(For release Sunday, Feb. 17)
U.S. BUSINESSES SAY THEY ARE VICTIMS OF RUSSIAN OLD BOY NETWORK
(For use by New York Times News Service clients.)
By STEWART M. POWELL
c.2003 Hearst Newspapers
WASHINGTON _ Arizona businessman Bill Davies learned about the Soviet-era old-boy network when machine-gun wielding police officers seized his remote salmon fishing retreat on Russia's Kola Peninsula and turned it over to a rival sport-fishing company favored by local authorities.
Seattle businessman Henri Bardon knew he'd been taken when his Russian business partners defied a court order in the middle of their dispute and sold most of their grain-processing operation's assets to a Russian company with ties to authorities in Vladivostok.
And businessman Gary Johnson, of Eastlake, Ohio, says his promising electronics crystal business _ Sawyer Research Products _ ran afoul of the federal prosecutor in Vladimir simply because a favored Russian company wanted the business that Johnson had built.
These and other American business entrepreneurs say they have lost tens of millions of dollars in Russia's no-holds-barred free enterprise system because of local official corruption, judicial manipulation, defiance of court rulings and a willingness to sidestep the law.
They want President Bush to pressure the Russian government to deal with these problems.
Many of the U.S. executives have seen their well-connected Russian counterparts or local Russian officials simply ignore hard-won compensation awards ordered by Russian courts or international arbitration tribunals, such as the 86-year-old, Stockholm-based Arbitration Institute.
American-owned small businesses ``are sitting ducks in Russia,'' says Joan Borsten, president of Los Angeles-based Films By Jove, a film and distribution company. Borsten says her firm's international distribution rights for Soviet-era animated films were simply reassigned to a government-owned entity.
``If somebody decides he wants what you have, he can manipulate the system and get it,'' she laments.
Local Russian officials not only intervene in commercial deals but try to make examples out of U.S. enterprises that defy their demands, says Johnson.
``We stood up to them,'' says Johnson, who invested $8 million in his operation in Russia to grow quartz crystals used in electronic devices. ``The local government then tried to get rid of us to teach foreign investors the lesson that you can't operate in Russia unless you do it their way.''
As many as 25 American small businesses in Russia have seen their enterprises ambushed by local Russian authorities, say Borsten and Johnson, co-chairs of a U.S.-Russia Business Council effort to remedy the problem. The biggest problems appear to take place far from Moscow in regions where powerful local leaders still operate with the heavy hand of the Soviet era.
The business leaders complain that, because their U.S. companies usually have small stakes in Russia amounting to less than $10 million, their plight often gets overlooked in Washington and Moscow where officials often work to resolve disputes in multibillion dollar deals. Americans have $4 billion in direct investments in Russia.
``We have obtained compensation awards from courts but we have failed to obtain even one cent of our awards in Russia,'' says Bardon, head of the Euro-Asian Investment Holding Inc., that has won $3.7 million in court-ordered compensation from its former Russian business partners for selling off court-frozen assets.
The business leaders, who praised efforts by U.S. Ambassador Alexander Vershbow to help them, urged the Bush administration and Congress last week to ask Russian President Vladimir Putin to help. ``We want something between a snowball fight and trade sanctions,'' says Davies, of Tempe, Ariz., an 18-year veteran of business operations in Russia, who says he awaits payment of $1 million in court-ordered compensation for his lost fishing operation.
The American executives say they want the Bush administration to warn the Kremlin that Russia will have trouble joining the World Trade Organization unless authorities in Moscow force local officials and business executives to honor commercial law and international compensation awards.
U.S. Commerce Secretary Donald Evans formally designated the $1.2-trillion-a-year Russian economy to be a market economy last June, a move that clears the way for more favorable trade arrangements.
``In our view, it will take presidential involvement on both sides to resolve these disputes,'' says Johnson. ``There are very powerful people in Russia who do not want the rule of law applied to small business.''
The business executives say they have met with officials at the Commerce Department, the State Department, the office of the U.S. Trade Representative, the Small Business Administration and key members of Congress to press their case.
``There are no magic wands,'' says Z. Blake Marshall, executive vice president of the U.S.-Russia Business Council. ``But we come away from these meetings optimistic that officials are rededicated to pushing these issues with the Russians.''
Evans says governments can only do so much. ``No matter what policies we make, no matter what trade barriers we tear down, at the end of the day it's up to the private sector to make it all work,'' Evans says.
Prospective American investors should be very restrained until the Bush administration sends ``a forceful message'' to Russian authorities to resolve long-standing commercial disputes and enforce payment of compensation awards, says Bardon, the Seattle-based businessman.