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Rule of Law Still Anemic in Russia

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During President Dmitry Medvedev’s visit to Silicon Valley earlier this year to pitch Russia as the next hotbed of technological innovation, the industry responded with guarded interest. Well yes, sure, that sounds great, but what are you going to do to protect my investment? How will I not become the next Bill Browder?

Unfortunately there are very few comforting answers to these questions. The inability of Russia’s vulnerable judiciary to independently administer justice – either in private business matters or in matters involving interests of the people who rule the country – has long been the Achilles’ heel of the country’s development.

The phenomenon is driven by political subversion of the judiciary which, in turn, leads to the deep corruption within the judicial bureaucracy, which President Medvedev himself has singled out as the primary obstacle. Writing recently in the Moscow Times, economists Aleh Tsyvinski and Sergei Guriev argued that the re-nationalizations which have taken place since 2004 have resulted in the creation of overweight state-owned corporations, which decrease the incentives for the development of institutions capable of protecting rule of law. “Fast and sustainable economic growth requires the rule of law; accountable, meritocratic and noncorrupt bureaucrats; protection of property rights; contract enforcement; and competitive markets,” Tsyvinski and Guriev argue. “Such institutions are difficult to build in every society. In Russia, the task is especially problematic, because the ruling elite’s interests run counter to undertaking it.

The argument that that state agencies, state-owned interests orprivate companies with close political ties enjoy unfair advantages in acourt of law is not just a concept – it’s a real experience sufferedevery day by foreign investors in Russia. Few people are aware of myinvolvement in one such major investment arbitration dispute in relationto a large public infrastructure project – which, up until the present,did not merit any public mention. While the investment protection workwe do often requires confidentiality, we were recently before a Russianstate arbitrazh court that passed down a most absurd decision in favorof our government opponents, blatantly flouting the rule of law.

As part of our effort connected to the ongoing internationalarbitration, we filed an application aimed at preserving the status quountil the resolution of the matter in an international arbitrationsforum. While I am hardly naive enough to expect that our applicationwould actually be granted in this politically charged case, we didexpect that the court would go through the motions and at least pretendto consider our applications seriously. We were, after all, entitled toa formal hearing.

Recently, however, the court denied our application in record time -without any hearing, and without even denying our formal request for ahearing – in clear violation not only of procedural rules, but of theRussian constitutional norms and international law provisions on theright to judicial protection. Once again, we are reminded that theRussian courts are far from independent, and will not rule against thegovernment’s interests in any important case.

I am astounded to admit that not even a seemingly rigged process canfollow the rules any more. When Russia can’t even adequately fake ajudicial process, then we are all really in trouble.

So when you hear the political leadership gush effusively aboutmodernization, diversification, and the new foreign policy of economicintegration with the rest of the world as the strategy to take Russiaforward, be forewarned that the institutions are still miles behind thePR. We’re still holding out for some type of improvement in this case,but one of these days all the victims of all these unlawful courts willhave to pool together and press for serious reforms at the highestlevels, and seek to bring a minimum, just a minimum, of accountabilityback to Russia’s business environment.