Corporate raiding in Saratov
Posted: June 25, 2012 at 4:03 pm, Last Updated: September 7, 2012 at 1:53 am
Author: Aaron Beitman, PhD Student, University of Minnesota-Twin Cities, Department of Political Science
For many successful entrepreneurs across the former Soviet Union, corporate raiding remains a real and present fear. According to the Center for International Private Enterprise’s Development Blog, corporate raiders aim to take charge of a company’s ownership through a combination of legal and illegal measures, such as official raids, forced bankruptcies, use of falsified documents, and the violent seizure of company property. The Accounts Chamber of the Russian Federation, a state financial control agency, reports that there are roughly 65,000 incidents of corporate raiding in Russia every year.
With assistance of corrupt officials in the judiciary, corporate raiders obtain court orders to carry out official searches for confiscating important documents and other property, to use law enforcement to prevent a company’s legal owners from gaining access to their offices, and to even physically take possession of a target company. Corrupt links to state registration agencies enable corporate raiders to obtain false documents and to eliminate real documents, and so on.
TraCCC grants competition winner Olga Bezverkhova of the Saratov State Academy of Law asserts in a recent report that Saratov, a large city located on the Volga River 500 miles southeast of Moscow, is highly susceptible to corporate raiding. This is due in part to a particularly weak local judicial system and ineffective law enforcement agencies. However, corruption is the biggest the facilitator of corporate raiding in Saratov, as corrupt links within the judicial and tax systems as well as law enforcement make extensive corporate raiding possible.
Agrobusiness disaster: OAO “Agrofirma Engel’skaya”
A sobering example of corporate raiding in Saratov is the takeover and dismantling of OAO “Agrofirma Engel’skaya,” a major regional agriculture producer.
Bezverkhova views the fate of OAO “Agrofirma Engel’skaya” as a classic case of corporate raiding, featuring corruption, planted drugs and weapons, and a seemingly irreversible firesale of assets.
The story begins in May 2008, when police stopped the car of Nikolai Motsnyi, the then-general director of OAO “Agrofirma Engel’skaya.” Acting on an anonymous tip, a cursory search of Motsnyi’s car turned up a pistol loaded with military ammunition. Though local authorities opened a criminal case against Motsnyi with uncharacteristic speed, the case was eventually dismissed. Immediately following the dismissal of gun charges against Motsnyi, local drug control officers carried out a raid of OAO “Agrofirma Engel’skaya” and found 9 grams of heroin in Motsnyi’s office. To substantiate the charges, authorities produced a drug addict named Smirnov who alleged that he had sold 18 grams of heroin to Motsnyi. Although a criminal case was again opened against OAO “Agrofirma Engel’skaya’s” general director, charges were dropped once more. According to Bezverkhova, all this was designed to put psychological pressure on Motsnyi and the company’s legitimate leadership, prior to attempts to take over the firm.
In July 2008, company official R.A. Romanov used the support of key shareholders to orchestrate Motsnyi’s ouster at an extra-ordinary shareholders meeting. Shareholders were swayed, apparently, by input from local FSB official Pavel Ryabov, who gave the impression that important state officials supported Romanov’s candidacy for the general directorship. Unfortunately for OAO “Agrofirma Engel’skaya” and local consumers, Romanov was actually a frontman for an organized crime group seeking a quick profit.
Although OAO “Agrofirma Engel’skaya’s” legitimate owners went to court to fight the illegal takeover, Romanov and his associates managed to sell off most of the company’s assets by September 2008. Based on a prior agreement with Yuri Sulyan, a regional property administration agency official, Romanov worked to liquidate the property of another company under his control, ZAO “Agrofirma Engleskaya-2.” OAO “Agrofirma Engel’skaya’s” head accountant Nina Shigaeva facilitated this part of the raid. To cap everything off, Romanov personally stole 4 million rubles (about $120,000 at today’s exchange rates) from the company safe.
During his tenure as general director, Romanov oversaw the sale of company assets of $1.5 billion for a paltry $33.5 million. The near destruction of OAO “Agrofirma Engel’skaya” not only affected shareholder investments, but also led to a significant rise in local fruit and vegetable prices.
Although OAO “Agrofirma Engel’skaya’s” legitimate owners managed to get the shareholder decision to enthrone Romanov as the company’s general director overturned in a local commercial affairs court, the company has absorbed staggering losses. Some solace for shareholders and local consumers may be found in the recent conviction and imprisonment of Romanov, Sulyan, Ryabov, and Shigaeva. However, the total fines assessed to the four corporate raiders amounts to a little more than $15,000, which seems unfair compared to the economic havoc caused by their actions.
The impact of corporate raiding
While the Russian legal system appears to have achieved a desired result in the convictions and imprisonment of some of the individuals involved in the corporate raiding attack on OAO “Agrofirma Engel’skaya,” it is unclear that this outcome will deter additional corporate raiding. As Bezverkhova notes, an increasing number of corporate raiding attacks only serves to weaken the development of the Russian economy and the legitimacy of the country’s judicial system. With corruption growing unencumbered in Russia, corporate raiding is likely to continue unabated in the near future.
Write to traccc at firstname.lastname@example.org
- Dark Commerce forthcoming November 2018 May 7, 2018
- Dr. Shelley discusses sanctions and beneficial ownership on BBC Newsnight April 11, 2018
- BBC Newsnight on Russian oligarch Oleg Deripaska features Dr. Shelley April 11, 2018
- TraCCC alumna article on Water Scarcity published at Wilson Center April 4, 2018
- Organized Crime and Terrorist Financing (German) April 2, 2018
- Kleptocratic Regimes and National Security: A Pervasive Threat and How It Can be Neutralized April 2, 2018
- Dr. Shelley to speak at Helsinki Commission on March 28th, 2018 March 27, 2018
- House Financial Services “Exploring the Financial Nexus of Terrorism, Drug Trafficking, and Organized Crime” March 21, 2018
- Opioid Epidemic Conference Report March 21, 2018
- World Bank and International Monetary Fund Host Talk on Illicit Financial Flows October 24, 2014