[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



              


111th Congress                              Printed for the use of the
2d Session            Commission on Security and Cooperation in Europe
______________________________________________________________________                                             
                                             
        BEYOND CORPORATE RAIDING: A DISCUSSION OF ADVANCED 
            FRAUD SCHEMES IN THE RUSSIAN MARKET

           [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                   

                            NOVEMBER 9, 2010


                            Briefing of the
            Commission on Security and Cooperation in Europe
______________________________________________________________________

                            Washington: 2015
      
      
      
      
      
      

            Commission on Security and Cooperation in Europe
                     234 Ford House Office Building
                          Washington, DC 20515
                              202-225-1901
                          [email protected]
                          http://www.csce.gov














                      Legislative Branch Commissioners

  
               SENATE                                      HOUSE
  
  BENJAMIN L. CARDIN, Maryland,              ALCEE L. HASTINGS, Florida,
    Chairman                                     Co-Chairman
  CHRISTOPHER DODD, Connecticut              EDWARD MARKEY, Massachusetts
  SAM BROWNBACK, Kansas                      LOUISE McINTOSH SLAUGHTER,
  SAXBY CHAMBLISS, Georgia                     New York
  RICHARD BURR, North Carolina               MIKE McINTYRE, North Carolina    
  ROGER WICKER, Mississippi                  G.K. BUTTERFIELD, North Carolina         
  JEANNE SHAHEEN, New Hampshire              JOSEPH PITTS, Pennsylvania                   
  SHELDON WHITEHOUSE, Rhode Island           ROBERT ADERHOLT, Alabama             
  TOM UDALL, New Mexico                      DARRELL ISSA, California
 
                       EXECUTIVE BRANCH COMMISSIONERS

                    MICHAEL POSNER, Department of State
                 ALEXANDER VERSHBOW, Department of Defense

                                  (ii)
                                     



           *         *         *         *         *
     ABOUT THE ORGANIZATION FOR SECURITY AND COOPERATION IN EUROPE

The Helsinki process, formally titled the Conference on Security and 
Cooperation in Europe, traces its origin to the signing of the Helsinki 
Final Act in Finland on August 1, 1975, by the leaders of 33 European 
countries, the United States and Canada. As of January 1, 1995, the 
Helsinki process was renamed the Organization for Security and 
Cooperation in Europe (OSCE). The membership of the OSCE has expanded 
to 56 partici- pating States, reflecting the breakup of the Soviet 
Union, Czechoslovakia, and Yugoslavia.
The OSCE Secretariat is in Vienna, Austria, where weekly meetings of 
the participating States' permanent representatives are held. In 
addition, specialized seminars and meetings are convened in various 
locations. Periodic consultations are held among Senior Officials, 
Ministers and Heads of State or Government.
Although the OSCE continues to engage in standard setting in the fields 
of military security, economic and environmental cooperation, and human 
rights and humanitarian concerns, the Organization is primarily focused 
on initiatives designed to prevent, manage and resolve conflict within 
and among the participating States. The Organization deploys numerous 
missions and field activities located in Southeastern and Eastern 
Europe, the Caucasus, and Central Asia. The website of the OSCE is: 
.


           *         *         *         *         *
       ABOUT THE COMMISSION ON SECURITY AND COOPERATION IN EUROPE

The Commission on Security and Cooperation in Europe, also known as the 
Helsinki Commission, is a U.S. Government agency created in 1976 to 
monitor and encourage compliance by the participating States with their 
OSCE commitments, with a particular emphasis on human rights.
The Commission consists of nine members from the United States Senate, 
nine members from the House of Representatives, and one member each 
from the Departments of State, Defense and Commerce. The positions of 
Chair and Co-Chair rotate between the Senate and House every two years, 
when a new Congress convenes. A professional staff assists the 
Commissioners in their work.
In fulfilling its mandate, the Commission gathers and disseminates 
relevant information to the U.S. Congress and the public by convening 
hearings, issuing reports that 
reflect the views of Members of the Commission and/or its staff, and 
providing details about the activities of the Helsinki process and 
developments in OSCE participating States.
The Commission also contributes to the formulation and execution of 
U.S. policy regarding the OSCE, including through Member and staff 
participation on U.S. Delega- 
tions to OSCE meetings. Members of the Commission have regular contact 
with 
parliamentarians, government officials, representatives of non-
governmental organiza- 
tions, and private individuals from participating States. The website 
of the Commission 
is: .

                                 (iii)
  
                                     

BEYOND CORPORATE RAIDING: A DISCUSSION OF ADVANCED FRAUD SCHEMES IN THE 
                             RUSSIAN MARKET

                                  ------------

                                November 9, 2010

                                    WITNESS

                                                                   Page

Alexei Navalny, Founder, Minor Shareholders Association................
                                                                      3

                                  PARTICIPANT

Kyle Parker, Policy Advisor, Commission on Security and Cooperation in 
Europe.................................................................
                                                                      1

                                  (iv)










 
BEYOND CORPORATE RAIDING: A DISCUSSION OF ADVANCED FRAUD SCHEMES IN THE 
                                             RUSSIAN MARKET

                              ------------

                            November 9, 2010

Commission on Security and Cooperation in Europe
                                                         Washington, DC

    The briefing was held at 2:00 p.m. EST in 1539 Longworth House 
Office Building, Washington D.C., Kyle Parker, Policy Adviser, Helsinki 
Commission, presiding.
    Mr. Parker. I'd like to call the briefing to order. Welcome 
everybody, on behalf of our chairman, Sen. Ben Cardin, to today's 
briefing at the Helsinki Commission entitled, ``Beyond Corporate 
Raiding: A Discussion of Advanced Fraud Schemes in the Russian 
Market''. We are very happy to have Alexei Navalny here as our featured 
panelist.
    This is a public briefing. It is being recorded and will be 
transcribed and result in an official government transcript, much like 
a hearing. We are able to take public questions. So please, while you 
listen to the presentations, be thinking of good questions. One of my 
favorite parts of a briefing is that we really can have almost an 
informal, focused, guided discussion.
    Before we begin, I just wanted to mention a couple quick things 
about the commission. We were founded in 1976 by an act of Congress, 
and our mandate is to monitor the implementation of the Helsinki 
Accords and subsequent commitments; and with particular focus on the 
third dimension, which is the human dimension.
    As the basis for our work, one of the commitments, the 1991 Moscow 
concluding documents, states, ``The participating states emphasize that 
issues relating to human rights, fundamental freedoms, democracy and 
the rule of law are of international concern. As respect for these 
rights and freedoms constitutes one of the foundations of international 
order, they categorically and irrevocably declare that the commitments 
undertaken in the field of the human dimension of the CSCE are matters 
of direct and legitimate concern to all participating states, and do 
not belong exclusively to the internal affairs of the state 
concerned.''
    So that's sort of the framework and the basis in which we operate. 
The topic of this briefing sort of grew out of a lot of our focus this 
year on rule of law, corruption, transparency, good governance issues--
particularly in Russia. And certainly, the past few weeks, there's been 
no shortage of items in the news.
    I also just wanted to read into the record a couple quick 
statements on the issue of corruption in Russia from three Russian 
leaders, and the first is from President Yeltsin: ``I know that you 
have some doubt in our victory over corruption. But I have resolve and 
political will, and your support in this fight. I will fight this to 
the end. People will be afraid to misappropriate public funds and take 
bribes.'' That was in 1997.
    Something from Putin: ``I make this point now because despite all 
the efforts we have made, we have still not managed to remove one of 
the greatest obstacles facing our development--that of corruption.''
    And now, a couple words from President Medvedev: ``Corruption is 
the greatest enemy of a free and democratic society.'' And a little 
more at length here, in an address to the Federal Assembly in 2009--
President Medvedev again:
    ``Personal success, encouragement of initiative, a better quality 
of public discussion and zero tolerance of corruption should become 
part of our national culture, an intrinsic part of who we are. In 
Russia, we often say that there are a few cases in which corrupt 
officials are prosecuted.
    I want to cite a few figures: In just six months of this year, we 
have received more than 4,500 cases of corruption, convicting 532 
officials of government authorities and local self-government bodies, 
and more than 700 law-enforcement officers.
    These figures unfortunately show the extent to which corruption has 
infected our society. However, simply incarcerating a few will not 
resolve the problem. But incarcerated they must be. To successfully 
combat corruption, all spheres of government must become more 
transparent, including the activities of public authorities, courts and 
other judicial bodies. We shall overcome underdevelopment and 
corruption because we are a strong and free people, and deserve a 
normal life in a modern, prosperous democratic society.''
    I thought it might be helpful to put those out. I know we're quite 
familiar with statements of legal nihilism and other things, but to 
have some of that before us in a little bit more detail.
    Today's briefing also features some testimony for the record from a 
couple people who unfortunately could not be with us today. The first 
one is Yana Yakovleva, who is a Russian businesswoman. And she had an 
experience of being arrested under false pretenses and spending the 
better part of a half of a year in jail; a phenomenon that's 
unfortunately all too common in the Russian market. And she now 
continues her work at her company; as well, splits her time with a new 
NGO called Business Solidarity.
    She has worked with Olga Romanova, who is the editor of Forbes 
Russia, which I might remind people is the publication that the late 
Paul Klebnikov worked for. She worked with Yana to compile a list of 
cases that they are working on, and that's been distributed out of the 
table and will be made part of the record.
    Olga's husband is currently in jail, in one of these similar types 
of extortion schemes, and it has only recently been discovered what 
facility he was in. For some time, she was not aware of his whereabouts 
or whether he was even alive. He is alive, and I believe he, with the 
help of some people on the outside, have started an award-winning blog 
called the ``Butyrka blog''. And Butyrka is an infamous Russian 
detention facility in Moscow.
    So please do take a look at their submissions. And I know Alexei is 
quite familiar with a number of the cases that are in those 
submissions, so should questions arise--we also have something for the 
record on the case of Fedor Mikheev. Only last Thursday--first time in 
the public domain, again, a similar story of kidnapping, extortion, all 
manner of, all manner of, well, I don't quite know what you'd call it. 
I guess, these advanced fraud schemes.
    And there is a submission, it's out there on the table. It goes 
into a lot more detail than the Financial Times article did. One of the 
interesting things is, the people involved in this particular case--
again, Fedor Mikheev is currently in jail--are almost, to a person, the 
same people who were involved in the fraud against Hermitage Capital 
Management and the death of attorney Sergei Magnitsky.
    I am happy to have permission to include an article by Thomas 
Firestone, who was our resident legal advisor at embassy in Moscow. Tom 
may be joining us today, and certainly there is really nobody who knows 
this issue better in the U.S. government than Tom. And so please, if 
you have a chance, his article ``Armed Injustice'' is on the table and 
will be included in the record.
    With that, I would like to turn it over to our featured panelist, 
Alexei Navalny, whose bio is on the table. Alexei was nominated, I 
believe, last year, as ``man of the year'' by Vedomasti. And a little 
humorously, just shortly ago, was elected mayor of Moscow in a virtual 
election that took place online----
    Mr. Navalny. Virtual one. Virtual mayor.
    Mr. Parker. A virtual one, yeah. But what did you get, something--
35,000 votes or 55 thousand?
    Mr. Navalny. It was 75 percent.
    Mr. Parker. And his leading contender was against all. So Alexei 
sort of, in a sense represents a generation that has been locked out of 
politics and have taken to other means. And Alexei has made extensive 
use of new media and other modern technologies to advance his message 
and has come all the way from New Haven to be with us today. And with 
that, I would like to turn it over to Alexei.
    Mr. Navalny. Thank you, Kyle, and thank you very much for this 
president's votes. It was funny. It was theory. And I'm going to talk 
about practice.
    Thank you very much for having me here, and I would like to thank 
Sen. Cardin and Rep. Hastings for the opportunity to brief the U.S. 
Helsinki Commission on Russian efforts to battle corruption in Russian 
financial markets and on the implication of our efforts for American 
investors large and small.
    I will also highlight the ways in which white-collar crimes leads 
to broader human-rights violations. And finally, I will outline a few 
possible strategies for international cooperation that would resonate 
with our efforts.
    Over the past 10 years in Russia, political changes have given 
government officials broad reach in power. As a result, some of them 
have become involved in shady criminal business dealings, graft, fraud, 
embezzlement and money laundering. It can be very difficult to track 
these white-collar crimes, to expose them and to address them. 
Difficult, but not impossible, if one knows the lay of the land.
    My law practice focuses on the shareholders' rights. We work within 
the corporate system by pressing management to maintain transparency, 
to respect the law and to abide international standards of 
accountability. We use both traditional media and grassroots methods, 
especially blogs, to rally public interest in corruption.
    My personal blog has about 50,000 readers daily and has proven very 
efficient and effective change. In other cases, we alert minority 
shareholders about corruption and offer them free proxy advice. We also 
apply legal pressure from outside of corporate system; specifically, we 
initiate formal investigation and file class-action suits in high-
profile cases. We also work as activists to foster systemic change.
    I will now review a few salient example of corruption and the 
strategies we have been applying in dealing with them. Because energy 
is a big business in Russia, I will focus on energy industry in 
choosing my examples.
    First, let's consider the misappropriation of funds dedicated to 
the construction of major natural gas pipeline. Two pipelines--they 
look exactly the same. One in Russia, one in Germany. And actually, 
they are the same. They are both part of the one big pipeline. But 
despite the relatively high cost of labor and metal ore in Germany, 
cost of the Russian part of pipeline is approximately three times the 
cost of German parts, mile for mile. Why?
    Because one, on the Russian project, money appears to have gone 
missing. Look at this funny couple. A construction company was engaged 
to build the Russian part of pipeline without even bidding. This 
company belongs to Vladimir Putin former judo coach Arkady Rotenberg. 
He and his brother were named the main constructors for Gazprom, the 
largest company in Russia.
    You can see the official data from the Gazprom reports. These 
brothers became billionaires in short order. And Gazprom is refusing to 
disclose any information how the Rotenbergs got the contract. Actually, 
they get enough information--disclosure of information is a big change 
for the shareholders activists.
    And Gazprom is not alone in hiding their dealing from public 
scrutiny. This is a very short and visual example for work to disclose 
their information. Normally, within a year, company should produce a 
tall stack of minutes as VTB Bank does, whose minutes you can see on 
the left.
    Gazprom, Russian biggest corporation, produced the meager center 
stack. And Sugutneftegaz: very big company. The third Russian oil 
company produced just a couple of--literally a couple of pieces of 
paper. And they were really reluctant to give even these documents.
    I was the first shareholder for all history who succeeded to force 
them to produce these couple of pieces of paper. And the content of 
this minutes indicate that board meet only a couple of hours throughout 
the entire year.
    Turning to another natural resource, I draw the commission's 
attention to a case involving the petroleum trade. Russia is the 
biggest oil exporter in the world. We have five major oil companies, 
all publicly traded. Four of them were forced to sell an undisclosed 
percentage of their oil through Gunvor.
    Gunvor is a small, privately held middle-man trading company based 
in Switzerland. Gunvor trades more oil than any other single entity in 
the world. As a minority shareholder I sent demand letters to all four 
companies seeking disclosure of how much oil they sell through Gunvor, 
under what conditions, at what prices and whether Gunvor received any 
preferential choice.
    All companies refused to give any information about their 
cooperation with Gunvor. So I filed suit alleged on disclosure. 
Finally, the judge held all Gunvor's documents to be privileged and we 
can understand pretty well the real reason of this decision because the 
only one piece of information about Gunvor is well-known. That one of 
the owners of this middle-man company is Gennady Timchenko, old friend 
and colleague of Vladimir Putin.
    His position allows him to skim a small percentage of the top of 
each of millions of barrels sold and all legally. Very good business 
and he's a billionaire as well. Actually, it's a very interesting 
Russian phenomenon why all friends of Vladimir Putin who wants to be in 
business they became billionaires so soon.
    My third example also comes from the world's energy resources. In 
Russia, a company called Trasneft has a monopoly on the transportation 
of oil. According to the official records, Transeft not only a 
transportation monopoly but also the biggest charitable donor in 
Russia. They give half-a-billion dollars in charity over to U.S. Sounds 
good, indeed, but the problem is that no one knows who received the 
gifts.
    After exhausting considerable efforts we were able to locate just 
two recipients of these mysterious charities. One of them is Kremlin 
Line Foundation Kremlin Line was created by the former secret service 
officials and we have uncovered sufficient ground to allege that this 
so-called charity is just a fraud through which Transneft pays bribe to 
secret service when Transeft want to squelch an investigation.
    This strategy works for them. In our case we spent two years 
pressing the interior ministry to investigate this classified charity. 
After several months when the ministry had a deadline to announce the 
result of the investigation the representative came to the hearing and 
said, oops, we lost the file. There is no case anymore.
    And of course it was a huge scandal, we sued them successfully and 
we forced them to start an investigation again. A couple of weeks ago 
when another deadline came and they were supposed to announce the 
result of investigation the representative came to the hearing and 
said, sorry, we lost the file again. Of course, this will set up a huge 
scandal so our work at least accomplished that.
    Transneft still operates in shadows and is still hiding the 
identity of the recipient of the so called charity. But our litigation 
drew attention to the cover ups so the government was pressured into 
reinforcing our rules of transparency for Transneft. The company has 
been forced to disclose their own incrimination--even more 
incrimination information about their work. So we managed to use the 
system against the system to protect investors' interests efficiently.
    I described just three, very typical, examples of the corruption 
among the dozens we are investigating. So why does it matter for you? 
Corruption in Russia effects share pricing for shareholders around the 
world which hurts corporate portfolios and the retirement funds of 
little American guy. It also made a hit to your tax base and your 
economy because U.S. funds have invested billions of dollars in Russian 
companies.
    Not only do we fight to reduce the damage suffered by American and 
other investors but our work, also, draws attention to human-rights 
violations. When we expose corruption officials try to hide their 
tracks. At times some of them have resorted to violence and degradation 
to protect their careers.
    In this connection I remind the commission of the chilling story of 
attorney Sergei Magnitsky who was jailed, tortured and left to die in 
the prison cell for his role in exposing corruption. He wasn't an 
activist, he wasn't a politician, he was just a lawyer investigating 
the crime against the state.
    We are all grateful for emergent congressional support for the 
Justice for Sergei Magnitsky Act of 2010 sponsored by Sen. Cardin. 
Passing the bill will garner attention and we activists will all sleep 
more soundly. I found myself especially encouraged that Congress will 
be considering this bill in the light of recent events back home.
    This weekend journalist Oleg Kashin was assaulted. Kashin is a 
friend of mine as he is a prominent Russian journalist. Here's the 
clipping from the official website of United Russia Youth League, a 
pro-Kremlin youth movement. The author has the words to be punished 
over a photo of journalist.
    Within a matter of a month, he was attacked. The attackers broke 
his legs, his arms, his jaws; they smashed his hands. He lost finger as 
a result. He also sustained serious injuries of the head and has fallen 
into a coma. And actually, he's still in a coma.
    The assault is presumed to be tied to Kashin's criticism to the 
Kremlin and their pro-Kremlin youth movement. The attack on Kashin 
highlights the connection between corruption and politically motivated 
violence. Kremlin officials are afraid of political change. So power is 
hard to let go--so is money.
    The careers of corrupt officials are funded by graft. We are really 
eager to know who's funding the pro-Kremlin youth movement. If corrupt 
officials and private managers who are conspiring with them are forced 
to disclose this information any ties to pro-Kremlin organizations will 
be exposed. The Russian people and worldwide human-rights organizations 
will take notice.
    If you're operating on emerging markets, you will hear a million 
times that all your attempts to fight corruption and to change the 
situation abroad are fruitless because of deep cultural roots of 
foreign corruption. I'm here to tell you that this is not true. We have 
very powerful tool to fight corruption in Russia. And because Russian 
corruption has passed laundered money through the United States we hope 
they will be prosecuted here, too.
    I'm not a dissident; I'm an activist. I consider investment in 
Russia to have very high potential. I hope Americans will continue to 
invest in Russia but we need a little more political leverage to 
protect those investors.
    I do not presume to ask commission to support any particular 
project or agenda. But I do hope Congress will take steps that will 
benefit both of our countries. I will leave the commission with a few 
additional thoughts about the battle against corruption. I'll start 
with a general principle, the principle of the carrot and the stick. 
Trust the carrot. Russian companies note that the greater transparency 
translates into the higher rating of their agencies such as American 
agencies such as Standard & Poor's, which means that they can borrow 
cheap money more easily.
    Unfortunately, they also know that America tends to overrate 
Russian transparency. This tendency needs to be watched by Securities 
and Exchange Commission and, perhaps, legislated. Our efforts are 
bolstered by the Foreign Corrupt Practices Act in U.S. and the Bribery 
Act in the United Kingdom. Many of us dedicated to the anticorruption 
agenda are pleased to see these developments.
    We also need to give the Russian corruptionists the stick. American 
investors should always listen carefully to what competent advisors 
says about specific Russian investments. These are such Risk Metrics, 
ICC; Glass-Lewis; Lincoln Jones and so forth.
    Where the concerns arise, fund managers may need to pull out and 
allow the Securities and Exchange Commission to investigate or even 
initiate legal action in the United States. The SEC must remain fully 
empowered to tackle this problem.
    The stick needs to be applied in another area, too. Almost all 
Russian state-controlled companies have ADR--American Depositary 
Receipts--here in the U.S. The privilege of issuing American Depositary 
Receipts should be tied to the rights of American investors, 
international investors and Securities Exchange Commission to bring 
suit and cases of fraud and embezzlement whether the alleged white-
collar crime was committed in the United States or abroad.
    Additional monitoring and enforcement of ADR rules is always a good 
thing. Although the Russian legal system is not free of corruption we 
Russian activists are able to make the system work. However, we need to 
see the U.S. develop a strategy for prosecuting crimes committed by 
corruptionists on U.S. soil.
    I do not want to see U.S. act like a world police force. I'm not 
asking Congress to be involved itself in policing cover up within 
Russia. However, in my opinion, the United States could do a better job 
of investigating the trail of stolen money and enforcing consequences. 
An enormous amount of money stolen from investors have been invested in 
the U.S. real estate, bank accounts, American and European stocks.
    This is money laundering and this is a violation of your federal 
law. In order to battle money laundering efficiently the Justice 
Department, the FBI, the Securities Exchange Commission, Homeland 
Security, State Department and so on may need to pool their sources in 
a new way and to be found to do so.
    Making this a high priority would help investors, including 
Americans, recover billions of dollars per year--improving the economy 
of both our country and expose corruption that leads to human-rights 
violations and abuses. Thank you.
    Mr. Parker. Thank you, Alexei, for your testimony and for all of 
those examples. I'm glad you mentioned the Kashin case which is 
something--I don't know how many have seen the video. There is a video 
out there.
    Mr. Navalny. This is horrific. This video is horrific.
    Mr. Parker. Particularly a brutal again, I don't even know the 
words to describe the type of brutality that's seen in the video and 
then another journalist on Monday. And there's another journalist who 
was involved in opposing this project who is partially paralyzed now 
and facing a libel suit from a regional official.
    So you had mentioned this little stamp that was on the page. I just 
would note that it's no longer to be found on the website. I believe 
it's Muldi Aguardia.
    Mr. Navalny. Yes. This is Muldi Aguardia but----
    Mr. Parker. It's been taken----
    Mr. Navalny. Fortunately with Internet we can find----
    Mr. Parker. I'm actually highlighting that someone took it down. 
I'm not questioning that it was there and is well-meant to telling us a 
little bit more about Gannady Timchenko and Gunvor.
    I brought here an article. I used the Congressional Resource 
Service to get because Timchenko sued--and successfully sued The 
Economist when there was a piece written on him. The piece had 
something--the title was something to the effect of ``Grease My Palm'' 
or something like that in The Economist in 2008.
    Mr. Navalny. Actually, he wants to sue them but they decided to 
have a peaceful agreement.
    Mr. Parker. They had some agreement and, again, and what I have 
here it's not clear. But it's clear that this stuff is sensitive and 
that somebody doesn't want this, want this information in the public 
domain. As well, Alexei, thank you for mentioning the Magnitsky case.
    Just as I was on my way over to this briefing I discovered that two 
of the lead people who--this is a press release we put out in April 
when Sen. Cardin sent a letter to the secretary of state asking that 
these people be barred from entering the United States. Well, we're 
almost a year later; no one has been brought to any justice or held 
accountable despite voluminous evidence.
    Additionally, a number had been promoted and not only promoted but 
today I see in this announcement here--and I just had time to do a 
quick Google translation--that two investigators Pavel Karpov and Oleg 
Silchenko--Silchenko, I believe, is the person who the Moscow Prison 
Oversight Committee in their report on the Magnitsky case, sort of, 
argued was the most culpable--received today ``best investigator'' 
awards from the ministry of internal affairs of Russia.
    And I don't know where to start. I have all kinds of questions. I 
hope a number of people out in the audience do. One thing I want to ask 
is, just on your work in Moscow and the corruption: Does the dismissal 
Luzhkov; do you expect that, that will disrupt some established, 
corrupt relationships, corruption networks? Is this something that's 
going to be severely disruptive or is it just?
    Mr. Navalny. You mean in Moscow city?
    Mr. Parker. Yeah, in and around Moscow. I'm just wondering if this 
is there any bright side in this, at least, in the near term while 
people rearrange their position or the balance of power is worked out? 
I would imagine having been in office for so long that there were a 
number of things that--people got pretty comfortable and relationships 
were established.
    So how disruptive do you think that the change will be to corrupt 
networks and relationships?
    Mr. Navalny. I'm pretty skeptical about the possible changes with 
this Luzhkov dismissal because we have a very clear signal for the new 
Moscow authorities. And one of the signals is that Mr. Resin who's 
actually, kind of, symbol of Moscow corruption is still mayor deputy. 
This is the person who supervised all construction building and all 
these relationships in Moscow.
    He's the person who has a hand watch which cost more than $1 
million and all his life he was an official. He never was involved in 
the kind of business and so on. And as this operation to replace Mr. 
Luzhkov is just an operation to connect the federal corrupt practices 
and Moscow corrupt practice because Moscow is a very big and very tasty 
piece of money. And it's just an operation of corruption--integration 
of corruption.
    Mr. Parker. Interesting. What about the recent raid over the 
weekend on Lebedev's bank? Is he done? How serious is this? What do you 
expect?
    Mr. Navalny. Alexander Lebedev is--sometimes he's very aggressive 
in disclosing of corruption as in talking about corruption. And he 
actually did a big job to disclose information about corruption 
practices in Moscow. But he's a business man and he's involved in 
business himself. And he's a very easy target.
    He has guys to support him, of course and he's playing in this game 
using rules of this game. But he's--maybe this attack on his office is 
the signal for him and to prevent some of his ideas to investigate new 
cases because he's--he's a really easy target to attack.
    Mr. Parker. Like I said, many stories that have been out in the 
past couple of weeks is the possibility that WikiLeaks may be on the 
verge of a massive dump on, sort of, corrupt Russian officials. Are you 
hearing much in the blogosphere on that? And Russia is a tough 
audience. What's it going to take to shock the Russians?
    Mr. Navalny. Of course I heard about it. But this statement of the 
WikiLeaks founder didn't have any impact on Russian audience because 
actually, for example, in Russia we have site compramot.ru. And we have 
a lot of very evident information. A lot of real information about the 
real crimes and a lot of proofs. And using just information from this 
website, we can put to jail half of Russian officials.
    But the problem is that we have a real low barrier of tolerance to 
the information about corruption. So people are just accustomed to this 
information. They are taking their morning newspapers and reading, 
okay, another $1 billion was stolen. Let's go to their culture 
department. We are just too accustomed to this information. So that 
WikiLeaks information cannot bring something new, something shocking 
for the Russian audience.
    Maybe they have some information about, for example, about Gunvor 
because this area still is pretty closed about this mysterious third 
owner of Gunvor because we know that one of the owners of Gunvor is 
Gennady Timchenko, another one is a lawyer from Finland, I guess. And 
the third shareholder is Hedin and no one knows him.
    Some people think that this is Mr. Putin. I don't think so. But I 
do believe that maybe all owners of Gunvor they're just nominal owners 
and real owner of Gunvor and person who got real benefits from this 
company is Mr. Putin, himself.
    Mr. Parker. I guess just sort of your take on--you want Americans, 
foreigners to do business in Russia, just to explore that a bit. I'm 
looking in this Washington Post piece--just late October: ``Russian 
corruption takes on a life of its own''. And this is a piece that came 
out around the new Transparency International ranking, which showed 
Russia slipping some at least numbers.
    Although the sense that I heard from, sort of, digesting a lot of 
the ink that was spilled was that, probably, really not significantly 
worse than it had been. Certainly, probably not, better. But Sergei 
Markov, political analyst and member of the lower house is quoted in 
here saying Russia's leaders have been tentative about fighting 
corruption because they don't want to upset the stability that the 
country has finally achieved and stability is the main threat to 
economic growth. And corruption is not contradictory with economic 
growth.
    Additionally he says, investors won't pay attention to Transparency 
International. They pay attention to their own experience. Some of them 
are quite cynical, for some of them corruption is good.
    How important is this issue? Certainly, I don't imagine anyone 
would argue in favor of instability in Russia. And I guess, sort of, 
taking the whole environment as a whole and understanding, I guess, 
what's possible, what's realistic; what would you say to Markov?
    Mr. Navalny. In Russia we have, very basically, two parties who are 
struggling now in corruption and fighting corruption is a hot issue in 
their fight. Some of the most advanced managers and officials they 
realize now that it's much more profitable to be transparent. That, 
actually, you can get much more money if you're transparent, if you 
have a good business.
    But other part, basically, we can isolate with Mr. Putin. They 
really want to be engaged--still engaged in these heathen practices. 
They prefer this scheme of enrichment which I described. It's 
overpricing of construction, it's the, kind of, very strange charity 
schemes and so on and so forth. They don't want to mind in new styles.
    They still don't realize that if, at least, they shift their 
corruption to the most sophisticated case it would be much easier for 
them. They still prefer to just classify all the information to just 
come to the company and take, literally, bags with the cash from the 
companies.
    But other parties, as I mentioned, they have a real political reach 
to fight corruption. That's why I'm addressing to the U.S. and ask for 
their help because I believe that some force that you can apply it here 
in America will help Russian party to fight corruption.
    As I mentioned, this idea of prosecuting Russian officials who are 
laundering money here in America will be real powerful tool and will 
bring real, positive change in Russia very soon because, now, officials 
and managers with whom I'm talking with they just are asking me, 
Alexei, please explain--give us at least one reason to be more 
transparent.
    We're absolutely fine without corruption. There is prosecution 
here. There is no prosecution abroad. And the, kind of, potential 
danger for them will be created here in America, in Europe or in 
London. This will be a very powerful tool because they are stealing 
money in Russia but they invest it abroad.
    They are buying luxury condos in Miami, Florida, in New York, in 
London. Their children are living here. They have education here and so 
on. So creating this potential danger will be very positive to Russia 
and to Russia parties to fight corruption. And I do believe that, 
actually, these efforts that you can apply here are not opposing to the 
Obama strategy of reset button because reset button doesn't mean that 
we should just ignore any corruption or should we just forget 
everything.
    Reset button means that America is not going to policing in the 
Russian cases. We don't want you to invade Russian political area or 
something. You can use your own legal system to protect your own 
citizens and your own companies and through it help the Russia.
    Mr. Parker. Thank you. Questions from the audience? Please. We have 
a mike right there, we have some time. If you could just identify 
yourself and your affiliation and keep it sort of brief and make it a 
question. Do we have anyone? John, you have a question?
    Questioner. Hi. Thank you for coming and speaking. My name is John 
from Georgetown University and I have two quick questions. A lot of the 
cases that you worked with dealt with a lot of the high-profile 
companies like Gunvor and Gazprom.
    But I'm sort of interested on a lower level how pervasive is this 
corruption on, I guess, smaller companies or even on a more local 
provincial level? And are there regional differences in Russia as well?
    And my second is, you spoke about, sort of, the political will of 
who would find it more profitable to be more transparent. Are there 
people in the duma or even in the government right now that currently 
have that belief? Are they silent about it and is waiting for someone 
to come and sort of push this? Or where is this kind of sentiment and 
where does it hold most? Thank you.
    Mr. Navalny. Okay, thank you. About lower level of companies--it's 
interesting because the fight for their minority shareholder's rights 
or fight with corruption on the lower level could be more efficient in 
Russia because there's no political agenda. For example, when I come to 
Russian court and I'm trying to sue Rosneft for their dealing with 
Gunvor. It's a kind of taboo for all judges. They're just afraid of 
hearing this word.
    So this is a political issue. If you're going to sue Gazprom 
because of their corruption practices that everyone understand that 
actually you're suing, personally, Mr. Putin because it's his people 
making all of this corruption. And lower level you can--we can use 
successfully and we do use successfully a Russian legal system to fight 
corruption.
    Sometimes on the lower level we can--much more violence, 
especially, in the regions. And if police or our special service 
involved in these crimes they can act much more violent because of lack 
of media attention to these cases. But anyway, we can succeed and 
people who are fighting corruption with this company they can succeed 
their aims.
    About people in duma or in government who are--now who want to 
fight corruption. We have such people. And we can, generally, isolate 
them with Mr. Medvedev. I don't want to push this idea of bad president 
and good president so I--actually it's not true that we have a bad Mr. 
Putin and good Mr. Medvedev.
    But anyway, around them--around Mr. Medvedev there are some people 
who really understand. They're open-minded and they understand that 
it's much more profitable to be more transparent. You can attract 
cheaper money and you can attract more investors and so on and so 
forth.
    For example, Mr. Barkovich and actually Mr. Medvedev, himself--they 
are promoting the idea of replacing all officials on the company 
boards--replacing them by the independent members of the board. They 
are promoting the idea privatization of companies. Of course companies 
is extremely reluctant.
    For example, they hid an idea to privatize Transneft which I 
mentioned here. But Transneft was powerful enough to cancel this idea. 
And a couple of weeks ago the government declared that they are not 
going to privatize this company.
    But anyway, the Russian people who are really making it a tough job 
to fight corruption. But they have a lack of real levers because all 
the energy industry is under the cover of Mr. Putin and his colleagues.
    Mr. Parker. Along those lines--those questions. A quick point the 
Russian legal system, really, is a mixed bag. They're really some very 
good parts of it where lots of progress has been made in terms of rule 
of law and setting things up. And then there are other parts of it 
where you certainly wouldn't want to find yourself alone at night.
    And also on the duma, I'd like to ask you, Alexei, what about 
Grishankov? Mikhail Grishankov who, I believe--at least, I know for a 
long time was associated with the Duma Security Committee. He has--was 
also in FSB or SVR or something like that. And he's someone we have met 
with and talked to over the years.
    He's taken part in a lot of exchanges that have happened between 
our parliaments. And I notice him in this Wall Street Journal article 
on Yana Yakovleva's story, being quite supportive. Is there anything 
you can say about Grishankov's efforts or other like-minded deputies?
    Mr. Navalny. I cannot say something about Grishankov personally. 
But for example, duma's comments on the property are--they attract me 
as an expert, which was very surprising for me because sometimes I'm 
considered to be, kind of, official enemy of the state-controlled 
company.
    And they ask me to give them some proposals. How to make company 
transparent and what kind of changes should be applied. And they are 
really open-minded now. And this project of a bill that they are 
preparing is a real revolution in these relationships.
    The problem is that when these theoretical ideas would be applied 
to the particular company, the company realized that it would be a 
tragedy for them. And all officials who are connected with the 
companies who are sitting on the board of the companies; they support 
the idea of transparency in theory. But then they are thinking about 
the practice that we should disclose all this charity. What 
consequences would it be?
    No one knows who gave these billions of dollars--millions of 
dollars to charity donors. We should disclose all the information about 
Rosneft, we should disclose all documents, we should play in the rules. 
And this is real money for real people. And of course, people who got 
this real money, they are absolutely reluctant to these new ideas.
    So people who are sitting in duma and who are not engaged in the 
companies who are just making papers; they are ready to promote this 
idea. People in the government who should approve this idea; they are 
reluctant because they're connected and they are living by graft. Does 
that answer your question?
    Mr. Parker. Yes, no, very good. Other questions? Please.
    Mr. Navalny. There's a question.
    Mr. Parker. Oh, okay. Yep. Tom? Yeah, if you don't mind. It just 
helps the transcribers get it better. I'm sure we'll all hear--and then 
Tom.
    Questioner. Hi. Richard White, Hudson Institute. Two questions. 
One, to what extent do these ties extend across the former Soviet 
republics? I'm particularly interested in the Caucasus and Central 
Asia.
    And second, I have heard some of the people here worry that there's 
actually another problem that we're, perhaps, overlooking in that the 
Russian authorities have, sort of, a power to provide kompromat to 
Western and international institutions against people they don't like. 
And so for example, we are placing them in a position of, say, if they 
are having problems with a business person having them tell us that 
he's actually engaged in terrorism or corrupt practice and so on.
    And knowing how energetic our U.S. Treasury, that means that person 
loses all access to international business and so on, so that in a way 
we're empowering the authorities to do something like that. And I've 
heard that just mentioned as a theoretical possibility from people. So 
I was curious if this is actually a problem.
    Mr. Navalny. It's Kazakhstan and Turkmenistan. People with a very 
closed economy and a very well-connected with the Russian companies. 
Actually, Russia gave infrastructure for these countries to transport 
their oil and gas and so on and so forth through Russia.
    And all this industry of transportation of their gas and oil is 
absolutely hidden and closed. A lot of cover ups in this area. And 
like, in Gazprom for example. I investigated several cases of how they 
are dealing with the gas--the natural gas of independent production 
companies.
    And this area of just giving infrastructure but buying gas and oil 
from the independent production company is very corrupt and very hidden 
and it's all about middle man, about overpricing and so and so forth. 
So did that answer your question? Okay.
    And second was about--I'm sorry.
    Questioner. The possibility that because there's only certain 
bodies they can tell business people so you better do what we tell or 
we're going to tell the West that you're financing terrorism and 
therefore that means you won't ever get.
    Mr. Parker. Sort of the notion that there's credible kompromat on 
everybody or that kompromat is fabricated easily--or both?
    Questioner. Right, theoretically being both because, I mean, as we 
know in the 1990s it was hard to make any money with filing then laws. 
This actually for modeling this at Brookings. And I'm curious.
    Mr. Navalny. I agree. Now, the thing works like this. It's a kind 
of bargaining. Everyone has a kompromat on everyone and okay, if you 
oppress us abroad with our accounts in Switzerland, we will press you 
here and we will press your company because they are engaged in 
corruption. And we can press American company. We can reveal some 
information about American companies which means that they will be 
prosecuted because of the Foreign Corruption Practices Act and will be 
fined over billions of dollars.
    Now it works like this. It's a kind of bargaining. That's why I 
really think that we should eliminate this system because it just leads 
to increasing of corruption. We should apply real formal process and we 
should formalize all the system. If some American companies involved in 
criminal practices in Russia this company must be prosecuted in U.S. 
and without any--without any swaying and so on.
    And U.S. officials, they should not afraid that pressing on Russian 
companies and Russian officials will bring some bad consequences for 
American companies. Because if any bad information about American 
companies exist, it would be revealed anyway. So it's better to play in 
a fair game.
    Mr. Parker. There's a question over here. Tom?
    Questioner. Tom Firestone. I'm with the U.S. Embassy in Moscow and 
I'm assigned there by the U.S. Justice Department. I worked as a 
prosecutor for many years here and I wanted to follow up on, make a 
comment really, on some of the--what you had said about the importance 
of prosecuting corrupt Russian officials in the United States.
    It's a very good idea, and the Department of Justice has been 
pushing in that direction. Their organized-crime section came out with 
a new, international organized-crime strategy in 2008 which recommends 
exactly what you have recommended in your talk today: a new focus on 
international money-laundering cases, domestic prosecutions of foreign 
government officials for all the reasons that you've mentioned.
    The problem with these cases and the reason more of them are not 
brought, it's not because any American prosecutor is necessarily afraid 
of the consequences for U.S.-Russian relations. It's just extremely 
difficult to make these cases in the United States.
    To prosecute somebody--if you take a corrupt Russian government 
official from Krasnoyarskaya who's stolen money from the budget through 
a rigged privatization and then taken that money and moved to the 
United States--prosecuting him for money laundering in the United 
States essentially requires the prosecutor to prove all of the corrupt 
actions from Russia.
    That's very difficult because you're going to have to get all the 
evidence from Russia. If the guy still has influence there, he can 
prevent the delivery of the evidence. Even if you do get the evidence, 
you're going to have to get witnesses from Russia to come here and 
testify, and you're going to have to convince an American jury that 
there was a crime committed. And you're going to have to explain to an 
American jury what the privatizations rules were in Russia in the 
1990s, whenever he did this; why it's a fraud, what the money was lost.
    And it's just extremely difficult. And it's faced with the choice 
of doing that kind of case or prosecuting some drug gang that's running 
around in the neighborhood terrorizing people in your backyard. Most 
prosecutors are going to do the latter kind of case, and it's an 
understandable decision. It doesn't mean these cases shouldn't be 
pursued. I agree with you. But it's just difficult. It's not as easy as 
it may sound.
    What I do think is promising--but you didn't mention it explicitly 
in your talk--is private litigation at the international level. We've 
seen a lot more of this in recent years. Yukos brought a $100-billion 
claim against the Russian government in the European Court of Human 
Rights because the European Convention protects companies, not just 
individuals. Yukos investors have filed arbitration claims in various 
European arbitration fora.
    Gene Burd, who's here today, has been involved in civil litigation 
brought on behalf of people who claim to be victims of corporate 
raiding in Russia here in the United States. What do you think of 
private--and it seems to me that those cases might be easier to make 
because the plaintiffs in those cases, having been involved in these 
businesses, are already in possession of a lot of the evidence which 
U.S. prosecutors are going to have to get through official channels. 
What do you think of private civil litigation?
    Mr. Navalny. Okay, thank you for question. First of all, about 
difficulties in prosecution of this white-collar crime. As I said, yes 
of course, is difficult to treat them and to address them, this white-
collar crime. But anyway, you have here in America some very successful 
examples. When you have a political wish, we can remind Mr. Borodin 
case, Mr. Adamov case. And American regulation by this very efficiently 
had a deal with these guys.
    Questioner. I was the prosecutor on the Borodin case. First of all, 
we didn't prosecute him; Switzerland prosecuted him for money-
laundering. He was arrested here and extradited to Switzerland to face 
the charges, and they let him go for a small fine right away. So we 
never made any domestic case against Borodin.
    The Adamov case, we did bring charges. He was arrested in 
Switzerland, at which point Russia brought its own charges against him 
and got him extradited to Russia----
    Mr. Navalny. Yeah.
    Questioner. So that he never faced the charges here in the United 
States.
    Mr. Navalny. But then you--wait--you launched this process, and 
these people had some nice experience to be in jail.
    Questioner. There was some justice, yeah. I guess you could say 
some justice.
    Mr. Navalny. But anyway, it was very powerful and it was a huge 
impact inside of Russia. So of course, white-collar crimes is very 
difficult to investigate. But we should start it.
    For example, Daimler case. Everyone knows about it. Daimler was 
fined here and there was no investigation at all in Russia. But all 
money, which were paid like a bribe from Daimler to Russian officials--
actually Daimler paid on the foreign accounts, to the offshore, in the 
offshore countries and so on.
    And I do believe that all this money which Daimler paid like a 
bribe, now here in U.S. or in United Kingdom. So we should just put 
more efforts here.
    What about private litigation? Yes. I do believe that it could be 
most efficient. As I mentioned, if some new regulation will give 
opportunity for the American investors--or for Russian investors, for 
example--bring class-action suits, that would change everything.
    Now, for example, if you are American and if you invested some 
money in company, and you have real grounds about the money embezzling 
in this company. You will sue them next day. And you can sue them very 
efficiently here in America. Why we cannot do the same for the Russian 
company, which have ADR here in America?
    Because Russian company, they connect it very well with American 
system. They borrow money from America and so on and so forth. And if 
we can figure out how to use American legal system, civil system, to 
sue companies here, that would be verily huge impact. Because the way 
how they're stealing money now, it's very simplistic. Very evident. And 
with this proof and with these grounds, if we will find the way to sue 
them here, we can put a real pressure on all these corruptionists.
    But it's not very easy. For example, it's very difficult to 
persuade American huge investment funds like Black Rock and other just 
to be engaged in these cases and to start this war because they 
consider all these like a kind of political story. They don't want to 
be involved in the kind of political investigation because all big 
corruption in Russia, it's corruption in company and in government.
    So big companies--American companies--they be afraid about it and 
they don't engage with politics. And sometimes they--for example, 
American mutual funds: they don't even vote on the shareholders' 
meeting. They just ignore what's going on in Russia. And it's our 
common task to encourage them to realize that it's the part of their 
corporate social responsibility to investigate and to put pressure on 
Russian company where they invest some money.
    Questioner. Thank you.
    Mr. Navalny. Thank you.
    Mr. Parker. Gene.
    Questioner. Gene Burd. Law firm, Marks & Sokolov; Philadelphia. 
Alexei, I just heard discussion--your discussion and Tom's discussion 
regarding private action in connection with corruption in Russia. And 
our firm brought several actions here in the United States in 
connection with various misdeeds of certain individuals in Russia.
    One of the issues that we're facing in the United States with 
respect to the private course of action is the doctrine which exists 
here in the United States, which is called ``forum non conveniens,'' 
which essentially prevents us of bringing private actions here in the 
United States where the events, where the witnesses, where there is 
other factors took place outside the United States and where United 
States court would find, that it is most convenient for the justice, 
that this type of action is not brought here in the United States.
    That is why some of the actions get dismissed. Some of the actions 
are going through in U.S. courts with significant friction. There is, 
however, there is also another recent impediment which was brought in 
the United States court system. I don't know if you've heard, but there 
is the Morrison case which was decided this year by the United States 
Supreme Court which severely limited application of the Securities Act 
outside of the United States.
    My understanding is there is a current legislative proposal which 
is being moved here in the United States to provide specific language 
to the Securities Act to allow prosecution of crimes and violations of 
the Securities Act here in the United States, prosecution by the SEC 
and the Department of Justice. There is also proposal which hopefully 
will be, which will be supported here on the level of the commission 
and perhaps of the Congress: a proposal for the private right of action 
to allow the Securities Act--private right of action for cases where 
events took place outside the United States.
    Finally, with respect to the FCPA, for the Foreign Corrupt 
Practices Act, there was a positive development in the United States. 
In the summer, the Foreign Corrupt Practices Act was amended to provide 
for the whistleblower provision. I don't know if you're familiar with 
that but essentially, at this point of time, any person with 
information--which relating to the corruption, the corrupt activities 
by U.S. companies or companies subject to jurisdiction under Foreign 
Corrupt Practices Act--can provide this information to the Securities 
and Exchange Commission and the Securities and Exchange Commission will 
consider this information for prosecution. And this whistleblower would 
be prosecutors.
    So there are certain devices--there are some certain devices which 
are available here in United States for a private fight with corruption 
in Russia. But there are certain things that can be done and which, 
perhaps, should be done to give more ammunition to private lawyers to 
be able to defend interests of their clients. Thank you.
    Mr. Navalny. Thank you. I absolutely agree with you. And yes, we 
have some tools which we can apply right now here in U.S. But we have a 
lack of jurisdiction. That's a big problem and a big issue. And I saw 
the statistic of the class-action suits against--class-action suits in 
America and amount of class action against foreign issuers is 
increasing.
    So it's a good signal. Not just against Russian but all of foreign 
issuers. But anyway, I agree with you that we have connect all 
interests and connect all efforts, from the regulation budget, from 
Congress and from the private sector. Because we should realize that 
each--this is a problem, not just a Russian problem. The American 
investment funds--they are the same victims like me.
    So the managers who are embezzling money from the countries: They 
are stealing money from the small American guy who have his retirement 
fund in the mutual fund invest company. And we should connect interests 
on these enormous and big American investment funds, and connect 
interests of American lawyers who can act very efficiently, how we 
know, and interest of the Congress and other regulation bodies.
    And interest of Russian shareholders who are ready to give proofs, 
grounds, papers and so on and so forth here in America to prove this is 
the corruption. This is a fraud, this is money embezzlement.
    Questioner. Thank you.
    Mr. Parker. Anyone else? Another question? I wanted to ask just 
quickly, Alexei--what prospects or promise and maybe how effectively 
are the mechanisms being utilized, that are provided for by the UNCAC, 
the Convention against Corruption? As well, I believe, there's a 
Council of Europe group on corruption that has mechanisms that could be 
used. And then also, what if any effect could WTO membership for Russia 
have on corruption writ large?
    Mr. Navalny. I have never, ever seen the real consequences of these 
acts--of these organization. They are very--not reluctant, they just 
don't care about what's going on. They just don't care about what's 
going on.
    And now, maybe we have some opportunities to use this act and this 
organization are now vital. But now, it doesn't work, and I cannot see 
how it could work in the future. They have some--in theory, they have 
some tools to fight corruption, but it's very vague and unclear, and no 
one--it couldn't be an engine or a vehicle to fight corruption, 
unfortunately.
    Mr. Parker. What about WTO membership? Will that have any effect at 
all?
    Mr. Navalny. I don't think so. For example, China and India and 
other countries, they are members of the WTO but they have the same 
problems like Russia. And WTO didn't give some additional opportunities 
to fight corruption.
    Mr. Parker. What about this new hotline, I believe, that the 
investigative committee has set up? I saw it was in the press some 
weeks ago where people could call in and open investigations, 
corruption. Is that something you're hearing much about?
    Mr. Navalny. I didn't hear. What kind of hotline?
    Mr. Parker. It's a new number, a hotline that I believe----
    Mr. Navalny. Oh, oh. This is ridiculous. We're establishing these 
hotlines every single year, and every single year, they are starting 
another campaign to fight corruption, and they are establishing 
hotlines.
    Mr. Parker. I'm wondering if you in the activist sector can find 
innovative ways to make use such mechanisms. Whether it be simply 
symbolic protests, mass call-ins----
    Mr. Navalny. Actually, we used this opportunity. We don't use 
particular hotlines, but we use campaign of mass complaint. For 
example, we mentioned Daimler case. When I appealed my supporters in 
the Internet and blogs to write complaints about this case, Russian 
persecution office got more than 1,000 complaints. And it's really, 
actually, a press for them not because they should have investigated 
more accurately, but because it just bring more attention from the 
media, from the public and so on.
    And so, like a method to attract media attention, it works.
    Mr. Parker. Media attention does not seem to--at least in a number 
of the occasions we've watched, blistering, withering media attention 
and has seemed to been powerless to sort of disrupt what looks very 
much like a culture of impunity around a lot of these cases.
    That said the media intends--needs to be there for the record and--
--
    Mr. Navalny. Yes, of course, media attention, it's not a kind of 
universal appeal, but sometimes it works. And, anyway, it works better 
when you have media attention than when you don't have it.
    Mr. Parker. Yeah. What strikes me is how, even the smallest, even 
symbolic efforts--and I'm thinking particularly of Sen. Cardin's appeal 
regarding simply the privilege to visit this country or whether or not 
U.S. banks would be required to freeze ill-gotten gains that even these 
very small, limited measures have been able to provoke as much of a 
howl as they have provokes drawing reactions from Russia's foreign 
ministry, drawing--so it seems to me that we really need to think 
there's a variety of sort of plains and realms of the battlefield. 
There's the legal realm, the political realm, the media realm.
    Again, they're all important----
    Mr. Navalny. I absolutely agree with you. And my main point is that 
you cannot fail a fight against corruption totally. Any efforts will 
bring some positive results, any efforts. So it looks like it's 
absolutely useless but, actually, it works.
    We should just reinforce our efforts and be flexible and invent new 
mechanisms and new ideas how to fight corruption.
    Mr. Parker. Yes? Shelly.
    Questioner. Hi. I'm Shelly Han with the Helsinki Commission. And I 
just wanted to draw your attention to something that our commission 
heads, Sen. Cardin and Sen. Lugar, changed the provision in the 
securities law this summer as a part of the Dodd-Frank financial reform 
bill. And part of the purpose of that provision is to give investors a 
bit more of a voice in the oil and gas and mining industry.
    Specifically, what it does is requires companies that are listed on 
U.S. stock exchanges and, also, have ADRs to report in their SEC 
filings the amount that they've paid for extractions of oil and gas and 
the foreign government and, also, in the U.S. as well to the U.S. 
federal government. So that's one tool that we think is going to be 
helpful. It's still being--the rules are still being written by the 
SEC.
    But we've also started trying to expand that jurisdiction by 
getting the London stock exchanges to do the same thing because one of 
the companies that is not covered by U.S. stock exchanges is Gazprom, 
and so we'd like to see Gazprom, which is listed in the U.K.--we'd like 
to see them make this type of reporting, and that would be useful for 
investors as well to have that type of transparency.
    Another thing that I wanted to ask you about is to see if you're 
familiar with the extractive industry's transparency initiative. Are 
you familiar with that? It's an international initiative where 
countries sign up to have their own companies and their government 
itself to--basically for the companies to publish what they pay to the 
government. And so it's a way of reconciling within a certain country--
for example, Azerbaijan--(inaudible). And what they do--all the 
companies that are working in Azerbaijan make a report on a regular 
basis as to what they've paid for extraction to the government, and 
then the government is then reporting, and then the public--it's a 
transparency mechanism.
    We're working as commission to try to get the U.S. to do the same 
thing because we think that transparency is good for everybody, not 
just other countries. But we'd also like to see Russia do it. And I'd 
like to ask, as an investor, if you think that type of initiative would 
be helpful to address some of the concerns that you mentioned in the 
extraction industries.
    Mr. Navalny. Thank you. I am not very familiar with this last 
initiative that you said which works in Azerbaijan. But people from 
transparency international actually told me that it works very good in 
Azerbaijan. So we can try to apply it in Russia.
    As for your first idea, your first bill you mentioned about more 
regulation for the company which has ADR it would be great. It would it 
be very powerful. And I believe that more regulation of the ADR, 
especially if you will be able to transform it to London, where most of 
the countries have leasing, it will be really powerful because Russian 
companies--we should understand it very clearly--they cannot just 
escape to Hong Kong.
    Questioner. But Hong Kong----
    Mr. Navalny. Oh, great.
    So anyway, they cannot just ignore it or go out from the stock 
exchange all over the world. We should just frame it, and we should 
just make their area for corruption more narrow from every step.
    If you will succeed to accept this bill, it would be very, very 
powerful tool.
    Mr. Navalny. I mean, if you will be able to transfer to London.
    Questioner. Yeah.
    Mr. Parker. Yeah. It passed this summer.
    Any last quick questions? We're winding down here on time. Does 
anyone have one last before we close up the record?
    I certainly would like to thank everybody today. It's been an 
interesting discussion. This really is a massive topic, and I sort of 
am left still scratching my head wondering if it's as bad as it seems; 
has it always been this bad; is there any hope for it getting better.
    On the one hand it seems like just picking up the newspaper that 
things have gotten so bad that could we be at sort of the proverbial 
darkness before the dawn or thinking of this as a frog in the water and 
somebody's just spiked the temperature and maybe something's going to 
change because sort of the universal recognition of the problem.
    On the other hand, there's always sort of the turn towards 
increased cynicism and apathy. So again, it's hard to know. From our 
perspective, beginning it back to what we do here, the human dimension; 
it's certainly one thing to lose money in a country, and it's one thing 
to have wealth destroyed. It's another thing to lose your life.
    And very sadly, in too many of these cases, there's really an 
incredible and a heartbreaking human cost of corruption. Whether that 
be in the many people who are wrongly accused who fill Russia's jails, 
which is part of the problem of overcrowding is the fact that there are 
a lot of people sitting in jail who shouldn't be sitting in jail, or 
whether it's that, there's a lot of material on the table there that 
will be in the hearing record here that we have not been able to even 
get into today. And I really urge you to take that, like I said, Tom 
Firestone's article, ``Armed Injustice,'' the story of the Mackievs, 
Romanova and Yakova's submission.
    I mean, these are heartbreaking cases. Mrs. Mackiev is a mother of 
two, and her husband is up in Komi Republic in jail still. And this 
whole criminal network has been exposed. We've known about it for a 
number of months. It was in the Financial Times on Thursday. We are 
releasing some additional information on the story, and yet today, as I 
said, on my way here, some of the lead players are awarded best 
investigator.
    So what does this mean? And they know this is being discussed here. 
I mean, our hearings, what we do here is on the record. We put out 
press releases. So really, that's something I just would like to 
underscore, from our perspective of the human dimension. There's 
corruption around the world, and I don't think any of us are naive 
enough it think that we're going to end corruption.
    But can it be limited? Can be it moved from a sector where it does 
more damage to a sector where it does less damage? Can it be less 
brazen and in-your-face? I don't mean to set our sights too low and say 
we're prepared to accept a certain amount of corruption, but it is a 
reality. Human nature is a reality and, certainly, we're not changing 
that any time soon.
    We'll have a video and a transcript of this event up very soon, 
probably today or tomorrow. And before we go, I would like to draw your 
attention--we do have a notice outside, and many of you maybe have seen 
the poster we have up--next week, an event that the Helsinki Commission 
will convene one week from today at 5 o'clock in the Capitol. We will 
do the world premiere of the film ``Justice for Sergei''. It's just 
under an hour. It's a very moving film, particularly highlighting sort 
of the human costs of corruption. Everybody is invited. Please tell 
your friends and neighbors. The more the merrier. We have a big room, 
and we have a very interesting lineup of speakers to offer remarks 
before the event.
    And I also mention that Olga Romanova, who submitted testimony for 
today's event, is in the film. So you didn't get to see her today, but 
come next week and see her. Her husband happened to share a cell with 
Sergei Magnitsky during his incarceration. And so she offers some very 
personal insights to what it was like for Mr. Magnitsky during his 
year-long detention.
    With that, we'll adjourn the briefing. And, again, I thank you all 
for coming.

                                  [all]
                                  
                                  
                                  
                                  

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