With its tail between its legs, Britain’s biggest company is being all but chased out of Russia. BP will try to put a brave face on the retreat of Bob Dudley, still nominally chief executive of TNK-BP, to the safety of St James’s Square. But it does not look good. When you wish to assert your authority, the best way to conduct business is not by e-mail from an office thousands of miles away.

If BP is to avoid a de facto transfer of management authority to Messrs Fridman, Khan, Vekselberg and Blavatnik, the partners in the AAR consortium, it will need to manufacture a settlement and it is likely to prove expensive. The consortium’s actions, if not its words, suggest that its motivation in gaining control of TNK-BP is financial, rather than a keen interest in the oil-bearing sedimentary basins of Siberia.

The Russian partners have attempted to cut the joint venture’s capital investment in favour of higher dividends. It seems that the argument is not about control of the helm, but control of the cash box. BP’s problem is that it is struggling to keep control of its investment in a country where the law enforcement system is spinning out of control.

Mr Dudley’s retreat comes as another foreign investor has exposed evidence of the extraordinary grip that official corruption has taken on Russia. HSBC and Hermitage Capital, the fund-management group run by Bill Browder, have alleged that senior officials in Russia’s Interior Ministry stole $230 million from the Russian Treasury in an elaborate scam involving bogus documents and fabricated court cases.

This tortuous fraud began several years ago when Mr Browder was denied a Russian visa after exposing crooked dealings in Gazprom. An opportunistic lieutenant-colonel in the Interior Ministry targeted Hermitage with a blizzard of tax investigations, using these as a cloak to seize company documents and corporate seals, material that he used secretly to take control of several Hermitage companies, replacing directors and shareholders.

A series of court cases were fabricated against the Hermitage companies, which resulted in “judgments” awarded against them. The initial scam failed because the assets of the Hermitage companies had moved offshore, but Hermitage and its trustee, HSBC, have discovered that a second fraud was perpetrated, this time against Russian taxpayers. And it appears to have succeeded. Having “bankrupted” the Hermitage companies with bogus claims, the crooks demanded and apparently received repayment of taxes paid by Hermitage to the Russian Government, an amount totalling $230 million.

During the five years since BP entered into the TNK-BP joint venture, the company has been at pains to insist its Russian venture was unlike those that suffered official harassment, such as Shell and ExxonMobil. It was suggested that BP had the President’s ear and his blessing. Perhaps it did, then.

Unfortunately, for BP, the man who is no longer President has left a legacy of judicial chaos in which every corner of the Russian administration is packed with bureaucrats waiting to be suborned. Even now, foreign investors prefer to turn a blind eye and make excuses, suggesting that it is petty officials who are the problem. That is no longer credible. Even in a Treasury swollen with billions of petrodollars, it is not possible that $230 million can be paid without scrutiny. It is becoming clear that Russia no longer has a functioning system of government. That is a worry not only for BP.

http://business.timesonline.co.uk/tol/business/columnists/article4393507.ece