Wild East, a Russia! Magazine blog, Picks Top 5 Business Scandals of 2012

Feb 01, 2013, 11:33 ET from Wild East

NEW YORK, Feb. 1, 2013 /PRNewswire/ -- According to Wild East Blog, 2012 was a busy year for lawyers, investigative reporters and corporate social responsibility activists in Russia as a number of high-profile corporate scandals and conflicts erupted, or continued to smolder, across the nation. This escalation in corporate battles is best explained by lack of quality assets still up for grabs after privatizations and property redistributions of the 1990s and early 2000s. Ongoing effects of the 2008 credit crunch and more recent economic disruptions in Europe and elsewhere have made credit scarce, forcing Russian entrepreneurs, who have their heart set on juicy morsels in other businessmen's hands to resort to somewhat unconventional means of corporate action.

Russia! magazine experts voted the more than a decade-long litigation between Russian tycoons Berezovsky and Abramovich over Russian resource assets as the top scandal as "the longest and most expensive [US$ 5.5 bln] saga" of them all. It finally came to end in 2012, after a British charge deemed Berezovsky an "inherently unreliable witness," awarding the case to Abramovich.

Asset redistribution also continued in Russia's base, precious metals and steel sectors. In repercussions after a multibillion-dollar scandal between two Russian mining magnates Mikhail Prokhorov and Vladimir Potanin, control over Norilsk Nickel, a global nickel, copper and palladium major, shifted away from Potanin to an Oleg Deripaska-led consortium. Prokhorov had good reason to congratulate himself on washing his hands of the asset two years earlier, in 2010, when he walked away with approximately US$ 10 bln in cash after an asset split with Potanin, who stayed on, to fight, and lose, another day.

Russian steel baron Vladimir Lisin's fight against a smaller steel magnate Nikolay Maximov over misstated asset price in a four year-old deal was taken to a new level in 2012, as Maximov obtained "an injunction against Lisin's assets in France," after essentially losing the legal war in Russia.

Several scandals have smaller scale (in the hundreds of millions of dollars, rather than billions), but they stand out by viciousness of attacks and variety of methods use to undermine an opponent and take control of a coveted asset. The fight for major ammonia and fertilizer producer Tolyattiazot (ToAZ) based in the Volga industrial city of Tolyatti has gone to extremes, jeopardizing the livelihood of city residents and threatening the normal operation of basic city services. The man behind the attempts to prevent ToAZ from reinvestment in expansion and maintenance of its assets and from financing socially-responsible projects on which many in the city depend appears to be Dmitry Mazepin, desperate to uphold the chemicals and fertilizers empire he started building in 2008 out of stakes in fertilizers producers. He has a strong motive, as he needs all the cash he can get from his assets to service the debt he took out to finance the acquisitions. This could explain his outraged statements about any expenditures restricting the cash flow to shareholders in ToAZ and Voskresensk Fertilizers, his other acquisition. He could also be the instigator of numerous environmental and other audits, as well as a media campaign accusing the current management and core shareholder of ToAZ of wasteful practices and environmental and other violations, in a thinly-veiled attempt to make the company cheaper. If successful, he would be able to increase his stake to majority and take control over the company's operations and cash flows. These attempts, if successful, could "starve the company of reinvestment" and force it to "scrap its social programs," Russia! Magazine reports. Voskresensk Fertilizers, controlled by Mazepin, serves as a demonstration of what these efforts are likely to bring: that company "is beginning to show the poor condition of assets and is in arrears on payroll," according to the magazine.

Former Moscow Mayor Yuri Luzhkov's wife Elena Baturina won a complete, crushing victory in 2012 over her brother Viktor Baturin, not only stripping him of his share in Inteco, a real estate and construction conglomerate, but also landing him in jail for alleged fraud.

"The total value of the top five business scandals is approaching an estimated US$ 17 bln, but they make an even bigger impact on society as they undermine the trust in free enterprise, the rule of law and the government among the populace – not Russia's strong suits to begin with," says Michael Thompson, editor of Wild East Blog.

Michael Thompson 
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SOURCE Wild East