VZCZCXRO1678
PP RUEHSL
DE RUEHSL #0043/01 0291639
ZNR UUUUU ZZH
P R 291639Z JAN 10
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 0385
INFO RUCPDOC/USDOC WASHDC 0001
RUEHSL/AMEMBASSY BRATISLAVA 0447

UNCLAS SECTION 01 OF 02 BRATISLAVA 000043 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/CE J. MOORE 
 
E.O. 12958: N/A 
TAGS: EINV ENRG PGOV LO
SUBJECT: U.S. COMPANY BUYS TROUBLED SHARES IN SLOVAK OIL PIPELINE 
 
REF: 2009 BRATISLAVA 149 
 
Summary and Action Request 
-------------------------- 
 
¶1. (SBU) Capitol Project Partners, a small U.S. consulting and 
investment company, has notified us that it has acquired stock 
in Transpetrol, the state-owned oil pipeline in Slovakia.  The 
company acquired the stock from a Czech company which had 
recently bought the shares from a Slovak investor who is in 
prison for fraud in connection with his acquisition of these 
same shares.   The validity of the shares are the subject of a 
long series of court battles running back 12 years and involving 
some 150 open cases at this time.  The American company intends 
to assert its ownership rights.  Given the complex legal history 
of the shares in question, we request guidance from Washington 
on how to handle requests for advocacy in this case.  Our 
proposed approach would be to ask that the GoS give a fair 
hearing to the U.S. company and to clarify any legal ambiguity 
in the status of the assets claimed.  End summary. 
 
A New Wrinkle in an Old Story 
----------------------------- 
 
¶2. (SBU) In early January 2010 the U.S. firm Capitol Project 
Partners, LLC, notified us that the company, through its 
investment fund CAPPA III, LLC, had acquired stock representing 
a 34% stake in Transpetrol, a crude oil pipeline operator 
recently re-acquired by the Slovak government.  Embassy staff 
talked with several partners in the firm, at their request, on 
January 12, where we learned that the company anticipates asking 
the USG for advocacy in asserting its ownership rights in 
Transpetrol.  The ownership of these shares is the subject of a 
decade-long legal battle between the GoS and the former owner, 
Slovak businessman and convicted felon Ignac Ilcisin, who is 
currently in prison for fraud connected to his Transpetrol 
claim.  Ilcisin had sold the disputed shares in mid-2009 to a 
Czech company, Quick Power Plant, which in turn sold them on to 
CAPPA III at the end of 2009.  The GoS has not recognized the 
legitimacy of Ilcisin's shares since shortly after they were 
issued over ten years ago. 
 
¶3. (SBU) Our interlocutors at Capitol said that they had done 
careful research on the legal status of the shares and were 
convinced that the shares are legitimate, and that the GoS had 
dealt in bad faith with Ilcisin.  They anticipated asking the 
Embassy, as well as DoS and DoC in Washington, to intervene with 
the GoS to back their claim. 
 
¶4. (SBU) The legality of Ilcisin's claim is at best troubled, 
and it has pitted two rival "highest courts" against each other. 
 In view of this fact, and of the distinct possibility that 
Ilcisin's original claim to the shares was fraudulent, we intend 
to approach advocacy on behalf of Capitol very carefully.  We 
would appreciate Washington's guidance on how to handle requests 
for intervention at the highest levels of the Slovak government. 
 
 
¶5. (SBU) One question to consider is what the U.S. company's 
intentions are.  From the company's website (www.cappa.us), it 
appears to be a small consulting firm of seven partners and 
associates, some of whom have served as U.S. Government 
appointees in the recent past.  Capitol has three private equity 
funds, only the first of which appears to have any SEC filings 
on record.  The first two CAPPA funds are described as "real 
estate bridge lending and distressed asset investments."  The 
CAPPA III Fund is described as focusing on "energy 
infrastructure development projects in emerging markets 
utilizing support from multilateral and U.S. based development 
and export credit agencies."  Given this background, it appears 
possible that Capitol will aim for a settlement from the GoS 
than that it will seek an active role in operating Transpetrol. 
 
 
Background on the Claim 
----------------------- 
 
¶6. (U) Ilcisin acquired the shares as a settlement for a case 
that his company, Tradeunion, won against the local tax 
authority in 1998 over his use of a state-owned building.  The 
value of the award was SKK 43 million (roughly $1.2 million at 
the time).  The state did not have cash for the award, so 
Tradeunion was allowed to participate in a transfer of 
Transpetrol shares in lieu of cash from the state. 
 
¶7. (U) The legitimacy of that Transpetrol stock sale was 
subsequently challenged, and the transaction was voided a month 
after it closed.  Criminal charges were filed against Ilcisin 
and the six other entrepreneurs, but these charges were 
subsequently voided.  In 2001, the Supreme Court decided that 
the "execution," as the award of the shares is technically 
 
BRATISLAVA 00000043  002 OF 002 
 
 
termed, was legal.  A subsequent Supreme Court decision in 2004, 
triggered by Ilcisin's attempt to call a meeting of Transpetrol 
shareholders, reversed the 2001 decision.  The Constitutional 
Court in 2007 overturned that decision, arguing that the 
principle of legal certainty prevented the Supreme Court from 
reversing its first decision.  In 2008, the Supreme Court ruled 
against the Constitutional Court on the principle of "ius ex 
iniuria non orfitur," i.e., that no legal right can result from 
an unlawful act.  The Constitutional Court asserted its 
supremacy again in 2009, saying that the issue of ownership had 
been decided (in Ilcisin's favor) in 2001, and that it enjoys 
the status of final arbiter.  A lower court then allowed Ilcisin 
to claim his status as a shareholder (while not ruling on the 
actual ownership of the disputed shares).  This ruling was 
overturned by a May 2009 Supreme Court decision. 
 
¶8. (U) In the brief window before the lower court was 
overturned, Ilcisin attempted to call a shareholders' meeting on 
April 29, 2009.  These latest developments, together with the 
completion of a complex buy-back of a 49% stake in Transpetrol 
from foreign investors (reftel), prompted Slovak prosecutors to 
act against Ilcisin.  According to prosecutors, Ilcisin used his 
claimed status as head of Transpetrol to attempt in 1996 to 
transfer EUR 12 million to a certain Czech company in payment of 
what the prosecutors term a non-existent debt.  Accordingly, on 
June 30, 2009, Ilcisin was convicted of fraud by the Zilina 
District Court and sentenced to 9 years in prison; Ilcisin is in 
prison pending appeal.  (Note: Even without this conviction 
Ilcisin is still a felon, based on an earlier conviction of 
illegal currency trading.  End note.) 
 
¶9. (SBU) Incredible though this may seem, our recap of the 
history of Ilcisin and his claim to 34% of Transpetrol is a vast 
simplification: there are still some 150 open legal cases 
pertaining to various aspects of the dispute.  Roughly speaking, 
these cases fall into three groups of concerns: 1) the legality 
of the execution itself, 2) the registration of the shares in 
the Central Repository (essentially a central registry of all 
stock transactions), and 3) the right to call for a 
shareholders' meeting, which in turn depends on one's status as 
a shareholder.  According to our contacts in the legal community 
here, a clear preponderance of legal experts in Slovakia views 
Ilcisin's claim as fraudulent, though the behavior of the GoS, 
including the Slovak courts, is hardly a model of judicial 
probity, clarity, or principled behavior. 
 
Proposed Approach 
----------------- 
 
¶10. (SBU) If Capitol pursues a formal request for advocacy in 
this case, we would propose simply asking the GoS to hear out 
the American company's assertion of ownership rights and respond 
to it fairly.  Where there is lack of legal clarity in these 
rights, the GoS should seek to clarify them. 
EDDINS