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ISKANDER MAKHMUDOV – ELEPHANT IN OLEG DERIPASKA’S (HIGH COURT) ROOM

By John Helmer, Moscow

Iskander Makhmudov (right image) is cultured, charming, gracious, hospitable, polite, discreet – he has more of these qualities than his oligarch peers.

But for Oleg Deripaska, his junior in the division of the Russian metals businesses that took place between 1995 and 2000, before the formation of Russian Aluminium (Rusal), here’s what Mark Howard said in the UK High Court last week: “[Makhmudov’s] role in these proceedings we suggest raises serious difficulties for Mr Deripaska’s case on a fundamental level. Indeed, we suggest he is very much the elephant in the room.”

Howard is the advocate of Mikhail Chernoy (Michael Cherney) in the High Court proceedings now in trial, Michael Cherney v Oleg Deripaska. Makhmudov’s contribution to establishing the genuine history of the Russian aluminium business – unreported so far in the London Telegraph and Deripaska’s other tabloids – is going to be mammoth. It comes down to this: If Makhmudov isn’t a crook and a gangster, Mikhail Chernoy (Michael Cherney) – the plaintiff in the High Court proceedings against Deripaska – cannot be either. And if that’s so, Deripaska will lose the case, and owe Cherney 13% of Rusal, or several billion dollars.

But if Makhmudov is a crook and a gangster, then how come Deripaska has testified in court documents, now publicly available for the first time, that he “assisted him [Makhmudov] nd his group with their copper related activities”; that Deripaska loaned or paid him large sums of money; that the two of them were business and shareholding partners in a chicken-importing business called SoyuzKontrakt, whose offices in Moscow were shared with Deripaska’s Sibirsky Aluminy (SibAl); and that they were involved in setting up and co-financing the fashion business of Valentin Yudashkin.

That one, according to the New York Times, “is the only Russian designer to be honored with membership of the Syndicate of High Fashion in Paris. He showed his first collection in1987, and he has since created more than 50 collections. [His] collections are displayed in the Louvre Museum of Fashion in Paris,the California Museum of Fashion in Los Angeles, the MetropolitanMuseum in New York, the State Historical Museum in Moscow and in other museums around the world.”

If Deripaska’s evidence is credible on its face, the Yudashkin brand was a money-laundering scheme for criminals. In fact, Deripaska has been changing his written evidence and allegations of who is criminal, who is not, as more and more evidence is discovered, and brought to court, from his own archives.

The Makhmudov story is decisive. In May of 2010, Deripaska gave evidence in Moscow to Spanish magistrates investigating alleged money laundering by Deripaska, Makhmudov and Cherney that “Makhmudov asked me to purchase the shares of Gaisky GOK [a copper mine and concentrator in Orenburg region]. I helped him and my company was purchasing Gaisky GOK shares for him for consideration as a professional service…That was in 1994-1995. This is the only time I had business relations with Makhmudov.” How it happens that this troika has been investigated by a couple of Spanish magistrates, but only Cherney is the target of an Interpol warrant, and also the only one of the three targets whom the Spaniards have not interviewed, read on [1].

On August 5, 2011, Deripaska was asked to explain cash flows between his companies and those owned by both Makhmudov and Cherney. This time Deripaska remembered that Makhmudov’s Urals Mining and Metallurgy group, a copper holding, “made use of companies and personnel of the Deripaska Group for the operation of its copper business over a period of time… our groups operated closely together for longer until a full separation of our two groups’ activities took place through the segregation of companies and transfer of staff according to the area of expertise…”

The court evidence that is accepted by the lawyers for both Cherney and Deripaska indicates that this “segregation” didn’t happen until the end of 1999.

The new explanation Deripaska has given for the payment disclosures in his own files is that what looks like payments Cherney made into what Deripaska claims was his own aluminium business were actually payments into Makhmudov’s copper business. According to Cherney’s advocate Howard, in court on July 10, “it is common ground that Mr Makhmudov is a legitimate and highly successful businessman. He is indeed of comparable wealth to Mr Deripaska, being one of the richest men in modern Russia, and Mr Deripaska’s evidence is that he was indeed a close friend and associate of Mr Makhmudov and, indeed, remains a friend of his to this day.”

That being the fact accepted by everyone, Howard told Justice Andrew Smith, “your Lordship will need to consider in the light of Mr Deripaska’s relationship with Mr Makhmudov, is how is it that the monies that he says were illegal extortion monies were paid to entities in which Mr Makhmudov was closely involved?”

Deripaska changed his evidence from the August 2011 statement to a new claim he sent to the court last month, on June 6. Now he claims that Cherney was extorting Makhmudov, and imposing a protection scheme (krysha) on him. Payments to and from companies called Blonde and Neoton are among the cashflows Deripaska’s change of claim is intended to explain. According to Howard, “Mr Deripaska’s case proceeds on the basis that he had a separate, legitimate, business relationship with Mr Makhmudov, who has his own legitimate business relationship with Mr Cherney, and yet Mr Deripaska’s relationship with Mr Cherney was not a business relationship at all, but a relationship between the representative of OCGs[organized crime groups] and a victim of krysha.”

Independently, Makhmudov has said he and Cherney were friends and business partners. He has recently testified to the Spanish investigators, for example: “I know Michael Chernoy. I have known him since the beginning of the 1990s…We are friends. Including some joint business projects…He left Russia in 1993. And then we gradually lost contact until there were no longer any relations.”

The court evidence identifies a list of company names, trusts or foundations which Makhmudov operated. These include: Archers Trading, Arufa, Radom, and Witestone. Arufa has been shown to have been a treasury company used by both Makhmudov and Cherney, but Deripaska is claiming it was a kitbag for money Cherney was collecting from him. Radom was the Lichtenstein foundation sitting at the top of the aluminium operations, in which Cherney, Makhmudov and Deripaska himself shared [2]. Witestone is the Makhmudov vehicle for what he, Cherney and Deripaska were planning in the late 1990s as a merger of the copper and aluminium assets Cherney had started off. Deripaska’s vehicle for the planned merger was called Cole; Cherney’s, Galenit.

But in evidence both teams of lawyers accept to be true, the merger didn’t come off, and the troika decided on an alternative scheme. This is reported in the court evidence as the Syndikus plan which the independent Syndikus witnesses have testified to have involved meetings and correspondence between Makhmudov, Cherney and Deripaska during 1998 and 1999.

The new company which was established by the troika was called Aluminprodukt, which owned shares in the Sayansk aluminium smelter, the asset Deripaska claims to have been his alone, and to have been the start of his SibAl group, which turned into Russian Aluminium between 2000 and 2001. But the evidence is that Aluminprodukt was owned by shareholding entities called Aktsia, Marka and AMG-2. A more accurate name for this lot would have been Mishpocha – 50% was assigned to Deripaska’s mother; 25% to Cherney’s wife; and 25% to Makhmudov’s uncle. When Makhmudov withdrew from the aluminium business to concentrate on copper, his uncle’s stake went to Cherney’s wife, who then became a 50% stakeholder in Aluminprodukt. “Obviously”, said Howard in court, “your Lordship has to consider how is it that Mr Deripaska is incorporating companies which he is putting in the name of Mr Cherney’s wife?”

The character of the company called Blonde is also problematic for Deripaska’s claims. According to Howard’s submission to the court last week, “Mr Deripaska accepts dealing with Blonde in relation to payments to and from companies he says he owned. Mr Deripaska has served a Notice to Admit which accepts that Mr Cherney was the ultimate beneficial owner of Blonde from 16 July 1993 to 31 December 2002. Internal documents produced by Mr Deripaska list Blonde under the heading ‘MCH.s co’.”

When Deripaska’s takeover of the Novokuznetsk aluminium smelter was challenged in the first racketeering case Deripaska faced in the US federal courts the archive at the US District Court for the Southern District of New York, reveals a May 2001 document substantiating that Deripaska and Cherney were acting as business partners together. The court records show that Blonde, the Cherney company, was acting in concert with the Deripaska companies, Sibirsky Aluminium (SibAl) and Bauxal Management. Alexander Bulygin, at the time of that lawsuit the chief executive of SibAl, ran the business from an office on the second floor of the Soyuzprodukt building,, and was in regular contact with Cherney. So too were other senior employees of SibAl at the time. German Tkachenko, press secretary for SibAl and spokesman for Deripaska, was often on the telephone to Israel to Cherney, whom he addressed by his first name in its well-known Russian diminutive, Misha.