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By John Helmer, Moscow

Oleg Deripaska has been in love, tough love, with the High Court in London for years. That’s to say, he regards the court as one of his personal appendages with which to pummel his rivals into doing what he demands.   Since 2005 the court record shows Deripaska has been a principal, plaintiff or defendant, in 95 cases. That represents an average of more than seven Deripaska cases per year; one case every two months.

Four of the most recent ones   stand out differently from all the rest, but Deripaska doesn’t quite. Instead, he is financing Lolita Danilina to sue her former lover, Vladimir Chernukhin, a one-time  Finance Ministry  and Vnesheconombank official, for his share of the Moscow real estate on which stand several of Deripaska’s businesses. Chernukhin has already won a London arbitration proceeding for $95.2 million in compensation from Deripaska for his half-share of the property.  To avoid paying, Deripaska  engaged Danilina to sue Chernukhin,  claiming that because her name was on the property papers,  she, not Chernukhin, should get Deripaska’s money. Her agreement with Deripaska is that if she wins, Deripaska will give her a tenth of the payment and keep the rest for himself. In the meantime, the British judges have ordered Deripaska to give the court control of shares worth $245 million as security in case Chernukhin wins.

Two other things stand out in the case. One is that it is the first time a British court has exposed the illegality of an intelligence report by C, chief of the Secret Intelligence Service (MI6). Actually, a report by Sir John Scarlett (C between 2004 and 2009) who retired to operate his own private intelligence agency called SC. Scarlett was hired by Chernukhin to compile a dossier on Danilina proving she had been no more than Chernukhin’s front, and is now Deripaska’s front. The court acknowleged the likelihood that Scarlett’s report was a violation of Danilina’s information privacy.

Last, though hardly least, is a veracity which everyone who has investigated Chernukhin in Russia suspects, but noone has mentioned in the London litigation. This is the suspicion that Chernukhin acquired his assets by corrupt means, diverting dozens of millions of dollars out of his bank and into his own pocket, as well as taking bribes from Russian borrowers whom Vnescheconombank financed, either with loans no other bank would approve, or loans not intended to be repaid.

By the legal doctrine of clean hands, Chernukhin should not expect a British court to award him property he gained by an unlawful enterprise of his own. “A dirty dog”, according to a well-known explanation of the British law, “will not have justice by the court”.  So far in the proceedings, noone has argued this doctrine against Chernukhin. Chernukhin himself through his London lawyers refuses to explain where his money came from to buy such valuable real estate with Deripaska, nor the source of more than $135 million in commercial real estate he has subsequently  acquired in London, an airplane worth another $25 million, and Conservative Party  investments he and his wife have  made of more than a million pounds.  

Chernukhin and his London lawyers were asked “how Mr Chernukhin explains the lawfulness of the sources of his substantial wealth from which he has made asset purchases in the UK exceeding £150 million, quite apart from the $100 million shareholding claim on Mr Deripaska.” The lawyers refused to answer, referring instead to Chernukhin; he refused to reply.  According to their spokesman, “please also note I shall not respond to any further emails from you in this respond.”

Chernukhin, 50 years old in December of this year, spent most of a short Russian career  working his way to the top of the state bank, Vnesheconombank (VEB). During his rise Chernukhin was the protégé of Finance Minister, then Prime Minister Mikhail Kasyanov, as well as of Finance Minister and Deputy Prime Minister Alexei Kudrin. On their say-so, Chernukhin supervised the takeover of most Russian pension fund contributions; management of Soviet-era  debts owed to Moscow by states like Czechoslovakia and Vietnam; and bail-out loans for companies designated by Kasyanov, Kudrin, or President Vladimir Putin as politically valuable; these included state media companies.

Chernukhin has been photo-shy since he came to London.  A Forbes Russia profile of him last year had to opt for pictures of his properties instead of his face.

In this undated photograph taken when Chernukhin was in Moscow at VEB, he is displaying on his desk a photograph of what appears to be himself as a younger thinner man.

Chernukhin, then head of VEB, meeting President Vladimir Putin before May 2004, when Putin removed him from office. 

When Putin dismissed Kasyanov in 2004, he also removed Chernukhin from VEB. Prosecutions ordered by the Kremlin were then aimed at uncovering the source of Kasyanov’s personal wealth and stopping the cashflow he was using to finance his political campaign against Putin.  The suspicion was that Chernukhin had been creaming from VEB what Kasyanov wanted to fill his campaign treasury; Misha-Two-Percent was the name by which Kasyanov was known throughout Russia for this and related practices at the time; the vampire in charge of the blood bank was the way another opposition leader characterized him.    Only one indictment was lodged in the Russian courts; that of an underling who was convicted of helping himself to a small part of the VEB refinancing of foreign state debts. He went to prison for ten years; Chernukhin went to London; he was just 36. 

In 2002 Deripaska acquired the pre-revolutionary textile plant known as Trekhgorny Manufactory, and began its conversion into offices, restaurants and retail shops. It was between 2004 and 2005 that the two of them, according to Chernukhin’s court papers, agreed to share the property 50/50. In August 2004 – less than three months after Chernukhin had been ousted from VEB – a Cyprus company called Navio Holdings was created in Limassol.  The London court evidence is that Chernukhin and Deripaska were equal shareholders in Navio, and Navio owned Trekhgorny Manufactory (TGM). This was also the conclusion of the London Court of International Arbitration. Danilina’s (right) claim is that she was not Chernukhin’s nominee shareholder, but an executive herself and direct shareholder.  She has also accused Chernukhin of breaching a division of family assets they had agreed in 2007, after they separated; the effect of that, according to Danilina, ought to have given her the same real estate stake.  The Cyprus corporate record reveals that shareholding transfers occurred at Navio in October 2004 and again in June 2005.

It is unclear whether Scarlett’s espionage on Chernukhin’s behalf obtained details of these transactions from the closed Cyprus files. Also unclear is how Danilina came by the money to buy her half-stake in Navio for real estate – land and buildings – valued at more than $200 million. If it was a family asset, as she has also testified, then the money came from Chernukhin.  According to London court papers,  Danilina currently owns a home in Moscow worth $7 million, plus two apartments in St. Petersburg and another in Pechory.

Basic Element, Deripaska’s holding company in Moscow, has released statements claiming  Chernukhin had been a “shadow shareholder” in the Trekhgorny Manufactory when he was still at VEB. Published  in the Russian press,  that allegation of crime has not been reported in the London proceedings. Danilina, according to Basic Element, “has good experience in the textile business [and] has long been engaged in operational management.”

High Court judge Sir Nigel Teare, in a ruling of  November 2017,  moved the date of the business dealings between Deripaska and Chernukhin to the year after Chernukhin had been dismissed from VEB, and after he had moved to London.  “Mr. Deripaska and (according to Mr. Chernukhin) Mr. Chernukhin were parties to a joint venture, the subject matter of which was a valuable real estate site in central Moscow. On 31 May 2005 the SHA [shareholders’ agreement] was agreed. The joint venture vehicles were Navigator and Filatona, each of which held 50% of Navio Holdings Limited, a special purpose vehicle which held the parties’ stake in TGM [Trekhgorny Manufactory], the owner of the real estate. At the time Mr. Chernukhin had left Russia and was resident in the UK. Ms. Danilina, who was in a close relationship with Mr. Chernukhin, was named as party to the SHA. It is the case of Mr. Chernukhin that she was, to the knowledge of Mr. Deripaska, a nominee for Mr. Chernukhin. She, however, maintains that she was the beneficial owner of Navigator and hence party to the SHA in her own right.”

Chernukhin has submitted to the arbitration tribunal and to the courts a report by Scarlett, dated September 8, 2016, to support his case. Scarlett charged that Deripaska had bribed Danilina to litigate her claim to ownership of Navigator, and thus half of Navio.   Scarlett reported a retainer of $2 million had been paid in instalments to her by Deripaska, with a promise of $10 million if she won her claim, plus her legal fees up to $3 million.  Danilina claimed in court that Scarlett had unlawfully obtained private information; Deripaska believed someone he employed had been inveigled by Scarlett; Russian reporting of Chernukhin’s property stake suggests the money he used he had no legal possibility of earning when he was a state official.  

The preliminary litigation in court has already run up legal costs of more than £4 million.  Danilina has told the court “she has funded her living expenses by selling jewellery, art and her Moscow flat.” So far there has been no court hearing or judgement to resolve the contradictory claims and mutual recriminations. Small bits of information have been divulged about Deripaska and Danilina; nothing about Chernukhin.  For example, in the latest court ruling of October 2, it was revealed that, although Deripaska’s High Court action has suspended his payment of the $95.2 million arbitration award, Chernukhin obtained a court order freezing $245 million worth of Deripaska-owned shares.

In 2006 Moscow reporters were asking where Chernukhin’s money had come from.  “Why”, wrote Semyon Goncharov of KM.ru, “don’t the British authorities ask the Russian oligarchs the question: where, thanks to what, and at the expense of whom did they get their fortunes?… As for Vladimir Chernukhin, the British authorities may have been embarrassed to ask him where the former deputy Minister got 135 million dollars to buy the office building of Midland Bank, because his official salary is clearly not enough to collect such money.”    More than a decade later, neither the Russian nor the British press has asked Chernukhin to explain.

Last week Chernukhin’s lawyers in London, Jonathan Crow QC (right) and  James Weale were asked: “1. When did his business relationship with Mr Deripaska commence and with what particulars? 2. What is the source of Mr Chernukhin’s wealth according to the criteria set down in the Proceeds of Crime Act 2002; specifically, ‘to explain the nature and extent of [his] interest in particular property, and to explain how the property was obtained, where there are reasonable grounds to suspect that the respondent’s known lawfully obtained income would be insufficient to allow the respondent to obtain the property. The test for involvement with serious crime is by reference to Part 1 of the Serious Crime Act 2007’ —  .”

Crow replied through a spokesman that he “is bound by strict rules of legal professional privilege, and he is not free to disclose any information derived from his client without the client’s consent.  All your inquiries must therefore be directed to Mr Chernukhin.” Although the questions were relayed by Crow to Chernukhin, Chernukhin said nothing.

Now a British citizen, Chernukhin may have believed he was safe from extradition if the Russian investigation of corruption inside VEB turned into an indictment.  It didn’t.

A risk Chernukhin has not anticipated is that new British anti-corruption legislation exposes him to the forfeit of his British assets if he cannot satisfy the National Crime Authority (NCA) of the legality of the money he has used to buy them. The NCA’s weapon is an Unexplained Wealth Order (UWO). Legislated into law last year as the Criminal Finances Act of 2017, it came into force on January 31 of this year. The UWO is an order for a target to answer questions about the sources of his (or her)  money. Admitting corruption may lead to confiscation of the assets. Lying to the NCA may lead to criminal prosecution with the risk of jail, plus asset forfeiture.

Early this month the High Court ruled that an Unexplained Wealth Order may be lawfully issued to wealthy individuals living in the UK to prove their money isn’t the proceeds of crime.  To issue the order, the NCA, according to the court, needs no more than “reasonable ground for suspicion” towards the wealth of an individual whose employment in “prominent public functions” qualified him as a Politically Exposed Person (PEP). The threshold for suspicion of corruptly acquired wealth is low – just £50,000.  Read the judgement in full here.  

At the same time, the judge in the case, Sir Michael Supperstone,  lifted the press embargo on the name of the first UWO target. She is Zamira Hajiyeva, wife of an Azerbaijan state banker, Jahangir Hajiyev, who was tried, convicted and imprisoned in Baku in 2016. Among the assets he and his wife have purchased in the UK were an £11.5 million house; a £10 million country golf club; a £31 million private jet; and £16 million worth of purchases from Harrods, especially the jewellery department.

UK lawyers say the use of UWOs is selective persecution of individuals or national groups, motivated by political prejudice and amounting to the violation of human rights.  Judge Supperstone rejected this argument: “I do not consider that disclosure of information under the UWO about the property will give rise to a real or appreciable risk of prosecution of Mrs Hajiyeva or her husband for offences in the UK or in the non-EEA Country (even assuming for present purposes that she would return to the non-EEA Country). There is no evidence that they would be at risk of further criminal proceedings in any event.”

Left: Justice Sir Michael Supperstone; right, Lynne Owens, chief of the National Crime Authority.

Sources in the British Government reveal the Hajiyeva case was selected as the first UWO to be tested in the courts because it was judged to be easier to substantiate the legality of the UWO in her case than it would in many Russian cases which have been under parallel investigation.  The sources explain that the Hajiyeva case was chosen because her spending of her husband’s money was so lavish and because he had already been sent to prison for having stolen it. The intention, the sources say, is to demonstrate by Hajiyeva’s example what will happen next to the Russians who are the prime targets of the British operation, according to the government sources. But which Russians?

The sources say it is now NCA policy to be highly selective among the Russians in the UK, reducing the cost and unpredictability of pursuing all those who are suspected, but triggering panic among the greatest number, and encouraging them to leave the UK.  

Prosecution by UWO is only the most obvious risk for the Russians in the UK.  Much more serious and certain, London bankers explain, is the informal decision the major banks are now taking to remove Russian names from their client list – without any investigation at all. These banks have decided it isn’t worth the effort of discrimination or the cost of client investigations. “If the account holder has a Russian name,” one source said last week, “he is told to take his money elsewhere. No reason given. Few Russians want to attract attention, and raise the sights of the NCA by suing the bank.”

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