By John Helmer in Moscow
The US Court of Appeals for the Second Circuit (New York) decided yesterday that the US racketeering statute can reach Russian wrongdoers only if their deeds are done on American territory. Running the loot, laundering, or spending it through US banks and bank accounts, or on American real estate and other haven assets, isn’t enough to allow jurisdiction, the 3-judge panel has decided , following the precedent of a new Supreme Court ruling issued early this year.
Victor Vekselberg thus wins his appeal after eight years of legal battles in the US. Unless there is a further appeal to the full bench of the Court of Appeals or the Supreme Court, he is neither cleared of the allegations, nor vindicated. But he will not have to face trial in the US on charges of stealing oilfield assets in Russia from a North American oil company.
Norex Petroleum, a Calgary-based oil subsidiary of a California company owned by Alex Rotzang, first filed its US claim in February of 2002. For five years preceding, it had been operating oilfields in the Tyumen region near the Tyumen Oil Company (TNK), then owned by a group of shareholders including Vekselberg. Describing what had happened, the latest ruling says: “somewhat in the manner of one of the great Russian novels of the nineteenth century, the first amended complaint is heavily laden with characters and incident.” Somewhat in the manner of starting War and Peace, but skipping the battle and ballroom scenes, the American judges have relieved themselves of having to get to the bottom of the story. Here is how the story began .
The ‘Illegal Scheme’ which these court papers allege, “included the illegal takeover of Yugraneft, another Russian oil company of which Norex was majority shareholder, which was effected by TNK [now TNK-BP] in the ‘old fashioned way’ – through fraudulent representations, sheer physical force of armed thugs, and corruption of the local government, legal system and law enforcement, which refused to intervene and protect Norex’s rights. Immediately following the Illegal Takeover of Yugraneft, TNK seized its assets, including over $40 million which were held as dollar and ruble cash deposits and savings certificates and in excess of $500 million worth of oil production facilities, reserves, and receivables due from companies controlled by TNK. The Illegal Scheme has been masterminded, operated and directed by Access, Renova, Blavatnik, Vekselberg, Kukes, and Bakaleynik, through offices in New York City… and through mail and wire communications originating from and sent to the United States and travel between foreign jurisdictions and the United States.”
Bribery of Russian government officials, fraudulent bankruptcy, tax evasion, and money laundering through an elaborate offshore cash movement scheme are also alleged.
Norex sued for costs and losses, plus triple damages according to the provisions of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Had Vekselberg and his associates been forced to trial, they were facing a liability of more than $2 billion.
Vekselberg has protested his innocence. His lawyers have also argued that true or false, innocent or guilty, the claims cannot be heard and adjudicated by an American court “because the principal actions and events underlying [its] claim occurred outside of the United States.” For Norex, Bruce Marks, a US attorney who has pioneered the use of RICO prosecutions in the US courts against Russian business fraud and corruption, argued the statute has extraterritorial reach, and should therefore require the US courts to accept jurisdiction over Norex’s lawsuit.
Until January 24 of this year, the lawyering between the two sides had gone through five separate court proceedings. Supporting Norex’s claims to put Vekselberg on trial, it was argued that there is enough evidence of conduct of the illegal scheme in the US; and that the effects of this scheme were also intentional, actual, direct and substantial in the US.
Lucky for Vekselberg, this so-called conduct and effects test was rejected on January 24, 2010, by the US Supreme Court. In a case known as Morrison v. National Australian Bank, the court ruled that RICO does not have extraterritorial jurisdiction because when enacted, the US Congress did not explicitly say and intend that it should have that long-arm reach.
The outcome for the Norex case against Vekselberg this week is that earlier dismissals of jurisdiction by the courts have been judged to have been mistaken. So, without the latest Supreme Court intervention, Norex might very well have prevailed – and Vekselberg forced to trial.
But that is not to be. The new judgement says that “unless there is the affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect, we must presume it is primarily concerned with domestic conditions… The Morrison Court rejected various tests devised over the years to divine a statute’s extraterritorial application in favor of a bright line rule: “[w]hen a statute gives no clear indication of an extraterritorial application, it has none.”
Our Court’s precedent holds that “RICO is silent as to any extraterritorial application…” The slim contacts with the United States alleged by Norex are insufficient to support extraterritorial application of the RICO statute. We have considered the remainder of Norex’s claims and find them without merit.”