As the most powerful heads of state return from St Petersburg’s G8 summit where they sentenced energy, defence and global policies to further corporate looting, Russian thinkers came to the UK to examine the business and misdemeanors of the Russia’s super rich oligarchs, who seem to be the beneficiaries of the G8 projects.
The Moscow-based Institute of Globalization Studies (IPROG) and the leading Russian anti-corporatist organisation Counter Corporate Centre (KOFR) hosted a round table discussing and highlighting the true threats, risks and challenges of the transnationalization of Russian oligarchic consortia. An expert panel on Russian business and politics including Boris Kagarlitsky, Prof Alex Callinicos, Simeon Zhavoronkov (KOFR), Dr. Paddy Rawlinson and David Crouch (FT.com) and 15 other expert in law, politics and economics debated the controversial role of the consortia in the West, with a focus on the “Alfa Group” as the most aggressive and non-transparent group.
In the beginning Alex Callinicos pointed out “the complex character of Russian oligarchy, its tight political and economic interconnections”, and mentioned that Russian bureaucracy was a special type of corporate elite. Alfa’s members are not an exception here. And its global behavior reflects a long tradition of Russian mafia approaches, starting with corruption and murders and finishing with financial and telecommunications raids.
Boris Kagarlisky, Director of the Institute for Globalization Studies, is experienced in research of oligarchic groups in Russia. He stated, that economic growth was accompanied by impressive growth of capitalization of Russian companies belonging to the so-called “oligarchic structures”. These structures emerged in the mid 1990s when government sponsored the creation of “financial-industrial groups” – new private conglomerates replacing old Soviet ministries. Unlike Korean “chobols” these conglomerates were not involved in manufacturing and held no interest in the domestic market. Like the “Alfa-Groups” they were created and controlled corrupt government officials and by their partners in business. Much of their success is due to the fact that they not only privatized the state property at symbolic prices (in fact, for free), but continued to use public resources long after privatization. The formation of these groups was accompanied by massive theft and corruption; sometimes also involving other crimes such as murder.
The round table revealed that Russian oligarchies are globally most active in three economic sectors – oil, finances and telecommunications. Peter Glatter from the University of Wolverhampton Business School reported, “Europe appears to be the main destination for Russian firms. According to one source, as of 2001 two-thirds of Russian multinational companies were focusing on it. This fits with the pattern of Russian outward foreign direct investment (OFDI). As of 2004, the EU had attracted half of all Russian OFDI.” In addition it was pointed out that habits Russian firms got accustomed to in Russia remain the same in Europe with all the corresponding outcomes.
Controversial Russian oligarch Mikhail Fridman runs the “Alfa-Group”, an oil, telecommunications and banking conglomerate. Fridman’s partner, Peter Aven, was Russia’s minister of foreign economic affairs. Fridman was one of the Big Seven, who claimed to then control 50% of Russia’s assets. Timely reminders have surfaced of an old and embarrassing row between Fridman and BP over the ownership of Russian oil firm Sidanco, although relations were patched up and Fridman is now a major strategic partner of the British oil giant.
British Petroleum taken over by Russians is in fact not the only outcome of oligarchic activities in the West. Moreover, scandals unleashed around other companies in France, Norway, Turkey, Germany. An example is the retail network “Perekrestok” which appeared in Russia as an Alpha project. It was discovered, that Alfa had captured the famous French retail brand “Carrefour”. In Turkey and Norway Alfa has tried repeatedly to amend contracts with partner telecommunication companies in order to take over their leadership and regional assets. A shift in oligarchic interests has occurred away from internal political plays to external economic combinations, involving and corrupting European politicians as well.
David Crouch, Assistant News Editor FT.com commented on this trend by highlighting how many stakes in telecommunication companies worldwide are controlled by Alfa and scandals that have arisen from it..
|Company||Stakes owned by|
(45% owned by Swedish govt)
The Alfa-Group is fostering dreams to take over all assets, which are currently owned by its partners. An illustrative example is the battle for Megafon.
In one of Russia’s most notorious business disputes, Alfa locked horns with TeliaSonera when the Nordic group sided with Alfa’s rival in a conflict over Alfa’s purchase of a 25% stake in Megafon. Analysts say that Alfa may be planning to expand its 25% in MegaFon and merge it with VimpelCom, creating a new giant that could displace Russia’s top telecoms company, Mobile TeleSystems.
In March 2005 TeliaSonera publicly backed IPOC, an offshore investment fund, in its dispute with Alfa, saying it would block Alfa Group from holding a stake in Megafon. TeliaSonera pointed to a shareholders agreement that prevents a direct or indirect competitor to Megafon, such as Alfa, from owning shares in the company. IPOC challenged Alfa’s purchase through courts in Europe and the British Virgin Islands, saying that it had an option to buy the shares from LV Finance, the previous owner.
The Swedish group had tried to stay out of the dispute, but then publicly sided with IPOC and its ally TelecomInvest (TCI), with the three signing an agreement to strengthen their relationship. IPOC holds an 8% stake in Megafon; TCI holds 31%. IPOC claimed the contested MegaFon stake was transferred to offshore companies owned by Alfa and registered in the British Virgin Islands and the Bahamas. The International Chamber of Commerce in Geneva ruled in IPOC’s favor in August 2004.
Alfa hit back and used a British businessman, Anthony Georgiou, to take IPOC to court. Alfa accused IPOC of money-laundering to the tune of $40m.
The dispute dragged in Germany’s Commerzbank. Müller, Commerzbank’s chief executive, and board member Klaus-Peter responsible for Russia and Eastern Europe until 1999, were investigated over allegations involving an estimated $212m of cash. Alfa proved nothing in this case. Finally, as the FT put it, Commerzbank was “left to pause for thought about the wisdom of its ties to Russia”.
In June 2006, IPOC filed a lawsuit in New York against Alfa, alleging racketeering, money-laundering and share price manipulation. A Russian court recently prohibited Alfa to re-set court processions to other courts as this a raiders approach. Obviously this precedent should point down all Alfa’s manipulations in telecommunications sector round the world.
“The dispute confirms that Russian business is still a world of offshore bank accounts, secretive trusts and private investigators,” David Crouch stated.
After examination and discussion the round table panel agreed that the specific business culture developed by dominant Russian corporations reflects the general conditions under which Russian capitalism emerged as well as the logic of “political capitalism” that was formed during the years of neoliberal reforms. This business culture can be characterized by a combination of aggressive competition and intensive use of political connections to achieve dominant position on the market. In this struggle for market domination acquisition of assets is preferred to expanding production, developing new products or using innovative technologies. Moreover, everything that is presented as innovation, is in reality no more than an attempt to copy Western practices (like a very expensive rebranding of BeeLine by “VimpelCom”). The extremely costly campaign involved massive propaganda efforts and enjoyed very little success with the public. However, if we look at this campaign more carefully, we discover that the basic mentality behind it was reflecting not that much Western style rebranding concepts, but rather the traditions of state propaganda, Soviet style.
While increasing efficiency plays only a marginal role in business strategies generated by this culture, it is no surprise that political connections and corruption are essential. Naturally this can be seen as a specific “Russian” way of doing business, but Western corporate culture, as we know from many scandals is not immune to these diseases either. Transnationalization of Russian oligarchic conglomerates and their expansion into Western Europe can end up in an unpleasant merger of “Eastern” and “Western” corporate practices, or rather their worst elements.
Not surprisingly, the arrival of Russian investors in the West is not always welcome. It is accompanied by scandals and conflicts as well as political protests. While the Right is still living with its “Cold War” memories and is suspicious of anything coming from Russia, the Left sees the owners of these companies as looters running away from the scene of theft, crooks who are not welcome in any society. In practice this global expansion of Russian oligarchy is another manifestation of a new global capitalist order and a neoliberal international economic system.
While the roots of the problem are deep and cannot be addressed without us discussing the systemic changes in both Russian and Western economies, the practical consequences of this oligarchic expansion are quite visible and can be addressed immediately. The best way to do this is to single out a few concrete cases, attract public attention and turn them into a model, showing how civil society in democratic countries should deal with these problems in general. This will involve public debate and civic action both in the West and in Russia. For the new anti-corporate movement in Russia that struggle will also be a test and a lesson of international solidarity.
- Simeon Zhavoronkov
Copyright Respect 2006