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RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #2716/01 2541305
ZNR UUUUU ZZH
R 101305Z SEP 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 9922
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 MOSCOW 002716 
 
STATE FOR EUR/RUS 
 
DOJ FOR OPDAT/LEHMANN, NEWCOMBE AND ALEXANDRE, OIA FOR BURKE, OCRS 
FOR OHR AND OTT 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PHUM PREL RS KCRM KJUS SNAR
SUBJECT: ATTACK OF THE ANTI-RAIDERS 
 
THIS CABLE IS SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET 
DISTRIBUTION 
 
REFTEL: MOSCOW 01349 
 
¶1. (SBU) Summary:  Corporate raiding, the takeover of businesses by 
criminal means, is a plague on the Russian economy (REFTEL A) and 
combating it must be a central part of any anti-corruption program. 
Last week, the National Anti-Corruption Committee (NACC), an NGO 
which has been tasked by the government with drafting anti-raiding 
legislation, released its report and proposals.  At the same time, 
the Ministry of Internal Affairs (MVD) also presented its own 
anti-raiding proposals.  Upon scrutiny, both sets of proposals 
appear to be poorly drafted and would likely do little to eliminate 
raiding.  It is not clear if this poor drafting is the product of a 
well intentioned but misguided effort or a deliberate attempt to 
protect the interests of raiders. End Summary. 
 
---- 
NACC 
---- 
 
¶2. (SBU) On September 4, the National Anti-Corruption Committee 
(NACC) (which is, despite its official sounding name, an NGO) held a 
press conference to unveil its recent study of raiding and its 
proposals to address the problem.  According to the NACCQs Chairman, 
Kirill Kabanov, the CommitteeQs study was prepared at the request of 
President Medvedev and in conjunction with the Phoenix Group (a 
private consulting group), Transparency International, and the 
QAgency for Anti-Crisis Technologies and Investments.Q The 
CommitteeQs report, Kabanov said, is based on a survey of over 100 
businesses. 
 
¶3. (SBU) Many of the CommitteeQs findings were familiar and have 
been reported widely both in the press and by us.  (REFTEL A).  For 
example, the CommitteeQs report details a variety of common raiding 
schemes, most of which involve the falsification of internal 
corporate documents to seize control of a company or its assets, 
followed by the rapid transfer of the stolen property to an 
ostensible good faith purchaser from whom it cannot be recovered. 
The CommitteeQs study also echoed other reports to the effect that 
Russia has developed a class of professional raiders who, for set 
fees, can help companies illegally acquire target companies.  For 
example, according to the report, changing a target companyQs 
incorporation documents costs $10,000, opening a criminal case costs 
$30,000, closing a criminal case costs $50,000, and obtaining a 
needed judicial decision costs $35,000. 
 
¶4. (SBU) Not surprisingly, the Committee identified official 
corruption as one of the main causes of raiding and concluded that 
corruption and raiding are inextricably intertwined and cannot be 
dealt with independently.  At the press conference, Kabanov 
criticized the government for requesting separate reports on 
corruption and raiding and said that this indicates a lack of 
understanding of both problems.  Kabanov also said that official 
government organs have become more deeply involved in raiding 
recently and noted a dangerous alliance between the FSB and MVD. 
The CommitteeQs report also set forth in detail the different roles 
played by corrupt government agencies in raiding schemes. 
 
¶5. (SBU) Kabanov also noted the rise, in recent years, of 
Qmerchandise raiding,Q which is generally understood to refer to the 
seizure by law enforcement of consumer items followed by the re-sale 
of those items on the black market.  As an example, he pointed to 
the notorious 2006 Motorola case in which MVD officials seized 
167,000 Motorola phones on the pretext that they created a potential 
Qhealth riskQ to users. (Note: Embassy intervention helped to secure 
the return of some of the phones.  However, some of the phones were 
subsequently found in local markets where they were being offered 
for sale. End Note.) 
 
¶6. (SBU) In addition to this familiar territory, the Committee also 
focused on other causes of raiding which have been less widely 
discussed.  For example, Svetlana Vasina of the Phoenix Group 
pointed to the weak legal protection of minority shareholders 
rights and abuse of those rights by majority shareholders. 
Reflecting this viewpoint, the CommitteeQs report at one point even 
appears to justify raiding by minority shareholders, stating that 
they are often left with no choice but to turn to raiders after 
discovering that they have been defrauded by majority shareholders. 
 
 
¶7. (SBU) Elena Panfilova of Transparency International said that 
Russian corporate governance, despite being the subject of massive 
attention and assistance efforts in the late 1990Qs and early part 
of this century, still does not meet world standards, a factor which 
 
MOSCOW 00002716  002 OF 003 
 
 
facilitates raiding.  Almost every company, she said, has engaged in 
at least minor defalcations at some point.  Raiders use these 
violations as a way to initiate regulatory inspections or criminal 
investigations of target businesses.  Through these investigations, 
they obtain compromising and confidential information about the 
subject business, which they use in the raid.  Therefore, she and 
other members of the Committee, argued, companies must clean up 
their own acts in order to avoid being targeted by raiders. 
Panfilova and Vasina also said that the unreliability and corruption 
of the civil justice system forces aggrieved parties to turn to 
criminals to resolve ordinary business disputes. 
 
 
¶8. (SBU) The Committee noted another allegedly negative trend 
unjustified accusations of raiding.  Kabanov and Vasina both said 
that businessmen are now quick to attack legitimate competitors as 
QraidersQ in order to discredit them and said that corporate 
directors and majority shareholders raise the spectre of raiding in 
order to refuse  legitimate disclosure requests by minority 
shareholders.  They also expressed concern that new anti-raiding 
legislation would be used by businessmen to simply Qsettle scores 
among themselves. 
 
¶9. (SBU) The CommitteeQs report concludes that law enforcement lacks 
the tools needed to combat raiding, including a legal definition of 
raiding and a specific Criminal Code article addressing it. 
Therefore,  the Committee proposes the introduction of a new article 
in the Criminal Code defining raiding as Qacts designed to give a 
legitimate appearance to the illegal (accomplished through illegal 
means) transfer to the actor or a third party of property rights, 
rights to the results of intellectual activity, and also rights to 
individualization (of intellectual rights) as well as, the illegal 
acquisition of the right to carry out managerial functions in a 
commercial or other organizationQ and making it punishable by up to 
6 years incarceration (assuming no aggravating circumstances). 
 
----------------- 
SILOVIKI PROPOSAL 
----------------- 
 
¶10. (SBU) The day before the Committee unveiled its report, the 
MVDQs Investigative Committee presented its own set of anti-raiding 
recommendations. These proposals appear similar to a proposal 
drafted by Duma Deputy Gennady Gudkov of the Security Committee and 
introduced in the Duma in March by Gudkov and two other Deputies, 
Andrei Lugovoi and Aleksander Khinshteyn.  According to reports (we 
have not yet been able to obtain the original text), the Gudkov/MVD 
legislation would also introduce a new article in the Criminal Code 
on raiding, defined as the Qcommission of a crime connected with the 
illegal acquisition of the right of ownership, and/or use, and/or 
management of the shares of participants in a legal entity in the 
foundational capital of a legal entity and/or voting shares of a 
stock company.Q  In addition to this stand-alone article, it would 
also make raiding an aggravating circumstance for certain other 
crimes. For example, falsification of documents committed as part of 
a raiding scheme would carry a maximum penalty of 20 years 
incarceration (currently falsification carries a maximum of only 
four months). 
 
-------------------------------- 
ANALYSIS OF PROPOSED LEGISLATION 
-------------------------------- 
 
¶11. (SBU) Both the NACC and Gudkov proposals appear inadequate. The 
NACCQs proposed definition of raiding appears to be focused 
exclusively on the laundering aspects of raiding (i.e., the process 
of making illegally acquired assets appear legitimate) while failing 
to address the illegal acquisition in the first place.  Moreover, 
the wording of the definition is so convoluted that it is hard to 
imagine how it could be used in practice.  Finally, the proposed 
penalties (up to 6 years incarceration without aggravating 
circumstances) are insufficient and roughly equivalent to the 
penalties provided for by the anti-fraud articles of the Criminal 
Code that are currently used as a stopgap to prosecute raiding. 
 
 
¶12. (SBU) The NACCQs recommendations also fail to address other key 
aspects of raiding such as falsification of documents and criminal 
prosecutions that have been illegally bought and paid for.  When 
asked about these issues at the press conference, Committee members 
explained that they were concerned that anti-raiding legislation 
could be easily misused by aggrieved businessmen to Qsettle scores 
and therefore were reluctant to support too much anti-raiding 
legislation, especially legislation carrying severe penalties. 
 
 
 
MOSCOW 00002716  003 OF 003 
 
 
¶13. (SBU) Although, in contrast to the NACCQs proposal, the 
Gudkov/MVD definition appears appropriately focused on the 
acquisition, rather than laundering, aspect of raiding, it too 
appears unworkable in practice. For example, it simply refers to 
Qcrimes connected with the illegal acquisition of property,Q without 
defining the crimes or defining what makes acquisition of property 
illegal in the first place. (By contrast, the U.S. RICO law 
criminalizes acquiring a business through a Qpattern of racketeering 
activity,Q which is defined as the commission of two or more 
specified predicate crimes within a ten year period.) 
 
------------------------------ 
IS THE FOX GUARDING THE HENS ? 
------------------------------ 
 
¶14. (SBU) It is not clear what is behind the apparently poor quality 
of these proposals.  One concern is the possible role of alleged 
raiders in preparing them. The Duma proposal was apparently prepared 
primarily by Gudkov, while the NACC Report identifies one of its 
authors as G.A. Shantin, a Senior Investigator with the MVD 
Investigative Committee. Both Gudkov and Shantin have themselves 
been accused of raiding.  For example, former Duma Deputy Maksim 
Vasiliev has recently accused Shantin and Gudkov of conspiring to 
fabricate a criminal case against him in order to help raiders steal 
several of his businesses.  Vasiliev specifically alleges that 
Gudkov wrote an official DeputyQs request (deputatstkii zapros) to 
MVD Minister Nurgaliev demanding that a criminal case be opened 
against him (an allegation that Gudkov does not deny) and that 
Shantin then conducted the investigation in a corrupt manner, 
culminating with the fabrication of criminal charges. 
 
¶15. (SBU) VasilievQs claims appear to have some basis. Our 
monitoring of his prosecution (which has included observation of the 
trial in Basmanny District Court and conversations with both his 
lawyers and one witness) causes concern.  For example, four of the 
MVD officers involved in the investigation were themselves 
criminally prosecuted for violations committed during the 
investigation. Moreover, the charges against Vasiliev appear to be 
little more than allegations of civil breach of contract and his 
pre-trial detention, which has lasted for over a year, appears to be 
based on testimony coerced from his father that Vasiliev was 
attempting to flee by attending a baptism in a monastery while 
police were looking for him. 
 
¶16. (SBU) Furthermore, the fact that GudkovQs legislative 
co-sponsors, Lugovoi and Khinshteyn, are themselves the subjects of 
considerable suspicion is troubling.  Lugovoi has been charged by 
British authorities with the 2006 poisoning murder of Aleksander 
Litvinenko and contacts tell us that Khinshteyn, a journalist, is 
notorious for publishing defamatory articles for money. 
 
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COMMENT 
------- 
 
¶17. (SBU) Of course, the shady reputations of a lawQs authors do not 
alone provide a basis for condemning the law.  However, when 
combined with the NACCQs statements appearing to justify raiding 
tactics by minority shareholders, the NACCQs stated concerns that 
penalties for raiding not be too harsh, and the fact that the 
legislation appears to have been drafted in a way that would make it 
unusable, there appears to be a basis for concern that some involved 
in the drafting process may be attempting to influence it for 
corrupt ends. 
 
BEYRLE