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DOING BUSINESS IN RUSSIA.

Executive summary:

The illegal seizure of private property is taking place across the whole territory of Russia and it does not matter what is the value or size of a property. A small building or even a plot of land could be under attack. There are several categories of beneficiaries or, in fact, promoters of such illegal private property seizures:

1. Large enterprises (monopolists): The illegal seizure of a property belonging to independent businessmen is carried out by large enterprises in order to consolidation their assets and neutralize any competition in the market. The inside information on independent businesses is usually provided by corrupt banking clerks, to whom such independent businesses applied for loans. It is also possible to obtain inside information on such independent businesses from
state auctions, in the case of a plot of land or building being acquired by independent businesses from the state.

2. State officials, who wish to get property for free and then register it, usually in the name of their wives and relatives.

3. Former business partners: Absence of a legitimate practice of civilized break-ups of business push some former partners to "eliminate the opponent" with the help of corrupt law enforcement officials by fabricating a criminal case leading to the “elimination of the problem", so to speak.

4. The law enforcement officers themselves, who wish to illegally attain property or goods from a businessman and then sell it in the market. It is done by fabricating a criminal case against such businessmen.

The persecution of businessmen is not only done for the purposes of illegal seizure of private property, but also for boosting statistics on solved cases by law enforcement agencies.

In recent years it is also became common practice to persecute businesses for their refusal to participate in corrupt schemes or transactions, arranged by corrupt officials. If a businessman refuses to pay a bribe he faces the possibility of not only losing his business, but also a criminal persecution by the law enforcement agencies, as a punishment (revenge) for his unwillingness to "cooperate" with them.

Fabrication of evidence is widely used by the law enforcement agencies and cultivated by the complete absence of an independent judicial system. Courts of all levels, as a rule, take positions in favor of a state official.

All illegal seizures of private property are carried out with the active
participation of:

1. Arbitration courts. Courts decisions are “for sale” and the false
judgments are then used as a basis to open further criminal cases.

2. Law enforcement agencies. Law enforcement agencies, for a bribe, will initiate the fabrication of a criminal case, which is then used as a pretext for conducting office searches. The results of such searches are then manipulated, fabricated and then used as the basis for criminal prosecutions. Interrogations of the employees of a businessman, who has became a victim, are conducted by means of blackmail and the direct threat of having criminal proceedings against them as well in order to force them to provide and sign evidence statements, required by the law enforcement agencies, against the victimized businessman. Once such
“evidence” is collected, all alleged claims or charges against the
employees are dropped.

3. The prosecutor's office. The inclusion of prosecutors at all stages of a fabricated criminal case is part of the overall corruption scam, which includes the covering up of illegal actions made by the investigators and supporting their false accusations.

4. Criminal courts. There are no direct corruption links with the
criminal courts; however, all of them are completely under the influence to law enforcement agencies. Judges support all allegations, paralyzed by fear and an inability to make their own decisions, which need be agreed in advance with the Chief Judge of the court, who in his turn, agrees his position beforehand with his superiors, and so on and so forth.
The general trend of the Russian criminal courts is not to allow any “Not guilty” verdicts at any cost. Based on this, all proof of innocence presented by attorneys during trials is not accepted by judges and not attached to the criminal case files. Witnesses of the defense are not questioned by the judges and their opinions are not taken into account. Any sentence, as a rule, does not take into account the position of the defense, as such being, in effect, an exact copy of the indictment, written by an investigator at the early stages of initiating a criminal case.

5. The bureaucratic system of appealing actions of state officials is
set up in such a way that any complaint with the facts of unlawful
harassment is automatically forwarded for investigation to those whom the complaint was made against. For example, any appeal to the General prosecution office is forwarded to the district prosecutor, who then forwards the complaint to the prosecutor, who supported the accusation in the first place and then the latter replies to the one who complained about him, stating that all his (such prosecutor‟s) actions were justified and legitimately issued, and send a copy of the response to the General prosecution office.

Maintaining an independent business in Russia is quite dangerous, and never predictable. Any business can be successful if it is either closely connected with the oligarch‟s capital or with a high-ranking official. The administrative support of high level officials can protect private property of an individual business for the near future, but it cannot guarantee safety of private property in the long term.

THE CASES:

CASE 1 –

MR NIKOLAY KUDELKO, A CITIZEN OF LITHUANIA, WAS
HELD IN MOSCOW PRE-TRAIL DETENTION FOR 3 YEARS.

Mr Nikolay Kudelko, a Lithuanian businessman with Russian roots, led a fairly successful business in Russia. In 2001 Nicholas established his enterprise specializing in the wholesale of food, including coffee beans.

In April 2007, operational officers from the Department of Economic Security of the Moscow Interior Ministry arrived at his warehouse with „authorization for inspection‟ (NOTE: This action can only be carried out with a court warrant or request from the authorities dealing with sanitary control. These actions cannot
be carried out by Interior Ministry officials). Within five days all stored goods had been confiscated from his warehouses, in particular: coffee beans worth more than US$ 2 million, which were removed in 30 trucks.

An “expert” from the Interior Ministry justified confiscation of the goods by issuing a "resolution", stating that the coffee did not meet the sanitary standards established by the Russian Federation, and should therefore be confiscated and destroyed.

The confiscation of coffee was conducted under the Law "On militia", which permits the seizure of any goods, documents and valuables belonging to any businessmen at the mere suspicion of an intention to commit a crime.

In order for the goods to be released, a pay-off of US$ 500,000 was demanded.
Nikolay appealed to the Internal Security Department of Interior Ministry, which was closely connected with the same group of corrupt investigators. As a result Nikolay was arrested.

All the confiscated goods were deposited by the Interior Ministry officials with a firm, with whom there were no contractual commitments for storage and destruction of goods. Furthermore, this firm was already under criminal investigation in relation to the illegal disposal of other goods (or „physical evidence‟), which were confiscated in the same manner from other companies.
Despite this, the Department of Economic Security of Moscow‟s Interior Ministry entrusted all the confiscated coffee to this firm.

The investigation into Nikolay lasted a year and a half. While acquainting himself with the criminal case files in a pre-trial detention centre, Nikolay realized that all the documents related to the destruction of the coffee beans were falsified. In the falsified documents it was stated that coffee beans were destroyed, but in reality, they had been sold and he was able to prove this once
he was released.

Nikolay spent nearly three years in the pre-trial detention in tortuous conditions while his case was being investigated. This included periodical court hearings on the extension of his detention periods, which he constantly appealed. In the cells where he was detained, there was only one bed for 3 people. This meant that he often did not sleep lying down for several days in a row.

Once Nikolay was freed, the first thing he found out was that the warehouse which allegedly destroyed all his confiscated coffee beans had never entered into any contracts for the destruction of coffee beans. In fact the military facility, where the warehouse was located, was not even set up for these purposes.

This is a classic example of commodity raiding – the so-called "market of disposable evidence in the form of goods" - or the illegal seizure of private property which exists and prospers thanks to the corruption of the Interior Ministry.

CASE 2 –

MR YURI RUDAKOV -DIRECTOR OF “CRYSTAL GROUP”
HOLDING, BELGOROD REGION (RUSSIA).

Mr Yuri Rudakov Ignat'evich (DoB: May 4, 1956) was head of the Chernyansky sugar factory for over 20 years, this firm was later known as the major agro- industrial holding - the “Crystal Group Holding”. The back bone of this holding was the Chernyansky Sugar Plant, which was in operation for over 45 years.

Mr Rudakov was arrested on November 18, 2007 and on September 22, 2009 was sentenced to prison for 3 years and 6 months under Article of Criminal Procedural Code “illegal obtaining of loans”. Since his initial arrest, he had been kept in the pre-trial detention.

His criminal prosecution was initiated by Savings Bank of Russia, Belgorod branch, which was represented by Mr. Ivanov, who previously used to work in the regional administration.

Initially, Mr Rudakov was incriminated under part 3 of Article 176 and part 1 of Article 33 provisioning for a maximum period of imprisonment of 1 year; in order to continue to keep him in custody for more than this period, Article 199 (tax evasion) was further included. While he was detained, a full „redistribution‟
of the assets of "Crystal Group” (the “Holding”) took place, as was evidenced by the fact that the production of the Holding during this period was completely paralyzed.

The charges were related to an alleged illegality of obtaining banking loans for the Holding and were based only on the testimony of deputies of Mr Rudakov, who alleged that the information, which the Holding had presented to the bank for obtaining a loan, was false. These charges were built up on the testimonies of the employees of the Holding, who were suspects as well, but after providing testimonies against Mr Rudakov, all such charges against them were dropped and only Mr Rudakov was found guilty.

The Holding consisted of more than 10 affiliated subsidiaries with
approximately 60% of all tax streams of the Chernyansky district of the Belgorod region. After Mr Rudakov was arrested, the production of the Holding was stopped and nearly 1000 people lost their jobs. Repayments of the loans to other banks were paralyzed and an accelerated bankruptcy process of the sugar factory began. The court sentenced Mr Rudakova to prison for 3 years and 6
months. The Holding is now owned by Rusagro - the monopolist of the food industry market.

Whilst in prison Mr Yuri Rudakov became ill with terminal cancer of the bones.
The court refused to release him on parole.

CASE 3 –

MESSRS OLEG AND IGOR ROSHIN AND MRS INNA
BAZHIBINA – THE THIRD ROME LLC (MOSCOW)

The company which was run by Mr Oleg Roshin was a small Moscow-based operation, whose main activity was trading in polystyrene and synthetic rubber.
Oleg imported the products from Estonia and Germany. Business was developing quite successfully, as the production of the polystyrene is virtually absent in Russia. Oleg made plans to build a factory in Russia together with some Estonian partners.

In 2007, once past customs clearance, the company‟s trucks were stopped by officers of the Interior Ministry. All the goods were unloaded at a warehouse, which belong to an unknown company. The Interior Ministry officers, without carrying out any chemical examinations, decided on the spot that the barrels
contained cheaper rubber instead of the polystyrene recorded. On this basis, they concluded that Mr Roshin understated customs duties, i.e. deliberately reduced the size of the import duty by introducing a cheaper rubber for polystyrene. A
criminal case was immediately opened under the article for "smuggling conducted by a criminal group". The so-called "criminal group" included the director of the company - Mr Oleg Roshin, his accountant – Mrs Inna Bazhibina and another manager of the company.

Participation of the customs officers was not allowed in the case. Interior Ministry officers seized the customs declarations for the importation of polystyrene at all customs posts in Moscow and the Moscow region, about 500 pieces, and connected all of them to Mr Roshin‟s company. It was not possible to convince the court that it is illegal to condemn a man based on the customs
declarations furnished by companies unrelated to him and with no examination of what was actually being imported. The court sentenced Mr Oleg Roshin to 18 years imprisonment, Mrs Bazhibina to 15 years, the manager to 9 years.
Following amendments to the Criminal Procedural Code, initiated by President Medvedev, the punishment was reduced for the latter victims to 8 and 7 years respectively. Mr Oleg Roshin has three young children.

On the day of sentencing, Oleg‟s brother - Mr Igor Roshin who worked for him as a driver, was arrested. The Interior Ministry officers initiated a second criminal case on the basis of documents obtained during the previous "investigation", which were not originally included as evidence. The second trail of investigation was conducted, during which time Mr Igor Roshin was being kept in pre-trial detention, and is suffering from acute skin cancer (melanoma). Mr Igor Roshin has four young children. All the above were accused under the provisions of Article 188.1 of the Criminal Procedural Code.
The article is called “Smuggling”. It should be noted that this article is
formulated in such a way that any irregularities in filling out documents at the border are also considered smuggling and, therefore, could lead to the maximum term of imprisonment.

There are roughly a thousand similar criminal cases against foreign trade participants opened in Russia every month.

CASE 4 –

MESSRS GALINA AND EUGENE KONOVALOV – OWNERS OF
PROMAVTOMATIC - INVEST LLC AND ZAO “PK RUST”
CITY OF KRASNODAR

In early 2008, the company RUST participated in an auction organized by a subsidiary of OAO Gazprom aiming to sell some of its property. In order to participate in the auction, RUST submitted its statutory documents. Later, it became clear that these documents were used to falsify another set of statutory documents but with a new ownership. The Konovalovs learned about this sham
six months later, and the couple appealed to the Court of Arbitration.

Immediately afterwards, the new false owner began to organize the financial indebtedness of RUST and initiated arbitration bankruptcy proceedings. The RUST property was arrested by bailiffs in accordance with the Arbitration court decision. Simultaneously, Mr Eugene Konovalov became a target of criminal prosecution under Article 160 of the Criminal Procedural Code – “Embezzlement”. The Appellation court which the couple filed appeal with on illegal change of ownership, requested them to provide to the court the original set of the statutory documents.

In response, the officers of the Interior Ministry conducted an illegal search in the house of Konovalovs in their absence. During the search they stole money, jewelry and planted the fraudulent protocols of the founders' meetings (being part of the fake statutory document set). Soon Mr Eugene Konovalov was arrested, and all arbitration courts only recognized the legitimacy of the new false owner. They soon found that a new process had begun with the creation of false bankruptcy against the Konovalovs personally. The presidential amendments to the law prohibiting arrest of businessmen are being ignored by the courts, i.e. the court pretends that no such amendments are in existence.

OTHER CASES, PROVIDED BY MRS OLGA ROMANOVA:

1. MRS MOSKALENKO ELENA (deceased), an entrepreneur, former Lt Colonel of the Interior Ministry, known for her accusations of senior officers of the Interior Ministry. She died of cancer.

According to friends of the deceased Mrs Moskalenko, her sudden death was a result of criminal cases and investigations pending against her. In 2008, a civil court based on claims filed by the wife of Deputy Chief of the Omsk Academy of the Interior Ministry Vasily Veklenko, issued a decision to recover 9 million rubles from Mr Moskalenko. Mrs Moskalenko asserted that prior to that both of
them had friendly relations. Subsequently, similar cases were filed by other 5 claimants. Finally, several criminal cases against her were initiated by the members of the police Department of Omsk region, where she used to work.
Mrs Moskalenko claimed that she did not borrow any money from anyone, but was forced to sign some financial documents while covering the illegal business activities of her former boss, Interior Ministry Chief Vasily Veklenko and several other senior officials in the Interior Ministry. A detailed article on this case
was published in Novaya Gazeta:
-
http://www.novayagazeta.ru/data/2010/057/15.html

MR SERGEI BOBYLEV, OWNER OF SUNRISE RUSSIA LLC,
(MOSCOW)

2.

Criminal case No 304226 against Mr Sergei Bobylev (DoB 29 May 1970) was filed on February 14, 2009 by investigator Dmitrieva N.I., and completed in May 2010. On September 10, 2010 the case was cleared for trial with the Ostankino district court of Moscow and on the same day Mr Bobylev, who had spent almost 14 months in pre-trail detention, was released on bail. Mr Bobylev was accused of committing crimes under part 4 of Article 159 of the Criminal
Procedural Code - (“Fraud”). The essence of the charges comes down to the following: Although he was the general manager of the Sunrise Russia LLC, his subordinates concluded sale-purchase agreements with various other firms on the buying and selling of electronic equipment. According to the investigation, Mr Bobylev‟s company has not fulfilled its obligations under these agreements, allegedly having the intention to seize equipment supplied
with criminal intention to commit fraud and abuse of trust. In addition, the commercial organization headed by Mr Bobylev - Sunrise Russia LLC took a loan from Alfa-Bank (Moscow), which was not repaid in full.

Numerous and repeated payments under each of the supply agreements, which were carried out Mr Bobylev‟s company, as well as scheduled repayments of the borrowed funds to the banks – were described by the investigators as an attempt to disguise his criminal intent! The extent of the damage, according to investigators was supported by arbitration courts‟ decisions.

In reality, criminal case No 304226 was instituted on the initiative of individuals interested in the illegal seizure of the property of Sunrise Russia LLC. While being kept in pre-trail detention, the assets of Mr Bobylev‟s company had virtually disappeared.

MR ALEXEY KOZLOV, (YOB 1974), OWNER AND CEO OF CORE
FINANCE LLC (MOSCOW), MRS ROMANOVA’S HUSBAND

3.

Mr Kozlov was arrested in 2008 on the alleged charges of stealing shares of a Moscow based producer of artificial leather–plant, JC “Iskozh”, and was sentenced to 8 years imprisonment in 2009. The investigation was led by Lt. Col. of the Interior Ministry Mrs Natalya Vinogradova, who was directly involved in the case of Sergei Magnitsky and was included on Senator Benjamin
Cardin‟s list of implicated Russian officials to be barred from entering the US.
During the investigation and trial, Mr Kozlov AA submitted all documents and payment slips confirming his legal status as the bona fide purchaser of the plant‟s shares (his share was about 33%). The purchase of the shares was conducted at the market value at the time of the transaction. Mr Kozlov accused
Senator Mr Vladimir Slutsker being behind this raid attack. Representatives of Senator Slutsker failed to demonstrate in court any evidence confirming his legal rights to the disputed shares (33%). At the moment the shares in question are under restriction and the arbitration process is ongoing. Despite this fact, Mr
Alexei Kozlov was convicted and sentenced to prison and repeatedly denied the right to review the case. Soon after September 8, 2010 when Senator Slutsker
lost his immunity from prosecution, due to the fact that his term in Senate had expired, Mr Alexei Kozlov once again stated that former Senator Slutsker was involved in numerous crimes against individuals and property of the citizens of Russia. Ten days later Mr Alexei Kozlov was transferred to another prison facility and then disappeared. His whereabouts is still unknown.

MR PAVEL PODKORYTOV, FORMER CORPORATE DIRECTOR OF
CORPORATION "URALINVESTENERGO"

4.

Mr Podkorytov was arrested in 2005. In 2002 when JSC "Corporation - UralInvestEnergo" was founded, the shareholders jointly decided to put all the shares for the trust‟s management for 20 years with a trustee (being one of the shareholder as well) in order to avoid any future equity disputes between the business partners, which would help to the company‟s prosperity and
development. The trustee then pleadged some shares to Ural Mining and Metallurgical Company. After that decision several attempts were made by the Ural Mining and Metallurgical Company to redistribute the property of managers and shareholders of UralInvestEnergo Corporation and finally all
shareholders were arrested and sentenced to 8 years imprisonment in 2005. No one filled any cases with any arbitration courts. Currently a new criminal case is held against all of the shareholders and Mr Pavel Podkorytov is still being kept in the pre-trial detention center in Yekaterinburg (Urals).
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