Russia 101027 Basic Political Developments

German businessman hurts Russia's reputation in the West

http://english.pravda.ru/world/europe/27-10-2010/115535-russia_business_reputation-0/
27.10.2010

Scandalous Sedelmayer case took a very unfavorable turn for Russia. Russia was unable to appeal the seizure of the government property imposed on October 11 by Swedish judicial authorities. We are talking about the building of the Russian trade mission in the town of Lidingö near the Swedish capital.

According to the plaintiff, in 1991 he founded the business in St. Petersburg. The company of Franz Sedelmayer, SGC International, and St. Petersburg police department established a JV (joint venture). This is not surprising: government agencies were allowed to do business then. Moreover, the police offered a mansion on Kamenny Island, the residence of its department, as capital stock for the deal.

Sedelmayer had rented the building for 25 years, had invested 2.35 million Euros in its repair, turning the once dilapidated mansion into a modern conference center, as well as a place to train security forces.

According to German media, in 1994, the activities of his company were declared illegal, and along with the company Sedelmayer was dispossessed of the mansion - his new owner was the "Russian president's administration." Later it was turned into a federal residence under the name "K-4."

The Russian authorities explained the reason why he was not compensated for the costs by the fact that the Kamenny Island did not provide supporting documents, and allegedly renounced the estate. The security service of Sedelmayer withstood a three-month siege of the police before the mansion "surrendered." Sedelmayer was denied entry into Russia.

According to the newspaper Sueddeutsche Zeitutg, Sedelmayer was told that the mansion was expropriated and will be used as a government residence on the phone by Vladimir Putin (he was then in charge of the St. Petersburg mayor's office for contacts with foreign businessmen), who allegedly advised him to go to court.

According to Sedelmayer, "Mr. Putin visited me on the Kamenny Island. Together we have organized special unit "Grad," designed to provide security at Goodwill Games. He helped us, helped with the legal registration of our complaints.

After the Swiss company Noga, Sedelmayer tried to seek compensation through the sale of Russian property abroad. It was no accident that the titles of several publications, writing about this shameful fact were of this nature: "Russia has grown the second leg" and "Russia has lost legacy of KGB."

According to Sedelmayer, his wife was phoned by some officials in Moscow, warning her of "dire consequences" if her husband does not abandon the claim. However, the threats have not worked, and in 1998 Stockholm arbitration court ruled that the German businessman Franz Sedelmayer has won the right to compensation of 2.35 million Euros. Russia has not paid it on the grounds that the property transferred to Sedelmayer was not the city but federal property. Now, taking into account the interest, the required amount has grown to five million Euros. In addition, as written by German newspaper, the businessman expects to collect from Russia tens of millions of Euros "for the missed opportunities and benefits," as his invested funds were not working for him, and he spent considerable time in courts.

In an interview with German media Sedelmayer stated that he chose to do this because he had no other choice. All he expects from Russia is payment of the debts. "If Vladimir Putin, my old friend from St. Petersburg, had settled the case through the repayment of debts, then all these troubles could have be avoided," he said.

In 2001 the Berlin Court of Appeal decided that Sedelmayer may recover any property on the territory of the Russian Federal Republic. Sedelmayer tried by the court to arrest the Russian property in Germany, including models of satellites Space Agency during the international aerospace show, exhibits of the Russian pavilion at the Hannover International Exhibition and the Russian TU-204-300 on the International Space Exhibition ILA in 2006 in Berlin. However, the police officers who came to reattach this property were simply not let in by the security.

In March of 2008, German court ruled that Sedelmayer had the right to receive compensation from the sale by auction of Russian state property located in Cologne.

The Wall Street Journal quotes Sedelmayer:"For the first time in modern history, Russia has paid compensation awarded to a private lender."

In an interview with Deutsche Welle, Franz Sedelmayer stated that the building (which costs up to $40 million) was confiscated and is under the control of a temporary administrator appointed by the court. The administrator made sure that the building is used by its current tenants, and rental income (29 thousand dollars per month) is received by the German businessman. However, German media wrote that after this Court issued another decision, not allowing him to receive such income. The German businessman rejoiced too early. According to the German edition of Deutsche Welle, a complex of buildings in Cologne was "burdened"- leased out for 25 years to the Russian Federal State Unitary Enterprise "Goszagransobstvennost" subordinated to the Russian President Administration. In other words, it was possible to buy the complex, but not use it until the lease expires.

Nevertheless, some media, in particular, The Wall Street Journal, wrote that a compromise solution has been found. Allegedly, the Russian side expressed its willingness to voluntarily pay Franz Sedelmayer a part of the amount. In reality, the victim businessman received only one million dollars.

In September of 2009 Sedelmayer was trying to sell the building of the Russian Center for Science and Culture (Russian House) in Berlin that he fought for over three years. But the German courts have decided that it was protected by the state immunity as it was used by Russia for the government activity.

After the failure with the Russian real estate in Germany, Sedelmayer tried to get in through court in Sweden. But the battle is not over yet. Russian President Administration intends to file another appeal against the decision to arrest the property in the Swedish Supreme Court. Russia's ambassador to Sweden Igor Neverov expressed hope that the court will "objectively approach the issue in full conformity with the international law."

In addition, the Russian side intends to go into a counterattack. According to the spokesperson of the Office of Presidential Affairs Victor Hrekov, "Currently, counter claims have been filed in various courts regarding the questionable investment of Sedelmayer in Russia, the total value of claims exceeds 70 million Euros".

As of now, the prospects of winning this case by Russia are very vague. Nobody disputes the fact that the judicial power in the West, including Germany and Sweden, has no dominance over the executive branch. However, the Swedish situation is quite different than the German. It has to do not only with the fact that the decision to recover compensation for the benefit of Sedelmayer was made by international commercial arbitration based in Stockholm. We should not forget that unlike Germany, dependent on Russian gas, Sweden practically does not depend on raw material supplies from Russia.

According to Sedelmayer, Russia is unlikely to make a positive decision on the grounds, as in Cologne case, that the building has diplomatic immunity. Such a position is not without logic, since the trade mission is usually equated with an Embassy in its status, and its leaders are equal to the diplomatic corps. However, Sedelmayer has a different opinion, as the building is, in his words, "used for commercial purposes".

In this regard, the businessman does not rule out that in order to receive compensation another property of Russia may be arrested. Earlier, Swedish media reported that restaurants and catering facilities are located at the specified address.

Sedelmayer himself expressed the hope that this story will help to change minds of many of those who believe Russia's leaders talking about the fight against corruption, who would invest in Russia, or have any business transactions with it. He expects that the decision in his case can be helped with the fact that the international court in The Hague recently recognized the possibility of the trial of the Yukos case, ruling that Russia had violated the Energy Charter. According to Sedelmayer, Russia in both cases tried to pretend that its international treaties do not exist.

Well-known German political scientist Alexander Rahr spoke about the impact of this case in an interview to Pravda.ru: "This case is very damaging to the image of Russia, which, in fact, has let the beginning of this case get out of control. Look at the fact alone that German court issued a positive verdict for Sedelmayer-owned Russian building in Cologne. In Germany this case is much discussed and it proves once again that Russia still has a very high level of corruption. And I do not understand why Moscow could not settle with this man who suffered such a huge loss in Russia."

And really, would it be easier for Russia to settle the case without publicity? German media wrote that a detective novel could be written on the case, and that the most important thing in this story is not money, but "proof that no Sedelmayer could do anything without Russia's consent".

The amount originally requested by Sedelmayer does not mean anything for a rich country like Russia. Good reputation is much more appreciated in the West, and Russia has now clearly marred it. There is no reason to be surprised that foreign business after all this will look at profitable projects in Russia with caution.

SergeiBalmasov
Pravda.Ru