By John Helmer in Moscow
In a stunning repudiation of Tajikistan’s President Emomali Rahmon, lawyers for the Tajikistan Aluminium Plant (Talco) agreed overnight to halt their High Court case in London. They have settled with Avaz Nazarov, the Ansol company, a former manager and traders of the aluminium plant, whom Rahmon and his cronies ousted in December 2004, in a scheme that has diverted more than half a billion dollars in aluminium export profits to safe haven in the British Virgin Islands.
Details of the settlement have not been made public; Nazarov and the others decline to comment. But the ramifications of their victory have only started to be counted — in Dushanbe, at Rahmon’s presidential palace, and in the board rooms of several international organizations, whose executives have been implicated in the frauds alleged in the court testimony, and documented in the evidence presented so far. The overnight agreement by the lawyers puts a stop to further disclosures in London, but the evidence remains for possible prosecution in Oslo, and internal investigations at the European Bank for Reconstruction and Development (EBRD), the World Bank, and the International Monetary Fund (IMF), who have been backing Rahmon in the litigation that has now failed.
Although noone is saying, the confidential settlement appears to include reimbursement by Talco of the multi-million pound costs incurred by the targets of the court case, one of the most costly ever recorded in the UK courts.
An expert, who has followed the case in London, and the outcome, told Asia Times Online: “The guy [Rahmon] spent $200 million on this, and with what result? He has destroyed his reputation and that of his family, and the leading bank of his country [Orienbank]. He has emptied the treasury of its export revenues. He has fallen out with the Russian oligarch [Oleg Deripaska], who was his partner. He has involved the Norwegian company Hydro in a scheme that is now a public embarrassment, or worse, for the Norwegians who signed it, and the international bankers who publicly endorsed it.”
The pressure on Rahmon to stop the case has grown intense, once the High Court judge, Justice Stephen Tomlinson, refused to allow delays in the four-year proceedings, ordering the trial to commence at the end of last month. Courtroom 76 was assigned, and filled with reams of document binders and computers for the teams of attorneys who participated, as well as for the judge.
More than $140 million has been spent so far on the High Court case alone. Other cases initiated by the Tajiks, some still pending in BVI and Switzerland, have added substantially to legal bills amounting to an estimated 4% of the Gross Domestic Product of Tajikistan.
Testimony, presentation of documents, and cross-examination on oath of witnesses have produced a stream of evidence that has proved embarrassing, not only for the government-run Talco and its BVI affiliates, but also for Hydro Aluminium, which is controlled by the Norwegian government; the European Bank for Reconstruction and Development (EBRD); and the World Bank.
The case began as a claim by Talco (formerly known by its Russian acronym TadAZ) alleging fraud and mismanagement by Nazarov and others, who traded with the plant, Tajikistan’s largest industrial enterprise, until they were ousted at the end of 2004. Nazarov filed a counter-claim, accusing the Talco management of fraud, forgery of documents, and a racketeering scheme to force the plant to operate at a loss, while the profits of its aluminium exports were channeled through companies in the BVI, which were controlled by Rahmon and his cronies.
In June, the IMF issued a report ordering an independent international audit of Talco’s accounts, and charged the company, which is directly supervised by Rahmon, with “most worrisome financial operations [which] remain nontransparent.” The IMF also ordered the establishment of “a special monitoring unit at the ministry of finance”, whose mandate will include identification in Talco’s books of “untapped tax revenues and hitherto hidden contingent liabilities.”
The US government, concerned that the scandal leaking publicly in the London court , would undermine Rahmon politically, and damage his borrowing capacity with international banks and donors to his impoverished state, publicly called for the audit and reform of Talco’s operations. The message from Washington was that if Rahmon wanted to survive, he had to distance himself from control of the aluminium plant.
Then this month, as the London trial got under way, a crucial piece of evidence surfaced publicly for the first time. It is titled “Settlement Agreement”, dated December 20, 2006, and signed by Simon Storesund for Hydro Aluminium and Sadriddin Sharipov, director of Talco. The 49-page document sets out a scheme for Hydro to supply alumina at a premium to the Tajik plant, and take out aluminium at a discount, on terms that left the plant with nothing more than a processing fee. The profits of the aluminium exports were agreed to be paid to a BVI company.
Testimony from Sharipov in court acknowledged that this processing fee was below the cost of production. Under cross-examination in London , Sharipov also conceded that at one time he was ordered to supply aluminium. which the plant had produced for the ousted trading group, to a BVI company instead, at no charge.
The IMF report of June had acknowledged the relatively low processing fee the plant earned from its aluminium production. The December 20, 2006, agreement, and the evidence in court, indiocate that this was a racketeering scheme for the benefit of high placed, but concealed Tajik shareholders, who controlled the BVI companies.
Further evidence presented in court indicated the advance knowledge of Hydro company executives of who these shareholders were, and arrangements intended to conceal their interest. How involved Hydfro was in this part of the fraud was indicated in court when it was disclosed that the nominal shareholders of the BVI entity were front-men — one of them, identified in court, as “unlucky because since April 2008 he was sentenced to eight and a half years in prison by the Tajik courts on charges of bribery and tax evasion.”
During Sharipov’s cross-examination, Judge Tomlinson expressed concern at document tampering, and ordered Herbert Smith, the law firm representing Talco, to explain why lines in documentary evidence had been removed, apparently to conceal the involvement of Russian Aluminium (Rusal), which took over the plant at the end of 2004. Sharipov was also confronted with documentary evidence that he had fabricated customs documents.
In a summary for the judge, Brian Doctor QC, the advocate for the Nazarov group that after their ouster, “the new arrangements have been financially disastrous for TadAZ,and in any event are simply a device for those behind CDH and now Talco Management to syphon off the profits of TadAZ into their own BVI entities. We say TadAZ has lost potentially around$450 million of net income before tax from proceedingunder the tolling arrangements, compared to what it could have achieved under the Ansol/Hamer arrangements. While TadAZ has made a total profit of around $15 million in the period from 2005 to 2007, CDH/Talco Management’s profit has been over $500 million, and those sums are diverted to the owners of CDH/Talco Management.”
Executives at Hydro in Oslo refuse to discuss the details of their operations with Talco, and Talco Management, or the disclosures of the Hydro scheme in the High Court. Hydro spokesman Halvor Molland told Asia Times Online “we have information about the registered owners in Talco Management [one of the BVI companies] and have no reason to believe that these are not the beneficial owners.”
Molland also defended a provision in the 2006 contract with Talco, in which Hydro pledged to help Talco litigate against the former management, and agreed to take up to $57.5 million in proceeds, if the court claims succeeded. The role of Hydro in encouraging the Tajiks to pursue the costly London litigation had not been revealed before. According to Molland, “we see no wrong in a share of these assets being provided as part of Tadaz/Talco’s settlement of its debt to Hydro.”
EBRD bankers have publicly confirmed that they participated in the negotiations leading up to the Hydro-Talco agreement in December 2006, and they have publicly endorsed its terms. EBRD’s chief compliance officer, Enery Quinones, a US citzien, was asked what she knew of the text of the agreement revealed in the High Court; and why the EBRD had assisted Talco to litigate against other parties, including the Ansol/Nazarov group and Rusal, in order to generate cash for Hydro. Quinones, a US citizen, was also asked what the EBRD had done to protect itself from involvement in possibly corrupt profit diversion schemes set out in the agreement the bank had publicly endorsed.
Quinones refused to respond. Justice Tomlinson heard testimony that the EBRD bankers had been “unwitting dupes in this charade”, but Anthony Williams, a spokesman for the EBRD, implied that his organization was more witting than unwitting, and would not step back from its backing for the deal. “Further early communication on this question, the EBRD has no further comment,” Williams told Asia Times Online.
The withdrawal of the Tajik presidency and the aluminium plant from the High Court on Wednesday evening, and the settlement with the Nazarov, stops short of a court ruling on the evidence. But it vindicates the claims of the Nazarov group. The dossier of evidence remains open, however, to implicate all those who were involved in the Hydro scheme, and who continue to profit from the trade.
Shigeo Katsu, Annette Dixon, and Chiara Bronchi were the principal World Bank officials to support the December 2006 agreement, and the terms of the aluminium trade that have now become public. They were asked to explain why they had supported the profit diversion and the encouragement to pursue the costly litigation in London; and why they have remained silent in the face of evidence in the High Court of a massive conspiracy to commit fraud. Spokesman Andrew Kircher promised a reply, but it has not materialized.
Talco was asked by telephone and in writing for its comment on the outcome of the London case. Neither Sharipov’s office nor the official spokesman of the company, Saehat Kadyrova, responded.