Russia blackout as fraud trial bill mounts
By John Helmer
MOSCOW - It's not so surprising that religion tends to be humorless. Making
people accept the impossible usually requires threats, not jokes.
There is no record that Jesus Christ ever laughed out loud. His idea of humor
was sarcasm and puns he lifted from fishermen and carpenters. For overdoing
seriousness, the early eastern patriarch, St Cyril of Alexandria (378-444 AD),
takes the cake. He's the fellow who set the record for heaping more anathemas
on a single target than anyone in Christian history.
Until, well, now. For five days every week since October 1, in a London
courtroom, a Russian challenge to St Cyril's record is being tested. The case
has been brought by the 100% state-owned shipping company, Sovcomflot, whose
board chairman is
Sergei Naryshkin, the Kremlin chief of staff, and whose chief executive is the
former federal transport minister, Sergey Frank. Sovcomflot, also known by its
acronym SCF, is one of the world's top five energy fleets, carrying oil,
petroleum products and liquefied natural gas to the markets of Europe, North
America and Asia.
Shipping claims are usually so arcane, it's difficult for landlubbers to follow
and take an interest. This one was intended to be a relatively straightforward
claim by the tanker company against a former chief executive, Dmitry Skarga,
and a former fleet chartering partner, Yury Nikitin, for alleged fraud and
financial damage to the company, worth an estimated US$800 million. The number
is big, because of the boom in oil prices and tanker rates between 2005 and
2008, when Nikitin did well - at Sovcomflot's expense, the company claims with
hindsight.
London was selected for trial because much of the alleged dealing had been done
there, even though the alleged loot had evidently been moved to Switzerland.
The efficiency with which the Swiss connection has been recorded has now turned
into a boomerang for the Russian allegations. The welter of detail tumbling out
of company accounts, transaction term sheets, board minutes and cash
concealment is unprecedented for a major Russian corporation, let alone an
enterprise supervised by Kremlin insiders.
Without getting into the Greek and Hebrew too deeply, an anathema was the most
extreme form of denunciation, curse, or execration that was imaginable to the
Hebrews and the early Christians. In their day, there were a variety of sins
and crimes for which a believer might be excommunicated by the church, or
punished by the secular authority. But to be anathematized was much worse. It
was the theological equivalent of emptying all 600 rounds of a Kalashnikov
magazine into a mouse.
In retrospect, the story of Cyril's 12 anathemas against his rival, Nestorius
of Antioch and Constantinople, looks to be more 5th century geopolitics than
theology, with all too familiar power-grab motives. Cyril wanted to preserve
Alexandria as the seat of the church, and himself in papal power, making sure
the Byzantine emperor, Theodosius, ruling from Constantinople at the other side
of the Mediterranean, didn't pick his own man, Nestorius. So Cyril concocted 12
anathemas; rigged a bishops' council at Ephesus to validate them before
Nestorius and his backers could arrive to defend themselves; and delivered what
Cyril thought was the fait accompli to the emperor. When the scheme
didn't convince Theodosius, Cyril sent a crowd of thugs and protesters to his
palace to make sure.
No one cared exactly what was in Cyril's indictment, and in the short run it
paid off for Cyril. The outcome of his power-play, however, was a territorial
split of the church, with Nestorius walking off with his devotees into what is
known today as Syria. Cyril hung on to the illusion of his own and Alexandria's
preeminence, but they couldn't match the growing power of the Byzantine court
in Constantinople. The leftovers for Cyril's successors finally disappeared
when Alexandria was taken by the Persians.
Since then, a lot of dirty water has flowed under the bridge, until we come to
the Sovcomflot trial. For five years, and at a current cost estimated to be
more than US$30 million, Frank has tried to anathematize Skarga. The court
records, including witness statements, documents in evidence, and daily
transcripts of Frank's testimony, along with other company executives, tell
this story.
Skarga had been appointed to his post when only 29 years old, by a powerful
Kremlin figure, Igor Sechin, then advisor to then-president Vladimir Putin and
now deputy prime minister in charge of the energy sector. Also involved in the
appointment was a group of businessmen involved in the production of crude oil,
refining, transportation to port, and tanker loading and delivery to market.
The oil producer in which they had an interest was Surgutneftegas; the
refinery, Kirishi; the oil trading firm, Kinex (Kirishineftekhimexport), and
the shipping company, PNP. Two of these businessmen were named as Yury Nikitin
and Gennady Timchenko.
Skarga's job, according to documents from those who had helped get him the job
over Frank's rival candidates, was to clear up several hundred million dollars
worth of debts Sovcomflot had been unable to reduce during Frank's ministerial
term in office; and to finance the construction of a new fleet of oil tankers,
with ice-class design to enable them to operate in winter at Russia's newest
oil port then being built, Primorsk on the Gulf of Finland.
In addition, Skarga had to find new lenders, meet the order from Putin to lift
the volume of Russian crude oil his fleet was transporting; and lock in as much
of Sovcomflot's forward revenue as was prudent in light of expert forecasts of
declining tanker rates and falling revenues for his company.
By the time Frank took over from Skarga in October 2004, Skarga had done pretty
much what he had been told to do. Perhaps he had been too successful and was no
longer prepared to take orders. According to Frank, he had done nothing if not
for corrupt inducement and unlawful greed. Say the name Skarga - or Google it
in Russian - and you can read Frank's anathemas in full.
In parallel to their rivalry, there had been a dramatic change of ownership of
Russia's oil production assets. Mikhail Khodorkovsky's Yukos was out; the
state-owned Rosneft, chaired by Sechin, was in. Equally dramatic, but less
visible, changes had also begun in rail and river transportation of these oil
cargoes, and in the allocation of oil between international trading companies.
Gunvor, controlled by Timchenko, had begun its rise against non-Russian
competitors such as Glencore, Vitol and Trafigura, as well as against Russian
rivals like Litasco, Crown Resources and Kinex. New pipeline directions, new
oil ports, and new oil fleet strategy were devised, with Sechin at the command.
Timchenko, meanwhile, had gone his separate way from Nikitin.
A relatively simple plan to sell Sovcomflot shares to raise about $300 million
from New York investors, requested from JP Morgan by Skarga to finance new
tankers, was canceled by Frank. He favored instead a plan to merge Sovcomflot
with the partially privatized fleet company, Novorossiysk Shipping (Novoship),
and then to privatize a much more costly chunk of the much bigger company. Had
oil prices not collapsed, along with most commodity and trade value, and tanker
revenues, in September 2008, this scheme might have come much closer to
fruition than it has done.
Instead, by an accident of timing, Frank's dozen anathemas - issued with the
approval of high officials of the Russian government to make sure Skarga and
his associates could pose no criticism, no challenge, no threat - have been
issued at a time when Sovcomflot is under heavy financial pressure, and remains
under total state control. If there is a scheme to sell a 20% stake of the
company to a single Russian businessman - as the Russian minister in charge of
privatization recently suggested - then he would be getting the asset on the
cheap. Lucky him!
Before we get that far, however, what Cyril was able to pull off at the Council
of Ephesus isn't going so smoothly for Frank. For he and his company witnesses
have been obliged to give detailed evidence of their scheming in the UK High
Court; stand for days while under cross-examination by defense lawyers; account
for contradictions in the evidence; explain the part played in framing their
indictments by Deputy Prime Ministers Sechin and Igor Shuvalov, general
prosecutor Yury Chaika, and other ministers of state; and answer to Justice Sir
Andrew Smith, an experienced English judge in charge of commercial cases, whose
questioning grows longer and sharper as the case winds on. It is now into its
fourth week; the trial schedule indicates at least at least three more months.
An anathema is only as good as it stays credible. Multiplying an
unsubstantiated anathema by 12 doesn't make it 12-fold more believable. Cyril
was able to ram his claims through the bishops at Ephesus (today Seljuk, on the
Turkish coast), because Nestorius couldn't get there in time; and because Pope
Celestine in Rome and Emperor Theodosius in Constantinople were too far away
themselves to appreciate what a job of stacking the court Cyril had done.
Not so for Frank in the High Court. By contrast, he has gone too far beyond the
reach of the political and commercial power, which had put him in Skarga's
place, to be able to fix the outcome of the court proceedings. The greater the
ferocity with which Frank and his witnesses issue their anathemas, the further
from London and the weaker the long arm of the Kremlin looks to be.
This episode must end with a ruling by Justice Smith, and that in turn may be
appealed before it becomes final. It is quite possible that Smith's judgement
will rewrite the tale just told, and award vindication and veracity to Frank's
claims. But if it doesn't - if five years of anathematizing Skarga fails -
those in power in Moscow may get something like Emperor Theodosius's case of
cold feet.
But what difference will that make, and what will they do? One reason those
high Russian officials named in the Sovcomflot trial proceedings are in no
hurry to reassess their position, or their vulnerability, is that, even if
Skarga appears to be gaining in London, few in Russia know about it.
This reflects one of the most effective news blackouts in recent Russian
history. Not a single major Russian newspaper - not one of the Moscow-based
national business dailies - has reported on the testimony, cross-examination
and documentary evidence from the trial, now in its third week. Not counting a
handful of recitals of Frank's anathemas in minor media, and a legal profession
website summary of the claims and the defense, there has been no Russian
publication at all.
To understand this phenomenon, the editors of the four most prominent Russian
national media were asked a question - Yelizaveta Osetinskaya of Vedomosti;
Azer Mursaliyev of Kommersant, Pyotr Kiryan of RBC Daily and Vladimir Mamontov
of Izvestia. How do they explain why they have published nothing? They have not
replied. It seems likely they don't intend to. This silence suggests that St
Cyril's method works in Russia today, not by multiplying the charges, nor by
repeating them; but rather by making certain not a word of explanation or
defense can be heard from one end of the land to another.
To this end, chasing the anathematized across the Russian border with arrest
and extradition warrants works well enough. According to testimony in the
London court, Frank and Russia's general prosecutor, Chaika, arranged the
charges against Skarga and Nikitin following police raids on offices and homes
in St Petersburg and Moscow. Skarga and Nikitin have applied to the Home Office
for permission to remain in the UK. Russian extradition applications for their
return have been filed, but are unlikely to be granted.
No matter how trumped-up these documents look to an English court, or to the
Home Office tribunal in charge of asylum, the bodies of those alleged to be
culpable have already effectively been disposed of, from the Russian point of
view, even before the judgement is handed down. And since no one in Russia has
noticed their disappearance, all that remains of them is Frank's 12 anathemas.
If St Cyril of Alexandria hadn't been canonized already for doing in Nestorius
- the celebration of his feast day is June 9 in the Russian Orthodox calendar -
there would be a spot for him every publication day, plus the silent ones.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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