Canadian Lawyer InHouse

You probably wouldn't spend $30,000 finding out about the background of your potential partner if you were going to Nebraska. But in Russia you need to do that. LOU NAUMOVSKI, Kinross Gold Corp. prepared," he said in an interview. The most critical piece of due diligence for any foreign company entering Russia is to find out who, exactly, your partners are there. Russia's economy may have come a long way since 1990, but the country re- mains one of the most stubbornly corrupt jurisdictions on the planet. On the Corruption Perceptions Index maintained by Transparency Interna- tional, Russia ranks only 143 out of 182 countries. Canada is ranked 10th. Russia receives only 2.4 points on the Index scale between zero (very corrupt) and 10 (very clean). That puts Russia well below the other BRIC nations of China, India, and Brazil, and only slightly higher than Zim- babwe, which has 2.2 points. For all the bullishness of Paul Drager and his colleagues at CERBA, Russia is still rife with stories of businesses, foreign and domestic, having their assets pilfered by corrupt tax collectors, police officers, security officers, and bureaucrats, some of whom operate together much like orga- nized crime families. Doing business in Russia is "a moving 22 • APRIL 2012 INHOUSE target, there are no real rights," said a Mos- cow restaurant entrepreneur in an inter- view last September with Time magazine. "If you could put your $100 million in any market, why would you put it here?" Along with such business insecurity is Russia's ongoing political volatility. In February, hundreds of thousands of Rus- sians rallied in the streets of Moscow and other cities, demanding an end to then Prime Minister Vladimir Putin's rule, and challenging his campaign to reclaim the presidency in March. He was victorious but many protested that the election was skewed in his favour. All of this underlines the importance of a comprehensive due diligence and anti-corruption program for foreign com- panies entering Russia. Kristine Robidoux, a partner with Gowling Lafleur Henderson LLP in Cal- gary, who helps foreign investors with anti-bribery compliance programs, says Russian corruption is more sophisticated than in other emerging markets such as Mexico, for example. It's therefore more insidious and harder to avoid. Investors in Russia, she says, won't be asked for a bribe directly by the government agency or private partner they're dealing with. Instead they'll be directed to make pur- chases or sub-contract services through a specific party, which in turn will use that money to pass kickbacks up the chain. "Invariably the biggest pitfall for clients I work for in Russia is that they oſten don't entirely know who they're contracting with," Robidoux says. "They deal with state-owned or state-controlled entities. Those entities require business be done in a particular way — that transport be contracted to specific firms, that pur- chases of commodities occur through specific channels, that there be legal rep- resentatives for that company in Russia that are named by the state entity. "Any time the organization is being that directive in how you contract for other services, that is a significant red flag." Corruption matters not only because it's unethical, says Robidoux, but also be- cause the United States and more recently Canada have started aggressively enforc- ing anti-corruption laws against home- grown companies. "Canada has been under significant international pressure to ramp up its enforcement of the Corrup- tion of Foreign Public Officials Act. That law has been on the books since 1998, but Canada has not taken steps to vigorously enforce it until recently, and they've come flying out of the gate in an effort to rid themselves of the reputation of being easy on this." Robidoux says Russia offers an easy trap for Canadian businesses. "Corrup- tion is vertically integrated there," she says. "You've got a state-owned entity at the top, which is going to contract with a Canadi- an company to do something, but in order for the company to carry out its work, it needs gasoline or trucks or whatever. And because corruption runs throughout the whole supply chain, the money being paid by the Canadians to the trucking company is getting kicked back to someone at the state-owned entity. "Perhaps the tide is starting to turn in Russia, but sadly our experience is that corruption remains sophisticated and it remains prevalent." Lou Naumovski says it pays to invest not only in anti-corruption forensic and

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