Russian Retailer Lenta Seeks Government Investigation In TPG Capital Corruption Case

Is the U.S. Government Involved in the Lenta Trial?

A conflict involving the large Russian retailer may come to the attention of the U.S. Department of Justice.

A feud between TPG Capital, a major U.S. investment fund, and Lenta, a large Russian retail chain, could be subject to the Foreign Corrupt Practices Act (FCPA), adding yet another corruption scandal to the growing list of Russia’s foreign bribery incidents.

The clash with the retailer, whose annual sales exceed $3 billion, began over a year ago. According to Lenta shareholder Dmitry Kostygin, TPG may have conspired with state bank VTB (of which TPG recently became a stakeholder) to secure control over the company by appointing a director, in defiance of a shareholder agreement and court decision.

“We have reasons to believe that TPG and Luna have violated the FCPA in that they corruptly offered or made payments to Russian public officials representing Russian Federal Tax Service to have the officials misuse their official positions in order to direct control over Lenta to TGP and Luna and, therefore, assist TGP and Luna in gaining control [over the business], by blocking Yuschenko and putting Dunning back in place as general director,” Dmitry Kostygin wrote in a letter to the U.S. Department of Justice.

The copy of the letter was made available to reporters.

(Lenta office taken over by security forces of TPG and VTB)

Russia has always been a problematic region for Western companies due to violations of anti-corruption laws. In its 2010 Corruption Perception Index, Transparency International ranked Russia 154th out of 178 nations. And just last week, the U.S. Department of Justice urged Russia to adopt a law similar to the FCPA. The department will probably take the appeal of Lenta’s co-owners into consideration, and if their suspicions are confirmed—thanks to increased monitoring of international companies by the U.S.—that could be enough to hold the fund accountable.

There are several aspects of the Lenta case that point to possible corruption and violation of the FCPA. For instance, a criminal case was brought against Lenta director Sergei Yuschenko—an opponent of TPG—without any real basis. Similarly, the reinstatement of another adversary of TPG, deputy director of Lenta Dmitry Kostygin, raises some questions. Kostygin’s wrongful dismissal trial has been in court for over five months, even though by law such cases must be resolved within one month. And finally, tax authorities’ numerous refusals to register Yuschenko as the director of the company—even after an arbitration court made a ruling on the matter—can be an indication of corruption.

But it is still possible that the TPG case will be resolved peacefully. Experts believe it is often enough just to demonstrate to U.S. officials the presence of the suspected corruption—that this is enough to get the corruption to stop.

“American companies often settle claims like these before going to trial. The chances of succeeding in court are not high,” explains FCPA expert Dmitry Dementyev, of the Magisters law firm. “Companies suspected of illegal activity prefer to settle these matters as quickly as possible, paying a fine roughly equal to the amount earned illegally through bribes.”Thus the power to put an end to the Lenta affair may ultimately lie in the hands of U.S. law enforcement agencies. And it looks like if they manage to eliminate the influence of corruption on the conflict, TPG and its Russian partners might have a very slim chance of taking over Lenta.

Details of the Lenta case, including the forced takeover of the retailer’s office, were covered in a special report by Russia! magazine.

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