Can Navalny make a difference in Russia? The Kremlin seems to think so.

“I want changes,” wrote Navalny in a blog post last week. “I want to live in a modern democratic state and I want our taxes to be converted into roads, schools and hospitals, not into yachts, palaces and vineyards.”

Bold words from Alexei Navalny, the public face of Russia’s rising anger with widespread graft and corruption. Can he make a difference? Can he trouble Putin’s grip on power? Unlikely just yet, but his words are striking a chord with an increasing number of voters.

Full story from Reuters here: http://www.reuters.com/article/us-russia-opposition-protests-idUSKBN192167

Too big to fail? A Balkan retail crisis unfolds

The collapse of Croatian retailer Agrokor Group, one of the most important employers in the Balkans, is sending shockwaves through the region. In April, the government rushed “Lex Agrokor” through parliament in a bid to save the company and prevent scores of bankruptcies among its supply chain. But creditors – including Fidelity, AXA and the Canadian Pension Plan – want their money back and the government itself might fall. Allegations of longstanding accounting fraud are also being levelled, and PwC is being lined up to investigate.

“Agrokor has transformed itself from the biggest private company into one of the biggest systemic risks to the Croatian economy,” Morgan Stanley’s economist Georgi Deyanov wrote in a note to clients. “The government’s action resulted in the implicit state guarantee of Agrokor’s short-term debt and arrears to suppliers.”

Full story & analysis from Bloomberg here: Billions Are Sinking Into a Balkan Black Hole

Trump’s SEC pick clears Senate panel, controversies abound

Jay Clayton, President Trump’s pick to head up the Securities and Exchange Commission (SEC), has cleared the Senate Banking Committee, and now heads to the Senate floor for a final vote.

Of particular interest are Mr.Clayton’s comments on FCPA, which he opined in 2011 caused ‘lasting harm’ to US Companies, and his client list while a star lawyer at Sullivan & Cromwell.

As CNN noted, “Clayton’s list of clients at the elite law firm Sullivan & Cromwell reads like a who’s who list of companies accused of the shady practices the SEC nominee wants to stop.

He’s represented Volkswagen, (VLKAF) which pled guilty to criminal charges over cheating on emissions tests; Valean, (VRX) a drug maker accused of being the “Enron” of the pharma world for fraud; and Deutsche Bank, which has been charged in a $10 billion Russian money-laundering scheme.

Clayton’s also advised Goldman Sachs on its controversial government bailout and Bear Stearns on its fire sale to JPMorgan (JPM).”

Other controversies have come to light, including a Reuters report on possible conflicts of interest, that states “he communicated with more than a half dozen of President Donald Trump’s transition representatives, including one whose company has a multi-million-dollar contract with the SEC, according to documents seen by Reuters.”

We await the Senate vote with interest.

Rolls-Royce: Why it never pays to keep quiet

Rolls-Royce has agreed to pay £671m in fines to the authorities in the UK, the US and Brazil. This offer suspends the prosecution and brings to a close a torrid period for the venerable British engineering firm. While there are many lessons to be learned from this debacle, perhaps the easiest and quickest to digest is that lying and obfuscation is not the way to deal with allegations of corruption.

As the FT notes in its report linked below, the investigation into graft and bribery goes back to questionable conduct in the late 1980s in the US, and it was also found that ‘Rolls-Royce’s leadership was aware of questionable conduct since 2010 and decided not to notify the authorities.’

CNS Risk advises companies on how to take action in situations such as these; we assist through investigations that prepare for self-reporting, and work with counsel and other advisors to help companies respond to and cooperate with the relevant authorities. Contact us directly for more information on how we can help.

The FT reports: Rolls-Royce humbled in corruption case

Russia’s anti-corruption champion to challenge Putin

Russian opposition leader Navalny plans to run for president in 2018, Reuters reports.

“”There have not been competitive elections in Russia for 20 years,” Navalny, 40, the founder of Russia’s Anti-Corruption Foundation, said in his statement.

“I’m sick and tired of watching ‘elections’ with the candidates just making up the numbers, not daring to criticize the pre-determined winner. I understand very well that for me even to become a candidate would not be easy.”

Read the full story here: Navalny to run for 2018 Russian presidency

Telia facing $1.4 billion Uzbek corruption settlement

Dutch and US regulators have requested a whopping $1.4 billion in fines from Nordic telecom company Telia. The settlement addresses Telia’s entry into the Uzbek market in 2007. The company has not shied away from accepting blame, and said last September that it would gradually exit its Central Asian markets after probes into local corruption.

In a statement, Telia Chairwoman Marie Ehrling said: “I have said on many occasions in the past that Telia Company’s entry into Uzbekistan was done in an unethical and wrongful way and we are prepared to take full responsibility.”

While that may be the case, the size of the proposed settlement has come as an unpleasant surprise.

“Our initial reaction to the proposal is that the amount is very high,” Ehrling’s statement added.

In February of this year VimpelCom Ltd said it would pay $795 million to resolve U.S. and Dutch probes into a bribery scheme in Uzbekistan.

Why they did it – answers from the fraudsters

Another week, another fascinating look at why fraudsters commit their crimes. In this book, the author relies on first hand testimony – in the form of letters received from the criminals – to tell the story. As Bloomberg reports, Eugene Soltes’ new book, ‘Why They Do It: Inside the Mind of the White-Collar Criminal’ is out on Oct 11.

Having read Soltes’s accounts of these and other white-collar characters, one answer comes into focus above all others to the author’s question of why they did it. They did it because they thought they could get away with it.”

Why white-collar criminals evade justice

“Why White Collar Crime Is Here to Stay” – Bloomberg reports on a new book by ENRON investigator Samuel Buell.

If “corporations are people too,” why isn’t anyone in jail? The former head of the Enron Corp. Task Force explains why it’s so difficult to convict companies and their executives.

Opening up shell companies

The Economist reports on efforts to make ‘offshore’ less synonymous with corruption and tax evasion.

  “Tracing illicit funds to a shell’s bank account is of little use if you cannot identify the individuals who control it. This worries business people as well as policymakers: a recent survey of corporate leaders in 62 countries by EY, an accounting firm, found strong support for more openness in ownership; legitimate firms want to know whom they are trading with.”

The article concludes that in spite of the attention afforded offshore havens via the blanket coverage of the Panama Papers and others, there is little hope for a full, open register of such entities any time soon, and we’re inclined to agree.

Turkmenistan: Corruption, Risk and Reward

While recent improvements have been made, extreme caution and sound risk management are still advised.

In January 2016, Human Rights Watch, Freedom House and Transparency International released their 2015 reports on human rights, political freedom and corruption, respectively. All three reports bring into focus the pervading situation across Central Asia: the ubiquity of severe human rights violations, a blatant disregard for democratic values, and an ineffective fight against corruption at government and corporate level.

Freedom House named Turkmenistan and Uzbekistan among “the worst of the worst” with regard to political rights and civil liberties, while Transparency International placed Turkmenistan 154th out of 167 on its annual Corruption Perception Index. Human Rights Watch stated Turkmenistan’s “atrocious” record had actually worsened in 2015.

The International Monetary Fund visited Turkmenistan in November last year and immediately lowered its forecast for 2016 GDP growth by 2.9% to 6%. The general message on the state of Turkmenistan’s government and economy is unequivocally negative.

After the collapse of the Soviet Union there was a strong belief that Turkmenistan would quickly undergo a transition to democracy and free market economics but owing to its historical dependency on Russia and other authoritarian regimes with no tradition of democracy, political pluralism or the rule of law, the transition was de facto doomed. As a result, the investment climate for international companies has remained limited and extremely risky.

But we are observing small green shoots of change. In July 2015 the Turkmen President Gurbanguly Berdymukhammedov dismissed several high ranking government officials for various crimes. This March, the President publicly raised serious concerns over the level of graft in the domestic oil and gas industry, a clear response to the exit of Germany’s DEA Deutsche Erdoel AG, citing corruption and bureaucratic delays. In the same month, the World Bank held a practical training session on fiscal policy and macroeconomic management.

We might therefore conclude that Turkmenistan’s leadership has understood that real and lasting change must be carried out: the rule of law, the free economy and anti-corruption measures must be significantly strengthened before the country may make full use of its natural resources, develop its attendant industries, and deliver substantial economic growth.

Currently the main foreign investors in Turkmenistan are its neighbours, politically and geographically – China, Russia, Kazakhstan and Uzbekistan. A wider audience should understand Turkmenistan’s fantastic potential, but while the potential rewards are great, Central Asia’s authoritarian regimes are not an easy sell in the boardrooms of the west.

CNS Risk has a deep understanding of how business is done in the country and specifically how its oil and gas industry functions; while we acknowledge that this is a difficult country for western corporates to operate in, we have the experience and capability on the ground to help steer businesses through this often hostile environment.

For a demonstration of how we can help, please contact our Former Soviet Union (FSU) & Central Asia team directly. The team is led by Gareth Babbs, a skilled navigator of the bureaucracies of the FSU with 20 years of direct experience as MD/CEO of multinational businesses across the regions.

A.H.

References:

HRW: https://www.hrw.org/world-report/2016/country-chapters/turkmenistan.

Freedom House: https://freedomhouse.org/report/freedom-world/freedom-world-2016.

TI: http://www.transparency.org/cpi2015/

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