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An Investment Gets Trapped in Kremlin’s Vise By Clifford J. Levy MOSCOW — William F. Browder was one of the most prominent foreign investors here, a corporate provocateur who brought the tactics of Wall Street shareholder activists to the free-for-all of post-Soviet capitalism. Until, that is, the Kremlin expelled him in 2005. Mr. Browder then focused on protecting his billions of dollars of stakes in major Kremlin-controlled companies, like Gazprom, and on fighting to return to a land where he had deep and unusual family ties. So when he ran into Dmitri A. Medvedev, the country’s future president, at the World Economic Forum in Davos last year, he saw his chance. In a brief conversation at a dinner at the Swiss resort, he pressed Mr. Medvedev for help in regaining his Russian visa. Mr. Medvedev, then a top aide to President Vladimir V. Putin, agreed to pass along his request. A short time later, Mr. Browder’s office received a phone call from a senior Moscow police official, who said he had learned of Mr. Browder’s new visa application and might be able to help. "My answer will depend on how you behave, what you provide, and so on," the official said, according to a recording of the call supplied by Mr. Browder. "The sooner we meet and you provide what is necessary, the sooner your problems will disappear." Mr. Browder’s problems, in fact, were just beginning. The phone call was one move in a wide-ranging offensive by Russian law enforcement that exposed Mr. Browder to the kind of crippling investigations that Kremlin critics have regularly endured under Mr. Putin. It appeared that the ultimate goal was not only to seize Mr. Browder’s investment empire, but also to make him an example of what happens to those who do not toe the government’s line. His downfall offers a study in how the Kremlin wields power in the Putin era. The rule of law is subject to its wishes, and those out of favor are easy prey. Mr. Browder’s case points to the official corruption that afflicts Russia, and the Kremlin’s unwillingness to adopt serious measures to combat it by bolstering the independence of the police and the courts. The Kremlin may be reluctant to do so because it wants Russia’s wealth to accrue to those loyal to the leadership. Until his visa was canceled and he moved his operations to London, Mr. Browder cut a colorful figure in Russia, a foreign version of the Russian oligarchs who earned their fortunes in the mass privatization after the fall of the Soviet Union. He courted publicity, and his background made a good story: he is the grandson of Earl Browder, a leader of the American Communist Party in the 1930s. He often said that, not unlike Russia itself, he rebelled by becoming a capitalist. He arrived in Russia in 1996 after a stint in London as an investment banker, and quickly saw opportunities. Russia’s economy was undergoing colossal changes, and Mr. Browder positioned his company, Hermitage Capital, as a vehicle for Western investors to get a piece of the action. After Mr. Putin became president in 2000, Mr. Browder became a vocal supporter of the Kremlin, saying that Russia needed an authoritarian leader to establish order and calling Mr. Putin his "biggest ally" in Hermitage’s effort to reform big business. Mr. Browder thrived, and the funds managed by Hermitage grew to more than $4 billion. Mr. Browder does not know exactly why the Kremlin turned against him. But the Kremlin was consolidating control over prized companies like Gazprom and appeared to be chafing at criticism from outside shareholders. Once things went bad, Mr. Browder had no recourse. The police confiscated vital documents from his lawyer’s office in Moscow. He discovered that his holding companies had been stolen from him and re-registered in the name of a convicted murderer in a provincial city. Whoever was behind the scheme took over much of Mr. Browder’s corporate structure in Russia, but failed to get at his investors’ money. Even so, in recent weeks, Mr. Browder said he had learned that his former holding companies had been used to embezzle $230 million from the Russian treasury. This article is based on interviews with Mr. Browder, his associates and lawyers, as well as on numerous documents they provided that they say prove corruption. Many of his assertions were confirmed independently. Requests for comment were made to several law enforcement agencies in Russia that Mr. Browder accuses of carrying out, or refusing to investigate, the scheme. They did not respond or said they would not comment. The Kremlin has not spoken publicly about his case, despite frequent appeals by Mr. Browder and senior British and American officials. Twice in the last two years, Mr. Putin has been asked by reporters about Mr. Browder. Both times, he denied even knowing Mr. Browder’s name. "I don’t know who this Mr. Browder is, as you say, why he cannot return to Russia," Mr. Putin, who is now prime minister, said in May. "Russia is a big country," Mr. Putin said. "There might have been some kind of complications. There might have been some kind of conflicts — conflicts with the authorities, conflicts in the business world, interpersonal conflicts. But that’s life, it’s complicated and varied. If a person thinks that his rights have been violated, let him go to court. We have a legal system that works, thank God." A spokesman for Mr. Medvedev, who succeeded Mr. Putin as president in May, confirmed that Mr. Medvedev had spoken with Mr. Browder at Davos last year, but would not comment further. Mr. Medvedev, a former law professor, has vowed to wage war on corruption, often saying that Russia is plagued by "legal nihilism." Still, the Kremlin under Mr. Medvedev has also snubbed Mr. Browder. "If ever there was a definition of legal nihilism, this is it," Mr. Browder said in an interview in his office in London, where he now lives. "I was actually fighting to make Russia a better place, and fighting against corruption, which is something that they should have given me a medal for," Mr. Browder said. "Instead, they drive me out of the country and tarnish everything that I did there." A Personal Stake For Mr. Browder, 44, Russia was more than a place to do business. His grandfather Earl Browder was a committed Communist from Kansas who moved to the Soviet Union in 1927, staying for several years and marrying a Russian. He returned with her to the United States to lead the Communist Party for a time, even running for president. William Browder hoped to get rich in Russia, but argued that his fight against corporate malfeasance would also benefit the country. After all, even as oligarchs became absurdly wealthy in the 1990s in highly questionable schemes, many Russians fell into poverty. "I had a lot of my family in me, and tried to find a way of connecting my past to my future," he said. Mr. Browder grew up in Chicago and attended the University of Chicago. After graduating from Stanford Business School in 1989, he set off for London. He later became a British citizen, not out of antipathy toward the United States, he said, but because he felt comfortable there. His company, Hermitage Capital, was first bankrolled by Edmond J. Safra, the billionaire founder of Republic National Bank in New York. Mr. Browder said Mr. Safra, who died in 1999, taught him not to shy away from kicking up a scandal to protect his interests. Following that advice, Mr. Browder made a lot of money and a lot of enemies after arriving in Russia in 1996, garnering a reputation as a sharp-eyed analyst of Russian industry who could also be abrasive and headstrong. Hermitage started with $25 million from Republic. The fund was so profitable in its first 18 months, reaping a gain of 850 percent, that it soon attracted more than $1 billion from institutional investors and others in the West. In the Russian financial collapse of 1998, the value of its investment assets was estimated by the company to have plunged to $125 million, but it recovered over the past decade, reaching a peak of more than $4 billion. Despite his success, Mr. Browder led a relatively austere life in Moscow, eschewing the trappings of many expatriates and working so hard, he says, that he learned to speak barely a word of Russian. He tried to keep a low profile, but did employ bodyguards when he engaged in shareholder battles. Mr. Browder concentrated his investments on the largest Russian companies, most of them in the energy sector and under some Kremlin control. Hermitage became expert at conducting forensic audits into their finances, uncovering all manner of wrongdoing, from insider trading to outright theft. He often leaked the information to the Russian and international press. "It became a matter of desperation, not inspiration," he said. "You had to become a shareholder activist if you didn’t want everything stolen from you." Gazprom, one of the world’s largest companies, was a favorite target. Mr. Browder discovered that billions of dollars in gas had been sold at deeply discounted prices to shady intermediaries. But by 2005, Mr. Putin had assumed complete control over Gazprom as part of his drive to re-nationalize central energy assets. When Hermitage released a dossier assailing mismanagement and corruption at the company, the Kremlin had had enough. A few months later, Mr. Browder’s visa was canceled. Over the next two years, several of his associates and lawyers, as well as their relatives, were victims of crimes, including severe beatings and robberies during which documents were taken. None were solved. Victim of Corporate Raiding The real trouble, though, got under way in June 2007, with Mr. Browder stuck outside the country. Dozens of police officers swooped down on the Moscow offices of Hermitage and its law firm, confiscating documents and computers. When a member of the firm protested that the search was illegal, he was beaten by officers and hospitalized for two weeks, said the firm’s head, Jamison R. Firestone. Supervising the raids was the same police official who called Mr. Browder’s office about the visa three and a half months earlier, Lt. Col. Artem Kuznetsov of the Department of Tax Crime of the Interior Ministry. He said he was seeking evidence in an inquiry into whether one of Hermitage’s related entities, called Kameya, had underpaid its taxes by $44 million. According to court documents obtained by Hermitage lawyers, the F.S.B., a successor to the K.G.B., approved the inquiry. The Interior Ministry and the F.S.B. would not comment. Their role against Hermitage was not unusual. Law enforcement has been repeatedly deployed during Mr. Putin’s tenure against Kremlin critics or those whom the Kremlin did not favor in business disputes. Opposition parties faced numerous investigations during the parliamentary elections last fall. In recent months, TNK-BP, Russia’s third largest oil company, has been subjected to 14 such inquiries, apparently in an effort to push out BP, the British oil giant, which owns half the venture, BP said. The Kremlin apparently wants a state company to take over TNK-BP, analysts said. The issues surrounding the Hermitage tax payment were complex, but there was a larger question: why did the police need to carry out searches and seize so many documents, including many unrelated to Kameya, when such tax disputes are first supposed to be handled through routine bureaucratic channels? Even more curious, Hermitage asked the Russian tax authorities whether Kameya owed back taxes. The answer was no. But it did not matter. Hermitage was about to become victim of what is known in Russia as corporate raiding, or seizing companies and other assets with the aid of corrupt law enforcement officials and judges. The phenomenon has flourished under Mr. Putin. In the weeks after the police seized the corporate documents, someone used them to transfer the ownership of three of Hermitage’s holding companies to an entity based in Kazan, a provincial capital 450 miles east of Moscow. The entity’s registered owner was a man with a murder conviction, records show. Now that the corporate raiders had seized the three Hermitage holding companies, they resorted to a classic strategy to try to drain them of money. A lawsuit was filed in a court in St. Petersburg in July 2007 against the holding companies, asserting that they had defrauded another company, Logos Plus, of hundreds of millions of dollars in a 2005 deal involving Gazprom stock. In fact, everything about the lawsuit was bogus, Hermitage lawyers said. Hermitage had never done business with Logos Plus. The documents submitted to the court had obvious inconsistencies, suggesting that conspirators were not worried about being caught. A power of attorney for one of the Hermitage companies was dated four months before the company had been created. While it is unclear whether the judge knew about the fraud, she let the case go forward anyway. Lawyers whom Mr. Browder had never heard of showed up to defend the Hermitage companies and admitted wrongdoing. The judge ruled in favor of Logos Plus. In all, 15 such claims were put forth in similar cases. A total of $1.26 billion in judgments were made against Hermitage, which did not even learn of the cases until three months later. Becoming a Personal Target In the end, the raiders got nothing from Hermitage. After his visa was canceled, Mr. Browder, concerned about such an onslaught, had quietly moved his Russian assets offshore and sold most of them. The holding companies were shells. Still, the scheme was not done. In recent weeks, Hermitage discovered that the fake lawsuits had served another purpose. The raiders used the legal judgments to alter the holding companies’ balance sheets, wiping away their profits for 2006. They then went to the tax authorities and applied for a refund on taxes that Hermitage had paid in 2006 on the profits. The authorities handed them $230 million from the Russian treasury, Hermitage lawyers said. While Mr. Browder did not suffer grievous financial losses, his work in Russia has been ruined. He has only small investments left here, and has evacuated his Russian staff to London, fearing for their safety. Mr. Browder has, over the last year or two, reinvented himself, and Hermitage now has more than $3 billion invested in other parts of the world. Beginning in December, Hermitage and its bankers filed dozens of lengthy complaints with Russian government agencies, presenting numerous pieces of evidence, including the phone call from Colonel Kuznetsov. To no avail. Mr. Medvedev appointed a committee in May to develop an anticorruption program, and Hermitage sent letters to its members. None responded. At the same time, as Mr. Browder has stepped up his complaints, the Interior Ministry has set its sights on him personally. It has opened a criminal inquiry into whether he violated an obscure tax law in 2001. Hermitage did persuade one agency, the State Investigative Committee, which is part of the prosecutor general’s office, to examine the case. But Hermitage has come to realize that this inquiry will also most likely go nowhere. Last month, a Hermitage lawyer went to a meeting at the investigative committee about the case and saw a familiar face. It turns out that one of the officials who is helping to lead the inquiry into Hermitage’s allegations is Colonel Kuznetsov. Russia's
Raiders By Jason Bush
In fact, the uninvited
visitors were members of Girev
says his company has been
the local OMON,
Russia's crack paramilitary
targeted reidestvo or raiding
targpolice, and
detectives from Moscow. Budanov and Korushev, like many Russians, believe the police and courts have become weapons in the capitalist arsenal. Some 8,000 companies a year are targets of lawsuits or investigations at the behest of rivals seeking to put them out of business or take them over, the Russian Chamber of Commerce & Industry says. Russians call this process reiderstvo, or raiding. In some of these cases, companies pay off police and courts with a goal of harassing competitors. Often raiders rely on corrupt courts to rule that they are legal owners of a company. In other cases, raiding companies or their agents use legal pressure as a tool to force controlling shareholders to sell their stakes. While targeted companies sometimes don't know who is behind the legal attacks, the practice is common enough for the Russian press to name the prices corrupt officials allegedly charge for various "services": Getting police to open a criminal investigation costs $20,000 to $50,000, an office raid is as much as $30,000, and a favorable court ruling runs anywhere from $10,000 to $200,000, according to press reports. Rampant lawlessness is the No. 1 barrier to Russia's economic development, says President Dmitry Medvedev. The former law professor, who promised to make law and order a top priority, has coined his first catchphrase, "legal nihilism," to describe widespread disrespect for the law at all levels of society. Medvedev, who took over the Presidency from Vladimir Putin on May 7, has called for legislation to rein in reiderstvo, and Parliament is debating a 20-year jail sentence for raiders who illegally acquire companies. Venality on the Volga Sometimes Russia's legal shenanigans make global headlines. Oil giant Yukos was broken up and renationalized by the Russian government between 2003 and 2007. Police on Mar. 20 raided the Moscow offices of BP (BP) and its Russian joint venture, TNK-BP. And on Apr. 6, Hermitage Capital Management, a British investment fund, said Russian police, under cover of an investigation for alleged tax evasion, stole documents that were then used in an attempt to defraud the fund. (The police did not comment.) While such cases capture worldwide attention, reiderstvo more typically targets small and midsize companies in places like Samara. Located on the historic trade route with Asia, Samara has long had a wild streak. In the 17th century, the city—the capital of Samara province—was the base for Russia's most notorious outlaw, a Cossack named Stepan Razin who held up riverboats. In the 1990s criminality in the region centered on the giant AvtoVAZ car factory in Togliatti, Samara's second city, where mobsters stole cars and gunned down managers. These days life is calmer. While assassinations of businessmen and officials still happen, Samara has seen an economic revival in the Putin era. Crumbling 19th century buildings give the city an air of faded elegance, but the streets have been brightened by the arrival of big electronics chains, mobile-phone shops, and Western brands such as Citibank (C) and Adidas. Today, the region's businesses worry less about mobsters and more about cops and their bureaucratic masters. That's certainly the case at Togliatti Azot. Surrounded by Russia's ubiquitous birch forests, the factory is one of Russia's most profitable petrochemical plants, producing ingredients for plastics and fertilizer. (Azot means "nitrogen.") Built in the 1970s with technical assistance from U.S. billionaire Armand Hammer, the plant is relatively modern by Russian standards. The perestroika economic reforms of the '80s hurt, but the company revived, helped by new partners and markets. Many credit Togliatti Azot's survival to fugitive General Director Makhlai. He ran the company during the Soviet era and stayed at the helm when it was privatized in the early 1990s, becoming its largest shareholder. The plant's staffers are surprisingly loyal to their boss and have organized dozens of demonstrations. Their banners and placards—"Hands off Togliatti Azot!" and "We won't let the dirty raiders pass!"—make clear what the workers think of the accusations. "If the workforce has come to the defense of the manager, it's because he isn't guilty," fumes Olga Sevostyanova, head of the plant's trade union. The police's case rests on the claim that between 2002 and 2004, the factory sold ammonia at artificially low prices to a trading company in Switzerland. The police maintain the Swiss outfit was a front for Makhlai, and that it resold the ammonia at market prices, pocketing the difference. The factory disputes this and has received backing from experts at the Justice Ministry who support Togliatti Azot's claim that the police case rests on insufficient evidence. The Samara police declined to comment, as did the Internal Affairs Ministry in Moscow. But Alim Dzhiganshin, investigations editor of the official police newspaper, Shield and Sword, says: "The position of the investigators is close to the truth. [Makhlai] crudely stole from his company, and now he's trying to blame raiders." To be sure, the case against Togliatti Azot is complex, resting on such arcane matters as the fair export price for ammonia. Commentators note that such cases are rarely black and white. "Opening a criminal case is of course a kind of corporate war," says Boris Titov, head of Business Russia, a lobbying group. "You don't know who's attacking whom." Murky as it is, the conflict has led to local outrage. "It's obvious that all signs point to a hostile takeover of the company—a so-called raider," says Anatoly Ivanov, a deputy of the pro-government United Russia party who represents the city of Togliatti in Russia's Parliament. He points a finger at Renova, a Moscow-based company owned by Victor Vekselberg, a tycoon with interests in the petrochemicals sector. Renova Group, a minority shareholder in Togliatti Azot, emphatically denies involvement in a corporate raid, while acknowledging past disagreements with the plant's management over dividends and shareholder rights. "The Renova Group can't have any connection with the investigation of Togliatti Azot by the law enforcement agencies, because it is a private Russian business group," Renova told BusinessWeek. The onslaught of criminal and tax investigations against Togliatti Azot coincided with civil suits affecting it. In 2006 managers were amazed to learn of a case lodged in Ivanovo, near Moscow. In it, one small company accused another of reneging on an agreement to sell 100% of Togliatti Azot's shares. After the plaintiff presented the court with a share register that appeared to prove the defendant owned the stock, the judge halted trading in Togliatti Azot's shares. But that was reversed after the company proved the document was forged. In another unsuccessful case, executives say, a plaintiff lodged a lawsuit against Togliatti Azot citing papers that had been taken in the 2005 police raid. "They had documents that this company should never have had access to," says Oleg Klyukhov, Togliatti Azot's legal director. The region of Samara doesn't lack for other examples of alleged reiderstvo. In the city of Samara, the Smarts cell-phone company could hardly be more different from Togliatti Azot. The plant was a product of the Soviet industrial complex, passing into private ownership as a result of Russia's controversial privatization process. Smarts, by contrast, is a creature of Russia's post-communist consumer boom. It has some 4 million subscribers in the Volga region and occupies a shiny office block in Samara. Unlike the gray-haired engineers who head up Togliatti Azot, Smarts' general director, Andrei Girev, is young, trim, and sharply dressed. But Smarts has one thing in common with Togliatti Azot: For the past three years it has been hit by legal challenges and criminal probes, which Girev calls "a classic raiders' attack." The problems began in 2005, when Smarts was planning an initial public offering. It hired a Russian consulting firm, Marshall Capital Partners, which was working with Sigma, a Moscow investment firm. Smarts alleges that Marshall failed to do what it promised, leading the phone company to terminate the contract. Then the legal troubles began. "It used to be gangsters who ran rackets, and now it's consultants and lawyers wearing ties, who are civilized on the surface but carry out the same blackmail," says Girev, who suspects Sigma is acting on behalf of a company that wants to buy Smarts. A Marshall spokesman said: "For us the case finished a long time ago." Sigma didn't respond to requests for comment. But the group has told Russian newspapers it wasn't involved in a raider attack on Smarts. Sigma says Smarts violated its contract and that Sigma had an option to buy 20% of the company's shares. Sigma has brought several court cases against Smarts but lost appeals last year. A regrettable, but not uncommon, commercial dispute. Yet what happened next wouldn't be part of a routine commercial dustup. Smarts' major shareholder, Gennady Kiryushin, is now under investigation for alleged criminal offenses, including fraud, illegal entrepreneurship, and money laundering. "There is no foundation for the criminal case," says Kiryushin, who is under legal order to remain in Samara. Girev says the allegations followed threats from individuals who promised to land Kiryushin in jail unless he agreed to sell his shares. A Barrage of Lawsuits The basis for the criminal claims? Smarts is accused of failing to obtain permits for its base stations, violating licensing rules. Girev admits the company has sometimes operated stations before the licensing process was completed, but only on frequencies already allocated to Smarts. Such technical violations are normally punishable by a fine of $400-$800. The police declined to comment. Smarts has also been hit with dozens of civil lawsuits in regional courts. These suits, using virtually identical language, ask that trading in Smarts shares be halted on the grounds that a private individual hadn't honored a contract to sell bonds issued by Smarts. "What does Smarts have to do with this?" Girev asks. In one town, police identified the plaintiff, who said she had been approached by a stranger in a park and offered 5,000 rubles ($200) to sign a form. In another, the plaintiff died three weeks before the case was filed. While a few judges initially ruled against it, Smarts has been able to reverse the decisions by arguing the cases were frivolous. "We win in the end. But then, in another part of Russia, exactly the same thing happens," says Girev. With thousands of such cases across Russia, executives and entrepreneurs are pressing for action. Yet it's doubtful that new legislation alone will solve the problem. After all, some tools in the reiderstvo playbook—corruption of courts and prosecutors, forgery, and bribery—have always been illegal. What's needed is a cleanup of the culture of lawlessness—and it's not clear Russia's new President has the clout to do that. LinksTough Job AheadTo clamp down on lawlessness, President Dmitri Medvedev has declared reform of the Russian judicial system a top priority. A May 21 article in The Moscow Times reports on the challenges Medvedev faces in rooting out widespread corruption and establishing an independent judiciary. The article quotes political analyst and former Kremlin spin doctor Stanislav Belkovsky as saying that "what is necessary is a change of the ruling elite and not just the judges." Bush is BusinessWeek's Moscow bureau chief
An
Offer You Can't Refuse By
Uwe Klussmann In Russia a "hostile takeover" isn't just a turn of phrase. Ruthless businessmen are employing armed thugs to intimidate their rivals and force them to hand over their companies -- backed by corrupt policemen and courts. 
AFP
A model of a new mall in Moscow. Land is at a premium in the Russian capital, and businessmen are increasingly using very hostile methods to grab land to make a killing. The video images may resemble scenes from a civil war, but in fact they come from the factory floor. Armed troops in gray uniforms are seen storming the facilities of the Angarzement cement factory in Angarsk, near the Siberian city of Irkutsk. The attackers smash windows and then lock out the management. It has become an all too familiar scene in today's Russia. In Moscow 150 strong young men entered the headquarters of the Rasvitiye construction company using baseball bats and metal bars. Although the thugs retreated when a squad of policemen arrived, the company -- which controls more than 25 percent of Moscow's housing construction market in Moscow -- miraculously ended up in the hands of a financial tycoon a short time later. And in Chimki on the outskirts of Moscow, not far from Sheremetyevo International Airport, a real estate firm suffered a surprise attack by a company with the exact same name. Once again musclemen were used for the scare tactics. They barricaded themselves behind a barbwire fence and displayed a sign as their calling card: "Very Evil Guard Duty." These cases show just how literally the terms "hostile takeover" and "corporate raider" are often taken in Russia. And unlike in Western Europe, the attackers are normally not even interested in the business itself but only its premises. Many of these land grabbers build luxury apartments for Russia's nouveaux riches on the premises they have seized -- one way of making a fast buck in the country's booming big cities. Since what matters most is the speed of the take-over, when it comes to the transfer of property rights in Russia muscle takes precedence over money. The brawny mercenaries are dubbed "landsknechty" in Russian jargon. Their employers convey them by bus or train from small provincial towns to the scene of the crime. They usually have orders to do little more than intimidate their victims. Avoiding bloodshed, they usually overpower the company's security guards, tie them up with duct tape and throw them into a store room, as one Ukrainian mercenary reports. The police only arrive 40 minutes later, probably bribed to take their time, at which point the new well-dressed company owner is already sitting at his desk, equipped with fraudulent company papers. The Moscow journal Ogonjok has already published lists of prices for the semi-legal services of the landsknechty. Spying on a business costs between $5,000 and $20,000, tapping a mobile phone is $1,500 per day, while "neutralizing" the police and prosecutor's office costs between $30,000 and $60,000. Raiders are becoming increasingly bolder, especially in the provinces, where bribes are lower than in Moscow. Russia's Interior Ministry, headed by Rashid Nurgaliyev, has estimated that one in seven company takeovers in Russia are carried out by illegal means. Business Is Booming And business is booming for these bandits. The number of legal proceedings relating to forced company takeovers has doubled over the last three years to a total of 354, according to the Interior Ministry. Experts at the ministry estimate the financial volume involved in 2005 alone to have been somewhere between $4 billion and $7 billion -- as much as 17 percent of all Russian company takeovers that year. Just like in the mafia thriller "The Godfather," businessmen are often made "an offer they can't refuse." If the offer is not accepted, the gangsters then bribe arbitration courts and forge share registers or sale contracts. In the Chelyabinsk region north of the Ural Mountains, a land registry office's hard drive containing company data disappeared temporarily. When it showed up again, the steelworks in Magnitogorsk suddenly had a new list of shareholders -- and new owners. Such maneuvers are made easier by the fact that most share registers in Russia only exist as electronic files, as required by the law. More than 170 raider teams operate using these kinds of tricks, according to official estimates. Some of them work freelance while others are even employed by company. "They're highly professional," says Vladimir Ovchinsky, the former Russian director of Interpol. According to the retired major general, gangs like the Tambov Group in St. Petersburg function "like Cosa Nostra in Italy" -- complete with their own analysis center, team of lawyers and headhunters for the recruitment of young members. Underpaid intelligence officers are particularly in demand. According to the criminologist, the attackers are increasingly targeting businesses belonging to the Russian armaments industry. He says they have already taken control of Basalt, a St. Petersburg company that produces components for the "Igla" portable anti-aircraft missiles. 
AFP
Russian President Vladimir Putin with Interior Minister Rashid Nurgaliyev, who estimates that one in seven company takeovers are forced. More than 200 armament factories have been targeted by organized raiders, according to estimates by Russian intelligence agencies. This makes the raiders a "threat to national security," says Ovchinsky. These raiders rarely end up in court. Pavel Fedulev from Yekaterinburg, a businessman and former member of the regional parliament, is one of the few exceptions. The fit "bisnesmen" was arrested at a gym in November of last year, accused of having taken over a wholesale center with the help of an armed gang. One of the charges he now faces is that of "inciting mass unrest" -- a crime punishable by up to 20 years in prison. Vassily Boiko -- known as the "King of the Raiders" -- was arrested in Moscow in February. The 48-year-old director of a company called "Your Financial Helper" appropriated 40,000 hectares of land around Moscow by questionable means. The conservative-looking man, who wears glasses and has the air of an accountant, had boasted he would build a kind of "Switzerland of the East" just west of Moscow, complete with five-star hotels, a golf course and a safari park -- but without the Swiss rule of law of course. The public prosecutor's office is accusing him of serious fraud and money laundering. He faces up to 15 years in prison -- if convicted. Ovchinsky knows why even the most reckless raiders seldom end up in court. For years, the Russian police acted on the principle of "not getting involved in economic disputes," he says. The state failed to protect private property. Those engaging in organized crime could often rely on the protection of "corrupt networks within the state institutions." The Samara-based director of the Russian Business Estate (RBE), Andrei Shokin, is described by Ovchinsky as one of the most successful company raiders outside of Moscow. Thanks to his friendship with former mayor Georgy Limansky, Shokin gained control -- "by means of raids" -- of 238 pieces of real estate, including the Volga city's port, according to Ovchinsky. Bring Back the Oprichnina? The Russian State Duma's security committee recently took a closer look at Shokin's activities, despite his protests that he doesn't understand what the security experts are so excited about. He insists he is "no raider" but simply someone "fighting for civilized business." Shokin says he merely cultivated a "normal partnership" with Limansky, notwithstanding the fact that RBE saw massive expansion during the former mayor's time in office. It is not only Russian firms that are affected by these shady dealings. Indian businessman Rajesh Galani became aware of the problem thanks to a phone call he received in London this spring. A security company by the name of "Faust" had just stormed one of his warehouses north of Moscow and stolen documents from the safe. The assault team was accompanied by the new would-be owners, who announced they intended to set up an office for a member of the Duma on the premises. Meanwhile, the politician -- who had resigned as mayor of Vladivostok under a cloud of corruption allegations -- claimed ignorance. Hardliners in the Russian legal apparatus are now demanding tougher laws for combating white-collar crime, including laws that would allow for the confiscation of criminals' property. A Kremlin working group headed by presidential aide Viktor Ivanov is currently debating these proposals. A veteran of the Soviet military intervention in Afghanistan and confidante of Putin, Ivanov was previously deputy director of Russia's domestic intelligence service, the Federal Security Service (FSB). He is considered an advocate of a hard-line strategy. There is a growing willingness in the pro-Kremlin State Duma to employ tough measures. One member of the Duma, Vladimir Semago, was himself the victim of a hostile takeover and is calling for the "Oprichnina method." The Oprichnina was militia loyal to Ivan the Terrible in 16th-century Russia, which was founded to curb the power of the feudal rulers. But the lawless militia, whose symbol was a dog's head, swiftly mutated into a fearsome gang of murderers and robbers -- an early precursor of Stalin's dreaded secret police. http://www.spiegel.de/international/europe/0,1518,502284,00.html
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t
seemed like any other workday at Togliatti Azot, a giant chemical
factory in Russia's Samara region, on the Volga River 600 miles east
of Moscow. Engineers were on their morning rounds, and union
representatives had just finished a talk about financial support for
newlyweds. Then around 11 a.m., dozens of men dressed in camouflage
and toting automatic weapons charged into the administration
building. "We thought it was a terrorist attack," Sergei Korushev,
the plant's deputy director, says of the September, 2005, raid.
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A Feast
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