But Berezovsky far from being the only loser. Russian business has suffered another damaging assault on its reputation. By shining a light on the ugly inner workings of Russian capitalism in the 1990s, the trial will serve as a warning to investors doing deals with oligarchs – beware of the past it may come back and bite you.
Judge Elizabeth Gloster on Friday rejected Berezovsky’s claims that Abramovich had intimidated him into selling a big stake in the Sibneft oil company at a knock-down price. She threw out his claims of breach of trust and breach of contract and rejected his demands for $6.5bn compensation.
She accepted Abramovich’s argument that a final payment of $1.3bn he made to Berezovsky in 2002 was not money for Berezovsky’s Sibnet stake but a payment for krysha – political protection provided by Berezovsky.In a limited sense, the verdict is positive for investment in Russia because it confirms the status quo. The man who came out on top a decade ago stays on top. Abramovich’s present and future partners do not need to fear that their man will suddenly have to foot a $6.5bn bill. Berezovsky’s partners will be no worse off than they were before the trial, except that their man will presumably have to pay costs estimated at £100m.
The judge said she found “Abramovich to be a truthful, and on the whole reliable, witness,” whereas “Mr Berezovsky’s evidence frequently could not be relied upon”. Investors working with Abramovich can draw comfort from that. Those dealing with Berezovsky would be rash to ignore the judge’s words. From the point of Russia Inc, the balance here is positive since Abramovich still has huge investments in Russia, notably his stake in Evraz, the country’s largest steel group. Berezovsky, who fled Russia in 2000, is a marginal player, a man wanted on fraud charges.
However, from a wider perspective, the well-publicised trial harms Russia’s reputation as a place to do business. First, the fact that the two men came to London to settle their grievances speaks volumes for the miserable image of Russian justice. Their case will be followed by others in London, including the dispute between aluminium billionaire Oleg Deripaska and businessman Michael Cherney, who claims to have been a former partner of Deripaska. What sort of example is this to foreign businessmen in Russia left to the tender mercies of the Russian courts?
Next, the washing in public of so much dirty linen exposes the shadowy foundations on which much of Russian business is built. Those billionaires who grew rich by grabbing assets in the country’s murky privatisations frequently tried to secure political protection in the way Abramovich said he did from Berezovsky.
Oral agreements were the order of the day at a time when Russian law was, to put it mildly, left behind by commercial reality. Threats were common; violence hardly unknown. Promises were often made to be broken.
Today, the businessmen who emerged rich from those times are formalising and regularising their fortunes with lorry loads of paperwork, often devised by British lawyers only too happy to assist. And that is to the good: for Russia to prosper, its businesses need to operate within clear, transparent and well-documented structures.
However, the shadows of the 1990s won’t go away. The winning oligarchs aren’t always willing – or able – to put down in writing their business past. There are secrets that they want to keep. Meanwhile, the losers won’t give up, as Berezovsky and Cherney have proved.
Finally, and most importantly, there is the state and the rule of law in Russia. President Vladimir Putin has shown himself ready to pursue political enemies by resorting to the courts and dragging out of files with evidence of alleged wrong-doing from the 1990s. The legal assault on Mikhail Khodorkovsky, the former head of the Yukos oil group, who was arrested in 2003 and jailed for fraud is the most notable example.In this way, Putin has a hold on most of Russia’s rich men, certainly those who made money from privatisation. Because the laws were unclear, almost any transfer of state assets can be presented as an infringement. So can subsequent deals between oligarchs, especially if they were based on oral agreements.
Even more fundamentally, the authorities can rely on Russia’s weak property laws. The wealthy know that their ownership rights can very easily be undermined by officials questioning the basis on which they were acquired. All this is particularly true in natural resources, which many Russians believe belong not to their nominal owners but to the country as a whole.
In a nutshell, the 1990s won’t go away partly because it serves Putin to keep them alive. Russia could pass laws granting a general amnesty for alleged offences related to privatisation, except, perhaps, crimes of violence. That would not prevent Berezovsky and other disgruntled losers from resorting to the London courts. But it would help create the impression that Russia as a whole has moved on: the disputes of the past would then have far less impact on the country’s reputation than the Abramovich-Berezovsky case has today.
Related reading:
Rusal: another falling out of oligarchs, beyondbrics
Oligarchs pick London to do battle, FT
