The Washington Post: ‘Raiding’ Underlines Russian Legal Dysfunction

August 13, 2009

3 Lawyers Tar­get­ed After Uncov­er­ing Seizure of Firms

Philip P. Pan

When three of Rus­si­a’s finest lawyers agreed to rep­re­sent the invest­ment fund Her­mitage Cap­i­tal, they thought they were tak­ing on a rou­tine tax case.

Then they uncov­ered evi­dence of a breath­tak­ing crime: Top police and tax author­i­ty offi­cials appeared to have qui­et­ly seized own­er­ship of Her­mitage firms and used them to arrange a $230 mil­lion tax refund.

Now, the lawyers them­selves are in legal trou­ble. One has been jailed. The two oth­ers have fled the coun­try. All three face charges that seem intend­ed to dis­cred­it Her­mitage and divert atten­tion from the enor­mous theft.

Their plight high­lights the haz­ards of prac­tic­ing law in Rus­si­a’s cor­rup­tion-rid­den courts despite near­ly two decades of reforms sup­port­ed by hun­dreds of mil­lions in U.S. and Euro­pean aid. Pros­e­cu­tors and police con­tin­ue to dom­i­nate the judi­cia­ry as they did in the Sovi­et era, but unre­strained by the insti­tu­tions of the old Com­mu­nist sys­tem or the checks of a gen­uine democ­ra­cy, the oppor­tu­ni­ties for abuse have grown.

No crime illus­trates the state of the legal sys­tem bet­ter than what is known as “rei­der­st­vo,” or raid­ing — the takeover of busi­ness­es through court rul­ings and oth­er osten­si­bly legal means with the help of crooked judges or police. The prac­tice is so wide­spread that local media have report­ed what raiders charge: $10,000 to alter a cor­po­rate reg­istry, $50,000 to open a crim­i­nal case, $300,000 for a court order.

Her­mitage, once Rus­si­a’s largest for­eign share­hold­er with more than $4 bil­lion in hold­ings, says it encoun­tered a bold vari­a­tion on rei­der­st­vo: When raiders failed to seize its assets, they loot­ed the Russ­ian trea­sury instead, then went after the lawyers who caught them.

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