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By John Helmer in Moscow

For the first time in his career, Oleg Deripaska has faced questioning on his business practices and cashflows by a western judge in a criminal court proceeding. Spanish judge of the Audiencia Nacional, Fernando Andreu Merelles, and special prosecutor for corruption cases, José Grinda, were in Moscow on May 12 to interrogate Deripaska, according to their spokesman in Madrid. The spokesman added that their purpose was to “take statements from Deripaska for an offense of conspiracy and money laundering, as well.”

Earlier, Deripaska had been summoned to Madrid for questioning, but he had agreed to meet only on condition the Spaniards would make the trip to Moscow. Yesterday’s interrogation took several hours.

Reports on the interrogation appeared ahead of time in two Spanish papers, El Mundo and El Pais, on the morning of May 12. According to El Pais, “a spokesman of [Deripaska] confirmed that Deripaska meets the Spanish judicial authorities ‘to help in an investigation that involves several companies and Russian individuals and Spaniards…Deripaska has denied having relations” with the companies listed in the charge sheets and court papers.

El Mundo reports: “According to sources of the investigation, the judicial authorities and police suspect that Deripaska has washed money of the mafia in Spain. In fact, the allegation is for money laundering and unlawful conspiracy. According to these sources, Andreu works on the suspicion that Deripaska would have taken part in the laundering of more than four million euros between 2001 and 2004.”

Court orders signed by Andreu in April of 2009 reveal that the Spanish investigation has requested thousands of pages of evidence compiled in the UK High Court case of Cherney v Deripaska, presided over by Justice Christopher Clarke. In that case, Michael Cherney is suing Deripaska for enforcement of contracts the two of them signed in London in March 2001, according to which Deripaska owes Cherney a 13% stake in the Russian aluminium monopoly Deripaska controls, United Company Rusal. Registered in Jersey, Rusal is the Russian aluminium monopoly.

At the heart of the evidence in that case, and a target of the Spanish judicial inquiry, is this treasure map of how Deripaska and his two original partners, Cherney and Iskander Makhmudov, arranged the flow of funds from the aluminium smelting and trading business into the Radom Foundation in Liechtenstein. The details appear in the London court testimony. For more detail on Radom, see: http://johnhelmer.net/?p=329

According to testimony Deripaska has already given through lawyers to the High Court, Radom was “one of Mr Cherney’s vehicles through which he received ‘protection’ payments.”

The Swiss courts have also investigated allegations of criminal conspiracy against Cherney. The full texts of the official French language and English translation of the Swiss court ruling, dismissing the allegations, can be read at:

PDF Swiss Court Decision

PDF Swiss Court Decision-2

In the new proceedings, the Spanish court has identified Cherney and Makhmudov as Deripaska’s partners and alleged co-conspirators; in the London court and in the press, Deripaska has adamantly denied that he was Cherney’s partner, or owes him shares or money. Justice Clarke has already ruled that Cherney’s claim has “a reasonable prospect of success”. Deripaska’s signatures on the disputed Cherney shareholding agreements appear to be genuine, Justice Clarke has also ruled. The first conference of lawyers for Cherney and Deripaska before the judge is scheduled for this month. It is not clear yet when the trial will commence, and thus when Deripaska will be required to appear and testify.

Thus, the Spanish interrogation this week is the first of its kind; and the timing is awkward for Deripaska. As the controlling shareholder of Rusal, and its chief executive, he is subject to the regulations of the Hong Kong Stock Exchange (HKEx) and the Hong Kong Securities and Futures Commission, the state market regulator. On the fitness of directors of Hong Kong-listed companies, Sect 119 of the Securities and Futures Ordinance (SFO) says that “the Commission shall refuse to grant a licence to carry on a regulated activity under subsection (1) unless the applicant satisfies the Commission that (a) it is a fit and proper person to be licensed for the regulated activity.”

On May 14, Rusal, the first Russian company to be approved for listing on the Hong Kong Stock Exchange, is to issue its first set of quarterly financial results since share trading began.

Basic Element, Deripaska’s Moscow holding, attempted this month to list its mining company, Strikeforce Mining and Resources (SMR), a molybdenum producer, but withdrew claiming the market conditions were unfavourable. Deripaska has followed, according to a Reuters report of May 10, with the disclosure that the electricity unit of his holding, En+ Power, has engaged the Bank of China International and Deutsche Bank to arrange an initial public offering in Hong Kong, with a target to raise up to $1.5 billion.

In Hong Kong, the statutory standard for fit and proper is spelled out in the Ordinance. “In considering whether a person is a fit and proper person for the purposes of any provision of this Part, the Commission or the Monetary Authority (as the case may be) shall, in addition to any other matter that the Commission or the Monetary Authority (as the case may be) may consider relevant, but subject to section 134, have regard to-
(a) the financial status or solvency;
(b) the educational or other qualifications or experience having regard to the nature of the functions which, if the application is allowed, the person will perform;
(c) the ability to carry on the regulated activity competently, honestly and fairly; and
(d) the reputation, character, reliability and financial integrity.”

Deripaska and Rusal assured the Hong Kong market in the Rusal prospectus that there is no truth to allegations that he came by his assets less than honestly, by defrauding others, or through racketeering. He has publicly condemned Cherney’s claims as “blackmail” and “crap”, emphasizing that with Cherney “we didn’t have business relations”. Rather, he has argued in the UK High Court, Cherney and his associates were a gang of extortionists, seeking protection money from Deripaska’s lawful business cashflow.

In the Rusal prospectus, posted on the HKEx website on December 31, there is no reference to the Spanish criminal proceedings, although the court papers reveal these had been in a Madrid criminal court for at least nine months before, and under prosecutors’ investigation since the start of 2007. The prospectus notes Cherney’s High Court case, but says “UC RUSAL is not a party to the litigation and (ii) the litigation is still at a very early stage, UC RUSAL is unable to express a view on the merits of Mr. Cherney’s claim…Mr. Deripaska has informed the Company that he strongly denies and will vigorously resist Mr. Cherney’s claim.”.

In addition, the prospectus refers to media reports of investigations of Deripaska by the US Federal Bureau of Investigation (FBI) “with whom he is alleged to have met during his [US] visits”. Some of the media “coverage includes speculation that the rejection [of Deripaska’s application for a US visa] was due to alleged connections to organised crime…Mr. Deripaska has also confirmed to the Company that, to the best of his knowledge, he is not under investigation by any U.S. authority.”

Deripaska is “not subject to any special restrictions on his travel”, the prospectus records. But Deripaska’s apparent refusal to travel to Spain is not mentioned; regarding Cherney, who lives in Israel, the Spanish authorities have sought to compel his appearance for questioning through Interpol. There is one reference to Spain in the 1,141-page prospectus, but this is to Spanish registration of the Rusal trademarks, not to the Audiencia Nacional proceeding.

In January, on the day before Rusal started selling shares on the HKEx, the Financial Times of London (FT) published an investigation, suggesting there were amicable social and business relations between Deripaska and Sergei Popov and Andrei Malevsky. Allegedly, they were members of organized criminal groups in Russia, Malevsky of the so-called Ismailovo gang, and Popov of the so-called Podolsk gang (the names refer to towns in the Moscow area). Malevsky was killed while parachuting in South Africa in 2001 – an accident, according to South African police reports. His widow is testifying against Deripaska in the London court case.

Popov told the FT he had considered himself and Mr Deripaska good friends until Deripaska and his witnesses reported to the London court that he was a gangster.. “He [Popov] and associates say”, the FT reported, “he is godfather to Mr Deripaska’s daughter. Denying any contacts with organised crime, he says he and Mr Deripaska were introduced to each other in 1994 by Mr Cherney and the business relationship flowered. Mr Popov, who headed Soyuzkontrakt, the biggest food distributor in Moscow in the 1990s.”

Until Deripaska merged his Siberian Aluminium (Sibal) company into the larger Russian Aluminium (Rusal) group, part-owned in 2000 by Roman Abramovich, Deripaska’s subordinate, Alexander Bulygin, ran the aluminium company from offices in a Soyuzkontrakt building in Moscow.

Popov, who claims he holds an agreement with Deripaska for a 10% share of Deripaska’s stake in Rusal, charges that it was Deripaska who fabricated the criminal allegations to get him off the hook of his shareholding obligations and debts. According to the FT’s interview, Popov helped with the political and administrative permissions required for Deripaska to add assets to the group. “If there hadn’t been this resource,” Popov is reported as saying, “then there would have been a totally different history. Connections decided everything. Now Deripaska is trying to say we forced him to become the richest man in Russia!”

The newspaper also published photographs to demonstrate how personally close Deripaska had been to Popov and Cherney, before their falling-out, and before he accused them of trying to extort money from him:

The Spanish prosecutor’s office in Madrid has these details and photographs. It declines to say whether Deripaska’s relationship with Popov is one of the allegedly criminal associations Andreu and Grinda are investigating, and about which they have asked Deripaska to testify.

According to the El Mundo. Madrid, report this week, the judicial investigation is part of “Operation Wasp, the first big investigation against the Russian mafia in Spain… Deripaska and his ex-associates [are being investigated on suspicion of being] part of or collaborators with the Izmaylovskaya [gang], one of the Russian mafias..” The scope of the Madrid investigation and the range of its targets are not clear from the court materials that have been disclosed so far.

According to the official dossier titled “Preliminary Enquiries 101/2007D”, in examining court no. 4 of the Central Criminal Court in Madrid, Judge Andreu has signed rulings which spell out the details of an alleged conspiracy. Dated April 22, 2009, the documents show that special prosecutor Grinda had reported to the court on evidence and allegations gathered against 13 named individuals; Deripaska, Makhmudov, and Cherney are on this list. The judge ordered “the Police Authorities in the case so that as a matter of urgency they carry out all necessary measures to inform this Court of the addresses and present whereabouts of the aforementioned as well as their full personal details”.

Starting with a report by Grinda, dated April of 2007, the target of the judge’s enquiry was “to clarify the facts by him [Grinda] reported surrounding the activities of an alleged criminal organization called ‘Izmailovskaya’ or ‘Izmailovskye’ on Spanish soil… [This organization] had allegedly used several companies domiciled in Spain and in several tax havens to launder monies obtained from criminal activities, allowing its leaders to presently hold and keep companies of a substantial economic magnitude which are the result of laundering those monies.”

The file refers to a report to the court by Grinda, dated March 13, 2009, the purpose of which was “to establish the source and destination of the capital in the accounts held by any natural and legal persons [who are] members of the alleged criminal organization involved presumably in laundering monies illicitly obtained, the formal and real cause originating them, and the aim of the activity and incorporation of those companies within the global framework of the group.” A total of 29 company names, mostly Spanish-registered, were listed for further investigation.

The facts of the case reported by Grinda to Andreu are also set out in the court rulings. They appear to involve five real estate transactions, in which four houses and a hotel were bought in the Teulada area of the Spanish coast, between Valencia and Alicante. The money spent for these purchases and identified in the court file totals €7,962,885.

Kommersant, a Moscow newspaper, reports Deripaska’s press service as acknowledging the Spanish judicial questioning yesterday, confirming that it went on for several hours. The press spokesman said: “the conversation touched upon a number of Russian and Spanish companies and individuals.” After learning “a few months ago” that his name had been mentioned in the Spanish case, Kommersant reports the spokesman as saying that Deripaska “appealed to the Prosecutor General of Russia in order to clarify the situation. Meeting with the Spanish authorities is a result of this treatment. We stress that Mr Deripaska has no relation to the companies mentioned in the materials of this investigation, and is ready to provide [the judge] with any necessary assistance.”

The spokesman for Andreu and Grinda say it is not anticipated that Makhmudov will be questioned, at least not on this visit to Moscow. A representative of Makhmudov’s holding, Ural Mining and Metallurgical Company (UMMC), is reported in a Moscow newspaper as expressing surprise at the publication in El Pais of his name and his company in connection with the Madrid investigation. He reportedly added that the Spanish investigators have not contacted UMMC. He also said there was no connection between UMMC and one of the companies reported in press coverage of the court file.

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