European businesses must consider Russia's poor track record before investing

After years of sanctions, European businesses are returning to Russia. The Russia-German Chamber of Commerce recently announced that German businesses invested more than €3.3 billion in Russia last year, exceeding numbers not seen since Russia’s annexation of Crimea in 2014.
French companies currently have about €18.5 billion of investment in Russia, and France’s bilateral trade with Russia rose 11% to €15.6 billion last year. This is good news for the Kremlin, which has been trying for years to encourage foreign businesses to invest in the country.
French President Emmanuel Macron has recently adopted a bold policy of “rapprochement” with Russia, arguing that this approach could have a positive impact on Europe’s security and stability in the long term.
In Germany, the active role played by Angela Merkel’s government in reducing tensions with the Kremlin has boosted businesses’ confidence. However, Russia has not stopped the actions that led to those sanctions being imposed in the first place. In May, the German government voted to support Russia’s re-admission into the Council of Europe, despite Russia’s recurrent failure to meet fundamental CoE standards for human rights.

Regardless of the state of diplomatic relations, German and French companies and investors seeking to do business in Russia continue to do so at significant risk.
In Russia, the legal system is not designed to protect the rights of businesses. On the contrary, it is used as a tool by thugs and corrupt businesspeople to raid and steal from successful businesses. Every few weeks, we are given a new reminder of how dangerous business in Russia can be, especially for companies that are highly profitable or engaged in activities that touch the interests of state-connected competitors.
A recent example is TogliattiAzot (ToAZ), the largest producer of Ammonia in the world. In July 2019, a regional court in Samara ruled against the former leadership of ToAZ, despite widespread evidence that the defendants were denied the right to a fair trial as part of an effort to conduct a corporate raid by well-connected business rivals.
Local publications have reported that witnesses faced threats and pressure from the Investigative Committee to lie under oath. The judge suppressed the defence by refusing to let them present witnesses, drastically shortening the hearing so that legal counsel missed meetings and refusing to translate any case documents or give legal counsel time to review case materials.
Foreign investors operating in Russia are not safe either. A recent cautionary tale is that of American investment fund manager Michael Calvey. In February 2019, Calvey was arrested and thrown into jail on absurd charges, allegedly under the orders of Russian oligarch Artem Avetisyan, who is widely seen as using his political ties to gain an advantage over business rivals. It took considerable international pressure for his study in custody to be reduced to house arrest, where he remains pending a 2020 trial.
No wonder that overall foreign direct investment into Russia continues to decline. At the end of 2018, it had fallen to its lowest level in the last decade, with a net outflow the highest since 2014, according to the Central Bank of Russia.
Even the head of Russia’s audit chamber, Alexei Kudrin, told the St. Petersburg International Economic Forum in August that the country lacks stable rules, impartiality, and fair arbitration of problematic disputes.
Russia might look like a good opportunity, but those who have witnessed how business is done there know the perils that come with it. European businesses considering a return to Russia should bear these stories in mind before they make a potentially costly and dangerous decision.