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By John Helmer, Moscow

When Oleg Deripaska was completing his takeover of Russian Aluminium (Rusal) by buying out his partner, Roman Abramovich, the two of them agreed to arrange legal advice on the transaction from one of the leading mergers and acquisitions lawyers in London. But after she began probing the deal on her suspicion of money-laundering, she was fired. When a Swiss bank began having similar suspicions and asking awkward questions, it too was removed from the deal.

Evidence of shareholder fraud and unlawful concealment in the deal establishing Rusal exposes the Deripaska purchase agreement as “seriously inadequate, circular, complex and opaque, ” according to detailed emails from the LeBoeuf law firm in London and First Zurich Bank in Switzerland. The evidence surfaced quietly in testimony in the UK High Court on November 28, and has not been reported in the press so far. In court at the time, the impact was so significant that the trial judge, Justice Dame Elizbath Gloster, told the cross-examining lawyer, Roger Masefield, to continue questioning the witness after he twice suggested a recess.

The new evidence also includes the revelation that when First Zurich Bank demanded that Deripaska sign an affidavit explaining on oath how he came by the cash he was paying Abramovich for the remaining stake in Rusal, he refused. So Parex, a Latvian bank, was selected instead for receiving the half-billion dollar proceeds of their deal. “We’re closer than Switzerland” – that was one of Parex’s advertising slogans on Russian television.

The witness responsible for this evidence is Ivan Streshinsky, a longtime employee and advisor to Vasily Anisimov, one of the original owners of the aluminium smelters which were sold in 2000 to Abramovich, before he created Rusal with Deripaska the same year. Anisimov and other witnesses have already testified that they were forced to sell at a price below the assets’ real worth by a combination of physical, administrative and financial pressures for which Deripaska is one of the suspects.

Streshinsky was appearing in the trial of Boris Berezovsky’s claims against Abramovich, which began court hearings on October 3. The witness testimony had been scheduled to wind up on December 9, but concluded early on December 5. The judge has ordered final submissions from the lawyers to start on December 19.

The first of Streshinsky’s revelations concerns Lynn McCaw, a specialist in mergers and acquisitions at Dewey & LeBoeuf in London. The firm website reports that McCaw, a Canadian, is one of the keenest dealmakers in her line of work. She and her firm were asked to examine the Deripaska purchase from Abramovich in mid-2004, reported here.

Streshinsky was asked to reread confidential memoranda from McCaw explaining that information was required from Deripaska and Abramovich to meet LeBoeuf’s due diligence standards and rules against money-laundering. On june 14, 2004, McCaw told Streshinsky the documentation for the transaction was “seriously inadequate, circular, complex and opaque”. She also recommended against accepting at face value statements offered by Deripaska’s law firm Bryan Cave, and his lawyer, Paul Hauser.

“Do you recall being made aware at the time that Leboeufs had raised money-laundering concerns and wanted to conduct proper due diligence of their own before proceeding with the transaction?” Streshinsky was asked by counsel Masefield for Berezovsky.

“A. No, I didn’t.
Q. And you didn’t inform Mr Anisimov that Leboeufs and Salford [an investment entity controlled by Berezovsky] had raised these money-laundering requests?
A. No.
Q. You see, the day after Leboeufs had raised these requests for further information regarding Mr Berezovsky and the relationship with Mr Abramovich, we know that on
16 June 2004 you gave an instruction to Salford on behalf of your principal asking them to suspend work on the transaction?
A. That’s right.”

Additional evidence was presented to Streshinsky indicating that McCaw had told Salford, which in turn had told Anisimov and Streshinsky that “due to the general tightening of control rules and the political risks determined by the personal histories of the participants, [Leboeufs] was forced to commence a review of the lawfulness of the transaction and the origin of the funds”. He was asked why he telephoned Deripaska’s lawyer in Moscow, Stalbek Mishakov, to tell him what was up. Streshinsky responded that he couldn’t remember the conversation.

Streshinsky flatly denied there was any connection between ordering McCaw to stop work, and within days replacing the LeBoeuf law firm with Akin Gump.

Streshinsky also admitted his memory was failing on how much Rusal financial director, Irena Panchenko, had told him should be concealed from the international banks as to who the beneficial owners of Rusal shares actually were.

According to Streshinsky, after McCaw nosed too close to the truth, Deripaska and Abramovich decided to replace LeBoeuf with a lawfirm they preferred, Akin Gump of Texas. Streshinsky described the episode where he and Akin Gump lawyer, Artem Faekov, flew south from Moscow to Georgia to discuss with Badri Patarkatsishvili, Berezovsky’s partner, the precise terms to be recorded in the warranty he would hand Abramovich and Deripaska over who really owned the 25% Rusal stake being sold.

The Gump lawyer accompanied Streshinsky on the mid-summer helicopter ride from Tbilisi to Batumi and then to Patarkatsishvili’s dacha at Ureki, on the Black Sea. There, under a tent on the beach, Streshinsky said he discussed the details with Patarkatsishvili. But Faekov, he added, was out of earshot down the beach.

Why Akin Gump opted to build sandcastles and not to hear what Patarkatsishvili was saying will never be known – at least not in this trial.

Streshinsky was then questioned on how it had come about that something similar to the substitution of lawyers had happened when the Swiss bankers chosen to receive the proceeds of the Rusal deal became too inquisitive. Produced in court was a memorandum, dated June 23, 2004, and titled “Re: Anti-Money Laundering Due Diligence”, written by a Swiss investigator called Erich Fiechter of Secretan Troyanov and prepared at the request of First Zurich Bank. Fiechter was worried that Berezovsky’s involvement in the deal as owner of Rusal shares was being concealed by everyone, and that even if Patarkatsishvili’s money was acceptable to First Zurich, Deripaska’s and Berezovsky’s might not be.

“Dear Ivan”, a First Zurich Bank banker named Escher, wrote Streshinsky shortly afterwards. “It is…important that we know the true story from the very beginning in order to be efficient. The lawyers should not get suspicious, we need them on our side. I think there is still a chanceto fix the transaction but please be prepared to put everything on the table when we meet on Tuesday at 9 am in our offices.” Asked why the bank lawyers were getting so suspicious, they were requesting Anisimov to sign an affidavit setting out everything he knew about the creation of Rusal, Streshinsky had another memory failure.

At this point, the judge asked Streshinsky to move his head. “Do you think you could possibly turn around and face me? I know it’s difficult for you. It’s just that I get a better reaction to your answers if I can see you face to face.”

In retrospect, this may turn out to be one of the most revealing points in the three-month trial. “What we do know, Mr Streshinsky,” said Masefield, “is that about this time you took the decision to switch the transaction from the First Zurich Bank to the Parex Bank in Latvia. Indeed we can see that from the next document in the bundle, page 170, which is an email from yourself to Alexander Kay at Parex Bank forwarding him a draft fiduciary agreement. Who was Alexander Kay, Mr Streshinsky, at Parex Bank?”

“I don’t remember.”

Asked why First Zurich Bank was dropped in favour of Parex, Streshinsky said: “I’ve seen that the approach which Mr Fiechter [Secretan Troyanov] and Mr Escher [First Zurich] took was very conservative and it required a lot of documents. For instance, it required documents from Mr Deripaska about the source of funds, the audited documents about the companies, the Rusal and the holding companies. It required the documents which would explain the initial amounts which were invested by Mr Abramovich to buy KrAZ. And I just thought that it was simply impossible to get all these documents. I tried but I could not get them. So — and I decided that, you know, with this approach we will not be able to complete the transaction and open the account, so I had to switch to another bank.”

This is the first time in the public record and in the 11-year history of Rusal that it has been confirmed that Deripaska, the purported owner, refused to answer standard questions from an international bank.

First Zurich Bank’s suspicions, and what it did to resolve them, contrast, not only with Parex, but with that paragon of the international banks lending to Russia, the European Bank for Reconstruction and Development (EBRD). According to its press release of January 2006, EBRD made its first loan to Rusal after due diligence in 2005 had led to covenants EBRD arranged for Deripaska to sign. The EBRD has never revealed what it exactly it asked Deripaska to put his name to. But it is known that the bank accepted his claim not to have had a business, equity or trading relationship with Michael Cherney (Mikhail Chernoy).

The separate High Court proceedings brought by Cherney against Deripaska – to go to trial in April — have already demonstrated that to be false. The Streshinsky disclosures in the High Court now suggest that the EBRD knowingly accepted a lie from Deripaska, and in order to do so, it sank to the Latvian standard for money-laundering investigation.

But wait – STOP PRESS! Guess who owns a 13.61% shareholding in Parex? The EBRD. According to its announcement of that deal on September 3, 2009, the EBRD said: “The EBRD is very pleased to be able to support a bank that plays such an important role in the economy.” Three years had passed, we now know in retrospect, since Parex had flushed down its toilet a smell so bad First Zurich couldn’t stomach it.

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