By John Helmer, Moscow
Russia’s state aluminium monopoly, United Company Rusal, has requested the help of the federal US court in Los Angeles in an attempt to delay or prevent the Nigerian courts and Nigerian government returning the country’s sole aluminium smelter to the Nigerian-American company which originally won the privatization auction of the asset in 2004, before losing it to Rusal.
Scheduled for hearing on February 12, the Rusal move may backfire, as similar legal tactics have already gone against Rusal last year in New York. Whether the Los Angeles court rules in favour of or against Rusal, it is likely to trigger parallel applications throughout the US for evidence disclosure orders by the US courts in support of other international lawsuits against Rusal companies, bank accounts, and Oleg Deripaska, the Kremlin’s trustee for the shareholder trust which controls the group.
The judgement of the Supreme Court, Nigeria’s highest court, was issued last July . It annulled the 2004 privatization of Aluminium Smelter Company of Nigeria (ALSCON) in Rusal’s favour, and ordered the government’s Bureau of Private Enterprises, a presidential agency, to restore the asset award to the BFI Group (BFIG). The latter is headquartered in Los Angeles and led by Reuben Jaja, a Nigerian-American. In the new court papers both sides call each other fraudsters. Both claim the corporate entities used in the bidding process for the smelter were shells.
According to Rusal’ s representative, Jaime Bartlett of Sidley Austin, Jaja should be required to give evidence to determine which of his group of companies did the bidding for the smelter, and who won the claim before the Nigerian courts. Jaja and BFIG have responded through their lawyer, Jimmie Williams of Burnham Brown, accusing Rusal of harassment and continuation of a “fraudulent conspiracy to deprive the Respondent [BFIG] of its rights, and] through this application, seeks to practice its deception on this Court by falsely describing its understanding of the pertinent events.”
The application was filed in the US District Court for the Central District of California by Rusal Global Management B.V. on October 16, 2012. The dossier can be found at case no. CV12-08898. The court file was scheduled to be reviewed at a hearing by Magistrate Judge Carla Woehrle this week, but she has postponed until February 12.
The legal foundation for discovery and disclosure orders is based on Rusal’s claim that it is in aid of Rusal’s application to the London Court of International Arbitration (LCIA), which commenced on August 7, 2012, a month after the Supreme Court revoked Rusal’s takeover. According to US law, litigants in “a foreign or international tribunal” outside the US may apply to the US courts to compel disclosure of evidence or testimony by parties inside the US, so long as the US judge is satisfied the application meets several tests . Over the years the procedure has come to be named, after its place in the US Code. as Section 1782 discovery.
Rusal and Deripaska have used this procedure before against claimants, litigants, witnesses, and critics in the US. In support of Deripaska’s defence in the UK High Court lawsuit brought against him by Michael Cherney (Chernoy) last year, there was a Section 1782 attempt to compel testimony by New York witnesses. But the US judge threw out the allegations, and Deripaska’s lawyers withdrew their claim. Although the court papers were sealed  by the judge to prevent the allegations being published, a press tipoff did just that.
In another campaign by Rusal lawyers against the former Rusal executive in charge of alumina and bauxite procurement, Andrei Raikov, and against shipping companies in Cyprus which managed transportation of alumina and bauxite to Rusal smelters, the New York courts have accepted a counter-application from Rusal’s targets, ordering disclosure of Rusal account data in several New York banks. Rusal is now trying to overturn the orders, and reseal the evidence .
The history of ALSCON started in 1989 when the World Bank gave Nigeria a loan to create the smelter, enabling utilization of a surplus of gas produced elsewhere in the same region of the country. By 1999, however, the plant had failed to operate effectively. A privatization sale was then advertised, starting in 2002. Nigerian government officials disqualified the German company then running the plant, and cancelled the asset award to BFIG whose bid came in at $410 million. Instead, Rusal won the smelter with a lower bid. Exactly how much Rusal ended up paying remains unclear.
An application by BFIG for damages against Rusal to the US federal court in New York resolved in 2007 and 2008 that the appropriate jurisdiction for hearing the claims was Nigeria; at the US court’s direction, Rusal then accepted the jurisdiction of the Nigerian courts to decide who owned the plant. Rusal’s purchase agreement for ALSCON with the government also contained a provision apparently barring appeal to the London arbitral tribunal on issues of evidence or law decided by the courts of Nigeria.
Last October a Moscow newspaper reported that Rusal claims to have spent at least $500 million on ALSCON, although the Rusal share sale prospectus of December 31, 2009, indicates this amount was less than $330 million. No sales revenue is reported for ALSCON in Rusal’s financial reports for 2011 or 2012. There is no reference to ALSCON or the Nigerian court ruling against Rusal in the company’s most recent operational reports, issued on September 4 and December 12. Current production of aluminium at ALSCON is estimated to be less than 20,000 tonnes per annum, one-tenth of the planned capacity of the smelter.
The LCIA arbitration in London is between Rusal and the Nigerian government, not between Rusal and BFIG. Just in case that is shaky legal ground for pursuing BFIG in Los Angeles, according to the Section 1782 rules, Rusal’s discovery application lists three other court cases in Nigeria for which the US court’s assistance is requested. These are referred to as “contemplated court proceedings” and “potential proceedings”. In short, they haven’t started; the Rusal application is asking the US court to intervene in cases which don’t yet exist. According to Williams for BFIG, “these are a sham, because they have no basis for bringing new lawsuits in Nigeria, nor have they given the court evidence that they have prepared them.”
According to BFIG’s submissions to the Los Angeles court, in 2004 there was a corrupt deal for ALSCON between Rusal and Nigerian government officials. Rusal, according to the court dossier, “and then President of Nigeria, Olusegun Obasanjo, had already reached an agreement to declare Rusal the winner of the bid process.”
A Nigerian official identified in the US court papers as having acted for Obasanjo in directing the privatization process in Rusal’s favour is General Aliyu Gusau, then the president’s national security advisor. Court papers in California suggest there was a relationship between him, Obasanjo and Rusal, in which the privatization award was agreed unlawfully. Aliyu, a military putsch plotter in the 1980s, has attempted to run for election to the Nigerian presidency twice in recent years; he is reported in the Nigerian press to be advancing himself politically as security threats in the north of Nigeria continue to mount. He was recently reported to be a candidate for the new Defence Minister, though another candidate appears to have been selected early this month.
One of the Rusal advisors, identified by BFIG as having been in contact with Nigerian officials during the bid process, is Ednan Agaev. Then as now, he is associated with Deripaska’s principal legal advisor and Rusal board member, Dmitry Afanasiev. Agaev and Afanasiev are partners in a Moscow law firm, Egorov Puginsky Afanasiev and Partners (EPAM). The firm website confirms Agaev’s current status. It also reports that he runs the firm’s “international consulting department”.
Agaev’s role in the ALSCON affair is not the only one he has had in controversial Nigerian government asset deals. Between 2009 and 2011 Agaev acted as advisor, negotiator and go-between in the sale of a Nigerian oil prospecting licence to Royal Dutch Shell and ENI. An investigation published last November by the UK-based Global Witness organization claims the deal “could fall foul of anti-corruption legislation”. Agaev, claims  Global Witness, played “a central role in setting up the deal”. “ ‘Something really stinks here,’ said Simon Taylor, Director of Global Witness. ‘On the one hand, we have Shell fighting an aggressive campaign to prevent new EU laws from mandating payment disclosure right down to the project-level. On the other, we can see that the company bought this project in Nigeria, together with ENI, with a payment that monetised an asset obtained by [ex-President General Sani] Abacha’s Oil Minister [Dan Etete] under dubious circumstances.’”
Many of the deal details come from Agaev himself. According to papers filed in the Supreme Court of New York State in 2011, Agaev is suing Etete in London at the LCIA, to enforce a deal-making and representation agreement between Agaev’s International Legal Consulting Limited and Etete’s Malabu Oil and Gas. Agaev went into the New York court to obtain a freeze order against Etete’s and Malabu’s local bank accounts at JP Morgan and Citibank. According to Agaev’s affidavit of June 2011, he had negotiated the sale of Malabu’s rights in the oil prospecting licence OPL 245, to Shell and ENI, for which the latter paid $1.1 billion. Agaev figured he was owed 6%, or $65.5 million. But no cash was found in the US bank accounts, the court was told. Another $215 million was found in a JP Morgan account in London, but that belonged to the Nigerian Government. According to Agaev, it was held for Malabu’s benefit .
These LCIA proceedings are confidential; the US freeze order application is not. But if the deal details between Etete, Malabu, Shell and ENI prove to be as corrupt as Global Witness intimates, Agaev can’t be culpable because he’s been stiffed, and has received no money.
Curiously, Agaev claims credit for introducing Etete and Malabu as the creditworthy owner and seller of the asset to a range of international oil companies, including Rosneft. On the other hand, in his affidavit Agaev accuses Etete of being untrustworthy and of having a criminal record, including a French conviction and fine for money laundering. The criminal record which now bothers Agaev dates from several months before Agaev and Etete signed their deal together.
Agaev was asked in Moscow to clarify how International Legal Consulting Ltd, a British Virgin Islands-registered company, was connected to the EPAM law firm. He was also asked to clarify what role he had played in the earlier sale of ALSCON to Rusal. In particular: “Did you discuss with General Aliyu payments for services, commissions, or any form of compensation, reward or inducement payable by Rusal and its associated companies in relation to the ALSCON privatization?”
Agaev’s secretary confirms the questions have been received. Agaev, she said, “will reply as soon as he has opportunity and time for it.” So far he hasn’t.
One of the legal issues  to be decided by Judge Woerhle in Los Angeles on February 12 threatens to open to public visibility the evidence in the most sensitive London case against Deripaska – the LCIA arbitration suit initiated by Victor Vekselberg and Sual Partners as Rusal shareholders against Deripaska and his shareholder group.
BFIG’s argument is that the US courts can’t be used in a Section 1782 procedure to compel disclosure for an arbitration “conducted by a private organizational body” like LCIA. Rusal argues that it can. In Rusal’s court submission on January 15, the judge was told “that BFIG might be a party in contemplated Nigerian proceedings does not preclude the Court from permitting such discovery under Section 1782… Section 1782 vests this Court with the authority to order such discovery over non-parties in aid of arbitration where the statutory requirements have been met (as in the present case).”
If Rusal carries this argument, the win will be a booomerang — Deripaska will be wide open to fresh Section 1782 orders exposing US bank evidence of his own financial operations.