Sunday, October 9, 2011

Russians in London: Super-rich in court

Entertaining reading for sure however as I have commented previously what currency in teh world woudl you want to hold? Certainly not Russian ruble's!

Aivars Lode

Courtroom battle risks heightening investor concern about Russia
Exiled Russian tycoon Boris Berezovsky leaves a division of the High Court
Boris Berezovsky (right) a maths professor turned car dealer turned oil baron, leaves court in London. He is seeking damages from his former business partner, Roman Abramovich
It is a tale of wealth and alleged betrayal, of protection money and political intrigues, of attempted assassinations and Chechen gangsters. It features fabulously rich oligarchs, former Russian presidents Boris Yeltsin and Vladimir Putin, and members of their innermost courts. The action shifts from Caribbean cruises to Siberian oilfields, from the Kremlin to London hotel suites to Côte d’Azur mansions.
This is the $6.5bn case of Boris Abramovich Berezovsky v Roman Arkadievich Abramovich, which began this week – and London’s High Court has seen nothing quite like it. As Dame Elizabeth Gloster, the judge, surveyed the crush of big-name barristers, bodyguards in boxy suits and earpieces, and reporters standing three rows deep, she declared there was “not a courtroom in the land that could accommodate you all”.

Mr Berezovsky is a one-time kingpin of the oligarchs, the entrepreneurs who amassed wealth and political dominance in 1990s Russia. In 1996, he boasted to the Financial Times that he and six other businessmen controlled half his country’s economy. Today he lives in political exile in the UK, an avowed enemy of the Kremlin.
Mr Abramovich also spends time in London, as owner of Chelsea Football Club, but is still one of Russia’s richest men, valued by Forbes at $13.4bn. The former business partners are both said to have been instrumental in helping Mr Putin become president in 2000. One refused to submit to Mr Putin’s subsequent edict that the Kremlin, not the oligarchs, would now rule the roost; the other complied.
The nub of the case is whether or not Mr Abramovich then intimidated Mr Berezovsky – with apparent Kremlin backing – into selling a stake in Sibneft, an oil giant, at a knock-down price. Mr Berezovsky seeks in excess of $5bn damages for the stake, plus $565m for the alleged sale without his permission of shares in aluminium company Rusal that he claims Mr Abramovich held on his behalf.
Yet the trial also shines a spotlight on the murky workings of Russia’s “wild east” capitalism in the 1990s. It is not just a tussle between tycoons. The hearings are, in essence, on Russia’s whole post-Communist system, and the shady intertwining of politics and business in the absence of law.
“It isn’t easy for an English lawyer on either side of the court to assess the behaviour of people who have to live in such a world,” Jonathan Sumption QC, Mr Abramovich’s lawyer, told the court. “In our own national experience we have to go back to the 15th century to find anything remotely comparable.” To comprehend it, he advised, “read Shakespeare”.
While it deals with a particular period in Russia’s history, moreover, the case risks reinforcing negative views of today’s business climate – just as Mr Putin is stepping up efforts to reassure investors ahead of a return to the presidency next year. Mr Berezovsky claimed this week that the country is far more corrupt than 15 years ago.
The case illustrates, too, how Russia’s super-rich, and their feuds, have become woven into London life. And how, with the country still failing to impose the rule of law for itself, English courts are filling the vacuum. Berezovsky v Abramovich is the tip of an iceberg. By some estimates, more than half of cases in the High Court’s commercial division are related to Russia or other former Soviet republics. “There probably isn’t a single major law firm in London with a disputes practice that isn’t involved with Russian cases right now,” says Artem Doudko of White & Case.
The trial – among the first heard in the new commercial court headquarters in the City of London, all blonde wood, flatscreen computers and diffused lighting – opens a window on to Russia’s 1995 “loans for shares” scheme. Under the programme, businesspeople lent the government money in return for the right to buy state assets at knock-down prices. These less than transparent auctions enabled a handful of early millionaires to become billionaires. They then used their wealth and media possessions to ensure Yeltsin, lagging in the polls, was re-elected in 1996 – providing a dangerous lesson in how elections could be swung.
Mr Berezovsky, now 65, played a leading role. He was a maths professor who had created Russia’s biggest car dealership. After surviving a 1994 car bomb that decapitated his driver, he did some thinking. “I decided that if I personally ... will not participate in politics, it would be very complicated to build any business at all in Russia,” he told the court in guttural English this week. The country needed political stability, he said, which meant Yeltsin had to defeat communist candidate Gennady Zyuganov.
A gifted networker who had befriended Yeltsin’s daughter and future son-in-law, Mr Berezovsky said he persuaded the president to let him and his partners buy 49 per cent of state broadcaster ORT, planning to use it to provide political support. But ORT was making big losses and needed new funding. Around that time, on a Caribbean yacht, Mr Berezovsky met a businessman 21 years his junior with an intriguing proposal.
Russian billionaire Roman Abramovich leaves a division of the High Court
Roman Abramovich, former business partner of Boris Berezovsky
Mr Abramovich was an orphan raised in an oil town in Russia’s far north. In 1988 he had started a business making plastic ducks, then turned to oil trading. Using his industry knowledge, he outlined a plan to Mr Berezovsky to carve out two prime assets from Rosneft, the state oil holding, in order to create a potentially profitable business – Sibneft. Mr Berezovsky spotted an opportunity to use Sibneft money to fund ORT.
He used his contacts to ensure Sibneft was included in the loans-for-shares auctions, and worked with Mr Abramovich to take control.
On this much the two men agree. Then accounts diverge. Mr Berezovsky says he and a Georgian business partner, Badri Patarkatsishvili, bought the Sibneft stake 50-50 with Mr Abramovich. But in 2000, he fell foul of Mr Putin after his television channel criticised the president, and fled Russia.
Laurence Rabinowitz QC, Mr Berezovsky’s lawyer, said Mr Abramovich faced a choice: remain loyal to his “friend and mentor” or “betray Mr Berezovsky and seek to profit from his difficulties”. He told the court: “Mr Abramovich at that point demonstrated that he was a man to whom wealth and influence mattered more than friendship and loyalty.”
Mr Berezovsky’s camp alleges that Mr Abramovich at a 2001 meeting bullied him into selling his 21.5 per cent Sibneft stake for $1.3bn, far below its true value, warning that the Kremlin would otherwise expropriate it. Four years on, Mr Abramovich sold 73 per cent of Sibneft to Gazprom for $13bn.
. . .
Mr Abramovich, studiously following proceedings in translation with headphones, denies any such intimidation. According to him, Mr Berezovsky never even held a Sibneft stake. He says payments totalling $2bn that he made to Mr Berezovsky in 1995-2002 were not shares of Sibneft’s profits but fees for his partner’s services in pulling strings and introducing him to Kremlin courtiers. These enabled Mr Abramovich, alone, to take control of Sibneft; Mr Berezovsky contributed “not a cent”.
“Nobody could acquire or build up a substantial business in Russia in the 1990s without access to political power,” said Mr Sumption. “If you did not have political power yourself, then you needed access to a godfather who did.” These payments, the lawyer added, were what Russians called a krysha, or “roof” – a term used in the 1990s to refer to “protection”.
Mr Berezovsky says he and Patarkatsishvili were entitled to their Sibneft stake through a verbal agreement with Mr Abramovich. This would not have been unusual. Oligarchs did not like to disclose direct ownership for fear assets could be taken from them. Mikhail Khodorkovsky, the Yukos oil company founder, was the first to disclose all his assets – a couple of years before he, too, fell out with Mr Putin, and was jailed on fraud charges.
One complication of the case is that much depends on conflicting accounts of meetings and alleged oral contracts, up to 16 years ago, of which no record exists. Some crucial witnesses, more­over, are no longer around. Patarkatsishvili died in 2008 of a heart attack at his English mansion. Stephen Curtis, a British lawyer who worked for tycoons including Mr Berezovsky and Mr Khodorkovsky on setting up the complex trusts through which they held assets abroad, died in a helicopter crash shortly after the Yukos chief’s arrest.
Yet much hinges on the outcome. Mr Berezovsky would doubtless see a ruling in his favour, even with a fraction of the damages he seeks, as revenge against Mr Putin. It could give him a powerful war chest to fund his political opposition.
Mr Abramovich, for his part, stands to lose almost half his estimated worth if the judgment goes against him. Either way, revelations in London could complicate oligarchs’ efforts to draw a line under discussion of how acquired their assets and to reinvent themselves as businessmen-philanthropists.
One place the trial is not big news, however, is on Russia’s four main television channels, kept on a tight leash by the Kremlin. “We are not allowed to cover it,” said an employee of one, present in the courtroom for “personal interest”.
“They don’t like all the money and the yachts,” he said. “And Berezovsky is the last person we can show.”

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