Reiderstvo (Russia) - Revision history

Editor2018 at 10:55, 11 May 2020

2020-05-11T10:55:40Z

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	\| authorofpiece =Michael Mesquita		\| authorofpiece =Michael Mesquita
	\| authorinstitution =West Sands Advisory Limited, UK		\| authorinstitution =West Sands Advisory Limited, UK
	\| authorwebsite =[https://www.linkedin.com/in/mike-mesquita Profile page at LinkedIn]}}		\| authorwebsite =[https://www.linkedin.com/in/mike-mesquita Profile page on LinkedIn]}}
	<big>'''By Michael Mesquita, West Sands Advisory Limited, UK'''</big>		<big>'''By Michael Mesquita, West Sands Advisory Limited, UK'''</big>
	[[Category:Market]]		[[Category:Market]]

Editor2018 at 15:26, 17 May 2019

2019-05-17T15:26:32Z

← Older revision		Revision as of 15:26, 17 May 2019
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	{{infobox		{{infobox
	\| nameofpractice = Reiderstvo		\| nameofpractice =Reiderstvo
	\| location = Russia		\| flagemoji = 🇷🇺
	\| imagemap = Russia map.png		\| definition =Corporate raiding by illegal, semi-legal or unethical means
	\| ~~imageflag~~ = Russia ~~flag.png~~		\| location =Russia
	\| authorofpiece = ~~Michal~~ Mesquita		\| imagemap =Russia map.png
	\| authorinstitution = West Sands Advisory Limited		\| clusters =
	}}		[[:Category:Market\|Market]] – [[:Category: Functional ambivalence\| Functional ambivalence]] – [[:Category: Gaming the system\| Gaming the system]] – [[:Category: Camouflage\| Camouflage]] – [[:Category: Playing the letter of the rules against their spirit\| Playing the letter of the rules against their spirit]]
			\| categories =
			[[:Category:Russia\|Russia]] – [[:Category: FSU\| FSU]] – [[:Category: Investment\| Investment]] – [[:Category: Entrepreneurship\| Entrepreneurship]] – [[:Category: Corporate informality\| Corporate informality]]
			\| authorofpiece =Michael Mesquita
			\| authorinstitution =West Sands Advisory Limited, UK
			\| authorwebsite =[https://www.linkedin.com/in/mike-mesquita Profile page at LinkedIn]}}
			<big>'''By Michael Mesquita, West Sands Advisory Limited, UK'''</big>
			[[Category:Market]]
			[[Category: Functional ambivalence]]
			[[Category: Gaming the system]]
			[[Category: Camouflage]]
			[[Category: Playing the letter of the rules against their spirit]]
			[[Category:Russia]]
			[[Category: FSU]]
			[[Category: Investment]]
			[[Category: Entrepreneurship]]
			[[Category: Corporate informality]]
			[[Category:Entry]]
			[[Category: Volume 2]]
			{\| class="wikitable"
			\|-
			\|style="font-size:1.1em;"\| The Russian word ''reiderstvo'', derived from the English term ‘corporate raiding’, is an attempt by an investor or group of investors to purchase a majority or significant minority stake in a publicly-traded or privately held company. Once a raider acquires a controlling interest, they may replace the current management team or implement cost saving measures in an attempt to increase the company’s overall share value<ref>Salinger, L. 2013. Encyclopaedia of White-Collar and Corporate Crime, Second Edition (Los Angeles: Sage Publications).</ref>.

	~~'''''Original text: Michael Mesquita, West Sands Advisory Limited'''''~~		Unlike corporate raiding in the

	~~<div class="toccolours mw-collapsible mw-collapsed">~~
	~~The Russian word ''reiderstvo'', derived from the English term ‘corporate raiding’, is an attempt~~
	~~by an investor or group of investors to purchase a majority or significant minority stake in a~~
	~~publicly-traded or privately held company. Once a raider acquires a controlling interest, they~~
	~~may replace the current management team or implement cost saving measures in an attempt~~
	~~to increase the company’s overall share value<ref>Salinger, L. 2013. Encyclopaedia of White-Collar and Corporate Crime, Second Edition (Los~~
	~~Angeles: Sage Publications).</ref>.~~ Unlike corporate raiding in the
	West, ''reiderstvo'' is designed for short-term gain rather than long-term investment, often for		West, ''reiderstvo'' is designed for short-term gain rather than long-term investment, often for
	the purpose of stripping the business of its assets. The acquisition of the company may be		the purpose of stripping the business of its assets. The acquisition of the company may be
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	often semi-legal or outright illegal, including the use of physical force or corrupt collusion		often semi-legal or outright illegal, including the use of physical force or corrupt collusion
	with state institutions.		with state institutions.
			\|}

	~~<div class="mw-collapsible-content">~~
	Much of the research on ''reiderstvo'' focuses primarily on Russia and Ukraine;		Much of the research on ''reiderstvo'' focuses primarily on Russia and Ukraine;
	however, this tactic with its various forms can be found in other post-Soviet countries,		however, this tactic with its various forms can be found in other post-Soviet countries,
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	of judges, law enforcement, lawyers, accountants, journalists and others<ref>Viktorov, I. 2013. ‘Corporate Raiding in Post-Soviet Russia’, Baltic Worlds, 2: 4-8,		of judges, law enforcement, lawyers, accountants, journalists and others<ref>Viktorov, I. 2013. ‘Corporate Raiding in Post-Soviet Russia’, Baltic Worlds, 2: 4-8,
	http://balticworlds.com/in-post-soviet-russia/</ref>.		http://balticworlds.com/in-post-soviet-russia/</ref>.

	One of the more profound changes that precipitated the evolution of ''reiderstvo'' was the active		One of the more profound changes that precipitated the evolution of ''reiderstvo'' was the active
	assistance of regional and federal agencies. Such connections (through informal networks of		assistance of regional and federal agencies. Such connections (through informal networks of
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	status (questionable privatisation deals, licence discrepancies, etc.). If discovered, the raider		status (questionable privatisation deals, licence discrepancies, etc.). If discovered, the raider
	files a criminal case, which may lead to bankruptcy proceedings or a business crisis as		files a criminal case, which may lead to bankruptcy proceedings or a business crisis as
	described above. Another tactic is the continual acquisition of minority shares to influence		described above.

			Another tactic is the continual acquisition of minority shares to influence
	board decisions. Once a raider is in this position, they may convene a shareholders’ meeting		board decisions. Once a raider is in this position, they may convene a shareholders’ meeting
	but systematically exclude other shareholders. This can be achieved by holding the meeting		but systematically exclude other shareholders. This can be achieved by holding the meeting
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	etc.). The company is then compelled to sell a stake in the company for the attacks to stop.		etc.). The company is then compelled to sell a stake in the company for the attacks to stop.
	This process is repeated until it becomes too costly for the company to continue; thus it is		This process is repeated until it becomes too costly for the company to continue; thus it is
	forced to sell to the raider. Extortion may also be used to guarantee the target company		forced to sell to the raider.
	receives the necessary state licences or government contracts to operate. Uzbek President
	Islam Karimov’s daughter, Gulnara, who allegedly received bribes from Russian and Finnish		Extortion may also be used to guarantee the target company
			receives the necessary state licences or government contracts to operate. Uzbek President Islam Karimov’s daughter, Gulnara, who allegedly received bribes from Russian and Finnish
	telecoms companies, reportedly used this practice to exact bribes and increase her stake in the		telecoms companies, reportedly used this practice to exact bribes and increase her stake in the
	local telecoms market<ref>Patrucic, M. 2015. ‘Uzbekistan: How The President’s Daughter Controlled The Telecom		local telecoms market<ref>Patrucic, M. 2015. ‘Uzbekistan: How The President’s Daughter Controlled The Telecom
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	rule on false criminal charges against the management or owners of a target company (see		rule on false criminal charges against the management or owners of a target company (see
	also entry on [[Telefonnoe_pravo\|telefonnoe pravo]] (‘telephone justice’) in this volume). The victim is then		also entry on [[Telefonnoe_pravo\|telefonnoe pravo]] (‘telephone justice’) in this volume). The victim is then
	arrested, but can buy their freedom by selling the company at a reduced price. Alternatively, a		arrested, but can buy their freedom by selling the company at a reduced price.

			Alternatively, a
	raider may employ the ‘shareholder scheme’ to seize company assets while the victim is in		raider may employ the ‘shareholder scheme’ to seize company assets while the victim is in
	custody. According to the Moscow-based NGO Liberal Mission Foundation (Open Democracy 2013), between 2000 and 2010 over 15 per cent of all Russian business entities		custody. According to the Moscow-based NGO Liberal Mission Foundation (Open Democracy 2013), between 2000 and 2010 over 15 per cent of all Russian business entities
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	on an injunction that has been granted by a bribed judicial figure. While any corporate raid is		on an injunction that has been granted by a bribed judicial figure. While any corporate raid is
	usually reliant on the support of a legal or political actor, intimidation is still used to facilitate		usually reliant on the support of a legal or political actor, intimidation is still used to facilitate
	or expedite the process. A recent public instance of hiring armed men to seize company		or expedite the process.

			A recent public instance of hiring armed men to seize company
	property was the case of Ukrainian oligarch and former Mayor of Dnepropetrovsk, Ihor		property was the case of Ukrainian oligarch and former Mayor of Dnepropetrovsk, Ihor
	Kolomoysky, in March 2015. Following the passing of legislation that limited his influence		Kolomoysky, in March 2015. Following the passing of legislation that limited his influence
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	Dnepropetrovsk shortly after. Nonetheless, the event highlights how intimidation can still be		Dnepropetrovsk shortly after. Nonetheless, the event highlights how intimidation can still be
	a useful tool for corporate raiding.		a useful tool for corporate raiding.
	~~</div>~~
	~~</div>~~		==References==
	==~~Notes~~==		<references />
	<references />~~<br>~~
	~~'''~~Further reading~~'''<br>~~		==Further reading==
	Aslund, A. 2014. ‘Oligarchs, Corruption, and European Integration’, Journal of Democracy,		Aslund, A. 2014. ‘Oligarchs, Corruption, and European Integration’, Journal of Democracy,
	25, 3.<br>		25, 3.<br>
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	Zaostrovtsev, A. 2013 ‘Russia: An Oprechnik Economy,’ Open Democracy, 9 January 2013,		Zaostrovtsev, A. 2013 ‘Russia: An Oprechnik Economy,’ Open Democracy, 9 January 2013,
	https://www.opendemocracy.net/od-russia/andrei-zaostrovtsev/russia-oprichnik-economy		https://www.opendemocracy.net/od-russia/andrei-zaostrovtsev/russia-oprichnik-economy

	~~[[Category:Entry]]~~
	~~[[Category:Russia]]~~

Admin at 14:45, 27 February 2019

2019-02-27T14:45:24Z

← Older revision		Revision as of 14:45, 27 February 2019
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	''Reiderstvo'' dates back to the late Soviet era when organised crime groups exacted		''Reiderstvo'' dates back to the late Soviet era when organised crime groups exacted
	‘protection money’ from bazaar (marketplace) traders (this process is referred to in Russian		‘protection money’ from bazaar (marketplace) traders (this process is referred to in Russian
	as ''krysha'', which means roof). Not only did this provide safeguards against business rivals		as [[krysha]], which means roof). Not only did this provide safeguards against business rivals
	and competing criminal groups, but a ''krysha'' could also be used to attack a competitor’s		and competing criminal groups, but a ''krysha'' could also be used to attack a competitor’s
	business<ref name="roj">Rojansky, M. 2014. ‘Corporate Raiding in Ukraine: Causes, Methods and Consequences’,		business<ref name="roj">Rojansky, M. 2014. ‘Corporate Raiding in Ukraine: Causes, Methods and Consequences’,

Admin at 13:02, 3 July 2018

2018-07-03T13:02:45Z

← Older revision		Revision as of 13:02, 3 July 2018
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	Zaostrovtsev, A. 2013 ‘Russia: An Oprechnik Economy,’ Open Democracy, 9 January 2013,		Zaostrovtsev, A. 2013 ‘Russia: An Oprechnik Economy,’ Open Democracy, 9 January 2013,
	https://www.opendemocracy.net/od-russia/andrei-zaostrovtsev/russia-oprichnik-economy		https://www.opendemocracy.net/od-russia/andrei-zaostrovtsev/russia-oprichnik-economy

			[[Category:Entry]]
			[[Category:Russia]]

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2018-05-29T13:20:23Z

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{{infobox
| nameofpractice = Reiderstvo
| location = Russia
| imagemap = Russia map.png
| imageflag = Russia flag.png
| authorofpiece = Michal Mesquita
| authorinstitution = West Sands Advisory Limited
}}

'''''Original text: Michael Mesquita, West Sands Advisory Limited'''''

<div class="toccolours mw-collapsible mw-collapsed">
The Russian word ''reiderstvo'', derived from the English term ‘corporate raiding’, is an attempt
by an investor or group of investors to purchase a majority or significant minority stake in a
publicly-traded or privately held company. Once a raider acquires a controlling interest, they
may replace the current management team or implement cost saving measures in an attempt
to increase the company’s overall share value<ref>Salinger, L. 2013. Encyclopaedia of White-Collar and Corporate Crime, Second Edition (Los
Angeles: Sage Publications).</ref>. Unlike corporate raiding in the
West, ''reiderstvo'' is designed for short-term gain rather than long-term investment, often for
the purpose of stripping the business of its assets. The acquisition of the company may be
technically in accordance with the law, but the methods by which the transfer is achieved are
often semi-legal or outright illegal, including the use of physical force or corrupt collusion
with state institutions.

<div class="mw-collapsible-content">
Much of the research on ''reiderstvo'' focuses primarily on Russia and Ukraine;
however, this tactic with its various forms can be found in other post-Soviet countries,
including Uzbekistan, Kyrgyzstan, and Kazakhstan. While the practice may vary slightly by
country, common characteristics of ''reiderstvo'' include fraud, blackmail, manipulation or
distortion of the law, and actual or threatened physical violence. ''Reiderstvo'' is the result of
uncertainty stemming from the privatisation of formerly state-owned industries, corrupt
officials, poor corporate governance, and an insufficient criminal code<ref>Firestone, T. 2008. ‘Criminal Corporate Raiding in Russia’, The International Lawyer, 42, 4.</ref>. The
practice threatens both foreign investors and domestic business owners and undermines the
development of market economies.

''Reiderstvo'' dates back to the late Soviet era when organised crime groups exacted
‘protection money’ from bazaar (marketplace) traders (this process is referred to in Russian
as ''krysha'', which means roof). Not only did this provide safeguards against business rivals
and competing criminal groups, but a ''krysha'' could also be used to attack a competitor’s
business<ref name="roj">Rojansky, M. 2014. ‘Corporate Raiding in Ukraine: Causes, Methods and Consequences’,
Demokratizatsiya: The Journal of Post-Soviet Democratization, 22, 3.</ref>. Following the collapse of the Soviet Union and subsequent
privatisations, raider tactics shifted from small-scale protection and confiscation of minor
assets to large-scale theft and seizure of state property. For instance, ‘black’ or ‘bandit’
raiding explicitly involved illegal activity and the use of force or intimidation whereby
organised criminal groups would send armed men to the premises of a business to physically
remove assets including cash, computers and machinery<ref name="roj" />.

By the late 1990s, raiding had evolved from the use of force to more sophisticated
methods of coercion, including the manipulation of legal and political institutions. Although
the use of force could still be present, it was commonly applied in conjunction with a variety
of legal and administrative tools and was often used to facilitate or expedite a judicial ruling.
Additionally, criminal figures no longer held a monopoly on force; private entrepreneurs and
government officials actively participated in ''reiderstvo'' with the assistance of a vast network
of judges, law enforcement, lawyers, accountants, journalists and others<ref>Viktorov, I. 2013. ‘Corporate Raiding in Post-Soviet Russia’, Baltic Worlds, 2: 4-8,
http://balticworlds.com/in-post-soviet-russia/</ref>.
One of the more profound changes that precipitated the evolution of ''reiderstvo'' was the active
assistance of regional and federal agencies. Such connections (through informal networks of
influence or bribery) grant access to the security services, customs, courts and regulatory
agencies, which can be manipulated to acquire, for instance, corporate documents or
favourable judgments. For example, raiders across the former Soviet Union commonly
employ their connections to tax officials to open investigations into target companies, which
can be used to initiate a state or private takeover. Indeed, the use of the state apparatus plays
such a significant role in corporate raiding that the consensus among academics is that it is
nearly impossible to conduct a raid without government assistance<ref>Rochlitz, M. 2014. ‘Corporate Raiding and the Role of the State in Russia’, Post-Soviet
Affairs, 30, 2-3.</ref>.

The tactic of corporate or minority shareholder attacks is an attempt to seize a
business from within, typically through the manipulation of shareholder rights. In this case, a
raider buys out a minority shareholder (possibly through bribery or intimidation) to acquire a
small stake in a target company. As a shareholder, a raider gains access to company registers
that can then be manipulated or used to investigate any weakness in the company’s legal
status (questionable privatisation deals, licence discrepancies, etc.). If discovered, the raider
files a criminal case, which may lead to bankruptcy proceedings or a business crisis as
described above. Another tactic is the continual acquisition of minority shares to influence
board decisions. Once a raider is in this position, they may convene a shareholders’ meeting
but systematically exclude other shareholders. This can be achieved by holding the meeting
in a remote location, or simply by arranging the meeting at short notice. Once a meeting is
convened the raider can replace the Board with more favourable allies, or sell off the
company’s assets to third parties (often affiliated with the raider). A shareholders’ meeting
may also provide opportunities to issue more shares (sold to the raider or an affiliated party),
effectively diluting the voting rights of other shareholders.

In the ‘extortion’ scenario, a raider or affiliated party disguised as an investor
approaches a company, suggesting a new business partnership. If the company refuses, the
raider leverages contacts in state agencies to apply pressure on the company by increasing the
cost of doing businesses (such as fines, arbitrary investigations, environmental violations,
etc.). The company is then compelled to sell a stake in the company for the attacks to stop.
This process is repeated until it becomes too costly for the company to continue; thus it is
forced to sell to the raider. Extortion may also be used to guarantee the target company
receives the necessary state licences or government contracts to operate. Uzbek President
Islam Karimov’s daughter, Gulnara, who allegedly received bribes from Russian and Finnish
telecoms companies, reportedly used this practice to exact bribes and increase her stake in the
local telecoms market<ref>Patrucic, M. 2015. ‘Uzbekistan: How The President’s Daughter Controlled The Telecom
Industry’, Organized Crime and Corruption Reporting Project (OCCRP) 21 March,
https://www.occrp.org/corruptistan/uzbekistan/gulnara_karimova/the-prodigal-daughter/how-
the-presidents-daughter-controlled-the-telecom-industry.php</ref>.

Courts play an integral role in the raiding process and are commonly used to
legitimise forged documents, freeze company assets and accounts, or sanction the use of
private security forces (owned by the raider) to enforce court orders. Legal systems across the
former Soviet Union tend to suffer from institutional weakness and are highly susceptible to
corruption and elite interests. This provides opportunities for raiders to manipulate the courts
and use litigation schemes to take control of companies. Judges may be bribed or directed to
rule on false criminal charges against the management or owners of a target company (see
also entry on [[Telefonnoe_pravo|telefonnoe pravo]] (‘telephone justice’) in this volume). The victim is then
arrested, but can buy their freedom by selling the company at a reduced price. Alternatively, a
raider may employ the ‘shareholder scheme’ to seize company assets while the victim is in
custody. According to the Moscow-based NGO Liberal Mission Foundation (Open Democracy 2013), between 2000 and 2010 over 15 per cent of all Russian business entities
were subject to groundless criminal proceedings, of which over 100,000 resulted in
convictions.

While intimidation and violence has decreased in the past 10 to 15 years, corporate
raiders may still hire private security firms to seize a company building or headquarters based
on an injunction that has been granted by a bribed judicial figure. While any corporate raid is
usually reliant on the support of a legal or political actor, intimidation is still used to facilitate
or expedite the process. A recent public instance of hiring armed men to seize company
property was the case of Ukrainian oligarch and former Mayor of Dnepropetrovsk, Ihor
Kolomoysky, in March 2015. Following the passing of legislation that limited his influence
over state oil company UkrTransNafta, Kolomoysky, who owned a minority stake in the
company, hired a militia to raid the property. The raid, however, was unsuccessful;
Kolomoysky was unable to exert greater influence over the company and lost his position in
Dnepropetrovsk shortly after. Nonetheless, the event highlights how intimidation can still be
a useful tool for corporate raiding.
</div>
</div>
==Notes==
<references /><br>
'''Further reading'''<br>
Aslund, A. 2014. ‘Oligarchs, Corruption, and European Integration’, Journal of Democracy,
25, 3.<br>
Balmforth, R. 2015. ‘Ukrainian oligarch under fire after night raid on state oil firm’, Reuters,
20 March, http://www.reuters.com/article/2015/03/20/us-ukraine-crisis-kolomoisky-
idUSKBN0MG2A320150320<br>
Demidova, E. 2007. ‘Hostile Takeovers and Defenses Against Them in Russia’, Problems of
Economic Transition, 50, 5.<br>
Gans-Morse, J. 2012. ‘Threats to Property Rights in Russia: From Private Coercion to State
Aggression’, Post-Soviet Affairs, 28,3.<br>
Hanson, Philip. 2014. ‘Reiderstvo: Asset-Grabbing in Russia’, Chatham House and
University of Birmingham,
https://www.chathamhouse.org/sites/files/chathamhouse/home/chatham/public_html/sites/def
ault/files/20140300AssetGrabbingRussiaHanson1.pdf<br>
Ledeneva, Alena. 2013. Can Russia Modernise? Sistema, Power Networks and Informal
Governance (Cambridge: Cambridge University Press).<br>
Moscow Times. 2010. ‘Yevroset Planning for IPO Next Year’, 12 November,
http://www.themoscowtimes.com/business/article/tmt/422383.html<br>
Osipian, A. 2011. ‘Corporate Raiding Russian Style: Hostile Takeovers via Corruption and
Fraud’. Paper presented at the Annual Conference of the American Political Science
Association (APSA), Washington, DC, in September 2010.<br>
Zaostrovtsev, A. 2013 ‘Russia: An Oprechnik Economy,’ Open Democracy, 9 January 2013,
https://www.opendemocracy.net/od-russia/andrei-zaostrovtsev/russia-oprichnik-economy