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RA in Die Presse: The Russian Capital Invasion

Coinciding with Vladimir Putin’s recent visit to Austria, the attached opinion article authored by Robert Amsterdam was published in the Austrian newspaper Die Presse. During his time in Vienna, Putin made a big show out of commending Austria’s respect for war memorials, closed a considerable amount of business deals (including gas), criticized the U.S. missile shield, and faced a few groups of demonstrators who came out to denounce human rights abuses (one Danish artist was even arrested at the protests because his posters apparently depicted Putin shooting journalists. He said “This is crazy. I wouldn’t expect this to happen in Austria.”)

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Activists hold banners during a protest against Russian President Vladimir Putin at Heldenplatz square in downtown Vienna. AFP

Below is the English translation of RA’s article in Die Presse – the original newspaper scan can be downloaded here.

The Russian Capital Invasion By Robert R. Amsterdam Should Austrians be worried about large-scale Russian investments in their country’s economy? Last month, Oleg Deripaska, a 39-year-old Russian billionaire, acquired 30 percent in the Strabag construction consortium, paying €1.2 billion for the assets. Last week it was announced that Mr Deripaska will invest about €1.13 billion in Canada’s Magna International, ultimately giving him equal voting control with the company’s Austrian-born émigré Chairman, Frank Stronach. Magna maintains an assembly plant and engineering and development centre in Graz. This week, Die Presse reported that Mr Deripaska is said to be interested in purchasing Bawag’s stake in Oesterreichische Lotterien. Before the Magna deal was finalised, Mr Stronach visited with Russian President Vladimir Putin to seek his blessing. Evidently, Mr Stronach had to kiss Mr Putin’s ring in order to seal the deal. Such cosying up to the Kremlin raises the critical question: in making these business deals, are we helping Russia to integrate Western business practices and standards of corporate governance – or is Russia teaching us to tolerate autocracy? Austrians should welcome the win-win kind of investment that Mr Deripaska has brought to their country. Yet in doing they should be careful to draw a line and maintain principles on the broad abuses that have been engendered by the same Kremlin that happens to shelter Mr Deripaska’s business dealings. This is a Kremlin that has flaunted, and continues to flaunt, the rule of law; that tramples human rights; and that engages in anti-competitive energy imperialism. Under Mr Putin, the Kremlin has consolidated a “vertical of power” – a political structure antithetical to the separation of powers underlying normal market-based democracies. With a firm grip on all levers of power, the Kremlin has developed a culture of impunity typical of a classic autocracy. This culture is on display at the highest levels, giving a cue to the rest of the country to disrespect the law when doing so can be done without consequence. A viral and pervasive spread of corruption, and lack of faith in the law, both result from the vertical of power and the abuses it engenders. Many have traced this downturn to the incarceration in 2003 of my client, Mikhail Khodorkovsky, then CEO of the Yukos Oil Company. Mr Khodorkovsky had turned Yukos into a model of business success and corporate governance. He was on the verge of a major tie-up with an American company. He was also highly outspoken, militating against corruption and in favour of modern business, and he promoted civic and human rights. After a show trial that was a mockery of justice, Mr Khodorkovsky was imprisoned on an eight-year sentence, and sent to the Siberian gulag. The assets of Yukos have been pillaged by state-controlled companies. The Khodorkovsky case was not about one man or one company. The imprisonment of Mr Khodorkovsky was a stern message to the Russian people: do not dare. Do not dare to take seriously the freedoms you have on paper, to stand up for principles, to speak your mind, to challenge, to rise up. If you dare, you will be crushed. You must live in perpetual fear that the whip will be cracked. The state will stop at nothing to tame critics and consolidate control over the country’s natural wealth. Events subsequent to the Khodorkovsky trial indicate that the power to prosecute has become the instrument of choice in the Kremlin’s means of achieving its desired political and commercial outcomes. The Kremlin wields great influence through the constant threats of intimidation, incarceration or expropriation. Paradoxically, the law, which has been so blatantly disrespected by the Kremlin, continues to serve as a pretext where convenient for the exercise of intimidation or control by the state. The instrumentalisation of law that was so openly on display in the expropriation of Yukos has now been replicated elsewhere, such as the Sakhalin shakedown, with seemingly less and less concern for a pretence or semblance of credibility. Extortion has been entrenched as a method of acquisition by the state. An increasingly hubristic Kremlin has calculated that it has space for manoeuvre in disregarding legal and moral obligations where convenient – whether with respect to treaty obligations, or business ventures such as the Shtokman development, or commitments to send gas and oil through pipelines without political interference. It is this hubris that allows the Kremlin to ignore the fact that it has signed and is legally bound by the Energy Charter Treaty. Despite these developments, too many foreign business and political leaders have chosen to deny, dismiss or discount the gravity of what has been occurring. Russia is an important business partner, and therefore, so goes the argument, a strong Kremlin is good for stable business relations, even if we have to sacrifice our principles along the way. This argument is short-sighted and flawed. Undoubtedly it is important to secure stable market conditions for foreign companies active in the Russian economy. It is also important to secure long-term energy supplies from Russia. However, doing so while remaining mum on the Kremlin’s transgressions is not the right approach in the long term. Engaging Russia through large-scale investments – and membership in the World Trade Organisation – is critical for all of the benefits that a healthy, stable Russian economy will entail for the rest of the world. However this engagement must be anchored in real respect for fundamental principles of market economics, the rule of law and democratic processes. The place of Russia in frameworks of partnership with the rest of the world, in a shared marketplace and a shared space of justice and human rights, demands the attention of all concerned whenever and wherever fundamental principles are under attack. The flagrant abuses of the current regime in Moscow suggest that those in power believe that their conduct is without consequence. This is what “business-as-usual” with the outside world has taught them. A new relationship with Russia must be built upon solid foundations to ensure growth, prosperity and security for the future, both in Russia and the rest of the world. If not, the international community may soon face troubles on an even more serious scale, with a wealthy and hubristic post-Putin regime that is even less committed to prolonging any appearances of democracy and a market economy. We should not lull ourselves into a false sense of security, equating a domestically omnipotent Russian president with stability in our business relations. For behind the façade of strength, the political system in Russia is gravely ill. The healing mechanisms that exist in any healthy market-based democracy – found in a separation of powers – have been destroyed in Russia. Stability depends not on institutions, but rather on a few individuals. Yukos has taught us how quickly, and with what force, the winds can change in Russia. So let us raise a glass to toast new Russian investments in Austria. But in the meantime let us not lose sight of the corruption that is rotting Russia to the core, and devouring many good people in the process. Eventually, we in the West will not escape the consequences.