Foreign Investors Call Calvey Detention Decisive Moment for Russia’s Economic Future

Last week's shocking detention of one of Russia's most renowned and publicly visible American entrepreneurs not only caught fellow foreign investors off guard, it may have prompted a moment of national reckoning about how Moscow handles investor relations, say both Kremlin-aligned and international trade groups.

Baring Vostok founder Michael Calvey's arrest Feb. 14 on charges of fraud stemming from a lengthy legal dispute with Russia's Orient Express Bank sparked widespread speculation about whether the days of unbridled "reiderstvo" — aggressive Kremlin-backed asset raids and corporate takeovers synonymous with Yukos, Russneft, Bashneft, Stolichnaya Vodka and VKontakte — were a thing of the past, or whether, perhaps, Calvey had actually committed a crime.

A recent Moscow court decision to extend Calvey's detention without trial for a minimum of two months on the grounds that his release poses a flight risk, along with news that he's been denied consular access in violation of the 1966 Vienna Convention, doesn't bode well for professionals such as Aleksander Khurudzhi, who has been tasked by the state with rehabilitating Russia's image as a secure place to invest.

'This is a shock'

"From my point of view, what happened is in complete contradiction with statements of a Russian president who, from all rostrums, has expressed the same unchanging viewpoint: that Russia is open for investments and that Russia will do its best to attract and safeguard both Russian and foreign investments," Khurudzhi, deputy ombudsman for the Kremlin office of business ethics, told VOA.

"This is a shock," he added. "It undermines all the work being conducted by the Agency for Strategic Initiatives. All the work that has been done for the last seven to eight years aimed at improving the investment climate. It undermines trust in the system as such … (and our entire) team isn't sleeping at night. Without any exaggeration, the work is being carried out for 24 hours. This is a challenge for all of us, for our whole team."

Russian President Vladimir Putin addresses the Federal Assembly, including the State Duma parliamentarians, members of the Federation Council, regional governors and other high-ranking officials, in Moscow, Feb. 20, 2019. VOA

Indeed, during his annual State of the Nation address before Russia's Federal Assembly on Wednesday, President Vladimir Putin, who has been faced with record-low approval ratings, even made a fairly explicit reference to Calvey's detention.

"To achieve … great (economic) objectives, we must get rid of everything that limits the freedom and initiative of enterprise," Putin said. "Honest businesses should not live in fear of being prosecuted of criminal or even administrative punishment."

Putin, who met Calvey multiple times since the American arrived in Russia in the mid-1990s, has said he had no foreknowledge of Calvey's arrest, and that despite his repeated calls to keep commercial disputes and litigation from culminating in spurious charges against foreign investors, he has no direct influence over how Russian courts render their verdicts.

FILE – CEO and co-founder of the investment fund Hermitage Capital Management Bill Browder attends the "Prospects for Russia after Putin" debate in the Houses of Parliament, London on Nov. 18, 2014. VOA

Vocal Kremlin critics, such as Hermitage Capital co-founder Bill Browder, are deeply skeptical of these claims.

"The arrest of Mike Calvey in Moscow should be the final straw that Russia is an entirely corrupt and (uninvestable) country," Browder said in a tweet Friday. "Of all the people I knew in Moscow, Mike played by their rules, kept his head down and never criticized the government."

Browder was denied entry into Russia in 2005 after his lawyer, Sergei Magnitsky, began investigating governmental misconduct and corruption in response to suspicious tax evasion charges brought against Hermitage by Russia's Interior Ministry.

Magnitsky died under suspicious circumstances in Russian custody in 2009.

Seen as a ploy

For someone like Browder, it would seem Putin's claim of political impotence in the face of a fully independent judiciary, despite copious historical evidence to the contrary, is nothing more than a cynical public relations ploy meant to portray Russia as a nation of procedural law, while denying justice and consular access to the very foreigners who fastidiously try to abide it.

Even prominent Putin allies, such as Russia's ex-finance minister Alexei Kudrin, have sounded the alarm, calling Calvey's arrest an "economic emergency."

FILE – Alexis Rodzianko talks to Reuters in Moscow, Sept. 16, 2009.VOA

For U.S. citizen Alexis O. Rodzianko, president of the American Chamber of Commerce in Russia and a longtime Moscow resident, the initial shock of Calvey's detention might, however ironically, reveal a longer-term opportunity to recalibrate Russia's ties with foreign investors.

"Sure, at this point it's damaging. It certainly makes every one of us who were here thinking about, 'Well, you know, how far is it from me to his prison cell?'" he told VOA. "But I think it could be a defining issue for the business climate here. It could be the beginning of a bad streak, or it could be the signal for Russia to actually take some positive action."

Calvey's formal indictment on Thursday, however, speaks more to the former than the latter outcome.

Rodzianko, who's convinced the charges against Calvey are without legal merit, said he's personally convinced the arrest stemmed from "a commercial dispute in the usual sense," and that "people who set it up were not expecting the resonance that it (has) received."

Asked if he thought Calvey's arrest could be in any way politically motivated, he said he was convinced it was not.

"But then I think, in the circumstances, it can't but be political, just because of the current state of affairs, because of the current state of relations," Rodzianko said. "It's just too easy to make that connection, which I don't think is a proper connection, but I don't see how it can be avoided.

Two possible outcomes

"I think it's a symptom of a problem that Russia has, and Russia has to deal with," he added. "It could (have one of) two outcomes."

One, he said, is that Calvey's arrest will come to signify a continuation of a malevolently corrupt practice that Russian and foreign investors have come to "face on an endemic basis."

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Or, "it might actually be a mistake which leads to significant reform, which might improve the situation for both foreigners and Russians investing in Russia," Rodzianko said.

A spokeswoman for the Moscow district court said that Calvey, who was detained along with other members of the firm on suspicion of stealing $37.5 million (2.5 billion rubles), faces up to 10 years in prison if convicted. (VOA)