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C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002632 SIPDIS DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT EUR/CARC, SCA (GALLAGHER, SUMAR) DOE FOR FREDRIKSEN, HEGBORG, EKIMOFF E.O. 12958: DECL: 09/02/2018 TAGS: EPET, ENRG, ECON, PGOV, PHUM, RS SUBJECT: ACTIVIST SUES IN QUIXOTIC QUEST FOR OIL SECTOR TRANSPARENCY Classified By: DCM Eric S. Rubin for Reasons 1.4 (b/d) ------- SUMMARY ------- 1. (C) In a rare if not unprecedented effort to force transparency in the oil sector, Alexei Navalny, a self-described political activist, has filed multiple lawsuits to demand basic information from various companies regarding their business practices. In particular, he is seeking information about the companies' relations with shadowy and reportedly Kremlin-connected oil trader Gunvor. A Moscow court has already ruled against him in cases involving Rosneft and Transneft. Navalny is appealing both and pursuing cases against other large Russian energy firms. He maintains he is under no illusion that he will win any of his cases, saying he just wants to shed light on the fundamental need for transparency in Russia, where no one seems to care about "massive corruption." Given his laudable efforts at transparency, Navalny might be a useful speaker at an Extractive Industries Transparency Initiative (EITI) event sometime soon. End summary ------------------------- "TOTALLY NON-TRANSPARENT" ------------------------- 2. (C) A primary and very large hurdle for those who analyze Russia's oil and gas sector is the dearth of reliable information. News reports abound of large business transactions related to little-known companies and involving undisclosed sums. This lack of transparency is often discussed, but is seldom officially challenged. Navalny, a co-director of a political NGO, is among the few who have dared challenge the secrecy. In a separate meeting, Navalny's lawyer, Alexander Glushenkov, told us his client may actually be the first person to file suit seeking information from corporations under (admittedly weak) shareholder protection laws. 3. (C) Navalny, who owns a handful of shares (he estimates in the range of 50,000-100,000 rubles worth) in each of the companies he is suing, believes the companies are not disclosing key information to shareholders. Both Navalny and Glushenkov told us that the rising and reportedly massive volumes of trade through secretive Swiss-based oil trading firm Gunvor were the genesis of the cases against Rosneft, Gazpromneft, and Surgutneftegaz. This trade was resulting in reportedly very large profits for Gunvor and its secretive ownership, which is rumored to include Prime Minister Putin. 4. (C) Navalny said he believes that trading oil through Gunvor is just a front for "massive corruption" and he is frustrated that nobody in Russia seems to care. According to Navalny and Glushenkov, Gunvor has risen quickly to become the top trader of Russian oil exports, now responsible for up to 50% of the total. He is seeking information from the companies about their relationships with Gunvor: trading volumes, the general terms of the contracts, and how this particular trading company was selected by the oil companies. The companies, have stonewalled -- their relations with Gunvor are &totally non-transparent," Navalny complained. 5. (C) Navalny is also suing Transneft, the primarily government-owned oil transportation monopoly. He owns a small percentage of the company's publicly-traded shares, providing grounds for the suit. In this case, Navalny said he is suing for information related to 13 billion rubles ($530 million) that the company reportedly donated to "charity" in the last two years. According to Navalny, the company gave more to charity than it spent on pipeline repair and maintenance or paid out in dividends. However, the company has refused to disclose any information related to its charitable contributions, including the names of the beneficiaries. 6. (C) A Moscow court recently ruled against Navalny in the first two of his cases to make it to court, those involving Rosneft and Transneft. According to Navalny, the same judge in each case dismissed his suit after just five minutes of deliberation. In his modest office, Glushenkov told us August 28 that the court's ruling was based on a law requiring a shareholder to own more than 25% of a company's MOSCOW 00002632 002 OF 002 shares in order to obtain certain information. He expects the same reasoning to work against Navalny's other cases, against Surgutneftegaz and Gazpromneft. He explained, however, that he understands the 25% threshold to allow for access to any and all information about a company, and that the basic information being sought in Navalny's cases should be disclosed to any shareholder. The court, he added, has apparently interpreted the 25% threshold as the minimum requirement to obtain any information the companies choose to keep secret. --------------------------------------------- WHO OWNS RUSSIA'S FOURTH LARGEST OIL COMPANY? --------------------------------------------- 7. (C) Of the companies Navalny is suing, one stands out for its secrecy -- Surgutneftegaz. As with Gunvor, the company is rumored to be one of Putin's sources of undisclosed wealth. No one knows who the ultimate beneficiaries are of the company, which is one of the pieces of information Navalny has tried and failed to pry out of Surgutneftegaz. "Can you believe," he told us, "that no one knows who owns Russia's fourth largest oil company?" Navalny told us that he personally does not believe Putin owns either Surgutneftegaz or Gunvor since the Prime Minister does not really need to have a direct link to an asset to benefit from it. 8. (C) Glushenkov added that all requests for information from Surgutneftegaz are routinely denied. After numerous requests and many instances of "not our department" responses, sometimes someone in the company provides some vague information that is "totally unverifiable." Glushenkov said that unfortunately little can be done but to sue, and those suits are clearly going nowhere. --------------------------------------------- - NO ILLUSIONS OF WINNING, BUT SUITS TO CONTINUE --------------------------------------------- - 9. (C) Navalny said he is not deterred by his court losses. He told us he is appealing both the Rosneft and Transneft cases, is pushing forward with his suits against the other companies, and is looking at other possible targets for future lawsuits. Both Navalny and Glushenkov told us they have no illusions that they can win any of their cases in a system they see as fundamentally corrupt. Navalny maintains that he is pursuing this effort as a public service to promote the need for transparency and raise the profile of the issue. Thus far, he said he has garnered some limited press. He is planning on writing a book about his efforts to attract more publicity. Neither Navalny nor Glushenkov reported any obvious efforts (other than losing their cases) to pressure them to cease their efforts. ------- COMMENT ------- 10. (C) Opacity is commonplace in Russian business, especially in the sensitive oil sector, and it is a major hindrance to modernization. Without a steady flow of verifiable information, efficient capitalism is impossible. Although we do not expect his efforts to bear much in the way of fruit, Navalny is at least bringing some attention to this issue. As one of the few Russians willing to call the system to account for itself, Navalny may be a useful speaker at the next event of the Extractive Industries Transparency Initiative. End comment. BEYRLE