Friday, October 29, 2010

Antitrust Agency Launches Probe into Moscow Cemeteries

Russia’s Federal Anti-Monopoly Service instituted administrative proceedings related to the leasing of all Moscow cemeteries to a single state-run enterprise “Ritual.” Ritual argues that it is not a monopolist because it does not own the cemetery land but rather rents it from the Moscow government. The annual revenue from funeral services in Moscow is estimated at $200 mln.

Council of Europe Recommends that Russia Reintroduce Governors’ Elections

The Council of Europe Congress of Local and Regional Authorities, held in Strasbourg, adopted a resolution recommending that Russia reintroduce direct elections for regional governors, revoke the recent law concerning the dismissal of mayors, and improve legal safeguards to ensure that local authorities are not subject to excessive supervision by higher-level officials. Russia abolished the direct election of governors in 2004, and in 2009, President Dmitry Medvedev was quoted as stating that the abolishment is not likely to be reversed, “neither now, nor in 100 years.”

Neo-Nazi Murderers Convicted in Moscow

The Moscow City Court sentenced Vasily Krivets and Dmitry Ufimtsev, activists of the so-called National Socialist Society, to life imprisonment and 22 years of imprisonment, respectively. A jury found the defendants guilty of involvement in numerous ethnically motivated murders. The defendants had been charged with murdering nationals of Uzbekistan, Tajikistan, Azerbaijan, Turkey, and Russia. The defendants also murdered a member of their organization, whom they suspected of collaborating with the police, and published a video record of the killing on the Internet.

Thursday, October 28, 2010

Russia Authorizes Organization to Collect Copyright Duties

Rosokhrankultura, the Russian agency responsible for accrediting IP rights management organizations, authorized the Russian Union of Rights Holders (RSP), an organization headed by prominent film director Nikita Mikhalkov, to collect a special levy on manufacturers and importers of recording equipment and blank recordable media. The levy will apparently apply to CD and DVD recorders, computers, and most mobile phones and cameras, as well as recordable disks, hard disks, flash cards, etc. The levy is expected to be about 1% of the value of applicable goods and will likely generate revenue of about $100 mln. The revenue is supposed to be distributed among writers, performers, and producers of music and film, however the law does not specify exactly to whom the proceeds should be distributed and in what proportions. The distribution may be inconsequential, though, as critics say that the bulk of the funds will likely be consumed by the RSP itself. Indeed, the RSP has suggested that it would only distribute 15% of the collected funds to the IP owners with the rest to be accumulated or spent by the RSP.

Criminal Case Initiated in Moscow against “World’s Largest Spammer”

The Moscow police instituted criminal proceedings against entrepreneur Igor Gusev, who is believed by some to be the world’s most prolific spammer. He allegedly sold counterfeit pharmaceuticals, such as India-made generic Viagra, in the U.S., Canada, and other countries, using email spamming as a major marketing tool. The revenue generated by Mr. Gusev's business during the last 3.5 years is believed to be $120 mln. The criminal proceedings were instituted on “illegal entrepreneurship” charges. Gusev escaped and is wanted by the police.

Tuesday, October 26, 2010

Russia's Transparency Rating Drops

Transparency International's new corruption index ranks Russia number 154 out of 178 countries, a fall from the previous rank of 146. Russia is the world's lowest-ranked major economy, with a rating of 2.2 (down from 2.1) on a scale of 1 to 10. TI reports that Russia has created the necessary laws and legal institutions, but has not taken serious steps to implement anti-corruption measures in everyday life. Elsewhere in the former USSR, the Baltic countries ranked the highest (Estonia 26th, Lithuania 46th, Latvia 59th), Georgia ranked 68th, Kyrgyzstan, Turkmenistan, and Uzbekistan were ranked below Russia, and the other countries ranked higher than Russia, but not in the top 100.

Moscow Increases Proposal for Opposition Demonstration

The Moscow authorities have offered opposition activists a permit for 800 people to demonstrate on October 31 in recognition of the Constitution's Article 31 (freedom of assembly), an increase over the previous offer of 200, which the oppositionists rejected (see below, October 21). This is the twelfth such application to demonstrate on the 31st day of a month; all previous applications were denied. The applicants had requested permission for 1500 to demonstrate and are split on whether to accept the authorities' compromise, with "Other Russia" (Liudmila Alekseeva) and "Solidarity" in favor and "Left Front" (Eduard Limonov) opposed. The city government's new tolerance on the issue has been attributed to the appointment of mayor Sergei Sobianin to replace Yuri Luzhkov.

Friday, October 22, 2010

Resources Ministry Considers Opening Shelf to Foreigners

Russia's Natural Resources Ministry has proposed amendments to the Subsurface Law that would, in undefined "special circumstances," allow foreign investors to acquire more than the 10% currently available to them in extraction projects for strategic resources such as nickel, cobalt, uranium, diamonds and to participate in continental shelf projects, which are currently open to Russian companies only. Under the amendments, the foreign investor could apply for a license before completion of geological surveys or before discovery of deposits. The proposed liberalization has been explained as a way to attract investments that are beyond the capacities of Russian state companies.

Prosecution Requests 14 Years for Khodorkovsky

The prosecution requested the court to sentence former Yukos managers Mikhail Khodorkovsky and Platon Lebedev to 14 years of imrisonment each. They are accused of stealing essentially all the oil Yukos that extracted and laundering the proceeds. The defense says the charges are absurd and politically grounded.

Thursday, October 21, 2010

Fly-By-Night Companies Dominate Russian Foreign Trade

The Russian Customs Service estimates that 70% of Russian foreign trade is conducted by "fly-by-night" companies that disappear after a single transaction or within a year after being created. Such companies typically submit false customs declarations for purposes such as grey-market imports or illegal capital export (for example, by declaring non-existent imports or by inflating the value of the imports). The Customs Service believes that grey-market imports increased from 8.6% in 2008 to 12.7% in 2009 because of the financial crisis. Customs lawyer Elena Belozerova contends that fly-by-nights account for only 30% of Russian foreign trade and that simplifying customs regulations will make it more difficult for fly-by-nights to thrive.

Putin's Former Chief of Staff Appointed Mayor of Moscow

Sergei Sobyanin, Prime Minister Putin’s former chief of staff, was named the new mayor of Moscow. 52-year-old Sobyanin was born and raised in Western Siberia, and rose through the political ranks to become governor of the Tyumen region before becoming Putin’s chief of staff in 2005. Russian media reports describe Sobyanin as very tough and energetic, but publicity-shy and unemotional. After the city legislature’s nearly unanimous vote of approval, Sobyanin expressed his loyalty to Putin, telling him that “even though I’m no longer a member of the Cabinet, I will remain a member of your team.” Before the vote, Sobyanin criticized the city's former administration for inefficiency and corruption and promised to cut red tape, create a better investment climate, improve road conditions, and promote education and health care.

Russia Fined for Banning Gay Parades

Europe’s Court of Human Rights fined Russia for by banning gay parades in Moscow. Gay rights activist, Nikolai Alexeyev, lodged the case arguing that Russia had violated the European Convention by discriminating based on sexual orientation and by denying the right of assembly. The Strasbourg-based human rights court held that “[t]he mere risk of a demonstration creating a disturbance was not sufficient to justify [the parade] ban,” and ordered Russia to pay Alexeyev 29,510 € ($41,090) in damages and legal fees.

Opposition Meeting in Moscow Allowed, then Banned

For the first time in the last several years the Moscow authorities agreed to allow a demonstration of the opposition in support of Article 31 of the Russian Constitution (freedom of assembly), which was to place on October 31 on Triumfalnaya Square. The officials said they were ready to give permission on the condition there would be no more than 200 participants.

The oppositionists, however, refused to guarantee the low attendance, and the next day the authorities disallowed the meeting. Earlier all similar demonstrations have been invariably banned and dispersed by the police.

Terrorists Attack Chechen Parliament

A group of three armed militants attacked the building of the Chechen legislative assembly. One blew himself near the front entrance; the other two rushed into the parliament and opened fire. After a fight they also blew themselves. Besides the terrorists, three persons were killed and 17 wounded. The terrorists, equipped with machine guns, arrived at the parliament building by taxi, telling the driver they were bodyguards of a deputy.

Wednesday, October 20, 2010

Anti-Monopoly Official Discusses Proposed M&A Liberalization

Deputy Head of Russia's Federal Anti-Monopoly Service, Andrei Tsarikovsky, discussed recent and anticipated antitrust developments in at the Seventh Annual Conference on Mergers and Acquisitions. Tsarikovsky noted that the number of mergers and acquisitions barred by the FAS has decreased each year, due in part to government liberalization, but due also to the business's community's increased understanding of the law. Tsarikovsky noted that the FAS's proposed “third antimonopoly package” is aimed at enabling faster approval of mergers and acquisitions, but he cautioned that the new package, alone, would not create the economic conditions that might lead to an increase in Russia's merger activity. Tsarikovsky shared his proposed plan to abolish agency notification of the order of transactions, as well as to condition the extraterritorial application of the law on a party's trade volume inside Russia. The FAS anticipates that the third antimonopoly package will be adopted in the next year.

Hermitage Capital Loses Appeal to Return Companies

Hermitage Capital, formerly Russia's largest portfolio investor, lost its appeal in the state arbitrazh courts to recover control over three Russian companies through which it contends that 5.4 billion rubles was stolen from the state treasury in 2007 through fraudulent tax return requests made by the companies. Hermitage contended that by recovering control over the companies it could gain access to documents proving the fraud.

Monday, October 18, 2010

Chechen President Cracks Down on Bride Kidnapping

Chechen President Ramzan Kadyrov vowed to uproot the widespread practice of bride kidnapping in Chechnya. “This is the Russian Federation,” stated Kadyrov, “and the law considers bride kidnapping as a crime.” Kadyrov went on to add that the practice does not correspond to either Islam or Chechen traditions.

Friday, October 15, 2010

Georgia Adopts New Constitution

Georgia’s parliament adopted a new Constitution pursuant to which many powers are being transferred from the office of the President to that of the Prime Minister. The Constitution will enter into force in stages from 2010 to 2013. Critics say this is a trick by President Mikheil Saakashvili to allow him to stay in power as the Prime Minister after the expiration of his presidential term in 2013.

Magnitsky Supporters Prosecuted

The Moscow police instituted criminal proceedings on “defamation” charges at the request of Lieutenant Colonel Artem Kuznetsov, who alleges that Hermitage Capital lawyer Sergei Magnitsky colleagues wrongly accuse Kuznetsov of Magnitsky’s death. Magnitsky died of health problems in November after spending 11 months in pretrial detention. His supporters say that he was denied sufficient medical help and that the charges were fabricated by corrupt police officials whom he had implicated in a $230 million fraud. According to Magnitsky’s colleagues, former investigator in the Magnitsky case, Artem Kuznetsov, has family assets and annual spendings in the millions of dollars, while his official annual salary is only in the thousands.

Investigator in Magnitsky Case Promoted

Oleg Silchenko, an investigator implicated in the death of Hermitage Capital lawyer Sergei Magnitsky, has been promoted by the Interior Ministry from Major to Lieutenant Colonel. Magnitsky died of health problems in November after spending 11 months in pretrial detention. His supporters say that he was denied sufficient medical help and that the charges were fabricated by corrupt police officials whom he had implicated for a $230 million fraud. Silchenko rejected a request by Magnitsky for medical treatment in September 2009.

Kyrgyz Attorneys Forced to Desert Uzbek Clients

Fifty Kyrgyzstan attorneys, representing ethnic Uzbeks who were charged with involvement in recent inter-ethnic clashes, declared that they have to refuse to participate in court hearings because security is not guaranteed for them and their families. Defendants and their attorneys have been repeatedly attacked and beaten by the relatives of Kyrgyz victims, mostly women, often right in courtrooms. During the last three days, six attorneys were beaten in courts; the judges and the police did not intervene.

Thursday, October 14, 2010

International Forum of the Global Innovative Partnerships Brings U.S. High-Technology Delegation to Russia

California Governor, Arnold Schwarzenegger, led a group of U.S. investors and high-technology business representatives to Russia for the International Forum of the Global Innovative Partnerships.  The U.S. delegation met with President Medvedev and other government officials, including representatives from Russia’s Corporation on Nanotechnology (RUSNANO), and toured the Skolkovo Innovation Center, Russia’s Silicon-Valley project just outside Moscow.   During a speech at the Moscow event, Medvedev praised the Forum and stressed the need to cultivate a climate of trust and understanding in order to develop the international cooperation necessary to bring modernization and innovation to Russian business.  As a result of Global Innovation Partnerships, RUSNANO officials project a $375 million investment from U.S. companies in Russian projects in the areas of alternative energy, microelectronics, medicine and biotechnology.  

Gazprom May Route Pipeline Through Romania

Gazprom signed an agreement with Romania’s Transgaz to study the possibility of a South Stream gas pipeline through the country.  As Gazprom considers various routes into Europe, Alexei Miller, Gazprom chief executive, explained that an optimal route would extend under the Black Sea, and would have the capacity to deliver as much as 63 billion cubic meters of gas per year to Europe.  According Miller, however, no final, concrete route for the South Stream pipeline will be publicly disclosed until the next phase of study is completed.  

Kremlin Official Suggests the Dismissal of Governors for Imbecility

Tver Regional Governor, Dmitri Zelenin, published on Twitter a photo of a worm he allegedly found in a salad served at a Kremlin dinner in honour of German President Christian Wulff. “It was a very special way to show the salad was fresh,” Zelenin commented. In an unusually rude response, President’s aid Sergei Prikhodko stated: “I should probably suggest to my legislator colleagues that they introduce a ‘termination for imbecility’ provision into the law for governors.” Zelenin, a prominent entrepreneur, was elected Governor in 2003 and re-appointed to the office by President Vladimir Putin in 2007. After 2004, governors in Russia have been appointed by the President (with some involvement of the local legislature and political parties) rather than elected by popular vote. The President is also able to dismiss a head of a region on “loss of trust” grounds, which President Dmitri Medvedev recently did with the Moscow Mayor (whose office is equivalent to a governor’s).

Wednesday, October 13, 2010

Feud Declared against Chechen Separatist Leader

Chechen President Ramzan Kadyrov accused Chechen separatist leader, Akhmed Zakayev, who is currently residing in the UK, of organizing the recent guerrilla attack on Kadyrov’s family village, Tsentoroy. Kadyrov stated that relatives of the attack victims have already “declared a feud with Zakayev.” Indeed, the ancient tradition of blood feud is still alive in Chechnya. However, as the Chechen Presidential spokesman, Alvi Karimov, explained, Kadyrov himself has not declared a feud. “He is the head of the republic and acts in the framework of the law,” Karimov stated.

Drug Fighter Convicted in Russia

Egor Bychkov, the head of a drug rehabilitation clinic in Ekaterinburg, was sentenced to 3.5 years of imprisonment on charges of abduction and illegal detention (originally the prosecution had asked for 12 years). The clinic had allegedly forced drug addicts into rehabilitation using controversial methods. Bychkov stated the case was instigated by the drug mafia through corrupt law enforcement officers. The conviction has caused a public outcry.

Belarus, China Sign $3.5 Billion Deal on Various Economic Projects

The governments of Belarus and China signed a $3.5 billion agreement that covers multiple economic projects. Specifically, China will invest funds to build various industrial factories in Belarus. Chinese companies will also renovate an International airport in Minsk and build a new hotel complex to be called “Peking” in the Belarusian capital. The agreement was signed during President Lukashenko’s visit to China.

Friday, October 8, 2010

Russia Unlikely to Comply with Court’s Recommendation to Suspend Customs Duties on Oil Exports to Belarus

At Belarus's request, the Economic Court of the Commonwealth of Independent States (CIS) recommended that Russia temporarily suspend customs duties on oil products exported to Belarus. However, some experts opine that the Russian Government will not comply with the Court’s recommendation because (1) such recommendations are non-binding and (2) relations between the governments of the two nations have recently soured. By filing its motion, Belarus was apparently attempting to buy itself some time: it is still expected that in 2012, Belarus, Kazakhstan, and Russia will eliminate all customs duties in mutual trade.

Ukraine Introduces Grain Export Quota

While new grain export quality control procedures, which in effect suspended wheat exports from Ukraine, have been lifted (see 8/27/2010 post), the Ukrainian Cabinet of Ministers established a limit of approximately 4 mln. tonnes of grain exports until at least the end of this year. Although a mechanism for dividing this quota between exporters has not yet been established, the government is considering the possibility of an auction. The government promised to lift the quota after grain is purchased for reserve purposes. (Interestingly, it has been suggested that the export quality control procedures were introduced after the price of grain increased in July at the request of Ukrainian grain traders to permit them to avoid their contractual obligations at the old prices).

Russia to Repay Iran for Undelivered Missiles

Russia will return Iran’s advance payment of $166 mln for S-300 air defense missile systems. Presient Dmitri Medvedev banned the sale after the UN Security Council imposed sanctions on Iran. The head of Russia’s state weapons exporter dismissed the idea that any additional payment could be due for breach of the sale contract: “we are not obliged to return another kopeck,” he said.

Cyprus-Russia Double Tax Treaty Revised

Russia’s President, Dmitri Medvedev, and Cyprus’ President, Dimitris Christofias, signed a protocol amending the double taxation treaty between the two countries. Although the new version of the treaty provides for more extensive information exchange between the tax authorities of the two countries, Cypriot companies with Russian beneficiaries have not been stripped of treaty benefits. Currently, Cyprus is the world leader in accumulated foreign investment into the Russian economy with $52 bln of investments, a large share of which is believed to be owned by Russian nationals.

Thursday, October 7, 2010

Georgia to Disallow Russia from WTO

Georgia’s Prime Minister, Nikoloz Gilauri, stated that Georgia will not support Russia’s membership in the World Trade Organization unless Russia allows Georgian customs officers to operate the checkpoints on Russia’s borders with Abkhazia and South Ossetia. The problem is that Russia has recognized those breakaway provinces of Georgia as independent states, while Georgia still considers them as a part of its territory. As a WTO member, Georgia has the power to block the long-awaited admittance of Russia to the organization.

Pagan Terrorists Convicted in Moscow

A group of young Russian nationalists, followers of a neo-pagan cult called “Native Faith” who are headed by Evgenia Zhikhareva, were convicted in Moscow of organizing a series of explosions (on railways, in an Orthodox church, and in a McDonald’s restaurant). Two of the defendants were also charged with murdering ten non-Russians on ethnic hatred grounds. The prison terms range from 8 to 21 years.

Wednesday, October 6, 2010

ARCELORMITTAL Faces Potential Loss of $4 Billion Investment

OJSC “ARCELORMITTAL KRYVIY RIH” issued a press release stating that the Attorney General's Office of Ukraine (“Genprokuratura”) filed a claim on behalf of the State Property Fund (SPF) against “ARCELORMITTAL DUISBURG GmbH” with the Kyiv Economic Court to invalidate an agreement between ARCELORMITTAL and SPF related to certain investment obligations.

According to the press release, the state court improperly assumed jurisdiction over the claim ignoring the agreement's arbitration clause regarding the referral of disputes to the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry. At the same time, ARCELORMITTAL pointed out, the court failed to comply with The Hague Service Convention when it neglected to properly summon the defendant to court.

Should the claim succeed, ARCELORMITTAL faces possible confiscation of its more than $4 billion investment as a result of the purported breach of its investment obligations. ARCELORMITTAL contends that the speed of the court proceedings and apparent legal nihilism cast doubts as to “real intent” of the court and raise questions about protection of investments in this country.

Tuesday, October 5, 2010

Ukraine Govt. Is Selling Fixed Incumbent Operator

Last Friday, the State Property Fund of Ukraine (“SPF”) officially announced its plans to sell 92.79% of the stock of Ukrtelecom. SPF has attempted and failed on a number of occasions since 1997 to sell the national fixed communications incumbent. According to the press, the government plans to cash in around 12 billion UAH (approx. €1,1 billion) from the privatization proceeds.

The shares of stock are planned to be sold at auction. SPF also invited interested parties to participate in drafting the terms of the sale of the stock.

Monday, October 4, 2010

Ukrainian 2004 Constitutional Reform Reversed

Ukraine’s Constitutional Court found that a 2004 constitutional reform was illegal due to procedural violations, the result of which is that from 2006 to 2010, Ukraine was governed by an illegally amended Constitution. The 2004 reform substantially reduced the authorities of the President and increased the authorities of the parliament. The Court essentially restored the presidential republic and directed the legislature to adjust all laws accordingly.

Kremlin: Russia-Belarus Relations “Deadlocked”

Natalia Timakova, spokesperson for Russian President Dmitri Medvedev, stated that Russia-Belarus relations “are deadlocked and will not be the same.” Belarus President Alexander Lukashenko and Russian President Dmitri Medvedev are apparently conducting propaganda campaigns against one another. Most recently Lukashenko has criticized Medvedev’s decision to dismiss Moscow Mayor Yuri Luzhkov, while Medvedev has accused Lukashenko of breaching his promise to recognize South Ossetia and Abkhazia (Russia-sponsored breakaway provinces of Georgia).

Russian Tycoon May Sue Ireland

Millhouse Capital Ltd, a private investment company controlled by Russian tycoon Roman Abramovich and his business partners, demanded that the Irish government keep its promise to guarantee repayment of the subordinated bonds of the Irish Nationwide Building Society (INBS). Earlier, a Irish government spokesman said that subordinated bond holders are expected “to make a significant contribution towards meeting the costs of INBS.” Millhouse believes that the investors “have been misled and deceived” and says that it is “fully prepared to vigorously defend our position using all possible legal avenues.”

Friday, October 1, 2010

Russian Firm Announces Plans for First Space Hotel

Energia, the lead Russian contractor for the International Space Station, announced plans to build the first hotel in space. Energia hopes to capitalize on the recent enthusiasm for private space tourism. The private space station is planned to house seven people and will serve as a hotel, complete with facilities for scientific research, media projects and entertainment. According to Energia, the project should be completed shortly after 2015 and will likely compete with a space complex planned by Bigelow Aerospace, a Las Vegas firm owned by Budget Suites of America.

New Russian Patent Court May Open by 2012

A new patent court could be located at Skolkovo, which is near Moscow, where the Kremlin plans to build a Silicon Valley-style innovation center. The Supreme Arbitration Court plans to formally approve legislation establishing the 30 judge court at its next meeting, and then it will submit a final draft of legislation to the State Duma for approval. The new patent court would begin operating by 2012 working on intellectual property disputes related to manufacturing, research and development, and patents on inventions, while the arbitration courts would continue to handle copyright and related rights.