EU companies at risk of 'raiders' in Ukraine

16.12.11 @ 09:38

  1. By Andrew Rettman
  2. Andrew email

BRUSSELS - The top story on Ukraine is the jailing of former leader Yulia Tymoshenko. But businessmen and diplomats also warn that investing in the country is becoming more dangerous due to state-sanctioned 'corporate raiding'.

  • Derevyanko: 'You cannot protect your legitimate interests in the courts' (Photo: Nick Humphries)

Raiding is a form of hostile take-over in which someone bribes or blackmails courts to enforce a bogus claim against a profitable business.

It can involve a van-full of balaclava-wearing men breaking into your office to tell you that you are no longer the owner. In extreme cases it can involve people shooting at your staff.

Most victims are small-and-medium-sized Ukrainian firms in the agricultural sector. But foreign companies are not immune.

A gunman in Dnipropetrovsk in late 2009 fired a hunting rifle at a Toyota carrying three managers from Arcelor Mittal. The Indian steel giant has been battling local oligarchs in the courts since it bought the Kryvorizhstal mill for $5 billion in 2005.

It is hard to identify cases because raiding does not officially exist.

Ukrainian deputy foreign minister Pavlo Klimkin told EUobserver things used to be bad under previous administrations but President Viktor Yanukovych has taken care of the problem.

One EU diplomat stationed in Kiev named three Polish companies under attack, however: building materials supplier Gorkis Granit, chemicals firm Organika and steel trader Kyivmetalprom.

Another EU diplomat said at least 50 more EU firms are under fire.

"The list concerns major European companies. They face all kinds of problems and all the usual methods of intimidation - disputes about taxes, constant inspections and rent-seeking," he said. "This problem is on the increase and it is common knowledge that it cannot happen without collusion from the authorities."

Two recent downgrades back up his claim.

NGO Transparency International in its latest corruption ranking pulled down Ukraine by 18 places to below Nigeria. The European Business Association (EBA) in Ukraine in October marked the first big drop in two years in its "investment attractiveness" index.

EBA director Anna Derevyanko said: "You cannot protect your legitimate interests in the courts ... This comes up in many conversations with potential investors. It makes them reluctant to go ahead."

She added: "The prime minister [Mykola Azarov] said to us that if we hear of any threats to companies made by high-level officials we should come forward and name them. But everybody is worried who will be next, so people are a bit frightened to speak out."

Hostile take-overs aside, foreign companies are also shaken down for bribes.

A US businessman in Kiev explained how it takes place: "The outside investor is presented with some kind of legal problem. Sometimes, an official makes a blatant demand for cash. More often, he will say: 'I know a guy called Sasha who can help you.' Sasha works for a law firm or a consultancy which demands an exorbitant fee. His consultancy is in fact owned by a relative or an associate of the official."

"Everybody pays," Michel Koutouzis, a Paris-based expert on Ukrainian organised crime, told this website.

The Tymoshenko case is bad news for Ukraine because it fortifies a culture of legal nihilism at the top of society. It is also bad news because it puts at risk EU-Ukraine integration, which investors see as the best prospect for reform.

For his part, Bate C. Toms, the head of the British Chamber of Commerce in Kiev, believes that if the EU gave Ukrainian authorities "the right push" on day-to-day corruption it would help ordinary people to fight back.

"You can see it everywhere - people are sick of the way things are and they want change. A few days ago I was standing outside court after we lost a case and when she passed me, the junior judge actually said 'Sorry.' She apologised because her superiors had told her what verdict she had to give if she wanted to keep her job," he said.