By John Helmer in Moscow
A public relations blitz under way in London and the UK media has produced charges and counter-charges involving Alisher Usmanov, an iron-ore and steel magnate, who was named in US court papers as one of the principal defendants in the affair of the Grib pipe, a major diamond deposit in northwestern Russia.
The allegations against Usmanov, and his campaign to rebut them, follow his acquisition of a bloc of shares in the Arsenal Football Club, and his attempt to buy more shares, and possible control of the club from other shareholders.
The Grib diamond pipe was first discovered in 1996 by a joint venture of Canadian and Russian prospectors. Sampling and valuation conducted by De Beers have identified 98 million tonnes of kimberlite to a depth of 500 metres, containing an estimated 67 million recoverable carats. The grade has been estimated at 69 carats per 100 tonnes. The original De Beers valuation was $79/carat, amounting to $5.3 billion. This valuation has moved up with diamond prices to more than $7 billion today.
For several years, Usmanov and partner, Vagit Alekperov, chairman of LUKoil, have been facing the charge of “unjust enrichment” in federal US and state court of Colorado, and of contract violations in arbitral and court proceedings in Stockholm, Sweden.
But according to an October 9 report by Moscow news agency Interfax, Usmanov has denied reports that ADC, now a subsidiary of De Beers, had filed a lawsuit against him.
According to Interfax, “Alisher Usmanov is not and has never been a defendant in claims from Archangel Diamond Corporation.
ADC previously made a contrived attempt to involve Usmanov as a party in the case, which was rejected in arbitration proceedings in Stockholm,” the billionaire’s press service said in a statement issued Monday evening.
ADC lost all of its lawsuits against Arkhangelskgeoldobycha (AGD), which is now a subsidiary of LUKoil (RTS: LKOH), the press service said. AGD won court hearings both in Russia, and in the U.S. state of Colorado. The case in Colorado is continuing only against LUKoil on procedural grounds,” the statement said.”
A promotional interview with Usmanov, reported by Mark Franchetti of the Sunday Times of London on October 14, omitted to check the US and Swedish court documents.
Usmanov’s claims are misleading. Although the caption pages of the filings by ADC in US federal and Denver District Court refer to LUKoil and Arkhangelskgeoldobycha (AGD) as defendants, Usmanov is explicitly named as a separate defendant; as a “co-venturer” with LUKoil and Alekperov; and as the co-controlling shareholder of VA Investment LLC “a company which managed and controlled [defendant] AGD”.
The charges against Usmanov cited in the court filings include “fraud, breach of express and implied contract, civil conspiracy, intentional interference with contract, breach of fiduciary duty, and unjust enrichment…”
ADC is claiming that it has lost more than $30 million in its investment in the deposit, and more than $400 million in profits which it would earn from its 40% stake in the Grib mine venture.
In court filings, it is claiming $1.2 billion in triple compensatory damages, and $3.6 billion in punitive damages. Colorodo is the venue because LUKoil operates petrol stations in the jurisdiction; and because ADC’s operating office and chief executive were located in Denver at the time, and conducted negotiations with LUKoil, AGD, Usmanov, and Alekperov from there.
Usmanov is accused in the US court documents of having “operated and controlled AGD during the time periods described herein”; to have “served as the Deputy Chairman of AGD and represented AGD in negotiations and communications”; and to have controlled AGD through other entities in which he had control, including Mapo Bank, Interfin Services, and AGD Invest.
The US courts have so far considered only jurisdictional issues, and there has been no trial on the substance of the charges. The case is still pending.
In Sweden, where ADC has filed for breach of contract, the initial panel of arbitrators accepted jurisdiction, and then heard testimony in the case. A switch of votes on the panel, in suspicious circumstances, then reversed the jurisdiction ruling.
ADC appealed to the Swedish courts, and in February 2004, the Stockholm District Court upheld ADC’s appeal, reversed the tribunal ruling, and ordered a rehearing of the charges. In a blow against the credibility of AGD, it was ordered to pay ADC’s costs. That case is also still proceeding.
Russian court litigation in the case, to which Usmanov refers in his London media defence, is described by ADC in the US court documents as “seek(ing) to take advantage of the notoriously corrupt Russian court system”.