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By John Helmer, Moscow

Archangel Diamond Corporation (ADC) has this month renewed its battle against LUKoil for the latter’s alleged theft of multi-billion diamond mining rights at the Verkhotina deposit in the Arkhangelsk region of northwestern Russia. The new claims were lodged in the US District Court in the District of Colorado on January 6. Lead lawyers for ADC are the US-Russian law firm, Marks & Sokolov.

The case has been in the US and Swedish courts for more than a decade; in 2010 ADC’s failure to recover its 40% stake in the project and enforce its joint-venture agreement to mine the diamonds resulted in the company’s bankruptcy. What remains of ADC is a liquidation trust, based in Colorado, where ADC once had its headquarters for the Russian mining project. LUKoil operations in Colorado have also been documented in the court submissions in order for ADC’s applications to the courts in that state to be allowed to go to trial.

The decade-old archive of court claims and depositions is possibly the largest to document in public how Russia’s second largest oil company manages (is alleged to manage) a variety of its international cashflow operations; and how Vagit Alekperov and Alisher Usmanov originally took over the diamond mine after it was first discovered by the joint venture in 1996. According to the court papers, Usmanov, who controls mining, metals and media assets, sold out his interest to Alekperov, the chief executive and control shareholder of LUKoil, “in or about the year 2000 or 2001.”

The diamond deposit itself has been valued by De Beers, which had controlled the publicly listed ADC until 2010, at between $5 billion and $7 billion, depending on the prevailing diamond market. For a time between 2008 and 2009, De Beers negotiated its own joint venture with LUKoil to mine the diamonds, but that deal collapsed for reasons never publicly explained by either side.

The subsequent litigation claims against LUKoil remain the sole asset of the ADC trust, which is now seeking compensation and damages for the alleged machinations. “As a result of this Illegal Scheme, ADC was forced into bankruptcy in 2010, and lost the value of its over $30 million investment as well as over $400 million in profits which it would earn through its 40% share of the joint venture, plus up to $800 million in lost profits which may be generated by other diamond pipes potentially located within the scope of the Diamond License… Pursuant to RICO, 18 U.S.C. §1961 et seq. [Racketeer Influenced and Corrupt Organizations Act] and other law, ADC seeks to recover over $1.2 billion in compensatory damages as well as at least $3.6 billion based upon the trebling of its compensatory damages, punitive damages, costs, and attorneys’ fees, for losses from the Illegal Scheme.”

Details of the illegal scheme alleged in the new court papers include tax fraud, cash smuggling, money laundering, false expenses accounting fraud, and mail and wire fraud. One of the frauds is alleged to have been perpetrated against LUKoil itself. “The Dividend Scheme was a fraud on Lukoil and its shareholders because it diverted profits from Lukoil operating companies to Lukoil Israel which then paid those profits over to Oldberry, which, upon information and belief, paid those profits over to Lukoil management or its designees.”

Those named in the January 6 filing as implicated in the illegal scheme include Sergei Kukura, currently chief financial officer of LUKoil in Moscow. Two Americans are identified as having helped run the money through front companies used in the illegal scheme — Barry Glasswasser, a resident of Florida; and Dean Sillerud, a Colorado resident.

A full set of ADC’s allegations and claims was reported when the case went to the Denver, Colorado, city court in March of 2011. Read them here – readers with youngsters are warned to exercise parental discretion as the pictures of money laundering and slush fund schemes are graphic.

On October 20, 2011, the city judge in the case, Judge William Hood, threw the case out of his court, granting LUKoil its motion to dismiss, on the ground that ADC had failed to substantiate jurisdiction for the court over LUKoil and the associated companies. Hood went further, ruling that ADC had failed to subtantiate the illegal association between LUKoil and the company schemes spelled out in the claim papers.

According to Hood, “construing the allegations, affidavits, and other evidence in favor of Archangel,…Archangel has failed to present a prima facie case showing that Lukoil Israel, Oldberry or Gilwood are the alter egos or agents of Lukoil…Archangel’s sensationalistic inferences do not constitute sufficient evidence, particularly when those inferences lack reasonable factual predicates.”

Hood’s judgement went on: “even if I were to find Plaintiff [ADC] has established that Lukoil has the requisite minimum contacts with Colorado, the unreasonableness of exercising jurisdiction over Lukoil militates against concluding that this court has personal jurisdiction over Lukoil.”

The task for the federal court now is to reassess the evidence on jurisdiction and the evidence of culpable association, in order that the case may be finally ordered to trial, or dismissed for a final time.

According to Bruce Marks, the attorney for ADC, “the state court dismissed for lack of personal jurisdiction based on LUKoil’s ties to Colorado. Under RICO, ADC may base jurisdiction on LUKoil’s ties to the US as a whole. It is a different standard. This [Denver city court] is the only court which dismissed. This is the reason that ADC removed to the federal court.”

LUKoil will argue that the federal court should reach the same conclusions on lack of jurisdiction and lack of culpability as Judge Hood’s ruling.

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