Email This Post - Print This Post Print This Post

By John Helmer, Moscow

There is no literal Russian language version for stool pigeon, as the term is understood in English — someone who acts as a decoy to trap others into committing a crime, and then gives evidence against them for a payoff. The nearest Russian term is стукач. The meaning is the same – whatever the stoolie or стукачёк says is as likely to be fabricated as true.

On Friday, in the Dorogomilovsky regional court of Moscow, Judge Natalia Morozova heard lawyers for the Sovcomflot group, the state-owned tanker company, commend the pigeon, I mean the accused, Yury Privalov (image left), for his expertise and cooperation in recovering $150 million in money he had helped embezzle when Privalov was in charge of the London operations of Sovcomflot’s UK affiliated company, Fiona.

The indictment by prosecutor Elena Zinovenkova was stitched into three volumes, and Zinovenkova took more than five hours to read through the first volume, when the proceedings were adjourned by the judge until Monday morning.

These are the technicalities. Privalov isn’t contesting them as he faces a 5 to 10-year prison sentence for embezzlement as part of an organized crime group, according to the Criminal Code’s Article 160, Part 4. But it is almost certain he will be released, as lawyers for Sovcomflot told the court that he deserves a reward. Sergei Polevoy, one of the Sovcomflot lawyers, told the judge: “Privalov gave all the necessary information. He uncovered fraud schemes, which included employees of the company Sovcomflot and [charter partner Yury] Nikitin. In 2005 Privalov understood the nature of the parties’ activity and signed an agreement with Sovcomflot, and voluntarily returned $2 million and has assisted in the London court. Thanks to him the facts of the case were established, and with his help was returned [to Sovcomflot] more than $150 million”. Polevoy added in commendation that Privalov had signed a letter of apology in 2008, plus an offer of reimbursement. “Privalov is a specialist with high skills in the subject international shipping; his knowledge is unique.”

Sovcomflot, Polevoy said, is asking the judge for a non-custodial sentence for Privalov, taking into account that he has already served two years in prison.

Sovcomflot’s chief legal counsel and deputy general director, Vladimir Mednikov, got up to tell the court that he endorsed Polevoy’s remarks, and emphasized that the company has appreciated Privalov’s assistance. A third lawyer, Marina Ivanenko, representing Sovcomflot subsidiary, Novorossiysk Shipping Company (Novoship), took her turn to tell Judge Morozova that her company also wants to save Privalov from any further discomfort on account of his helpfulness to Novoship. She revealed too that Privalov had signed an extra agreement in February 2012. The details of that were reported in court as including the return by Privalov of another $5.5 million and the forfeiture of his London house worth an estimated $2 million.

All that is missing from the Moscow legal process is an explanation from Prosecutor Zinovenkova, the attorneys for Sovcomflot and Privalov, and Judge Morozova of why the Russian criminal case has accepted evidence drawn detail by detail from the six-year litigation by Sovcomflot in the UK High Court; and why at the same time the Russian prosecution has ignored the judgements of Justice Andrew Smith dismissing the credibility and culpability of most of this evidence, and most of Sovcomflot’s claims. Not only has Justice Smith ruled that Privalov perjured himself and gave false testimony, but also that his lies had been illegally procured in order to accuse the three defendants in the case – former Sovcomflot chief executive Dmitry Skarga, former Novoship chief executive Tagir Izmailov, and former chartering partner Yury Nikitin.

In the High Court in London the charges against Skarga and Izmailov have been dismissed. Sovcomflot has been ordered to pay their costs of about £15 million, plus an extra indemnity to Izmailov.

Nikitin and several UK shipping brokers have been convicted of paying illegal commissions and bribes, but most of the charges against Nikitin have been dismissed. An appeal by Sovcomflot is pending in the UK Court of Appeal, but Justice Smith has already ruled that it is narrow in its application; does not challenge his main rulings; and is unlikely to be to be upheld. Here’s the first ruling, which was issued on December 10, 2010. A comprehensive archive of the High Court rulings in the case to date can be read here.

In the December 2010 judgement, Smith ruled that Privalov was “thoroughly dishonest”. By procuring his testimony and getting him to testify falsely or misleadingly himself, Sovcomflot’s chief executive Sergei Frank, according to the judge, was himself “dishonest”.

Five years earlier, Privalov had been targeted by Russian prosecutors, as well as by private investigators hired by Sovcomflot, to break into his London bank account, his personal computer, his morning milk and mail delivery, and his house. On December 21, 2006, when Privalov flew from London to Zurich, he was arrested at the Swiss airport on an international arrest warrant issued at the request of the Russian Prosecutor General’s Office. He was then imprisoned in Switzerland while he fought extradition. He was unsuccessful. The Swiss courts ruled that so long as the Russian authorities would assure Privalov a European standard of human rights,, he should be extradited. He was then flown in custody to Moscow on June 30, 2008. Then the Russian authorities discussed with Frank and Sovcomflot’s lawyers how they might treat Privalov with even more rights than the Swiss had thought of. On October 10, 2008, he was released from prison and hired as a consultant at Sovcomflot at a salary estimated by Sovcomflot sources at around $5,000 per month.

According to the findings by Justice Smith, one of Privalov’s duties under his brand-new Sovcomflot contract was to “assist and co-operate with [Sovcomflot] in connection with the preparation and hearing of [Sovcomflot’s] case in the High Court of England”. Smith also found there were “other reasons for him to support the claimants’ [Sovcomflot] case. In the settlement agreement, he agreed to pay only $2 million, but his liability to Sovcomflot is undoubtedly much more than that.” As Privalov and the prosecutors have testified in the London and Moscow courts already, Privalov’s private enterprise netted about $12 million.

According to a statement released in Russian on August 3 by the branch of the procuracy known as the Investigative Committee – but kept off the English version of its website – the investigation which had started in 2005, and had been stepped up in 2008, was finally done. Privalov was charged with embezzlement. The criminal code references in the statement indicate the prosecutors were charging Privalov with belonging to a “organized group”. That didn’t mean Sergei Frank’s Sovcomflot. Article 160 specifies that Privalov’s embezzlement could cost him 5 to 10 years in prison, and forfeiture of the rest of the proceeds.

The prosecutors’ statement followed closely after the findings of fact in the London court. Privalov had faked the accounts to extract deal commissions for himself. Between what was paid and what Sovcomflot received, Privalov took his cut. In the Investigative Committee’s version, this cost the company more than $67 million. This is less than one-tenth of the money claims Frank attempted to press against Skarga and the others.

The $67 million figure in the Russian indictment was taken from Par 1527 of Smith’s December 10, 2010, judgement, and comprises this itemization of unlawful commissions. The judge’s itemization adds up to a finding of $50.42 million. In his subsequent judgement of March 2011, bank interest was added. Since Nikitin has paid the full amount already, and one of the London shipping brokers involved, Clarksons, has also made a financial settlement with Sovcomflot of £27 million, at this point there is no sign that Sovcomflot has lost money.

How the indictment read out in court on September 7 calculates that Privalov was instrumental in the return of $150 million isn’t clear yet. What Sovcomflot’s audited accounts reveal is that its legal costs for the UK litigation have come to at least $60 million, possibly as much as $100 million. Two court cases continue in London to add to Sovcomflot’s costs, with potential liability of another $180 million, if Nikitin succeeds in his damages claim.

As for Privalov’s criminal modus operandi, the British court judgements accepted evidence that he had been busy with his embezzlement schemes from 1998, possibly earlier. According to Justice Smith: “It is, to my mind, relevant when assessing the evidence of Mr. Privalov that, before Mr. Skarga joined Sovcomflot and before Mr. Nikitin had any dealings with him, he had been engaged in skilfully defrauding the Sovcomflot group for his own benefit. He did not need any assistance from anyone at Sovcomflot’s Moscow office to do so. Three frauds illustrate what he did, but it is likely that he was involved in other frauds, because Mr. Privalov accepted that many payments into his account with RBS in the Isle of Man were in respect of secret profits or secret commissions.”

Smith calculated that these three frauds at Sovcomflot’s expense between 1998 and 2000 earned Privalov $235,500. Frank, then federal minister of transport, was a director on the board of the shipping company at the time; Skarga didn’t take charge at Sovcomflot until later. The Russian indictment read out in court doesn’t mention this money. In Prosecutor Zinovenkova’s recital on Friday Privalov’s crimes against Sovcomflot didn’t start until 2000.

Until now Privalov’s deal with Frank has left him with about $10 million. His Swiss and Russian legal fees have cost about $2 million; his jail time in Zurich and Moscow adds up to 22 months. His deal with Novoship returns the London home and $5.5 million in cash. That would still leave him with $2.5 million, and whatever he had gathered and saved from before 2000.

Justice Smith has ruled that “I cannot place any reliance upon [Privalov’s] his evidence. In cross-examination he deliberately gave accounts that were entirely fictitious.” If that’s what Sovcomflot’s lawyers meant by recommending to the Moscow court the expertise and assistance Judge Morozova should take into account when pronouncing sentence, she is about to have the final say.

Leave a Reply