You're reading: Corporate raiding hurts investment

On Jan. 25, police raided the Odesa plant of Stalkanat Silur, a steel rope and wire producer, seizing documents from the plant’s administrative building.

When a special Sokol police unit returned five days later, workers fought back to defend the factory against what they said was an illicit corporate raid being used to take over the company.

“The police are just a tool” in an illegal attempt to take over the factory, which has annual revenue of Hr 900 million and employs more than 1,000 people, Stalkanat spokesman Vitaliy Niroshnikov said.

A spokeswoman for the Interior Ministry office in Odesa said the head of the office was unavailable for comment.

The company’s owners claim the motive behind the raids is political, as co-owner Vladimir Nemivorvskiy is the head of the regional office of the opposition party Front of Change. The national leader, Arseniy Yatseniuk, called the raids an attempt to “get financial resources” ahead of the parliamentary elections set for Oct. 28.

Corporate raiding is the use of legal or physical force, often officially sanctioned through law enforcement bodies or courts, to take over a company.
British Ambassador Leigh Turner has repeatedly pointed to the problem of corporate raiding of both foreign and local companies, particularly in the regions. In an interview with UNIAN news agency, he said government officials could help in individual cases, but that the issue was “a systemic problem which affects the whole of the Ukrainian economy.”

Martin Raiser, head of the World Bank in Ukraine, also warned in November that raidership is a major problem in Ukraine that threatens investors.
Turner said it was part of his job to encourage inward investment in Ukraine, and that Western companies had expressed readiness to move billions into the country. But if rule of law and the investment climate didn’t improve, he noted, “that would be a very slow process.”

“The problem is much smaller than in previous years. … If you go online and look for notifications of raider attacks you will find a hundred times less than previously,” said Volodymyr Polishchuk, a spokesman for the Interior Ministry. “A unit fighting economic crimes is operating to counter this phenomenon.”

Critics disagree.

“If we look at what appears in the press of late, then news of corporate raiding has been appearing more frequently, involving people with ties to the authorities, who hold positions, like in the tax offices, or simply connected to tax inspectors, or working in law enforcement. Recently, law enforcement forces are not fulfilling their primary function, but rather carrying out someone’s orders,” said Vladimir Lukovich, a lawyer at Frishberg & Partners.

Odesa’s Stalkanat Silur claims that an invalid court case involving a 2002 contract that had long been settled was used as a basis for a police raid on Jan. 25. After Stalkanat’s lawyers brought evidence the case was void two days later, a court decision delayed any further steps.

Yet this did not prevent special Sokol security forces from breaking down the gates on Jan. 30, only to be pushed back by factory workers. These are now keeping watch over the factory around the clock, in order to prevent further attempts to take over their workplace.

Asked about who he thought stood behind the attacks, Stalkanat spokesman Company spokesman Niroshnikov alleged that the whole affair goes to the top of the country’s leadership. “Under the rule of the current president, the country has been divided into fiefdoms in which trusted persons keep business under pressure,” he said. Yanukovych’s press secretary could not be reached for immediate comment.

But critics of the country’s authorities say raids are used against political rivals.

In the past year, companies linked to Konstantyn Zhevago, a lawmaker in former Prime Minister Yulia Tymoshenko’s party, have come under attack. Tire producer Rosava, Finance & Credit bank and pharmaceutical company Arterium – all owned by Zhevago – reported raids in 2011.

Law enforcement authorities said the raids were part of criminal investigations. Zhevago has since adopted a politically neutral position and has reportedly moved to live in London.

Even being a global giant doesn’t protect a company from pressure. ArcelorMittal, the world’s biggest steel producer, bought the Kryvyi Rih mill, Ukraine’s largest, for $4.8 billion in 2005. Then Prime Minister Yulia Tymoshenko ordered the plant re-sold after it had initially been purchased by domestic billiaonaire oligarchs Rinat Akhmetov and Viktor Pinchuk for a mere $800 million.

In 2009, a car transporting three managers of ArcelorMittal was shot at in Dnipropetrovsk in 2009. The next year, the general prosecutor’s office opened a case claiming that Arcelor Mittal had reneged on investment commitments that could have overturned the landmark privatization in 2005.

The case was suddenly dropped after Yanukovych met with his French counterpart, Nicolas Sarkozy. Asked about its past problems and the current threat of corporate raiding, ArcelorMittal Kryviy Rih’s spokeswoman declined to comment, citing “security concerns.”

Fighting against corporate raiding is made more difficult by a lack of legal definition. The practice can range from so-called maski-shows, where balaclava-wearing men storm offices, to intricate legal ploys involving police officers and corrupt courts.

The latter option has allegedly recently been employed in case of the lucrative Ukraina shopping mall in central Kyiv. The Irish Bank Resolution Corporation, an Irish state financial institution that had issued loans with the mall as collateral, has seen its attempts to recover the property foiled by court rulings it described as “a cynical deprivation of property.” Some believe the mall’s former owners, the Quinn Group controlled by Ireland’s former richest man Sean Quinn, are using Ukraine’s malleable court system to keep assets out of the IRBC’s hands. The Quinn family denies any connection with the court rulings.

Transparency International’s latest corruption perception index has Ukraine tied for 152nd with Tajikistan, behind Russia and Nigeria.

Asked what options companies facing raider problems had, Frishberg & Partners’ Lukovich said that typically such cases were based on legal grounds, and thus necessitated a quick and targeted legal response. Organizing a press campaign and seeking the assistance of political figures would also help, he added.

Kyiv Post staff writer Jakub Parusinski can be reached at [email protected]