Robert Amsterdam

According to an article published in this week's Sunday Telegraph, it looks like some major stakeholders in BP are finally demanding some clarification on the company's recent conduct in Russia, supporting a rigged auction of arguably stolen assets of Yukos. Spokespersons for the company continue to adamantly deny that their role in the auction was anything less than genuine interest in the assets, despite all indications to the contrary. It would really be a breath of fresh air if, at the very least, Western energy firms were simply honest and direct in describing their actions in Russia - and simply recognize that this is a country and a regime with whom the illusion of legitimacy to cover up criminal acts is traded in exchange for political credit and access to the discretion of the Kremlin. How much longer will we be asked to suspend our disbelief?

Lord Browne of BP and Vladimir Putin

Investors to quiz BP over Yukos bid

By Sylvia Pfeifer

Some of BP's largest shareholders have expressed grave misgivings over the role of the British oil giant in the controversial auction of the remaining assets of Yukos, the bankrupt Russian oil group, last week.

At least two of BP's top 20 shareholders are understood to be planning to raise the issue with the company in the next few weeks. They fear that BP's reputation has suffered after TNK-BP, its Russian joint venture, took part in the auction of a stake in Rosneft, the state-controlled oil group, which belonged to Yukos.

Lord Browne and President Putin, Some of BP's largest shareholders have expressed grave misgivings over its' role in the controversial auction of the remaining Yukos' assets
Lord Browne meets with President Putin

TNK-BP abandoned its bid for the 9.44 per cent stake after less than 10 minutes, leaving just Rosneft in the running. Its swift departure fuelled speculation that it took part only to legitimise the process and curry favour with the Kremlin in a bid to safeguard its assets in the country. BP strenuously denies this.

"The expectation of TNK-BP was that it would export good corporate governance. But if nobody in the investor community puts up their hand and asks if this was the right thing to do, what would happen?" asked one shareholder.

News that BP would take part in the auction emerged just hours before Lord Browne, its chief executive, and his successor, Tony Hayward, met President Putin 10 days ago. Since TNK-BP was formed in August 2003, Russia has become a vital source of oil and gas revenues for the oil group. Last year BP's share of TNK-BP's output was 60 per cent higher than its total US production.

But fears have mounted in recent months that some of its assets could be seized by the Russian government, which has tightened its grip on the energy sector. Royal Dutch Shell, BP's rival, was last year forced to surrender control of Sakhalin, its field in Siberia, to the state-owned Gazprom. Similarly, analysts fear that TNK-BP could be stripped of its licence to develop the Kovykta gas field in eastern Siberia, an important source of future production.
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One top 10 shareholder said investors' concerns over BP's involvement in Russia were one reason for the company's poorly performing share price, which has fallen from 723p to 552p in the past 12 months.

"[The auction] was not BP's finest hour but I can see why they did it," he said. "Our view is that it is part of the realpolitik of getting involved in Russia."

This is not the first time investors have raised concerns over Western companies' exposure to Russia. Last year F&C Asset Management, one of Britain's biggest investors, threatened publicly to boycott the London listing of Rosneft, which had previously acquired Yukos's main production unit at another controversial auction. F&C said the offering raised serious questions of corporate governance and legal risk. BP came under fire at the time for buying a 1 per cent stake in Rosneft.

A spokesman for BP said: "It was a TNK-BP decision [to take part in the auction] that was based on a genuine interest in the assets that were on offer."

Thanks to Andy over at Siberian Light for blogging about this "advertisement" for Gazprom published by the BBC. After a little more investigation, I also found this other glowing endorsement of Russia's main foreign policy weapon.

Et tu, Beeb? It is truly a crushing disappointment to see this. It seems that all that money Gazprom is investing in public relations is beginning to pay off with some fluffy, uncritical press. Wouldn't we all just rather see Gazprom change its policies, rather than change the way they talk about the same old actions?

Here is one choice bit of cheerleading:

Wingas, a joint venture between BASF and Gazprom, is the second-largest gas company in Germany. In an asset swap, Wingas chairman Rainer Seele says, Gazprom increased its stake in the firm - in exchange for giving BASF rights to one of the biggest gas fields in Russia.

"It's a win-win situation," Mr Seele says, adding that he now spends more time in Moscow than at his headquarters in Germany.

Have the recent recent gas disputes had given him second thoughts?

"I have no idea what you're talking about," he says. "They have no interest to run into conflict at all."

And another:

It is not an easy job to supply gas 24 hours a day, 365 days a year without a hitch when the temperatures can drop to as low as minus 40 degrees Celsius.

"We're certainly proud of what we do," says Mr Vasin.

"It's a special feeling to be part of this work. The responsibility is too enormous to think about."

Gazprom is more than just a business.

It is Russia's most important company, with more than 300,000 employees, and it provides the state with half the energy it needs to run the country.

It also accounts for at least 15% of Russia's hard currency earnings.

Unbelievable. Will the last thinking man to leave the BBC Studios at night please remember to shut off the lights?

The new edition of Time Magazine has a brief profile of Garry Kasparov.

Excerpt:

Putin, Kasparov insists, is getting weaker by the day, as oil prices fall and his entourage starts to look for the protection they will need when he is gone. The Other Russia has brought together a number of groups, from the old nationalist left to the liberal right. All have agreed on a program of fundamental political reform, including a reduction of presidential power, more authority for the parliament and a delegation of authority to the regions. The group's members hope to coalesce around a single presidential candidate in 2008.

For now, that seems unlikely to be Kasparov. He says he is merely a "moderator" between left and right. But he isn't taking chances. In a Russia where crusading journalists like Anna Politkovskaya have been shot, he travels with bodyguards. Russians must take responsibility for change, he says. All he wants from the West is an unequivocal message to the Russian ruling élite that "there will be consequences if they don't play by the rules in 2008."

According to a new report from Ernst & Young, mergers and acquisitions in Russia and the former Soviet states surged last year by 41%, reaching $71 billion. Acquisitions in Russia by foreign companies nearly doubled to $13.7 billion, and while Russian companies themselves put $11.4 billion into acquisitions abroad.

Today Eckhart von Klaeden of Germany's Christian Democratic Union/Christian Social Union party sounded off on the missile issue in the Wall Street Journal:

It is disingenuous when the Russian Foreign Minister Sergei Lavrov, in an article in a German daily newspaper, sanctimoniously asks whether Europe had actually been consulted, while at the same time the Chief of the Russian General Staff and the Commander of the Russian Strategic Missile Forces threaten to make the missile-defense sites in Poland and the Czech Republic "targets for the strategic missile forces" of the Russian Federation and declare that Moscow could pull out of the Treaty on the Elimination of Intermediate-range and Shorter-range Missiles (the INF Treaty).

The same attitude was displayed when Vitaly Churkin, Russia's ambassador to the U.N., rejected the British request for a U.N. Security Council resolution demanding the immediate release of the British soldiers seized by Iran. Russian foreign policy is devoid of credibility when it pretends to be the guardian of European interests on the one hand while supplying Iran with surface-to-air missiles on the other. Moscow should abandon the old zero-sum game from the Cold War era and recognize its own interest in regarding Europe as a common security area. Russia is also a potential target for Iranian missiles. Moscow should give more serious consideration to offers of cooperation from both the United States and Europe than it has in the past.

In other news, the pro-government newspaper "Vremya novostei" published an ominous warning in an editorial declaring that Russia "will remember the behavior of Prague and Warsaw."

The Land Where You Sit: Russian Women of the Baikal Region

Grigory Pasko, journalist

The small settlement of Listvyanka stands right on the shore of Lake Baikal. The population is 1500 residents. Distance from Irkutsk – 70 kilometers. Principal activity of the local residents – fishing. Very recently, I’ve been told, the settlement has begun a transformation: rubbish bins have suddenly appeared, old houses are being repaired, and the «Mayak» hotel has been built.

Photo of hotel «Mayak» by Grigory Pasko

All this has taken place after the election of Tatiana Kazakova as head of the local municipal formation. Kazakova has an ambitious project: to build a business center with a chain of modern hotels in Listvyanka. The project is called «Baikal-City». And, they say, it already has the approval of the government of Russia and even of president Putin himself. The project is now at the stage of finding investors, because the planned cost of the business center with the chain of hotels is $30 billion dollars. Recently, the project was presented as a special economic zone of the touristic-recreational type «Baikal» in Cannes within the framework of an international exhibition-fair of investment projects in the sphere of commercial real estate.

Rendering of Baikal City

A gathering of the local residents took place not so long ago in Listvyanka’s «Europa» hotel, which is owned by Ms. Kazakova. They met Ms. Kazakova and members of the local municipal assembly there. They spoke about many problems, and Listvyanka’s mayor, Ms. Kazakova, promised to solve all of them. And what with all the problems that were discussed – rubbish collection, the organization of the police precinct, the opening of a new store, etc. – the «Baikal-City» project wasn’t mentioned at all. Which I’m sure you’ll agree was rather strange, given that this project will affect practically every resident of Listvyanka in one way or another.

Photo of Tatiana Kazakova by Grigory Pasko

Ms. Kazakova invited me, through her press secretary, to visit her in her office in Irkutsk the next day.

After the gathering, I paid a visit to Sophia Ageyeva, a local environmental activist and an opponent of the Baikal-City project. The small wooden house in which Sophia lives with her husband Yevgeny stands not far from the fashionable (by Listvyanka measures) hotel «Europa». Two small children were getting ready for supper, while Yevgeny hobbled away on crutches (his back is temporarily paralyzed) to heat up the sauna. Sophia told me that the project to build the business center is bad because it does not factor in the specifics of the protected natural zone and that it will certainly cause damage to the main heritage – Lake Baikal, because all the waste water from all 20 hotels and business offices will be flushed right into the pristine waters of the “sacred lake”.

Photo of Sophia’s wooden house by Grigory Pasko

Sophia spoke with fervor. Her three-year-old daughter Paulina ate some chocolate I’d brought instead of supper, and then pulled a piece of ice as pure as a baby’s tear out of a bucket and began to gnaw on it.

The next day, Sophia invited me to the opening of an environmental exhibition in Irkutsk.

Photo of Sophia Ageyeva by Grigory Pasko

…I greeted the morning of the next day on Baikal, at its southernmost point – the village of Kultuk. The women standing along the roadbed were selling a local fish, the omul [Arctic cisco] in all its varieties – smoke-cured (the barrels were smoking away right there by the highway), dry-cured, and fresh-caught… Passing but five meters from the highway was the Trans-Siberian Railroad right of way, along which the train «Rossiya» on the route «Vladivostok-Moscow» soon passed. Below us, in the Baikal valley itself, stood the wretched and decrepit old homes of the local residents. They were about as far as could be from any business centers with their fashionable hotels.

Ms. Kazakova’s office set itself up in the «Europa» hotel (owned by Ms. Kazakova, needless to say). That very day, there was a conference going on in preparation for the exhibition in Cannes. Kazakova’s entire work day was written out by the minute. Meetings, conferences, participation in a charitable evening, interviews with journalists… I would venture to guess she didn’t get home until late. Kazakova’s cottage, as the local journalists reported to me, is found not far from Irkutsk, but not in Listvyanka. Tatiana Vasilievna has an invalid husband (they say that he had been her bodyguard and had shielded her with his body from a hit man’s bullet) and four children.

That same day, Sophia Ageyeva was presenting an exposition of her Baikal-Lena Preserve, in which she works as an ecological enlightenment resource specialist, at the exhibition. She told visitors to the exhibition about the preserve, its significance and about how it is included in UNESCO’s list of participants in worldwide cultural and natural heritage. As a specialist in the area of ecological enlightenment, Sophia naturally keeps an eye on the conservation of natural sites and identifies instances of violation of the preserve regime. It is therefore not surprising that she is an opponent of the unthinking construction of all kinds of business centers and fights for public oversight and environmental impact assessments of such facilities.

Today, 44-year-old Tatiana Kazakova heads the municipal formation in Listvyanka. Before this she entered into the leadership of the association «Baikalskaya visa», which owns five hotels, three restaurants, a café, and a culturo-recreational center.

33-year-old Sophia Ageyevna owns a small wooden house, and she is also the author of several books and a multitude of stories for children and publications on the subject of protecting nature and preserve affairs.

Both the one and the other, it seems to me, are happy with their fate.

Kim Murphy, a veteran Moscow correspondent from the Los Angeles Times, has published a long article on the impressively large expatriate community of Russians living in Londongrad (her new beat) in the New Republic. Kim poses the question as to whether having large numbers of expatriates living in a wealthy, liberal democracy would help translate some of these values back home to encourage a positive change in Russia.

April Fool's joke of the week: London's Mayor Announces that one face of Big Ben will now display the time of day in Moscow....

Here's the argument for:

Looked at another way, though, it may be that the growing links between the Russian power elite and one of the most liberal, international cities on earth will ultimately lead to a more democratic Russia. "So many people now have this double life between Britain and Russia," explains (Alexander) Terentyev. "This experience can't help but influence the Russian development, and in a Western direction."

Here's the argument against:

What (Boris) Kagarlitsky has put his finger on is not all that surprising: The oligarchs are ultimately less interested in shaping Russia's future than their own. London has become a place where they can play out their fantasies, preferring to run with the wolves on English estates rather than from Putin back at home. But they're not the only ones. Many of those who no longer have the Kremlin's ear, including even former members of Putin's own administration, are quietly stashing their nest eggs in London. "Most Russians don't want to be identified as having a safe haven," said one banker familiar with the Russian community. "They all want to be seen as happy patriots in their own country. But ... they're all scared. Because, in Russia, one day you're in, and the next day you're out. There's no rule of law. Anything could happen."

I think it is fundamentally problematic to pose the question like this, and plays right into the fallacy of Vladislav Surkov's "sovereign democracy," which is really nothing more than rhetorical window dressing to deprive Russians of their political freedoms and seize power based on the excuse that those freedoms represent the nefarious imposition of a foreign model. I think it is unlikely to expect that a democratic Russia will look exactly like the UK or the United States, and while we shouldn't demand that Russia's path toward liberalization mimic that of the West, it is insulting to suggest that the birthplace of the great Andrei Sakharov needs to borrow our playbook to build their own free society.

If you want to find the real culprits behind Russia's escalating authoritarianism, look at who lives next door to London's Russian émigrés, holding chairs on the boards of BP and the London Stock Exchange, pumping out funds from top banks in New York and Paris, and crafting foreign policy in Rome, Budapest, and Brussels. Do you really think it's fair to blame President Vladimir Putin for Russia's crackdown on civil liberties without taking some responsibility first in the West? Until we stop handing out irresistible economic incentives which encourage the Kremlin's current path, criticism of Russia is just an exercise in hypocrisy that ideologues like Surkov can adroitly exploit to no end.

The following press release was distributed via wire today. It can also be viewed online here and on other news websites.

ENI is the First Victim of Russia’s Gas OPEC, Says Khodorkovsky Attorney

LONDON, April 2 – In an interview published this weekend in the Italian daily Corriere della Sera, attorney for Mikhail Khodorkovsky, Robert Amsterdam, strongly criticized the Italian energy firms ENI and Enel for their participation in the controversial auctions of Yukos assets in Russia.

“The Italian government has surrendered to Putin,” Amsterdam said in the interview. “One day there will be a different government in the Kremlin that will prosecute those responsible for these crimes, and when that call comes, I will be looking not only at Moscow, but also at Rome.”

Corriere della Sera quotes Amsterdam describing ENI as “the first victim of the gas OPEC,” arguing that following Gazprom’s signing of a agreement with Algeria’s state-operated gas exporter Sonatrach last August (Italy receives 69% of its gas from Russia and Algeria), that ENI was strong-armed by Russia into helping make the Yukos affair appear legal.

In the article Amsterdam compares the Italian participation in these auctions to the “embarrassing scandal” of BP’s decision to bid in a Yukos auction, saying that “it is a form of reputation laundering that some Western companies make themselves available for.”

A full translation of the Corriere della Sera interview with Robert Amsterdam will be made available this week on his blog, www.robertamsterdam.com.

Robert Amsterdam is the founding partner of Amsterdam & Peroff, and represents the former Yukos CEO Mikhail Khodorkovsky. This statement represents his personal views.

###

On Sunday, the Italian newspaper Corriere della Sera published an interview with Robert Amsterdam. The full English translation will be made available tomorrow. The article can be read online here and here (scan).

MOSNEWS is running a story on Robert Amsterdam's statement on Italian participation in the Yukos auctions:

Khodorkovsky’s Lawyer Lashes Out at Eni, Enel for Taking Part in Yukos Auction

MosNews

Robert Amsterdam, attorney for the founder of bankrupt oil firm Yukos Mikhail Khodorkovsky, gave an interview to the Italian daily Corriere della Sera and strongly criticized the Italian energy firms Eni and Enel for their intention to take part in the controversial auctions for Yukos’ assets.

“The Italian government has surrendered to Putin,” Amsterdam said in the interview. “One day there will be a different government in the Kremlin that will prosecute those responsible for these crimes, and when that call comes, I will be looking not only at Moscow, but also at Rome.”

Corriere della Sera quoted Amsterdam describing Eni as “the first victim of the gas OPEC,” arguing that following Gazprom’s signing of a agreement with Algeria’s state-operated gas exporter Sonatrach last August (Italy receives 69 percent of its gas from Russia and Algeria), Eni was strong-armed by Russia into helping make the Yukos affair appear legal.

In the article Amsterdam compares the Italian participation in these auctions to the “embarrassing scandal” of BP’s decision to bid in a Yukos auction, saying that “it is a form of reputation laundering that some Western companies make themselves available for.”

As MosNews has reported, BP’s Russian venture TNK-BP took part in the first of three auctions for the assets of bankrupt Yukos alongside state oil company Rosneft. The auction was for Rosneft’s 9.44 percent stake held by Yukos as well as some other oil assets. TNK-BP and Rosneft were the only participants of the auction, which was won by the state-controlled firm. The second auction for 20 percent stake in Gazprom Neft (former Sibneft), in which Eni and Enel plan to take part on Wednesday, April4, will have at least six bidders, Russian authorities said.

It appears that shareholders at BP are beginning to register their disgust and anger over management's recent decision to play a role in the Yukos auction.

Shareholders say BP "was not without choices" when confronted with Russia's energy blackmail. (image: "BP Exec - Nick Turner)

FT Article: Anger at BP role in Yukos auction

Some of the largest shareholders are concerned that the UK oil company has harmed its reputation by allowing its Russian joint-venture, TNK-BP, to join a bid for Yukos assets with the state-run Rosneft.

No other participants entered the auction. TNK-BP pulled out after 10 minutes, leaving Rosneft to win the bid, paying $7.9bn for a stake in its own company.

Analysts say the auction was set up to favour Rosneft and TNK-BP's participation fulfilled legal requirements that an auction have at least two bidders.

Shareholders opposed to this action say they realise that BP is operating under difficult conditions and may want to win favour in Moscow. But it was not without choices, they say.

It goes without saying that if a country has to blackmail other companies into participating in energy auctions (by mounting a quasi-legal/regulatory attack on a major investment from the environmental ministry, for example), than the legality of the property for sale is highly questionable.

Per our earlier press statement, please see the attached translation of an interview with Robert Amsterdam in the Italian newspaper Corriere della Sera. The original version can be found here.

Corriere della Sera April 1, 2007

THE INTERVIEW: Khodorkovsky’s lawyer against Eni: “Complicit in the carve up of Yukos”

By Danilo Taino

The company
• PETROLEUM
The oil company Yukos, founded by Russian businessman Mikhail Khodorkovsky, was one of the world giants of the petroleum industry, with 2% of the global production of crude oil.
• TAXES
In 2003, Yukos was accused of tax evasion to the tune of 33 billion dollars and gradually went into liquidation.
• SIBERIA
Khodorkovsky, the owner of the company and President Vladimir Putin’s great rival, was condemned to nine years’ imprisonment and sent to prison in Siberia.

MILAN – Mikhail Khodorkovsky’s lawyer is furious with Eni and with the Italian government that supports it. “They’ve surrendered to Russia,” he says in this interview. Robert Amsterdam – the Canadian lawyer employed by the founder of Yukos who is now in prison in Siberia – is watching the auctions that are being held in Moscow this week to sell off the last possessions of what used to be Russia’s number one petrol company, and he talks of scandal and of crimes committed by the Kremlin and by westerners who have chosen to follow the path of “humiliation”.

Amsterdam has announced that next week he will be sending a letter to the European Commission in which he will accuse a number of western businesses – probably including Eni and Enel – of acting in violation of article 81 of the Treaty of Rome, which regulates competition. And that he will pursue legal action in the American courts and in the European Court of Justice, in political initiatives and in the US Congress, against anyone who buys property that belonged to Yukos, a company which he believes has been stolen from by the Russian state. “But what anyone who enters into this kind of agreement should be especially afraid of,” he says, “is that one day there will be a different government in the Kremlin that will call those responsible for this crime to account. Because when that call comes I won’t just be looking in Moscow, but in Rome, too.”

The specific object of contention is an auction that will be held on 4th April, at which two Siberian establishments, Arcticgas and Urengoil, along with 20% of GazpromNeft, the oil company that used to belong to Roman Abramovic, now owner of Chelsea, will be sold off by the Russian state. These are possessions which, along with many others, were a part of Khodorkovsky’s Yukos, before it was accused of 33 billion dollars’ worth of tax evasion in 2003 and subsequently put into liquidation, and its owner (President Vladimir Putin’s rival) was put in prison six thousand miles from home. Both Eni and Enel have decided to participate in this auction, the value of which will be several billion euros, and they have formed a joint venture with a Russian partner, Esn, for the purpose: the Italian companies control 30% and 19% of the joint venture respectively, with the Russians holding the other 51%. Amsterdam maintains that being a party to the sharing out of the spoils of a crime – which was a crucial part of Putin’s strategy of centralising business and authoritarian politics in the Kremlin – is something that cannot be justified from any point of view; and that, furthermore, it’s dangerous.

“I don’t know who’ll win the auction,” he claims, “Perhaps Eni (and its partners, ed.) will win, maybe to then sell something back to Gazprom who are not taking part directly for fear of legal action. But three things about Eni’s behaviour are clear: it’s taking part in an auction whose outcome is predetermined, as it is in all auctions of this kind in Moscow; it’s buying goods at a price that is lower than their value; and it’s buying stolen goods. What’s more, it’s surrendering to Russia and becoming the first victim of the new gas OPEC, formed by the agreement that Russia signed with Algeria a few months ago” to control the methane market.

Last week, at another auction, BP turned up as well after its managing director Lord Browne had met with Vladimir Putin. But during the auction itself BP withdrew straight away and left the field to Rosneft, the Russian state petroleum company, which bought the shares at auction for 500 million dollars less than their market price. The suspicion is that BP only took part in order to give the auction a formal legitimacy (there have to be at least two contestants for it to be valid), in exchange for something else. Indeed, BP had been threatened by the Moscow government with losing its exploitation rights for the large site at Kovykta: perhaps it was hoping to ingratiate itself with the Kremlin. “The BP scandal is an embarrassing one,” says Amsterdam. It’s a kind of ‘reputation laundering’ by the Kremlin “for which certain westerners offer their services.”

In the United States, John Chiang, the State Controller of California, has been advising Calpers, the very rich and powerful pension fund, to reassess its investments in BP and Chevron (who it seems have also participated in one of the Yukos auctions) because this involvement in Russian affairs carries very high risks. “I can assure that they’ll do the same with Eni if it wins the auction,” says Amsterdam. “And,” he asks, “why have Romano Prodi and the Italian government decided to give in to Putin and to invest in the Kremlin? That’s not how you ensure your energy supplies – you don’t practise leadership by humiliating yourself.”

Highlights
“On 4th April, companies that have been stolen are being put up for auction at prices below their value.”

“Why has the Italian government decided to give in to Putin?”

Photo
IN PRISON Mikhail Khodorkovsky, ex-president of the petroleum giant Yukos

This is a rather horrifying story - and certainly does little to help Russian suspicion of the West.

Doctors Charged Over Trials Of Glaxo Vaccine in Russia

Associated Press

MOSCOW -- Prosecutors charged three Russian doctors with endangering people's health following a criminal investigation into vaccine trials organized by United Kingdom pharmaceutical giant GlaxoSmithKline PLC, federal authorities said Monday.

The doctors at a hospital in Volgograd, about 550 miles southeast of Moscow, had participated in the tests for pediatric vaccines called Varilrix and Priorix Tetra beginning in late 2005, the prosecutor general's office said in a statement posted on its Web site.

A total of 112 children between the ages of one and two were involved in the trials, prosecutors said. Officials opened their inquiry when a parent complained to prosecutors after her daughter suffered medical complications, apparently from the vaccine.

Parents were allegedly told by the doctors that the vaccines were routine rather than experimental, prosecutors said.

Complete article.

Yesterday at the National Conference of Editorial Writers US Secretary of State Condoleezza Rice spoke at length about Russia and other international issues.

Among her comments was the following statement:

There is then another layer, which is the issue of internal issues in Russia. And here, if I were to divide it into the two parts that you asked, on investor relations, the use of the oil card, the consolidation of Kremlin control over oil and gas, you know, I think it's something that bears watching because it is somewhat troubling and -- but it's going to be incumbent on Russia to demonstrate that rule of law actually does govern and -- or Russia is not going to, I think, get the kind of investment that it needs. It won't be because the United States tells people not to invest; it will be because boards of directors are concerned about whether or not their investment is safe.

Does Condi really believe that? Lately it seems that thanks to a liquidity glut and the delusional belief that high oil prices will be permanent, that the boards of directors of energy firms have developed a gluttonous appetite for politically risky exposure, especially in Russia. Nobody understands this better than the new energy czars in the Kremlin, who have learned how to rob and extort the foreign investors in broad daylight with no fear of consequences. Now it seems that the only people who are looking out for the future solvency of these companies are a few concerned shareholders and CSR advocates, faced with the task of wrestling away the keys from their intoxicated executives.

Here is a short news clip from NBC Nightly News reported by Jim Maceda on Russia, featuring extremely short interviews with Boris Berezovsky, Yevgenia Albats, Sergei Strokan, and Francois Heisbourg.

One can only assume that after the last two phoney auctions, the Kremlin will now be issuing a rulebook, given that both auctions have been preceded by high-level meetings or conversations involving senior Kremlin officials in what are obviously attempts not only to predetermine results, but also to legitimize criminal conduct on behalf of Russian officials at the highest levels. The willingness of ENI to participate in this farce says more about its surrender to the new gas OPEC of Algeria and Russia than anything else.

The Six-Legged Dog of ENI got cornered by the Gazprom-Sonatrach agreement

These are not open free auctions but rather organised sales at knock-down prices and with predetermined winners. While ENI appears at first sight to have won this auction, in reality Gazprom is the winner. As Alexander Medvedev, Deputy Chief Executive of Gazprom stated moments after the auction, “The structure of what we will get is still being discussed, but we will definitely get 51% - that is a minimum."

The reality is that Gazprom was torn between trying to create the appearance of a normal auction and therefore allowing ENI to win, and not losing face with the Russian public. Therefore after the auction, Medvedev addressed the Russian press to assure them that while they were using ENI’s money and ENI as a proxy, in reality ENI would not control the assets, Gazprom will.

Last week saw the first of a series of rigged auctions in Russia in which the remaining $30 billion of Yukos assets are being sold off cheap. BP had signed up for the auction, but walked away only ten minutes into the bidding, when the assets were still a half billion dollars below market value. As there were no other bidders, many observers have concluded BP was complicit in bid-rigging, hoping to gain favour with the Kremlin.

BP’s suspicious withdrawal from bidding has led some shareholders to express “grave misgivings” over the company’s role in the final sell-offs of Yukos. Even before the auction, California’s State Controller called upon the public pension fund, Calpers, to reconsider its $500 million investments in BP, out of concern for apparent complicity in Kremlin corruption.

In the long term, the patronage of the Kremlin by European energy companies will prove counterproductive. This voluntary sacrifice of integrity is viewed by Moscow as weakness. For the corrupt officials currently acting as Russia’s economic gatekeepers, this complicity only validates their attack on the free market, and encourages the current pattern of expropriation, thievery, and destruction of property rights.

Today the Times of London reported on comments made by NYSE Chief John Thain criticizing London's lax rules for taking Russian companies public:

Less than a month after a commissioner of the US Securities and Exchange Commission (SEC) courted controversy by likening London’s junior Alternative Investment Market (AIM) to a casino, Mr Thain appeared to make an implicit criticism of the London Stock Exchange (LSE) for pursuing numerous listings of Russian and former Soviet Union companies.

Speaking in Paris yesterday before the formal launch of the merged NYSE Euronext group today, Mr Thain said: “I am very concerned about the quality of corporate governance, the transparency of company financials and the protection of minority shareholders. A number of Russian companies raise serious questions around these issues.”
...
Last month, Roel Campos, an SEC commissioner, caused controversy by criticising AIM. He said: “I’m concerned that 30 per cent of issuers that list on AIM are gone in a year. That feels like a casino to me. It is a losing proposition to tout lower standards as a way to promote your markets.” Mr Campos also suggested that the LSE would suffer because of AIM’s lax regulation. He said: “There’s also a danger with higher standards; if it’s too affiliated with an exchange that has lower standards, it gets painted with the same brush.”

Yesterday the New York Times published a letter from Yukos stockholder and former security advisor to Reagan, Ricard V. Allen.

To the Editor:

“From Ashes of Yukos, New Russian Oil Giant Emerges” (news article, March 27), about the politically motivated expropriation of Yukos and the current rigged “sale” of its assets, did not mention that the renationalization of the company sanctioned by President Vladimir V. Putin did not simply affect the company’s now-imprisoned billionaire chief executive, Mikhail B. Khodorkovsky.

It is surely of equal importance that Yukos was a publicly traded company listed on the New York Stock Exchange, with thousands of individual shareholders around the world.

The shareholders have suffered great losses. When the Russian government simply took this asset from its lawful owners, it did so without compensating those owners for the value of the property it lawlessly confiscated.

For this reason, I and many other Yukos shareholders have joined to take legal action in United States federal court against the Russian government and other responsible parties to seek compensation for this unlawful theft.

Richard V. Allen
Arrowtown, New Zealand, March 28, 2007
The writer was national security adviser to President Ronald Reagan.

RA quoted by the Associated Press in BusinessWeek:

The sale prompted a harsh response from Khodorkovsky's attorneys.

"Watching Gazprom jumping through hoops to avoid participating in this auction demonstrates their knowledge of their own guilt," lawyer Robert Amsterdam said. "The Kremlin is not behaving as if it believes what it is doing is legitimate."

With the recent posthumous publication of Anna Politkovskaya’s diary, I have been reliving some of my memorable encounters with her. During one meal we shared, a wide variety of issues beyond Chechnya were discussed, and she described to me an assault on an impressive young Russian human rights lawyer named Stanislav Markelov. It appeared that Markelov had been targeted because of work he had engaged in defending the residents of a town in the regions (Blagoveshchensk, in the Republic of Bashkortostan), which had been targeted by the Russian internal militia for a “filtration procedure.” This filtration involved rounding up men and women and subjecting them to brutal assaults, inclusive of rape of severe bodily injury, in an attempt to weed out so-called threats to society. I thought that the possibility of this activity occurring inside Russia was beyond the pale even of what I knew of the regime in 2004. In any event, at Anna’s insistence, I met with Markevlov and learned of a secret Ministry of Internal Affairs Order No. 870 which actually put in writing this entire procedure.

During our meeting, Markelov and I immediately recognized a number of shared perspectives, and after a more recent discussion, we have agreed to do cross postings between our two blogs (Markelov writes a popular human rights blog in Russian). I have asked him to provide us with some of the original articles and testimony with respect to this worrying Russian precedent. Below is the first of an upcoming series of articles – stay tuned for more testimony and original articles from Stanislav.

THE CHECHNYA SYNDROME AND THE BLAGOVESHCHENSK CASE

By Stanislav Markelov

After the end of the case of the Cadet, OMON officer S.V. Lapin, sentenced for the first time directly in the city of Grozny of the Chechen Republic to 11 years of deprivation of liberty for a crime against a peaceful citizen, I came into the case of the mass beating of peaceful citizens in the city of Blagoveshchensk of the Republic of Bashkortostan by officers of the police, as the lawyer representing the side of the victims.

The “Blagoveshchensk case” turned out to be the most prominent and largest example of the spread of the Chechnya syndrome throughout other regions of Russia. Along with the length and the mass character of the crimes, the beating lasted 4 days, had an unmotivated character, extended to the entire city and nearby villages, and involved significant police forces, including some that had previously served in Chechnya. A very large number of victims (officially 342, realistically over 1000). A punitive mechanism known as “filtration”, which has been widely encountered in Chechnya, was officially used during the course of this “mopping up operation”.

Officially, by order of the police superiors, a “filtration point” was created on the territory of the former Blagoveshchensk sobering-up station. All detainees were brought here, forcibly detained here, beaten and abused. The police refused to notify relatives or lawyers about the detentions.
Until the “Blagoveshchensk case”, despite the wide spread of the practice of filtration, on a single official had ever admitted the existence of filtration points.

For the first time, in the “Blagoveshchensk case”, a document was uncovered on the basis of which the “filtration points” were created and “police mopping-up operations” were conducted.

This is the secret order of the MVD [Ministry of Internal Affairs] of Russia No. 870 of 10 September 2003. According to it, the police invented for itself the concept of an “extraordinary circumstance”, which does not exist in Russian law. This concept includes practically all events that substantially impact the lives of people, society, and the state. Such a wording allows the police to introduce emergency measures of a police character arbitrarily, at the pleasure of the MVD forces themselves, even without informing the citizenry of this.

In addition to this, the order officially entrenches the concept of “filtration point”, which also does not exist in Russian law. This allows police officers to apply practically any unauthorized unlawful methods, without bearing any liability whatsoever for this. So it was that in the Blagoveshchensk case the organs of the procuracy acknowledged the fact that citizens had been unlawfully deprived of liberty in the “filtration point”, but refused to file charges against police officers on the basis of this fact.

The court appeal of this order and complaints to the Procuracy-General and to the Ministry of Justice ended without result.

During the course of the trial, a multitude of facts were uncovered of pressure having been applied to the most active victims, including attempts to buy them off and threats of physical violence. The procuracy did initiate a separate criminal case based on the given facts, recognizing their authenticity, but the court refused to arrest any one of the persons who had been charged.

At the present time, the “Blagoveshchensk case” has been returned from the court back to preliminary investigation, because the court could not cope with the huge volume of the case. Attempts to appeal this unlawful return were likewise rejected under the pretext of “expediency”.
Now all of the police officers who had been charged are at liberty and remain at their posts, including the chief of police in the city of Blagoveshchensk.

The question of the safety of victims, witnesses, and lawyers is one of the painful ones for Chechnya as well. Despite the obvious reduction in the number of direct military confrontations, the local population still does not know such a concept as court. All judicial proceedings in Chechnya are resolved either by way of a bribe, or through revenge by the aggrieved party. Hence, functioning in reality as of today in Chechnya is either “the law of the machine gun” or “the law of the bribe”. Local inhabitants have already forgotten what an investigative process or a trial is, inasmuch as over the past 15 years only law surrogates such as military field courts, sharia courts, and others have existed there.

The case of the “Cadet” S.V. Lapin remains the only case that was initiated for a crime in Chechnya, considered by a court in the city of Grozny, and attained a real verdict. This case became a significant socio political event in the Republic in general. The court sessions were attended by dozens of peaceful inhabitants who had no direct relation to the case and marvelled at the very idea that independent judicial proceedings could be taking place in Chechnya.
Even the consideration of the Budanov case and the Ulman case did not have such an impact on the situation in Chechnya, inasmuch as the judicial proceedings took place far from the territory of Chechnya (in the city of Rostov-on-Don).

It is characteristic that during the course of the trial, the defendant enjoyed every opportunity to defend himself, namely: he had his own lawyer of his own choosing, he actively presented his evidence, and no pressure was put on either him or his lawyer during the course of the trial, which they themselves acknowledged.

The guilty verdict and the punishment rendered in the form of 11 years of deprivation of liberty became an important precedent in Russian law in general, inasmuch as unlike the previously had practice, destruction of the corpse of the deceased did not become grounds for avoiding criminal liability.

For Chechnya, this case also turned out to be precedent-setting in connection with the fact that the father of the deceased Zelimkhan Murdalov, Astimir Murdalov, turned for redress not to armed structures, but to official legal institutions, albeit after a lengthy time and significant difficulties, but he did manage to achieve justice.

The conducting of the first precedent-setting case in Chechnya aroused a mass reaction of approval by the peaceful inhabitants and dissatisfaction both on the part of the Russian “hawks” and on the part of the separatists. The former did not like the very fact of the sentencing of an officer for the commission of a crime against a Chechen, the latter did not like the real precedent of the application of Russian law on the territory of Chechnya, and the possibility of resolving the conflict through the Russian court system, inasmuch as many of them proceed from the position that “the worse things are, the better”.

After the S.V. Lapin’s verdict entered into legal force, it became possible to attain the initiation of a new criminal case, this time with respect to his immediate superiors – major A.S. Prilepin (at the present time he has resigned from the organs) and lieutenant-colonel V.A. Minin (likewise resigned from the organs after the case was initiated). As of the given moment, they both are evading contact with the investigative organs and have been declared international fugitives.

Unfortunately, these precedents have yet to lead to the mass appearance of such cases. The legal situation that has evolved in Chechnya remains firmly entrenched. Lawyers from other regions are afraid to work in Chechnya directly, and prefer to access only international institutions (the Strasbourg court and other such institutions). Because of the orientation exclusively on the European Court of Human Rights, local inhabitants have gotten the impression that the Strasbourg court is the last instance examining a case on its merits, that is capable of determining the presence of guilt, the formal components of the crime, establish punishment, etc.

The existence of such a myth, in addition to this, leads to a weakening of public pressure on the Russian legal structures in Chechnya. On the other hand, the lawyers and jurists working on “Chechen cases”, having achieved the right of direct recourse to the Strasbourg court, bypassing the judicial instances in the CR, have ended up being uninterested in the reestablishment of a full-fledged judicial system there. As a result, a whole cohort of lawyers and jurists has appeared who have declared of their specialization in Chechen matters yet never have worked in Chechnya itself.

Local lawyers, unfortunately, remain extremely corrupt, and are in the main end up being intermediaries in the passing of bribes to the investigator and the judge. An insignificant quantity of honest lawyers still does not have serious work experience and are forced to constantly subject themselves to physical danger (5 lawyers have died in Chechnya in recent years).

The situation with the human rights movement in Chechnya looks no less problematic. On the whole, more than 240 human rights organizations are registered in the CR; of these, only one or two are really functioning; it is unknown what the rest are engaged in. In addition to this, representatives of international and Russian human rights organizations are constantly found in Chechnya. Despite the saturation in the republic of various kinds of human rights defenders, their activity is extremely one-sided and can be reduced to the conducting of seminars and monitoring. In the absolute majority of instances, such forms of activity represent the laundering of monetary funds (grants) that have been received. However, even in instances of the actual conducting of such undertakings, they become in Chechnya clearly insufficient. The gathering of information without an attempt to impact on the situation in the republic does not improve the situation with human rights in any way, and at the same time also creates a real danger for the sources of the information. The conducting of conferences and seminars dedicated to the problems of Chechnya has any kind of resultativity at all in the event of a discussion of concrete work methodologies in this region. Unfortunately, the absolute majority of human rights seminars is in no way connected with practical activity.

On the other hand, despite the reduction in the number of direct armed confrontations, the state of the law enforcement organs of Chechnya remains catastrophic. The organs of the procuracy consist for the most part of cadres sent in for a short term from other regions, who obtain their next official callings and do not delve into the situation in the republic. Instead of carrying out oversight functions, the procuracy in Chechnya in the main engages in attempts to “push aside” the multitude of complaints and statements about crimes committed.

Besides the problems indicated above, also characteristic of the police structures in Chechnya is the presence of units oriented exclusively at the application of torture and the beating out of testimony (the ORB – the branch for investigating banditism). In addition to this, present in Chechnya is the practice of private jails (zindans) and a multitude of armed formations having an incomprehensible legal status (the Kadyrovites, Gantemirovites, and others). Formally found under federal subordination, they are controlled only by their commanders and periodically conflict with one another, up to and including armed skirmishes.

In recent times, the fears of the peaceful inhabitants are gradually increasing with respect to separatist groupings and are somewhat decreasing with respect to the federal troop structures, because, first, the number of federal troops in Chechnya has noticeably decreased, and second, a rotation of cadres is taking place in the Russian units, and now persons who had earlier not participated in the armed conflict and who do not have resentment against the local population are serving there, while the composition of the armed formations of separatists remains the same as before. The greatest number of violations as of today’s moment is characteristic of the activity of the local armed formations of quasi-federal subordination.
In order to really conduct legal work in Chechnya at the present time, what is needed is the use of a local initiative group comprised on the one hand of professional jurists and lawyers, and on the other of human rights advocates and, working together with them, professional lawyers and jurists from Moscow or other Russian regions. Such a combination will allow work in Chechnya to be improved on the basis of the examination of real cases, and not endless seminars and monitorings. Likewise the recruitment of experienced professional legal cadres will allow the training of young jurists and lawyers to be carried out directly in Chechnya during the course of conducing cases. At the present moment, the personnel makeup for carrying out the given work has already been picked.

The concurrent appealing of unlawful internal normative acts of agencies in the “Blagoveshchensk case” will allow for the liquidation of the legal grounds for the mass application of illicit actions by the law-enforcement organs, both in Chechnya and in other regions of Russia.

Following harsh criticism from NYSE officials that London's rules for listing new companies from emerging markets are excessively lax (mainly in reference to 22 Russian firms listed on the LSE, totalling £221 billion), Britain's Financial Services Authority is taking action to review the rules. As demonstrated by the listing of Rosneft last year, whose primary value is derived from the stolen property of Yukos, the London Stock Exchange is willing to list companies with very little accounting transparency and openly sketchy corporate governance. Whatever your opinion may be in regards to the Rosneft IPO, there is legitimate concern that investors are not being sufficiently protected, and that minority shareholders in Russian companies that lack clear corporate governance laws (esp. when the majority shareholder is the Federation) are at risk of having their rights violated. With this kind of loose oversight, Russia is actually able to export business opacity, and significantly damage the quality of the exchange. I hope that all global trading floors raise the standards for public listings - uniform rules, accounting practices, and transparency will be good for everyone, especially for Russian entrepreneurs.

London's laissez-faire oversight for public listings has been likened to a "casino" culture

From the FT:

Peter Montagnon, head of investment affairs at the Association of British Insurers, said investors were concerned about confusion between different types of London listings. These include primary, with traditional corporate governance standards; secondary, which need no primary listing elsewhere and have minimum regulation; and global depositary receipts, only available to professional investors.

The LSE also operates the Aim junior market with weaker regulation.

"There's a risk of confusion here, and there's a risk that if we are not careful we could sacrifice some of London's reputation for quality and with it one of the reasons it is an attractive market," he said.

Even some investment bankers - who make large fees from listings - are concerned. A senior industry figure said: "Has it gone too far? Not yet, but we're close."

The LSE has been successfully promoting itself in Russia but is keen to head off investor criticism, which surfaced last year when several big groups attacked the listing of Rosneft, Russian oil producer.

The LSE welcomed the debate. "We are particularly keen to have clear labelling of the different forms of listing, giving investors the choice but making sure it is very clear exactly what they are being given," it said.

Robert Amsterdam was interviewed on CNBC this week in regards the the instrumentalization of Italian energy firms by Gazprom to purchase "stolen property" in the Yukos auction.

We're pleased to offer an exclusive translation of an article written this week by Jörg Reckmann in the German newspaper Frankfurter Rundschau.

Art: Peter Schrank, Economist

From Moscow with Love (Liebesgrüße aus Moskau)

By Jörg Reckmann, Frankfurter Rundschau, April 2, 2007

From Soviet Beelzebub to an overbearing great power whose energy giant Gazprom is at least just as dangerous as the Red Army once was. Today’s Russia once again scares Europeans. The loser of the Cold War has again grown into a position of power which frightens not only many of those East European states which suffered over generations under Russian hegemony and dictatorship and believed they had put this trauma behind them by means of EU and NATO accession. However, Russia is already there, with outstretched hand, but as a demanding partner of both organisations. This breeds fear, lays doubts about future European policy at the EU’s doorstep and so weakens the ability to shape of the Union, which needs nothing more than a new eastern policy. Not as a substitute for, but as a complement to the transatlantic bound with the United States, a power which has been discredited to a destabilising extent as a leading power in military, political and moral terms.

What was frightening about the Kremlin’s harsh criticism of the missile defence which the United States seeks to build on Russia’s border was less Moscow’s clear no but the ease with which Vladimir Putin was able to divide the Europeans in NATO and the EU. This was only possible, because a serious, new orientation in policy vis-à-vis Moscow is still lacking.

During the Cold War, the key to solving problems – as it was put with resignation back then – lay in Moscow. And that meant unreachably far away. But this is exactly what has changed, the keys lie within reach: Russia itself is offering its services to the Europeans as a strategic partner with which a balance of interests is possible. And Moscow is serious. In the Iran crisis, the Russian position has moved closer to the European one; in the Middle East, Russia is a constructive part within the Western negotiating quartet; on the missile question, Moscow is insisting more on equal status in the decision-making process than on a veto against any kind of missile defence.

Moscow’s negative position on the independence of Kosovo is also not to be explained simply by imperial affectations of power. Even in the EU, there is considerable doubt about the future ability of an entity which would be more similar to an EU protectorate than even an only partially sovereign state. More time is necessary, says Moscow; it is right to say so; and at the same time, it represents its own interests. This still seems to be difficult for the Europeans to accept, as if they themselves, or even the United States, acted out of altruism. The United States, Saudi Arabia, Iran, the countries of South America, the aspiring economic giants China and India, and not least the EU are striving for power and influence. To seek to exclude Russia from this game would be absurd. Instead, in the increasingly complex power structure of the globalised world, it is important to state one’s own interests clearly and, by means of discussions with all partners, to organise this worldwide living arrangement, which not even North Korea can really bid farewell.

In this new world order, crucial importance is to be accorded the EU and its relations with Russia. However, it does not look as if all Europeans have grasped this. There is no other way of explaining why negotiations on the new EU partnership with Moscow are being blocked. There is no other way of explaining why the salvation of the constitutional treaty is still being hampered. Those who seek to act as a self-confident partner for Russia must have some notion of a common European foreign policy. But this is exactly what is lacking, and it is to be feared that Europe will squander its chance.

Russia – uncomfortable, overbearing, and far-removed from a flawless democracy – is offering its services as a partner but with a clear interest in its large neighbour, the EU. The chancellor and her foreign minister have understood this. It would be the greatest success of their EU presidency if they were to succeed in allaying the fears of those partners who are reluctant to accept Moscow’s advances.

Without a unified foreign policy, the EU cannot be a self-confident partner for Russia.

The Land Where You Sit: A Palace Commandeered by the Chekists

By Grigory Pasko, journalist

One of the readers of this blog reproached me, with full justification, because I did not mention the mansion of the merchant Shumov as one of Chita’s finest buildings in a recent article I wrote about the city.

I stand corrected, and hereby declare: it is indeed, if not the finest building in the entire city, then certainly on the short list of the best the city has to offer in terms of architecture.

By the way, on one of my visits to the city, the local mass media were reporting that “the descendants of the famous Trans-Baikal gold magnates, the brothers Konstantin and Alexey Shumov, had arrived in Chita from Krasnoyarsk, Irkutsk, and Amur Oblast”. They visited their architectural legacy, the famous “Shumov palace”, which to this day is considered the