Recommendations on Foreign Investment Disputes in Russia

Dr. Deborah Anne Palmieri

The following report has been circulated to senior members of the Russian government and others. It summarizes recommendations made by investors at the New York Spring Roundtable of The Russian-American Chamber of Commerce in May 2002. This meeting centered on the theme: “Comparing Notes: Managing and Avoiding Lawsuits and Investor Disputes in Russia.” The group discussed disputes and dispute resolution with a special emphasis on the Archangel Diamond/Lukoil and SPI/Stolichnaya controversies.

Investor disputes are bad publicity for the cause of investing in Russia and should be carefully considered and reviewed by the Russian government. Numerous cases have drawn widespread negative publicity including Archangel Diamond/Lukoil, SPI/Stolichnaya, Kinross Gold/Omolon Company, Sawyer Research Products, Norex Petroleum and others.

The Russian government should undertake a special review of these cases to evaluate whether there may be domestic structural causes lingering from the old system behind these disputes. If so, the government should seek to provide for legal and other remedies to enforce a fair and level playing field for foreign investment capital.

In order for a significant wave of foreign investment capital to flow into Russia, cases such as those mentioned in this report require resolution in a way that demonstrates confidence to outside investors, and a sense that Russia is able to provide a fair resolution of disputes and controversies.

Many participants felt that while Russia expressed a desire for foreign investment, that it is ambivalent about its natural resource policy and foreign involvement, and in fact its policies discouraged foreign involvement. What is required is a strong government initiative to incentivize local and regional governments to cooperate with foreign interests and minimize the effect of former Soviet thinking and attitudes, which did not support foreign investment in developing the natural resource sector.

Participants, especially those involved in lawsuits, expressed the desire for senior- ranking Putin Administration officials to become engaged in the process of seeking fair resolution to disputes. Whether real or perceived, this is a sense that corruptive elements at regional levels and some levels of government prevent transparency and fairness, and the equitable settlement of the dispute cases. As such, political will at higher levels is needed to guarantee justice. There were complaints also that oligarchs were in control behind the scenes and often a hidden cause preventing fair dispute resolution. All participants emphasized that a system of law and enforceable contracts is key to expending foreign investment in Russia.