International arbitration is of no assistance in Russian fraud cases

The business lockout around Europe and Russia puts M&A and other commercial projects on hold but does not stop criminal investigations.

Another precedent criminal case came to light in Russia last week. The main suspect has already been arrested and detained in Moscow.

The case, being closely connected with ‘ordinary entrepreneurial activity’ of the suspect, sends strong negative PR signals to the Russian business and political communities.  The current case attracts media and public attention also because the allegedly fraudulent transaction was examined by the international lawyers and the London International Arbitration Court.

It is known that Russian political activists and business community spent a decade to persuade the Kremlin administration and the government to change the legislation to make ordinary business processes immune from criminal investigations and the suspects in business-connected  cases – to avoid preliminary detention.

The First Vice-President of Bunk Trust, known as a bank for ‘bad debts’, owned by the Russian Federation, Mr Mikhail Khabarov, before his current appointment acted for two years as an ‘external crisis manager’ to Delovye Linii transportation and logistics company. The company was controlled by Mr Alexander Bogatikov, who promised Mr Khabarov 30% stock option for his services (approximately $ 60 mln worth). Later, being dissatisfied by Mr Khabarov’s services, Mr Bogatikov unilaterally terminated the service contract and the option agreement.  Mr Khabarov’s company –  Caledor Consulting filed an application with the LIAC and obtained a favourable judgement in January 2020. The shares of Delovye Linii were arrested by the Russian commercial court.

Mr Bogatikov reacted by filing a criminal complaint with the Investigatory Committee, alleging ‘corporate riding, extortion, blackmailing and fraud’. As a result, Mr Khabarov was made a suspect in the criminal fraud case of almost 842 mln rubles ($11 mln) – the overall amount of fees paid for his crisis management services.

Russian entrepreneurial community sent several letters to the President of the Supreme Court, the Head of the Investigatory Committee and the Prosecutor General demanding immediate release of Mr Mikhail Khabarov and termination of the criminal investigation. Businessmen and lawyers say that this case should be seen simply as an illegal attempt to exert illegal criminal law pressure on Mr Khabarov and force him to refuse to collect from Mr Bogatikov a debt of $ 58 million.

This case is particularly important for international investors as it confirms that the efforts of the Russian business community to exclude criminal law means from Russian commercial disputes are still unsufficient and even a judgment of a reputable international arbitration tribunal fails to ‘shield’ an entrepreneur from an illegal attack.

If you would like to discuss any issues regarding CIS practice that your business might be facing, then please contact our consultant Dmitry Gololobov on 07921 160 108 or at