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By John Helmer, Moscow

Leonid Lebedev (lead image) has been ousted from the Federation Council, the Russian senate, after serving twelve years as a senator representing the Volga region of Chuvashia. This follows a Council investigation exposing earnings from offshore entities which Lebedev had failed to disclose in his official income and asset reports to the Council. Lebedev claims he has resigned his senate post voluntarily.

By exposing Lebedev’s money trail in Switzerland and Cyprus, the Russian investigation now threatens to unravel Lebedev’s year-long lawsuit in an American court for payments he claims he didn’t receive from Len Blavatnik and Victor Vekselberg, and which he claims are still owed by them. Blavatnik and Vekselberg have asked the New York State Supreme Court to reject Lebedev’s claim because he is asking to be paid a second time for a 15% shareholding in the TNK oil company Lebedev sold to them in 2003, when they incorporated the stake in the TNK-BP combination with British Petroleum. Lebedev is asking the New York court to award him a share of the proceeds of Blavatnik’s and Vekselberg’s sale of their share in TNK-BP to Rosneft in 2013, ten years after Lebedev had sold out. Lebedev’s court papers make several calculations of shareholding value from $200 million to $2 billion.

Blavatnik and Vekselberg accuse Lebedev of hiding the decade-old deal and concealing the $600 million they paid him through a chain of offshore entities registered in Ireland and Switzerland, and ending up in Cyprus. According to Lebedev’s lawyers in the public court file, at a court hearing on April 9 Judge Saliann Scarpulla agreed to decide shortly on dismissing Lebedev’s claim.

In Moscow on April 28, in an announcement by the Federation Council’s control commission, Senator Yury Vorobyov (below, left) , the commission’s chairman and deputy speaker of the senate, disclosed that Lebedev had resigned from his seat, and that his resignation had been unanimously accepted. That put a stop to the control commission’s investigation of Lebedev’s income and assets, Vorobyov said.

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The senate is continuing its investigation of undeclared Cyprus trusts of another senator, Slava Fetisov (above, right). The official investigation of Lebedev’s offshore assets and income is also continuing, according to Russian press reports.

Lebedev says he “decided on early resignation to avoid becoming a target for all sorts of discussions and misinterpretations that harm the reputation of the Federation Council.” Under anti-corruption measures introduced by the Kremlin in 2013, high state officials are prohibited from holding offshore assets; they are also obliged to report the sources and amounts of their income.

For more on what the two-year old law says, and what concealment offences may be prosecuted since the enactment in 2013, read this. The plan to introduce Russian trusts – click here — is an option for the future, but it does not shield foreign trust holders among Russian businessmen claiming Russian domicile. The Lebedev case is the first to test whether the Kremlin intends to prosecute concealment offences by state officials, and whether they can escape the long arm of the law by resigning their posts as soon as their game is up.

Lebedev has told the Moscow press the concealment charges against him have been fabricated to blacken his name. The senate commission, he responds, “deliberately distorted facts relating to the financial obligations imposed on me as a member of parliament.” In his official asset and income report for last year, Lebedev reported an income of Rb97.2 million, a sevenfold increase over the reported amount for 2013. Note that Lebedev reports no asset or source of income outside Russia.

Neither Lebedev himself nor Vorobyov’s commission has revealed what evidence was tabled against Lebedev or what questions he was asked, before he resigned.

Concealment of assets and cashflow through chains of offshore entities is at the core of the lawsuit Lebedev has brought against Blavatnik (below, left) and Vekselberg (right) in the New York Supreme Court.

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Lebedev, whose court papers say he is a Russian citizen, a resident of Moscow, and a member of the Federation Council, is claiming the issues at stake should be decided in the US and by the New York court because they were discussed “over a three-day period in the spring of 2001,” including a “walk around Central Park”.

Blavatnik and Vekselberg counter that the terms of the 2001 discussion went unsigned and unfinalized, and were superseded after two years by an agreement signed on June 20, 2003.

In that deal paper – obtained from the New York court files, and showing the UK as its home for settling legal disputes — Coral Petroleum Ltd., a Dublin-registered entity, sold the TNK assets Lebedev is now claiming to be his to Rochester Resources Ltd, a British Virgin Islands entity belonging to Blavatnik and Vekselberg. Lebedev has told the New York court the shares were his, but Coral and the $600 million paid to it were not.

Judge ScarpullaAt a closed-door court hearing on April 9 Lebedev’s lawyer, Michael Miller, argued the point with David Elsberg, Blavatnik’s lawyer, and then in a subsequent letter to Judge Scarpulla (right) Miller revealed that the judge will shortly rule on whether to dismiss Lebedev’s allegations “at the pleading stage”. The grounds for dismissal, according to this disclosure, are that Lebedev keeps changing his account of what he had discussed or signed between 2001 and 2003, and what entities Lebedev claims to have nominated in the paperwork to receive payoffs. Even if the statute of limitations hasn’t expired, the judge has agreed to decide if the credulousness of Lebedev’s claims has already run out.

In a parallel proceeding last year in the UK High Court in London, Justice Jonathan Hirst said that Lebedev had admitted in testimony that he was concealing his interest in the TNK share sale in 2003 behind the Irish front company Coral because at the time he “was under criminal investigation in Italy for suspected arms smuggling.” According to Hirst’s summary of Lebedev’s testimony in London, he “wished to appoint a company that was entirely independent from him to receive the payments due to him. Coral was controlled by Martin Bartek, a trusted friend and business colleague. It was agreed that Coral ‘would receive the income due to me’.”

Bartek’s testimony cannot corroborate what happened because he died in mysterious circumstances at his home in Switzerland in 2011. Bartek had asked for a Swiss police investigation of his business dealings and financial records just before he died in what has been reported as suicide. Bartek represented a number of oil entities connected to Lebedev’s Sintez holding, as well as the Matech auto racing team, based in Geneva and sponsored by Sintez (below, left).

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After Lebedev withdrew the Sintez sponsorship for Matech, Matech collapsed and Bartek died, Sintez has also been financing a yacht racing team, which Lebedev owns jointly with Valentin Zavadnikov, another ex-Federation Council senator. The yacht (above, right) is paid for by Sintez. For more on Lebedev’s and Sintez’s oil business, read on.

Hirst’s judgement, issued on September 9 last, concluded that Coral was a front company engaged in deception and concealment. “Coral appears over a number of years to have issued two sets of financial statements which bear no relation to each other. The Irish statutory accounts, audited by Roberts Corporate & Private, describe Coral’s principal activity as acting as a general agent. By way of example, in the set of statements for the year ending 17 June 2004, it was reported that Coral had net assets of €2 and that its turnover was €2,800. By contrast in financial statements for the year ended December 2003, audited by Alber & Rolle of Geneva, Coral was reported as having assets of US$42.2 million and a turnover of some $247 million, largely derived from sales of petroleum products. Counsel [for Lebedev] were unable to offer any explanation for these very different sets of accounts.”

According to the High Court ruling, the $600 million Blavatnik and Vekselberg agreed to pay Lebedev was received by Coral in instalments over two years, the last of them on September 26, 2005. Judge Hirst also records his conclusion that on the evidence the shares being transferred went from a company called Agragorn, controlled in turn by a Cyprus trustee called Imperium Nominees, and that Lebedev ‘s testimony indicated he took payment for the shares for Agragorn through Coral, retaining “control over Agragorn’s bank account in Bank of Cyprus”. The judgement footnotes each of the Lebedev quotes to sections of the testimony he gave in the London court. Agragorn has been identified as a Lebedev company in which Bartek played a management role.

HirstAccording to Hirst (right), by the conclusion of the 2013 sale of TNK-BP to Rosneft, “Mr Vekselberg’s and Mr Blavatnik’s joint share of the purchase price was probably about $13.8 billion.” Fifteen percent of that comes to $2.07 billion, the largest of the amounts Lebedev is claiming in the New York court. Hirst, however, suspected Lebedev of already taking his payoff for the deal between 2003 and 2005. He was unable to adjudicate on this key point because it remains for the time being up to the New York court to decide. “It is not at all clear,” according to Hirst, “what (if any) credit he [Lebedev] has given for the $600 million paid under the [Rochester-Coral 2003] Acquisition Agreement.”

On the evidence of whom Coral was fronting for, Hirst ruled: “The Swiss accounts, which are unlikely to be invented, show a substantial oil business. There is no evidence that Mr Lebedev was running this business. Faced with Italian criminal proceedings, it seems to me perfectly possible that Mr Lebedev decided to park the 2001 Promissory Note [for the TNK share deal] in a company which was not his, so as to conceal it from the Italian authorities should matters go badly for him. However, it is clear that, as between him and Coral, the Note was his, that it represented his rights to income under the arrangement with Mr Vekselberg and Mr Blavatnik, and that he was entitled to receive the income under it. That would explain why the Note and the income under it do not appear to be included in either of Coral’s sets of accounts.”

In Lebedev’s amended court complaint, filed in the New York court last October, he describes the Promissory Note of 2001, amounting to $200 million, “as security for future dividend payments from TNK, to an offshore trading company nominated by Lebedev, and paying over $13 million in dividend payments.” Lebedev also admitted “the trading company Lebedev had nominated to receive his dividend payments [was] called Coral.”

In the London court, Hirst judged that “this arrangement of course required a high degree of trust on the part of Mr Lebedev that Coral and its owners would act in accordance with his instructions and I am sure that, as he stated in the Interview, he regarded Coral as being under his control/supervision as regards dealings with the 2001 Promissory Note. As a precaution, however, he made quite sure that in practice Coral could do little without his agreement because he took possession of the Note and put it into the custody of one of his companies.”

“I am also sure that the Claimants [Blavatnik and Vekselberg] are correct that the Acquisition Agreement was negotiated with Mr Kuznetsov [for Blavatnik and Vekselberg] by Mr Lebedev and not by other representatives of Coral. Those negotiations concerned what he regarded as his Note and his rights, both of which were hugely valuable. He would not have left it to representatives of Coral to negotiate the disposal of his property as they thought best.”

The High Court case decided only the technical point – that the arbitration proceeding between Rochester and Coral in London didn’t involve Lebedev directly, so it couldn’t prevent him from making his claim against Blavatnik and Vekselberg in the parallel court case in New York. Hirst’s conclusions about Lebedev’s state of mind rule out the possibility that Lebedev didn’t know what Coral was doing in the share sale, or what it was getting in return in its Cyprus bank account.

Because the UK court’s conclusions are part of the record the New York judge is considering, a contradiction is now looming in the evidence on either side of the Atlantic. If Lebedev has been telling the truth in London, his New York claims are discredited and likely to be tossed out of court within weeks. If Scarpulla agrees with Hirst that Lebedev hasn’t been telling the truth in London, she must now rule whether credible evidence remains for the New York court to adjudicate. But that, Lebedev’s lawyer told Scarpulla on May 1, is an “ improper” issue.

Because Lebedev has applied for the argument to be conducted behind closed doors, lawyers for the two sides cannot comment.

The evidence which has already surfaced in London and New York has not been missed by investigators in Moscow. Already Russian and Cyprus court records involving several hundred million Euros in claims against Lebedev by Commerzbank of Germany reveal the same trail of cut-out company names, including Imperium Nominees. In those court files, Lebedev claimed special exemption from testifying in Cyprus because of his status as a Russian senator. He has also testified that he has no Cyprus assets. The evidence now spilling out in both the UK and New York courts shows that isn’t true.

A request by the Russian authorities to MOKAS, their Cyprus counterpart for money-laundering investigations of Politically Exposed Persons (PEPSs), would produce definitive evidence – and put Lebedev’s London and New York claims in a light he cannot have intended. MOKAS says if Moscow asks, it’s happy to oblige.

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