying it from time to time and by taking cosmetic steps to stop it — like getting the Duma to pass anti-reiderstvo legislation that it has failed to enforce.
But reiderstvo continues non-stop, hurting the Russian economy — since the practice adds nothing to gross domestic product. On the contrary, it hurts the economy in two ways. One way is that it disrupts the operations of the companies that are raided, hammering productivity, a longtime Russian Achilles Heel. Another is that prevents many foreign companies from investing in Russia out of fear they will lose the hundreds of millions or billions of dollars they pour into the country.
Many Russian companies that thought they were too big or well-connected to become victims of reiderstvo have learned to their horror that they were mistaken. Raiders have taken over such well-known companies as the oil and gas giants Yukos, Rosneft and Bashneft; VKontakte, which is Russia’s Facebook; the retail electronics chain Evroset; and the world-renowned Stolkchnaya Vodka company.
Many victimized companies’ leaders have fled abroad in the face of death threats. Others have been jailed on trumped-up charges. Both circumstances have ensured that they were unable to fight back to try to reclaim their companies.
The authorities take part in many raids to try to grab some of the spoils for themselves. In other cases — like mine — they are not involved overtly, but turn a blind’s eye to the illegal takeovers.
Although most of the victims of reiderstvo have been Russian, Americans and other Westerns have fallen prey as well.
The arrest of Michael Calvey, founder of the hedge fund Baring Vostok Capital Partners, in Moscow in February 2019 sent shock waves through the global investment community, particularly those doing business in Russia.
Prosecutors charged him with bilking a bank out of $38 million. But the real reason behind the charade was that he had amassed a hedge fund worth $4 billion that someone else wanted to take over.
Reiderstvo is a scourge, discouraging both Russians and foreigners from investing in the country for fear of losing their companies without compensation, being jailed on phony charges and even being maimed or killed.
I founded the Center for Business Transparency and Countering Corporate Raids in Russia in hopes of letting the world know more about this outrageous practice and working with people in Russia and other countries to try to stop it. Please join me in this effort