Russian arrests of foreign businessmen shocks Western investors

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The arrest in Russia of prominent U.S. and French investors on suspicion of fraud has sent shockwaves through Western business circles and sparked fears of cutbacks in foreign investment sorely needed for economic growth.

The founder and employees of private equity firm the Baring Vostok were arrested on Friday in a case brought with the help of the FSB security service.

The arrest took place on the same day Russia hosted leading business people in the Black Sea resort of Sochi for a major economic forum.

Michael Calvey, a U.S. citizen and the founder and director of Baring Vostok, has been placed in pre-trial detention in a Moscow jail for the next two months for alleged fraud, along with five others - including Philippe Delpal, a French citizen.

They are accused of defrauding Vostochny Bank of at least 2.5 billion rubles (37.7 million U.S. dollars). All of them deny any wrongdoing and blame the case on a shareholder dispute.

U.S. investor Michael Calvey, the head of investment company Baring Vostok, detained on fraud charges, attends a court hearing in Moscow, February 15, 2019. / VCG Photo

Calvey argued in court that the probe is a bid to exert pressure on him amid a shareholder conflict within Vostochniy Bank, which he is trying to resolve in a London arbitration court.

The charges against him are intended to "pressure Baring Vostok to drop its arbitration claims in London or to obstruct the new share emission of Vostochniy Bank," the Baring Vostok statement said.

'Hateful image abroad'

In an opinion piece on Monday in the Vedomosti business daily, Maxim Bouev, vice-rector of Moscow's New Economic School, wrote the case proves what investors have long known: "If you want to invest in Russia, you have to accept your risk of eventually being arrested and finding yourself in the dock."

Arkady Volozh, the CEO of Russian Internet giant Yandex, defended Calvey in a statement, saying he "has always been a standard for the market of decency and law-abidingness."

Other business leaders said they fear the case will deal a severe blow to an investment climate already marred by corruption and the lack of independent courts, especially given the strong-arm tactics employed.

Former Chairman of Vostochny Bank board Alexei Kordichev, who was detained on suspicion of embezzlement, is escorted inside a court building in Moscow, February 15, 2019. / VCG Photo

"This gives Russia a hateful image abroad," the president of the French-Russian chamber of commerce, Emmanuel Quidet said.

The chamber on Monday said it was "very concerned" about the arrests in a joint statement with the Association of European Businesses, a federation of multinational companies working in Russia.

The case could "severely damage the climate and attractiveness of Russia for direct investments from abroad," it said.

The Kremlin sought to dispel those fears, with spokesman Dmitry Peskov saying Calvey's arrest should "not affect the investment climate" in Russia.

He added he was aware of the contribution to the Russian economy made by Calvey, but declined to comment on the specifics of the case.

(Cover image: U.S. investor Michael Calvey attends a court hearing in Moscow, February 15, 2019. / VCG Photo)

Source(s): AFP