Transparency in Corporate Reporting

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TRANSPARENCY IN CORPORATE REPORTING

Assessing Russia’s Largest Companies “Transparency International-Russia” Report ASSESSING RUSSIA’S LARGEST COMPANIES

“TRANSPARENCY INTERNATIONAL— RUSSIA” REPORT

This report was produced by Transparency International Russia as part of a project led by the Transparency International Secretariat with funding from the Siemens Integrity Initiative. The Transparency in Corporate Reporting assessment conducted in Russia uses the same methodology as the Transparency in Corporate Reporting: Assessing the World’s Largest Companies which is produced periodically by the Transparency International Secretariat. The latest edition of the global report, published in 2014, included Siemens as one of the 124 companies that were assessed.

Project coordinator Anastasiya Ivolga

Project team Anton Pominov, Ekaterina Sukhareva, Ilya Shumanov, Maria Maria Shigreva

Project interns Alisa Velmiskina and Svetlana Ivanova

Printed in Tara-Tut print shop (Moscow) TABLE OF CONTENTS

Introduction 9

The Overall Results 10

Recommendations 12

Methodology 20

1. Anti-corruption documents 26

2. Organizational Transparency 38

3. Country-by-country reporting 44

Annexes

1. List of evaluated information 50

2. Data per companies 52

— 2 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY ACP — ANTI-CORRUPTION PROGRAMS SCALE FROM 0–10, WHERE 0 IS THE LEAST TRANSPARENT, OT — ORGANIZATIONAL TRANSPARENCY 10 IS THE MOST TRANSPARENT. THE INDEX IS BASED ON THE IN CORPORATE REPORTING СВС — COUNTRY-BY-COUNTRY REPORTING AVERAGE VALUE FOR ALL THREE PARTS OF THE STUDY.

COMPANIES ARE LISTED FROM THE HIGHEST VALUE OF THE INDEX TO THE LOWEST.

COMPANY % ACP OT СВС INDEX COMPANY % ACP OT СВС INDEX COMPANY % ACP OT СВС INDEX COMPANY % ACP OT СВС INDEX Magnet w58w100— 7.9 Surgutneftegas w42w88w 4.3 Transmashholding w w75w 2.5 Techmash w4w — 0.2 Sberbank w85w88w64 7.9 Ilim w54w75w 4.3 Sovcomflot w w75w 2.5 Element-Treyd w4w — 0.2 Kazanorgsintez w81w75— 7.8 Aeroflot w50w75w 4.2 Ingosstrakh w w75w 2.5 Holiday Group w4w — 0.2 Rosseti w50w100— 7.5 SIBUR w38w88w 4.2 RESO-Guarantee w w75w 2.5 UCL w w6w 0.2 Nizhnekamskneftekhim w62w81w60 6.8 Uralkali w50w75w 4.2 Cherkizovo w w75w 2.5 Metallservis w w6w 0.2 Udmurtneft w54w75— 6.4 Saint Petersburg Bank w50w75w 4.2 Siberia Airlines w w75w 2.5 Aston w w6w 0.2 MTS w88w88w12 6.3 LUKOIL w42w75w4 4.1 EuroChem w35w38w 2.4 DNS w w — 0 RUSAL w88w75w21 6.2 LANIT w92w31w 4.1 X5 w54w19w 2.4 Red&White w w — 0 Megaphone w77w88w16 6.0 ODK w42w75w 3.9 UIMC w8w38— 2.3 Alkor and Co w w — 0 ALROSA w92w75w13 6.0 TNS Energo w w75— 3.8 Volga-Dnepr w58w13w 2.3 Intertorg w w — 0 Tactical missiles Corporation w42w75— 5.9 Togliattiazot w w75— 3.8 AlfaStrakhovanie w w44— 2.2 Retail K-1 ("Maria-RA") w w — 0 Nordgold w73w75w25 5.8 Russian Helicopters w27w88w 3.8 PPF "RGS" w15w50w 2.2 MERLION w w — 0 NLMK w92w75w8 5.8 Credit Bank of Moscow w38w75w 3.8 High Precision Systems w4w38— 2.1 SNS Group w w — 0 Evraz w85w56w29 5.7 Detsky Mir w77w38w 3.8 Neftetransservis w50w13w 2.1 Almaz-Antey w w — 0 VimpelCom w73w88w9 5.7 Promsvyazbank w77w38w 3.8 SOGAZ w w56w4 2.0 Tomskneft w w — 0 Rostelecom w81w88w 5.6 Gazprom Burenie w12w63— 3.7 Yandex w42w19w 2.0 SeverEnergia w w — 0 Mosvodokanal w35w75— 5.5 Sakhalin Energy w73w — 3.7 PIK Group w w38— 1.9 Avtotor w w — 0 RZD w81w81w 5.4 Rosselkhozbank w58w50w 3.6 Rolf w w38— 1.9 Neftegazindustriya w w — 0 Akron w88w75w 5.4 Pochta Rossii w69w38w 3.6 Bank Rossiya w w56w 1.9 Miratorg w w — 0 NCSP w31w75— 5.3 INK w69w — 3.5 Rosatom w19w38w 1.9 LUKOIL-Garant w w — 0 Zarubezhneft w85w75w 5.3 Mosinzhproekt w69w — 3.5 Tele2 Russia w23w31w 1.8 Moskovsky Metropoliten w w — 0 Inter RAO w54w88w14 5.2 Slavneft w27w75w 3.4 OMK w27w6— 1.7 LocoTech w w — 0 MMK w73w75w8 5.2 TMK w27w75w 3.4 PPF "Blagosostoyanie" w w25w20 1.5 EFKO Group w w — 0 RusHydro w65w88w 5.1 Lenta w15w50— 3.3 Katren w8w19w20 1.5 CSC Group w w — 0 NOVATEK w77w75w 5.1 TAIF-NK w65w — 3.3 CPC w38w6w 1.5 Major-Auto w w — 0

RussNeft w77w75w 5.1 RUSENERGOSBYT w65w — 3.3 Neftisa w4w38w 1.4 Uralo-Sibirskaya Metallurgicheskaya RTI Systems w77w75w 5.1 LSR group w15w75w10 3.3 Finance&Construction Corporation "Lider" w w25— 1.3 Kompaniya w w — 0 Bashneft w77w75w 5.1 VTB w23w75w1 3.3 Russian Standard Bank w w38w 1.3 Oboronstroy w w — 0 Rusagro w50w50— 5.0 Metalloinvest w23w75w 3.3 SUEK w19w19w 1.3 YUNPK w w — 0 Nornickel w73w75w3 5.0 O’Key Group w27w38— 3.2 PPF Future w8w25w 1.1 Pipe Innovation Technologies w w — 0 Gazprombank w62w88w 5.0 NNK-Aktiv w8w81w6 3.2 Salym Petroleum w19w — 1.0 Novoshakhtinskii Zavod Nefteproduktov w w — 0 KRET w23w75— 4.9 Power machines w19w75w 3.2 Siberian Generating Company w w19— 0.9 Krastsvetmet w w — 0 Uralvagonzavod w23w75— 4.9 Vnesheconombank w15w75w3 3.1 Transoil w w19— 0.9 Trans Nafta w w — 0 Rosneft w73w75w 4.9 Mechel w19w75w 3.1 StroyTransNefteGaz w4w13— 0.8 SIA International w w — 0 DIXY Group w73w75w 4.9 Mostotrest w12w75w 2.9 UMMC w w25w 0.8 GAZFOND w w — 0 PhosAgro w69w75w 4.8 Polyus w19w38— 2.8 EuroSibEnergo w w25w 0.8 Ulmart w w — 0 Polymetal w77w31w32 4.7 URALCHEM w4w75w3 2.7 Sds-Ugol w w13— 0.6 Metallokomplekt-M w w — 0 Globaltrans w46w75w20 4.7 Industrial Metallurgical Holding w w75w3 2.6 Agro-Belogorie w w13— 0.6 RIF w w — 0 Tatneft w54w81w2 4.6 GAZ Group w4w75w 2.6 Neftekhimservis w w13— 0.6 Alfa Bank w w w 0 Binbank w62w75w 4.6 UTair w4w75w 2.6 Genser w w13— 0.6 New Stream Group w w w 0 VSMPO-AVISMA w62w75w 4.6 R-Pharm w77w w 2.6 Voentorg w w13— 0.6 Tashir w w w 0 Sovcombank w62w75w 4.6 M.Video w w50— 2.5 Eldorado w12w — 0.6 Forteinvest w w w 0 Rosta w77w13— 4.5 Ruselectronics w w50— 2.5 Svyaznoy w12w — 0.6 Sodrugestvo w w w 0 USC w27w88w20 4.5 Pulse w31w19— 2.5 EUROCEMENT w4w13w 0.5 Drilling company "Eurasia" w w w 0 Megapolis w81w6— 4.4 Transneft w w75w 2.5 Sportmaster w15w w 0.5 Velesstroy w w w 0 Gazprom w50w81w 4.4 Otkritie Holding w w75w 2.5 Sedmoi Kontinent w8w — 0.4 Euroset w w w 0 KAMAZ w58w75w 4.4 PROTEK w w75w 2.5 UNICONF w w13w 0.4 Best price (Fix Price) w w w 0 Severstal w58w75w 4.4 AvtoVAZ w w75w 2.5 STROYGAZMONTAZH w w6— 0.3 Avtomir w w w 0 UAK w58w75w 4.4 Rosgosstrakh w w75w 2.5 NCC w w6— 0.3 Transaero, Spetsstroyinzheniring, ——— — — 4T Plus w58w75w 4.4 ChelPipe CENTER “TRANSPARENCYw w75 INTERNATIONALw 2.5R” State ATM Corporation w w6— 0.3 Morton HIGHLIGHTS 4 1 1 6 6 3 2 5 companies companies companies companies did not receive a companies do not received either have a confidential commu- single point based regulate contributions 5 or higher points nications channel for reports on the results of for political activities out of 10 possible on corruption offenses, allow- the study points ing them to establish two-way communications with the informant

of companies have not introduced the ban 4 2 8 0 % on facilitation payments the largest com- multinational panies by revenue companies gained of companies do not disclose any information do not have a cur- more than 50 %1 in 28 % about their subsidiaries and associates where rently operating all three parts they operate in Russia and abroad web site

of companies publish CEO’ message in sup- 14 % port of the anti-corruption policy pursued by 1Hereinafter, the percentage of information disclosed by the company in open source the company

— 6 CENTER “TRANSPARENCY INTERNATIONAL R” The study evaluates the transparency of companies in INTRODUCTION three areas underlying the index with respect to: >> their anti-corruption programs >> organizational transparency of company holdings >> the disclosure of key financial information on a country-by-country basis The study “Transparency inter- The objective of the study, on one hand, is to increase national — R” “Transparency in the overall level of transparency and public accountability in the private sector, and on the other hand, to record the Corporate Reporting” assesses degree of disclosure practices of the commercial sector the disclosure of the 200 larg- in Russia before introducing changes to domestic legislation within the framework of the programs to combat the est Russian companies by rev- erosion of the tax base (Base Erosion and Profit Shift- enue from the RBC-20162 rating — BEPS). The study is not aimed at incriminating those or other companies in dishonest business, its main 3 ing on their official websites . purpose is to draw attention to Russian big business Most companies in the survey representatives, state authorities, investors and citizens to the overall level of transparency of companies with re- sample are included in the list spect to their anti-corruption programs, subsidiaries and of the so-called “backbone countries of operation. enterprises” of the Russian Transparency and accountability are the two main tools Federation4. Their profits form for combating corruption in all sectors of the economy. In the current Russian reality, companies should not be more than 70 % of the total na- afraid to take responsibility for establishing fair and trans- tional income, and tax deduc- parent rules of the game. The existence of an anti-corruption policy positively influences the reputation of com- tions to budgets of all levels panies, mitigates the risks of corruption violations both are an essential source of the for employees of the company and for its management, bears evidence of the overall effective management of revenue side of the Russian both auditors and investors, as well as ordinary citizens. budget. The economic, political Numerous detailed recommendations of this report focus on the segment of anti-corruption programs. The detailed and social influence of these disclosure of all controlled entities and the willingness to companies is enormous. What release financial information for countries where the company is represented directly or through subsidiaries will information do they disclose help to identify all the structures of the company that it is about themselves? represented in the world, thus making it more transparent to the public. In addition, transparency will be an effective tool in the fight against tax evasion whenever companies use territories with a special tax regime to register their

2 www.rbc.ru/rbc500 legal entities. 3 for more details, see page 20 4 https://goo.gl/rvLq7B The study “Transparency in Corporate Reporting” has examined exclusively Russian companies for the first time — before that, Transparency International has paid attention to some of the companies examined in this research. We sincerely believe that these recommendations will be considered by representatives of the business community, and these suggestions will help improve ac- countable governance, foster transparency and accountability to fight corruption.

TRANSPARENCY IN CORPORATE REPORTING 9 THE OVERALL RESULTS Country-by-country reporting average rate 4 %

>> Least of all are companies are willing to disclose the amount of public contributions in the countries of their operation, most often companies release financial information for the The overall result for the index average rate 2.6 / 10 selected country only. >> From 115 sample companies operating in more than one country in the world, 87 do not disclose any financial information at all on the countries of operation. The largest Russian companies by revenue have a low level of transparency. Thus, >> No company discloses information on all countries where it conducts its operations on all 41 companies considered in the study did not receive any points on any of the criteria of the evaluated parameters. the study, only 32 companies received 5 points or more (out of 10 possible points). The >> Only two companies in this segment of research have scored higher than 50 %, and they most transparent area of business activity was telecommunications industry, the most are “Sberbank” PJSC and “Nizhnekamskneftekhim” PJSC opaque ones were infrastructure construction, agriculture and foodstuff manufacturing. >> The positive trend towards the disclosure of any financial information on the Country-by-country reporting, which is examined in the third part of this study, is the >> countries of operation are most evident in the metals and mining industry and it is illus- dimension showing by far the weakest results. trated by such companies as “Polymetal”, “Evraz”, “Nordgold”, “Rusal” that do release at least some information. It is worth noting that all listed companies are registered under the jurisdiction of other countries.

Anti-corruption documents average rate 27 %

On Legal Forms >> Only 115 companies have at least some anti-corruption provisions which are publicly accessible on their official website >> 42 % of companies from the survey sample publicly declare their intolerance for >> 86 Public joint stock companies (open joint-stock companies) represented in the sample corruption. by 86 companies have an average index of 3.9, which is higher than the average rate for >> Political contributions are not transparent enough. Only 16 % of companies prohibit the whole survey sample. The average value for all three parts of the study for PJSC is also or disclose payments for political purposes. significantly higher than companies with other organizational and legal forms. >> The support of the company’s anti-corruption programs by the company’s manage- >> 59 Joint Stock Companies (closed joint-stock companies) represented in the survey ment is also small, there are only 14 % of, companies which have CEO’s official mes- sample have a very low index of disclosure of anti-corruption documents, it is below the sage supporting the anti-corruption strategy of the company on their website. average rate for the entire survey sample and it is equal to 21 %. >> There are only 20 % of Russian companies which prohibit facilitation payments >> 44 LLC (Limited Liability companies) companies have the average index was 0.7 >> 26 % of companies extend their anti-corruption policies to agents and consultants, which is a particularly common corruption risk. >> The situation with communication channels for informants ois unsatisfactory: only five companies have hot anti-corruption lines which allow to anonymously report on By Industries corruption in the workplace which suggests a feedback procedure. Sixty percent of companies do not have an anonymous public hot line. >> 73 % of companies do not declare commitments to review and update their anti- >> Disclosure of information on anti-corruption documents of the financial sector, represented corruption policies regularly. in the survey sample by 24 companies, is below the average rate for this part for the entire survey sample.

>> The most transparent sector is telecommunications. For five companies in the survey Organizational Transparency average rate 41 % sample, the average index is 5.0. They also lead in terms of disclosure of anti-corruption policies and organizational transparency.

>> 28 % of the largest revenues of the Russian companies do not disclose any information >> The trade and food sector represented in the survey sample by 22 companies, and the about their subsidiaries and associates / joint ventures. infrastructure construction sector which is represented by four companies, are the most >> Most companies disclose only a list of their major subsidiaries and associates. opaque: for all parts of the study, such companies gained below the average rate for each of the three parts, and the average index for them was below 1.5.

— 10 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 11 RECOMMENDATIONS

General recommendations to companies 1 Publish as much information about company’s operations as possible in 3 Regulate and disclose all political donations. publicly available sources. Business is one of the key sources of financial support for political parties around Regardless of the organizational and legal form, the fact of the company enter- the world. Often, political donations are used by companies both for conscientious ing the stock market as an issuer, operating in one or one hundred countries of lobbying of their own interests and for corrupt purposes. Public disclosure of the the world, revenue, structure and scope of activities, companies should strive for annual cost of political funding or a complete ban of these activities for all employ- greater transparency and public accountability. Out of 200 largest Russian com- ees of the company, including top-managers, agents, consultants and other per- panies in 2016, four do not have an official website at all, and only 115 publish sons connected with the company, will assist corporations to protect themselves some anti-corruption information or regulations. Things are even worse with the from situations in which political parties financing can be interpreted as a tool of public disclosure of the exhaustive list of subsidiaries and associates in the country obtaining or maintaining unfair advantages in business. of registration and at the international level. Few companies reach the level of transparency and publicly disclose information about corporate structures and countries where they operate — most companies on the list do not disclose such Most Russian companies are approaching the issue of regulating information at all. political donations from one of the following positions: >> they introduce the ban to finance political parties which does not apply to top-managers, agents and consultants; 2 Comply with the latest standards in anti-corruption legislation and regularly >> they prohibit political donations to obtain unfair advantages in busi- update company’s own programs. ness, and the ban is often accompanied by a non-compliant obli- While companies approach anti-corruption regulation as a formal procedure, it will gation to publicly disclose charitable and political payments. Such be impossible to talk about the transparency of the commercial sector in Russia. wording is a bar not for political donations, but for obtaining unfair Out of the examined companies, less than a quarter (23 %) commit themselves to advantages in business by such financing, which means that such regularly review and update internal anti-corruption documents. companies should disclose direct or indirect contributions to political Effective anti-corruption legislation requires regular updating of company’s own parties, organizations or individuals, engaged in politics; practices not only due to the change in the current anti-corruption legislation, but >> the ban to finance political parties excludes political nominees. also in compliance with the latest international practices and the appropriate application of certain procedures in each company. The annual audit of the results of anti-corruption application and the revision of the existing anti-corruption policy Companies should either regularly and publicly disclose donations on political ac- will allow the company to develop an individual Anti-Corruption Strategy that will tivities or ban contributions to political parties and individuals for elected posts, for substantially mitigate the corruption risks for the enterprise. all employees, including top-managers, members of management bodies, company’s agents, lobbyists and other intermediaries.

Among the examined documents of the Russian largest companies, we have come across Codes of Ethics and anti-corruption policies dat- 4 All employees including top managers and members of the company’s ing to 2003–2008, their relevance has not been updated for more than management bodies should be liable for compliance with the anti-corrup- a decade. Over the years, the Federal Law “On Combating Corruption” tion programs. was adopted, which defined the legal meaning of the term “corrup- By introducing bans on bribes, participation in corrupt interactions, making politi- tion”, not to mention that new international standards have been cal donations on behalf of the company, making facilitation payments and ob- adopted too. serving corporate standards of conduct only for employees, the company does not extend anti-corruption policy on members of the upper management body In addition, the texts of anti-corruption policies of several companies (Board Members and Board of Directors). In case a corruption crime is commit- almost literally duplicate each other, which made one think about a ted by a top manager or a member of the management body, the damage to the formal approach to developing an anti-corruption policy within the company’s reputation would be irreparable. company. Therefore, companies need to extend all anti-corruption corporate policy and rules not only to employees, but also on members of the board and the Board of Directors to consolidate their commitment to comply with these rules.

— 12 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 13 5 Extend the provisions of anti-corruption policy to persons who are authorized consider that the critical factor in identifying such crimes is the ability to report anon- to represent the company. ymously. By blocking the possibility for external informants to report on the breach The fundamental standards of integrity under which the company operates should of anti-corruption laws, the company limits sources of obtaining valuable information not vary depending on the position of employees. The anti-corruption policy should which is essential for the company’s reputation and overall sustainability. apply to all employees, who are authorized to act on behalf of the company, such as agents, lobbyists and consultants. Otherwise, the company’s risk of being Anonymous contacts regarding alleged corruption and fraud within the corporation involved in the corruption situation will increase. The company must be certain that are important. A hotline offers an opportunity to voluntarily provide information about agents and other actors acting on behalf of the company perform their work in fraudulent actions and breaches of ethics directly and anonymously to the company. compliance with the company’s corporate anti-corruption principles. It is crucial that companies have effective whistleblower hotlines as part of their To ensure compliance with this policy the company ought to organize a proper corporate compliance programs so that they are effective in preventing and iden- training on Anti-Corruption program to familiarize all persons authorized to repre- tifying unethical or potentially unlawful activity. However, the hot line for informants sent it, and the Executives should provide employees with any support in explaining in most Russian companies means reporting to a mail address or calling a phone the provisions of these programs. Anti-corruption policies and procedures should number in the company. This model of interaction, cannot guarantee full confidential- be communicated to all the employees. ity / anonymity of the informant even if the principles of confidentiality and anonymity are declared. Whistleblower hotlines should be managed by independent third-party providers and, if used by a company, should be well publicized to its employees. 6 Extend corporate liability, anti-bribery and anti-corruption compliance rules on third parties acting on behalf of the company, including contractors and The proper modern practice is creating a specialized electronic form for a corrup- sub-contractors. tion whistleblower, which would provide each informant an individual pin code and Due diligence should be carried out before engaging with a business partner to forward his/her report to an external independent agent (for example, an audit com- identify existing problems, potential risks, and mitigate them. pany or a non-profit organization). Companies are required not only to check their contractors before signing agreements with them, but also to monitor their performance during the entire dura- tion of the contractual relationship to mitigate the risk of committing a corruption 8 Introduce special ban on facilitation payments. offense. Despite the fact that the Supreme Court of the Russian Federation has defined facilitation payments to speed up routine government actions as bribes, Russian companies ought to pay attention to such type of prohibited payments, first of all, In 2010, the general contractor of the Russian subsidiary of the Swed- due to the fact that facilitation payments are officially permitted in some jurisdic- ish company IKEA, “IKEA MOs”, made an illegal payment5 to connect to tions, and second, the ban may not be properly interpreted and understood by the power supply of the “MEGA” shopping center in St. Petersburg. Top company’s employees, which may cause significant reputational risks for the managers of the Ikea MOs Russian division were aware of the contractor’s company itself, when employees or agent сomit corruption offenses due to their intent to give the bribe; however, they did not prevent the crime. The con- unawareness. sequences followed, top-managers Russian division were dismissed, and company’s reputation was severely damaged. 9 Disclose a full list of subsidiaries and associated companies, joint ventures and other entities controlled by the company. Companies should disclose the full list of the structures of their operations. The All arrangements with third parties should be subject to clear contractual terms including disclosure of corporate financial data only of major affiliates, joint ventures and- as specific provisions of the contractor anti-corruption clause6 requiring them to comply with sociates leads to the fact that external actors cannot identify the relationship of one standards and procedures in relation to bribery and corruption. We recommend develop- legal entity with another. The desire to hold back the information of the controlled ing a specialized Code of Conduct for the supplier, which clearly identifies anti-corruption organizations’ business operations seriously hampers the overall level of trust. In ad- provisions. Appropriate due diligence should be undertaken before any third parties are dition, do not forget that even if the subsidiary is not the major one, from the point of engaged. view of the whole group, its economic contribution in the region of its activities can be substantial for the local population and the economy of the country / region.

7 Dealing with anonymous reports/ confidential communication channel for An extremely small number of organizations disclose data on the countries of opera- whistleblowers, and providing feedback to the informant. tion of their affiliates and associates: it is worth remembering that the country of While there is a trend in largest corporations to use information received from report- registration is not always exclusively identical to the country of business, because ers as an effective tool to counter corruption, the interaction with such individuals in the company can operate in several countries at the same time. Therefore, it is nec- Russia is very formal and reports are not always treated privately and non-publicly essary to specifically point out to the coincidence of the country of registration and which excludes the possibility of getting a message from outside sources. When the country of business operations, and in case of their mismatch, we recommend considering a report about a breach of anti-corruption policies, companies should indicate the countries of business operations separately.

5 https://goo.gl/eAgqvn 6 http://www.iccwbo.ru/blog/2016/antikorruptsionnaya-ogovorka/

— 14 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 15 10 Extend anti-corruption policies and Codes of Ethics to all affiliates. Technical recommendations to companies Companies need either to extend the provisions of their anti-corruption policies to all members of the group, including affiliates or make sure they design their own 1 Establish communication channels with external actors. guidelines. Company employees, irrespective of the country where the company While preparing this study, we have tried to reach out to those companies which are listed operates, are required to comply with the Code of Ethics and its regulations. Often in the survey sample. First, we wanted to inform the companies about the start of the the anti-corruption policy commitments are imposed exclusively on the company TRAC study in Russia, and to share the material which we have gathered. itself, and its legal entities are not liable to it. The process of creating a dialogue with companies in the commercial sector was complicated by the lack of an effective communication channel for companies. Most compa- 11 Disclose financial data in all countries of operation. nies have only one common e-mail address on their website and very few corporations Information on income, capital expenditures, pre-tax profits, income tax and the responded. Obviously, this problem is due to the protection of electronic boxes of the amount of public contributions for each country in which the company conducts company and its representatives from spam and other unsolicited letters. We doubt that business will provide information of the company’s influence in each specific region the information which we have provided did indeed reach the interested persons. where it is represented either directly or through its subsidiaries. This material will also allow to get an idea about the company’s use of offshore zones. 2 Publish information on anti-corruption policies in a specialized section of the website. 12 Ensure whistleblowers’ effective protection. The search for corporate anti-corruption policies, Codes of Ethics or any other docu- Whistleblowers often face retaliation or unfavorable personnel action from employers ments on combatting corruption in the company is complicated, as there is no unified and individuals who have committed corruption offense. Whistleblower protection is standards for publishing such information on the official website of the organization: some essential to encourage the reporting of misconduct, fraud and corruption. Providing companies have a specialized section on anti-corruption, others place anti-corruption effective protection for whistleblowers supports an open organizational culture. For policies and Codes of Ethics section dedicated to CSR, the third publish it in the section effective implementation of Anti-Corruption Programs, informants must be protected of internal documents for investors, the fourth keep them in the archive of documents or from discrimination and disciplinary actions. Companies should provide and guaran- news. tee protection against discrimination and retaliation to all whistleblowers, employees of the company, including management (including members of the board of direc- The absence of any standards regarding publishing of such information on companies’ tors, supervisory board, audit committee, etc.), as well as counterparts and persons websites makes it very difficult to search for stakeholders of any level: from clients to who are not staff employees of the company but act on its behalf. investors, from whistleblowers to the regulator.

We recommend companies have a specialized section on the site in which all public cor- 13 Conduct anti-corruption training. porate documents that regulate the anti-corruption policy of the company of any kind will Less than 10 % of companies in the survey sample regularly conduct anti-corruption be gathered and published: staff Code of Ethics, Anti-Corruption Programs and policies, training for employees and top-managers (including members of the Board of supplier codes and company gift policy, conflict of interests, and a hot line channel for Directors, Supervisory Board and audit committee), and only a small part also holds reporting corruption. It is necessary to dwell in more detail on the last two instruments for these sessions with contractors and persons acting on behalf of the company. combating corruption. At a time when anti-corruption legislation is subject to constant changes, companies should conduct such trainings on a regular basis. The practice of organizing Often, the hot line electronic address or telephone number is only written in the text of the mandatory training for new employees, regular training for the whole staff, and organization’s anti-corruption policy, or on the pages of the Code of Ethics and in the text specialized training programs for employees who occupy the most corrupt risk of the annual report. Sometimes a hot line for whistleblowers can be found in the con- positions (for example, Procurement Officers) is recommended. In addition, regular tacts section or in the footer of the site. Coupled with the problem of finding this informa- consultations on any issues for employees and other individuals whose activities are tion on the company website, a potential corruption reporter faces difficulty in providing related to the application of the company’s anti-corruption policy should be organ- valuable information directly to the company. ized.

3 Lay out documents in the pdf format with the possibility of performing a machine 14 Regulate giving / receiving gifts and hospitality policy. search of the document. Even though the Russian legislation imposes restrictions on giving/receiving gifts It is necessary to pay attention not only to the content of the document, but also to its among commercial organizations, as well as bans officials and employees in certain technical characteristics. Searching for information of interest is difficult if the company’s organizations, such as medical and educational institutions, to receive gifts, pre- reporting is laid out, for instance, in 400 scanned pages or in a file of a poor quality. sents are often used to obtain or retain unfair advantages in business. It is difficult to draw the line between acceptable and unlawful conduct, therefore, companies should include guidelines in the anti-corruption programs that stipulate the terms 4 For companies registered in foreign jurisdictions and carrying out their busi- under which giving /receiving gifts are allowed, as well as the goals of giving gifts, ness mainly outside of Russia, it is important to present publicly reports, their acceptable form and threshold cost, the procedure and their record in the ap- including in Russian. propriate register.

— 16 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 17 To state authorities and regulators To non-profit organizations 1 Large companies are required to have internal anti-corruption guidelines to 1 Disclose information in case financial and other support has been received prevent and combat corruption in public access. from other companies. Large companies have a significant impact on the economy and the social Corporate reporting of non-profit organizations does not always reflect support sphere in the regions of their presence, and that is why it is especially important from business. Nevertheless, information about these donations is of impor- that their business conduct is ethical. tance: first, often companies do not fulfill their obligations under CSR; second, Now, not all the large companies realize the importance of running a transpar- financial support for non-profit organizations can be used by businesses to get ent business and they do not take any anti-corruption measures. The legally unfair advantages from the local authorities in cases when the NGO relates to imposed obligation to have internal anti-corruption policy open to public could the authorities. change the situation for the better and increase the level of transparency and ethics for both the largest companies and the business community. Despite the fact, that Clause 13.3 of the Federal Law “On Combating Corruption” stipulates We recommend non-profit organizations receiving support from business dis- that organizations should develop and take measures to prevent corruption, close the amount of the financial aid and sources of its financing to ensure its there is no effective government control institution for monitoring compliance own transparency and that of the source. with this rule.

2 Strengthen the transparency of non-profit organizations by regular moni- 2 We recommend the introduced bill to the State Duma of the Federal As- toring and researching companies. sembly of the Russian Federation on the protection of persons who report Citizen groups united in the legal form of public or non-profit organizations can corruption-related offenses be adopted. This law provides state protection be an effective tool to increase the level of transparency of companies. Such or- for whistleblowers who have reported breaches of anti-corruption policies ganizations should strengthen control over the transparency of the business by committed by government, municipal authorities or organizations to the conducting regular monitoring and research of companies to check their compli- employer’s representative or an employer, prosecutor’s office, and other ance with the anti-corruption laws. This activity reflects the society’s demand for state bodies. socially responsible and ethical business, and it also increases the effectiveness of interaction between business and the civil society.

To participants of the financial market 1 Take into consideration Anti-Corruption Programs and ethical codes when deciding whether to make a deal. When making decisions, investors should not only pay attention to the availability of Anti-Corruption guidelines, but also evaluate the content and effectiveness of such programs.

2 Assess the degree of disclosure of information provided on official websites of companies when deciding whether to strike a deal. While taking decisions investors should evaluate the degree of disclosure of information by companies on their official websites. Well-executed due diligence process will identify compliance weaknesses and structural risks. The lack of information about the structure of the company and the main indicators of its activities, ethical and anti-corruption practices implemented by the company, or lack of an official website at all, indicates to the opaque business conduct and risks for investors.

— 18 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 19 The study methodology consists of three parts: Country-by-country reporting METHODOLOGY In this study, the country of operation is defined Since the TRAC study was conducted for Anti-corruption documents as the country in which the company works either the first time by Russian companies, a softer The first part includes 13 questions about corporate directly through branches and representative of- approach for assessing companies has been Anti-Corruption Programs and documents. Each fices, or through affiliates, associated structures chosen. question has the same weight, respectively, the and joint ventures. This part of the study applies In particular, changes have been made while The study “Transparency in maximum score that the company could receive was only to multinational companies operating in more evaluating organizational transparency. Compa- corporate reporting” is based 13 points. We have assessed the company’s adher- than one country, that is, outside of Russia. For the nies which submit quarterly reports regularly ence to the principle of the so-called “zero tolerance” integrity of the study, the information provided by have received high scores. Corporate report- on the methodology developed for corruption, the commitment to comply with anti- the companies whose main country of operations ing obliges issuers to disclose statistics on by the international movement corruption laws, the applicability of anti-corruption was Russia, was not considered. legal entities in which they own more than provisions of company internal documents not only to 5 % shares. Although this reporting does not Transparency International. employees but also to top managers, persons author- With respect to the countries of operation, the release information about affiliates (indirect This methodology has been ized to work on behalf of the company or represent it, evaluation parameters were designed in such way control), it allows to understand the primary as well as to its contractors and suppliers. In addi- as to provide the most exhaustive information on structure of the company’s assets and under- used since 2008 to evaluate tion, we have evaluated the gift and hospitality policy, revenues and costs in each country of operation. In stand how it controls the next level of related both the world’s largest com- guidelines for political contributions and the ban on particular, for each country, such criteria as disclo- subsidiaries. making facilitation payments. Attention was also paid sure of income, capital expenditure, profit before panies and companies operat- to the protection of whistleblowers, the availability of tax, income tax, and a size of public contributions The facts from the issuer’s corporate reports ing at the national level or in the channel to report corruption offenses (hot line), were assessed. Each of the five questions in the together with the list of affiliated persons and keeping anti-corruption documents up to date and third part of the study has an equal weight and is the register of vitally important subsidiaries, specific sectors. A selection organization of regular trainings for employees and calculated as records from the annual consolidated state- of previous TRAC studies was directors. ments, as well as other information from the website provide exhaustive information about found by some of the Russian These evaluation parameters of companies with the company’s assets. companies, but such a large- regard to internal anti-corruption documents are in compliance with the Principles against Bribery7 for the This approach was chosen because most scale study of the exclusively Business Community, developed by the Transparency The country-by-country reporting initiative was of the companies which we have examined, Russian business sector is International8 movement which in turn summarizes proposed10 by the OECD in the framework of the release, at least, some information about the the leading standards of anti-corruption policy in the program on combating the tax base dilution. affiliates, in their consolidated statements and being conducted for the first private sector from the World Economic Forum’s indicate the list of only those subsidiaries that time. However, we do not rec- Partnering Against Corruption Initiative (PACI), Interna- The methodology has some limitations. are essential for the company’s revenues. tional Chamber of Commerce (ICC), and also include According to the assessment methodology, ommend comparing the results provisions from the Guide to the 10th principle of the First, the study is based on the assessment of questions for companies that reveal significant of previous TRAC studies with UN Global Compact9. information provided by the company on its official structures were scored at 0.5 points. Due to website in public, that is, it is absolutely open for the absence of the law in Russia to disclose the results of this research, Organizational Transparency everyone. Thus, all the conclusions drawn from the the ownership structure of affiliates, issuers since the method of assess- The second part of the study has eight questions of results of this study refer only to publicly available are the most transparent in their statements, equal weight which are devoted to the disclosure of corporate documents and reports. disclosing the full extent of their holdings. ment of this study differs from information about company’s subsidiaries, associates that of previous years. and joint ventures. We have assessed the company’s Secondly, the purpose of the study is not to full disclosure of the names, ownership interests, compare the information presented on the official inaccurate and erroneous. To avoid this, all the ma- countries of registration and countries of operations for website of the company with the actual activities terials have been submitted to the companies for the its subsidiaries and associates. The maximum score of the company. For example, if a company writes review prior to publication. that the company could receive was 8. about its Code of Ethics for regular and mandatory anti-corruption training for all employees and Each part of the methodology has the same weight In terms of organizational transparency, the parame- directors, the researcher trusted such information in the final index, calculated as the average rate for ters were selected based on the minimum information without verifying it. all three parts. For companies that operate only in the necessary to form the idea of subsidiaries and associ- Russian Federation, the third part of the methodol- ates, joint ventures through which the company oper- Third, a huge amount of information that the re- ogy is not applied, and the index is calculated as the ates in the country of registration and other countries. searchers have worked with poses the risk of being average rate for the first two parts of the study.

7 https://goo.gl/QXKpjy 8 www.transparency.org 9 https://goo.gl/r76U8Y 10 https://goo.gl/KaSZ3C

— 20 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 21 Data collection and analytics Survey Sample

The background material has been gathered from We have selected the top 200 biggest Russian com- legal entities at the time of the start of the research have Organizational and legal form official websites of companies and verified by re- panies from the RBC’s 2016 rating11. A complete list of been included into the survey sample. Their websites be- searchers between March 20th and June 1st, 2017. companies is available in Annex 2. came inaccessible for examination in the process of the This means that the information about the websites data collection, therefore, in fact, this study includes the of the examined organizations, which was updated Parent companies of 19 holdings that were in the sample analysis of 197 Russian companies’ websites. All calcula- after the specified period, has not been considered. were registered abroad. tions have been based on this number. All the material was double-checked and in August The approach for assessing these companies was We would like to mention the following companies “Fuel 86 1 2017 we forwarded it to companies for the review. identical to the approach of evaluating companies company “Transnafta” LLC (175th place in the RBC rat- Depending on the date of the receipt, each compa- registered in the Russian jurisdiction. Moreover, we ing), “Southern Oil Refining Company” LLC (160th place PJSC (OJSC) NO ny had three weeks to review the information and to have not included these companies in the third part of in the RBC rating), “Ural-Siberian Metallurgical Company” provide additional material and/or comments. From the study which evaluates the disclosure of financial in- LLC (151st place in the RBC rating), “Severnergiya” LLC all the companies, only eleven were able to revise formation those companies which conducts their core (83rd place in the rating of RBC) which do not have a the material, and most of them increased their business in the Russian Federation, and are registered valid current official website. score by submitting additional sources of informa- under the jurisdiction of another country. That is, the tion and publishing supplementary documents on company was assessed as a Russian company, which their official website. operates in Russia. This was done to reduce the likeli- “Fuel company “Transnafta” LLC is one of the 59 1 hood of overstating the evaluation of such companies. largest donors of the political party “The Com- We have excluded these companies in the third part munist Party of the Russian Federation”: in 2016, JC (CJSC) SUE “Rusal”, “NLMK”, “MTS”, “Sberbank”, “Promsvy- of the study for the integrity of the research, otherwise “Transnafta” donated 43 million rubles for the azbank”, “Rostelecom”, “Detsky Mir”, “Rusagro”, Russia would have been evaluated as an additional activities of the party. “Lanit”, “Surgutneftegaz” and Bank “Saint Peters- business country, different from the country of registra- burg” have provided their feedback, while nine of tion, and it could have brought additional scores to the them shared their detailed comments them. Most companies. According to the organizational and legal form among of these companies managed to improve their the companies included in the sample of this study, the score as far as the Anti-Corruption Programs In addition, such companies as “Morton”12 CJSC and majority (86 companies) have the form of PJSC, 59 com- 44 1 were concerned. “Spetsstroyengineering” FSUE under “Spetsstroy of panies — JSC, 44 companies — LLC, 2 companies — Russia”, as well as “Transaero” OJSC, acting as separate state corporations, 2 companies — FSUE: LLC NPC

11 www.rbc.ru/rbc500 12 https://goo.gl/RZaJzj

Companies registered in jurisdictions of other states 2 1 Jurisdictions Quantity Companies FSUE GC British Virgin Islands 2 "Sakhalin Energy" (Sakhalin Energy Investment Company Ltd.), "Lenta" (Lenta Ltd.) Association Great Britain 2 Nordgold (Nord Gold SE), «Evraz» (Evraz plc.)

Crown possession of Jersey 1 «Rusal» (United Company RUSAL Plc.)

Cayman Islands 1 "Eurasia" Drilling Company (Eurasia Drilling Company Limited) GC "Rolf" (Delance Limited), Polymetal (Polymetal International Plc.), Globaltrans Republic of Cyprus 4 2 (Globaltrans Investment Plc.), "Rusagro" (Ros Agro Plc.) Grand Duchy of Luxembourg 2 "O'Key" (O’Key Group S.A,), GC "Sodrugestvo" (Sodrugestvo Group S.A.) State Corporation Х5 (X5 Retail Group N.V.), GC "Megapolis" (Megapolis Distribution B.V.), UCL (Uni- Kingdom of the Netherlands 6 versal Cargo Logistics Holding B.V.), GC "Volga-Dnepr" (Volga-Dnepr Logistics B.V.), "Salym Petroleum" (Salym Petroleum Development N.V.), “Yandex"(Yandex N.V.)

Swiss Confederation 1 "Eurocement" (Eurocement Holding AG)

— 22 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 23 92% Highest performing ALROSA, NLMK, LANIT

27% Average ANTI-CORRUPTION DOCUMENTS 0% Worst performing 82 companies

— 24 CENTER “TRANSPARENCY INTERNATIONAL R” Photo: www.istockphoto.com Results Among the criteria which we have assessed are the 1. ANTI-CORRUPTION DOCUMENTS of companies company’s policy towards facilitation payments, the gift policy, donations to political parties, availability of average result 27 % the channel of communication with whistleblowers and their protection. In addition, we have noted that Corruption and bribery represents a major threat to company to develop internal anti-corruption docu- According to the methodology of the study, we have very few companies have CEO’s letter expressing rule of law and sustainable development all over the ments or adopt a Code of Ethics. First, according assessed documents that were available in public support of anti-corruption activities — only 14 % of world. It has a disproportionate, destructive impact to UKBA, the availability of effective and exhaus- access. The statement about the absence of anti- companies from the list have an official letter or a on the poor and most vulnerable, but it is also sim- tive anti-corruption internal guidelines, helps the corruption policies and internal ethical documents statement of the leader about his commitment to ply detrimental for business. Without developing a company to protect itself in case of the litigation, if from other companies will be inaccurate: the pages combat corruption and encourage compliance with comprehensive anti-corruption strategy, the compa- an employee or a representative commits a breach of the report demonstrate their presence in public anti-corruption guidelines. ny cannot guarantee its integrity as an organizational of anti-corruption laws. However, according to the access. structure. High-standard anti-corruption policy is Russian legislation, the company is held administra- Also, 65 % of companies in the sample do not one of the key factors of the effective management tively liable for corruption-related crimes committed Only the 115 largest Russian companies have any mention anti-corruption training for employees and of the company and it demonstrates an open and by its employees regardless of the availability or provisions or references to anti-corruption guidelines directors. honest approach to doing business. It safeguards absence of corporate anti-corruption policy. In other on their websites. The average result for the disclo- against corruption, protects the corporate image words, Russian laws do not consider the fact that sure of information about anti-corruption documents as well as the interests of investors, employees and the crime may have been committed despite the is 27 %. This means that on average, the company customers. Do not forget that anti-corruption docu- adoption of anti-corruption guidelines, or despite scored 3 out of 13 possible. None of the compa- ments should be publicly available to a wide range the fact that the company and its leaders have nies received 100 % score, the “Alrosa”, “Lanit” and of people: from a low-level employee to a manager, done everything possible to prevent such violations NLMK received the maximum result for having anti- and a Board Member candidate, from a consumer and that the criminal offense has occurred without corruption documents, each one got 92 % score. to the largest supplier and from a dissatisfied cus- the knowledge, participation and coordination of The following companies have demonstrated lower tomer to an investor. other representatives of the company. In fact, it results: “Akron”, “MTS” and “Rusal” — by 88 % each, may have been a specific person’s misconduct and as well as “Evraz”, Sberbank and Zarubezhneft — by The most relevant recommendations on the de- infringement of law which he/she did at his/her own 85 % each. velopment of anti-corruption policies and other volition. anti-corruption measures for companies are to be found in the extraterritorial laws of the UK “On Fight Second, the mechanism for monitoring compliance Against Bribery” (UKBA) 2010 and the United States with the law is Art. 13.3 of the Federal Law “On Analysis of issues for 197 companies “On Corrupt Practices Abroad” (FCPA), as well as in Counteracting Corruption” is not yet clear. the OECD Convention “On the fight against Bribery ACP 1 point 0.5 points 0 point of foreign officials in the conduct of international Now, draft amendments to the Federal Law “On commercial transactions”, the Russian recommen- Combating Corruption” are being prepared, and The company declares zero tolerance for corruption (1) 82 12 103 dations of the Ministry of Labor and the Anti-Corrup- they will set more specific anti-corruption standards The company guarantees no response for an allegation of violation of the anti- 70 0 127 tion Charter of Russian business. for organizations, and will form the foundation of corruption policy (10) the National Anti-Corruption Council, which will be The company guarantees compliance with legislation (2) 67 0 130 Since 2013, part 1 of Art. 13.3 of the Federal Law set up to develop anti-corruption standards and will “On Combating Corruption” obliges13 all companies monitor the measures taken by the organizations Anti-corruption policy applies to all employees and directors (4) 57 26 114 to take measures to counteract corruption. The law to combat corruption through specialized expert Anti-corruption policy applies to agents and consultants (5) 51 0 146 recommends the responsible persons within the centers. The adoption of these amendments is company or specialized units be appointed to bear expected in January 2019. The company regularly reviews and updates anti-corruption policy (12) 50 4 143 responsibility for preventing corruption offenses, The company has the policy for accepting and donating gifts (8) 43 37 117 developing and implementing procedures to ensure In addition, one has to bear in mind that since 2016 the integrity of the organization, adopt a Code of a legal entity, held administratively liable for commit- The company prohibits payments for simplification of formalities (9) 39 0 158 Ethics, resolve conflict of interests, and prohibit the ting an offense under article 19.28 of the Code of The company prohibits (or publicly discloses) contributions to political activities (13) 31 0 166 use of forged documents and informal reporting and Administrative Offenses of the Russian Federation cooperate with law enforcement agencies. (illegal remuneration on behalf of a legal entity), is Support of anti-corruption practices by management (3) 28 0 169 banned from participation in government procure- Anti-corruption policy applies to subcontractors (6) 23 49 125 Nevertheless, the existing system is not very ef- ment14 for two years, which may present a signifi- fective and in practice it does not stimulate the cant financial loss to the company. The company conducts anti-corruption training (7) 17 51 129

The company has a confidential hot line (11) 5 73 119

13 http://fzrf.su/zakon/o-protivodejstvii-korrupcii-273-fz/st-13.3.php 14 https://genproc.gov.ru/anticor/register-of-illegal-remuneration/

— 26 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 27 Anti-corruption documents Facilitation such payments are legal, although they lead to unfair competition. Results of companies, 100 % maximum payments 20 % In Australia, facilitation payments are legal at the fed- 92 ALROSA, NLMK, LANIT The Convention on Combating Bribery of Foreign eral level — The Income Tax Assessment Act allows Public Officials in International Business Transactions companies to reduce the tax base by the amount of 88 MTS, RUSAL, Akron (OECD Anti-Bribery Convention) refers to payments “accelerated payments” and does not set the allow- to simplify bureaucratic formalities or expedite the able amount of such payments, but many Australian 85 Sberbank, Evraz, Zarubezhneft performance of a routine or necessary action as provinces are unhappy with this and prohibit facilita- illegal actions. tion payments at the regional level. Kazanorgsintez, Rostelecom, 100 81 RZD, Megapolis No companies% Megaphone, NOVATEK, RussNeft, R-Pharm, The federal legislation of the Russian Federation In the USA, the 1977 “Foreign Corrupt Practices RTI Systems, Bashneft, Polymetal, Rosta, 77 Detsky Mir, Promsvyazbank does not stipulate or define the concept of “facilita- Act” with the amendments of 1988 does not con- tion payments”, and it does not directly prohibit sider “facilitation payments” as bribes. Payments Nornickel, VimpelCom, Sakhalin Energy, 73 Nordgold, Rosneft, DIXY Group, ММК them. In fact, until 2013, payments for simplifica- for expediting and facilitation are one of the few tion of formalities had an undefined legal status and exceptions to the legislative prohibitions on bribes in PhosAgro, Pochta Rossii, 69 INK, Mosinzhproekt could be treated as an either as a bribe or as a gift, the country. respectively, and were interpreted as gifts. In 2013, RusHydro, TAIF-NK, 65 RUSENERGOSBYT the Supreme Court of the Russian Federation put an According to the Principles for Countering Bribery of end to this issue and labeled such facilitation pay- Transparency International15, “facilitation payment” Nizhnekamskneftekhim, VSMPO-AVISMA, 62 Binbank, Sovcombank, Gazprombank ments as bribes. is a bribe and should be banned. In addition, the prohibition on facilitation payments should be valid Magnet, KAMAZ, Severstal, T Plus, 0 58 Rosselkhozbank, Volga-Dnepr, UAK % in all jurisdictions in which the company operates, 82 companies In compliance with the Criminal Code of the including those jurisdictions that do not prohibit such Udmurtneft, Tatneft, 54 Ilim, Х5, Inter RAO Russian Federation, a bribe is the offering, payments or are legally permitted. giving, receiving or soliciting of material val- Rosseti, Aeroflot, Rusagro, Gazprom, Uralkali, Saint 50 Petersburg Bank, Neftetransservis ues for influencing an official in the discharge The provisions of ethical documents should contain of his or her public or legal duties or through wording expressly forbidding such payments in Globaltrans 46 TNS Energo, Togliattiazot, Industrial Metallurgical an intermediary in favor of the briber, includ- any form in all countries of operation of the group Holding, M.Video, Ruselectronics, Transneft, Otkritie Holding, PROTEK, AvtoVAZ, Rosgosstrakh, ChelPipe, ing facilitating of such acts, general patron- of companies. For example, the ethical code of Tactical missiles Corporation, Surgutneftegas, Transmashholding, Sovcomflot, Ingosstrakh, 42 LUKOIL, ODK, Yandex RESO-Guarantee, Cherkizovo, Siberia Airlines, age or criminal connivance in service, as well “Sberbank of Russia” PJSC articulates the following AlfaStrakhovanie, SOGAZ, PIK Group, Rolf, Bank as commitment of unlawful actions by an provision: “...it is prohibited, directly or indirectly, in Credit Bank of Moscow, Rossiya, PPF “Blagosostoyanie”, Finance&Construc- 38 SIBUR, CPC tion Corporation “Lider”, Russian Standard, Siberian official (failure to act). person or through the intermediation of third parties, Generating Company, Transoil, Ural Mining Metallurgical Company (UMMC), EuroSibEnergo, According to the Decree of the Plenum of the to offer, give, promise, request and receive bribes or Mosvodokanal, EuroChem SDS-Ugol, Genser, Agro-Belogorie, Neftekhimservis, 35 Voentorg, UNICONF, STROYGAZMONTAZH, NCC, Russian Federation Armed Forces No. 24 of make payments to simplify administrative, bureau- State ATM Corporation, UCL, Metallservis, Aston, DNS, Red&White, Alkor and Co, Intertorg, Retail K-1 July 9, 2013, “On Judicial Practice on Bribery cratic and other formalities in any form.” NCSP, Pulse (“Maria-RA”), Merlion, SNS Group, Almaz-Antey, 31 Tomskneft, SeverEnergia, Avtotor, Neftegazindustriya, and Other Corruption Crimes,” such activities Miratorg, LUKOIL-Garant, Moskovsky Metropoliten, as “reducing the time limits for considering a It is a good practice to include in the ethical docu- USC, Slavneft, TMK, O’Key Group, LocoTech, EFKO Group, CSC Group, Major-Auto, 27 ОМК, Russian Helicopters Uralo-Sibirskaya Metallurgicheskaya Kompaniya, bribe-taker’s appeal, expediting the decision ments not only provisions prohibiting facilitation Oboronstroy, South refineries company, Krastsvetmet, Pipe Innovation Technologies, Novoshakhtinskii of an official “ are qualified as actions (failure payments, but also requirements which define such KRET, Uralvagonzavod, Tele2 Russia, Zavod Nefteproduktov, Trans Nafta, SIA International, 23 VTB, Metalloinvest GAZFOND, Ulmart, Metallokomplekt-M, RIF, Alfa to act). payments. Bank, New Stream Group, Tashir, Forteinvest, Power machines, Mechel, Polyus, Rosatom, Sodrugestvo, Drilling company “Eurasia”, Velesstroy, 19 SUEK, Salym Petroleum Euroset, Best price (Fix Price), Avtomir For example, the ethical code of GC “Megapolis” A significant number of ethical codes or other similar contains the following provision: “Facilitation pay- LSR group, Lenta, Vnesheconombank, 15 PPF "RGS", Sportmaster documents considered in the study include a ban ments,” also known as “gratuities”, usually represent on giving bribes, almost duplicating the provisions of a small amount of money or a small gift made to Gazprom Burenie, Mostotrest, 12 Eldorado, Svyaznoy the Criminal Code of the Russian Federation, but we provide or speed up standard administrative pro- have not been able to find a direct ban on facilita- cedures that do not require independent decisions; NNK-Aktiv, PPF Future, 8 Sedmoi Kontinent, UIMC, Katren tion payments. In fact, international companies that such functions are usually performed by govern- URALCHEM, GAZ Group, UTair, High Precision Systems, Neftisa, do not include a direct prohibition on facilitation ment officials of the lower level. Such functions may StroyTransNefteGaz, EUROCEMENT, Techmash, Holiday Group, 4 Element-Treyd payments in their documents allow such practices include: issuance of permits, licenses or other official in the countries of their operation. The situation is documentation; issuance of visas, work permits Transaero, Spetsstroyinzheniring, Morton — complicated by the fact that in some jurisdictions and other immigration documentation; obtaining

15 https://goo.gl/6Dth8A

— 28 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 29 permission to leave goods from customs; state reg- groups of organizations, including medical and edu- in recreational activities offered or received by Com- istration of immovable property or vehicles; provision cational institutions, from receiving any gifts. pany employees from third parties and whose cost According to the annual EY study (Ernst & of communal or other services (for example, electric- exceeds $500 (or equivalent in another currency) Young21) survey of 4,100 people from 41 coun- ity, gas, water, telecommunications, security). These In compliance with Part 1 of Art. 57517 of the Civil must be entered in the register of gifts (a sample of tries and dedicated to the assessment of cor- payments are usually aimed at expediting the imple- Code of the Russian Federation, giving gifts which the register of gifts is given in Annex 1). Regardless ruption level in Europe, the Middle East, India mentation of procedures, which in any case must cost more than 3,000 rubles while dealing with com- of the cost, the register of gifts should also reflect and Africa, only 21 % of company employees be carried out. For this reason, such payments are mercial organizations is now allowed, and in the case information about all the gifts (except for promotional are aware of the ways to report corruption of- not payments that allow the implementation of these of giving gifts to officials due to protocol procedures gifts) issued to officials”. fenses. When deciding about reporting wrong- procedures, which in the normal situation would not and other official events, gifts cost of more than doings and misconduct, most employees are have been performed under any circumstances or 3,000 rubles are recognized as state / municipal In order to prevent corruption risks, the policy should concerned about the possibility of disrupting would have been ignored. Such payments should property (and must be given by an official in which require keeping a register of all gifts received and their future careers (51 %) and putting their not be made even in cases where they represent a the said person replaces the post under the act). given, regardless of their cost. personal safety in danger (46 %). Also 73 % of small amount or are “normal practice”. respondents are ready to provide information In order to counteract bribery and extortion, in com- Most of the ethical documents examined within the to external factors, such as law enforcement The ethical documents of some companies have pliance with Cl. 7, Part 3, Art. 12.1 of the Federal framework of this study do not include requirements agencies (57 %), regulators (49 %), journalists provisions prohibiting employees from influencing Law from December 25, 2008, No. 273-FZ “On for reporting gifts, they do not set an acceptable cost (15 %) and NGO (10 %). the decision of state bodies or their representatives. Counteracting Corruption”18, Cl. 6, Part 1, Art. 17 of gift or do not have a policy on receiving or giving For example, the phrase “you should never try to of the Federal Law of July 27, 2004 No. 79-FZ “On gifts in general. influence illegally the decisions of state bodies or the Civil Service of the Russian Federation”19 and ensures complete confidentiality and / or anonym- their representatives” is written in the ethical code Cl. 4 of Part 1 of Art. 575 Civil Code, it is illegal for ity, as well as two-way communication with the of “Lukoil” PJSC. Such veto does not affect facilita- public officials while executing their official duties to informant in case any further necessary actions tion payments, since these payments are made to receive gifts. related to the disclosure of the information should expedite the adoption of any decision by the state Channel for reporting be undertaken. body or its representative, and not to change in any Thus, to counteract commercial bribery and extor- allegations of corruption way such decision. tion, the business community is required to clearly Most of the communication channels of the articulate the gift and hospitality policy in its ethical and feedback from companies examined in the study allow anony- The ethical code of “Rostelecom” PJSC has the documents. mous or confidential messages about the alleged the informant 3 % following provision: “Employees are prohibited facts of corruption to be reported, but they do not from performing” “inadequate payments” that is, Those gift and hospitality policies that clearly and provide two-way communication with the reporter. payments in any form (money, commissions, gift in reasonable detail, articulate values, policies and According to the Transparency International Bribery About a quarter of companies do not provide any certificates, services, discounts, loans) for obtain- procedures to be used to prevent bribery may be Principles20, Anti-Corruption Programs of companies opportunity for the messages about the alleged ing advantages, resolving issues, administrative effective. The guidelines should include provisions should be operational and include tools to effectively facts of corruption to be privately or anonymously procedures (including expediting and, simplification); that define the conditions where giving and receiving combat bribery and other corruption manifestations. forwarded and they do not have any communica- if such actions are not legally specified”. From this gifts are accepted, the purpose of giving gifts, their tion channel for such letters. provision, it can be concluded that employees may acceptable form and threshold, the procedure and These tools include setting up a communication resort to this procedure in jurisdictions where facilita- conditions for making gifts in the appropriate register. channel that allows employees to report on corrup- It is a good practice to attract a third, independent tion payments are permitted or not regulated. tion offenses and shortcomings of the Anti-Corrup- party to organize such a communication chan- Positive experience demonstrates that articulation of tion Program, provide protection to employees who nel. Participation of the third parties guarantees not only the permissible value of a gift, but also its have reported unlawful conduct, regularly monitor impartial examination of reports about suspected admissible form is advisable. For example, the policy the Anti-Corruption Program, educate and inform acts of wrongdoings and corruption offenses. PC Gifts of “United Aircraft Corporation” PJSC bans giving employees and the company’s management about “Yandex” has established such channel”: “The line 22 % gifts “in the form of cash, both cash and non-cash, its anti-corruption policy. is organized by a third party independent of “Yan- regardless of the type of currency, as well as gift cer- dex”. Each application is assigned a number during In order to prevent commercial bribery in compliance tificates, loans, shares or stock options, etc. regard- Companies should establish effective internal and registration, after which it is possible to find out with the Transparency International Bribery Princi- less of their cost”. external communication channels and provide public the decision or provide additional information”. A ples16, developed for the business community, ethical access to them. It would allow employees and/or similar tool is used by GC “Megapolis”: “Gathering documents of companies should include gift and It is worth noting that the “Severstal” PJSC gift any other persons to report alleged corrupt offenses and processing of information is conducted by an hospitality policies. policy, includes all the necessary elements, and and violations of the Anti-Corruption Programs independent auditing company which guarantees requires keeping a register of all gifts given to of- anonymously and privately. confidentiality and anonymity”. Russian legislation imposes restrictions on receiving ficials, and gifts that cost more than the fixed amount gifts while doing business with commercial organi- received or offered to the company’s employees: The enterprise should establish feedback mecha- zations, and it bans officials and workers of certain “Information about any gifts, services or participation nisms. The most effective way is a form that

16 https://goo.gl/fmqiDn 17 https://goo.gl/VmoTEw 18 https://goo.gl/g1ja58 19 https://goo.gl/XgdTev 20 https://goo.gl/917tyz 21 https://goo.gl/YFsvVb

— 30 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 31 Whistleblower tion safeguards on ethical behavior in the reviewed Support of leadership Application of anti-corruption documents. Protection 36 % in the fight against policy to the persons For example, “Binbank” PJSC guarantees that “the corruption 14 % acting on behalf In 2010, during the Seoul G20 Summit, Russia employee will not be subject to reprisals provided of the company 26 % assumed the obligation to develop a mecha- the report about possible facts of corruption of- According to the Principles for Combating Bribery nism to protect whistleblowers, but in fact these fenses is made in good faith, but is not confirmed Transparency International23, one of the important obligations were not met. In recent years, bills on during its verification.” The ethical documents of points of successful implementation of the Anti- In order to effectively combat corruption, in compli- whistleblowers’ protection have been prepared by “Uralkali” PJSC. “MMK” OJSC also guarantee Corruption Programs is public demonstration of ance with the Principles for Combating Bribery of the Public Chamber and the Ministry of Labor of protection from work reprisal, “if an employee the commitment to fight against corruption by the Transparency International24, companies should not the Russian Federation, but they were not included reported a suspected corruption, even if as a result company’s board of directors or equivalent body. make illegal payments, including bribes, “facilitation in the State Duma of the Federal Assembly of the the company and / or the companies of the “MMK” payments” and commit bribery, including through Russian Federation. OJSC group suffered losses“. The existence of such a statement is important, as persons acting on behalf of the company (agents, the Board of Directors is the main governing body consultants, representatives and etc.). Even though whistleblowers’ protection from in the company, and, in fact, it establishes a certain workplace reprisal is a prerequisite for conduct- ethical level of doing business. To prevent illegal payments in the activities of com- ing a successful investigation of corruption crimes panies, prohibitions and principles of anti-corruption and implementation of anti-corruption policy, we Public statement about the policies (including in anti-corruption training) should can acknowledge now that there are no legal combat against corruption, the apply not only to the company’s employees and its safeguards in Russia which ensure whistleblowers’ management, but also to the specified persons. protection against retaliation and threats. obligation to comply with anti- Application corruption legislation of anti-corruption Ethical documents and anti-corruption policies of In compliance with the Anti-Bribery Principles, a significant number of companies reviewed in the effective Anti-Corruption Programs companies policy to directors 29 % study do not apply to the persons acting on behalf should guarantee employees, who report in good An important task of the business community is of the company, or are advisory in nature. faith and on reasonable grounds, on unlawful ac- active combat against corruption manifestations Company’s management team (Directors, including tions and suspected acts of wrongdoings protec- in economic activity. In addition, due to the active members of the Board of Directors, the Supervisory A good governance is to include provisions in the tion from retaliation, demotion, fines, discrimination struggle against corruption in the world, the adop- Board and the Audit committee), should demon- ethical documents and anti-corruption policy that and other discriminatory or disciplinary action. tion of new laws aimed at countering bribery, money strate its commitment to combat corruption, and oblige all persons acting on behalf of the company laundering, increased pressure from society and the take an active part in anti-corruption policy. to comply with the prohibitions and principles of It is a good practice to extend protection meas- state, doing business using corrupt and unethical ethical documents and anti-corruption policies in full ures to all employees of the company, including practices is becoming unacceptable in an increasing Members of the company’s management team measure. management (including members of the Board of number of countries of the world. should strictly comply with the provisions of the Anti- Directors, Supervisory Board, audit committee, Corruption Program and ethical documents adopted As a good example, one may look at the provisions etc.), as well as third parties and non-employees of In compliance with the 10th principle of the UN by the company. of the anti-corruption guidelines of “TC Megapolis” the company, but acting on its behalf. Global Compact22, commercial companies should JSC, according to which, the policy applies in full oppose any form of corruption, including extortion It is impossible to consider anti-corruption policies measure to the persons acting on behalf of the com- Thus, “Lukoil” PJSC guarantees that “for a bona and bribery. Regarding the necessity of implement- and ethical documents that are mandatory for company: “A contractor” means any individual, corpora- fide employee, a member of the Board of Direc- ing this principle, developing anti-corruption compli- pliance only by employees, or individual groups of tion, partnership, limited liability company, simple tors, the Management Board and the Audit Com- ance control systems in companies is becoming employees (“HC ‘Metalloinvest’” JSC: “Distributed to partnership, trust company or other legal entity mission of the Company who reported a violation more widespread. all staff members”) and / or managers as successful. that is not an affiliated party and provides services of the provisions of this Code or decided to stop on behalf of or in the interests of the Company, the violation, there will be no negative conse- For the successful fight against corruption manifes- We consider “Alrosa” PJSC provisions of the ethical distributors, dealers, license holders, contractors, quences (including discrimination and other har- tations, companies should adhere to the principle of documents to be successful. According to them, consultants and agents. This Policy applies to: (a) assment from someone else” by either side)”. Ac- non-acceptance of corruption in all forms and mani- the anti-corruption policy” is applicable to any em- “TC Megapolis” JSC and its subsidiaries (hereinafter cording to the ethical documents of “NK Rosneft” festations, not to use corrupt and unethical practices ployee, including the top managers and its subsidi- referred to as “Megapolis” or “the Company”); (b) all PJSC, “no reprisal will be applied to any employee in their activities, and comply with all applicable laws aries and affiliates, regardless of their position in the Employees and (c) all Counterparties.” or counterparty of the Company”. in the countries of operation. performance of their duties and / or representation of the interests of the Company or its subsidiaries and Companies also need to ensure that there are no affiliates in any countries of the world.” negative consequences for bona fide whistleblowers, in case the fact of a corruption offense has not been confirmed or led to financial losses of the company. We have identified very few protec- 22 https://goo.gl/Z4i8r9 23 https://goo.gl/4Estn8 24 https://goo.gl/ziZYTe

— 32 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 33 Application of anti- employees and top managers, including members that “ the assessment results of the effectiveness of It is a good practice to adopt a policy that prohib- corruption policy of the Board of Directors, the Supervisory Board and the anti-corruption system” should be performed once its employees, company management, as well as the audit committee, and only a small part of them a year. counterparties and individuals acting on behalf of to contractors 12 % also train contractors and persons acting on behalf of the company, to support the political activities of the company. Monitoring Anti-Corruption Programs on an irregular parties, public associations, non-profit organizations Interaction of companies with its contractors (suppli- basis or less than once a year cannot be considered and individuals involved in politics in all countries of ers and subcontractors) may pose corruption risks if it For example, “NK Rosneft” PJSC organizes “ anti- as effective. the company’s operations. does not have on a transparent, competitive and fair corruption and bribery training and periodic certifica- basis. tion of all members of the Board of Directors of “NK” For instance, the provision of the HС” Examples include the provisions of the ethical docu- Rosneft” PJSC, employees of the Company, and, Metalloinvest”JSC ethical documents, which stipulate ments of OJSC “Russian Railways”, according to In compliance with the Principles on combating bribery, where necessary and appropriate, contractors, and that “the Code norms should be reviewed at least which, the company “does not finance and does not in order to mitigate the corruption component in inter- “MTS” PJSC implements and supports the similar once in every three years” cannot be considered as support in any other way political parties and non- action with contractors, companies should adopt a set program for members of the Board of Directors, effective at all. profit organizations that carry out political activities. of measures that allow to assess the risk of bribery and Employees and Representatives where participants OJSC “Russian Railways” also does not finance, nor compliance of the company’s policy with anti-corrup- familiarize themselves with the principles and stand- Anti-corruption legislation changes quickly. In addition, does it support in any other way the political activi- tion norms on a regular basis, inform the company of ards of anti-corruption legislation. corruption can take new forms, and the anti-corruption ties of any individuals, including employees of OJSC anti-corruption policies, and, if necessary, train contrac- measures may become futile. For effective fight against “Russian Railways”. Another example is the ethical tors re countering corruption and provide appropriate Most companies analyzed in the study either do not corruption, companies should quickly respond to the documents of GC “Megapolis”, in compliance with explanations to them. conduct anti-corruption training at all, or organize it changes and update their anti-corruption policies. them, “the company does not provide donations on an irregular basis and only for employees. and does not make contributions to political activi- A good practice is to adopt a set of measures, includ- Thus, to successfully combat corruption, companies ties, whether in cash or in any form, anywhere in the ing due diligence of contractors for reliability and non- should provide mechanisms to ensure that anti-cor- world”. acceptance of corruption, require contractors comply ruption measures are monitored, and Anti-Corruption with the Anti-Corruption Program of the company (or Regular Programs are examined at least once a year, which Many organizations impose a ban only on the sup- its equivalent), and monitor their compliance with anti- includes assessment of the suitability, adequacy and port of political parties and public associations, corruption legislation and the Anti-Corruption Program monitoring 25 % effectiveness of the anti-corruption measures, and without specifying prohibition on support / funding for on a regular basis. the results of such monitoring should be presented in the political activities of individuals and / or non-profit One of the key measures for the successful imple- companies’ annual reports. organizations. Such approach cannot be considered Most of the ethical documents of the examined com- mentation of anti-corruption guidelines is monitoring effective, since, although it is used by a significant panies described specific tools aimed at mitigating of the implementation of Anti-Corruption Programs number of organizations, it poses certain corruption corruption risks in interaction with contractors, but they including assessment of the suitability, adequacy risks. did not include the mechanism for regular monitoring of and effectiveness of the anti-corruption measures. contractors’ activities regarding compliance with anti- Contributions to A significant number of companies examined in the corruption policies and anti-corruption legislation. In compliance with anti-bribery policy, companies study impose a ban on financing political activities political activities 16 % should develop mechanisms to monitor compliance by employees, but they do not extend the ban to the with anti-corruption measures in the company, and management of the company, as well as persons regular monitoring of Anti-Corruption Programs, Business community is not prohibited to make dona- acting on its behalf, and contractors. including all the above-mentioned components. tions to political parties, however, this practice poses Implementation of Monitoring results should be presented in annual corruption risks, as it can serve as a way of obtaining It is important to note that some companies prohibit reports of the companies. an unfair advantage in business and economic opera- financing of political activities only in the Russian training programs 9 % tions of the company. Federation. Thus, according to the policy of “Mag- As a good practice, it is possible to consider setting nit” PJSC, “the company does not participate in In compliance with anti-bribery principles, to effective- up certain departments / units responsible for regular In compliance with the anti-bribery principles, employ- financing political parties and public associations ly implement Anti-Corruption Programs, companies monitoring of the implementation of Anti-Corruption ees, top-managers, including members of the Board of participating in political activities on the territory of should organize anti-corruption training of employees, Programs. We recommend this monitoring be con- Directors, the Supervisory Board and the Audit Com- the Russian Federation.” top-managers, including members of the Board of ducted at least once a year. mittee, as well as contractors and persons acting on Directors, the Supervisory Board and the audit com- behalf of the company, should not directly or indirectly Thus, political funding banning or veto to publicly mittee, of all persons acting on behalf of the company For example, in “Rosset” PJSC, there is a “department contribute to political parties, organizations and indi- disclose funds spent on financing a political party or and, if necessary, of contractors. responsible for the prevention of corruption offenses viduals involved in politics, to receive an undue advan- candidate, as well as other measures proposed in and combating corruption”, which “organizes annual tage in their activities. this report, should be extended to all legal entities A good practice is the organization of training for all meetings on improving anti-corruption activities in the which the company directly or indirectly owns in all these categories of individuals on a regular basis. “Rosseti” Group of Companies with heads of anti- To mitigate corruption risks, companies should imple- jurisdictions. This information should include financ- corruption units, compliance control”. ANC “Bashneft” ment an appropriate policy which either completely ing of political actors outside the country of incorpo- Out of the companies we have examined, less than PJSC regards that anti-corruption programs should be bans political donations or requires public disclosure of ration of the company or its subsidiaries. 10 % regularly conduct anti-corruption training of revised at least every year. “Akron” PJSC also believes each payment.

— 34 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 35 100% Highest performing Magnet, Rosset

41% Average

ORGANIZATIONAL TRANSPARENCY 0% Worst performing 55 companies

36 37 2. ORGANIZATIONAL TRANSPARENCY

Large companies operate in the country of regis- aries and associated companies operate is not associated entities and joint ventures in the consoli- tration and abroad through an extensive network required. Also, there is no obligation to release any dated annual report or in the annual reporting of the of directly or indirectly controlled affiliates, as well information on commercial organizations in which company in the form of a table containing information as through associated companies, joint ventures, the issuer owns less than 5% of ordinary shares on each of the structures, where we recommend the branches and representative offices. Russian com- or has a share in the authorized capital of less name, country of registration, share of ownership and panies are not required to disclose a full list of legal than 5%. country of operation should be indicated. entities that are under their direct or indirect control. This makes it very difficult to establish the relation- Public and non-public joint-stock companies that So, there are 55 companies from the survey sample ship between legal entities and provides opportuni- have carried out or conducted public offering of which do not disclose any information about their ties for the commission of corruption crimes. bonds or other securities are to release information affiliated and associated structures at all. Here is about affiliated persons, and non-public joint-stock the list of the companies which provided minimum That is why we recommend that anti-corruption companies with the number of shareholders ex- information about the countries of operation of their policies be extended to all the company’s subsidiar- ceeding 50, which have carried out or are perform- controlled organizations: 5% of the companies on ies and these guidelines be publicly disclosed to all ing public offering of bonds or other securities the list disclose this information for all their subsidiar- entities directly or indirectly related to the company. should disclose information on the acquisition of ies, and only 2% for associates and joint ventures. more than 20% of the voting shares of any other The most transparent companies in telecommunica- Russian legislation does require all legal enti- public or non-public company. tions industry are “Megafon”, “MTS”, “VimpelCom” ties release information about affiliated persons, and “Rostelecom”; from the electric power indus- subsidiaries and associates. Only legal entities are Thus, currently, Russian legislation does oblige try — “Rosseti”, “Inter RAO UES”, “RusHydro”; from liable to disclose this information, however not all legal entities of any organizational and legal form to the banking sector — Sberbank and “Gazprombank”; companies adhere to this law. “The Regulation on release a full list of their subsidiaries and associates, from the sphere of the OPK — “Helicopters of Rus- Disclosure of Information by Securities Issuers”25 as well as a list of countries in which these compa- sia” and “USC”; from the sphere of chemistry and No. 454-P, approved by the Bank of Russia from nies operate. petrochemistry — “Sibur”; from the oil and gas sec- December 30, 2014, requires companies, includ- tor — “Surgutneftegaz”. ing foreign ones, whose circulation of securities is carried out in the Russian Federation. However, this In their consolidated statements, most companies requirement does not apply to issuers of Russian Results of the companies prefer to disclose information about their significant state and municipal securities, as well as to the average result 41% or principal subsidiaries: Central Bank of Russia. In this part of the study, we have assessed information Paragraph 1 of Chapter 10 of the above-mentioned disclosed by companies about their subsidiaries and “As of December 31, 2016, the Group controlled provision determines the list of organizations that associates, as well as joint ventures. The questionnaire 244 legal entities (as of December 31, 2015–92). are required to disclose information in the form of a was about the names, ownership interest, registration The assets, liabilities, revenues and expenses of quarterly report of the issuer of securities. Informa- countries and countries of operation. As already men- these entities are included in these consolidated tion about organizations under significant control tioned above, we have chosen a more lenient approach financial statements. Below is a list of the main of the issuer, as well as on commercial organiza- in this part of the study, to assess the companies. We subsidiaries”. tions where the issuer owns no less than 5% of have evaluated the material from the quarterly and an- the authorized capital or at least 5% of ordinary nual reports, the annual consolidated reporting, as well shares, is subject to disclosure in a quarterly report. as the information provided on the official website of We suggest the companies review their approach The name, location (registration) of the commercial the organizations. Thus, in most cases, corporate insti- and publish information about all their legal entities. organization, as well as the issuer’s share in the tutions which provide financial statements as issuers, A good example of the Russian company may be authorized capital of such commercial organization have gained highest scores for disclosing information the Annual Report of Sberbank26. Even though it and the share of the ordinary shares held by the on organizational transparency. discloses information only for major companies, we issuer, if the commercial organization is a joint-stock regard this format of disclosure as being optimal company are to be disclosed, wherein, the release To ensure maximum transparency of the group, it is and most effective for all subsidiaries and associ- of the exhaustive list of countries in which subsidi- necessary to include the list of all subsidiaries and ated structures.

25 https://goo.gl/w34RQ6 26 https://goo.gl/UnVw5a

— 38 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 39 Organizational Transparency Results of companies, 100 % maximum

100 Magnet, Rosseti

Sberbank, MTS, Megaphone, VimpelCom, 88 Rostelecom, Inter RAO, RusHydro, Gazprombank, 100 USC, Surgutneftegas, SIBUR, Russian Helicopters 2 companies% Nizhnekamskneftekhim, RZD, Tatneft, Magnet, Rosseti 81 Gazprom, NNK-Aktiv

75 64 companies 63 Gazprom Burenie 75 56 Evraz, SOGAZ, Bank Rossiya 64 companies%

Rusagro, Rosselkhozbank, Lenta, M.Video, 50 Ruselectronics, PPF "RGS"

44 AlfaStrakhovanie

Detsky Mir, Promsvyazbank, Pochta Rossii, O’Key Group, Polyus, EuroChem Kazanorgsintez, Udmurtneft, Aeroflot, RUSAL, 38 (EuroChem Group AG, Switzerland), UIMC, High Precision Systems, Rosatom, ALROSA, Tactical missiles Corporation, NLMK, PIK Group, Rolf, Neftisa, Russian Standard Bank Nordgold, Mosvodokanal, Akron, Zarubezhneft, NCSP, Magnitogorsk Iron and Steel Works, Polymetal, LANIT, Tele2 Russia NOVATEK, RussNeft, RTI Systems, Bashneft, 31 Nornickel, Rosneft, DIXY Group, KRET, Uralvagonzavod, PhosAgro, Globaltrans, PPF "Blagosostoyanie", Finance&Construction Corporation "Lider", PPF Future, UMMC, EuroSibEnergo Binbank, VSMPO-AVISMA, Sovcombank, 25 KAMAZ, Severstal, United Aircraft Corporation (UAK), T Plus, Ilim, Uralkali, Saint Petersburg Pulse, X5, Yandex, Katren, SUEK, Siberian Generating Company, Transoil Bank, LUKOIL, United Engine Corporation 19 (ODK), Credit Bank of Moscow, TNS Energo, 0 Togliattiazot, Slavneft, TMK, VTB, Metalloinvest, % Rosta, Volga-Dnepr, Neftetransservis, StroyTransNefteGaz, Sds-Ugol, Agro-Belogorie, Neftekhimservis, LSR group, Power machines, Mechel, 55 companies 13 Genser, Voentorg, EUROCEMENT, UNICONF Vnesheconombank, Mostotrest, URALCHEM, GAZ Group, UTair, Industrial Metallurgical Holding, Transneft, Otkritie Holding, PROTEK, Megapolis, OMK, CPC, STROYGAZMONTAZH, NCC, State ATM Corporation, UCL, Metallservis, Aston 6 AvtoVAZ, Rosgosstrakh, ChelPipe, Transmash- holding, Sovcomflot, Ingosstrakh, RESO- — Transaero, Spetsstroyinzheniring, Morton Guarantee, Cherkizovo, Siberia Airlines Sakhalin Energy, Irkutsk Oil Company (INK), Mosinzhproekt, TAIF, RUSENERGOSBYT, R-Pharm, Salym Petroleum, Eldorado, Svyaznoy, Tashir, Sedmoi Kontinent, Techmash, Element-Treyd, Holiday Group, DNS, Red&White, Alkor and Co, RIF, Retail K-1 (“Maria-RA”), Merlion, Sodrugestvo, Almaz-Antey, Trans Nafta, SeverEnergia, Avtotor, 100 75 0 Neftegazindustriya, Miratorg, LUKOIL-Garant, % % % Moskovsky Metropoliten, LocoTech, EFKO Group, 2 компании 64 компании 85 компаний CSC Group, Major-Auto, Uralo-Sibirskaya Магнит, Россети Казаньоргсинтез, Удмуртнефть, Аэрофлот, Сахалин Энерджи, ИНК, Мосинжпроект, ОАО «ТАИФ-НК», Metallurgicheskaya Kompaniya, Oboronstroy, South Analysis by questions forРусал, 197АЛРОСА, companiesКТРВ, НЛМК, Nordgold, Русэнергосбыт, Р-Фарм, Салым Петролеум, Эльдорадо, refineries company, Ural Mining Metallurgical Мосводоканал, Акрон, Зарубежнефть, НМТП, Связной, Спортмастер, Седьмой континет, Company (UMMC), Novoshakhtinskii Zavod ММК, Новатек, Русснефть, РТИ Системы, НПК «Техмаш», Элемент-трейд (торговая марка «Монетка»), Nefteproduktov, Krastsvetmet, Pipe Innovation Башнефть, Норникель, Роснефть, ДИКСИ 1 point Холидей,0.5 points ДНС, Красное0 point Not considered Technologies, SIA International, GAZFOND, Ulmart, Групп, КРЭТ, Уралвагонзавод, ФосАгро, и Белое, Алькор и Ко (торговая марка «Летуаль»), ТД Metallokomplekt-M, Tomskneft, Alfa Bank, New Names of subsidiaries (14) Globaltrans, Бинбанк, ВСМПО-АВИСМА, 99 «Интерторг»43 (торговая54 марка «7-я»), Розница1 К-1 (торговая Stream Group, Intertorg, Forteinvest, Sportmaster, Совкомбанк, Камаз, Северсталь, ОАК, Т Плюс, марка «Мария-Ра»), Мерлион, СНС-Холдинг, Концерн ВКО Drilling company “Eurasia”, Velesstroy, Euroset, Илим, Уралкалий, Банк «Санкт-Петербург», «Алмаз-Антей», Томскнефть, Северэнергия, Автотор, Best price (Fix Price), Avtomir Ownership interest for subsidiaries (16) Лукойл, ОДК, Московский кредитный банк, 97ГК Нефтегазиндустрия,33 Мираторг,66 НПФ «Лукойл-Гарант»,1 «ТНС энерго», Тольяттиазот, НГК «Славнефть», Московский метрополитен, ЛокоТех, ЭФКО, КДВ Групп Countries of registration subsidiaries (15) ТМК, ВТБ, ХК «Металлоинвест», Группа ЛСР,91 (торговые17 марки «Яшкино»,88 «Бабкины семечки»,1 Силовые машины, Мечел, Внешэкономбанк, «Кириешки», «Маяма» и др.), Мэйджор-Авто, УСМК, Мостотрест, Уралхим, ГАЗ, Ютэйр, Кокс, Оборонстрой, ЮНПК, Трубные инновационные технологии, Names of associates and joint ventures (18)Транснефть, Открытие, Протек, Автоваз, 84 НЗНП,13 Красцветмет, Транснафта,95 СИА, НПФ5 ГАЗФОНД Росгосстрах, ЧТПЗ, Трансмашхолдинг, пенсионные накопления, Юлмарт, Металлокомплект-М, ТД Share of ownership for associates and joint Совкомфлот,ventures (20) Ингосстрах, РЕСО-Гарантия, 83 «РИФ»,11 Альфа-Банк, Новый98 поток, Ташир,5 Фортеинвест, Черкизово, Авиакомпания «Сибирь» Содружество, Буровая компания «Евразия», Велесстрой, Евросеть, Бэст прайс (торговая марка Fix Price), Автомир Countries of associates and joint ventures registration (19) 79 10 103 5

Countries operating subsidiaries (17) 9 22 165 1

Countries of operation for associates and joint ventures (21) 4 16 172 5

— 40 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 41

64% Highest performing Sberbank 4% Average COUNTRY-BY-COUNTRY REPORTING 0% Worst performing 87 companies

42 Photo: www.istockphoto.com43 3. COUNTRY-BY-COUNTRY REPORTING

This part of the study is devoted to the disclosure Results of the companies Country-by-country reporting of data on financial transactions in the countries of average result 4 % Company results, 100 % maximum (for 115 companies) operation and applies only to companies operating outside the Russian Federation. In total, 115 compa- The average result of information disclosure on nies which have operations abroad were included in countries of operation for 115 companies from the 64 Sberbank the survey sample. We have assessed such param- survey sample was only 4 %. At the same time 87 eters as the disclosure of revenues, taxes, capital companies do not disclose such information at all 60 Nizhnekamskneftekhim expenditures, pre-tax profits and support costs and they received 0 points. for local communities in each of the countries in 32 Polymetal 110000 which the company operates either directly, through Sberbank scored the maximum result in this part NoNo companiescompanies%% branches and representative offices, or through of the study. Its on-site reporting was estimated at 29 Evraz subsidiaries, associates and joint ventures. The list 64 %. “Nizhnekamskneftekhim” company is on the of the countries of business for each company was second place, notwithstanding the fact that it carries 25 Nordgold formed based on the information of the geography out its activities in just one foreign country. of the corporation, which is available on the compa- 21 RUSAL ny’s the official website, and on data from the annual The metals and mining industry is the most transpar- Globaltrans, USC, Katren, accounts, consolidated reporting, issuer’s reporting ent, as far as the country-by-country financial report- 20 PPF "Blagosostoyanie" and the list of affiliated persons. For the integrity of ing is concerned. There is also a clear tendency the report, if the main country of business opera- to release more information by companies whose 16 Megaphone tions was Russia, the results were not considered. holdings are registered under the jurisdictions of other countries (consolidated statements of “Evraz”, 14 Inter RAO 0 Since 2018, country-by-country reporting for some “Rusal”, “Nordgold”, “Polymetal”, “Globaltrans”, 87 companies% Russian companies will become mandatory under although it is not as exhaustive as possible from the 13 ALROSA the Convention on Mutual Administrative Assistance point of view of the research methodology, country- in Tax Matters27. by-country financial reporting). None of the compa- 12 MTS nies that have an organizational and legal form of In addition, the importance of country-by-country LLC and operate in more than one country in the 10 LSR group Aeroflot, Rostelecom, RZD, Akron, Zarubezhneft, financial information disclosure is driven by various world has disclosed any information on this part. RusHydro, NOVATEK, RussNeft, RTI Systems, VimpelCom Bashneft, Gazprombank, Rosneft, DIXY Group, factors: transparent data on income and taxes will 9 PhosAgro, Binbank, VSMPO-AVISMA, Sovcombank, Gazprom, KAMAZ, Severstal, United Aircraft help to evaluate the significance of the company’s The majority of the companies disclose informa- Corporation (UAK), T Plus, Surgutneftegas, Ilim, contribution to the budget of the country, and thus, tion about their revenues (sales volumes), but are MMK SIBUR, Uralkali, Saint Petersburg Bank, LANIT, 8 United Engine Corporation (ODK), Russian its socio-economic and political influence; informa- unwilling to provide data about the amount of public Helicopters, Credit Bank of Moscow, Detsky Mir, Promsvyazbank, Rosselkhozbank, Pochta Rossii, NNK-Aktiv tion about the support of local communities will contributions. 6 Slavneft, TMK, Metalloinvest, Power machines, Mechel, Mostotrest, GAZ Group, UTair, R-Pharm, assist to evaluate its responsible attitude to the Transneft, Otkritie Holding, PROTEK, AvtoVAZ, LUKOIL, SOGAZ Rosgosstrakh, ChelPipe, Transmashholding, CSR issue. In addition, country-by country financial 4 Sovcomflot, Ingosstrakh, RESO-Guarantee, disclosure is a valuable source of information for Cherkizovo, Siberia Airlines, EuroChem, X5, Nornickel, URALCHEM, Vnesheconombank, Volga-Dnepr, PPF “RGS”, Neftegazindustriya, Yandex, investors. Even more essential is the fact that public 3 Industrial Metallurgical Holding Bank Rossiya, Rosatom, Tele2 Russia, CPC, Neftisa, Russian Standard, Bank SUEK, PPF Future, Ural release of such information will make it possible to Mining Metallurgical Company (UMMC), EuroSibEner- go, EUROCEMENT, Sportmaster, UNICONF, UCL, Tatneft draw up the most exhaustive picture of how the 2 Metallservis, Aston, Alfa Bank, New Stream Group, Tashir, Forteinvest, Sodrugestvo, Drilling company largest companies use offshore zones. Thus, from “Eurasia”, Velesstroy, Euroset, Best price (Fix Price), the 115 companies of the survey sample, fourteen 1 VTB Avtomir companies have affiliates or associates registered in the British Virgin Islands.

27 for details, see page 46

— 44 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 45 Legal context

Russian companies are not required by law to Assistance in Tax Matters (the document entered into The bill provides amendments to the Tax Code, disclose the data on revenues, taxes, capital ex- force in 2015). including definitions of concepts such as “interna- The form (format) of notification of participation in penditures and other income and expenses in all tional group”, “member of an international group of the multinational group of companies, the proce- countries where they operate now. However, starting Since 2018, Russia plans to start exchanging the companies”, “parent company of a global group of dure for filling out the form and the procedure for from January 2018, this situation will change, and it information on the Standard on Automatic Exchange companies”. submitting the notification should be developed and will be mandatory for all companies to become more of Information on Financial Accounts of the Common approved by FMS order within 6 months after the transparent with regards to their business operations Reporting Standard (CRS, which provides for the au- “Multinational group of companies” for which adoption of the law. abroad. tomatic exchange of data on non-resident accounts country-by-country reporting is mandatory is defined held by financial institutions) developed by the OECD as a set of organizations that are linked through the The Action Plan for Fight Against Taxation Minimiza- to increase tax transparency29. participation (ownership) and (or) control in respect 2) country-by-country reporting of the multinational group tion and Releasing Profits (BEPS Plan) prepared by of which consolidated financial statements are of companies in which the company is a participant. OECD in conjunction with the G20 in 201328 aims a Now, not all legal entities are required to disclose prepared and which includes at least one organiza- set of measures against the dilution of the tax base information reflecting their financial position, financial tion that is a tax resident of the Russian Federation, and the movement of profit be taken. multinational performance and changes in financial position. Federal and one organization that is not a tax resident of the The country-by-country reporting of the multina- groups of information on the global distribution of Law No. 208-FZ from July 27, 2010 “On Consolidated Russian Federation. tional group of companies includes information on income, economic activity and payment of taxes for Financial Statements” in Article 2 defines the list of income, profits, key indicators which characterize each country in a general form, as well as mecha- organizations for which disclosure of such informa- In compliance with the draft law, country-by-country the activities of participants in the multinational nisms for intercountry exchange of tax information. tion is mandatory. Such organizations include banks, reporting should be provided by groups whose ag- group of companies in the Russian Federation and insurance organizations, non-state pension funds, gregate revenue for the previous fiscal year, accord- other countries, and the amount of taxes paid in the In 2015, OECD published a report on the impact organizations whose securities are admitted to trading ing to the consolidated financial statements, is at Russian Federation and abroad. of the 13th paragraph of the BEPS Plan, which at stock exchanges and / or other organizers of trading least 50 billion rubles. It is planned that companies provides guidance on the implementation of legisla- on the securities market, and some others. Disclosure will start submitting country-by-country reports for tive requirements for tax reporting of international shall be provided in the form of consolidated financial fiscal years on January 1, 2017. According to the bill, country-by-country reporting groups and country-by-country reporting. In compli- statements prepared in compliance with International includes the following documents: ance with the guidance, the disclosure of internal Financial Reporting Standards (IFRS) if an entity is “A participant of a multinational group” according 1. global documentation for a multinational group of reporting is provided in the form of the Country-by- part of an IFRS group and unconsolidated, if it is not to the bill, a participant is a person who works for a companies (provided in an arbitrary form at the request Country Reporting, which includes key financial and included. multinational group of companies. He is considered of the Federal Tax Service), should include information tax indicators of international groups (in particular, as a participant of the multinational enterprise. In in the form of a diagram on the ownership structure revenue, profits, taxes paid, number of employees, Consolidated financial statements under IFRS do not addition, the bill also includes individuals and / or of a multinational group of companies, indicate the capital and material assets) in the context of the provide disclosure of information in the context of the their permanent missions to the participants of the list of persons who are members of the group, and jurisdictions of their activities, as well as identifica- countries of presence of the transnational group on international group, whose financial statements are the countries in which these individuals exercise their tion of information and data on the main activities of revenue (including separately for independent and not considered while preparing the consolidated business activities. These documents should release all participants in the international group, including interdependent persons), profits, taxes, etc. financial statements of the multinational group of information about participants who act in the interests information on revenues, profits, the amount taxes in companies solely due to their small size or insignifi- of other participants in the multinational group, and in the countries of presence. In order to implement the Convention on Mutual cance of such material. Also, any subdivision of a countries where participants are registered; Administrative Assistance in Tax Matters on July 20, participant in a multinational group of companies, 2. the national documentation of the participant of the According to the recommendations, multinational 2017, the draft law of the Federal Law No. 231414-7 whose activities lead to the formation of a perma- multinational group of companies (provided at the reporting should be prepared by transnational “On Amendments to the Tax Code of the Russian nent representation is regarded as a participant of request of the Federal Tax Service); groups (international groups of companies) with Federation (in connection with the implementation of the multinational group too. 3. the country-by-country reporting of the multinational annual consolidated revenues of over 750 million the international automatic exchange of information group of companies for the countries whose tax Euros based on data from the previous period, and on financial accounts and documentation for interna- The Central Bank of the Russian Federation, as well residents are members of the multinational group of the responsibility for submitting the country report is tional groups of companies)” was presented, which as government authorities and local governments companies (submitted to the Federal Tax Service in assigned to the parent company of the transnational defines the procedure for the exchange of information are not defined as participants in a multinational the format of an electronic form annually), includes group in the country of its registration (with subse- for tax purposes in compliance with the CRS, and the group of companies. information on the total revenue for the fiscal year, quent provision of this information to others national requirements for the preparation and filing of country- the amount of profit before taxation, the amount paid tax administrations). to-country report and notification of participants in a According to the bill, companies that are members corporate profit tax, the amount of the calculated multinational group of companies. Generally, the bill of a multinational group are required to submit the corporate income tax in a generalized form, and Russia belongs to jurisdictions that have implement- follows the recommendations of OECD. following documents: identification information about each participant of the ed the tax standards adopted at the international multinational group, indicating states and countries in level. In 2014, Russia, with some reservations, rati- This bill was passed by the State Duma of the Federal 1) notification of participation in a multinational group which such company is registered, and the country of fied the OECD Convention on Mutual Administrative Assembly on September 20, 2017 in the first reading. of companies (electronically); tax residence.

28 https://goo.gl/2mHvsY 29 https://goo.gl/VBAuYU

— 46 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 47 According to the bill, not all companies which are mem- Russian companies are also required to disclose the final bers of a multinational group of companies and which beneficiaries at the request of the Federal Tax Service ANNEXES have notified the authorities about their status, are re- and The Federal Financial Monitoring Service (Rosfinmon- quired to submit a country-by-country report. Companies itoring). A beneficial owner means a person who directly are exempt from submitting country-by-country report in or through third parties controls more than 25 % of the the following cases: company or influences the decision-making in it. 1 if the parent company or an authorized participant of the multinational group of companies submits the Companies which fail to provide such information for le- country-by-country report; gal entities, are liable to pay a fine of 100,000 to 500,000 2 if the parent company or an authorized participant in thousand rubles. a multinational group of companies is recognized as a tax resident in a country that is a party of Tax Informa- In 2016, the authorities were discussing the idea of creat- tion Exchange Agreement (TIEA), and its legislation re- ing a single register of ultimate beneficiaries based on the quires filing of a country-by-country report with similar Single Federal Register of Information on the Activities of information articulated in the bill; and the legislation of Legal Entities, but Rosfinmonitoring did not support this that country does not allow for a systematic failure to initiative. fulfill obligations on information exchange agreements; 3 if the parent company is recognized as a tax resident In August 2017, the Federal Tax Service published a let- of the Russian Federation and the total volume of ter in which it drew attention to unscrupulous tax evasion revenues of the multinational enterprise is less than 50 schemes for the ultimate beneficiaries. In bankruptcy billion rubles according to the consolidated financial cases, tax specialists recommend not only to receive statements for the previous fiscal year; or, if the parent intentionally crafted unenforceable court decisions, but company is recognized as a tax resident of another to collect company debts at the expense of persons who country, and the total volume of revenues is less than ran it. This suggests that the approach of state bodies to the total amount of profits required by the law of that the ultimate beneficiaries varies from formal to the actual. country to file a country-by-country report which The beneficiaries, according to the tax authorities, are contains similar information as the one described in not only the nominal persons recorded in the register, tax the bill. officials act guided by the principle of “look for individuals who are the real beneficiaries.” The Federal Tax Service The law does not stipulate procedures for submitting specialists intend to identify the final beneficiaries by and receiving country-by-country reports, requirements copying the practice of criminal investigation and offer- for protection of this information, the lists of countries ing a plea agreement to the nominal directors who are with which automatic exchange of information is carried expected to point to the ultimate beneficiaries. out, and the list of countries where systematic failure to provide automatic exchange of country-by-country reporting is a possibility. These issues should be resolved within 18 months after the official publication of the law by the Government of the Russian Federation and federal executive bodies through the adoption of a few regulatory legal acts.

The bill stipulates introduction of sanctions for failure to provide notice of participation in a multinational group and failure to submit country-by-country report, but these measures can hardly be called serious. So, companies which did not notify about their participation in a multinational group, were liable to pay a fine of 50,000 thousand rubles, those companies which have not provided country-by-country reporting are to pay the fine of 100,000 thousand rubles. At the same time, sanctions are not applied for tax offenses committed from 2017–2019, during the so-called transition period.

— 48 CENTER “TRANSPARENCY INTERNATIONAL R” 49 ANNEX 1 LIST OF EVALUATED INFORMATION II ORGANIZATIONAL TRANSPARENCY The main sources of information for data collection in the second part of this report have been annual consolidated financial statements under IFRS, annual accounts of the company, list of affiliated persons, quarterly reports of the issuer, sections of the site dedicated to subsidiaries. I ANTI-CORRUPTION DOCUMENTS Questions 18–21: “Unconsolidated subsidiaries” — associates, joint ventures, companies that are consoli- The main sources of information for gathering material on the first part: The Code of Corporate Ethics dated using the equity method. and other ethical documents, the anti-corruption policy of the company, the annual report on CSR, the supplier’s code of conduct, the conflict of interest policy, the policy of gift giving and hospitality. An unconsolidated subsidiary is a company that is owned by a parent company, but whose individual financial statements31 are not included in the consolidated or combined financial statements of the parent com- 32 1 Does the company state publicly its commitment to combat corruption (the pany to which it belongs.

principle of “zero tolerance”)? 31 https://goo.gl/22azoT 14 Does the company disclose the full list of names of all its fully consolidated 32 2 Does the company agree publicly to comply with all relevant laws, including https://goo.gl/PtUHQn subsidiaries? anti-corruption laws? 15 Does the company disclose ownership interest for all its fully consolidated 3 Do top managers of the company (senior members of the Board or members subsidiaries? of the Board of Directors) personally demonstrate support for the fight against 16 Does the company disclose the country of registration for all its fully consoli- 30 30 Public support of the corruption? dated subsidiaries? company’s management can be manifested Does the anti-corruption policy of the company (norms of the Code of Ethics) 4 17 Does the company disclose the activities of the country for all its fully consoli- in the preamble to the apply directly to all employees and directors? anti-corruption policy or dated subsidiaries? in the company’s Code 5 Does the anti-corruption policy of the company apply directly to persons who of Ethics and may be 18 Does the company disclose the full list of names of all its unconsolidated published as a separate are not employees but are authorized to act on behalf of the company or rep- subsidiaries? public letter or an ap- resent it (for example, to agents, consultants, representatives, intermediaries)? peal of the company’s 19 Does the company disclose ownership interest for all its unconsolidated executive. 6 Does the Anti-Corruption Program of the company apply to uncontrolled subsidiaries? individuals or entities that provide goods or services as part of a contractual relationships (for example, to contractors, subcontractors, suppliers)? 20 Does the company disclose the country of registration for all unconsolidated subsidiaries? 7 Does the company conduct anti-corruption training programs for its employees and directors? 21 Does the company disclose activities of all its unconsolidated subsidiaries?

8 Has the company introduced gift and hospitality policy that regulates gifts, guest reception and hospitality?

9 Is there a policy that explicitly prohibits facilitation payments? III COUNTRY-BY-COUNTRY REPORTING The main sources of information for collecting material in the third part of this report have been 10 Does the company policy allow employees and others to express concerns annual consolidated financial statements according to IFRS, annual financial statements of the and report violations of these policies) without the risk of retaliation? company, list of affiliated parties, quarterly reports of the issuer, annual reports on CSR, reports on 11 Does the company provide a channel through which employees can report payments to state bodies, sections of the site on the geography of the company. suspected violations of anti-corruption policies, and does such channel allow In this study, the countries of operation are those ones (except for their own country) in which the company is confidential and / or anonymous data reporting (informing)? present either directly or indirectly through its subsidiaries or associated entities, joint ventures, branches and 12 Does the company regularly monitor the Anti-Corruption Program to review representative offices or other legal entities that are directly or indirectly controlled company. The list of coun- the suitability, acceptability and effectiveness of the program, as well as its tries for each company is based on information obtained from the company’s public reporting and specialized improvement (if necessary)? sections of its website.

13 Has the company introduced a policy on political contributions and a ban on The following questions were asked for each country in which the company operates: political donations, and if it is not prohibited, then is there any public disclo- 22 Does the company disclose its income in country X? sure of such contributions? 23 Does the company disclose its capital expenditures in country X? 24 Does the company disclose its profit before tax in Country X? 25 Does the company disclose its income tax in Country X? 26 Does the company disclose the amount of its public contribution / charitable donations in country X?

— 50 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 51 ANNEX 2 DATA PER COMPANIES

Company Industry index ACP OT CBC Company Industry index ACP OT CBC Aeroflot Transport 4.2 50 75 0 Industrial Metallurgical Holding Basic materials 2.6 0 75 3 Agro-Belogorie Agriculture & Food products 0.6 0 13 — Ingosstrakh Financials 2.5 0 75 0 Akron Chemicals & Petrochemicals 5.4 88 75 0 Inter RAO Electricity 5.2 54 88 14 Alfa Bank Financials 0 0 0 0 Intertorg Trade 0 0 0 — AlfaStrakhovanie Financials 2.2 0 44 — Irkutsk Oil Company (INK) Oil & Gas 3.5 69 0 — Alkor and Co Trade 0 0 0 — KAMAZ Auto industry 4.4 58 75 0 Almaz-Antey MIC & Engineering 0 0 0 — Katren Pharmaceuticals 1.5 8 19 20 ALROSA Basic materials 6 92 75 13 Kazanorgsintez Chemicals & Petrochemicals 7.8 81 75 — Aston Agriculture & Food products 0.2 0 6 0 Krastsvetmet Basic materials 0 0 0 — Avtomir Auto industry 0 0 0 0 KRET MIC & Engineering 4.9 23 75 — Avtotor Auto industry 0 0 0 — LANIT Information technology 4.1 92 31 0 AvtoVAZ Auto industry 2.5 0 75 0 Lenta Trade 3.3 15 50 — Bank Rossiya Financials 1.9 0 56 0 LocoTech MIC & Engineering 0 0 0 — Bank SUEK Basic materials 1.3 19 19 0 LSR group Development & Construction 3.3 15 75 10 Bashneft Oil & Gas 5.1 77 75 0 LUKOIL Oil & Gas 4.1 42 75 4 Best price (Fix Price) Trade 0 0 0 0 LUKOIL-Garant Financials 0 0 0 — Binbank Financials 4.6 62 75 0 M.Video Trade 2.5 0 50 — ChelPipe Basic materials 2.5 0 75 0 Magnet Trade 7.9 58 100 — Cherkizovo Agriculture & Food products 2.5 0 75 0 Magnitogorsk Iron and Steel Works Basic materials 5.2 73 75 8 CPC Transport 1.5 38 6 0 Major-Auto Auto industry 0 0 0 — Credit Bank of Moscow Financials 3.8 38 75 0 Mechel Basic materials 3.1 19 75 0 CSC Group Agriculture & Food products 0 0 0 — Megaphone Telecommunications 6 77 88 16 Detsky Mir Trade 3.8 77 38 0 Megapolis Distribution 4.4 81 6 — DIXY Group Trade 4.9 73 75 0 Merlion Distribution 0 0 0 — DNS Trade 0 0 0 — Metalloinvest Basic materials 3.3 23 75 0 Drilling company "Eurasia" Oil & Gas 0 0 0 0 Metallokomplekt-M Basic materials 0 0 0 — EFKO Group Agriculture & Food products 0 0 0 — Metallservis Basic materials 0.2 0 6 0 Eldorado Trade 0.6 12 0 — Miratorg Agriculture & Food products 0 0 0 — Element-Treyd Trade 0.2 4 0 — Morton — — — — — EUROCEMENT Building material 0.5 4 13 0 Mosinzhproekt Development & Construction 3.5 69 0 — EuroChem Chemicals & Petrochemicals 2.4 35 38 0 Moskovsky Metropoliten Transport 0 0 0 — Euroset Trade 0 0 0 0 Mostotrest Infrastructure construction 2.9 12 75 0 EuroSibEnergo Electricity 0.8 0 25 0 Mosvodokanal Utilities 5.5 35 75 — Evraz Basic materials 5.7 85 56 29 MTS Telecommunications 6.3 88 88 12 Finance&Construction Corporation "Lider" Development & Construction 1.3 0 25 — NCC Information technology 0.3 0 6 — Forteinvest Oil & Gas 0 0 0 0 NCSP Transport 5.3 31 75 — GAZ Group Auto industry 2.6 4 75 0 Neftegazindustriya Oil & Gas 0 0 0 — GAZFOND Financials 0 0 0 — Neftekhimservis Oil & Gas 0.6 0 13 — Gazprom Oil & Gas 4.4 50 81 0 Neftetransservis Transport 2.1 50 13 0 Gazprom Burenie Oil & Gas 3.7 12 63 — Neftisa Oil & Gas 1.4 4 38 0 Gazprombank Financials 5 62 88 0 New Stream Group Oil & Gas 0 0 0 0 Genser Auto industry 0.6 0 13 — Nizhnekamskneftekhim Chemicals & Petrochemicals 6.8 62 81 60 Globaltrans Transport 4.7 46 75 20 NLMK Basic materials 5.8 92 75 8 High Precision Systems MIC & Engineering 2.1 4 38 — NNK-Aktiv Oil & Gas 3.2 8 81 6 Holiday Group Trade 0.2 4 0 — Nordgold Basic materials 5.8 73 75 25 Ilim Timber processing 4.3 54 75 0 Nornickel Basic materials 5 73 75 3

— 52 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 53 Company Industry index ACP OT CBC Company Industry index ACP OT CBC NOVATEK Oil & Gas 5.1 77 75 0 Sedmoi Kontinent Trade 0.4 8 0 — Novoshakhtinskii Zavod Nefteproduktov Oil & Gas 0 0 0 — SeverEnergia Oil & Gas 0 0 0 — O’Key Group Trade 3.2 27 38 — Severstal Basic materials 4.4 58 75 0 Oboronstroy MIC & Engineering 0 0 0 — SIA International Pharmaceuticals 0 0 0 — Otkritie Holding Financials 2.5 0 75 0 Siberia Airlines Transport 2.5 0 75 0 PhosAgro Chemicals & Petrochemicals 4.8 69 75 0 Siberian Generating Company Electricity 0.9 0 19 — PIK Group Development & Construction 1.9 0 38 — SIBUR Chemicals & Petrochemicals 4.2 38 88 0 Pipe Innovation Technologies Basic materials 0 0 0 — Slavneft Oil & Gas 3.4 27 75 0 Pochta Rossii Postal service 3.6 69 38 0 SNS Group Distribution 0 0 0 — Polymetal Basic materials 4.7 77 31 32 Sodrugestvo Agriculture & Food products 0 0 0 0 Polyus Basic materials 2.8 19 38 — SOGAZ Financials 2 0 56 4 Power machines MIC & Engineering 3.2 19 75 0 South refineries company Oil & Gas 0 0 0 — PPF "Blagosostoyanie" Financials 1.5 0 25 20 Sovcombank Financials 4.6 62 75 0 PPF "RGS" Financials 2.2 15 50 0 Sovcomflot Transport 2.5 0 75 0 PPF Future Financials 1.1 8 25 0 Spetsstroyinzheniring — — — — — Promsvyazbank Financials 3.8 77 38 0 Sportmaster Trade 0.5 15 0 0 PROTEK Pharmaceuticals 2.5 0 75 0 State ATM Corporation Transport 0.3 0 6 — Pulse Pharmaceuticals 2.5 31 19 — STROYGAZMONTAZH Infrastructure construction 0.3 0 6 — R-Pharm Pharmaceuticals 2.6 77 0 0 StroyTransNefteGaz Infrastructure construction 0.8 4 13 — Red&White Trade 0 0 0 — Surgutneftegas Oil & Gas 4.3 42 88 0 RESO-Guarantee Financials 2.5 0 75 0 Svyaznoy Trade 0.6 12 0 — Retail K-1 ("Maria-RA") Trade 0 0 0 — T Plus Electricity 4.4 58 75 0 RIF Agriculture & Food products 0 0 0 — Tactical missiles Corporation MIC & Engineering 5.9 42 75 — Rolf Auto industry 1.9 0 38 — TAIF Oil & Gas 3.3 65 0 — Rosatom Nuclear industry 1.9 19 38 0 Tashir Сommercial estate 0 0 0 0 Rosgosstrakh Financials 2.5 0 75 0 Tatneft Oil & Gas 4.6 54 81 2 Rosneft Oil & Gas 4.9 73 75 0 Techmash MIC & Engineering 0.2 4 0 — Rosselkhozbank Financials 3.6 58 50 0 Tele2 Russia Telecommunications 1.8 23 31 0 Rosseti Electricity 7.5 50 100 — TMK Basic materials 3.4 27 75 0 Rosta Pharmaceuticals 4.5 77 13 — TNS Energo Electricity 3.8 0 75 — Rostelecom Telecommunications 5.6 81 88 0 Togliattiazot Chemicals & Petrochemicals 3.8 0 75 — RTI Systems Information technology 5.1 77 75 0 Tomskneft Oil & Gas 0 0 0 — Rusagro Agriculture & Food products 5 50 50 — Trans Nafta Oil & Gas 0 0 0 — RUSAL Basic materials 6.2 88 75 21 Transaero — — — — — Ruselectronics MIC & Engineering 2.5 0 50 — Transmashholding MIC & Engineering 2.5 0 75 0 RUSENERGOSBYT Electricity 3.3 65 0 — Transneft Oil & Gas 2.5 0 75 0 RusHydro Electricity 5.1 65 88 0 Transoil Transport 0.9 0 19 — Russian Helicopters MIC & Engineering 3.8 27 88 0 UCL Transport 0.2 0 6 0 Russian Standard Financials 1.3 0 38 0 Udmurtneft Oil & Gas 6.4 54 75 — RussNeft Oil & Gas 5.1 77 75 0 Ulmart Trade 0 0 0 — RZD Transport 5.4 81 81 0 UNICONF Agriculture & Food products 0.4 0 13 0 Saint Petersburg Bank Financials 4.2 50 75 0 United Aircraft Corporation (UAK) MIC & Engineering 4.4 58 75 0 Sakhalin Energy Oil & Gas 3.7 73 0 — United Engine Corporation (ODK) MIC & Engineering 3.9 42 75 0 Salym Petroleum Oil & Gas 1 19 0 — United Instrument Manufacturing Corporation MIC & Engineering 2.3 8 38 — (UIMC) Sberbank Financials 7.9 85 88 64 United Metallurgical Company (OMK) Basic materials 1.7 27 6 — SDS-Ugol Basic materials 0.6 0 13 —

— 54 CENTER “TRANSPARENCY INTERNATIONAL R” TRANSPARENCY IN CORPORATE REPORTING 55 Company Industry index ACP OT CBC ASSESSING RUSSIA’S LARGEST United Shipbuilding Corporation (USC) MIC & Engineering 4.5 27 88 20 Ural Mining Metallurgical Company (UMMC) Basic materials 0.8 0 25 0 COMPANIES URALCHEM Chemicals & Petrochemicals 2.7 4 75 3 Uralkali Chemicals & Petrochemicals 4.2 50 75 0 Uralo-Sibirskaya Metallurgicheskaya Kompaniya Basic materials 0 0 0 — Uralvagonzavod MIC & Engineering 4.9 23 75 — “TRANSPARENCY INTERNATIONAL— UTair Transport 2.6 4 75 0 Velesstroy Infrastructure construction 0 0 0 0 RUSSIA” REPORT VimpelCom Telecommunications 5.7 73 88 9 Vnesheconombank Financials 3.1 15 75 3 Voentorg Trade 0.6 0 13 — Volga-Dnepr Transport 2.3 58 13 0 VSMPO-AVISMA Basic materials 4.6 62 75 0 VTB Financials 3.3 23 75 1 X5 Trade 2.4 54 19 0 Yandex Media & Internet 2 42 19 0 Zarubezhneft Oil & Gas 5.3 85 75 0 The previous research in the field of transparency in corporate reporting, you can find here:

www.transparency.org/whatwedo/publication/transparency_in_ corporate_reporting_assessing_emerging_market_multinat

The independent non-profit organization Center for Anti-corruption Research and Initiatives “Transparency International Russia” has been included on the register of non-profit organizations that act as foreign agents by the Ministry of Justice of the Russian Federation

— 56 CENTER “TRANSPARENCY INTERNATIONAL R” CENTER FOR ANTI-CORRUPTION RESEARCH AND INITIATIVES “TRANSPARENCY INTERNATIONAL RUSSIA” Rozhdestvenskiy Bulvar, 10/7, Building 1, Room 1 Moscow, Russia, 107031

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