Palms & Company Document

Collection Procedures in Russia

by

Dr. Pyotr Johannevich van de Waal-Palms

In America one first obtains a judgment through the courts, then locates assets, and exercises the judgment against the assets, generally through the office of a public official such as the Sheriff's office or by employing someone experienced in repossessing physical assets, such as an automobile. In Russia the process by-passes the legal steps of obtaining a judgment and repossession or levy is done by the creditor or his agents. In other words, if you have an invoice, bill of lading, and evidence that the debtor ordered and received the merchandise and owes you the money you can physically approach any assets and take possession. There are no exemptions such as auto or home furnishing. It is not unusual for the creditor's agents to overcome physical resistance to taking possession. Should the local "Militzioner" or "policheiiskie" (traffic police permanently assigned to walk a beat) notice that activity, you show him your documents, tell him what you are doing, and he either assists you or disappears. A debtor may discover he suddenly has 'tenants' occupying his residence or office.

Corruption is rampant and local 'collectors' usually have to compensate anyone, official or otherwise for collaboration. "Blatt" (influence) is important. A bank may turn over a hefty bank account of a debtor only if the collector 'forgets" his laptop in the bankers office or decides to invest in a 'project' of the bank. It occurs that a debtor may be advised by the bank that there is no record of his having had an account there. In circumstances where a court judgment is required, the decision of the court may be coincide with the party that has incurred the highest "court fees'. Many Russian companies employ KGB agents as moon-lighters for these purposes, who also provide 'security' for the company premises and automobiles and the personal safety of executives. More than 20 Russian bank presidents have been shot to death on the front door-steps of their banks during the past two years. The toll has included newspapermen, television station managers and General Directors of major industries. Contract killing is a growing industry in Russia.

Although debtors may raise the defense that they are unable to gain government permission to have access to an exchange of rubles for dollars in order to make payment, in practice everything in Russia is possible under the right circumstances. Foreigners have inadequate knowledge of these 'systems of arrangements' to effective employ them in their collection strategies.

A debt owed to a foreigner is viewed by all as quite different from a debt owed to a Russian and in the latter case the potential for collection is significantly enhanced. Russian law does not permit the assignment to a Russian of a debt owed to a foreigner. But a foreigner may make unconditional transfer of a receivable to a Russian 'for adequate consideration' and such debt then becomes a debt owed to a Russian. In Russia, collection of just debts owed to foreign creditors can be achieved, using means ethically and morally acceptable to American businessmen. The actual mechanics of the techniques, bluffing, posturing and 'poker-playing' involved can involve 'procedures' that are unimaginable in American business society. For the most part typical American collection procedures based on a 'rule-of-law' approach through the legal system would be naive and unproductive.

Interested parties are referred to "Thieves World" by Claire Sterling published by Simon & Schuster for the background on the cultural heritage of 70 years of the Soviet Union.

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