MOSCOW – A Russian court on Friday sentenced an American businessman, who is one of the country’s most prominent foreign investors, to five and a half years suspended sentence in a penal colony for embezzlement conviction, undermining Russia’s ability to attract foreign investment.
The suspended sentence for businessman Michael Calvey, founder of Baring Vostok, a private equity firm with $ 3.7 billion in assets under management, means he has no time in Russia’s notoriously harsh penal colony system, the successor to the Gulag Camp, unless he is in breach of probation.
However, the risk of jail time that Mr Calvey and his six co-defendants still face in the case was expected to dampen foreign interest in doing business in Russia, where FDI is already hampered by weak property rights and Western sanctions.
The ruling became all the more worrying for business leaders when, despite deteriorating ties with the West, Calvey had consistently advocated investment in Russia despite many companies pulling out of the country.
Mr. Calvey, 53, founded Baring Vostok in the 1990s, shortly after the collapse of communism, with the aim of bringing investors into Russia’s newly capitalist economy. In its 27 years in business, the company has attracted billions of dollars in private equity capital for Russian companies like Yandex, a search engine that competes locally with Google, and Ozon, an online retailer.
The co-defendants, including Philippe Delpal, a French national and senior executive at Baring Vostok, received similar suspended sentences in the Russian prison system.
The case arose out of a business dispute with shareholders in a Siberian bank.
Prosecutors said Mr. Calvey and other executives of his fund embezzled 2.5 billion rubles (about $ 34 million) by persuading the bank’s shareholders, Vostochny Bank, to inflate a stake in another company Accept price.
In his defense, Mr. Calvey argued that the bank’s shareholders had full access to information about the value of the shares when they accepted them in lieu of repaying a loan and that the case should also have been resolved through commercial arbitration.
“I came to Russia and stayed here because I loved this country from the start and believed that Russia had the potential to become one of the world’s leading investment markets,” Calvey said in a closing statement at his trial last month .
“I convinced investors to share my confidence in Russia’s future,” he said. “Even after 2014, when the geopolitical climate deteriorated and sanctions were imposed on Russia, I continued to defend Russia’s image as an attractive country to work and invest in.”
Calvey’s investment drive continued despite two decades of corporate government takeovers, ruble devaluations, and politically tinged arrests, including Sergei L. Magnitsky, who died on custody and worked as an attorney for another prominent foreign investor, William F. Browser.
Russia’s once richest man, Mikhail B. Khodorkovsky, the founder of an oil company, was convicted twice and sentenced to long prison terms in the penal colonies.
The conditions there are tough. In a prison, Mr. Khodorkovsky was stabbed in the face with a homemade knife. The guard said another detainee was blocking unwanted sexual advances, which Mr. Khodorkovsky denied.
Mr. Calvey’s investment firm had focused on internet and retail start-ups that benefited from the riches of the petroleum industry and successfully served the country’s emerging middle class.
The arrest and detention of Mr Calvey and his colleagues in 2019 raised fears that executives at other American companies might be similarly arrested in a climate of strained relations with the United States. The seven executives were convicted by a Russian court on Thursday and sentenced on Friday.
During his detention, Mr. Calvey continued to speak out in favor of the investment case for Russia and read statements about it at hearings from the aquarium in which defendants are being held in Russian courts.
Russian entrepreneurs are often the target of market shakes and shadowy plans to steal assets, said Russia’s own corporate ombudsman. Arrests are common. Today, around one in ten prisoners in Russia’s penal colonies are white-collar criminals.
Government revenues from commodity exports such as oil and natural gas, which flow regardless of what Russian courts do in the country, have left the country’s investment climate largely unconcerned, economists noted. And an independent judicial system that would help investors could also weaken control over the political opposition.
“Russia is in what could be described as an investment pause,” said Natalia Akindinova, a researcher at the Higher School of Economics, in an interview.
