Streetwise Professor

November 27, 2014

Transparency Incoherent. Gazprom & Rosneft Paragons of Anti-Corruption? Ha!

Filed under: Economics,Energy,Politics,Russia — The Professor @ 11:54 am

The Soviet Constitution was full of guarantees of individual rights and democratic political processes. But of course it was honored far more in the violent breach than the promise.

This comes to mind when reading Transparency International’s most recent rankings, which put Rosneft above ExxonMobil and Gazprom on a par with Chevron. The main reason for the Russian companies’ high ranking is their formal, written anti-corruption rules.

This is so farcical that I am tempted to demand transparency from TI: How much money did you get from the Russians?

If you want to understand Gazprom’s transparency and the complete disconnect between its formal anti-corruption policy and its corrupt deeds, this Reuters report is a must read. It details how Gazprom entered into completely opaque deals with Ukrainian oligarch Dmitry Firtash. In these deals, Gazprom sold to Firtash entities at very low prices, and Firtash then sold at huge markups to Ukrainian companies:

According to Russian customs documents detailing the trades, Gazprom sold more than 20 billion cubic meters of gas well below market prices to Firtash over the past four years – about four times more than the Russian government has publicly acknowledged. The price Firtash paid was so low, Reuters calculates, that companies he controlled made more than $3 billion on the arrangement.

There is a huge omission in the Reuters report: it doesn’t trace where the money went. Gazprom did not do this because it was inordinately fond of Dmitry Firtash. The $3 billion was certainly split between Firtash, and people connected to Gazprom. (One wonders if the initials of the person getting the biggest cut are VVP.)

This isn’t a slam on Reuters: I am sure that they tried to follow the money, but it proved impossible in the utterly dark world of Cypriot, Russian, and Ukrainian companies. Which demonstrates just how farcical the TI report is.

It’s not like no one knew that there were murky dealings between Gazprom and Firtash, even though Reuters has provided valuable detail. Enough was known to conclude that Gazprom’s formal anti-corruption policy was the corporate equivalent of the Soviet Constitution. Fine sounding words on paper bearing no relationship to reality whatsoever.

Update. Jake Barnes points out in the comments some other things that show how risible this list is. It ranks ENI number one: Italy is notorious for corruption at all levels, and for further confirmation see Nick’s comment about investigating corruption in Italy. Also, TI ranks Petrobras above Exxon, Shell, and Chevron. You know Petrobras. It’s the company that is eyes deep in a corruption scandal that threatens to blow up the entire Brazilian political class.

Siemens is also high on the list. Siemens paid the highest Foreign Corrupt Practices Act fine in history, and has been enmeshed in what has been called A World Wide Web of Corruption Just Google “Siemens corruption” and you’ll have hours of reading fun! It is involved in corruption in Brazil. And of course it is deeply enmeshed in Russia. Take that into account whenever you hear German execs, and especially Siemen’s execs, whinging about sanctions against Russia.

Which makes this truly hilarious. Siemens runs the International Anti-Corruption Academy:

Project Summary

The International Anti-Corruption Academy (IACA) is an international centre of excellence for a new and holistic approach to fighting corruption.

This, plus the TI report, makes it clear that hypocrisy and corruption go hand-in-hand.

The bottom line is quite clear: the Transparency International rankings are an utter travesty that bear no relationship to reality.

 

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14 Comments »

  1. Heh! The Italian company ENI is ranked top. TI needs to speak to those who were involved in Kashagan.

    Comment by Jake Barnes — November 27, 2014 @ 12:46 pm

  2. Ha! And they have Petrobras above Shell and Exxon! This is the same Petrobras which is being wracked by one of Brazil’s largest corruption scandals with the entire board and cabinet level politicians being fingered! Cleaner than Home Depot, apparently.

    Comment by Jake Barnes — November 27, 2014 @ 12:50 pm

  3. @Jake-I know. It’s insane. Petrobras corruption could bring down the entire Brazilian political establishment. And yeah. ENI. Tell me another one.

    Siemens was also ranked highly. A serial FCPA violator which paid the biggest FCPA fine ever.

    This is a total joke.

    The ProfessorComment by The Professor — November 27, 2014 @ 12:56 pm

  4. I remember a while back during the height of the Euro crisis I was doing some work on the Italian black market economy in order to illustrate the challenges of structural reform in the EU. I did a lot of work on tax compliance and the big Neapolitan & Siclian mafias, and had a lot of fun playing around trying to estimate the percentage of national wealth controlled by the big crime families.

    One of the more interesting/salacious things I encountered (I don’t remember the source) was a rumor that a substantial minority stake in Gazprom is held by various entities owned by ‘Ndrangheta. Kind of amusing and fitting that they chose such a crooked asset to invest in.

    But in the end, this is just another example of self-righteous Western intellectuals utter inability to understand the practical workings of the world/burning desire to excuse the most disgusting and corrupt regimes. Kind of reminds me of all the investment pitches I’ve had to sit through on why Sberbank is a good place to invest your client’s money.

    Comment by Nick — November 27, 2014 @ 3:25 pm

  5. @Nick. Interesting. ‘Ndrangheta is probably one of the few organizations capable of performing due diligence on Gazprom.

    Sberbank is a great place to invest your clients’ money. Great for Sberbank.

    The ProfessorComment by The Professor — November 27, 2014 @ 3:53 pm

  6. Those who profess the rule of law are the last scondrels of society. You can make all the laws you want, but that does not make you or your laws moral. The rule of law is a joke when the rules are set by people with not character. As I have said before, ‘it’s all legal”, you are legally going to get exposed to ebola and legally you are going to get screwed.

    Comment by traveler — November 27, 2014 @ 3:54 pm

  7. It’s all about the methodology – TI’s produces some absurd results. The second ranking, organizational transparency, is about disclosure on subsidiaries and inclusion of all subsidiaries into consolidated reports. The latter is what auditors are supposed to ensure although they sometimes fail as was the case with Enron. Anyway, Gazprom gets ranked way above Apple, Microsoft, HP, Citibank on this. TI does not suspect that for the purposes of this rating, two or three unreported subsidiaries of Gazprom can be more important than hundreds of Citi’s retail offices.

    On corruption, it gets even better with ENI’s 96% and Gazprom’s 54%, above Amazon and in the same group as Verizon and Google. Gazprom is a Russian company with (consolidated) annual capex of $40 bln, mostly spent in Russia. That says it all.

    It also beggars belief that even among the Russian companies, Gazprom should be placed so high above Sberbank. For all of Sberbank’s imperfections (it has much improved under German Gref’s management, in contrast to Gazprom), this result must be a reflection of TI’s “big banks are bad” mentality.

    “‘Ndrangheta is probably one of the few organizations capable of performing due diligence on Gazprom.” They are still lacking in sophistication but the Sicilians would be the right fit, according to Edward Luttwak: “The Calabrian family gangs (again the meaningless journalistic term ’Ndrangheta blurs their diversity) who delivered the cocaine northwards were and are incapable of coping with the reverse flow of used euros, zlotys and rubles… With a century of experience in the export trade and the fluent English of educated men, the Sicilians organised the system…” But I no longer know which is the lesser evil, Italy’s state or its mafias.

    Comment by Alex K. — November 28, 2014 @ 3:00 am

  8. Every time a U.S. tech giant buys an app made by a spotty 17-year old and pays in the $10s of millions, I ask myself the same question: who shares the spoils?

    I don’t mean to take the gloss off the story, but I think kickbacks in business are far more common than most people would care to admit.

    Comment by MoneyCircus — December 1, 2014 @ 1:22 am

  9. The sanctions are evil. The US paid top dollar for Ukrain opposition support. They work for us. And even Pat Buchanan has said that surrounding Russia is a bad idea. It is amazing that you all must want some kind of world war. Maybe you misfits don’t have children or grandchildren and just live on digital reality. I don’t know the reason for sure, but war is not what you want just to win the world order. It isn’t worth it.

    Comment by Gary Anderson — December 1, 2014 @ 2:28 pm

  10. “The sanctions are evil.”

    It’s only evil for Putin and Putinophiles who see it as another economic obstacle in their revanchist-revisionist agenda against the west. Frankly I think that the west should do much more to deter Russian aggression by arming Ukraine to the teeth, in case the Putin regime realy opts to overtly invade Ukraine full-scale. My condolences to those ordinary Russians who although don’t support Putin’s revanchist-revisionoist foreign policy, have to put up with the additional hardships in their lives thanks to their irresponsible government.

    “The US paid top dollar for Ukrain opposition support. They work for us. And even Pat Buchanan has said that surrounding Russia is a bad idea.”

    That’s bullshit! Perhaps you’re refering to the 5 billion dollars spent over a period of 23 years by the US government on civil society organisations? As for Pat Buchanan as a conservative he’s no better than the Communists who use to have a blind spot for the USSR in it’s heyday who use to embrace their ideology. Unfortunately Pat Buchanan is just another useful idiot to borrow that leninist phrase. In spite of both Soviet and contemporary post-Soviet Russian regimes disregard for freedoms, human rights and being a threat to peace and stability.

    “_It is amazing that you all must want some kind of world war. Maybe you misfits don’t have children or grandchildren and just live on digital reality. I don’t know the reason for sure, but war is not what you want just to win the world order. It isn’t worth it. – See more at: http://streetwiseprofessor.com/?p=8960#comments

    I personally doubt that Obama, or even the EU leaders even have that much of a stomach to confront Putin more assertively, least of all starting WWIII just to come to the defense of Ukraine that’s not even a NATO member. But the Baltic states on the other hand, hmmm….. They have too much on their plate in regards to the ISIS crisis and ebola, etc. But I have reason(s) to suspect that the US and EU leaderships are slowly coming to the realization that Putin is not to be trusted (due to his increasing bellicose actions, rhetoric and provocations elsewhere not just in Ukraine) and can’t weasel their way out just so that there’s a return to “business as usual” for long.

    Putin is growing desperate due to the growing economic crisis that began even before the Crimean annexation, to divert the Russian public’s attention away from the malfeasance of and other transgressions of the Kremlin. Plus Putin is also epically butthurt that the Ukrainians are not as prone to being slaves and overthrew his might have being imperial satrap Victor Yanukovych in a revolution. Therefor ruining his plans for the Eurasian Economic Union. In a way this crisis is a gift to Putin.

    Comment by Guy Montag — December 3, 2014 @ 2:38 am

  11. Gary seems a bit like one of those Russian trolls.

    If the EU and US had done the same sort of sanctions in 2008, Ukraine wouldn’t be in a mess now.

    What Russia has been doing since 91 is real evil Gary. Ethnic cleansing, mass murder, dismemberment of neighbouring countries. Rape, pillage, looting. The list goes on.

    Comment by Andrew — December 3, 2014 @ 6:13 am

  12. @Andrew. Thanks. You saved me the trouble.

    The ProfessorComment by The Professor — December 3, 2014 @ 1:04 pm

  13. Vlad has just entered super meta mega gibbers mode:

    http://www.bloomberg.com/news/2014-12-04/putin-says-crimea-is-russia-s-temple-mount-sacred-for-country.html

    Comment by sotos — December 4, 2014 @ 3:26 pm

  14. @sotos. Before reading your comment, I wrote a post on Putin’s speech and discussed the “sacral Crimea” gibberish. The amusing part is that he says Muslims consider Temple Mount sacral. Well, al Aqsa is a holy site in Islam, but the Muslims aren’t too down with the connection with the Jews.

    The ProfessorComment by The Professor — December 4, 2014 @ 8:16 pm

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