In Russia, Corporate Thugs Use Legal Guise

By Peter Finn
Washington Post Foreign Service
Thursday, April 20, 2006

MOSCOW -- 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 say.

Typically the raiders are politically connected developers and their allies in the bureaucracy. Their activity is 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.

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