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In Russia, Corruption is “Rampant”

author: kprice 12:49 pm EST May 26, 2012
By US Daily Review Staff. Western companies doing business in Russia often find themselves in courts against their former Russian partners. According to statistics compiled by RUXX, an index that tracks Russian companies traded overseas, more than 75 percent of court rulings in Russia are against Western companies. The percentage is even higher in courts outside of Moscow. Several large corporations have appealed to Russia's leaders trying to bring their attention to possible "managed" court rulings. Italcementi, one of the world's largest makers of cement, expects to see its dispute with Russian cement maker Siberian Cement over a EUR 50mn forfeited commitment fee to go before Russia's Supreme Arbitration Court. Even though the Italian company was in the right to withhold the deposit, it may see its appeal denied one more time by the Russian court. Back in 2008, SibCement won an auction to buy Italcementi's cement assets in Turkey for USD 850mn. The deal was duly approved by SibCement's Board and shareholders, and the Russian company paid the commitment fee of EUR 50mn to the Italian cement major. However, SibCement's core shareholder Oleg Sharykin chose to walk away from the deal, overruling both the Board and a shareholders' general meeting. As a result, SibCement forfeited the commitment fee and made another EUR 4mn paid to ING in advisory fees go to waste. Sharykin is suing Italcementi for a refund of the commitment fee. Russian arbitration courts ruled for Sharykin, and this decision was later repeatedly upheld on appeal. The Italian group is asking the newly re-elected Russian President Vladimir Putin to intervene on their behalf as the case goes up for final appeal before Russia's Supreme Arbitration Court. "This should not come as a great surprise," says RUXX Senior Analyst Ilya Lushnikov. "Valery Bodrenkov, former deputy head of regional FSB security service and Olga Kondrasheva, former deputy chairperson of the Arbitration Court, now work for Sharykin, and the Italian industrial group is now facing a situation typical for Russia when a legal dispute becomes a battle of political influence. Italcementi does not stand a chance in a purely legal battle, and their appeal to the Russian President is a smart move." "In the last few months, there has been a major capital flight from Russia amid the decrease of appetite for risk. Judicial and political risk is high in this country, there is a very good chance that the reason for that is a cozy relationship between the court and the Russian company's executive or key owner. Overall, corruption risk is one of the most important risks of doing business with Russia," Ilya Lushnikov adds: "We estimate that more companies will be repatriating their capital from Russia unless the president does take Italcementi and other companies' appeals seriously."



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