Committee for Russian Economic Freedom

Field of Dreams

In late 2008 President Medvedev discussed the need to create a global financial center in Moscow and recently has accelerated the process by appointing through executive decree on May 18, 2010 that Alexander Voloshin, chairman of Russia’s metals giant Norilsk Nickel, will be the newest member of a presidential council on financial reform. This group will set out a five year plan to make Moscow a financial powerhouse rivaling Shanghai, Dubai and Mumbai.

Global financial centers are based on basic economics, efficient allocation of capital from investors to businesses. A recent Moscow Times op-ed noted the challenges Moscow faces in creating such a center in five years. One such issue is attracting capital and creating an infrastructure of investment domestically. A main reason Russian companies list on foreign exchanges is that it provides a gateway toward more investors and capital. If Russian companies shun their local exchange, there is little motivation for foreign companies to invest the money required to list in a foreign country through understanding of its rules and regulations.

The four components of successful financial centers include:

1. Communications infrastructure, including solid and uninterrupted international links and modern IT capabilities.
2. Legal certainty through clear commitment to the rule of law, protecting property rights and efficient legal processes. Fiscal structures and policies must also be clear and predictable.
3. Fair treatment. Markets must be better regulated so that local insiders are unable to exploit their position. Standards of governance of corporations and institutions must ensure disclosure and the fair treatment of minority shareholders through adequate and consistent disclosure.
4. Availability of skills at all levels either locally or through the free admission of foreign staff.

Of these four issues, international standards of corporate governance may be the hardest for Russia to achieve. At Russia’s annual Securities Market Regulation Conference, Dmitry Ananyev, chairman of the Russian Financial Markets Council conceded that, “We have an additional task of overcoming the non-competitive financial system, which we have inherited from the Soviet era.”

Help may come from abroad.

New financial reforms are sprouting in all countries as the global economic crisis deepens on sovereign concerns that extend beyond Greece to Spain and Ireland and some assert may adversely impact the United Kingdom and the United States.

The London Stock Exchange (LSE) remains the favorite listing exchange for Russian companies, but with Rusal’s recent listing on the Hong Kong Stock Exchange (HKSE) more companies are also looking East. The implications o f HKSE’s more lax listing requirements are disputed by Hong Kong officials, but LSE has begun to require that non-UK companies seeking a premium listing on the LSE to comply with the UK’s Combined Code on Corporate Governance, not just the corporate governance requirements in their home country. Maybe this is the impetus Russian companies need to strengthen their own corporate governance even as the Russian government stalls.

The Russian government’s efforts to limit the percentage of shares a Russian company can list abroad is restricting an important source of capital for Russian companies to expand and refinance debt which puts them at a global disadvantage from other companies.

Russia views entry into the International Organization of Securities Commissions (IOSCO) an important milestone in establishing a global financial center. But as the Moscow Times notes, a financial center is built not with only steel and glass, a vital Moscow financial center needs international investors and transparent laws and regulations. In order for President Medvedev to realize his vision, he needs to change the strict top-down management mentality at the Kremlin and allow capital to flow without government interference. And then, foreign investors may come.

Alexander Zemlianichenko Jr./Bloomberg

Despite President Medvedev’s modernization initatives creating a Russian Silicon Valley, establishing of an international financial center as well as a new Russian identity, fundamental elements in the Russian economy and society remain broken. 

The recent spasms caused by the Eurozone’s response to Greece’s potential default have roiled global markets, erased gains for the year and pushed markets back levels from last fall. Russia’s stock market have followed suit and is now below its 200-day moving average. These global economic winds are difficult to manage as Russian IPOs continue to be delayed such as the $300 million RusAgro and the $200 million Strikeforce Mining & Resources (SMR).

However other IPO postponements can’t be simply chalked up to poor credit markets: Uralchem’s $600 million IPO was pulled after failing to meet ecological standards and Rusal, the first Russian company to IPO on the Hong Kong Stock Exchange, has fallen 31% from its IPO price, which is sowing doubts in foreign investors’ minds about the long-term profitability of debt-ladden Russian companies. It also doesn’t build investor confidence when Rusal’s CEO Oleg Deripaska gives himself a $70 million IPO bonus three months after Rusal’s IPO even as the stock continued its slide.

Russia’s infrastructure problems are well-known internally and externally, given Moscow’s predilection for putting politics ahead of economic concerns. In the latest World Competitiveness Yearbook 2010 from Swiss business school IMD in Lausanne, Russia’s ranking continues to decline in comparison to other BRIC countries despite its natural resource and higher GDP advantages. The Yearbook notes:

Russia is richer than it is competitive. Per capita GDP ranks 38th in the world, but its IMD ranking has slipped eight positions since 2007 to 51st—the lowest among the so-called BRIC countries. Among the main reasons: poor productivity and efficiency, weak management practices, unfavorable prices, and low marks for health/environment. Russia does a lot better in scientific infrastructure, fiscal policy, and international investment.

Attention was drawn to Russia’s lack of rule of law and corruption this week through the hunger strike of Mikhail Khodorkovsky and New York Times report on unsolved attacks on journalists who report on local corruption.

Khodorkovsky’s hunger strike sought to raise awareness that the legal reforms signed by President Dmitry Medvedev on April 7, 2010 are being sabotaged. The law, which resulted from President Medvedev’s efforts to halt abuses by officials of the criminal justice system from attacking legitimate businesses, and to make criminal law more humane after the death of Sergei Magnitsky, ordering that the courts can no longer use arrest as a pre-trial measure of restraint in cases involving allegations of certain economic crimes, including the alleged crimes in Khodorkovsky’s ongoing case. Through an intermediary, President Medvedev acknowledged Khodorkovsky’s plea and so ended the hunger strike.

According to the Committee to Protect Journalists, 32 reporters have been killed since the end of the Soviet Union and the beginning of perestroika and glasnost. As these unsolved persecutions show, corruption in Russia seeps down from above and spreads from below unchecked by any semblance of law or justice.

Khodorkovsky’s second trial continues to display the kind of “legal nihilism” Medvedev claims to end. Yuri Schmidt in today’s Wall Street Journal writes that François Zimeray, the French Ambassador for Human Rights visited the court last month, observed that :

“Mikhail Khodorkovsky’s resistance to being broken by the system has made him an icon for defenders of human rights.” He concluded that not just one man, but rather Russia’s future, is on trial.

For President Medvedev’s modernization to take place, much more needs to be done than creating fantasy technology and financial centers and redefining the national character.

Leading human rights and legal experts discuss the implications of the Khodorkovsky trial on political and economic freedom in Russia at a panel discussion held in conjunction with the US debut of Sketches of [in]Justice: The Khodorkovsky Trial from Putin to Medvedev.

"Territory of Liberty" by Julia Aryeh

Panel Discussion: The Khodorkovsky Trial – Human Rights and Economic Freedom in Russia

Venue: Dorot Center, 171 West 85th Street, New York, NY

Date: Tuesday, May 18th at 3pm

Sponsors: Committee for Russian Economic Freedom, Andrei Sakharov Memorial Museum, Institute of Modern Russia and Drawing the Court

The ongoing trial in Moscow of Mikhail Borisovich Khodorkovsky symbolizes the challenges all Russians face as they seek to build a society free of fear and corruption. In conjunction with the US premier of Sketches of (in)justice: The Khodorkovsky Trial from Putin to Medvedev, the Institute of Modern Russia is sponsoring a panel discussion in which leading human rights and legal experts will discuss the case’s social, political and economic implications.

Panelists will include Karinna Moskalenko, director of the International Protection Center and notable expert on international human rights who will provide an update on international human rights advances in the US Congress and other legislatures. Additionally, Ms. Moskalenko will provide context to YUKOS v Russia a pivotal international case currently being deliberated in the European Court of Human Rights. She testified before the US Congress on May 6 about Russia’s human rights transgressions.

Sergei Lukashevsky Director of the Andrei Sakharov Center (Moscow) will discuss the human rights situation in Russia specifically and the latest efforts by the Sakharov Center to preserve historical memory of the victims of political repression at the hands of the Soviet regime and promote an open democratic society and state in Russia. Mary Holland, NYU Law’s Director of the LL.M. Lawyering Program, will provide a legal context for recent legal developments in post-Communist Eurasian countries and its impact on efforts in the region to improve human rights. Pavel Khodorkovsky, president of the Institute of Modern Russia will discuss how his organization will continue the efforts of his father who strived to modernize Russia through education and opportunities for young people.

Moderating the panel is Pavel Ivlev, chairman of the Committee for Russian Economic Freedom (CREF) and a long-time legal counsel to YUKOS and its former CEO, Mikhail Khodorkovsky, who fled to New York from Russia under fear of unjust prosecution. Through his efforts and the CREF organization, Mr. Ivlev has raised the awareness of the risks of doing business in Russia and how the release of Mikhail Khodorkovsky would be a signal to the international investment community at Russia is back in business.

Admission: Free and open to the public.
General Information: Dorot Center, 171 West 85^th Street, New York, New York, 212-769-2850.

Contemporary Russian Drawings and Paintings Including Works by Akhmetzyanova, Belyavskaya, Ermolaev, Garrido, Lomasko and Ozerova.

Following its well-received eight-month tour of Moscow, Brussels, London and Paris, Sketches of (in)justice: The Khodorkovsky Trial from Putin to Medvedev makes its US debut presenting more than forty works by twelve artists whose works reflect  the Russian peoples’ mounting frustration with corruption and hope for a freer society governed by the rule of law. The exhibition, created through “Drawing the Court,” a contest organized in Moscow by Sergey Kuznetsov Content Group (www.skcg.ru) and the Andrei Sakharov Memorial Museum and Community Center for Peace, Progress and Human Rights (www.sakharov-museum.ru), is on view from May 18 through May 22. The exhibition will then move to the Library of Congress in Washington, D.C.

The Khodorkovsky trial and the imagery it has inspired now serves as a reference point, being one of the significant phenomena of the Russian contemporary history, and another step in the eternal interaction of man and law. In assembling the exhibition, the organizers reviewed more than 400 works submitted in the categories “Painting,” “Courtroom Sketch,” ‘Illustration/Comic Strip,” and “Caricature.” Approaching their imagery from different political, aesthetic and ethical vantage points, all of the artists’ imagery shines through the prism of this bellwether case.

The genre of courtroom sketches first emerged in France, in mid 19th century, and quickly spread to other countries, including Russia. The history of Russian law would not be complete without drawings by Pavel Pyasetsky and Vladimir Makovsky made at the “March 1” Group trial, sketches from the Beilis Trial, and the Kukryniksy group’s graphic series “Accusation” created after the Nuremberg Trials. There are moments when a single drawing made in a courtroom can tell us more about prosecutors, lawyers, judges and other parties of a process better than scores of photographs.

The trial of Mikhail Borisovich Khodorkovsky has already become a factor of the Russian contemporary history and is attracting increased international attention. The trial has gone beyond a mere social phenomenon, and has become a fact of Russian contemporary culture, being covered not only by journalists, but also artists, poets, and novelists. Incarcerated Mr. Khodorkovsky himself still supports various cultural initiatives, and acts as a journalist

Admission: Free and open to the public.

Gallery Hours: May 18 – 22 from 2 p.m. – 7 p.m. For general information call 212-874-7188 or visit www.gelabertstudiogallery.com

Education and Public Programs
In conjunction with the exhibition, the Committee for Russian Economic Freedom will host a panel discussion featuring leading legal experts and human rights advocates discussing the artistic, social and political implications of the Khodorkovsky case. The panel will take place on Tuesday, May 18 at 3 p.m. at the Dorot Center, 171 West 85^th Street, New York. Participants will include Karinna Moskalenko, Sergey Lukashevsky, Mary Holland and Pavel Khodorkovsky.