What Does Abramovich Fear More –
A Swiss Court or a Russian Street?

MOSCOW (RIA Novosti, by Vladimir Simonov) — One of Russia’s richest people, Roman Abramovich, might have to appear in a Swiss court to defend against claims filed by the European Bank of Reconstruction and Development (EBRD). The bank is demanding that Mr. Abramovich return a loan worth 9 million pounds (approximately $17 million). The EBRD is reported to have acquired documents indicating that Mr. Abramovich used part of the loan "inappropriately." In particular, the Russian billionaire is accused of using some of the money to buy two luxury yachts. The court documents prepared by the EBRD include a fax instructing Runicom S.A. to transfer 28,000 Swiss francs to pay for beauty treatment provided for Mr. Abramovich’s wife, Irina. Russian legal experts are rather skeptical about the EBRD’s chances of suing Mr. Abramovich successfully.

Russian courts have already heard the case twice, with the last ruling in the EBRD’s favor. Unfortunately for the bank, though, Swill company Runicom S.A., the major trader and shareholder of Sibneft, declared itself bankrupt shortly afterward. All its assets and functions were transferred to a new Gibraltar-registered company – Runicom Ltd. During the new trial, EBRD’s lawyers intend to prove that Mr. Abramovich and his associates were the legitimate owners of both companies in question, and, therefore, Mr. Abramovich is responsible for the obligations on the loan.

However, the danger for Mr. Abramovich and other oligarchs does not come from the Swiss court, but rather from the Russian streets. In Russia, the term "oligarch" is associated with a person who squanders money stolen from people. In this case, it means money from a loan issued to help the Russian economy develop. It is hard to imagine a more inconvenient time for Mr. Abramovich to deal with the suit if it is ever filed at a Swiss court. Pensioners have organized a wave of protests that has swept the country against benefit reform. With growing social tension, Russians will see a scandal involving the oligarch as direct proof of where the money that could have been spent on improving their living standards actually goes. Indeed, everybody has acknowledged a sharp deterioration in living standards that has affected millions of Russians since the early 1990s. Market economy reforms are now entering their second decade, and still every fifth Russian has to survive below the official poverty level – about $2 per day. The decile coefficient, which shows the gap between the incomes of 10% of the richest people and 10% of the poorest people, is even more explicit. It is shamefully high, as the incomes of the former exceed the incomes of the latter by 14.6-15 times. And that is just an official data. Some experts claim that if the "shadow" profits of the oligarchs were considered, this coefficient would jump over the 30-times mark. In comparison, the decile coefficient in the United States, Europe and Japan is four to five times lower.

It is obvious that such a gap in the prosperity levels causes a serious split in the entire social fabric, which, as history shows, is extremely dangerous for a country’s stability. It is especially painful for older generations of Russians who were educated according to appealing communist rhetoric about social justice.

The stark contrast in the quality of life of the rich and poor creates a suffocating atmosphere in Russia for business in general and big business in particular. The market economy is becoming discredited in the eyes of the Russian public.

"When somebody mentions the names of prominent Russian businessmen, 70% of Russians are ready to grab a gun," says Igor Yurgens, the vice-president of the Russian Union of Entrepreneurs and Industrialists.

Meanwhile, a closer look at the current market economy model in Europe shows that it is formed under the conspicuous influence of such values as equality and social justice. Europeans believe that successful business today must ensure a new quality of life and real benefits not only for businessmen but also for all participants in the economic process.

This idea is garnering growing support among Russian business circles, as well. The fashionable term "the social responsibility of business" is being heard increasingly frequently. The Kremlin is also demanding social responsibility from a new Russian social stratum. "We established the lowest income tax in Europe at 13%; we abolished the sales tax and VAT in 2004," officials repeatedly state at various business forums. "And we expect from you closer cooperation with the state to solve acute social problems, primarily, the elimination of mass poverty."

This does not necessarily mean the state is proposing that Russian business strike a deal or come up with some donations. The authorities are trying to explain to young Russian entrepreneurs that it is a question of their own survival. The market economy will develop normally in Russia only when all of society, including a large army of poor people, starts to believe in its unquestionable advantages compared with planned economy, and especially compared with nationalization.

The social responsibility of business recently became the main topic of a discussion at a conference organized by the Russian Chamber of Commerce and Industry. President Vladimir Putin and leading Russian businessmen attended the conference. The majority of the participants expressed rather passive and cautious views. Many interpreted the appeal in rather narrow terms: we develop businesses, create jobs, ensure adequate remuneration, pay taxes – what else do you expect from us? That is our social responsibility. The state must take care of the remaining social problems because it is its direct responsibility.

The business representatives emphasized that the authorities had far from exhausted their potential in that respect. For instance, only about 15% of the 2004 federal budget was spent on education, health, support for scientific progress, culture, arts, sports and social policy. At the same time, the maintenance of the state apparatus cost much more. Therefore, social responsibility has not become a fundamental principle for state bureaucrats, either. So, what is the point of blaming businessmen for their passive attitudes?

Nevertheless, the Russian business community is starting to realize the historical inevitability of closer cooperation with the government in Russia’s social revival. Often, without advertising their actions, Russian businessmen anonymously start supporting the country’s poor. They set up targeted social foundations, whereas some large companies finance housing projects in neighboring residential areas, and help to maintain transportation infrastructure, schools and local hospitals.

Gradually, the public is coming to see oligarchs less as unscrupulous squanderers of illegally acquired wealth, and more as influential citizens capable of feeling sympathy for their less successful compatriots.