MOSCOW - Russia's President Dmitry Medvedev, who makes a state visit to
Switzerland on Monday, has presented two bear cubs to the capital Bern, along
with a growl that if any harm comes to Victor Vekselberg, a Russian oil and
aluminum oligarch, all the Russian money that goes into, or is at present
sitting in, Switzerland may vanish.
The Swiss Foreign Ministry says that no Russian head of state has ever visited
Switzerland. But the Kremlin's memory is a little longer. It reports that Tsar
Alexander 1 was there in 1819. For many years before, there had been a mutual
soft spot between the tsar and the Swiss. This had produced Alexander's veto of
a Prussian and Austrian military scheme to invade Switzerland to
attack Napoleon.
The Swiss found their own way round that, and on January 14, 1814, following an
army of Austrians and Bavarians, Alexander celebrated the Russian New Year in
Basel. As Swiss schoolchildren used to be taught, the anti-Napoleonic alliance
had rescued the Swiss from the French, turning them out of Geneva, Valais and
Neuchatel, and creating thereby the confederation of Swiss cantons with
something close to its modern political geography. The neutrality of the new
state was from the beginning a pro-German, pro-Russian, anti-French idea.
Like Alexander before him, Medvedev's arrival on September 21 coincides with
something of a Swiss sensitivity over the machinations of an alliance between
Russians, Austrians and Germans for what the latter insist is the greater good
of the Swiss.
The reason for the Russian rescue mission, which starts in Bern on Monday, is
that Vekselberg's takeover of two of Switzerland's leading companies, Sulzer
and Oerlikon, was arranged by methods that may be charged as criminal,
according to Swiss stock market regulations and the company legal code. The
timing of Medvedev's visit could not be better for Vekselberg, who at home is
an oil and aluminum oligarch.
Speaking through an assistant, Vekselberg says that "from this visit to
Switzerland we are awaiting the acknowledgement of the seriousness of bilateral
economic relations that will create a big opening for Russian investments".
What he means is that he expects a not-guilty ruling from Swiss government
investigators on charges of stock market manipulation and failure to disclose
concert-party arrangements when Vekselberg built up his control shareholding in
Sulzer and Oerlikon, both high-technology engineers and machine-builders.
However, if the Swiss don't convince themselves, or are not persuaded by
Medvedev of Vekselberg's innocence, an indictment for trial will be issued. If
a conviction follows, Vekselberg could be jailed for three years, or fined up
to one billion Swiss francs (US$970 million). According to a confidential
report on Vekselberg's current financial condition now circulating in Zurich,
he doesn't have the money.
Vekselberg has other lawsuits to worry about, but the Swiss proceedings are the
most dangerous and pressing. When charged in US federal court with fraud and
theft in relation to Siberian oilfield assets a decade ago, Vekselberg
renounced his immigration status in the US, and left his New York residence,
according to lawyers involved in the case, which is still pending.
A Russian newspaper on Friday headlines the purpose of Medvedev's Swiss visit
"to help Renova", Vekselberg's personal holding. The newspaper also cited
Medvedev's foreign affairs advisor, Sergey Prikhodko, as intimating that the
Swiss government was improperly discriminating against Russian businessmen. The
newspaper added that threats from the head of the Russian business association,
Alexander Shokhin, and Vekselberg's spokesman, Andrei Shtorkh, that if their
man was not let off the hook, the flow of Russian cash into Switzerland would
stop.
A year ago, the press in Zurich discovered that the Swiss Federal Banking
Commission (SFBC), which is responsible for investigating money-laundering and
reputation risk of incoming foreign investors, had undertaken no investigation
of Vekselberg's purchase of the Sulzer and Oerlikon shares, in relation to
Swiss money-laundering regulations.
But the Swiss Financial Market Supervisory Authority (FINMA) did investigate
the share-buying in relation to the takeover rules. A lengthy report was issued
in January 2009, focusing on the methods used by Vekselberg's Austrian
partners, Ronny Pecik and Josef Stumpf, to buy de facto control of Sulzer, with
a 31% shareholding, in 2006 and 2007. FINMA found Pecik and Stumpf culpable of
market manipulation. The text of the FINMA announcement on January 29 also
charged the Bank of the Canton of Zurich (ZKB) of acting illegally to assist
the takeover operation.
Late last month, FINMA announced publicly that Deutsche Bank's Swiss branch had
also played an illegal role in the takeover scheme. Alain Bichsel, a FINMA
spokesman, is reported in Zurich on August 30 as saying the German bank's
Zurich branch had caused "serious injury" (schwerwiegend verletzte)
through its involvement in the Vekselberg group's takeover of Sulzer. FINMA's
latest ruling rejects an earlier declaration by Deutsche Bank chief executive
Josef Ackermann that "we have done everything right".
FINMA's latest announcement acknowledges that Deutsche Bank's "organization
defects" have been "repaired in the meantime". This appears to be a reference
to the firing of low-level bank traders involved in the transactions. FINMA
says it is continuing its investigation of another bank reported to have been
involved - New Zurich Bank (NZB).
In March, FINMA publicly disclosed that it was making Vekselberg a target of
investigation, and officers of the criminal law division of the Federal
Department of Finance (FDF) were engaged. In April, the FDF confirmed that it
had "opened criminal administrative proceedings against Ronny Pecik, Georg
Stumpf and Viktor Vekselberg on suspicion of violation of their disclosure
obligations under the law governing stock exchange transactions while building
a stake in Sulzer AG".
"Based on the complaint made by the Swiss Financial Market Supervisory
Authority (FINMA) on 2 March 2009, the Criminal Law Division of the FDF came to
the conclusion that there were sufficient indications to suspect that Ronny
Pecik, Georg Stumpf and Viktor Vekselberg had acted in concert when building a
stake in Sulzer AG from November 2006 to April 2007 and in doing so had
violated their disclosure obligations."
Sources close to FINMA chief, Eugen Haltinger, claim the evidence against
Vekselberg is comprehensive and compelling and that a conviction is likely to
be recorded.
Vekselberg's Renova holding and his advisors say they have done no wrong. They
counter-charge that rival shareholders and former senior executives at Sulzer
are behind the campaign to prevent them exercising their voting power in the
company.
Vekselberg's spokesman, Andrei Shtorkh, told Asia Times Online the Swiss claims
were "absolutely unreasonable, as the transaction of the Sulzer shareholding
acquisition was carried out in full conformity with the legislation of
Switzerland operating at the time". He added that the government investigation
was triggered by disgruntlement on the part of Ulf Berg, "the chairman of the
board of directors of the company at that time [who] was dismissed from his
post. He was actively trying to prevent Renova from securing legitimate
shareholder rights at the first stage."
FINMA and the FDF say that "unless and until a conviction is secured, the
presumption of innocence applies". Implementation of an earlier ruling by Swiss
regulators against Vekselberg and his Austrian partners in connection with
their takeover of Oerlikon is still being delayed after two years.
A privately commissioned due diligence report, dated in April 2009, is
circulating in the investment community in Zurich. This report provides an
estimation of the debts of Renova and Vekselberg and the cost and current value
of the Oerlikon and Sulzer shareholdings.
Referring to United Company Rusal, the Russian aluminum concern in which
Vekselberg has a minority stake, and whose board he chairs, the report
concludes:
OC Oerlikon, like Rusal, is facing serious financial
pressures. The company has debt of Sfrs (Swiss francs) 4.358 billion with
equity of only Sfrs 1.093 billion, while suffering an operating loss for 2008
of Sfrs 422 million. Sfrs 1.482 of debt is soon coming due and with negative
operating cash flow, and cash balances of approximately Sfrs 400 million, the
company will not be in a position to pay off the debt. It is said to be under
pressure to obtain new financing ... Sulzer appears to be the only material
asset in Mr Vekselberg's stable that has a solid balance sheet, high credit
rating and is generating cash, so it would hardly be surprising to see his
efforts focussed on optimizing value of this asset. Mr Vekselberg has suffered
a material impairment in wealth as a result of the financial crisis and the
reversal of good fortunes surrounding the resource sector. The raision d'etre
of Renova has been severely compromised owing to the cessation of dividends
from its core investments in TNK-BP and Rusal.
John Helmer
has been a Moscow-based correspondent since 1989, specializing in the coverage
of Russian business.
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