Fight this fat, arrogant mug

Lawyer Alexei Navalny, known for his endless battle with the top management of Rosneft, Gazprom Neft, Surgutneftegas, Transneft, and Gazprom, explained why he does it and what he sees as the driving force behind corruption.

Alexei Navalny first came to public attention after asking uncomfortable questions to Igor Sechin at a Rosneft shareholders' meeting.

Recently, Navalny's blog featured a film by the Starie Wori studio, whose credits say that “armadas of effective managers are carving up the fabric of the universe,” while “a handful of Jedi led by... Navalny are humanity’s last hope.”

Navalny might be mistaken for a jester, if not for the results. At his request, Oleg Vygin sent a letter to Sergei Shmatko, chairman of Transneft’s board of directors, proposing that the board consider publishing information “related to” the company’s charitable activities (in 2007 alone, Transneft spent 7.2 billion rubles on this—about $230 million at the time—but does not disclose to shareholders who received the aid).

And very recently, Navalny’s investigation into the operations of VTB-Leasing—which found that around $160 million from the purchase of drilling rigs ended up in the accounts of a Cypriot offshore company—resulted in the resignation of the company’s director. VTB president Andrei Kostin acknowledged that the manager had been dismissed for using illegal schemes.

DP: A top manager at VTB-Leasing has been fired. Are you satisfied?

Alexei Navalny: It’s not a victory. It’s just gratifying that the director was fired—at least they admitted he was dismissed specifically because of these schemes.

DP: Why did you choose the management of state-affiliated companies as your target?

Alexei Navalny: I’m a lawyer by profession, and I study corruption in corporations. Not just study it, but actively oppose it. At first I was simply a shareholder, but then, when documents started coming into my hands, I began dealing with all of this.

DP: How does this information end up in your hands? Is it disclosed at shareholders’ meetings?

Alexei Navalny: Of course not. But since I’ve been doing this for quite a while, I receive a huge amount of information from shareholders and company employees. State corporations employ thousands of people, and most of them are not involved in any corruption and are deeply unhappy about it. The top managers are corrupt, while ordinary employees are forced simply to serve them. So some of them are willing to share certain information with me.

DP: So what is the driving impulse behind corruption?

Alexei Navalny: The main impulse, obviously, is money. Managers at state corporations see that they can rob and steal millions and billions with impunity, and there will be no punishment, no oversight, despite all the rhetoric we constantly hear. The president and the prime minister say almost every day that they will fight corruption, threatening arrests and prosecutions. But we do not see a single even moderately high-profile case.

I’m unlikely to defeat corruption altogether. What I’m trying to do is create practical mechanisms that will help ordinary citizens—company shareholders—fight corruption. I believe you can’t just wring your hands and say, “Oh, we have corruption.” You have to do something yourself. That’s why I’m creating mechanisms in which everyone can take part. There are criminal cases that get closed, and we force them to be reopened.

This is not just empty talk—it’s work. We are trying to pursue those we consider guilty. Whether anyone will actually end up in the dock is hard to say, because in effect the entire state machine is working against us. The corrupt have judges, law enforcement, and state authorities on their side. In fact, they are often the same people: corrupt officials and gangsters, or people taking kickbacks and rewards from them.

DP: You often say you would just like to receive your dividends. Why go to all this trouble? You could simply speculate in shares...

Alexei Navalny: If we take VTB, we can see that this is exactly what you cannot do. Returns on shares come from two components: dividends and appreciation in the share price. If you bought VTB shares in the so-called “people’s IPO,” you paid 13.5 kopecks per share. Now you can get only 6 kopecks for that share. You would lose half your money. There has been nothing even close to share-price growth. At the same time, throughout this entire period you received no dividends, while VTB’s managers are swimming in money and luxury, collecting enormous salaries and perks and, to put it mildly, squandering money. DP: How do you assess your own staying power?

Alexei Navalny: I’m ready to carry my flag. For now.

DP: Is there any point in fighting? They say the National Welfare Fund will soon run dry, and there will be nothing left to “carve up”...

Alexei Navalny: On the contrary—that says exactly the opposite! We need to be even more active. Bribes and the corrupt component are precisely the inelastic part of our economic model. Even if the stabilization fund runs out, these people will keep stealing more and more. We will suffer major losses. A person who is used to living large cannot rein in his appetites. Since the start of the crisis, it seems to me that corrupt practices have intensified, not least because so-called state aid began to be handed out recklessly and without oversight.

VTB received around 200 billion rubles in state aid—roughly $6.5 billion at the time—which it was supposed to distribute further. Where that money is is not entirely clear. All these things—state guarantees, injections into the stock market... In my view, all of it was highly closed, highly opaque, and highly corrupt.

DP: When you first bought shares, was it to receive dividends or to ask Sechin questions?

Alexei Navalny: Yes, like the overwhelming majority of small investors, I invested my savings in order to receive dividends. Share-price growth matters, but I would like to receive reasonable dividends. Lack of transparency and corruption had always outraged me, but I began dealing with these issues seriously only after becoming a shareholder and experiencing firsthand—with my own wallet and on my own skin—the scale of theft and corruption. I realized that even with record oil prices, say in 2007, and an excellent market environment, dividend yields were under 1%. So naturally I started looking into where our money had gone.

DP: How likely is the nationalization of enterprises?

Alexei Navalny: In fact, they could nationalize everything even now—tomorrow, for example, if they stopped supporting Rusal. VEB (the state development bank) could take it over tomorrow. Rusal keeps receiving huge amounts of state money, and no one is nationalizing it. If Sberbank tried tomorrow to enforce its collateral, it would end up nationalizing half the country as well.

No political decisions are even needed for that. But the people at the top understand that, by and large, it isn’t necessary. The current system allows them to enrich themselves with complete impunity, without oversight and without limits, so no additional nationalizations are needed.

DP: Even so, business fears an expansion of state influence...

Alexei Navalny: I think small and medium-sized businesses are afraid not of some future nationalization, but of what already exists in practice. At any moment, without any political decisions, a business can be taken away by the police or local authorities. All of this can be done under existing legislation. That is de facto nationalization, and that is what worries people and small and medium-sized businesses. The nationalization of LUKOIL or something else worries them much less.

Unfortunately, the authorities are incapable of responding adequately to new challenges and threats. Their toolkit is limited: throw huge amounts of budget money at the problem, puff themselves up on television and say that someone will be jailed immediately—which in practice almost never happens. And finally, a third response: declare that something, somewhere, needs to be tightened up. That is basically all they can do. The fire in Perm, for example, ended with fire inspectors once again going around clubs collecting money. Any serious challenge can change the political system, because the authorities are simply incapable of solving any problems.

DP: When you speak of the authorities’ timidity, do you mean Putin or Medvedev?

Alexei Navalny: To me, they are essentially one and the same. I’m not the kind of person who takes the bait of some supposed contradiction—that one is the good cop and the other the bad cop, that one is for modernization and the other against it. I don’t believe the setup about liberals versus the siloviki (security-service hardliners). There was no thaw and no real confrontation. Yes, there is Putin’s team and Medvedev’s team, but the only contradiction between them is who controls which sector.

DP: But the corporations you are fighting are overseen by Sechin—widely regarded as a friend of Putin. What role does Putin himself play, in your view?

Alexei Navalny: I don’t know what role he may play in the handover of a suitcase full of money, or whether he receives it. But I think most major “cut-and-skim” schemes cannot happen without his at least being aware of them.

DP: Where do you draw the line between settling personal scores and expressing dissatisfaction with the actions of top managers?

Alexei Navalny: It all depends on motivation. Suppose there is a person earning $1,500 a month. He looks at the TV and sees the brazen face of some mayor. He sees that the mayor’s wife is making billions. He begins to hate that mayor. What is driving him? Envy? Of course—he too would like to make a billion! Civic consciousness? Or something else? It’s hard to say.

What drives that person is not so important. What matters is that at least the people who work with me do not simply hate that face on the TV screen—they are prepared to do something in practice to stop him. It doesn’t matter whether it’s envy or something else. What matters is that they are ready to fight that fat, brazen face together with me.