In Russia, getting arrested isn’t personal. It’s just business.

Late last month, Russia’s largest private equity firm took the extremely unusual step of publishing an open letter to President Vladimir Putin.

Even more remarkable was its message: an appeal that Mr. Putin “take control” over the criminal case against the company’s founder, US citizen Michael Calvey, who was arrested in Moscow along with several of his associates Feb. 14 on charges of embezzlement.

The case has triggered international shock waves, with many suspecting Mr. Calvey’s arrest and ongoing detention are somehow connected to the escalating geopolitical acrimony between the US and Russia. But most experts consulted say the problem is more fundamental and worrisome.

They say Calvey’s citizenship was probably incidental to his arrest. Rather, he has become a victim of Russia’s vicious business environment – a reality that Putin has described and railed against repeatedly, most recently a few weeks ago in his State of the Nation address. Calvey is facing the same treatment suffered by thousands of Russian businesspeople who are charged, often speciously, with “economic crimes”: long periods of detention, seizure of assets, and permanent disgrace at the hands of predatory police and officials.

“The only unique thing about the Calvey case is that it has happened to an American, [with Russian authorities] crossing that line for the first time,” says Alexis Rodzianko, president of the American Chamber of Commerce in Russia. “Calvey has been a long-term investor here, someone who has stood up for and looked for positive solutions for Russia, even when the geopolitics got very bad. It appears to be a very serious abuse of police and judicial power in Russia.”

‘Business dispute’ or ‘criminal affair’?

Experts say the case highlights one of the most serious causes of Russia’s continuing anemic economic growth and failure to attract major foreign investment.

Though comprehensive Western sanctions continue to be a drag on growth, smart Kremlin policies have substantially blunted their impact. Russia’s place on the World Bank’s ease-of-doing-business rankings has been steadily improving in recent years. Yet what remains largely unaddressed, despite Putin’s frequent speechmaking, are the underlying rule-of-law issues such as reliable property rights, the curtailment of arbitrary police powers, and the establishment of an independent judiciary.

“The potential for growth of investment in Russia continues to be far from realized,” says Mr. Rodzianko. “Some of that is geopolitics. But a big part is Russia’s internal investment climate. How much are you going to invest in a place where you might get arrested and thrown in jail?”

Rodzianko’s organization represents about 500 US companies, including many household names, that continue to be very active in the Russian market. Although official US statistics suggest there is almost no US investment in Russia, Rodzianko says companies bring capital from other places to invest in Russia, so that the actual total is probably around $80 billion. According to a survey conducted among its members by the organization last year, most remain committed to their Russia operations despite sanctions and international tensions, while 65 percent view Russia as a “strategic market” for their company with serious potential for growth.

Calvey has been a fixture in Russian equity markets since 1994. Baring Vostok, the company he founded, currently holds about $3.7 billion in Russian investments. It has been instrumental in building up some major Russian companies, such as the internet giant Yandex.

Calvey and his associates were arrested amid a dispute with officials of one of the companies in which Baring Vostok held significant stakes, Vostochny Bank, who accused them of defrauding the bank of about $37 million amid a shareholder conflict. Calvey denies all the allegations against him. A representative of Baring Vostok declined to talk on the record about the case.

The Kremlin’s own ombudsman for protecting the rights of entrepreneurs, Boris Titov, has visited Calvey in prison and described his continued detention over a business dispute as “clearly unlawful.”

Despite that, a Moscow court ordered Calvey to remain in pretrial detention until April 13, rejecting a defense appeal to have him transferred to house arrest until his trial. Putin, who just a week earlier had argued that “we need to strictly limit the grounds for extending the term of detention during the investigation of so-called economic cases,” declined to intervene and even appeared to back the prosecutors’ actions.

“The most urgent issue right now is to let Calvey and his associates be released on bail,” says Alexander Korunzhiy, Mr. Titov’s deputy in the Kremlin ombudsman’s office. “They need to return to a normal life while investigators and lawyers sort out these issues. I see this as a conflict between shareholders of a bank.... We see a lot of these cases, where shareholders try to convert a business dispute into a criminal affair. It is shameful.”

Titov’s office says there are currently about 6,000 Russian businesspeople in prison, many of them in predicaments similar to that of Calvey. In many cases, their accuser is a business partner who has cultivated ties with local authorities or security officials or who has used other corrupt means to win favor with police and courts.

“There is a whole chain that involves investigators, prosecutors, and the courts. These bodies often ignore the law. They are absolutely confident that their actions won’t be reexamined and there will be no appeals,” says Mr. Korunzhiy. “It’s not a problem with the laws as written; it is the way they are implemented.”

A distaste for business

The impunity with which officials seem to be able to persecute businesspeople may be rooted in Soviet-era attitudes that saw private enterprise as antisocial activity. But that does not explain why the numbers of Russians who see opening their own business as “undesirable” is actually growing, from 49 percent at the dawn of the post-Soviet era in 1991 to 68 percent in 2017, according to a survey by the state-funded VTsIOM polling agency.

“Basically, Russians distrust the business community the same way they distrust bureaucrats,” says Alexander Baunov, an expert with the Moscow Carnegie Center. “There is a perception that entrepreneurs are people who took advantage of the Soviet collapse to help themselves to the people’s property, that they are predators. So, when business people get into trouble with the law, they cannot rely on public sympathy....

“As for Putin, he says the right things. But he also sees business people, especially portfolio investors like Michael Calvey, as speculators, similar to the oligarchs of the 1990s in Russia. So, when push comes to shove and he is asked to choose between an investor and what the security services tell him, well, it’s clear why he isn’t going to intervene in this case,” he adds.

Calvey’s arrest has drawn international scrutiny to these problems, and that can only further damage Russia’s investment prospects, says Rodzianko.

“Russia’s growth potential is somewhat linked to improving relations with the West,” he says. “But to a very great extent it depends upon improving its own domestic investment climate. It needs to urgently address these issues and move to make the regulatory environment less oppressive.”