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Old 15th August 2010, 04:19 PM
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Russia's War on Business.

Corruption is forcing Russia’s best and brightest to flee the country.

Yevgeny Chichvarkin once took London by storm. Bounding onto the stage at the Russian Economic Forum four years ago in red sneakers, graffiti-sprayed jeans, and a top that proclaimed that he was MADE IN MOSCOW, the 34-year-old Russian businessman told the elite gathering how he’d grown his Evroset mobile-phone company into a billion-dollar empire in just five years, and that a "new generation of young businesspeople" was "ready to integrate Russia into the world economy."

Now Chichvarkin is back in London, no longer a poster boy for Russian investment but instead a fugitive. Two of his business partners are in jail, his company has been sold off after a series of raids by Russian police, and his mother died under mysterious circumstances in April. Chichvarkin himself is wanted on charges of kidnapping and extortion, which he insists were cooked up by a gang of “werewolves in uniform”—bureaucrats and police who use the law to shake down and steal businesses.

Chichvarkin has joined Russia’s Generation Exile, a tide of businessmen, lawyers, accountants, and bankers who have fled their country after being robbed and threatened by Russia’s corrupt law-enforcement officials. Transparency International, an NGO, estimates that fully one third of Russian businesses have been targeted in attempted corporate raids by police. An anti-raider hotline set up by the Moscow city hall reported a 10-fold jump in complaints, from 200 to more than 2,000, over the last year. And while it is hard to calculate exactly how many of the estimated 300,000 Russians living in London are the victims or beneficiaries of police-backed shakedowns, the number of business exiles afraid to return to their homeland for fear of arrest is certainly in the thousands. According to a survey last year by the Moscow-based Levada Center, many more may exit voluntarily: 13 percent of 1,600 respondents said they wanted to leave Russia, the same percentage as in 1992, a year after the collapse of the Soviet Union.

The economic impact of the brain drain—and the bureaucratic racketeering that drives it—is startling. In the decade since Vladimir Putin first came to power, Russia fell from 52nd to 63rd on the World Economic Forum’s Global Competitiveness Index, despite massive oil-funded state spending and an ambitious--sounding modernization program. On property rights, Russia came 119th, right down there with Malawi and Nicaragua; on judicial independence, 116th; on reliability of police services, 112th; and on professional management, 77th. Despite steady macroeconomic growth driven by rising oil and gas prices, there are few signs that it is developing beyond oil. “Only free, independent, and enterprising people are capable of being the driving forces behind modernization, but those are exactly the people whom the state is persecuting,” says Vladimir Ryzhkov, a leader of a prominent opposition party, Another Russia. “How can Russia attract Western investors when the country’s most successful businessmen are forced to flee the country for fear of arrest?”

At the heart of the problem is an unholy alliance between Russian law enforcement and the criminal world—a combination that over the last decade has created “an alloy of almost unbreakable force,” says lawyer Vladimir Pastukhov. Instead of enforcing the law, a large chunk of Russia’s police, secret police, and government bureaucrats spend their energies on looking out for vulnerable businesses that can be targeted for a corporate raid, Russian style. Unlike the Wall Street version, a Russian hostile takeover almost invariably involves a violent raid by armed and masked police using a warrant issued on flimsy charges, followed by the confiscation of company documents, computers, and archives with a view to stealing the business and intimidating its lawful owners. The pattern was established in 2003 when the Kremlin dismembered Russia’s biggest oil company, Yukos, and jailed its head, Mikhail Khodorkovsky, and a slew of executives and lawyers based on dubious evidence. “Russian bureaucrats figured, if Putin can do it, so can we,” says a lawyer connected to Yukos who is contractually forbidden from speaking to the press.

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