Catch and Release: Russian Billionare’s Arrest Underlines the Good and the Bad in Russian Business World

September 19, 2014 | Konstantin Avramov

Last Wednesday, September 17, one of Russia’s riches men, Vladimir Evtushenkov, was placed under house arrest. He was accused of fraud in relation to his company, Sistema, obtaining controlling shares of Bashneft, one of the largest oil refiners in Russia.

The lack of independence and transparency in Russian courts has led to a cascade of internet speculation about the ‘real’ reasons for Evtushenkov’s arrest. Mikhail Khodorkovsky immediately likened the event to the YUKOS trial, accusing Rosneft head Igor Sechin of seizing another oil company to boost Rosneft’s falling profits. The Kremlin spokesman Dimitri Peskov denounced the possibility of any political undertones in the arrest. Some Russian bloggers suggested that the move was driven by recent sanctions on many top national companies, leaving the Russian government to scramble for influence from unsanctioned businesses. Sistema owns Russia’s largest telecom, MTS, along with many other enterprises. Evtushenkov is not known for his political ambitions and it would be a good bet that his company would not be targeted by the West.

These theories have some serious holes, however. While it is possible that Rosneft is interested in adding to its assets, Evtushenkov has a reputation for playing by the Kremlin’s rules, and perhaps would have sold those assets without much fuss. The second theory doesn’t hold much water either, as Western countries would surely place the company under sanctions upon it being transferred to people with close Kremlin ties. To say that this is simply a legal dispute is also unlikely since the company in question was bought by Evtushenkov in 2009, and we have seen complex investigations concluded in much shorter times, such as in the case of YUKOS.

So what is behind Evtushenkov’s arrest? Alas, a surface look does not reveal much about the motivations of the investigation, besides the fact that only Sistema’s oil assets are being targeted. The world is back to the days when Winston Churchill remarked that watching Soviet politics was “like watching two dogs fight under a carpet.” There are, however, several interesting points that we can take away this incident.

First, the Russian business community’s reaction to Evtushenkov’s arrest has been swift and bold. Within 48 hours, the Russian Union of Manufactures and Entrepreneurs sent President Vladimir Putin a letter signed by 26 of Russia’s top business leaders asking for Evtushenkov’s release, including the heads of the Russian Railways, Rosnano, BTB and BJEB banks. German Gref, president of Sberbank, stating that the arrest would seriously hurt Russia’s business climate. This is a positive and somewhat surprising development, as Russian business elite does not frequently voice critical opinions or make public demands. There is even reason to believe that the appeal swayed the government’s course, as Evtushenkov’s house arrest was recently lifted.

However, the fact that business leaders have to appeal to Putin directly highlights enormous weaknesses in the Russian business world. Despite the Kremlin’s assurances that this is a matter for the courts, the business elite’s reaction reveals their understanding of where decisions are made: the presidential office.

Compounding the trouble with the asset-grab narrative, and doubling confusion about the Evtushenkov affair, is the question of why the Russian leadership would pick this extremely sensitive period of sanctions and economic decline to further undermine its struggling business climate.