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The Legal System, Corporate Raiding, and Organized Crime in Russia

by Aaron Beitman

 Like any rational economic actor, organized crime groups seek to maximize utility, namely profits.  That said, the costs that organized crime groups are prepared to face in the process of obtaining profits are quite different than those of an ordinary firm.  Costs might include committing murder or assault, facing death, lengthy prison sentences, and assets confiscation by the state, among others.  While growth is uneven across the Russian economy, certain sectors, such as real estate and transportation continue to attract investment.  Unfortunately, growth industries also attract, unsurprisingly, the attention of organized crime groups.

 What factors exacerbate the impact of organized crime on the Russian economy?  Writing in The John Marshall Law Review, TraCCC Director Louise Shelley notes that the problem of organized crime in Russia’s economy is exacerbated by the absence of appropriate legal frameworks.  Moreover, Thomas Firestone, Resident Legal Advisor at the U.S. Embassy in Moscow adds that legacies from the Soviet legal system have created conditions for weak property rights protections and even the use of legal means for property expropriation.
 Contemporary examples abound illustrating how Russia’s legal system can work counterproductively for growth in the country’s economy.  Tatyana Kvasnikova, a graduate student in law and criminology at Far East Federal University in Vladivostok, explores these topics in research supported by a grant for junior scholars from TraCCC’s Saratov Center.  In particular, Kvasnikova highlights the problem of corporate raiding in the real estate and transportation sectors, which is often accomplished through exploitation of the legal system.  Corporate raiding in the real estate sector, as well as in other areas of the Russian economy, is executed only with the assistance of a variety of government officials as well as skilled lawyers and accountants.  In her report, Kvasnikova provides a number of case studies illustrating the extent of organized crime activity in the real estate and transportation sectors.  One of these cases is described below.

 The corporate raid on OOO OGAT, a transport company based in Russia’s Far East, came as a surprise to authorities, given that the company controlled 17 hectacres of land valued at $17 million, 70 large transport vehicles otherwise unobtainable in the regime, as well as 16 buildings.  Official records indicated that OOO OGAT’s yearly tax contribution was estimated at $750,000.  SPARK-INTERFAX, a Russian news firm, reported that the company made profits of $8.3 million in 2007, before the corporate raiding attack on OOO OGAT began.

 According to official documents, the leader of the criminal group which illegally took over OOO OGAT was a resident of Vladivostok, Dmitrii Sanzharov, the son of a former regional court judge.  The hierarchy and organization of responsibilities in this criminal organization was highly precise.  All operatives were divided into groups, each of which was governed by a clearly defined communication structure.  Operational groups included security and economic divisions, the latter of which had as members a number of prominent local entrepreneurs.  Group operatives employed a variety of sophisticated technical and informational technology methods to falsify documents and to collect intelligence on targets.  In addition, operatives conducted “false-flag” operations aimed at discrediting competing organized crime groups.  However, the key operatives in the capture of OOO OGAT were those belonging to the group’s legal team.

 Sanzharov’s legal team was tasked with supporting corporate raiding activities in the courts and other state agents, basically to provide a veneer of legality.  With respect to the illegal takeover of OOO OGAT, the legal team’s main goal was to obtain and manipulate key company documents.  The key figure in the organized crime group’s legal team was Vitalii Beregovskii, who had made a name for himself as a local anti-corruption crusader.  Taking advantage of a major conflict between OOO OGAT’s owners, Beregovskii secured the right to represent one of the parties to the conflict.  In January 2008, Beregovskii then manuevered to have an individual loyal to the organized crime group elected as chair of OOO OGAT’s board of directors, while one of the company’s founders, Igor Oganesyan, was given responsibilities that made him of particular interest to Sanzharov’s group.

 In March and April 2008, members of Sanzharov’s group stole a number of key documents from OOO OGAT’s headquarters, the falsification of which later facilitated the sale of most of the company’s key assets.  In May 2008, the group initiated a violent attack on Oganesyan, in which documents verifying Oganesyan’s rights as a founder of OOO OGAT were stolen.
 Konstanin Radchuk, a lawyer representing OGAT in a number of legal proceedings, attempted to deflect the attacks on the company, successfully winning a case in the regional arbitrage court which found changes made to the company’s founding documents to be illegal.  At this point, the raiders decided that it was time to begin selling off the company’s assets to third parties.  In September 2008, representatives of the organized crime group went to the Federal Registration Service office in Vladivostok, but were refused in their request to change to the legal status of the company.  The reason for the refused request was that Radchuk had identified the raiders and provide the Federal Registration Service with documents confirming the illegality of the raiders activities.

 Unfortunately for a number of individuals involved, Sanzharov’s group did not take kindly to efforts aimed at slowing their profiteering.  Members of the organized crime group subsequently planned a violent attack on the Federal Registration Service official who refused their request to change OOO OGAT’s legal status.  The group also beat to death Dmitrii Baev, the head of the economic crimes division of a district investigative committee looking into the case, as well as Baev’s father.  In May 2009, the group completed its revenge upon Igor Oganesyan, murdering him outside the elevator in his apartment building.  The group, however, was unable to revenge itself on Radchuk.

 At the moment, authorities have detained eleven members of Sanzharov’s group, though Sanzharov himself remains at large, albeit with an international warrant for his arrest.  Law enforcement officials have apparently confiscated eight heavy weapons, three weapon silencers,  ammunition, and twenty sticks of TNT.  Additional investigations have implicated Sanzharov’s group in organized crime activities in a number of other regions of Russia.
 Although Sanzharov’s group was unable to complete their goal of capturing and selling off all of OOO OGAT’s assets, the group’s skilled manipulation of the Russian legal system is highly disturbing.  That Sanzharov’s group was able to get as far as they did before being halted by OOO OGAT lawyer Konstanin Radchuk’s effective intervention suggests that significant changes to Russian business law are in order.