By John Helmer, Moscow
There is a famous old anecdote in which Zmei Gorinich, the three-headed Russian dragon, sits hungrily down to table, and proceeds to stuff each of his mouths with food presented to him by villagers too terrified to do otherwise. At night, however, the dragon’s stomach rumbles, then swells, and finally explodes. With his death, the villagers celebrate their liberation. The moral of the story: don’t eat through three mouths if you’ve got only one arse.
So far as is known, Oleg Deripaska has only one arse. But a recent investigation of the feeding and digestion habits of United Company Rusal, the aluminium monopoly which Deripaska controls, was intended to count the dozens of throats through which sale revenues of the company’s production units are passed, before the earnings disappear abroad.
The Accounting Chamber investigation of Rusal and Deripaska was formally launched in June. Three months earlier Stepashin had told [1] the State Duma he was ready to start, but Rusal issued a warning to deputies and government officials. “The company finds it necessary to make the following statement following comments made by the State Duma deputy, Andrei Krutov, aimed at discrediting UC RUSAL. Andrei Krutov’s recent and frequent comments in relation to UC RUSAL are distorted and incorrect and clearly demonstrate that he does not have any information about the situation at the Company’s facilities. As a result, the Company is examining possible legal action regarding disseminating false information. RUSAL operates in full compliance with the current tax legislation of the Russian Federation.”
In June [2], the chamber said it was about to commence its investigation. This is how it explained the targets: “The Board of the Accounting Chamber of the Russian Federation has decided to include in the Work Plan of the Accounting Chamber for inspection and analysis in terms of the economic interests of the Russian Federation, the effectiveness of participants in foreign economic activities of the customs procedure for processing on the customs territory of the Russian Federation (tolling) and for conducting export-import operations with the participation of persons registered in offshore zones, in 2011-2012. One object of this check will be OAO Rusal. Checking will begin in July. Results of the audit will be summed up at the end of this year.”
This was days before the start of Mikhail Chernoy’s (Michael Cherney) lawsuit [3] against Deripaska in the UK High Court. By trial that sought the court’s recognition of a shareholding trust and enforcement of terms of payment signed by the two of them in March 2001. At stake was a bloc of 13% of the Rusal shares claimed by Deripaska to be under his control but held in trust for Cherney. Five years in the making, the litigation had generated the largest forensic investigation ever attempted of the aluminium business in Russia. The witness affidavits, account books, trails of correspondence, tape-recordings, and bank records run into hundreds of thousands of pages. Additional evidence on Rusal’s origins, revenues and the earnings which Deripaska divided with Roman Abramovich had also been gathered for the trial of Boris Berezovsky’s claims against Abramovich, also in the High Court, and decided in August of this year.
As the evidence mounted, at least one high Kremlin official said privately the history of Russia’s oligarch-controlled businesses would be more credible if presented and tested in London court proceedings. Other officials warned, also privately, of political risks if Cherney’s evidence on the silent shareholders of Rusal, and the flow of Rusal funds to their accounts were to become public knowledge.
Still, because of the London proceedings the Accounting Chamber auditors had first-time access to evidence of dozens of parallel companies established by Deripaska outside Russian jurisdiction to carry the revenues of Rusal’s sales of bauxite, alumina, and aluminium through offshore transactions.
Evidence of transfer-pricing alleged against Deripaska through offshore entities and banks is one thing — and not new. Rusal acknowledges there are allegations but denies culpability or liability. In its 9-month financial report issued on November 9, Rusal says: “as these companies are involved in a significant level of cross border activities, there is a risk that Russian or other tax authorities may challenge the treatment of cross-border activities and assess additional tax charges. It is not possible to quantify the financial exposure resulting from this risk.”
Evidence of the beneficiary schemes through which Deripaska has shared Rusal’s cashflow before the net profit and dividend payment line on the public balance-sheet threatens more sensitive interests than Deripaska’s alone. On the 10-point Moscow sensitivity scale, revelation of Deripaska’s secret account-books [4] and the code-names for payees scores 9. The real names score 10.
In part, these have become the target of the suit against Deripaska by Victor Vekselberg, after the latter resigned from the chairmanship of the Rusal board of directors in March. Vekselberg’s suit is pending [5] in the London Court of International Arbitration. The evidence in this case is covered by confidentiality sanctions. So too was the evidence [6] in the Cherney case, although leaks to reporters occurred, apparently from the Deripaska side. Then on September 27, Cherney and Deripaska agreed to bury their hatchet, along with the evidence. Cherney and his spokesman have made no further comments. Lawyers in the case have also been silenced. What remains, however, is evidence that has already slipped into the public domain.
“To the extent that such information is within the public domain you should take whatever steps you think appropriate to obtain it,” cautions a London lawyer familiar with the evidence. Investigators of a well-known London firm have compiled evidence of alumina import and aluminium export transactions by Rusal’s onshore companies. They are being painstakingly matched against the corresponding values of the commodities when they are passed through Deripaska-controlled offshore entities, as well as through Glencore, which now controls most of Rusal’s trade.
Early this month the Accounting Chamber said the report of its investigation of Rusal’s trading schemes had been drafted and circulated to Rusal for response. The formal discussion of the report by the presidium of the Chamber, prior to finalizing it for official purposes and relaying copies to the General Prosecutor, the Ministry of Interior, and other government bodies, was scheduled for November 30, the Chamber said.
On the day the Chamber said the Rusal report was no longer on the presidium’s agenda. If it has been postponed for review, the source said the new date isn’t available.
The evidence on Deripaska’s use of offshore transaction schemes continues to surface outside the Cherney and Vekselberg files. The sources include veteran international metal traders; officials from countries where Rusal posts disputed customs declarations; and international lawyers engaged in court cases with Rusal in several jurisdictions.
It isn’t known whether the Accounting Chamber will release evidence it has obtained. Take, for example [7], the Alumtrade group of companies and their purported metal trading transactions on behalf of the Rusal group between Russia, Latvia, Cyprus, and the British Virgin Islands (BVI).
Then there is the evidence found in the files of the Jersey (Channel Island) company register of RTI Limited. Founded on Deripaska’s say-so in October 2006, it was renamed Rusal Trading International Limited three months later in February 2007; and then changed back again to RTI Ltd. on July 18, 2007. In filings this year in the US courts, Rusal lawyers have identified this entity as a “flagship” company for the entire group. Have the Accounting Chamber auditors been able to track the flagship’s transactions for Rusal-made aluminium with companies like Gilaga Investments of Mahe, in the Seychelles, and Daford Technology of Tortola, BVI? Have the auditors received an explanation for these channels, and where the money moved through their bank accounts has ended up?
For another example, there is Maxberg Limited Liability Partnership, sitting at the proper London address of 39, Wetherby Mansions, Earls Court Square, around the corner from Deripaska’s house on 5 Belgrave Square, and five minutes by car from the Rusal office near St. James’s Palace. What purpose is served for Rusal’s accounts, or its shareholder beneficiaries, in routing millions of dollars of aluminium trade through Maxberg? First established in December 2006, Maxberg’s original directors were listed as two BVI entities, Ireland & Overseas Acquisition Ltd. and Milltown Corporate Services Ltd. Their usefulness didn’t last long, and in June of 2008 they were replaced by two members of an Istanbul family called Fatih Bahri Caliskan and Turut Caliskan. By 2010, Milltown and Ireland & Overseas were back in the driving seats, except that the nominee entities were now registered as doing their business from 35, New Road, Belize City, Belize – at the opposite end of the Caribbean from their former offices in BVI.
The registration pedigrees and geography may be confusing; but the purpose cannot be missed if the Accounting Chamber has required the production by Rusal of its transaction balance-sheets for the names that keep surfacing.