OECD Q&A on Russia

Q. This morning's Financial Times has a report that the US government is undertaking a national security review about Roman Abramovich's bid for US company Oregon Steel. Should Western governments worry about the ties between Russian investors and the Kremlin?Ashley Robert, Beijing

A. The concern with the Abramovich deal is part of a larger one that faces many governments in many countries. The real issue is not that western governments should be worried about whether or not major Russian investors are close to the Kremlin. In any country, governments are likely to be concerned about the activities of state-controlled companies in there jurisdictions if the governments have reason to believe that those companies are not operating on commercial principles, for commercial reasons, if the companies are active in sectors that perform functions that are important to national security, or if they believe that home-state support may give those companies a competitive advantage. This general problem takes on a new twist in the Russian case, because the line between state and private sectors is not always so clear – some formally private companies in Russia do appear to be owned de facto by state institutions. More generally, beneficial ownership of many large Russian companies is still unclear or has only recently been clarified. In the case of Evraz Holding, it would be difficult to suggest that it was other than a private company and its ownership structure is well known, but the US authorities nonetheless remain concerned about its possible or actual ties to the Kremlin. Having said that, we would also observe that such political/security concerns are sometimes the cloak for anti-competitive or protectionist lobbies: while governments may sometimes be right to be concerned about the activities of foreign parastatals in their jurisdictions, they do their citizens no favour if they use such concerns to protect particular domestic interests or to impose ideologically-motivated barriers to foreign economic activities. Regulatory ‘due diligence’ clearly has a role to play but it should not used as a vehicle for protectionism.

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