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By John Helmer in Moscow

Russia’s President Dmitry Medvedev has presented two bears to Switzerland, with the warning that if any harm comes to them, or to Victor Vekselberg, a Russian oil and aluminium oligarch, all the Russian money that goes into, or is presently sitting in Switzerland, may vanish.

The Swiss Foreign Ministry says that no Russian head of state has ever visited Switzerland. But the Kremlin’s memory is a little longer. It reports that Tsar Alexander 1 (pictured) was there in 1819. In fact, for many years before, there had been a mutual soft-spot between the tsar and the Swiss. This had produced Alexander’s veto of a Prussian and Austrian military scheme to invade Switzerland on the way to attacking Napoleon. But the Swiss found their own way round that, and on January 14, 1813, following an army of Austrians and Bavarians, Alexander celebrated the Russian New Year in Basel. As Swiss schoolchildren used to be taught, the anti-Napoleonic alliance had rescued the Swiss from the French, turning them out of Geneva, Valais and Neuchatel, and creating thereby the confederation of Swiss cantons with something close to its modern political geography. The neutrality of the new state was from the beginning a pro-German, pro-Russian, anti-French idea.

Like Alexander before him, Medvedev’s arrival coincides with something of a Swiss sensitivity over the machinations of an alliance between Russians, Austrians, and Germans for what the latter insist is the greater good of the Swiss.

The reason for the Russian rescue mission, which starts in Berne on Monday, is that Vekselberg’s takeover of two of Switzerland’s leading companies, Sulzer and Oerlikon, was arranged by methods that may be charged as criminal, according to the Swiss stock market regulations and the company legal code. The timing of Medvedev’s visit could not be better for Vekselberg (pictured right), who is an oil and aluminium oligarch at home. Speaking through an assistant, Vekselberg says that “from this visit to Switzerland we are awaiting the acknowledgement of the seriousness of bilateral economic relations that will create a big opening for Russian investments.”

What he means is that he expects a not-guilty ruling from Swiss government investigators on charges of stock market manipulation and failure to disclose concert-party arrangements when Vekselberg built up his control shareholding in Sulzer and Oerlikon, both high-technology engineers and machine-builders. However, if the Swiss don’t convince themselves, or are not persuaded by Medvedev of Vekselberg’s innocence, an indictment for trial will be issued. If a conviction follows, Vekselberg could be jailed for three years, or fined up to one billion Swiss francs ($970 million). According to a confidential report on Vekselberg’s current financial condition now circulating in Zurich, he doesn’t have the money.

Vekselberg has other lawsuits to worry about, but the Swiss proceeding is the most dangerous and pressing. When charged in US federal court with fraud and theft in relation to Siberian oilfield assets a decade ago, Vekselberg renounced his immigration status in the US, and left his residence in New York, according to lawyers involved in the case, which is still pending.

A Russian newspaper on Friday headlines the purpose of Medvedev’s Swiss visit “to help Renova”, Vekselberg’s personal holding. The newspaper also cites Medvedev’s foreign affairs advisor, Sergey Prikhodko, as intimating that the Swiss government is improperly discriminating against Russian businessmen. The newspaper adds threats from the head of the Russian business association, Alexander Shokhin (pictured right bear), and Vekselberg’s spokesman, Andrei Shtorkh, that if their man isn’t let off the hook, the flow of Russian cash into Switzerland will stop.

A year ago, the press in Zurich discovered that the Swiss Federal Banking Commission (SFBC), which is responsible for investigating money-laundering and reputation risk of incoming foreign investors, had undertaken no investigation of Vekselberg’s purchase of the Sulzer and Oerlikon shares, in relation to Swiss money-laundering regulations. But the Swiss Financial Market Supervisory Authority (FINMA) did investigate the share-buying in relation to the takeover rules. A lengthy report was issued in January 2009, focusing on the methods used by Vekselberg’s Austrian partners, Ronny Pecik and Josef Stumpf, to buy de facto control of Sulzer, with a 31% shareholding, in 2006 and 2007. FINMA found Pecik and Stumpf culpable of market manipulation. The text of the FINMA announcement on January 29 also charged the Bank of the Canton of Zurich (ZKB) of acting illegally to assist the takeover operation.

Late last month, FINMA announced publicly that Deutsche Bank’s Swiss affiliate had also played an illegal role in the takeover scheme. Alain Bichsel, a FINMA spokesman, is reported in Zurich on August 30 as saying the German bank’s Zurich branch had caused “serious injury” (schwerwiegend verletzte) through its involvement in the Vekselberg group’s takeover of Sulzer FINMA’s latest ruling rejects an earlier declaration by Deutsche Bank’s CEO, Josef Ackermann that “we have done everything right”; it is believed in Zurich that Ackermann was personally involved in Vekselberg’s Sulzer deal. FINMA’s latest announcement acknowledges that Deutsche Bank’s “organization defects” have been “repaired in the meantime.” This appears to be a reference to the firing of low-level bank traders involved in the transactions. FINMA says it is continuing its investigation of another bank reported to have been involved – New Zurich Bank (NZB).

In March, FINMA publicly disclosed that it was making Vekselberg a target of investigation, and officers of the criminal law division of the Federal Department of Finance (FDF) were engaged. In April, the FDF confirmed that it had “opened criminal administrative proceedings against Ronny Pecik, Georg Stumpf and Viktor Vekselberg on suspicion of violation of their disclosure obligations under the law governing stock exchange transactions while building a stake in Sulzer AG. Based on the complaint made by the Swiss Financial Market Supervisory Authority (FINMA) on 2 March 2009, the Criminal Law Division of the FDF came to the conclusion that there were sufficient indications to suspect that Ronny Pecik, Georg Stumpf and Viktor Vekselberg had acted in concert when building a stake in Sulzer AG from November 2006 to April 2007 and in doing so had violated their disclosure obligations.”

Sources close to FINMA chief, Eugen Haltinger, claim the evidence against Vekselberg is comprehensive and compelling; and that a conviction is likely to be recorded. Vekselberg’s Renova holding, and his advisors, defend themselves by saying they have done no wrong, are in the clear, according to Swiss law. They counter-charge that rival shareholders and former senior executives at Sulzer are behind the campaign to prevent them exercising their voting power in the company. According to Vekselberg’s spokesman, Andrei Shtorkh, the Swiss claims are “absolutely unreasonable, as the transaction of the Sulzer shareholding acquisition was carried out in full conformity with the legislation of Switzerland operating at the time.” He adds that the government investigation was triggered by disgruntlement on the part of Ulf Berg, “the chairman of the board of directors of the company at that time [who] was dismissed from his post. He was actively trying to prevent Renova from securing legitimate shareholder rights at the first stage.”

FINMA and the FDF say that “unless and until a conviction is secured, the presumption of innocence applies.” Implementation of an earlier ruling by Swiss regulators against Vekselberg and his Austrian partners in connexion with their takeover of Oerlikon is still being delayed after two years.

A privately commissioned due diligence report, dated in April of 2009, is circulating in the investment community in Zurich. This report provides an estimation of the debts of Renova and Vekselberg; and the cost and current value of the Oerlikon and Sulzer shareholdings. Referring to United Company Rusal, the Russian aluminium concern in which Vekselberg has a minority stake, and whose board he chairs, the report concludes: “OC Oerlikon, like Rusal, is facing serious financial pressures. The company has debt of Sfrs 4’358 billion with equity of only Sfrs 1’093 billion, while suffering an operating loss for 2008 of Sfrs 422 million. Sfrs 1’482 of debt is soon coming due and with negative operating cash flow, and cash balances of approximately Sfrs 400 million, the company will not be in a position to pay off the debt. It is said to be under pressure to obtain new financing….Sulzer appears to be the only material asset in Mr. Vekselberg’s stable that has a solid balance sheet, high credit rating and is generating cash, so it would hardly be surprising to see his efforts focussed on optimising value of this asset. Mr. Vekselberg has suffered a material impairment in wealth as a result of the financial crisis and the reversal of good fortunes surrounding the resource sector. The ‘raision d’etre’ of Renova has been severely compromised owing to the cessation of dividends from its core investments in TNK-BP and Rusal.”

For identification of the risks of Russian criminality that innocent Swiss travelers might encounter if they visit Russia, and for the caution that “medical care [in Russia] is not assured in all cases. In case of illness or serious injury, it can be proven preferable to get back to Switzerland”, see what the Swiss Foreign Ministry says here: http://www.eda.admin.ch/eda/fr/home/reps/eur/vrus/rhrus.html

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