[Congressional Record (Bound Edition), Volume 162 (2016), Part 5]
[Extensions of Remarks]
[Pages 7425-7426]
[From the U.S. Government Publishing Office, www.gpo.gov]




             BUSINESS RAIDING AND ASSET GRABBING IN RUSSIA

                                 ______
                                 

                       HON. CHRISTOPHER H. SMITH

                             of new jersey

                    in the house of representatives

                        Wednesday, May 25, 2016

  Mr. SMITH of New Jersey. Mr. Speaker, I'd like to bring to my 
colleagues' attention an illuminating report on corruption and 
corporate dispossession in Russia. Written by Dr. Louise Shelley and 
Judy Deane of George Mason University's Terrorism, Transnational Crime 
and Corruption Center, ``Reiderstvo: Implications for Russia and the 
West,'' concisely lays out the systematic tactics, fraud and corruption 
of business raiding and asset grabbing in Russia.
  The most well-known case is that of the Yukos Oil Company, which not 
only saw its Russian founder Mikhail Khodorovsky imprisoned for ten 
years in a Siberian gulag while his $22 billion company was dismantled 
under the guise of $22 billion in unpaid tax claims. A corporate 
entity, Yukos shares were confiscated and assets sold off at rigged 
auctions, without any regard for even its international--including 
U.S.--shareholders. As some of you may recall, I held a hearing last 
fall on the Russian government's violations of the rule of law, which 
examined the challenges these investors faced in enforcing the 
Permanent Court of Arbitration's $50 billion finding of unlawful 
appropriation against the Russian government. It turns out Yukos is 
only the tip of the iceberg.
  The reiderstvo report neatly encapsulates a Russian phenomenon that 
both contributes to, and is accelerating as a result of, Russia's 
economic decline. According to the authors, Russian corporate raiding 
practices, facilitated and even directed by the Kremlin, are 
``contributing to Russia's current unfriendly business climate and to 
declining investor confidence in the country.'' Russia's uniquely 
destructive practice of corporate raiding not only has dire 
ramifications for the Russian people and any remaining foreign 
investors, it has long term implications for Russian stability.
  Reiderstvo (literally ``raiding''), an ominous and violent practice 
in Russia since the early 1990s, is vastly different from U.S. 
corporate ``raiding''--that is, hostile takeovers by outside 
shareholders. Reiderstvo represents both private acquisition of 
business assets and public expropriation through a series of illegal 
bullying tactics that allow raiders to sell off a company's assets, 
often to a state controlled entity, and rapidly launder the proceeds, 
making massive profits and destroying businesses in the process.
  This particular report is noteworthy for its documentation of two 
aspects of reiderstvo. First, reiderstvo and asset grabbing is far more 
widespread and imbedded in Russian business culture than most people 
outside of Russia have thought. Astonishingly, Russian President Putin 
himself said that the number of current arrests for economic crimes 
suggests that tens of thousands of companies of all sizes in Russia 
continue to be harassed, intimidated, robbed, and outright stolen.
  Second, the study analyzes major cases of corporate raiding, and 
identifies the most common raiding tactics. These tactics include 
malicious prosecutions (false charges), malicious tax inspections, 
regulatory harassment, misuse of shares and shareholder protections, 
misuse of the banking system, abuse of international law enforcement, 
``Dark PR'' campaigns, and even violence. In any given raid against a 
business, it is likely that several of these tactics will be used 
simultaneously. From their case studies the authors extract four stages 
of the reiderstvo process: preparation, negotiation, execution, and 
legalization.

[[Page 7426]]

  In the case of OGAT, Ltd., one of the largest and most successful 
transportation companies in Russia, raiders used fraudulent documents 
to sell off company assets. In the case of TogliattiAzot, Russia's 
largest ammonia company, the company underwent 120 tax inspections in 
18 months and was assessed $150 million in alleged unpaid taxes in 
order to try to force the company into bankruptcy, making it easier and 
cheaper to acquire. Yevroset, a highly successful mobile phone 
operator, was the victim of three raids in which $1.4 million worth of 
cell phone handsets were taken, tax charges levied against one of its 
suppliers, and searches made of the homes of top managers, all to force 
owners to sell the company to a raider.
  It is easy to draw parallels from these cases to the more famous 
cases of Hermitage Capital and the Yukos Oil Company and demonstrate 
the state's own growing role in corporate raiding.
  Mr. Speaker, as Chairman of the Human Rights subcommittee and of the 
Helsinki Commission, I have focused much of my congressional work on 
fighting for human rights--for all human rights, throughout the world. 
And countless times I have seen the connection between human rights 
violations and governments that engage such grotesque forms of 
corruption. One connection, of course, is that rampantly corrupt 
governments commit human rights violations in order to cover up their 
crimes, or those of the mafias that dominate them. Such was the famous 
case of the heroic Sergei Magnitsky. The kind of government corruption 
we see in Russia today, manifesting itself in the ruthlessness of 
reiderstvo, is that which imperils the human rights of the Russian 
people.
  Mr. Speaker, this report is a much needed and critical assessment of 
Russian corruption at the highest levels of authority and has important 
implications for U.S. foreign policy in the dimensions of human rights 
and rule of law and commercial relations.
  The report may be found at www.reiderstvo.org. I strongly urge my 
colleagues to read it.

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