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Event Summaries
July 14, 2016

Event Summary: ‘The Rise of Reiderstvo: Implications for Russia and the West’

by
Henry Jackson Society

By Patrick Benjamin

TIME: 13:00-14:00, Wednesday 13th July 2016

VENUE: Committee Room G, House of Lords, Houses of Parliament, London, SW1A 0AA

SPEAKER: Dr. Louise Shelley, Founder and Director of TraCCC

Host: Baroness Falkner

Chair: Andrew Foxall, Director of the Russia Studies Centre, Henry Jackson Society

For a full transcript of this event click here

On the 13th of July, by the kind invitation of Baroness Falkner, the Henry Jackson Society was addressed by Dr Louise Shelley on the subject of her report, The Rise of Reiderstvo: Implications for Russia and the West. Baroness Falkner opened up the event by observing that the rule of law is a precursor to democracy, and that a free market can only function properly if business people are able to make decisions based on the assumption of their protected property rights.

Dr Shelley began by noting that her predictions after the fall of the Soviet Union that corruption and organised crime would prevent the successful introduction of democracy and a free market turned out to be correct. She talked about how hostile takeovers in the 1990s were most often carried out by organised crime groups, whereas from 2000 these takeovers began to be orchestrated by public officials, with organised crime groups merely serving them.

She emphasised that reiderstvo is distinct from the Western concept of corporate raiding whereby an entity buys up shares in a corporation in order to use shareholder voting rights to take over its management. Reiderstvo, on the other hand, uses a broad range of illicit and quasi-legal methods to take over a company. Dr Shelley explained that it takes place across the territories of the former Soviet Union, and raiders are willing target anything of value, regardless of size.

She highlighted that the rise in prosecutions for economic crimes does not in fact reflect progress in the fight against corruption in Russia, but, on the contrary, these prosecutions are used by raiders to threaten or remove the leading figures in targeted corporations. She discussed other prominent tactics as listed in her report, including forgery and fraud; tax inspections and regulatory harassment; misuse of the banking system; violence; negative PR campaigns; and the abuse of international law enforcement mechanisms.

She talked about how reiderstvo has hugely discouraged foreign direct investment, and has impacted very negatively on Russians who have been deprived of business opportunities. Currently victims of reiderstvo must largely rely on their own network of officials, or, indeed, connections to organised crime groups, to protect themselves during raids. This led to her to clarify that whilst victims are not always themselves completely clean, it is very difficult to do business entirely within the law in such a corrupt environment, and that raiders, in employing threats, violence, and incarceration, are almost always worse than their victims. Dr Shelley argued that increased transparency in the global financial system, and particularly in the offshore world, is the only real way of tackling the phenomenon. She said there is currently a real appetite among Russian entrepreneurs (especially female entrepreneurs) to combat reiderstvo, in light of the recent drop in living standards.