Lawyer presses on with lonely battle on behalf of openness minority shareholders

By Nataliya Vasilyeva, AP
Thursday, April 1, 2010

Activist presses Russian corporations for openness

MOSCOW — In a country where exposing shady practices can be risky, Russian attorney Alexei Navalny is taking a stand.

Among his exploits: Navalny flew to a shareholder meeting of Russia’s third-largest oil company, Surgutneftegaz, renowned for its murky shareholder structure, in the Western Siberia. The unsuspecting board gave him the floor right after the CEO.

Navalny stood up and asked a simple question: “Who owns Surgutneftegaz?”

The room fell silent. After a few moments, a small group of shareholders in back began clapping.

The company’s CEO told Navalny that he did not know since he owns less than 2 percent in Surgutneftegaz and therefore has no access to the shareholder register.

It’s the kind of brushoff he gets all the time, but his refusal to stop asking has made him Russia’s most public advocate for the rights of minority shareholders. The companies that dominate Russia’s economy are owned by the state or billionaire oligarchs who are often less than open about what they’re doing with the company’s assets and money. Minority shareholders are often left wondering if the company is being managed in their interest or someone else’s.

That lack of transparency and management accountability remains one of the chief complaints about Russia’s investment environment.

“You get your meager dividends — a couple of rubles a year, your tea and sandwich at the annual meeting, or if you decide to fight it all, you get a lot of headache — this is all you can get in Russia for owning stocks,” he said in a recent interview with The Associated Press.

“If you walk down the street and someone snatches your bag, are you going to go to the police and try to catch him? Certainly — you’ve been mugged. And I’ve been mugged here, too,” he said.

Navalny has filed dozens of court claims against the biggest names in Russian business: oil company Rosneft, state-owned gas company Gazprom, pipeline company Transneft, bank VTB and Surgutneftegaz. He has won none of them, but isn’t deterred.

“I see that we are making their lives harder, I make them nervous. This system cannot live for ever — it is distorted, corrupted and ineffecient,” he said. “We need to work on this, otherwise what choice do we have — hide under the bed?”

The tall, slightly stooped Navalny, 33, works out of a one-room office over a busy Moscow street, his desk piled with papers from his cases. He spends about 20 percent of his time on his paid work as a lawyer and the rest on his corporate activism. He says he earns nothing from his campaign and does not hope to, and is only doing this because he believes that shareholders in Russia have no control over the activities of Russian public companies and their voice is muffled.

“There is very little romance in this. A valiant fighter against corporations in practice means a man who gets through enormous paperwork and gets buried under the papers,” said Navalny, who lives in on Moscow’s outskirts with his wife and two children.

Courts have turned down Navalny’s appeal for Rosneft, Gazprom and Surgutneftegaz to disclose information about their dealings with obscure Swiss oil trading company Gunvor. He is currently suing Transneft for its refusal to disclose information about where $500 million in what was described as charity spending went.

In a separate case, he is demanding that Gazprom provide information about the use of intermediary companies in its gas trade inside Russia.

Navalny is also suing VTB bank over a deal where the bank’s leasing company bought oil drilling equipment through a Cyprus-registered offshore firm, which, he claims, increased the price of each drill by $5 million.

Gazprom responded with a two-page article in a company publication describing his motives as “a means to gain political capital.” Gazprom dismissed Navalny’s claim that it used a middleman in gas trading for hiking prices and taking the proceeds, arguing that the gas market is too complex and “its specifics are not always clear to outsider observers.”

Rosneft spokesman Nikolai Manvelov insisted that his company treats all shareholders equally and in accordance with Russian law. He said that satisfying some of Navalny’s requests would mean harming majority investors:

“Imagine that a shareholder — not only Mr. Navalny — would demand information that is not provided for by the law. This would mean we would break the law in favor of one shareholder and breach the interests of others.”

Gazprom’s investor relations service said the company has replied to all Navalny’s queries.

U.S.-born British investor William Browder, whose investment fund was once the largest in Russia, is one supporter of Navalny. Browder made a name in Russia by fighting for the rights of minority investors, but was barred from the country four years ago on grounds of national security after he publicly challenged corruption at Gazprom and Surgutneftegaz.

Sergei Magnitsky, a tax lawyer who had represented Browder’s Hermitage Capital Management, died in jail in November 2009 after defending Hermitage against an alleged scheme by police officers to illegally take over its assets and use them to fraudulently reclaim $230 million in taxes.

“I’m gratified to see that Alexei Navalny is carrying on with the anti-corruption work that we were so passionate about, which means the effort is still alive,” Browder said. “Navalny is doing an enormous service to Russia.”

Navalny is now looking for ways to use foreign courts to hold Russian companies accountable, since most of them are listed overseas.

“Police tell me to my face: ‘You’ll never win a case in Russia’… So it’s like knocking your head against the wall.

“But I believe if you continue to knock, this wall will eventually come down.”

(This version CORRECTS spelling of Navalny’s first name to Alexei.)

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