MOSCOW — MOSCOW -- Maxim's restaurant, the swank international purveyor of belle epoque decadence, could not have chosen a more perfect location for its newest branch. Or worse business partners.
Six months after the mahogany-paneled restaurant opened across from the Kremlin, giving Russia's newly moneyed class a place to sip $1,000-a-bottle Bordeaux and eat quail-egg-and-caviar tartlets, Maxim's has belatedly discovered that it is married to the Russian mob.
The luxury chain owned by designer Pierre Cardin had assumed its main Russian partner was a legitimate, if rather young, entrepreneur. But to the restaurant's chagrin, its staff is now taking orders from the 21-year-old son of a prominent mob associate in Moscow. And now that young man and the restaurant's other Russian partners seem to be trying to muscle out the French management team, says the restaurant's Moscow-based director, Christophe Lafitte.
"We control nothing," not even the daily receipts, Mr. Lafitte says.
Such is the unhappy fate of dozens of foreign businesses that have swarmed into Russia since the collapse of communism in 1991. Instead of making the fantastic profits expected, these companies have lost heavily to ruthless syndicates.
"These takeovers seem to be happening more and more," says Kevin McLoughlin, a commercial attache with the Irish Embassy who has witnessed several Russian seizures of Irish joint ventures. He suspects that, "Once the Russian side learns what they need to learn, then they say, 'Why do we need these foreign partners?' "
While the Russian mob is increasingly attracted to foreign businesses because they offer an easy outlet for laundering money, the foreign investors are unprepared for the ruthlessness of Russian commerce.
Not long ago, William Davies, an American businessman, had purchased the exclusive rights to operate a sportfishing business on a scenic river near the Arctic city of Murmansk, and invested $1 million to outfit a luxury lodge. In June, after Mr. Davies clashed with the local political boss, a helicopter full of gunmen in camouflage and ski masks swooped down on the camp.
The gunmen rounded up the terrified anglers, even confiscating their expensive fishing gear, and evicted Mr. Davies. Soon afterward, the lodge and fishing grounds were leased to another foreign company.
Mr. Davies is suing, but he does not expect to ever recoup his investment. "In places like Murmansk, the people who have the power to make things happen or not happen are all on the take," he says.
The American consul in St. Petersburg has written a letter to the local government protesting Mr. Davies' treatment, but to little avail. Richard Steffans, the commercial officer at the embassy in Moscow, concedes that such rough treatment has become the Russian way of business.
"When an American businessman has a dispute with his partner, he says, 'I'm going to sue you,' " Mr. Steffans says. "When a Russian businessman has a dispute, he says, 'I'm going to kill you.' "
And often means it. Last summer, the violence entered a new phase when a mob bomb blew the facade off an English-style pub owned by Allied Dome Retailing, which operates Baskin-Robbins outlets in Moscow. Allied is the first foreign company to receive such rough treatment.
The dispute over Maxim's has not involved such violence. But it does involve some of the most powerful people in Russia.
The restaurant's young business partner, Andrei Kobzon, is the son of Yosif Kobzon, a popular crooner dubbed the "Frank Sinatra of Russia" in recognition not just of his voice but of his friendships with Russian mob bosses. This summer, the elder Mr. Kobzon was denied a visa to the United States because of the company he keeps.
Yosif Kobzon is as much at home with the political elite as he is with the mob bosses. He is good friends with Moscow's powerful Mayor Yuri Luzhkov, and serves as the city's cultural ambassador.
Mr. Lafitte, the French director of Maxim's in Moscow, was discussing the fate of his company's Russian investment in the restaurant's coffee bar recently. When one of Mr. Kobzon's partners walked in, he abruptly changed the subject. Mr. Lafitte failed to appear for a promised second interview. "This is Moscow," he once said. "It is not a game for kids."
That admonition came too late for David Worrell, who, like Mr. Lafitte, woke up one day to find he was doing business with the mob.
Mr. Worrell's California-based company, East-West Invest, decided in 1994 to open several Subway sandwich franchises, starting in St. Petersburg. To help him find the right location, Mr. Worrell sought out one of his oldest and best-placed Russian connections, a staff assistant to a Russian legislator. The woman put him in touch with a dapper, well-educated man named Vadim Bordug.
A deal was struck. Mr. Bordug was promised half the profits in exchange for subleasing the property. Worrell's company invested $1 million to create a model Subway. Within weeks after it opened in December 1994, it became one of the chain's busiest franchises.
Then the mob moved in. Mr. Bordug showed up at the restaurant one day in July and told its American director, "OK, I'm taking over," Mr. Worrell recounts. The American manager was beaten up, Mr. Worrell says, and a few days after that, the locks were changed and the restaurant was briefly shut down.
Mr. Bordug maintains he had the right to assume control because Mr. Worrell concealed financial data from him. He later reopened the restaurant, serving the same subs under a different name.
Only later did Mr. Worrell learn that his partner was a front man for the mob. "We were naive," Mr. Worrell concedes. "On the surface, this guy looked like everything you'd want in a partner. We didn't even do an in-depth background check."
Not all takeovers involve the mob. Estee Lauder, the cosmetics giant, lost its store on Moscow's prime shopping street after its employees mutinied and declared themselves the owners. This was just a few months after the New York-based company had completed a $1 million renovation and stocked the store with a complete product line.
That case has been stuck in the Russian courts for almost four years, in part because the employees' lawyer keeps failing to show up. The judge has never imposed a penalty for contempt of court. While the store no longer stocks Estee Lauder products, it remains in business as a cosmetics store.
Because doing business in post-Communist Russia can be so frustrating and risky, foreigners have invested only "pennies," says Peter Charow, director of the American Chamber of Commerce in Moscow. Investment for 1995 totaled about $700 million, slightly less than the previous year and only a fraction of the $25 billion foreigners have invested in China, where Communists are still in control.
Yet, Mr. Charow still believes Russia can be a profitable, safe place to do business if foreigners cultivate personal relationships with their business partners. "A lot of businessmen come, sign a contract and say, 'OK, now I can move on to other things,' " Mr. Charow says. "They have to remember -- for Russians, contracts don't hold the aura they do for us in the West."
Oddly, people such as Mr. Worrell have not given up on investing in Russia. He went to Moscow recently to scout locations for a new Subway venture, but he will be more careful in choosing his next partner.
When his agent showed him a storefront controlled by Yosif Kobzon, Mr. Worrell immediately walked out.
"I said, 'Uh-uh. I'm not playing this game again.' "