Regional siloviki, or “strong men,” usually from one of the state security agencies, or the local prosecutor’s office, have been involved in capturing companies through strong arm tactics since the fall of the Soviet Union. This practice continues to be a major problem for business owners throughout the former Soviet countries to this day, and Putin’s strengthening of security service agencies in Russia’s regions over the last decade renewed the threat.
There are several ways to raid a company, but a common method is for a regional silovik to work with the local tax inspector and find a violation. The local government then seizes the company and sells off its assets through an auction that is public by legal appearance. In reality, however, local business people recognize or are informed of the danger of attending the auction. The silovik’s business partners attend the auction and acquire all the property for sale at 10% of its actual value. Later, if court proceedings rule in favor of the ill-fated business owner, the court orders the government to reimburse the plaintiff for the value of the assets sold, which of course means (s)he only receives 10% of the assets’ actual value.
Another variant of this scenario includes finding a violation of some code and forcing the business owner to either pay a massive fine, go to jail, or sell the company to a friend of the silovik’s. In other cases, siloviki have been known to work more in the open, buying shares of a company with a weak corporate governance structure, then replacing board members with their friends. The board then hires new staff who sell company assets to a shell company, which exists solely for the purposes of the corrupt transaction.
Published Date: November 20, 2007