Part 3: Personal and business security in Russia.
By Paul Backer
pauljbacker@gmail.com

DISCLAIMER: This article is uncompensated. It is NOT legal advice. Everything herein is personal opinion. It does not represent anyone else’s opinion. It does not address any current or past client or employer matter.

WHY A “SURVIVAL GUIDE”? It’s fun to get a win for a client in a tough environment. It feeds the soul. A survival plan (assessment, tools, implementation) materially improves chances to prevail in, or better yet, prevent a crisis. The goal of these articles is to suggest legal, regulatory and compliance tools (best practices) to prevail. The Russia/CIS business, legal, regulatory and compliance environment lavishly rewards consistently applied best practices.

SYNOPSIS: The response of many foreign investors to security issues in Russia/CIS is reliably entertaining. The varied peddlers of security: bodyguards, odd men with vague connections to shadowy executive agencies, childhood friends of oligarchs and politicians, etc. The snake oil salesman purveyors of security mythology, of ripping yarns of FSB, siloviki, kontora, Center, dachas and banyas. A crew cut guy hinting at good old days in the GRU, FSB, parachute school, elementary school attended by an oligarch, etc. is cool. Take dark hints of “St. Petersburg group” support for a project, add romantic lighting in a five star hotel and for many foreign investors it becomes a man crush. Disappointingly this has nothing to do with helping protect your self, money or property. Meaningful security is implemented by lawyers, police and you.

A people unwilling to feed their own army will feed someone else’s. Western Wisdom

Ne zakazivai, zakazannim ne budesh. Russian Wisdom

The security scam is a little bit like watching improv. If you do business and private finance law work out here, you have been in the situation where someone who is new to the region or sadly, not so new, shows up for a meeting, usually in a five star Moscow hotel with his Security Guy. The Security Guy is athletic, early 30s to early 40s, wears the obligatory black leather or suit jacket, dark shirt and often, a lapel pin with a shield and a sword. Any shield and/or sword will do. The Security Guy was a paratrooper, FSB, member of a secretive renegade Cub Scout troop, whatever. Now, he is in a CHOP, a private security company and costs around 7,000 to 10,000 Euro a month as an escort for personal security, if it’s a corporate project the sky is the limit. Typically, the Security Guy lasts six months to a year or until the first time he must perform an objective task. Sadly, he is useless for personal security, and inoptimal for business security.

The phenomenon of people who are by most objective standards successful, shrewd entrepreneurs failing a rudimentary assessment of their actual security needs is fascinating. It’s a weird mix of risk telescoping and the man crush. Establishing an effective personal and business security plan requires effectively assessing security needs, tools and implementation.

Personal security assessment. If you don’t need a guy with a gun in your home country, odds are that you don’t need one in Russia. As a foreigner, unless you routinely carry sacks of cash, you are of limited interest to structured crime. Foreigners are not attractive targets, most of their assets are overseas, they tend to have lawyers, accountants, etc. Your personal security needs are straightforward. Not to be physically injured and not to have your freedom curtailed. For personal security, simple tools are best.

Tool 1. Never touch a local national. You get shoved in a bar, club, street, someone snatches your phone off a table, whatever, don’t do it. Yell for security, but don’t touch the local nationals, ever. Laying hands on a local national opens a Pandora’s Box that includes potential assault and other felony charges. Physical confrontation can lead to physical injury, leading to local emergency room treatment. You don’t want that.

Tool 2. Don’t talk trash. Don’t curse in the local language. Don’t be the guy who learns to curse in Russian, without speaking it. Obscenities are a language, have usage norms and can elicit automatic emotional and physical responses. You didn’t grow up with Russian obscenities, inappropriate use often leads to sharp blows to the head. Do not threaten. Seriously, you are not an actor in one of the Godfather movies. Don’t do it, ever. The most reliable way of preventing the use of inappropriate conduct toward you is to never, ever, ever threaten someone with its use.

Tool 3. If you are initiating a physical relationship, check ID. If it is professional, you are entitled as a client, if it’s true love, check ID, seeing a passport photo helps bond. Try to make sure that your apartment door has a lock that requires a key to open from the inside. Don’t rent an apartment on the first floor or top floor.

Tool 4. Don’t violate local laws. Don’t rent property without a contract. It’s really not a good idea to register property that you buy in your girlfriend’s name, unless you plan to make a gift of it. Don’t drink alcoholic beverages on the street. Don’t register your company to a dead person or an address with a hundred other legal persons per square meter. Don’t pay or get paid in Russia in any currency other than rubles. Don’t give bribes, it’s unethical and we (foreigners) don’t have the cultural background to do it correctly. It’s not just ethics, obeying the law is a question of efficiency. The miniscule savings from cutting corners are not worth the exposure to hassle and blackmail. It is far better to pay a speeding fine than to face felony prosecution for attempted bribery. And yes, your lawyer can help you get back the apartment registered to your girlfriend, but it’s expensive and uncertain.

Tool 5. Act your age and social class. Don’t go to places that are not geared for you as a client. If you are a millionaire, go to restaurants and social clubs appropriate to your age and income level. Try GQ, Pushkin, Rai, Soho Rooms, Fresco. These places have security and make an effort to screen out the clientele to ensure a safe and enjoyable experience. You will meet other millionaires, launch new projects, generate income for your lawyers. All good things.

Tool 6. Be prepared for stress situations, more on that in the business security section. If you are stopped by police ask to see their ID. WRITE DOWN THEIR NAME AND ID NUMBER AND COMMUNICATE THAT NAME AND NUMBER BY SMS OR PHONE CALL. Don’t accompany anyone to a secluded corner, bus, etc. Don’t pick up money from the street. Always remember, it is NOT the job of your embassy to get you out of trouble, their job is to (at some point) make sure that the LOCAL legal and procedural norms are followed. If in any doubt, make a call.

Tool 7. You must have someone who is ready to receive your call in an emergency and is able to help. This person can be your attorney, local partner, head of your business security, etc. It has to be someone who is in the profession of helping people and has the relevant professional police, courts, hospital, etc. contacts. This is exactly the situation where a $800 an hour Partner in a major law firm could be of limited help and your company’s $3,000 a month Russian attorney could save your bacon. Here the Security Guy is useless. He is not likely to be from the government entity statistically likely (back to risk telescoping) to detain you. Street level problems, whether drunk driving issues or street hassles are by the MVD. Rappelling at midnight from a hovering helicopter is by the Security Guy. MVD doesn’t care who your Security Guy went to school with or in which parts of the Middle East his name is never spoken. If your Security Guy was anyone who would be listened to, he would not be renting himself out as a gentleman’s escort to foreigners. There are real people out there with meaningful connections, but they don’t hang out in hotel lobbies.

Tool 8. Link your personal security plan to your business security plan.

Business security assessment. Enough of the homilies, here is the good stuff, the lawyering and best practices. The, let’s call them, virtues of security.

Tool 1. Don’t be vain. Prevent your business activities from generating personal security issues. Threats are economically effective if they impact the ultimate decision maker, the owner. One of the easiest ways to significantly reduce your risk profile is to never position yourself as the ultimate decision maker in your business. Draft corporate documents so as not to reflect your ownership as a physical person. Always stress that you report to investors, shareholders, whatever. It is worth considering an off-shore to insulate your ownership and yourself from security and tax threats.

Tool 2. Don’t DIY your project’s management. Do not be the general director of your enterprise, the exposure to legal liability is not worth it. Serving as general director is managerially inefficient as it curtails your freedom of executive action. It obligates you to sign an absolutely mind destroying volume of meaningless documentation, such as the statement confirming payment of road tax. I have invested hours of my life into this conversation with well over a dozen foreign (U.S. and EU) clients. The best argument that I found so far is: don’t do it, because none of the Russians do it.

Tool 3. Don’t be lazy. As discussed in a previous article, there is limited utility to keeping key documentation on the premises. So, don’t. Periodically police your premises. You don’t need original contracts onsite to carry out the contracts. Rent a bank deposit box, pick a good bank (Raiffeisen, VTB, etc.), keep core documents in the box. What happens if the tax authorities remove your server? What happens if burglars remove your server? Make back ups, have an ongoing security plan. A helpful word, www.ironmountain.com, I am a big fan.

Tool 4. Don’t be a Scrooge. Yes, you can register a company in Russia for about $300, and I know of someone who did the same with a major foreign firm for $12,500. In fairness, he did get a memo in English and Russian (I love that memo!) on whether he should choose a CJSC or an OOO format included in that price. But, generally it’s worth the $2,000 to do it right. Doing it right means that the person the company is registered to is not, well… dead (has happened), does not have several dozen companies listed to him, that the legal address actually exists, and that mail can be delivered there. It is very disappointing to have your bank account frozen, because your legal address doesn’t exist.

Tool 5. Be a thoughtful host. Being inspected by the tax or other applicable authorities does not per se expose your business to crushing tax, epidemiological, fire, and other penalties. It could be a positive experience, meet new people and find out about the latest in fire safety and tax compliance, etc. Adopt and implement a document retention and engagement policies for your business. Who has the right to speak to a tax inspector on behalf of your business? Who has the right to sign for and accept legal correspondence on behalf of your business? Is your business retaining any records that it is not legally required to? If you are legally required to keep documentation, are you keeping potentially sensitive documentation offsite? This is where your attorney shines. Don’t unnecessarily burden inspectors with documentation that they are not legally obligated to see. It is true that email generally is not a legal document in Russia, but it is kind of stupid (as in the case of one former oil company in Russia) to trash talk the Russian authorities in emails kept on the company servers. Inspectors are people too, they have feelings.

Tool 6. The amount of security depends on your business. Hard for a lawyer to speak to that. But, have the right KIND of security. The key issue is who should do the security. Based on historical experience, it is highly preferable to work with the militia (MVD) vnevedomstvennaya ohrana. In Russia you can officially employ uniformed armed police officers to provide your business with security. This should enable you to build the relationship to ensure that you have a point of contact in a business or personal security stress situation involving the MVD. Historically, CHOPs use direct methods against other CHOPs, and MVD may use them against a CHOP, but uniformed armed police officers employed by and present on the premises facilitate conversation and introspection. Also keep in mind that if you are located on someone else’s premises, they most likely already have a CHOP providing “site” security.

Tool 7. Look at the security function of your employees. Limit the capacity, through Articles and Bylaws and other internal documentation of the Finance and General Directors to dispose of your business assets and funds. One idea is limiting the Finance Director’s authority to operational funds and withholding authority over accounts representing company profits. Provide a whistleblower mechanism for your employees to report directly to your office on executive malfeasance. Your physical security protects your front door, your lawyer protects the stuff inside.

Tool 8. Not really a tool, more of a personal plea from a corporate counsel. I suspect that corporate counsel have higher suicide rate than dentists, driven by this character flaw of our clients. It is the failure to accept the axiom that organized is far more effective than smart in this region. Please, please, please do not cooperate. Do not help the authorities with their inquiries. Do not ever offer information over the telephone to “investigators”. Don’t helpfully explain to police, inspectors or investigators well… anything. If you ever find yourself using the phrase “Do you think that I would be stupid enough to…” Then, the answer is an unequivocal, “Yes”, everyone listening thinks that you are that stupid, otherwise your lawyer would be talking. You have the right to remain silent. For the love of god, think of the cardiologist bills of your attorney and remain silent. Please.

Implementation.

Secure Articles, Bylaws and Charter – from $3,000 to 6,000 depending on the complexity of your business. Secure and off-shore management and ownership structure, depending on complexity, runs from $25,000 for Luxembourg to $2,000 for Cyprus off-shore. Document retention and management policy – from $12,000 to 20,000 depending on the complexity of your business plus storage costs. Review and drafting of executive contracts with the General Director and Finance Director – from $800 to $1,500. Security audit by an outside legal/licensed accounting team $8,000 to $12,000. Never writing again about a topic as “dry” as security – priceless.

As always, questions and suggestions to pauljbacker@gmail.com.