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In Russia, corporate thugs use legal guise

A  new breed of Russian financial predator  hunts small and medium-size companies, dressing up old-style intimidation with teams of corrupt lawyers, accountants, judges, bureaucrats and police to exploit weaknesses in Russia's fledgling corporate legal system.
Lev Tabenkin, a painter in Moscow, stands in front of some of his canvasses at a temporary studio. He lost possession of his old studio after the ownership was transferred without his knowledge.
Lev Tabenkin, a painter in Moscow, stands in front of some of his canvasses at a temporary studio. He lost possession of his old studio after the ownership was transferred without his knowledge.Peter Finn / Washington Post
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

The general director of the Na Ilyinke catering company was very much alive when his coffin arrived. "In memory of dear Alexei Alexeyevich Likhachev," read the message on a ribbon attached to an accompanying wreath. "We will never forget you."

The empty pine coffin, draped in red cloth, was delivered to the company's central Moscow office by a courier service. Soon the phones began to ring as shareholders, who had received telegrams inviting them to a memorial service, called about poor Alexei's unexpected passing.

For the owners of Na Ilyinke, the ghoulish stunt carried an unspoken message: Sell or else, according to Oleg Gubinsky, a shareholder and head of the company's legal team. "It was an opening move," Gubinsky said.

Na Ilyinke is the target of a new breed of Russian financial predator, one that hunts in lesser-known parts of the country's booming economy: small and medium-size companies. Often the goal is not the company itself, but the real estate it occupies, acquired in the privatizations of the early 1990s.

In those days, people wanting to take over a company often simply sent armed thugs to occupy it. The new raiders employ some of that old-style intimidation, but dress it up in legality by teaming with corrupt lawyers, accountants, judges, bureaucrats and police to exploit weaknesses in Russia's fledgling corporate legal system, Russian lawmakers and entrepreneurs said.

Developers move in
Typically the raiders are politically connected developers and their allies in the bureaucracy. Their actions are drawing attention at the highest levels of the government, where officials fear it undermines Russia's investment climate and adds to the sense that rule of law remains illusory in the country.

"Honest business people and property rights should be protected," President Vladimir Putin told an audience of prosecutors in February. He added that the criminal seizure of property was destabilizing the country.

In Soviet days, Na Ilyinke was the government-owned catering facility for the Moscow City Committee of the Communist Party. Located in downtown Moscow, it was also a center of social life and shopping for the party elite. Its basement held a supermarket carrying such hard-to-find products as Coca-Cola; senior party officials held wakes and receptions on its premises, which at one point had a tunnel to the nearby headquarters of the KGB.

During the waning days of the Soviet Union, Likhachev ran the place as a government employee. After the collapse of the communist state, he and a team of investors bought it and turned it into a private company, a hand-over similar to other privatization deals that took place all over Russia in the 1990s.

Today, its staff of 60 continues to run cafeterias in government buildings, including the former party building across the street that became the office of the presidential administration.

Na Ilyinke's prime fixed asset is its 130,000-square-foot headquarters. Given its choice location, real estate experts estimate it would fetch at least $35 million as is, and much more if refurbished and converted into luxury offices or apartments.

Gubinsky said he had suspicions as to who the raiders were, but no proof. He believes that the real estate value is what drew their interest; he and the other owners foresee rehabbing the building themselves but think the timing isn't quite right.

The raiders' next moves
The delivery of the coffin spooked Likhachev, an elderly man. He sold his shares to two colleagues, Gubinsky and Ilya Dyskin, who had the spirit to fight the raiders' next moves. One occurred at a private depository company, where Na Ilyinke stores its official documents that list its shareholders.

Last September, a Ukrainian citizen named Sergei Shevchuk came to the firm and presented a power of attorney document that indicated that he had the legal right to manage the shares of Gubinsky and Dyskin.

Shevchuk then sold the shares, 58 percent of the company's total, to Tamara Tobiya, another Ukrainian. Three days later Tobiya sold them again, to a man named Evgen Halynski, who provided a Warwick, N.Y., address on official forms.

The Warwick address, it turns out, is a dry-cleaning shop. A person who answered the phone there said there was no one named Evgen Halynski living or working in the building. And no one responded to messages left at the Brooklyn, N.Y., address of a man by that name.

Both Shevchuk and Tobiya, who worked at a stall at an open-air market in Moscow, later vanished.

None of this was known at Na Ilyinke, Gubinsky said, until after a letter arrived from the depository last fall informing it of the company's new ownership structure. "It was like thunder from a blue sky," Gubinsky said.

The rightful shareholders quickly secured an investigation by the Federal Financial Markets Service. A report it issued last November documented the fraudulent sales and concluded that the power of attorney document that set them in motion had been forged. The agency suspended the transactions and, in January, revoked the license of the depository company, according to board documents, on grounds it should have tried to ascertain that the power of attorney was real.

"We know about maybe 1,000 cases a year, but the real scale of these attacks is probably closer to 10,000 or 15,000," said Gennady Gudkov, head of a parliamentary working group examining the issue. "This problem is almost impossible to solve in a corrupt state."

"Big business can usually protect itself," said Yuri Glotser, head of the Federation for the Protection of Entrepreneurs' Rights in Moscow. "Smaller businesses are much more vulnerable, and their property can be worth a lot of money."

In Na Ilyinke's case, the fraudulent share sale was just one element of the attack. Last year it also found itself fighting off three separate court orders. Each one followed a pattern: legal papers would arrive at the company informing it that a judgment had been returned against it, in a proceeding that the company was entirely unaware of. The company then had to respond with its own attorneys.

One order was issued by a court in St. Petersburg and one in Moscow, freezing the company's assets, Gubinsky said. The third originated in the city of Tuva, near the border with Mongolia. A court there ordered the company to vacate its Moscow building, saying it had been leased to a Tuva company. The person listed as its director turned out to be a student at the local agricultural college.

Gubinsky estimates the company has spent $300,000 defending itself.

Arming against a physical takeover
The multiple attacks in the courts are a pretext to establish some legal basis to send security guards to seize the building, Gubinsky said. If they successfully occupy the targeted property, the police typically tell the ejected party to go to court and fight it there.

As a defense, Na Ilyinke's building now resembles an armed camp. An alarm system at the front entrance can trigger the closing of steel doors that seal off all sections of the building. The rear entrance has a large steel gate and is surrounded by barbed wire.

"If you lose physical possession of your property, you are in serious trouble," Gubinsky said. "So far, we've kept them out."

Other owners wish they'd taken such precautions.

Near Moscow's Kiev railroad station, a group of prominent artists is battling in the courts to get back light-filled studios that were seized last April by private security guards after the ownership of the studios was re-registered in what the artists call a fraudulent transaction. The studios would fetch millions if converted to penthouse apartments.

"It was monstrous," said Lev Tabenkin, a painter who was forced out after the raiders persuaded a court to issue an eviction order. "I don't understand our system."

In January, Rinat Kudashev, general director of a former state institute that designs pipelines and other facilities for transporting oil and gas, was escorted out of his offices by about 30 private guards. The previous November, he said in an interview, one of the institute's minority shareholders called a meeting without the knowledge of Kudashev or the company's two majority shareholders and merged the business with another company. The original two companies were then liquidated.

Vitaly Semyonov, general director of a Moscow transportation company, said his company has been raided 31 times by different government agencies, the orchestrated prelude to a $10 million offer for a business that he values at $25 million. He rejected the offer, he said, not only because it was low, but because what the raiders really wanted was the land his business sits on -- and they intended to lay off his 1,000 workers. He remains ensnared in several court actions.

"In the '90s, your enemy operated openly and you knew how to defend yourself," Semyonov said. "I was shot by bandits who wanted our business, but we survived. Today I'm facing Oxford-educated lawyers."