In Russia, Business World Still Lacks Transparency

Russian Prime Minister Vladimir Putin i i

Russian Prime Minister Vladimir Putin speaks at an international investment forum in the Black Sea resort of Sochi earlier this month. Despite efforts to push U.S.-Russia business ties, obstacles remain: Close friends of Putin dominate boardrooms, while businessmen who have not supported the current government have found themselves the victims of hostile takeovers. Alexei Druzhinin/AP/RIA Novosti hide caption

itoggle caption Alexei Druzhinin/AP/RIA Novosti
Russian Prime Minister Vladimir Putin

Russian Prime Minister Vladimir Putin speaks at an international investment forum in the Black Sea resort of Sochi earlier this month. Despite efforts to push U.S.-Russia business ties, obstacles remain: Close friends of Putin dominate boardrooms, while businessmen who have not supported the current government have found themselves the victims of hostile takeovers.

Alexei Druzhinin/AP/RIA Novosti

A delegation of powerful lobbyists from Moscow is in Washington this week to urge U.S. businesses to invest in Russia. The trip comes amid a new push by President Obama and Russian President Dmitry Medvedev to strengthen investment ties. But doing business in Russia remains complicated and risky, and getting information about a prospective partner can be difficult.

In Russia, politics and business are inextricably linked. Businessmen who have not supported the current government have found themselves the victims of hostile takeovers, often through illegal or highly questionable means. Close friends of Prime Minister Vladimir Putin dominate boardrooms.

Roman Shleinov, a journalist with the independent Novaya Gazeta newspaper, has been looking into how these relationships work.

"Certainly, I [think] I have a right to monitor this situation and to show how these businesses grow, where they started, how they are doing their business now," Shleinov says.

His most recent investigation targeted Gennady Timchenko, who has close ties to Russia's state-controlled oil companies. His network of businesses trades one-third of all of Russia's oil.

"I asked them questions about the structure. They refused to give any answers. [I] even gave them some more time," he says.

In the end, Shleinov published a story describing what he had managed to glean from public records from as far away as Luxembourg and Switzerland. Quoting information published by Dunn & Bradstreet, he also reported that Timchenko appeared to have an offshore company in the British Virgin Islands with $30 billion in sales.

Shleinov say that if Timchenko is sheltering money abroad, that would run counter to what Putin has publicly demanded.

"For me, it's [an] important question. Putin started his campaign against oligarchs with statements that they withdraw money from the country and don't pay any taxes here. So I should like to understand, if the person is a friend of Mr. Putin, he has some right not to pay taxes here, or [am I] wrong?" Shleinov says.

Timchenko's lawyer, who also has ties to Putin, responded by accusing Shleinov of revealing company secrets and interfering in the businessman's personal life. The lawyer has threatened to take Shleinov to court — and to involve unspecified government agencies in the case.

"It looks like a hint not to ask more questions," the journalist says.

Shleinov also wanted to know why Timchenko was chosen to trade so much of Russia's state-controlled oil. Aleksei Navalny, a minority stockholder in the largely state-controlled oil companies, had the same question.

"I noticed that dividends did not reflect the company's profits and asked about this," Navalny says when reached by phone. "I asked the companies what Timchenko's deal with them was. If they showed that he was the best choice to trade oil, fine. But the companies would not provide any information."

Claiming his rights as a stockholder, Navalny sued. But the court rejected his case.

Fed up with brazen string-pulling and favor-trading in the corrupt Moscow courts, Navalny, like many Russians, has now turned to the European Court of Human Rights, which was established under the auspices of the Council of Europe. Russia is a member, and the court's rulings are binding.

By last year, the number of cases filed against Russia in the court accounted for 28 percent of the total — far more than any other country.

The Kremlin isn't happy with this — or with the court's rulings, which have highlighted Russian corruption and other official misconduct. It has responded by attacking the court's credibility and blocking an overhaul of the court that is intended to reduce a multiyear backlog of cases, many of them from Russia.

As Russia seeks to encourage U.S. business, all this raises questions about the government's stated commitment to control corruption and open up its books.

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