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Corporate Raiding in Russia: Tackling the Legal, Semi-Legal and Illegal Practices that Constitute Reiderstvo Tactics

Sarah Lain
Occasional Papers, 11 July 2017
International Security Studies, Russia
This paper explores Russian corporate raiding (reiderstvo) tactics, which are used to pressure and/or steal businesses, often with the complicity of corrupt state authorities. The paper argues that looking at the tactics involved in the practice can help to focus attention on some of the threats facing business in Russia.

This paper explores Russian corporate raiding (reiderstvo) tactics, which are used to pressure and/or steal businesses, often with the complicity of corrupt state authorities. Due to its complexity, defining reiderstvo in a way that is helpful can be challenging, but looking at the tactics involved in the practice, rather than the final result – the stealing of the business – can help to focus attention on some of the threats facing business in Russia and the damage done to the country’s investment climate.

Russian reiderstvo can be a complex process and defining it can be challenging. Indeed, the author found that experts disagree about whether supposedly modern-day examples of reiderstvo – such as the cases of the oil company Bashneft, the chemical producer Togliattiazot and Domodedovo airport – can be labelled as such. In their detailed analysis of how reiderstvo works, Louise Shelley and Judy Deane describe the practice as the use of a ‘host of illegal tactics ranging from bribery, forgery, corruption, intimidation, and violence employed by raiders to steal companies from their owners, making massive and rapid profits by selling off assets and laundering the proceeds’. This definition certainly holds true for many historical cases, where detailed analysis has revealed a fuller picture of the details and motivations. However, to understand problems associated with reiderstvo today, this definition narrows the focus too much.

In reality, the definition is broader. Reiderstvo is not necessarily a single crime aimed at the theft of a business. Reiderstvo tactics are used as a means to achieve multiple and often contrasting ends. This makes the term itself somewhat misleading and at times unhelpful. Although corruption is usually involved, those using reiderstvo tactics do not exclusively rely on illegal practices; indeed, they blur the lines between legal, semi-legal and illegal practices. Often reiderstvo tactics are used as a way to pressure businesses to comply with corrupt requests for personal gain, rather than being used to steal a business outright.

Studying the tactics used to pressure businesses as part of a broader view of reiderstvo, rather than concentrating conceptually on reiderstvo, can help to better focus attention on some of the significant threats facing business in Russia and the damage done by reiderstvo to the country’s investment climate. Taking this view will assist in better articulating specific measures that need to be taken to combat the various tactics used by those engaged in the practice. This paper, therefore, mostly refers to ‘reiderstvo tactics’, rather than just ‘reiderstvo’, in an attempt to capture the wide range of ways that businesses are put under pressure in Russia.

Reiderstvo tactics continue to be a concern for businesses in Russia, despite the issue having a lower public profile than during the 1990s and late 2000s. It is difficult to accurately measure the full extent of reiderstvo in Russia, in part because they are often included within broader legislative definitions, such as ‘economic crimes’, which do not cover or differentiate between the various tactics. It is also difficult because the state agencies tasked with investigating and enforcing against corporate crime are the very agencies that are frequently involved in reiderstvo tactics. These include the tax authorities, security services, courts and legal system, regulatory control agencies, local and regional administrations and law enforcement. Moreover, false accusations of reiderstvo can also be used by state authorities or corporate competitors to falsify criminal cases or pressure business.

A key issue is the apparent lack of strong political will to implement comprehensive and consistent measures to protect businesses, despite rhetoric from President Vladimir Putin. The research for this paper – which included an in-depth review of the relevant academic literature and legislation, and interviews with business people, consultants and academic experts – revealed that – apart from a few high-level public cases – reiderstvo tactics are often used at the local level in Russia, frequently involving local political corruption. Initiatives such as the business ombudsman have raised awareness of the need for business protection, but the office is still limited politically in how far it can intervene, and structural issues remain at various levels of government that enable the abuse of power.

The paper does not seek to duplicate previous work on reiderstvo, and it is by no means a comprehensive analysis of past and present reiderstvo cases. Instead, this paper seeks to address some of the assumptions surrounding reiderstvo, suggesting that it is more useful to refocus attention on the array of individual legal, semi-legal and illegal means used to pressure businesses. The sum is arguably less important than the parts in understanding how reiderstvo has evolved. By concentrating on reiderstvo tactics rather than the end result, this paper provides a new and improved framework through which Russian business associations and authorities could and should target initiatives to protect business rights.

Recommendations

Below sets out some recommendations – particularly aimed at the Russian government – for combatting reiderstvo tactics, in order to improve the investment climate in the country:

  • Analyse individual tactics and pressure points that lead to reiderstvo. Reiderstvo tactics are significant deterrents to both foreign and domestic investment, so it is in Moscow’s interest to identify the different tactics used and employ measures to tackle them. A more robust evidence base of genuine reiderstvo tactics is required to understand the issue. 
  • Examine, in particular, the way that regulatory and law enforcement bodies may be involved in reiderstvo tactics. It is clear that corruption is a key feature of pressure on business. It would be beneficial to review how the powers these organisations have can be abused to pressure business. 
  • Consult with specialised state bodies and allow the ombudsman to intervene more in genuine reiderstvo cases. Several bodies have formal structures that can raise business rights issues in a legitimate political forum. Most of these have regional representation too, which should be able to have greater oversight over local dynamics in the regions.
  • Review legislation that addresses pressure on business to identify improvements that might be made to protect businesses not only from corrupt officials but also hostile competitors. Currently, the problems facing businesses are grouped under broad articles of the Russian criminal code, such as ‘economic crimes’.

Author

Sarah Lain
Research Fellow

Sarah Lain’s research focuses on post-Soviet foreign policy, in particular Russia and Central Asia.

Key themes that Sarah has... read more

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