Alexander Lebedev: Hard to get ahead in Ukraine with the Luddite saboteurs

  • @lebedevalex

“In Simferopol local parliament demolishes building belonging to Russian tycoon,” gloated the headline.

It was a grand 19th-century structure – a former gentlemen’s club, theatre, hotel – in desperate need of some TLC.

It took them eight days to level it.

The tycoon’s associate picked up the phone; a few minutes later he was through to the person who ordered the demolition:

“Why did you do it?” he demanded without greeting.

“Ah,” answered the jovial, passive-aggressive voice. But what implicit menace!

“We were going to restore it.”

“Why didn’t you?”

“Because you didn’t give us the permission.”

“Ok, ok, what’s done is done. We are sending you the bill.”

“What bill ?”

“For demolition work. The property’s yours, innit?”

So, why on earth did they do that? Everyone has lost something. The tycoon has lost time and money.  Simferopol, a busy transport hub of holidaymakers, chronically short of sleeping accommodation, lost a potential first-class hotel.

We all lost a place where poet Osip Mandelstam courted a young Marina Tsvetaeva over a thin, civil war soup in an antique porcelain bowl.  Even the culprits, the MPs, these noble servants of the people, lost some free lunches and kickbacks. Nothing at all was gained.

A very similar story I was at the time looking into took nine years to unfold.

Hotel Ukraina always was a rather typical Soviet monstrosity, with angry waiters and the ever-present, faint smell of decay and yesterday’s borsch.  But it has one great advantage: it stands 21 storeys high, slap bang in the middle of the ancient city of Kiev. It seemed to make good business sense to do something with it.

The deal was simple and straightforward. A Ukrainian limited company, The Commercial Company,  was formed with the backing of the National Reserve Corporation, a Russian financial conglomerate owned by me. It formed a joint venture with the Foundation of the State Property of Ukraine, the owner of the hotel. CC invested $21.5m (£13.1m) into the resulting joint stock company; the FSP’s investment was the hotel building. A further $100m of investment was pledged; a top quality company of international hoteliers was lined up to run the forthcoming five-star hotel. And, just in case, the Ukrainian government was approached and gave its supreme approval of the deal in a special verdict, signed by the country’s president.

It was 2004, the Orange Revolution, spring.  It was all far too smooth. Reconstruction was about to start when, out of the woodwork, came the district prosecutor, saying: “I can’t allow that.” Why not? There are some technicalities to pick on apparently. So the company goes to court. And loses, but doesn’t despair. It appeals and wins. But the prosecutor doesn’t despair either and launches his appeal. And so it goes, on and on, until, through the mountains of paperwork – spring, autumn, winter, revolutions and counter-revolutions – the case reaches the Supreme Court of Ukraine, where the joint stock company finally, justly, easily wins. Time to start reconstruction? Not so fast.

In every country in the world the justice system consists of two parts, criminal and civil. In Ukraine there are at least three. In the rest of the world the Supreme Court decision is final. Above are only God and Strasbourg. Not in Ukraine.  the tireless prosecutor, ignoring both Supreme Court and statute of limitations, simply goes to the entirely new court, which happily delivers a knockout blow. It declares the joint stock company non-existent, null and void, dead. It also declares it never existed and, as such, cannot – and is strictly forbidden to – launch any appeals. Affair over. “Can we please have our money back,” ask the lawyers, slightly shell-shocked by all this legal innovation. “Not so fast,” is the reply. “The assets of the joint stock company are to be split between the shareholders of the company.”

“Wait a minute. What company, what shareholders – you just pronounced it dead – and never born? Now all the phone lines are suddenly switched to answer machines.

I googled Hotel Ukraina. A photograph of a lavatory popped up first. It had a nice white plastic seat.

Next to it was a photograph of a bored blonde wrapped in a towel in what looked like a sauna. Then came some tables, beds and cutlery. It was pure nostalgia. À la recherche du temps perdu. I dialled the hotel number and talked about reservations. The duty manager spoke passable English. “Who owns you now?” I asked at the end.

“Some government department, I can’t pronounce  the name,”  was the reply. “But we are looking for investors.”  “Good luck,” I said, and hung up.

Then I dialled Alushta, one of my other hotels. There too the court proceedings were in full swing. The plot, however petty and trivial, was a refreshing variation on the one above. The hotel exists.

 And generally, back in the sunny autonomous Republic of Crimea things seemed to be going rather well. Our beautiful five-star sea resort called More was functioning like a well-oiled machine, attracting crowds of tourists during the on and off seasons, employing 500 people and paying a lot of taxes to the Crimean exchequer.

Then without warning, the local inspectors paid a visit. They found some money in the safe in the central lobby. For some reason they were triumphant. They counted and recounted the money and filled in an enormous form.

Like a medium-sized town, the resort has its own cafés, bars, massage parlours and hairdressers. Of course, they take some payments in cash.  Cash is deposited in the central lobby safe, to be collected next day.

“Here is the instruction to this effect issued from your own ministry,” said the duty manager.

“You’ll show it to the court,” answered the chap from the ministry.

“Should we have left the money at the door of the bank or on the street in front of your office?”

“We wouldn’t mind,” said one over his shoulder, leaving.

Soon they were back: “We want to spend our vacations at your resort.”

“Good choice,”  answered the manager

“With our families. In cottage number 8.”

“Do you want to make a reservation?”

“Yes we do. But we don’t want to pay.”

“Who does?” answered the manager philosophically.

“ We don’t. And we will want a proper invoice that we paid. It will solve your problem.”

“I don’t have any problems.”

“The hotel does.”

A few days later came a penalty notice for 25m hryvnia. It is, believe it or not, $3m, a lot of money by any standard. A lousy comedy sketch turned into another legal drama. You hear these stories about Ukraine all the time and from all sides. The last one smacks of high-level corruption, but it’s not.  It’s too stupid. They can’t be serious!

So what is behind this monotonous, impenetrable sabotage? It can’t be nationalism. After all most of those officials in the Crimea, and a lot of them in Kiev, are Russian by blood and mother tongue. It can’t be personal either: not even the bitter rivals and foes of the businessman who was behind the ventures doubt his honesty and good intentions; no one objected when he restored Alushta’s seafront promenade, built a church and  renovated and subsidised the local equivalent of the National Theatre, the Chekhov Theatre. They are not closet communists either.

This ubiquitous, Luddite attitude, an exact inversion of corruption, can only stem from something hidden in the recent and not-so-recent history of Ukraine. I decided to investigate.

The ‘Tycoon’ in this article is Alexander Lebedev, financial backer of the Independent.