2012: the final year of Ablyazov’s tossing, turning, twisting and trotting/II

The year 2012 has put an end to virtually all open resistance in English courtrooms by Kazakhstan’s (and probably the world’s) champion-fraudster Mukhtar Ablyazov, former major shareholder and president/CEO of the country’s ailing BTA bank. All assets in the form of both funds and collateral related to diverted belongings to BTA have been frozen after vain attempts by Ablyazov, his former associates and his lawyers to hide them from the law – which in turn resulted in a confirmed jail term for Ablyazov of 22 months for “contempt of court” – the English terminology for perjury. After the first half year witnessed the penal verdict and the failed appeal against it, the second year mainly featured attempts by Ablyazov and his lawyers to thwart the new round in the game which set off in November last year, and focuses on actual recuperation by BTA of the assets on hold under the freezing order ruled back in 2010 by the English court and confirmed and expanded ever since. The first verdict and eventual return of some of the assets involved is due for early spring this year but might be preceded by some preliminary stumbling blocks.

BY CHARLES VAN DER LEEUW, KZW SENIOR CONTRIBUTOR

2012: the final year of Ablyazov’s tossing, turning, twisting and trotting/IIThe first verdict in the second half of 2012, which concerned Ablyazov’s former associate and accomplice Anatoly Ereshchenko in connection with the case known as the AAA files, came on July 10 and was ruled by Mr. Justice Vos, following “an application by JSC BTA Bank, a leading Kazakhstan bank now owned by the Government of that country, to commit Mr Anatoly Ereshchenko to prison for a number of criminal contempts of court. In essence, the Bank says that Mr Ereshchenko deliberately lied when he responded to a Norwich Pharmacal order for disclosure made against him on 3rd November 2010. The lies that Mr Ereshchenko is alleged to have told were effectively twofold: first, that so far as he could recall he knew nothing about the transactions in question (the so-called AAA Transactions), and secondly that he did not have access to any documents that might assist.” 

The verdict’s lengthy explanations concerning Ereshchenko’s honesty included several missteps but no conclusive evidence against pursuant deliberate misleading contributions to the court. Once more, it appeared that BTA’s lawyers had been pushing for a bridge too far. “On the present evidence, the Bank has failed to prove beyond reasonable doubt that Mr Ereshchenko lied in any of the 8 specific respects that it particularized,” Judge Vos concluded. “Put shortly, I cannot now be sure that Mr Ereshchenko knew more about the AAA Transactions than he was saying in his December statement, nor that he had not answered any of the 199 specific questions in the Disclosure Order as far as he was able at the time. Nor can I now be sure that he knew he had access to documents that might have helped him respond.” But  Justice Vos added: “If the Bank wishes to pursue its case against Mr Ereshchenko, it must prepare for trial. There is no evidence that Mr Ereshchenko obtained any money from the alleged fraud in relation to the AAA Transactions, but that does not mean that he may not be liable for dishonest assistance in breaches of fiduciary duty. Nothing I have said in this judgment based on exiguous evidence should be taken by either party as being a comment either way on the substantive issues. They are for another day.

In the light of the findings I have made, I shall dismiss the Bank’s application to commit Mr Ereshchenko for contempt of court, and will hear counsel on costs and any appropriate ancillary orders.”

Subsequently after hearings in late July, the court presided by Judge Teare ruled once more on September 27, concerning three more applications in the endless string of legal arm-twisting surrounding BTA’s attempts to get grip on the funds embezzled by Ablyazov and associates. Two of them had been filed by the Claimant (BTA Bank) and one has been brought by the First Defendant (Ablyazov). In the first application the Bank seeks (i) a declaration that Mr. Ablyazov has acted in breach of the Freezing Order which this court made some three years ago in August 2009 and (ii) an order that Mr. Ablyazov exercise his best endeavours to reverse certain dealings with his disclosed assets. In the second application the Bank seeks (i) a declaration that Mr. Ablyazov owns certain assets which he has not disclosed and has acted in breach of the Freezing Order and (ii) an order that Mr. Ablyazov exercise his best endeavours to reverse certain dealings with those undisclosed assets. The dealings consist of pledges of certain property by companies which he owns to the AMT Bank (“AMT”) and, in one case, to the Central Bank of Russia (“CBR”). Where pledges appear to have been intended but it is unclear that pledges have in fact been made, orders for disclosure of what has happened are sought. […] In the third application Mr. Ablyazov requests the court to grant permission, retrospectively, for the pledges made by his companies on the grounds that they were made for purposes which did not conflict with the purposes of the Freezing Order.” The AMT case also concerns several properties downtown Moscow – at one point removed from the freezing order.

This time, BTA won on all sides and it was Ablyazov biting the dust in absentia. “Having reviewed the evidence it is necessary to consider the Bank’s application (i) for a declaration that Mr. Ablyazov, by authorising the pledges and mortgages without seeking permission to do so from the court, has breached the Freezing Order and (ii) for an order that he exercise his best endeavours to reverse those pledges and mortgages,” Justice Teare considered in his verdict. “[…] First, Mr. Ablyazov does not himself appear to accept that he has acted in breach of the Freezing Order. It is therefore appropriate to make the declarations in order to make it clear to him that his conduct has been in breach of the Freezing Order. Second, the Bank is entitled to have a clear statement of the position so that it may, if it wishes, inform AMT, CBR and the Russian Court which is called upon to enforce the pledges that Mr. Ablyazov created the pledges in breach of an order of the English Court. I shall therefore make the requested declarations of breach.” It meant that BTA’s applications were by and large honoured. As for Ablyazov’s pledge, it was categorically dismissed.

On October 8, the so-called Chrysopa case, named after a Netherlands-based ghost enterprise which played a key role in the diversion of funds and collateral related to Russia’s northwestern maritime terminal of Vitino, reappeared in a fresh court verdict. Defendants included Ablyazov personally and a number of firms involved in the scheme. “The application now before the court was issued in what is known as the Chrysopa action, in which action the Claimant, BTA Bank, claims that US$120m. was advanced by the Bank to the Fourth Defendant, Chrysopa Holdings BV, pursuant to a sham transaction designed to disguise the transfer of the sum to entities owned or controlled by the First Defendant, Mr. Ablyazov,” the verdict’s introduction read. “The Bank claims that the Fifth Defendant, Usarel Investments Limited, was mixed up in the alleged fraud. Damages and proprietary remedies are claimed against the Defendants, including Usarel. The application now before the Court has been issued, not by one of the parties to the Chrysopa action, but by a number of entities who claim to have been or to be shareholders in Usarel and also by two entities who claim to be corporate directors of Usarel. The order sought is that the court appoint David Rubin of David Rubin & Partners LLP as receiver of Usarel for the purposes of defending the claim brought by the Bank against Usarel.” In the verdict, Justice Teare accepted the application, though under certain restrictions, arguing: “The court is not seeking to resolve a dispute which undoubtedly exists as to the internal management of Usarel. That dispute is before the Cypriot court where Usarel is incorporated. The court is merely wishing to ensure, in the interests of justice, that, however that internal dispute is resolved in Cyprus, Usarel is represented at the trial which is shortly to take place in this court. This is, it seems to me, a strong reason for concluding that it is appropriate that the English court make the order.”

The next move by Ablyazov came the same month in the form of an attempt to remove Justice Teare from the cases. In England, this can only be done voluntarily by the judge himself and therefore the application was submitted to Teare in the first place. “This is an application by Mr. Ablyazov for an order that I recuse myself from trying three actions which have been commenced against him by the Claimant Bank,” the first ruling dated November 1 was to read in its introduction. “The trial, which is expected to last some three months or more, is due to start on 6 November 2012 with the trial judge pre-reading in the previous week. Thus the application has been made at almost the last possible moment. […] The application is opposed not only by the Bank but also by the other represented defendants, Mr. Zharimbetov, Mr. Khazhaev and Usarel Investments Limited.” After an exhaustive argumentation, Teare dismissed the application as follows: “I have not been persuaded that there is even a real doubt as to whether the fair-minded observer would conclude that there is a real possibility that I would be biased when deciding the issues at trial. In any event, had I concluded that there was either a real possibility that I would be biased, or a real doubt as to whether I might be biased, I would have been compelled to dismiss the application that I should recuse myself on the grounds that Mr. Ablyazov had waived his right to make such an application. I will therefore not recuse myself.”

The next ruling concerned an appeal against three earlier cases’ ones and was delivered by Lords Justice Rix, Toulson and Maurice Kay on November 6. “Mr Mukhtar Ablyazov appeals from three judgments of Mr Justice Teare under which the judge has respectively (i) found him guilty of contempt of court; (ii) sentenced him on each of three proven contempts to 22 months in custody concurrently; and (iii) in consequence has made an “unless” order whereby Mr Ablyazov will be debarred from defending the claims made against him, and his defences will be struck out, unless within a stated period he both surrenders to custody and makes proper disclosure of all his assets and his dealings with them,” the appeal’s verdict was to read. “The stated period for surrender was until 9 March 2012, and for disclosure until 14 March 2012. However, the judge’s order also provided that, in the event of appeal, the sanctions for non-compliance would not take effect until seven days after any dismissal of the appeal. Mr Ablyazov had a right of appeal from the judgments committing him to prison, and obtained permission to appeal from the judge from his judgment imposing sanctions.”

Lord Justice Rix considered all related details in the lengthy verdict – leading to his conclusion: “It seems to me that the judge was right to say that his orders should encompass all eight of the actions commenced in the commercial court concerning the bank’s claims against Mr Ablyazov. The freezing order encompassed them all, and therefore the same logic applied to them all. It is unnecessary to say anything further about the judge’s additional order, in the event of the unless orders taking effect, for the release of the bank’s fortification. That must follow. For all these reasons, I would dismiss all the appeals before the court.” After a brief debate in which one of Rix’s peers agreed on all except the so-called unless-order which would have given Ablyazov one more last chance to surrender himself and declare all his business interests for the freezing order, he was outvoted and Rix’s ruling proposal fully accepted.

On November 28, the last round for 2012 came as the same three judges delivered their verdict on an appeal filed by Ablyazov’s lawyers considering the eventuality of Teare’s recusal – which was equally dismissed even though a request for the court to disqualify itself was not accepted either. “I would infer that Mr Ablyazov knew at all relevant times of his right to object to a judge who on his own case had demonstrated the appearance of bias, and that the actual timing of the application to recuse was a tactical decision, designed to derail the trial. “I would therefore hold that the failure of Mr Ablyazov to object, on the basis of his own grounds for alleging apparent bias, to the judge as the judge of trial, at all times from the delivery of the February judgments, and in any event at the pre-trial hearing of 2 October, was an unequivocal, informed and voluntary waiver of any right he had to do so.” Lord Justice Rix argued in the verdict. “As such it is sanctioned by domestic, Strasbourg and international jurisprudence. In the present case, having heard extensive argument, we have decided to grant an appeal, but to dismiss it. In doing so, however, we do not mean to suggest that we have had any doubt about the result.”

 

CHRONOLOGY OF THE AAA-FILES CASE 2006-2010

– At some time in 2003, Mr Mukhtar Kabulovich Ablyazov was apparently released from prison in Kazakhstan and came to London.

– On 8th September 2003, Eastbridge was incorporated. On 9th September 2003, Mr Ereshchenko and Mr Udovenko became directors of Eastbridge.

– In May 2005, Mr Ablyazov returned to Kazakhstan to take up his position as Chairman of the Bank’s board of directors.

– On 1st June 2006, Mr Ereshchenko emailed a Mr Bernard Krebs saying that he had told him (Mr Krebs) on the telephone that Eastbridge was Mr Ablyazov’s London office.

– Between 28th December 2007 and 2nd January 2008, the BVI Defendants were incorporated in the BVI.

– On 21st and 22nd May 2008, the Bank acquired the AAA Investments.

– Between 22nd and 23rd May 2008, both the Bank and the BVI Defendants entered into brokerage agreements with and opened accounts at Alfa Equity.

– On 4th June 2008, Mr Alexander Chekalin, “Head of Legal” at Eastbridge Moscow emailed Mr Paul Kythreotis, the 2nd Defendant, copied to Mr Udovenko, but not to Mr Ereshchenko, attaching 5 draft securities’ sale and purchase agreements to sign for the 5 BVI Defendants.

– On 9th June 2008, Mr Ereshchenko’s expense report shows that he incurred Ј234.84 in respect of accommodation at a hotel in Riga.

– Also on 9th June 2008, the BVI Defendants entered into loan agreements with the Further Recipients in the sum of US$250.1 million.

– On 10th June 2008, the Bank transferred the AAA Investments to its account at Alfa Equity.

– On 10th and 17th June 2008, the BVI Defendants entered into the short sales of AAA Investments to Alfa Equity. The consideration of US$294.1 million was received by the BVI Defendants from Alfa Equity on 11th and 18th June 2008.

– Between the 12th and 20th June 2008, the BVI Defendants transferred monies (purportedly under the allegedly sham loan agreements) to the Further Recipients.

– On 10th October 2008, Mr Ereshchenko was sent 4 statements for 4 of the 5 BVI Defendants’ accounts at TKB.

– On 15th October 2008, Mr Manokhin sent Mr Ereshchenko and Mr Udovenko an email about the pooling of cash held in TKB.

– On 23rd October 2008, Mr Ereshchenko was sent by email a supplement to the brokerage agreement between Alfa Equity and each of the 5 BVI Defendants.

– On 31st October 2008, Mr Surapbergenov emailed Mr Sadykov, Mr Ereshchenko, Mr Rybalkin and Mr Udovenko concerning the repayment of coupons (presumably interest on the AAA Investments that had been short sold by the BVI Defendants) on 15th November 2008 saying that Mr Ereshchenko would need to prepare the respective orders of the BVI Defendants for transfer of the money to the Bank.

– On 8th December 2008, an administrative director of Eastbridge Moscow emailed Mr Manokhin, copied to Mr Ereshchenko, Mr Udovenko and others indicating that archives had been taken to London.

– On 18th December 2008, Mr Chekalin emailed Mr Kythreotis saying that Mr Ereshchenko had confirmed by telephone transfers from 2 of the BVI Defendants to Alfa Equity. The email also asked Mr Udovenko to approve the transfers.

– The 5th January 2009 is the apparent date of the 5 draft SPAs purporting to document the sale of the AAA Investments from the Bank to the BVI Defendants.

– On 22nd January 2009, the AAA Investments were transferred on Mr Solodchenko’s instructions from the Bank’s account at Alfa Equity to the BVI Defendants’ Alfa Equity accounts.

– On 2nd February 2009, the Kazakh government acquired 75.1% of the Bank, through a sovereign wealth fund, Samruk Kazyna.

– On 6th March 2009, Ms Kolyasova [of Eastbridge] sent an email to Mr Udovenko and Mr Ereshchenko and others saying to Mr Udovenko that “by indication of [Mr Ereshchenko] I am … sending you the draft of letter to register for signing attached documents”.

– On 9th March 2009, Mr Ereshchenko emailed to Mr Kythreotis 5 securities sale and purchase agreements dated 5th January 2009 between the Bank and each of the 5 BVI Defendants (the “5 SPAs”).

– In March 2009, according to Mr Ereshchenko, Eastbridge closed its Moscow office. Also in that month, it appears that Mr Surapbergenov came to visit Mr Ereshchenko in London for a week and gave him the draft 5 SPAs and told him that he was very concerned about his position because of events in Kazakhstan.

– On 24th April 2009, Ms Kolyasova sent an email to Mr Udovenko and Mr Ereshchenko asking that an inquiry be sent to the registrar, Mr Kythreotis, in relation to Bubris. This was part of a series of emails, to which Mr Ereshchenko was a party, concerning bond trading at this time.

– On 12th August 2009, Mr Aizhulov ceased to be a director Eastbridge.

– On 13th August 2009, Blair J granted a without notice freezing injunction against Mr Ablyazov and others in what have become known as the “Drey proceedings”.

– In August 2009, Mr Aizhulov left London.

– In December 2009, Mr Udovenko left London and has not returned since then. His whereabouts are unknown.

– On 12th February 2010, Mr Udovenko resigned as a director of Eastbridge, leaving Mr Ereshchenko as the sole director of Eastbridge.

– On 28th May 2010, Mr Ereshchenko resigned as a director of Eastbridge.

– On 20th June 2010, Mr Ereshchenko says that he stopped working for Eastbridge.

– On 26th July 2010, the Bank obtained worldwide freezing orders against the first 12 Defendants in these proceedings.

– On 27th July 2010, the Bank obtained freezing orders against the Defendants to these proceedings incorporated in the BVI from the BVI court.

– On 28th July 2010, these proceedings were commenced against the first 12 Defendants.

– In August 2010, Mr Ereshchenko says that he threw his laptop computer away.

– On 6th September 2010, the BVI court found the Defendants to these proceedings incorporated in the BVI to be in contempt of court in failing to comply with its disclosure orders, and ordered the sequestration of their assets.

– On 30th September 2010, a new director of Eastbridge was appointed, Mr Ramil Burganov, and it was sold to a Russian company for Ј2.

– On 3rd November 2010, Henderson J made the Disclosure Order against Mr Ereshchenko.

– On 10th November 2010, the Disclosure Order was personally served on Mr Ereshchenko.

– On 15th November 2010, Mr Ereshchenko instructed solicitors (Dawsons LLP) to act for him in relation to the Disclosure Order.

– On 22nd November 2010, the Bank’s solicitors provided Mr Ereshchenko’s solicitors with the bundles that had been before Henderson J on 3rd November 2010.

– On 26th November 2010, Mr Ereshchenko’s solicitors wrote to the Bank’s solicitors saying they had only undertaken a preliminary review of the large number of documents provided, and seeking an extension of time for compliance with the Disclosure Order.

– On 2nd December 2010, Mr Ereshchenko’s solicitors and the Bank’s solicitors agreed a 7-day extension of time for compliance with the Disclosure Order.

SOURCE: ROYAL COURT OF JUSTICE

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