WASHINGTON -- From U.S. Secretary of State Colin Powell to Ambassador Alexander Vershbow to American businessmen and lawyers, the talk at a conference last week in Washington was all about how to prevent investors from being, in the ambassador's words, "ripped off" in Russia.
Powell set the theme for the U.S.-Russia Business Council's two-day annual meeting in his opening keynote address. He said although President Vladimir Putin's government has done a good job of getting legislation passed to make it easier to do business in Russia, more needs to be done, especially in the regions, to make sure officials follow the new rules.
"As representatives of the private sector, you can help with this process," Powell told council members Thursday. "You can encourage local officials to apply the new laws consistently so that businesses can develop free from artificial constraints and corruption, and to show why it's in their interest to attract that kind of investment, that kind of trade into their towns."
Powell called U.S. investment in Russia over the past decade "totally inadequate," but he said there was a reason for this. "Trade and investment flow to countries where there is transparency, where there is predictability, where there is respect for intellectual property and when there is accountable governance."
Powell expressed confidence that as Russia continues to make progress in these areas, U.S. trade and investment will grow.
U.S. investment in Russia totaled $5.6 billion at the end of 2001, while trade with Russia in 2001 amounted to $7.9 billion, or just a little more than trade with South Africa or Argentina, Powell said.
Vershbow, who has made protecting the rights of U.S. investors one of his main causes since coming to Moscow a little more than a year ago, picked up where his boss left off. The ambassador said if there is anything that still poses an obstacle to expanded trade and investment in Russia it is a lack of respect for the rule of law.
"In many cases our companies have been treated unfairly, ripped off, outrageously in some cases, and even when they get their side of the argument upheld by the Russian courts, these court decisions aren't implemented," he told the gathering of about 300 people.
Vershbow said he typically has a list of 12 to 15 aggrieved U.S. investors whose cases he is lobbying, and the number is not declining. As some cases are settled, others appear.
The conference was attended by several businessmen fighting to protect or recover investments in Russia, among them Henri Bardon, who runs Euro Asian Investment Holding Inc. Bardon invested $12 million in a Vladivostok grain company that has been stripped of its assets in what he describes as a rigged bankruptcy.
"We can't get anything out of the courts any more -- we won all our cases," Bardon said in an interview. "We have judgments we would like to enforce but all the assets are gone."
The Russian legal system was a hot topic of discussion among businessmen and lawyers at the conference. Several had tales of court decisions in their favor that had been undermined or simply ignored, and many complained of corrupt judges under the thumb of the politically powerful.
Randy Bregman of law firm Squire, Sanders & Dempsey said one of the problems is that Russian judges are inexperienced in commercial issues, since most of them studied law before most of the relevant laws were passed and in some cases before Russia even had a market economy, and as a result the judges are more susceptible to pressure. "That is the risk of investing in a country with a new legal system," he said during a panel discussion Friday on commercial dispute resolution.
It does not help that many investors have a cynical perception of the courts, according to Bregman and his colleague Sarah Carey. "People come in not believing there's a real legal system and don't want to pay to have proper lawyering done," said Carey, who moderated the discussion.
Venyamin Yakovlev, the chief judge of the Supreme Arbitration Court, was to have attended the USRBC meeting to participate on this panel, but because of a mixup at the State Department his visa came through too late for him to make the trip.
Some longtime players in Russia said investors need to be willing to defend their investments.
"When you make an investment, roll up your sleeves and get to work defending your investment," said Igor Gundobin, a partner at Sun Capital.
Bernie Sucher, chairman of Alfa Asset Management, said, "Investors need to defend themselves, they need to do due diligence." Part of this, he said, is understanding that business does not operate the same way in Russia as in America. "There are rules of the game, a more or less reliable guide to how to stay out of trouble," Sucher said in an interview.
While in the United States, dispute resolution is handled largely by the courts, this is not yet true in Russia. "There are other levers and we know what they are," Sucher said. "Some are kind of shady and gray, some are just common sense. Who is your partner? What's his motivation?"
Despite the problems, Sucher shared the optimism of many conference participants for investing in Russia. "The risk-reward ratio -- and I've been doing this for 10 years -- has never been better," he said.
Even Boris Zingarevich, deputy chairman of the board of Ilim Pulp, was upbeat. His company is fighting what it says is a hostile takeover of its paper mill by Oleg Deripaska.
In an address at Friday's luncheon, Zingarevich described two Russias, one a civilized, dynamic country and the other an isolated country where market principles are unknown. But when asked afterward for his advice to foreign investors he had this to say: "It's not that bad in Russia. There is law, you can do business."
Economic Development and Trade Minister German Gref, who addressed the group Thursday with U.S. Commerce Secretary Donald Evans and Energy Secretary Spencer Abraham, said the Russian government was eager for American investors. The government, Gref said, "would continue to do everything to lift all barriers and limitations to make Russia a stable country ruled by law, where the strongest survives in healthy competition and in which every businessman would want to invest."
Powell set the theme for the U.S.-Russia Business Council's two-day annual meeting in his opening keynote address. He said although President Vladimir Putin's government has done a good job of getting legislation passed to make it easier to do business in Russia, more needs to be done, especially in the regions, to make sure officials follow the new rules.
"As representatives of the private sector, you can help with this process," Powell told council members Thursday. "You can encourage local officials to apply the new laws consistently so that businesses can develop free from artificial constraints and corruption, and to show why it's in their interest to attract that kind of investment, that kind of trade into their towns."
Powell called U.S. investment in Russia over the past decade "totally inadequate," but he said there was a reason for this. "Trade and investment flow to countries where there is transparency, where there is predictability, where there is respect for intellectual property and when there is accountable governance."
Powell expressed confidence that as Russia continues to make progress in these areas, U.S. trade and investment will grow.
U.S. investment in Russia totaled $5.6 billion at the end of 2001, while trade with Russia in 2001 amounted to $7.9 billion, or just a little more than trade with South Africa or Argentina, Powell said.
Vershbow, who has made protecting the rights of U.S. investors one of his main causes since coming to Moscow a little more than a year ago, picked up where his boss left off. The ambassador said if there is anything that still poses an obstacle to expanded trade and investment in Russia it is a lack of respect for the rule of law.
"In many cases our companies have been treated unfairly, ripped off, outrageously in some cases, and even when they get their side of the argument upheld by the Russian courts, these court decisions aren't implemented," he told the gathering of about 300 people.
Vershbow said he typically has a list of 12 to 15 aggrieved U.S. investors whose cases he is lobbying, and the number is not declining. As some cases are settled, others appear.
The conference was attended by several businessmen fighting to protect or recover investments in Russia, among them Henri Bardon, who runs Euro Asian Investment Holding Inc. Bardon invested $12 million in a Vladivostok grain company that has been stripped of its assets in what he describes as a rigged bankruptcy.
"We can't get anything out of the courts any more -- we won all our cases," Bardon said in an interview. "We have judgments we would like to enforce but all the assets are gone."
The Russian legal system was a hot topic of discussion among businessmen and lawyers at the conference. Several had tales of court decisions in their favor that had been undermined or simply ignored, and many complained of corrupt judges under the thumb of the politically powerful.
Randy Bregman of law firm Squire, Sanders & Dempsey said one of the problems is that Russian judges are inexperienced in commercial issues, since most of them studied law before most of the relevant laws were passed and in some cases before Russia even had a market economy, and as a result the judges are more susceptible to pressure. "That is the risk of investing in a country with a new legal system," he said during a panel discussion Friday on commercial dispute resolution.
It does not help that many investors have a cynical perception of the courts, according to Bregman and his colleague Sarah Carey. "People come in not believing there's a real legal system and don't want to pay to have proper lawyering done," said Carey, who moderated the discussion.
Venyamin Yakovlev, the chief judge of the Supreme Arbitration Court, was to have attended the USRBC meeting to participate on this panel, but because of a mixup at the State Department his visa came through too late for him to make the trip.
Some longtime players in Russia said investors need to be willing to defend their investments.
"When you make an investment, roll up your sleeves and get to work defending your investment," said Igor Gundobin, a partner at Sun Capital.
Bernie Sucher, chairman of Alfa Asset Management, said, "Investors need to defend themselves, they need to do due diligence." Part of this, he said, is understanding that business does not operate the same way in Russia as in America. "There are rules of the game, a more or less reliable guide to how to stay out of trouble," Sucher said in an interview.
While in the United States, dispute resolution is handled largely by the courts, this is not yet true in Russia. "There are other levers and we know what they are," Sucher said. "Some are kind of shady and gray, some are just common sense. Who is your partner? What's his motivation?"
Despite the problems, Sucher shared the optimism of many conference participants for investing in Russia. "The risk-reward ratio -- and I've been doing this for 10 years -- has never been better," he said.
Even Boris Zingarevich, deputy chairman of the board of Ilim Pulp, was upbeat. His company is fighting what it says is a hostile takeover of its paper mill by Oleg Deripaska.
In an address at Friday's luncheon, Zingarevich described two Russias, one a civilized, dynamic country and the other an isolated country where market principles are unknown. But when asked afterward for his advice to foreign investors he had this to say: "It's not that bad in Russia. There is law, you can do business."
Economic Development and Trade Minister German Gref, who addressed the group Thursday with U.S. Commerce Secretary Donald Evans and Energy Secretary Spencer Abraham, said the Russian government was eager for American investors. The government, Gref said, "would continue to do everything to lift all barriers and limitations to make Russia a stable country ruled by law, where the strongest survives in healthy competition and in which every businessman would want to invest."
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