Russia Doesn’t Send U.S. Investor to Jail but Still Sends a Warning

MOSCOW — A Russian court sentenced on Friday an American businessman who is one of the country’s most prominent foreign investors to a suspended sentence of five-and-a-half years in a penal colony for a conviction on embezzlement charges, in a ruling that could hurt Russia’s ability to attract foreign investment.

The suspended sentence for the businessman, Michael Calvey, the founder of Baring Vostok, a private equity firm with $3.7 billion under management, means he will not spend time in Russia’s notoriously harsh penal colony system, the successor to the gulag camps, unless he violates parole conditions.

But the threat of prison that still hangs over Mr. Calvey, and his six co-defendants in the case, was expected nonetheless to put a damper on foreign interest in doing business in Russia, where foreign direct investment is already complicated by weak property rights and Western sanctions.

The sentence was seen as all the more concerning to business leaders because Mr. Calvey had consistently championed investment in Russia despite worsening relations with the West, even as many companies retreated from the country.

Mr. Calvey, 53, founded Baring Vostok in the 1990s, soon after the collapse of communism, with the aim of bringing investors into Russia’s newly capitalist economy. Over its 27 years in business, the company attracted billions of dollars in private equity capital for Russian companies like Yandex, a search engine that competes locally with Google, and Ozon, an online retailer.

The co-defendants, including Philippe Delpal, a French national and executive at Baring Vostok, were handed similar suspended sentences in the Russian prison system.

The case sprang from a business dispute with shareholders of a Siberian bank.

Prosecutors said Mr. Calvey and other executives at his fund embezzled 2.5 billion rubles (about $34 million) by persuading shareholders of the bank, Vostochny Bank, to accept a stake in another company at an inflated price.

In his defense, Mr. Calvey argued that the bank shareholders had full access to information about the value of the shares when they accepted them in lieu of repayment for a loan and moreover that the case should have been decided by commercial arbitration.

“I came to Russia and remained here because I loved this country from the start and believed that Russia has potential to become one of the world’s leading investment markets,” Mr. Calvey said in a closing statement at his trial last month.

“I convinced investors to share my trust in the future of Russia,” he said. “Even after 2014, when the geopolitical climate worsened and sanctions were imposed on Russia, I continued to defend the image of Russia as an attractive country for work and investment.”

Mr. Calvey’s push for investment continued despite two decades of government takeovers of companies, ruble devaluations and politically hued arrests, including that of Sergei L. Magnitsky, who died in pretrial detention and had been working as a lawyer for another prominent foreign investor, William F. Browder.

Russia’s onetime richest man, Mikhail B. Khodorkovsky, the founder of an oil company, was twice convicted and sentenced to lengthy terms in the penal colonies.

Conditions there are harsh. In one prison, Mr. Khodorkovsky was stabbed in the face with a homemade knife. The warden said another inmate was fending off an unwanted sexual advance, something Mr. Khodorkovsky denied.

Mr. Calvey’s investment firm had focused on internet and retail start-ups that were benefiting from the wealth generated by the petroleum industry and finding success serving the country’s emerging middle class.

The arrest and detention of Mr. Calvey and his colleagues in 2019 prompted fears that the executives of other American companies might be similarly arrested in a climate of tense relations with the United States. The seven executives were convicted in a Russian court Thursday and their sentences delivered Friday.

Even in detention, Mr. Calvey continued to speak out in favor of the investment case for Russia, reading statements to that effect at hearings from inside the aquarium-like glass box in which defendants are held in Russian courts.

Russian entrepreneurs are frequent targets of shakedowns and shadowy schemes to steal assets, Russia’s own business ombudsman has said. Arrests are common. Today, about one of every 10 prisoners in Russia’s penal colonies are white-collar criminals.

The government’s earnings from commodity exports like oil and natural gas, which flow regardless of what Russian courts do inside the country, have left it largely unconcerned about the country’s investment climate, economists noted. And an independent court system that would help investors could also weaken control over the political opposition.

“Russia is in a situation which might be called investment pause,” Natalia Akindinova, a researcher at the Higher School of Economics, said in an interview.