It is an article originally published in the WSJ by WSJ staffers, a kind reader had already provided me with a copy, but the pressure of work had kept me from commenting. Now the weekend has arrived here are my thoughts.
Whilst the article assumes that you have some knowledge of the underlying case in order to truly understand the case, it make good reading.
For what its worth from the bits that I know, as opposed to suspect, its well written and researched and accurately reported. Albeit that you can feel the dread hand of WSJ's legal team removing the juicier bits.
I heard on the grapevine that Alfa was beginning to despair over the damage that the row was doing to its business. But now that the press has its teeth in to the story, mostly because there is evidence that can be sourced outside Russia, it strikes me that this is a story that won't go away. Or at least until a couple of ex-Commerzbank investment bankers are languishing in jail (they were crappy bankers anyway) and a Danish lawyer is enjoying his “ownership” of a large chunk of the Russian telecom industry in a country where arrest warrants can't reach him; Russia in the summer and Maui in the Russian winter?
Here are some of the more interesting paragraphs selectively culled from the piece. To get the whole story read the article;
In late 1994, Mr. Reiman gathered his state-controlled employer’s interests in the growing ventures into a firm called Telecominvest. His employer owned 95% of it. Mr. Galmond, the Danish lawyer, says that he indirectly owned the rest.
But just over a year later, the interest held by Mr. Reiman’s employer and another state company had shrunk to 49 percent. Now, 51 percent was in the hands of an obscure Luxembourg company called First National Holding.
What had happened was that Telecominvest issued new shares. Though the state-controlled companies, represented by Mr. Reiman, had a right to invest in these shares and maintain their dominant stake, they didn’t. Instead, First National Holding put up a modest $1.8 million for the new shares and wound up with the majority stake. Later its stake rose to 85 percent through the same process.
Who was this First National Holding? The question intrigued Russia’s then-telecom minister, who says he learned about the new ownership in the local press and called state telecom executives for an explanation. They told him First National Holding was just a vehicle for the actual owner – Commerzbank – says the former minister, Vladimir Bulgak. So “we didn’t make a scandal. We thought the Petersburgers found a good partner who would invest,” he says.
Telecominvest also portrayed Commerzbank as the owner. It said in regulatory filings that the bank owned First National Holding. And the German bank itself said the same. Commerzbank in a 2000 European Union regulatory filing, in annual reports and in letters to business partners said it owned First National. Now it admits that wasn’t the case.
German police found a long internal report from Commerzbank’s Moscow office warning that the bank was improperly helping Mr. Reiman conceal ownership of state assets, says a senior German police official. According to the official and to others with knowledge of the case, the employee who wrote the internal report told investigators that in 2001 he tried to give it to Commerzbank chief executive Klaus-Peter Müller at bank headquarters in Frankfurt, but Mr. Müller turned his back and wouldn’t acknowledge it.
For instance, a 2002 letter to a Liechtenstein bank said the telecom empire belonged to Mr. Reiman. The letter bears Mr. Galmond’s signature, according to an affidavit filed in a British Virgin Islands court. Mr. Galmond said the statement that the businesses belonged to Mr. Reiman was made by his staff in error.
Commerzbank executives considered Mr. Reiman to be the bank’s client, said a person familiar with its handling of the matter. The bank did due diligence on him as “the economic beneficiary” of the assets, said an affidavit filed in the Privy Council, quoting a Galmond adviser. Mr. Reiman’s explanation is that the bank’s lawyers looked into whether it would be legal for him to get a stake in some of the companies in the late 1990s as part of a deal Mr. Galmond proposed but that such a transaction never happened.
German prosecutors say their money-laundering investigation is complicated by the need to establish that a crime occurred at the beginning of the chain in Russia. They would need to show that the money that coursed through Commerzbank was dirty to begin with.
In Russia, authorities have shown little interest beyond a 1997 investigation by prosecutors in St. Petersburg, which found no significant violations in the 1994 formation of Telecominvest. No senior Russian official other than Mr. Reiman has publicly commented on the allegations against him. Russian prosecutors, when asked by legislators to respond to the Zurich tribunal’s ruling, said they saw no evidence that IPOC had engaged in suspicious financial operations.
[composed and posted with ecto]