15 May 2002 Legal Briefs newsletter: For Russia’s Sake, It’s Time for Legal Reform
Violation of the sanctity of contracts and the destruction of intellectual property rights… Unfortunately for companies doing business in Russia today, Soviet-style actions are not a thing of the past.
The culprit: What the Wall Street Journal Europe calls “bureaucratic corruption.”
At risk: In the short run, normalized trade relations between the U.S. and Russia, and Russia’s entrance into the World Trade Organization. In the long run, Russia’s free economy.
After the fall of the Soviet Union, the new Russian government undertook an impressive program to privatize state-run enterprises and businesses. Government-run entities were sold into private hands. Success stories then abounded in which boondoggles were transformed into profit-making entities.
But amid all this good news are some troubling issues that most of Congress and the Administration so far have largely ignored. Russian government bureaucrats are demonstrating a troubling tendency to use Soviet-style tactics when dealing with private companies. A situation exemplifying this growing problem has occurred in the case of world famous Stolichnaya Vodka.
Vodka production is Russia’s second biggest industry. In 1991 the government sold the assets of the Russian vodka industry to private industry. SPI International now has run the company successfully for over a decade. Over one and a half million cases of Stoli Vodka are imported into the U.S. each year.
But last October, the Russian state trademark industry turned SPI’s vodka trademarks over to the Russian Ministry of Agriculture, which declared the trademarks void. A Russian court intervened on behalf of SPI but the Russian government is ignoring the court’s findings and orders. In fact, the government seized the company’s assets and trademarks.
If this worrisome situation had occurred only to one company in one industry, it would be troublesome, but perhaps an aberration. Alas, other private enterprises in Russia are suffering similar fates.
If we imagine the havoc that would occur in the United States if our Securities and Exchange Commission (which regulates Wall Street), was corrupt, and officials of the President’s cabinet felt empowered to seize the assets of industries as large as, say, our automotive industry – even if ordered not to do so by U.S. courts – then we have an approximate picture of the chaos into which Russia economy may be sliding.
This bureaucratic rot imperils Russia’s democratic reforms. For Russia’s sake, as well as our own, Congress and the President should press this point to Mr. Putin, who is the one man currently in a position to effectively reverse these dangerous trends. An impartial legal system that guards property rights is the irreplaceable cornerstone of democratic capitalism. No less than the future of an economically secure and democratically stable Russia is at stake.