BRITISH VIRGIN ISLANDS – Roman Abramovich, Russia’s and England’s richest man, quietly lost a court case in the British Virgin Islands (BVI) last week. But the sound of the judge’s ruling is about to toll right round the world, For the first time in one of the most successful careers in the world of what Karl Marx once called primitive capital accumulation, Abramovich is facing a court order, outside Russia, to explain how he and his oil companies seized control of a Russian oilfield the owner has accused him of stealing.
At stake in court is a group of oilfields in Khanty-Mansiisk known as Priobskoye, worth about $4 billion. The value of the theft, allegedly masterminded by Abramovich two years ago, which the court has said it will now adjudicate, is about $2 billion.
Before the court will rule on the evidence, however, and most embarrassing and serious for Abramovich personally, he has been ordered to reveal where he has hidden the proceeds – along with every asset he owns worth more than $1 million.
Until now, Abramovich has been able to evade all claims of fraud and other illegalities alleged against
Millhouse, his UK-based asset holding company, Sibneft, the oil company that serves as his principal cash cow, or the myriad of associated companies registered in tax havens across the globe. Abramovich’s spokesman John Mann publicly claimed this month, in a remark to an English newspaper, that “any attempt to drag Mr. Abramovich into litigation would be misguided, since he is not on Sibneft’s board and had no role in its dealings with Sibir.”
Sibir Energy Pic, an oil producer listed on the Alternative Investment Market (AIM) in London, has already filed charges of massive fraud against the Abramovich group in Russian courts. These are proceeding, although Abramovich has been winning on his home ground. Sibir’s financial statement for 2004 indicates that, minus the benefit of the Priobskoye oilfield, it had revenues of ” about $320 million, earning a pre-tax profit of about $40 million.
Sibir is principally owned by Chalva Tschigirinsky, a Moscow entrepreneur. The Priobskoye oilfield is a vital asset in a partnership which Tschigirinsky has with the Mosdcow city government and the Moscow oil refinery to create a vertically integrated structure supplying the city with petroleum products refined from its own crude oil. Sibir is accusing Abramovich and his companies of fraudulently diluting, and converting its 50% stake in Priobskoye asset to less than 1%.
In August 2002, in a fierce battle between Abramovich, D Tschigirinsky and Moscow Mayor Yuri Luzhkov, Abramovich’s Sibneft tried, but failed to take control of the refinery. For a time Sibneft cut off part of its crude oil supply to the refinery. Abramovich has personally made no secret that his subsequent takeover of Sibir’s stake in Priovskoye was, as he personally told Luzhkov, was retaliation for losing the refinery battle.
The High Court of the British Virgin Islands has taken jurisdiction over Sibir’s claim against the Russian oligarch, because, in his effort to spirit the asset out of Russian control, Abramovich used several BVI companies he secretly controls. They are listed in the court order as Gregory Trading, Richard Enterprises, Shaw Invest & Finance, and Carroll Trading. All are said to be located at the same address: Trident Chambers, Wickhams Cay, Road Town in Tortola. The court order has appointed an independent receiver to take over the shares of three of the BVI companies that are a part of the fraud claim. The other companies, including entities registered in Cyprus and Panama, as well as Abramovich himself, have been ordered not to make any move to shift the shares outside the BVI court’s jurisdiction, or the control of the companies that presently hold them. The proceeds from oil sales currently under way from the oilfield have also been frozen in place.
Details of Sibir’s claim in the BVI court, and Abramovich’s lawyers reply are still under court seal. What has already been publicly disclosed by both sides is that Sibir and Sibneft were equal stakeholders in a joint venture called Sibneft Yugra to develop the Priobskoye area. Sibneft was to fund the development, and Sibir and its Russian operating company Yugraneft, were to repay Sibneft, and then share the proceeds of oil sales equally. However, according to Sibir, Abramovich, his associate David Davidovich, and their subordinates secretly converted Sibir’s and Yugraneft’s stakes into holdings of the BVI companies and others, for Abramovich’s benefit.
Speaking for Abramovich, Mann has claimed that “everything that Sibir has done related to Sibneft Yugra has been within the framework of a set of agreements between our shareholders and their shareholders.” Sibir’s CEO Henry Cameron is reported in a Moscow newspaper as saying this is “all nonsense. We would like them to disclose to us what those agreements are.”
In order to rule on Abramovich’s defence, Judge Charles has ordered the Abramovich companies to produce these agreements in court. The court order also instructs the companies to reveal “when, from whom and for what consideration it acquired the interest in the share capital of Sibneft-Yugra presently registered in its name”. In addition, the companies have also been ordered to hand over their banking details. Although Sibneft makes its financial accounts public, the others are not. If forced to comply with the BVI court, the elaborate system through which Abramovich directs billions of dollars of oil revenues will be exposed for the first time. The evidence may then be used by UK authorities in London to investigate whether the money-laundering statutes have been violated by Abramovich’s high-profile spending in Britain. “We have not acted in any way illegally,” Mann has also claimed in a London newspaper interview. “All the court cases so far have confirmed that.” He was referring to the courts of the Khanty-Mansiisk region and the Moscow Arbitration Court. The decisions, which have gone both ways, are still pending on appeal.
In her ruling on Sibir’s claim No. 174/05, issued last Wednesday, and obtained from the court record in Tortola late Friday, Judge Indra Charles requires Abramovich to file an affidavit “stating the value, location and details of all his assets exceeding US$1 million in value wheresoever situated and whether in…his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets.” The judge has set a deadline of July 22 to comply. If he fails, Abramovich and his companies face serious contempt of court claims, which can be enforced in England.
According to the court order in BVI, Abramovich has two personal UK addresses: Flat 2, 39 Lowndes Square, London SW1, and the Fyning Hill Estate, Rogate, Petersfield, Hampshire. The judge has given Abramovich until July 22 to hand over the information, or face contempt of court penalties. The safe haven Abramovich apparently thought he was acquiring from the long hand of Russian law turns out to be vulnerably to legal action in the British legal system.
The Sibir charge that Abramovich is a fraudster is not the first of its kind against Abramovich. In September 2003, Abramovich had been behind a transaction in which a company he secretly controlled sold a gold deposit called Maiskoye to Highland Gold, a London goldminer also controlled by men close to Abramovich, on terms that had been financially sweetened by the Chukotka regional administration, which Abramovich headed as governor. At the time, Abramovich’s spokesman Mann claimed that the seller of Maiskoye “is not connected in any way whatsoever with Abramovich”. Subsequent admissions by executives of Highland Gold revealed that Abramovich was the seller of Maiskoye. Russian and UK officials reportedly examined the charges in 2004, but took no action.