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The price of doing business in Russia

Sunday Mail

Recent extradition case in the UK highlights how corrupt officials work with businesses to stamp out rival competition in Russia.

A landmark decision by the Westminster Magistrates Court in London could make the issuing of extradition orders against Russian businessmen wanted by the Russian Federation’s authorities much more difficult.

Last November Westminster Magistrates Court turned down the request of the general prosecutor’s office of Russia for the extradition of businessman Georgy Trefilov, who was facing charges of 16 counts of fraud having decided that evidence that Russian officials had sought bribes to reduce the charges he faced was admissible.

District Judge Nicholas Evens, who said he “was horrified by the level of corruption” in Russia, said that the Russian authorities had not provided adequate evidence to prove that the criminal prosecution of Trefilov was justified. “Where there is no opportunity to examine any documentary evidence specific to the allegations, it is very difficult for the court to make an informed decision, “Judge Evans said.

Trefilov, a wealthy businessman, was involved in a number of successful businesses, primarily in construction, and also developed a supermarket chain under the SPAR franchise. His holding company Marta owned retail networks Grossmart, Billa and Pur Pur (more than 300 shops in total) and in 2008 the total value of his assets was in excess of $1.5 billion.

In 2008, when he encountered trouble he went to the Internal Affairs Department in Moscow to report ‘corporate raid seizure’ of RTM, his developer group, and Marta, but ended up under investigation himself. The Investigation Department undertook criminal proceedings against him for ‘unlawfully obtaining credit’ but two years later in September 2010 the criminal case was changed to fraud.

Judge Evans explained what was meant by ‘corporate raiding’ (reidversto) and ‘prosecution to order’ (zakaznoe delo), citing a report published by Professor Bill Bowring, a law professor at Birkbeck College, University of London. “The defining characteristics of such cases are private companies and/or individuals, often with links to the Russian state, who pay off police and the courts in order to further their commercial interests by harassing their competitors, and using pressure (often under the cover of ‘legitimate’ investigation/prosecution) to force controlling share-holders to sell their stakes.”

According to Professor Bowring, “some 8,000 companies a year are targets of lawsuits or investigations, at the behest of rivals seeking to put them out of business or take them over, the Russian Chamber of Commerce and Industry says. In some of these cases, companies pay off police and courts with the goal of harassing competitors. In other cases, raiding companies or their agents use legal pressure as a toll to force controlling shareholders to sell their stakes.”

Trefilov was charged with 16 counts of fraud, mainly relating to obtaining credit from banks and other credit organizations amounting to 1.3 billion roubles by providing false information as security. It was alleged that Trefilov “granted a charge (to secure loans) over property which either previously had been charged or did not belong to him.” His lawyers argued that some charges related to loans that had already been and regarding some counts the banks had recovered their losses by selling the property used as security.

On September 23 2010, Trefilov was summoned for questioning and to hear the charges against him, but he was abroad. On November 16 of the same year the Tverskoy District Court in Moscow issued a decision in the absence and placed him on the Federal wanted list, on charges of fraud. He was subsequently placed on the international wanted list and in September 2011 Russia’s extradition request was submitted to the UK where Trefilov was staying. The extradition trial was held in October last year.

The court decided that the evidence provided by Witness A (who demanded protection of his or her identity for fear of retribution by the Russian authorities), described by the judge as a “whistleblower” was admissible. Witness A said that he/she had first-hand knowledge of the investigation, which was not being conducted fairly, and that the prosecution was commenced ‘to order’.

Witness A said there was a failure to obtain necessary expert reports to evidence the alleged fraud, money was possibly paid to senior members of the investigative committee by former business partners of Trefilov to ensure the investigation continued while the original charge was unjustly changed to a more serious offence for the purpose of increasing the potential prison sentence.

More damning testimony was provided in a 12-page statement by Georgy Usuphashvilli, a friend of Trefilov for 12 years, who had several meetings in early 2012 with Senior Prosecutor Victor Gvozdev from the General Prosecutor’s Office in Moscow. Gvozdev told Usuphashvilli, who was wired up during the meetings and recorded his conversations, that the lieutenant-colonel of justice, who signed the order to bring charges was corrupt as was her superior, Gennady Karlov.

Gvozdev was trying to negotiate a payment of $1 million form Trefilov’s representative, an amount that would reduce the charges. “The evidence of corruption he (Usuphashvilli) provides is damning.” Wrote Judge Evans in his decision adding: “The level of corruption revealed by the transcripts (of recorded conversations) is just appalling.”

In his decision Judge Evans also noted that he could not grant the extradition request because there were serious doubts that Trefilov would have a fair trial. “There must be a ‘serious possibility’ that this extradition request is polluted by extraneous considerations in that the proceedings derive from a prosecution brought ‘to order’ by politically well-connected opponents of Trefilov,” he said in his decision. “Trefilov will be prejudiced at trial in that no Russian court will consider his case on its merits… and convict him regardless.”

Even if the ‘abuse of process’ was not a consideration, the judge said he would still not have ordered the extradition because of the risk of Trefilov’s ill treatment, while in custody in Russian prison. “Return is prohibited if there is real risk of treatment which violates Article 3 i.e. treatment which amounts to torture or inhuman or degrading treatment or punishment.” He cited several cases and reports which illustrated the poor detention conditions in the Russian Federation.

Meanwhile the audio recordings, of the conversations between Usuphashvilli and Gvozdev, the authenticity of which the latter denied, have been posted on the internet, while the UK’s Crown Prosecution Service forwarded the transcripts to the General Prosecutor’s Office in Russian. On December 15, Gvozdev was arrested and he was sent to a pre-trial detention centre until February 15, reported Russian newspaper Novaya Gazeta.

Trefilov told Novaya Gazeta: “I think they will charge Gvozdev alone, although I truly feel sorry for him. He is simply a scapegoat in this collective ‘through system’.