So people keep asking, “If Navalny was wrongly convicted of embezzling 16 mln rubles (roughly $500k), where did the money go?” The simple answer is, none ended on Navalny’s accounts because over RUB14 mln went to timber suppliers and the rest was the timber trader’s expenses. But there’s a bizarre aspect of the Russian law behind this RUB16 mln number.
Suppose I am a Weak CEO and you’re a Corrupt but Well-Connected Businessman. I have goods in my warehouse worth $1 mln. You walk into my office: “I’m a friend of the governor and I want to buy your inventory for $900k. You say no, you’re in trouble. You say yes, I’ll pay you some of the $100k difference.” I agree and the deal goes ahead.
When my shareholders find out that 10% of the goods was not eaten by mice as I have claimed, a criminal case will probably be opened. But how much did you and I steal from the company? It must be $100k between the two of us.
Not so, however, according to a novel interpretation of the Russian criminal code put forward by the Constitutional court a few years ago. Damage can be assessed at $1 mln, even though shareholders duly received 90% of that amount. In other words, in terms of damage done, a CEO selling crude or timber at 99% of the market and pocketing 1% is as bad as one stealing 100% without paying a cent to the firm.
This construction of the law was used against Khodorkovky and Lebedev in their 2010-11 trial and against Navalny and Ofitserov in 2012-13.
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[…] reminds me of a peculiar Russian legal innovation. Suppose I’m a purchasing manager and I pay $110 for something worth $100. The supplier then […]