As global foreign investment began to increase in the 1870s and 1880s, Russian legislators began to implement laws in order to prevent important assets of the Russian government from falling out of their control, namely reserves of natural resources and land in areas of strategic importance of the empire. This trend, which continued down to 1914 with very few relaxations, effectively reinforced the discretionary power of officials and ministers over the affairs of foreign companies in two separate ways: a more rigorous incorporation by concession system than described above that was applied to foreign companies, and geographical restrictions
53 PSZ 3-9741, 8 June 1893; PSZ 3-9742, 8 July 1893.
on their operations. These trends reflected the conflicting aims of the Witte system of the 1890s; while attempting to promote economic development through the entry of foreign capital to Russia the state sought to retain control over the business
environment, and especially over its key natural assets.
One facet of the Russian government’s attempt to safeguard its interests against foreign corporations was an extension of the incorporation by concession system of the 1836 law to a more complex permissions system. Foreign corporations were required to obtain Imperial permission in order to begin their operations in Russia and to purchase real estate. Legislation in 1887 stipulated that all foreign joint stock companies operating in Russia without Imperial permission must apply for it or cease their operations in Russia by 1 January 1889.55 Imperial permission implied that foreign companies operated under a set of ten conditions, such as the requirement to obtain permission to perform mergers, submit to Russian law in disputes, and most seriously, to cease operations entirely in the event of the Russian government
withdrawing its permission.56 Although the latter requirement was cancelled by Witte in 1898, the Russian government still exercised a large degree of discretion in the operation of foreign corporations through these conditions.57
These conditions were very similar to the restrictions placed upon business by the original 1836 laws. The principles of ministerial control enshrined in the 1836 company laws were transferred to the operation of foreign companies in Russia, although in many cases they were more severe. Although these conditions do not seem to be specified in the Russian law codes, a brief sketch of the special conditions under which British companies typically worked is provided by L. Rastorguev, a sworn advocate of the high court of Khar’kov, in his summary of the most important laws relating to foreign enterprise in Russia, The Legal Position of English
Companies in Russia, published in London in 1911, and aimed at British commercial
interests. The first and ninth conditions defined limits to the operations of the
company. The first condition was usually a statement of the name of the company, its geographical location and the specific industry in which it was engaged, for example:
55 PSZ 3-4780, 9 November 1887.
56 Owen, The Corporation under Russian Law, 120.
‘The English Joint Stock Company under the name of ---- shall open its operations in the Empire for the exploitation of deposits of copper ores in the District of the ---- government.’58 This statement was directly linked to the ninth condition, which stated that the activity of the company, ‘shall be limited exclusively to the object stated in paragraph 1 of these conditions’. It also stated that for any change to these articles, and by extension, changing the commercial operations of the company, the company would have to obtain authorization for the Minister of Finance and the Minister of State Domains.59 It therefore followed that had the copper company in the above example found an abundance of iron ore on their land but not a
commercially viable source of copper, it would have to reapply to the stated ministries for permission to alter its articles in order to exploit the source of iron.
As well as giving the government discretion over the day to day operations of companies, the permissions system also gave the government discretion over any modifications to company structure. Article 9 required that permission from the Ministry of Finance and State Domains be obtained in order to amalgamate with other similar companies, increase or decrease stock capital, issue debentures, or otherwise change the articles of association. This control was supplemented by Article 3 of the conditions that stated that foreign companies were subject to previous certification from local authorities for the purchase of land, effectively bringing in the local provincial government into the permissions system.60 These provisions meant that the above ministries exercised a significant amount of discretionary power over the affairs of foreign companies through the law, as many of these actions would have been important for the successful running of any joint-stock company, especially modifications to stock capital.
While foreign business owners would have been largely exempt from the whims of the Russian state being subjects of a separate country, this immunity was also attacked by the Russian government. Article 5 of the typical conditions cited by Rastorguev required foreign companies to appoint a special agent in Russia invested
58 L. P. Rastorguev, The Legal Position of English Companies in Russia (London: Jordan & Sons,
1911), 58.
59 Rastorguev, English Companies in Russia, 61.
with the power to act on behalf of the company in legal matters, and demands made upon the company by the state and third parties. The Article also stated that the director of the business and the managers of any real estate in Russia must be Russian subjects.61 This law further enhanced the power of the Russian state over foreign business interests by ensuring that the managers of foreign enterprises were Russian subjects, and so more subject to the Russian state than their foreign
counterparts. Thus the Russian permissions system as it was applied to foreign companies introduced more stringent rules and regulations to the operations of companies, and an increased level of ministerial discretion.
The Russian government also used geographical restrictions in order to protect its interests and to control the actions of foreign enterprises. This tendency can be seen to date from 1885, when the Siberian gold mining and metallurgy industry was restricted to Russian subjects.62 Further restrictions followed. The law of 14 March 1887 denied foreign subjects the right to own or lease land in Poland, and in the Western Provinces.63 These pieces of legislation did not completely bar foreign companies; they required that any companies formed be registered in Russia and held in the name of a Russian subject. These individuals would often be Russian agents in the employ of the company, or in some cases naturalized local consuls, according to contemporary accounts of the Russian business environment.64
The 1890s witnessed a growth in the output of the oil industry, reaching a peak in 1901, with a similar growth in the production of coal, alongside similar increases in consumption. 65 The Mining industries also grew particularly rapidly during this decade, Gerschenkron estimating that it grew at an annual rate of 8 per cent in this decade.66 Due to this growth in the oil and mining industries, and its own ambitious railroad building programme,67 the Russian government was obliged from the late 1880s and 1890s to begin to open up certain key peripheral areas of the Empire to foreign enterprise, in order to stimulate the growth of Russian domestic industry. The
61 Rastorguev, English Companies in Russia, 59.
62 Owen, The Corporation under Russian Law, 120.
63 PSZ 3-4286, 14 March 1887.
64 Barrett, Russia’s New Era, 65; White, ‘British Business in Russian Asia’, 72.
65 Gatrell, The Tsarist Economy, 169-171.
66 Gerschenkron, ‘The Rate and Growth of Industrial production in Russia since 1885’.
opening up of these regions to foreign enterprise was accompanied with certain requirements and restrictions that served to increase the discretionary power of the government over foreign private commercial enterprise. This system of establishing permissions for foreign companies may have been part of a wider trend of the Late Imperial Russian government to attempt to centralize control over the peripheries of the Empire, as the belief ran that importing Western systems of colonial government would create separatist tendencies within the Empire.68 However, the type of
restrictions placed upon foreign companies in these areas was consistent with the general permissions system for foreign enterprises in Russia, which engendered a great deal of ministerial discretion in their initial foundation, and did not encourage the formation of clearly defined notions of what would constitute an acceptable enterprise.
For example, legislation introduced in 1893 stipulated that corporations could only purchase land in Turkestan and the Caucasus if their charters restricted the ownership of stock to Russian subjects or to local natives.69 Under this legislation, foreign companies could not even hold land through a Russian intermediary, as the law stipulated that the stockholders of the company had to be Russian subjects. Exemptions to this law were made for foreign companies operating in the oil
industry, who were required to obtain special permission to acquire land through the Ministry of State Domains.70 From 1897 foreign companies were permitted to purchase land in Turkestan with the permission of the Committee of Ministers and the Tsar.71
The permissions system imposed upon foreign businesses in Russia therefore led to a high level of ministerial discretion surrounding the operations in Russia of a foreign company. These laws did not state upon what basis a company might be refused permission to operate, and so it is reasonable to assume that the system would have led to a great deal of uncertainty for any company considering undertaking an investment in Russia, a theme which will be addressed in subsequent chapters. The
68 Willard Sunderland, ‘The Ministry of Asiatic Russia: the Colonial Office that never was but might
have been,’ SR 69, 1 (2010), 122.
69 PSZ 3-10102, 9 November 1893.
70 L. E. Shepelev, Aktsionernie kompanii v Rosssii (Leningrad, 1973), 125.
vagueness of their wording meant that there was little clear basis upon which a company might be refused permission to commence operations in Russia, or carry out normal business practices such as an increase in stock capital.
Such a system therefore relied heavily upon the accountability and ethos of the Russian bureaucracy, and its commitment to consistently applying the law. The law surrounding the permissions system for foreign corporations would therefore have not in itself resulted in the establishment of legal norms and consistency; it was inherently dependent upon those tasked with administering it. As these laws were not amended before the outbreak of the First World War, the establishment of legal norms thus depended upon how the government used this power at its disposal. This system was not prevalent in all aspects of industry however, as an exploration of the corpus of regulation surrounding the oil and mining industries that grew up during the period in question that removed many avenues for the exercise of ministerial or official discretionary power.