RUSSIA - Oct. 24 - Russian Oligarchs Dig Up The Dirt To Present A Clean Image To The West.

Alfa Group, one of Russia's largest financial and industrial holdings, has recently paid $500,000 (424,000, [pounds sterling]295,000) to an international intelligence company to dig dirt and analyse compromising material about itself - in order to clear up its reputation. Alfa commissioned Kroll, the US-listed risk and business intelligence consultancy, to conduct its own investigation into accusations ranging from drug trafficking and arm sales to bribery of government officials and fraud. The result was an 88-page report code- named "Waterford Project". Alfa's effort is part of a growing concern among Russian business tycoons about their reputation in the west as robber barons. "As the Russian economy becomes more globalised, the question of reputation becomes more important," says the head of Alfa Group, Mikhail Fridman. In the mid-1990s Russian oligarchs were more concerned about grabbing assets than about preserving a good reputation. Now, as many of them are starting to look for ways to sell their assets to foreigners or to buy foreign assets, the issue of reputation has become more material. "Foreign companies want to deal with those who have a good reputation," Fridman says. Alfa knows the price of a good reputation and foreign partnership better than many. This year TNK, Alfa's oil company, formed a $16bn joint venture with BP. Many of the group's other businesses involve foreign partners. "We have always tried to balance between adjusting to Russian reality and maintaining an adequate reputation in the west,"Fridman says. Alfa's reputation suffered in 1998 when it used Russia's weak bankruptcy laws to gain control over a subsidiary of Sidanko in which BP had a 10 per cent stake and whose creditors included the European Bank for Reconstruction and Development. Kroll found that while Alfa did not break any laws, its behaviour in the bankruptcy proceedings against Chernogorneft, which was by no means insolvent, "was highly aggressive". "It was deliberately unconcerned with the interests of BP and the EBRD," the report says. The conflict over Chernogorneft sparked a public relations campaign both in Russia and abroad against Alfa and its bosses, who were accused of a range of criminal activities. "Accusations in the Russian press did not carry much credibility locally. But when western companies read these articles in Russian newspapers about their potential partners it created huge problems for Russian companies," says Tommy Helsby, European chairman of Kroll. As a result of these accusations the EBRD refused to have any business dealings with Alfa and the US Export-Import bank blocked a $500m loan guarantee to TNK. "This really started to hurt our business and we decided to clear our name once and for all," Fridman says. Kroll asked the EBRD to point out the issues which were of particular concern. The investigation found that none of the criminal allegations - such as drug smuggling, espionage and physical violence - had any grounds and that most of the accusations "were maliciously fabricated and deliberately circulated in the public domain". "There is a big difference between drug trafficking and sharp business practices," Fridman says. Five years after a fierce fight, the relationship between BP and Alfa has been mended. The EBRD also seems to have changed its attitude towards Alfa after reading Kroll's report, and a number of joint projects are being discussed. As for the cost of Kroll's report, Alfa managed to claim it back by suing a Russian publishing house for libel. Alfa is not the only group that is trying to change its perception in the west. The head of YukosSibneft, Russia's largest oil group,Mikhail Khodorkovsky, is a good example of a Russian businessman who has managed to transform his image. He is now seen as a responsible business leader, presiding over a well managed and transparent company. IBS, one of Russia's leading IT companies, has even created a complex system that allows Russian businessman to analyse how they are perceived in Russia with a detailed breakdown for regions, age and social groups. Yet Russia still ranks 86 out of 133 countries in terms of corruption levels, according Transparency International. As the head of Renaissance Capital investment bank, Stephen Jennings, says: "Russia is very adept at cosmetics. In fact it is just as corrupt as it was in the 1990s, but nobody likes to talk about it now because the economy is on the roll. But the idea that any Russian oligarch could stand up and say that he had played by international rules is laughable".