US investor Michael Calvey′s arrest in Russia worries foreign investors | Europe | News and current affairs from around the continent | DW | 21.02.2019

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US investor Michael Calvey's arrest in Russia worries foreign investors

At the same time Russia is trying to attract foreign investment, the country's security services have arrested US businessman Michael Calvey. Is the Kremlin shooting itself in the foot? DW's Miodrag Soric reports.

"You could start to see business deals falling though," Matthias Schepp, director of the German Chamber of Commerce in Moscow, told DW. Western investors left little room for interpretation with their reaction to the arrest of Michael Calvey by Russian authorities last Friday.

Schepp is one of the many voices who consistently call for Western powers to engage with Russia, despite the hurdles involved. And he's adding his voice to the choir of both Russian and foreign economic groups that oppose the arrest of the investment fund manager along with three of this coworkers. They stand accused of fraud; charges that all four reject. Next week a local court will decide if the arrests are permissible under Russian law.

Embezzlement accusations

Calvey is an American citizen but for the past 25 years, he's been widely viewed as one of the country's top foreign investors, thanks to his work at the private equity firm Baring Vostok. According to the company's own numbers, it's invested around $3 billion ($2.65 billion) in mid-sized Russian companies, technology firms and startups. He's well connected among Moscow's business community and has even met President Vladimir Putin on several occasions.

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However, it seems his downfall was provoked by a falling out with the Russian banker Artem Avetisyan over recapitalization plans for Vostochny Bank. Both sides have taken the case to court in London. But Avetisyan also chose to accuse Calvey of embezzling €33 million in a Russian court, which resulted in his arrest.

Confidence in Russian banking system falling

The Interfax news agency reports that further accusations from another shareholder in Vostochny Bank, Sherzod Yusupov, helped the case against Calvey take on its current dimension. Both Avetisyan and Yusupov are said to enjoy healthy connections to the FSB security service. If Calvey is convicted, he could face up to 10 years in prison.

Conflicting interests?

In a country where the Kremlin leaves little to chance, many here have a hard time believing in coincidences. Calvey's arrest came as Putin was attempting to sell business leaders on the advantages of investing in Russia and news of the detention quickly soured the mood.

But Janis Kluge from the German Institute for International and Security Affairs say the Kremlin isn't likely to be behind the Calvey's arrest. "The Kremlin wants foreign investment," he argued, saying that it's critical for the development of Russian economy but also to demonstrate that the country isn't isolated.

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Oleg Bukemishev, director of the Research Institute for Economic Policy, doubts Putin was even informed of the pending arrest. "Of course Calvey knew about the risks," he told DW. "He's been active in Russia for over 20 years just like other investors." Bukemishev noted that he does not believe the arrest would influence Russia's investment climate in the long run.

However, not everyone shares Bukemishev's confidence, including Andrey Movstchan, economics expert at Moscow's Carnegie Center. He was on his way back from a conference of Russian and foreign investors in the Skolkovo center, Russia's most important innovation hubs, when he spoke to DW: "There's only one thing they want to talk about: Calvey's arrest."

Putin at a rocket test

Is Russia's government working against its own interests?

Movstchan said that foreign investors used to think they could work freely in Russia, "but the illusion has been stripped away." He said he expects that foreign investors are likely to think twice before they invest large sums in Russian companies, and that they will fight for markedly lower prices when they buy into local companies. For Movstchan, the message Calvey's arrest sends is clear: Investing in Russia is dangerous.

'The Kremlin is getting in its own way'

All of the experts agree that the Kremlin has the tools at its discretion to end investigation against the US investor and his coworkers. "The Kremlin can toe the line with the FSB, if it thinks other interests are more important," said Janis Kluge from the German Institute for International and Security Affairs. "The Kremlin is getting in its own way." On the one hand, it wants to encourage foreigners to invest in Russia, he explained, while on the other, it's creating a climate in Russia that's unwelcoming to those same investors.

Matthais Schepp from the German Chamber of Commerce agrees, calling the arrest "a massive step backwards," though he expects Germans at least to continue to invest in Russian companies.

However, it's not just the arrest that has businessmen in Moscow worried. It's the precedent it sets. The criminal proceedings are the result of a lawsuit in civil court. And as Russian courts are often viewed as an extension of, rather than a check on, the Kremlin's power, the case against Calvey has taken on by default a political dimension — one that is likely to have repercussions far beyond the end of the trial.