Opinion: Corrupt Russian image stops business making a killing

In the past few weeks we have seen the former mayor of Moscow Yuri Luzhkov sacked by President Medvedev in the wake of allegations of wrongdoing. We have heard criticisms that raids on the bank controlled by media magnate Alexander Lebedev were politically motivated. We have also read the impassioned pleas of former Yukos oil magnate Mikhail ­Khodorovsky that his latest trial has little to do with alleged misdemeanours and is more a struggle for the soul of the Russian Federation as it battles corruption. He apparently told the judge presiding in his case: “You’re deciding the fate of more than two people - the fate of every citizen in our country is at stake.”

Memories of the Yukos affair do little to reassure international investors, while TNK-BP and Sibir Energy serve as further cautionary tales. Yet investor appetite seems undimmed. On 5 November
shares in Russia’s Mail.ru jumped by more than 30 per cent after the internet company’s London listing.

So why, in spite of recent history, the confidence? A number of factors are in play. First, investors obviously feel the business in question is a good bet. Second, they probably also realise that they have little choice but to look abroad in the search for value. As an economy of enormous potential, Russia simply cannot be ignored.

There is probably also an increasing appreciation that things in Russia are not always as they seem. Let’s not be naive: crying corruption is an easy way for ­parties to draw attention to their plight and embarrass the authorities. Sometimes it is legitimate, other times not.

An increasing body of evidence suggests that the authorities in Russia are ­beginning to appreciate the damage that events of the past have had on the ­country’s reputation and attractiveness
for investment. The government knows that potential alone won’t be enough to attract investors - the country to compete against the likes of Brazil and China as established economies clamber out of recession.

So improving Russia’s record and reputation on corruption has become a commercial imperative. For this reason it was pleasing to hear that last week the Russian minister of justice Alexander Konovalov was expected to visit the UK. During this time it is understood he was likely to meet Lord Chancellor Kenneth Clarke as part of a ministerial visit.

His visit coincided with Anglo-Russian Law Week, a five-day event organised by the Anglo-Russian Law Association, with input from the UK Ministry of Justice. The main purpose of the week was to nurture understanding of developments in the Russian legal system and promote trust and cooperation in the global fight against corruption. English Law Week, to be held in Russia, is planned
for 2011.

As part of the initiative McGrigors hosted a seminar with representatives from the SFO and its approximate ­counterpart from the Russian General Prosecutor’s Office. The discussion ­included an overview of available ­mechanisms for combating corruption in Anglo-Russian commerce.

Underlying this is a theme that rings true for the UK in its relations with all emerging economies: the Bribery Act will not stamp out global corruption, although it is a step in the right direction.

ritical to its success will be the ability of the likes of the Securities and Exchange Commission and the SFO to influence their ­counterparts in emerging markets and assist them in presenting the commercial case for greater enforcement of anti-­corruption laws.