Kremlin Tightens Screws on Corporate Raiders
Kremlin-drafted legislation aimed against Russian-style corporate raiders — unscrupulous businesspeople who seize property through dubious registrations and share emissions — will come up for a first reading in the State Duma on Friday.
But the legislation, which introduces harsh penalties for raiders, might also backfire and hurt rightful shareholders because of deep-rooted corruption, legal experts said Thursday.
President Dmitry Medvedev called raiding an "illness that went into metastasis" in late 2008 and has made it a key plank in his anti-corruption drive. "This outrage should be ended," he said in late February, about a month before submitting the legislation to the Duma.
The bill will amend the Criminal Code by adding Article 170, which introduces punishment of up to seven years in prison for falsifying state registration documents. The bill will also amend Article 185 on abuses during share emissions to add prison terms of two to five years for falsifying shareholder information or results of a shareholders meeting.
Existing laws do not adequately address raider crimes, making it possible to prosecute raiders only "in the final stages of a corporate seizure," says an explanatory note attached to the bill.
Lawyers disagreed, however, about the need for the legislation.
"What needs improvement is not the law but law enforcement," said Dmitry Stepanov, a partner in the law firm Egorov, Puginsky, Afanasiev & Partners.
"Raiding today is rooted in corruption, in bias among officials and some judges," he said. "Most of the raiders can be prosecuted using two or three existing articles, such as forgery or embezzlement. Additional articles are not needed."
He said the proposed legislation could work for the raiders as well as against them.
Corporate raiding in its golden years regularly involved masked goons wielding baseball bats and gave rise to many of the current fortunes.
Modern raiding tactics are different, using "ever more refined schemes," Duma Speaker Boris Gryzlov told reporters Thursday. "This situation exists, and it must be combated."
Audit Chamber head Sergei Stepashin estimated last year that there are 40,000 raiding cases every year in Russia for various types of assets. A total of 53 cases were investigated in 2009, Medvedev said, citing Interior Ministry statistics, at an April meeting of his anti-corruption council.
With the recession-hit economy, raiding has become less of a problem, said Andrei Zaikov, deputy editor for Mergers & Acquisitions magazine. "As assets fell in price, it became easier to buy them rather than seize them in a raid," he said. "Raiders have less money now, and investment into a corporate raid normally took two to three years to pay for itself."
The bill is "interesting mostly to investigators," Stepanov said.
Last year, a similar anti-raiding bill was considered but not implemented in the Criminal Code.
But Medvedev's support for the newest bill is likely to ensure quick passage without any major changes, Stepanov said.
By Maria Antonova