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By John Helmer in Moscow

The key witness in the $800 million Sovcomflot (SCF) case against former CEO, Dmitry Skarga, and charterer Yury Nikitin, has contradicted a core claim by the company in his High Court testimony this week.

Igor Borisenko, SCF’s former chief financial officer, told the court he supported chartering of oil tankers to the shipping arm of the Kirishi refinery group, a company known as PNP, run by Yury Nikitin, before Skarga took over Sovcomflot in 2000, and afterwards as well. Borisenko was cross-examined about the written submission by Sovcomflot’s solicitor, Stuart Shepherd, that “Sovcomflot would not have done business with Mr Nikitin’s companies at all, had it not been for the bribes or other benefits provided by Mr Nikitin to Mr Skarga.” Borisenko told the court: “I think that Sovcomflot could charter vessels to PNP without bribes being paid.”

Borisenko is the longest serving veteran of the state shipping company to testify in the case so far. He was acting CEO of Sovcomflot in 1999, and a candidate backed by then Transport Minister Sergey Frank for CEO, before Skarga was appointed. He was asked by Justice Andrew Smith whether Sovcomflot would not have done business “at all” with Nikitin, unless there had been bribery, as Frank and the company have claimed in their four-year old London litigation.

“It is the claimants’ case,” the judge said, “that Sovcomflot would not have done business with Mr Nikitin’s companies at all, had it not been for the bribes and other benefits provided by Mr Nikitin to Mr Skarga. Now, is there any reason that Sovcomflot would have refused to do business at all with PNP?”

Borisenko replied: “My Lord, I don’t think the writer of this paragraph had the same meaning as you say.”

“Well, that, I think,” said Justice Andrew Smith, “is for me to judge, rather than you.”

Borisenko was on the witness stand for all five days of this week. He is scheduled to continue for another two days next week.

It is unprecedented for a Russian state organization to be exposed for as long, and in as much financial and internal detail in an open international forum, as the Sovcomflot lawsuit has brought about in the UK High Court. Borisenko’s testimony reveals that one of the reasons the Kremlin sent the 29-year old Skarga into Sovcomflot in 2000 was to clean up a financial mess that had gotten out of Kremlin control, and to redirect Russia’s growing oil export flows into Russian- owned shipping companies and tanker fleet. Just how weak supervision of the shipping company had become during the Yeltsin administration was indicated, according to company documents and testimony by Borisenko, when a Russian state bank was compelled to go into a Swiss court in Zurich to recover an overdue loan debt of less than $20 million from a Sovcomflot subsidiary.

Also revealed by Borisenko is that as the minister in charge of Sovcomflot at the time, Frank had resisted the appointment of the outsider Skarga instead of an insider like himself. Asked by Graham Dunning QC for Skarga, whether he and Frank were on good terms in 1999-2000, Borisenko said: “I hope so.” But he qualified the description of their relationship as something less than friendship. “Not really, because our — how to say — social position is quite different. He is a Minister and he was a Minister, and I am a humble businessman. So he — he has his own friends and colleagues for this purpose, and probably I do also. We were not in the same circle, if you — social circle, if you understand what I mean.”

Borisenko was asked whether he had objected to any of Skarga’s executive actions during the years between 2000 and 2004, when Borisenko served on the company board. If he had had concerns, he could have complained to Frank, he was asked. “Yes, I could,” Borisenko replied. “And you didn’t, did you?”, asked Dunning. “No, I didn’t.”

Frank ousted Skarga in 2004, and took the CEO post at Sovcomflot for himself. Almost immediately, he launched investigations of Skarga’s transactions. On the witness stand, Borisenko contradicts himself on what he had told the auditors, Moore Stephens, who were engaged by Frank early in 2005 to look for non-commercial dealings and evidence of corruption between Skarga and the Kinex group led by Nikitin. Kinex has been identified in the courtroom as the oil trading arm of the Kirishi refinery, near St. Petersburg, and both were connected, in turn, to the crude oil producer, Surgutneftegas.

Quoting from a report of Moore Stephens to Frank in 2005, Dunning said: “‘In addition to the management of [the Nikitin company] Standard Maritime’s fleet, this relationship was intended to develop into joint projects relating to the ownership and operation of tanker vessels.’ That is what you told Moore Stephens, is it not?” “Yes”, Borisenko replied. “Yes, I do confirm that I said it, but it was not true.”

The role of oil trading and shipping companies controlled by Gennady Timchenko – described in court as originally allied with the Kinex group but later in competition — surfaced during Borisenko’s testimony. He was asked to explain “why do you not name Mr Timchenko as one of this group of businessmen connected with Kinex? Is there a reason for that?” “I never met Timchenko. I don’t know him. And I am afraid his name was not even mentioned to me.” “So you didn’t understand that he was a part of Kinex?” “No.” “Are you sure about that?” “Absolutely.”

Lawyers for Skarga and Nikitin have told the judge that Sovcomflot has no evidence of non-commercial shipping deals or bribes. They say they have been made the targets of an elaborate scheme by Frank and his allies to redirect the commercial benefits of oil tanker operations.

Borisenko was questioned on whether he has been threatened with arrest and imprisonment if he did not cooperate and testify in the court case against Skarga and Nikitin, and whether since 2005 he has been rewarded with continuing employment at Sovcomflot plus annual bonuses.

In the transcript, the judge tells Borisenko: “I think what Mr Dunning is entitled to ask is whether in October 2005, you were frightened you might have to go to prison for a considerable time.” Borisenko nodded, and said “Yes, I was.” Dunning then asked: “I suggest Mr Frank was protecting you. Is that right? You regarded him as your protector?”

“In a certain way, yes,’ Borisenko replied. “But I realised, and I do appreciate it now, that it’s not in the hands or under the authority of Mr Frank to prevent action from the Russian authorities.”

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