Mukhtar Ablyazov’s little Indians: how lies can reveal truth/II

Authorities in a number of countries are seeking to identify and detain as many as possible associated with the fund diversion circuits of Mukhtar Ablyazov, Kazakhstan’s ex-banker and master swindler who snatched billions in US dollar (some estimates go up to $12bn) and who is now under arrest in France biding his eventual extradition to Ukraine or another one of the countries having requested him to be handed over, with Ukraine topping the list. The main culprit’s two brothers in law have now been sentenced in England to 22 months in prison for contempt of court (read: perjury) but both of them have been on the run. The timing is crucial, since English courts are at the same time multiplying sentences authorising the fraud’s main victim, namely BTA Bank, to collect frozen funds which form part of Ablyazov’s bounty. However, the English courts’ two-edged sword could do with some grindingsince the perjury sentences concern “non-extraditable” offences, which leave the perpetrators plenty of opportunity to escape outside English jurisdiction and continue to divert stolen funds through new smokescreens.

Mukhtar Ablyazov’s little Indians: how lies can reveal truth/IIThe latest case allowing BTA to recollect frozen assets concerns the so-called AAA files, named after the rating of bonds which have been instrumental for Ablyazov to divert close to 300 million US dollar from the bank’s grip. Ablyazov’s lawyers, Addleshaw Goddard LLP, did not appear in court as their client either during the hearings in the case, which took place on October 8 and 9, nor at the reading of the verdict on November 26. The culprit himself stays behind bars in France pending a French court’s decision on his extradition to Ukraine, has been debarred from defence as part of his earlier conviction to 22 months in an English prison for contempt of court, the official terminology for perjury. Britain has not requested either his extradition or three of his associates for the same offence, since contempt of court is “non-extraditable” under English law. Nevertheless, on September 12 the law firm sent a letter to BTA’s lawyers, Hogan Lovells International LLP, on behalf of Ablyazov in which he still claimed defence rights. “You and your client are well aware of our client’s current personal circumstances, and that of his family,” the letter read.

“All of our client’s rights are reserved and our client’s decision not to defend the application further should not be taken as an admission or acceptance of liability for factual findings in the AAA proceedings or those already made against him in the wider proceedings, including the committal proceedings.”

The legal battle over the affair goes back to 28 July 2010, when BTA filed UK proceedings against Roman Solodchenko, BTA’s former chairman of the board and one of Alyazov’s longstanding associates and men of confidence, along with two citizens of Cyprus by the names of Paul Kythreotis and Jason Hercules. While the latter was to be cleared of the charges against him later on, the former was to end up pretty badly. The charges included the usual string of offshore companies believed to be affiliated to Ablyazov and company, in this case bearing the names of Celina Investment Holdings Limited, Shoreline Investment Holding Limited, Nafazko Investments Limited, Olofu Investments Limited, Mymana Holdings Investments Limited Mabco Inc, Calernen Finance Inc, Astrogold Corp and Grundberg Inc. The case was to be dubbed AAA after the ratings of the bonds used as fake liabilities in the asset diversion scheme that must have taken place between mid-2008 and early 2009 – just weeks before Ablyazov’s exposure, downfall and flight.

“The Bank’s claims allege the misappropriation from the Bank of US$295 million in AAA-rated investments and/or their value as part of a scheme that was implemented between June 2008 and January 2009, whereby the investments held by the Bank were transferred into an offshore account and then used as security for a contract whereby Celina, Shoreline, Nafazko and Olofu and Mymana (the ‘Receiving Companies’) agreed to sell to an investment house, Alfa Equity Investments, investments that matched the description of those held by the Bank,” a UK court document related to the case was to read. “These Receiving Companies were paid US$295 million in June 2008 in return for a commitment to supply investments by the end of the year. The Bank’s case is that a security arrangement must have been put in place using the Bank’s investments to allow these monies to be paid to Receiving Companies (who provided no security of their own and did not appear to have any assets). The monies were then paid on by the Receiving Companies to the other corporate defendants. In January 2009, the Bank transferred its investments to the Receiving Companies. It is understood that the Receiving Companies used those investments to comply with their obligations under their contracts with Alfa Equity Investments. The Bank’s case is that it was left with no investments and was given no consideration for transferring them away. Mr. Solodchenko signed off on the documents implementing the scheme. Mr. Kythreotis and Mr. Hercules were directors of certain of the corporate defendants. The Bank alleges that they were all complicit in the fraud committed against it.”

In the latest verdict concerning BTA’s right to recuperate the money the bank lost in the operation, Judge Henderson resumed the case, while referring to earlier rulings, in particular those of Justice Teare, who has handled most, though not all, proceedings against Ablyazov, as follows: “On 16 February 2012 Teare J gave judgment following the hearing of committal proceedings based on three sample allegations of contempt of court made by the Bank against Mr Ablyazov. Teare J held all three allegations to be proved to the criminal standard of proof, that is to say beyond reasonable doubt. One of the allegations was that Mr Ablyazov had failed, in breach of the worldwide freezing order previously made against him, to disclose his beneficial ownership of the shares in a company incorporated in the British Virgin Islands (BVI) called Bubris Investments Limited. Under its later name of Celina Holding Investments Limited, Bubris is the fourth defendant in the AAA proceedings and is alleged by the Bank to have played a key role, together with four other BVI companies which are the fifth to eighth defendants (together ‘the BVI Defendants’), in the alleged fraud which forms the subject matter of those proceedings. In the committal proceedings, which were heard over a period of about three weeks between 30 November and 21 December 2011, Mr Ablyazov was represented by a team of two leading and two junior counsel, instructed by Addleshaw Goddard. During the hearing, he elected to give evidence and was cross-examined for two and a half days.”

The results made headlines all over the world. “Mr Ablyazov failed to attend the handing down of judgment in the committal proceedings, and instead absconded,” the November 26 ruling reads further. “He was sentenced in his absence to 22 months’ imprisonment on each count, the terms to run concurrently. The judge also made an ‘unless’ order debarring him from defending the claims made against him in the Commercial Court proceedings, and striking out his defences, unless within a stated period he both surrendered to custody and made proper disclosure of all his assets and his dealings with them. The stated periods for compliance with these conditions expired in March 2012, but the order also provided that, in the event of an appeal, the sanctions for non-compliance would not take effect until seven days after the dismissal of the appeal. Mr Ablyazov had an unfettered right to appeal against the committal order and sentence; the judge also granted him permission to appeal from the Unless Order. Mr Ablyazov has remained a fugitive from justice since February 2012, and his whereabouts remained unknown to the Bank until he was discovered in the South of France on 31 July 2013. Since then he has been held in custody by the French authorities, while extradition proceedings against him by at least three countries (which do not include the United Kingdom, because civil contempt of court is not an extraditable offence) are pending. Despite his flight from the jurisdiction of the English court, Mr Ablyazov has continued to give instructions to his lawyers and to be represented in court proceedings when it has suited his interests to do so (although more recently courts have begun to refuse to hear submissions on his behalf while his multiple contempts remain unpurged).”

In summer last year, the overall dismissal of Ablyazov’s last attempts to turn the tide in favour of himself was ruled in final appeal. “The leading judgment was delivered by Rix LJ, who (among much else) reviewed the evidence relating to the beneficial ownership of Bubris before concluding: ‘There is thus compelling circumstantial evidence that Mr Ablyazov was the true owner of Bubris. There is no documentary evidence to the contrary … The judge was entitled and right to discount the evidence of Mr Ablyazov and his other witnesses, and indeed to find that such evidence was incredible and to be lies’,” the November 26 court document continues. “Having considered, and rejected, Mr Ablyazov’s appeal in relation to the other two alleged contempts, Rix LJ concluded the relevant part of his judgment as follows: ‘I would end this section of my judgment by saying this. It is noticeable from the facts of this case, both as found by the judge, but also in the nature of the structure of the arguments as they have developed, how time and time again, as some aspect of Mr Ablyazov’s conduct has come under question, so the evidence deployed has become remarkable for the way in which it has taken tortuous turnings which have asked the court to suspend its belief in reality in favour of reduplicating unrealities’.”

Judge Henderson’s ruling could, at least in theory, lead to one more legal arm-twisting in appeal, as Ablyazov’s lawyers (very much desiring to remain in a business which has already granted them annual multi-million Sterling incomes for a number of years in a row) could be ready to demand a full trial in regard to the AAA files. Anticipating on this, the Henderson in his conclusive observations writes: “In view of Mr Ablyazov’s decision not to defend the present application, the arguments which he has previously raised about the need for the case to go to trial may appear rather hollow. But I will briefly consider them. A recurrent theme in his defence and witness statements has been the need for full disclosure, and for oral evidence to be given by those within the Bank, both before and after its nationalisation. If it were necessary to understand every detail of the transactions relating to the AAA Investments, I would agree that a full trial was necessary. As I have explained, however, I consider that enough is now known about the transactions, on the evidence as it stands, to establish to the summary judgment standard that Mr Ablyazov must have been personally responsible for the misappropriation of the AAA Investments, and that the Bank has good causes of action under Kazakh law to hold him responsible accordingly. In those circumstances, it would be wrong to put the Bank to the delay, inconvenience and expense of proving its case at trial.”

In his end conclusion, Henderson gives BTA the green light to start collecting funds and assets connected to the AAA case. “The Bank claims to have been defrauded of securities worth some US$300 million by Mr Ablyazov. The Bank must be entitled to take legal action to recover that sum, even on the assumption that its motivation for so doing was mainly political. […] For the reasons which I have given, I am satisfied that the Bank’s application for summary judgment should succeed. The principal amount for which judgment is claimed in the application notice is US$294,138,715.27, that being the total amount paid by Alfa Bank to the BVI Defendants in June 2008. I will order Mr Ablyazov to pay that sum, which represents the financial benefit received by his companies as a result of his fraud.”

The AAA-case is the second of its kind in which BTA has been granted the right to recollect, after the real estate in and around London belonging to Ablyazov but financed with his ill-gotten gains from his former bank. One upcoming case concerns the so-called Granton file. “On 17 June 2010, the Bank issued proceedings in the Commercial Court against Messrs, Ablyazov and Zharimbetov, Granton Trade Ltd, Branden & Associates Ltd, Aldridge Ventures Ltd, Zafferant Partners Inc, Forest Management Ltd, Loginex Projects LLP, Incompro Management Ltd, Perspective Communications Ltd, Austin Universal Inc and Maden Holding Inc.,” BTA reported later on. “On 21 January 2010, the Bank filed Amended Particulars of Claim to include details of what are referred to below as the ‘Unlawful Loans’. In summary, the claim relates to two series of loans. The first set [of] the ‘Unlawful Loans’, totalling U.S.$1,428,840,000, was made by the Bank to 19 companies (the ‘Recipients’) between March 2006 and August 2008. The Recipients are all incorporated in the Seychelles, BVI or Cyprus, and it is the Bank’s case that they were all owned or controlled by Mr Ablyazov. The second set of loans, totalling U.S.$1,031,263,000, were made between November and December 2008 to four companies Granton Trade, Branden & Associates, Aldridge Ventures and Zafferant Partners, together the “Borrowers”) and paid out by the Bank pursuant to letters of credit to six further companies (Forest Management, Loginex Projects, Incompro Management, Perspective Communications, Austin Universal and Maden Holding, together the ‘Intermediaries’).”

Alongside more rulings expected to follow concerning BTA’s right to collect, more ones convicting more of Ablyazov’s former Associates should be expected in regard to their false declarations in court while under oath. They include Solochenko, Zharimbetov, Khadzhiyev and a number of others – the whereabouts of most of whom, however, remain unclear. It is highly unlikely that they have failed to see the warning sign on the wall and therefore took refuge outside English jurisdiction. After all, the world remains full of safe havens where judicial authorities have no grip on swindlers while the latter keep full access to the world’s financial circuits and transfer channels. In all: one cautious step ahead for justice means a full leap ahead for crime.