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By John Helmer in Moscow

Achilles heel uncovered by US court in Russian aluminium champion

In seventy-four closely argued pages, US attorneys have this week applied to the US Court of Appeals for the 2nd Circuit (New York) to reverse a series of lower court judgements, and order trial of charges that Victor Vekselberg and his associates stole crude oil and Russian oilfield licences worth several hundred million dollars from Norex Petroleum Limited, owned by a Canadian named Alex Rotzang.

If the appeals bench of judges agrees, the outcome directly threatens defendant Vekselberg, the second shareholder of United Company Rusal, one of the world’s largest aluminium producers, with US visa and tax sanctions. A ruling for Rotzang by the US court would also trigger UK prohibitions on Vekselberg continuing to serve as a member and chairman of Rusal’s board of directors.

But even before the US court rules, the relatively unnoticed 6-year litigation exposing Vekselberg’s business past, already casts a shadow over the attempts both Vekselberg and his shareholding partner in Rusal, Oleg Deripaska, are making to list their company internationally, either through a London Stock Exchange initial public offering (IPO); or through a takeover and reverse listing with Norilsk Nickel.

Not before in the annals of national corporate champions have the high courts on both sides of the Atlantic had the simultaneous opportunity to adjudicate the creditworthiness of Russia’s metals proprietors. And not in Russian business history has such a troika of corporate horses been bridled at the two greatest business centres in the world – London and New York.

It is now a curious situation for international investors contemplating buying shares in, or lending money to Rusal, that Deripaska is barred from entering the US on account of US investigations of his business practices, and veracity. US Government action in his case waits on civil litigation in the UK High Court that Deripaska stole several billion dollars worth of assets from his former business partner and founder of Rusal’s predecessor companies, Michael Cherney (Mikhail Chernoy).

The New York appeals court action threatens Vekselberg with a similar bar on his visa entry to the US. It also invites questions about Vekselberg’s payment of US taxes during the period he appears to have held permanent immigration status in the US, according to the court case files.

If Deripaska’s and Vekselberg’s difficulties crossing the US frontier aren’t serious enough, there remains the problem that the third, and newest shareholder of Rusal, Mikhail Prokhorov, has in entering France, where he was detained a year ago; and where he continues to face investigation, which he is challenging with a court action of his own.

Since Rusal’s bid to acquire Prokhorov’s 25% plus one share in Norilsk Nickel was agreed with Prokhorov in December, the new shareholding lineup for Rusal is 58.74% for Deripaska; 19.58% for Vekselberg; 11% for Prokhorov; and 10.68% for Glencore.

The brief for the appeals court was filed on December 9. The first four defendants named are Access Industries and Renova Inc., both US registered holding companies for Len Blavatnik and Vekselberg, who are individually listed. Though Russian born, Blavatnik is a US citizen. Vekselberg held US immigration status (green card), until he reportedly disavowed and renounced the status. Simon Kukes and Joseph Bakaleynik are also listed as defendants; they are American citizens, and have been Vekselberg’s subordinates at TNK, a Russian oil company he controlled and then sold to British Petroleum; and at SUAL, an aluminium producer, now merged with Rusal. Another 29 defendants, individuals and companies, are listed in the case, including BP’s former chief executive, Lord Browne.

The court brief charges that “this case concerns a massive worldwide criminal scheme to seize control over oil assets beneficially owned in part by Americans, as well as Norex’s controlling interest in Yugraneft, a Russian oil company, through a pattern of racketeering activity committed in the U.S. Six U.S. citizens resident in New York masterminded, operated, and directed that scheme out of New York and, along with another U.S. citizen, utilized banks in New York to launder hundreds of millions of dollars used in part to bribe foreign officials as an integral part of the scheme.”

It is also alleged that “the Illegal Scheme also included illegal trading with Cuba and illegal payments to the Saddam Hussein regime in Iraq. Two more U.S.citizens joined the Illegal Scheme after this case was filed….The predicate acts of racketeering and violations of the Trading with the Enemy Act and Foreign Corrupt Practices Act in regard to the Cuba “Rez,” Cuba “Oil for Sugar,” and Iraqi “Oil-for-Food” programs harmed U.S. national security by aiding espionage activity against the U.S., supporting regimes designated as enemies of the U.S., and corrupting foreign officials.”

The defendants deny the charges, and their lawyers have spent the better part of the five years since the case was initially filed in the New York courts challenging US jurisdiction. When initial rulings rejected jurisdiction, Norex appealed. This time, the appeal charges that the earlier rulings have misinterpreted the facts in the case; misapplied the US racketeering statute; and mishandled Norex’s rights to secure documents and other evidence for prosecuting its claims.

According the appeal brief, “the [New York federal district] court has done almost nothing to advance this case since it began almost six years ago. The court refused to permit Norex discovery on even the most basic matters. The court refused to decide discovery appeals or conduct a conference and, most egregiously, sat on the current motion for 16 months, deciding it only after Norex complained to the Chief Judge of the District, and 72 even then without oral argument and without considering the numerous other dismissal grounds raised over five years ago. The judge’s refusal to grant even one leave to amend is inexplicable.”

In a stinging rebuke of the conduct of the judge’s rulings, the appeals brief says “an objective observer would not only reasonably question the judge’s impartiality, but almost certainly would conclude that the court exhibited gross indifference to Norex’s interest in preserving evidence and obtaining a “just, speedy, and inexpensive determination” of this action, FED.R.CIV.P.1, thereby justifying reassignment.”

Bruce Marks, principal advocate for the appeal, told Mineweb: “According to our best information, Vekselberg was a permanent resident, not a citizen, and then he apparently renounced it. If so, and if he is found to have committed what Norex has alleged (racketeering, trading with Cuba, kickbacks to Saddam Hussein’s regime, bribes to Russian officials), it is likely that he would not receive further visas to enter the US. There would also be serious tax fraud issues because US permanent residents must pay US federal income tax on their world-wide income. Essentially, Vekselberg would be in the same position as Deripaska. One would think it unlikely that a publicly traded company in the UK or US could have such a person as a director.”

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