A day after the signing of an Arctic exploration deal between Exxon Mobil and Rosneft, the state-controlled Russian oil company, the wrath of Russian law came down on BP — whose rival deal with Rosneft was scuttled a few months ago. On Wednesday, BP’s Moscow offices were invaded by bailiffs, police and machine gun-toting special forces soldiers. The court-sanctioned raid was related to a lawsuit by Russian shareholders, and the plaintiffs’ attorneys claim the timing was pure coincidence. Still, for many observers, this fiasco is a reminder that 20 years after the fall of communism, Russia remains an unpredictable and often hostile environment for business.
BP’s troubles with the Russian authorities evoke some déjà vu. The corporation’s current chief executive, Robert Dudley — formerly the head of TNK-BP, BP’s joint venture in Russia — left Moscow in 2008 after being denied a work visa extension. At the time, Dudley said he was being targeted due to his conflicts with BP’s Russian partners, politically connected business oligarchs — the same ones, as it happens, who blocked the Rosneft-BP deal this year. The earlier battles, too, included an armed raid on BP’s Moscow office.
The particulars of this dispute are not easy to sort out. Russia’s commercial law is notoriously labyrinthine — hard to navigate, even for experts, but easy to manipulate if one has access to the levers of power. In the 1990s, the Russian business world was dominated by robber barons who had built fortunes on the wreckage of communism; having been taught by their Soviet schooling that capitalism meant amoral cutthroat competition, many of them behaved accordingly.
In the 2000s, with Vladimir Putin’s rise to power, the authoritarian state reasserted itself. Oligarchs who were too independent, such as oilman Mikhail Khodorkovsky of Yukos, were crushed; others thrived under crony capitalism. Corruption has flourished at record levels, despite periodic talk of rooting it out.
In this environment, anyone trying to do business can land in hot water for crossing the wrong official, or the wrong competitor with friends in high places.
In 2006, the media reported on the odyssey of nearly 170,000 Motorola mobile phones seized at Moscow’s Sheremetyevo airport. At first, the Interior Ministry declared them counterfeit; then, the charge changed to improper documentation. Next, the phones were said to pose a health hazard; 50,000 units were destroyed, though the same model remained on sale in Russian shops.
Behind these shenanigans, it seems, was a simple effort to squeeze bribes from Yevroset, the Russian importer of the phones. One of the prosecutors involved was convicted and imprisoned in 2010. Yet the former head of Yevroset, Dmitry Chichvarkin, still faces legal reprisals from the Russian government for standing up to extortion. He currently lives in London after successfully fighting extradition.
Other business-related vendettas in Russia have had far more tragic outcomes. Hermitage Capital Management, a British-based investment advisory firm, ran afoul of the Kremlin after its founder, Bill Browder, went public about corruption and misconduct in state-controlled Russian enterprises. Browder was abruptly expelled from Russia in 2005, and Hermitage faced almost certainly trumped-up charges of tax fraud.
One of the company’s Russian lawyers, Sergei Magnitsky of Firestone Duncan, conducted an extensive investigation that implicated Russian police, officials, bankers and organized crime in a conspiracy to defraud and frame Hermitage. After turning over his findings to the Russian government, Magnitsky himself was arrested and held without trial for over 11 months.
According to his prison diary, he was repeatedly pressured to give false testimony against Hermitage and punished for his refusals; the punishment included denial of medical care despite his worsening health problems. In November 2009, the 37-year-old lawyer died in Russia’s infamous Butyrskaya prison after his complaints of stomach pains were ignored for five days.
Magnitsky’s gruesome death sparked widespread outrage in Russia and abroad, prompting Russian President Dmitry Medvedev to order a special investigation. In July, the investigators concluded that Magnitsky died of medical negligence. Yet the only criminal charges have been brought against the two prison doctors in charge of his treatment — while the officials who instigated Magnitsky’s persecution have been cleared of all wrongdoing.
Medvedev, who seeks to project a liberal and business-friendly image, has often said it is vital for the Russian state to ensure the rule of law and stop terrorizing entrepreneurs. Until these words become more than rhetoric, business in Russia will remain more than a little risky.
Cathy Young is a contributing editor for Reason magazine and the author of “Growing Up in Moscow: Memories of a Soviet Girlhood.”
BP’s troubles with the Russian authorities evoke some déjà vu. The corporation’s current chief executive, Robert Dudley — formerly the head of TNK-BP, BP’s joint venture in Russia — left Moscow in 2008 after being denied a work visa extension. At the time, Dudley said he was being targeted due to his conflicts with BP’s Russian partners, politically connected business oligarchs — the same ones, as it happens, who blocked the Rosneft-BP deal this year. The earlier battles, too, included an armed raid on BP’s Moscow office.
The particulars of this dispute are not easy to sort out. Russia’s commercial law is notoriously labyrinthine — hard to navigate, even for experts, but easy to manipulate if one has access to the levers of power. In the 1990s, the Russian business world was dominated by robber barons who had built fortunes on the wreckage of communism; having been taught by their Soviet schooling that capitalism meant amoral cutthroat competition, many of them behaved accordingly.
In the 2000s, with Vladimir Putin’s rise to power, the authoritarian state reasserted itself. Oligarchs who were too independent, such as oilman Mikhail Khodorkovsky of Yukos, were crushed; others thrived under crony capitalism. Corruption has flourished at record levels, despite periodic talk of rooting it out.
In this environment, anyone trying to do business can land in hot water for crossing the wrong official, or the wrong competitor with friends in high places.
In 2006, the media reported on the odyssey of nearly 170,000 Motorola mobile phones seized at Moscow’s Sheremetyevo airport. At first, the Interior Ministry declared them counterfeit; then, the charge changed to improper documentation. Next, the phones were said to pose a health hazard; 50,000 units were destroyed, though the same model remained on sale in Russian shops.
Behind these shenanigans, it seems, was a simple effort to squeeze bribes from Yevroset, the Russian importer of the phones. One of the prosecutors involved was convicted and imprisoned in 2010. Yet the former head of Yevroset, Dmitry Chichvarkin, still faces legal reprisals from the Russian government for standing up to extortion. He currently lives in London after successfully fighting extradition.
Other business-related vendettas in Russia have had far more tragic outcomes. Hermitage Capital Management, a British-based investment advisory firm, ran afoul of the Kremlin after its founder, Bill Browder, went public about corruption and misconduct in state-controlled Russian enterprises. Browder was abruptly expelled from Russia in 2005, and Hermitage faced almost certainly trumped-up charges of tax fraud.
One of the company’s Russian lawyers, Sergei Magnitsky of Firestone Duncan, conducted an extensive investigation that implicated Russian police, officials, bankers and organized crime in a conspiracy to defraud and frame Hermitage. After turning over his findings to the Russian government, Magnitsky himself was arrested and held without trial for over 11 months.
According to his prison diary, he was repeatedly pressured to give false testimony against Hermitage and punished for his refusals; the punishment included denial of medical care despite his worsening health problems. In November 2009, the 37-year-old lawyer died in Russia’s infamous Butyrskaya prison after his complaints of stomach pains were ignored for five days.
Magnitsky’s gruesome death sparked widespread outrage in Russia and abroad, prompting Russian President Dmitry Medvedev to order a special investigation. In July, the investigators concluded that Magnitsky died of medical negligence. Yet the only criminal charges have been brought against the two prison doctors in charge of his treatment — while the officials who instigated Magnitsky’s persecution have been cleared of all wrongdoing.
Medvedev, who seeks to project a liberal and business-friendly image, has often said it is vital for the Russian state to ensure the rule of law and stop terrorizing entrepreneurs. Until these words become more than rhetoric, business in Russia will remain more than a little risky.
Cathy Young is a contributing editor for Reason magazine and the author of “Growing Up in Moscow: Memories of a Soviet Girlhood.”
