Evan Vitale Consulting: An Oligarch's Arrest Rattles Russia's Business Community

Wednesday, September 17, 2014

An Oligarch's Arrest Rattles Russia's Business Community – Businessweek

Latest post from Evan Vitale Consulting -

When Russian billionaire Vladimir Evtushenkov was placed under house arrest on Sept. 16, the case drew immediate comparisons with that of Mikhail Khodorkovsky, the former oil magnate who spent a decade behind bars after challenging President Vladimir Putin’s authority.

From the perspective of Russia’s business community, though, the Evtushenkov case looks a lot scarier. No one was surprised by the arrest of Khodorkovsky, who had ignored repeated Kremlin warnings that oligarchs should stay out of politics. But Evtushenkov, head of London-listed investment company AFK Sistema (SSA:LI), was careful to play by the Kremlin’s rules as he amassed an estimated $7 billion fortune. “You have to keep business and politics separate,” he told the magazine Forbes Russia in a 2010 interview.

His arrest leaves business people and investors struggling to understand what Putin is up to now. “Is this an anti-oligarch campaign by the Kremlin, or a forced consolidation of assets in the face of crisis?” the news website business-gazeta.ru asked in a headline today.

The arrest “sends a chilling message: ‘No bizman is safe,’ Derk Sauer, the Dutch-born head of Russian publishing group Independent Media, writes on his Twitter feed.

Sistema’s stock plunged more than 38 percent on Sept. 17, and shares in two of its separately listed subsidiaries also plummeted. “Such a big drop in all Sistema assets signals the emotional reaction of investors and the fact nobody expected this arrest to happen,” Oleg Popov of asset-management group Allianz Investments tells Bloomberg News.

Anatoly Chubais, an architect of Russia’s privatization program in the 1990s who now heads the state nanotechnology corporation, called Evtushenkov’s arrest “an extremely serious blow to the investment climate.” Alexander Shokhin, head of the Russian Union of Industrialists & Entrepreneurs, a business lobby group, said it might prompt some Russian businesses to change their tax domiciles or close their Russian operations.

Russian authorities have accused Evtushenkov of money laundering in connection with Sistema’s acquisition of oil group Bashneft in 2009. Sistema’s press service says the accusation is “completely groundless” and that the company will defend itself.

So why was he arrested? The leading theory is that the Kremlin acted at the behest of Igor Sechin, head of state-controlled oil company Rosneft, who wants to take over Bashneft to shore up Rosneft’s falling oil output. Rosneft took over the assets of Khodorkovsky’s former Yukos oil group after the Kremlin confiscated it.

The Kremlin depicts the case as a straightforward criminal investigation with no political overtones. “Any attempt to politicize the situation is not justified and not acceptable,” Putin spokesman Dmitry Peskov tells Bloomberg.

Bloomberg View columnist Leonid Bershidsky, though, says the case signals an ominous new chapter in the Kremlin’s relations with business amid Russia’s deepening isolation from the West. “Sechin and Rosneft, sanctioned in the U.S. and in Europe, no longer have to wear sheep’s clothing and pretend to play by civilized rules. Private Russian businesses, large and small, now face a bigger threat than before the new Cold War: Putin and his entourage, riding a patriotic wave, no longer need a smokescreen for the de-facto nationalization of Russia’s economy so it can be run by their rent-seeking clique.”

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