By John Helmer, Moscow
United Company Rusal has been defeated in a brief but powerful ruling by the US Court of Appeals in New York last week. The order by three judges, issued on April 15, quashes a lower-level US court order for discovery of bank and other evidence against shipping companies Rusal used to transport its bauxite and alumina cargoes a decade ago. That was when Andrei Raikov, former friend of chief executive Oleg Deripaska, headed the company’s procurement division, and Dmitry Osipov ran the shipping companies.
In a blow against Rusal’s offshore structure on the English Channel island of Jersey, the court ruled that RTI (aka Rusal Trading International) fails the legal and statutory tests to qualify on Rusal’s behalf in litigation in the US courts. “We conclude that the present factual record does not support a finding that RTI is an ‘interested person’ with respect to the relevant foreign proceedings,” says the order  signed by Judges Robert Katzmann, Barrington Parker, and Miriam Cedarbaum. “We further reject RTI’s argument that it qualifies as an interested person because, by virtue of its corporate relationships, it now oversees the business operations at issue in the foreign proceedings.”
RTI is identified in Rusal’s Hong Kong share sale prospectus (December 31, 2009) on the second rank of the group’s command and control chart . It is also presented in the prospectus as a trading company. At page I-93, for example, the auditor KPMG claimed that RTI, along with RS International Gmbh, were “the Group’s major trading intermediaries”. RS International doesn’t compare in importance, however: it is way down the Rusal pecking order as a wholly-owned subsidiary of Rusal Marketing GmbH, which was registered in Cyprus in July 2006, before RTI existed.
RTI appears in the most recent KPMG audit reports to have surfaced from Lagos, Nigeria, where it is identified as the operator of tolling agreements with Rusal’s aluminium smelter in that country, Alscon . The tolling terms enable Rusal to put the unit into bankruptcy if a Nigerian court-ordered transfer of title to the plant is carried out.
But RTI is much more  than a trader for Rusal’s worldwide inputs and outputs. Through a special category of shares in RTI, which carry special claims against Rusal cashflow, RTI appears to be a trust which controls the company more powerfully than Deripaska through the 48.13% stake in Rusal his EN+ holding claims. The Jersey records revealed so far  suggest that RTI controls Deripaska, not the other way round.
Deripaska’s campaign against Osipov, his Cyprus-based shipping companies, and Raikov has already boomeranged by generating a counter claim by the targets. They in turn have won US court orders compelling release by Rusal’s New York banks of an enormous flow of secret transaction data stretching back over a decade . These data include details of unusual money movements through Latvian bank accounts for RTI and Rusal Trading International – the names the entity swapped in June and July of 2007.
The Deripaska campaign has also resulted  in a Cyprus court judgement in March charging Rusal’s lawyers there with illegal information raiding, deception, and intimidation.
Why Deripaska ordered his New York lawyers, Baker & Hostetler, to pursue the old shipping claims on behalf of RTI, rather than Rusal (Jersey) or other companies, isn’t known. The Cyprus court case, which is purportedly the basis for the New York court action, has been run on behalf of four Rusal entities — Rual Trade, Alumina & Bauxite Company, Calibre Properties Worldwide Ltd., and Mont Cervin-Consultadoria E Servicos Unipessoal LDA – and RTI isn’t one of them.
In a parallel action which Deripaska has ordered in federal US District Court in Los Angeles – there to force disclosure of bank account data and other information from Rusal’s Nigerian rival, BFIG – the Rusal plaintiff is an entity called Rusal Global Management BV; again no sign of RTI. Rusal Global Management, by the way, doesn’t appear at all on the organization chart released in the Hong Kong prospectus.
By insisting that RTI has the “significant participation rights” and “the same alignment of interest and purpose” as other command-and-control units at Rusal, the New York lawyers appear to be proving a point which the Jersey records go to lengths to conceal. That they have failed to convince the US Court of Appeals is a tactical embarrassment compounding a strategic mistake.
It’s also likely to cost Rusal shareholders. According to the US appellate procedure rules, if a judgment is reversed, the costs for the appeal must be paid by the Appellee. In this case, that’s RTI. Whether the RTI shareholders decide to pay, or pass the bill to Rusal, remains to be seen. The Court of Appeals will review the costs and issue an award after April 29, when the accounting paperwork must be filed.