Sondland backed effort to 'shake up' leadership at Ukraine's state energy company

The Ukrainian government saw Sondland's push as part of a broader effort linked to Giuliani and his associates.
Image: Gordon Sondland
Gordon Sondland, U.S. ambassador to the European Union, arrives at the Capitol on Oct. 17, 2019.Pablo Martinez Monsivais / AP

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By Dan De Luce, Josh Lederman and Ari Sen

The U.S. ambassador to the European Union, Gordon Sondland, backed a Trump administration effort to change the leadership at Ukraine’s main energy company, despite objections from career diplomats who saw the move as undermining anti-corruption efforts, three sources familiar with the matter told NBC News.

The push coincided with efforts by President Donald Trump’s personal lawyer, Rudy Giuliani, to pressure Ukraine's newly elected president, Volodymyr Zelenskiy, to conduct investigations into Democrats to help the president’s re-election campaign.

U.S. diplomats in Kyiv and Washington were blindsided and confused by the new position on Ukraine’s state-owned energy company, Naftogaz, because they saw the new CEO and independent supervisory board as having cleaned up much of the firm’s corrupt practices, the sources said.

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The Ukraine government, which was already hearing from Giuliani that the White House wanted to see investigations pursued against former Vice President Joe Biden and his family, interpreted the Naftogaz request as part of a wider drive by the Trump administration to exert influence, the sources said.

Given the company’s positive trajectory in recent years, it remains unclear why Sondland was pushing for a change in the supervisory board, though some American energy executives have argued in favor of liberalizing Ukraine’s energy market and privatizing elements of Naftogaz’s business.

Sondland “was generally unhappy with their governance (at Naftogaz), and encouraged them to shake up the board, but not necessarily replace specific individuals,” said a source familiar with the ambassador’s view.

“Sondland was pushing Naftogaz generally to adopt more Western-style corporate governance and an independent board,” said the source, and he viewed “endemic corruption and weak governance as an obstacle to U.S. investment, which he strongly supported.”

Sondland declined to comment. Naftogaz representatives also declined to comment.

The subject of Ukraine’s state gas company, Naftogaz, came up in meetings in May with Zelenskiy and Sondland, Energy Secretary Rick Perry and the U.S. special envoy to Ukraine, Kurt Volker, who flew to Kyiv for the Ukrainian president’s inauguration, the sources said.

Perry made clear there needed to be a “fundamental change” in the leadership of Naftogaz, two former U.S. officials with knowledge of the meeting said.

An administration official denies Perry proposed any change to the supervisory board, which includes four international members, and instead merely shared a list of four names — plus government experts — to advise Zelenskiy’s office on energy.

Perry “did not recommend these individuals be placed on any board," an Energy Department official said.

House Democrats conducting the impeachment inquiry into Trump’s dealings with Ukraine have called a U.S. embassy official to testify next week, Suriya Jayanti, who is expected to provide key insights into what transpired with Naftogaz and how Trump’s team sought to change the company’s leadership.

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The Associated Press was first to report on the meetings, but Sondland's support of the effort to oust the Naftogaz leadership has not been previously reported.

The approach by Sondland and Perry seemed to fly in the face of longstanding U.S. policy, which had viewed the new management at Naftogaz as a relative success story. After the May meeting, an internal debate ensued among State Department diplomats, White House National Security Council officials and aides to Sondland and Perry, sources said.

The focus on Naftogaz’s board also raised alarms among Ukrainian officials because the effort came at the same time Giuliani’s associates, Lev Parnas and Igor Fruman, were pushing for the removal of the company’s reform-minded CEO, as NBC News has previously reported. The two wanted new management as part of a scheme to sell liquified natural gas to the company, according to two industry sources familiar with the proposal.

Parnas and Fruman were arrested last week on campaign finance charges of funneling foreign money to American political candidates.

Even if they had managed to push out the CEO, the plan by Parnas and Fruman could only have succeeded with changes to the supervisory board, which has the power to veto a project it deems suspect. Any weakening of the independence of the board also would play into the hands of Ukraine’s corrupt actors, who in years past siphoned off huge sums of money from the company, according to former U.S. officials and regional experts.

It’s not clear if the bid by Sondland to make changes in the leadership at Naftogaz was coordinated in any way with Giuliani or his associates, and no evidence has emerged to demonstrate a direct link. But whether intentional or not, the outcome could have benefited Parnas and Fruman and corrupt elements in Ukraine seeking to strip away the company’s independence.

Giuliani has denied any involvement with efforts aimed at Naftogaz.

One oligarch made much of his fortune by exploiting Naftogaz’s loopholes, Dmytro Firtash, who U.S. authorities have alleged is in the upper ranks of “Russian organized crime.”

Parnas and Fruman mentioned Firtash, who is now in Vienna fighting extradition to the U.S. on bribery and racketeering charges, when they made their pitch for a gas deal with an executive at Naftogaz, according to Dale Perry, an energy executive with years of experience in the Ukraine market. The pair proposed that the gas company pay Firtash an alleged debt of $200 million that the oligarch believes the firm owes him, NBC News has reported.

Firtash also has played a pivotal role in Giuliani’s hunt for dirt on Trump’s political opponents. Firtash’s legal team has provided documents to Giuliani making unproven allegations against Biden. The documents include an affidavit from a fired Ukrainian prosecutor, Viktor Shokin, accused of fueling corruption.

Firtash continues to profit from an extraordinary arrangement that no Ukrainian government has been willing to touch, despite repeated appeals from Naftogaz and Western officials. A decree from the Ukrainian government allows Firtash to buy gas at a cheap discount and then sell it through intermediaries for big profits.

Energy Secretary Perry has defended his role in Ukraine, saying he was focused on opening up the energy market in Ukraine to promote U.S. and Western investment. “What he did not do is advocate for the business interests of any one individual or company,” Perry's spokesperson Shaylyn Hynes said in an email.

Among the names Perry suggested as advisers on energy were, Michael Bleyzer, a Ukrainian-American based in Texas who has extensive investments in Ukraine and has donated to Perry’s campaign, and Robert Bensh, who had worked at various energy companies with interests in Ukraine. Bensh also worked as an advisor to a former Ukrainian energy minister, Yuri Boyko, in the pro-Russian government led by Viktor Yanukovych that was toppled after street demonstrations in 2014.

Boyko was a pro-Russian presidential candidate and has long been a political ally of Firtash. Their former political party was once advised by Trump’s onetime 2016 campaign manager, Paul Manafort, who is now behind bars after being convicted of financial fraud.

Bleyzer said he was never approached to serve on the board of Naftogaz. Bensh declined to comment. A source familiar with Bensh's thinking said he never was asked by U.S. officials to serve on the Naftogaz board.

The effort by Sondland to seek a possible change in the leadership of Naftogaz began with a proposal to replace all four of the international members on the seven-member board, but eventually focused on replacing an American who had been appointed in 2018, Amos Hochstein, who had worked at the State Department under the Obama administration, sources said.

Bensh’s name was among those mentioned as a possible replacement, sources said, despite his previous business activities in Ukraine and his work with the former Yanukovych government that would have raised possible conflict of interest questions. Bensh accompanied Zelenskiy’s aide, Andriy Yermak, in mid-July when he held meetings with lawmakers in Washington, two sources familiar with the discussions said.

A recent AP report, confirmed by NBC News, showed Bensh exaggerated his military service on his online profile, claiming he had been in elite military units including the Army Rangers and Delta Force, though records show he had been in the National Guard and only briefly on active duty.

Bensh has been a staunch advocate of liberalizing the Ukraine energy market and privatizing parts of Naftogaz. “You want to bring in revenues? Again, you sell Naftogaz,” Bensh said in a 2015 speech. “You want to bring in revenues? You drop taxes; We will drill the crap out of this place.”

Bensh’s name remained in play as recently as last month, before the whistleblower complaint emerged from a White House official voicing alarm at Trump’s requests to Ukraine to launch investigations for his personal political gain, sources said.

But the suggestion from Trump’s envoys to change up the board did not appear to follow past practice. Nominees for the international members of the board are supposed to come after consultations between the IMF and the European Bank for Reconstruction and Development, who in turn submit a list to the Ukraine government. But the Trump team simply raised the issue directly with the Ukraine government, sources said.

The IMF and the European Bank for Reconstruction and Development did not respond to requests for comment.

Former U.S. officials and industry sources said it’s not clear that Perry fully grasped the potential implications of shaking up the board, and that the Zelenskiy government in Kyiv would perceive it as linked to other efforts by Giuliani to find derogatory information on Trump’s political opponents.

“From the U.S. perspective, these were separate things,” said one former U.S. official.

“But if you’re a Ukrainian, how do you not connect the dots?”

“They are very familiar with this style of this behavior. This is how the oligarchs operate,” the official said. “The only difference is we told them not to do it, and now we’re the ones doing it.”