Avisma court case filing targets more banks
Barclays Bank, the Bank of New York and Bank Austria are the latest to be accused of participating in a scheme to defraud Russian titanium and magnesium producer Avisma of trading profits, according to recent filings in a federal district court in New Jersey.
A mid-December court filing cites Barclays Bank of the United Kingdom, operating through its New York branch and other branches; and the Bank of New York, as having allowed their bank accounts to be used for money laundering and fraud tied to Avisma's titanium business since 1995.
"Barclays Bank PLC knew, or should have known but for a policy of 'deliberate blindness', that it was participating in an illegal money laundering and fraudulent scheme by which funds were diverted from Avisma, to the detriment of Avisma, and its minority shareholders," the lawsuit charges.
This is one of the new claims filed by lawyers for Avisma in a case which began in August. Bruce Marks, a partner of the Moscow and Pennsylvania firm, EPAM, which initiated the action, reported to the court on the results of more than three months of international investigations.
Avisma is one of the world's largest producers of titanium sponge with output of about 22,000mt/year. Verkhne-Saldinskoye Metallurgical-Industrial Association, VSMPO, which mills titanium sponge into ingot and rolled products, took control over Avisma more than a year ago in a complex share swap.
The deal ousted a group of American investors, led by Kenneth Dart, from controlling the company's trade. Because Avisma-VSMPO have a corner on the world's titanium supply, control of the trade can be manipulated to produce large, hidden profits.
According to the latest court filing, the original fraud was perpetrated by Menatep Bank, which acquired control of Avisma in 1995 by a government arranged privatization.
Menatep, the court documents allege, "compelled Avisma to sell titanium sponge and other products at below-market prices to offshore companies, who resold the Avisma products on the international market and kicked back the the resale profits to Menatep, and compelled Avisma to purchase raw materials at inflated prices from the offshore companies, with profits again funneled back to Menatep."
The filings allege that "tens of millions of dollars" were earned by Menatep in this way.
The court file also accuses Natasha Garfinkel Kagalovsky, wife of Menatep executive Konstantin Kagalovsky, of arranging accounts at the Bank of New York, where she worked, as the channel for funneling the cash Menatep had diverted into the pockets of "entities unknown."
In pursuit of the money trail, subpoenas were issued Sep 10 to Barclays Broadway branch in New York, as well as to Riggs Bank of Washington, DC, and the Bank of New York. Kagalovsky's wife and the Bank of New York "knew that...accounts [at the Bank of New York] were being used to facilitate the illegal scheme," Avisma alleges.
Kagalovsky and Garfinkel have also been at the center of investigations of other schemes to divert trading profits from Russian raw material exporters and launder the cash for beneficiaries through the Bank of New York. Apart from pro forma denials to the press, they have said nothing in court yet. No criminal charges have been filed against them.
Another bank which has been accused of participating in the Avisma scheme is Bank Austria, operating through a wholly owned subsidiary, and its Russian company, Creditanstalt-Grant. The latest court documents report that in mid-1997 Creditanstalt Investment Bank was the go-between in a plan for Menatep to sell its stake in Avisma to a group of American investors.
The deal, as the Austrian bank explained it, included back-door payoffs to the investors through the same network of bank accounts and offshore entities as Menatep had used.
The latest court documents also provide new evidence about the role played by the American investors who took over Avisma. Dart Management Ltd of New Jersey and Dart, an American investor with other controversial stakes in Russian companies, are identified as the leading shareholders in the investor group. They held about $ 50-mil of Avisma shares.
According to the court file, Jonathan Hay, an American who lives in Moscow, was instrumental in advising both CAIB and the other investors when they bought the Avisma trade scheme from Menatep.
Hay arranged this through the Institute for Law Based Economy, a Moscow group that was established by the World Bank and the United States Agency for International Development. About $ 20-mil in US government money was spent on Hay's institute, before USAID inspectors started an investigation in 1997.
According to the new court documents presented by Avisma, Hay "assisted in structuring the transfer of the illegal scheme from Menatep to the investors." In return, the Americans allegedly promised Hay cash and shares in Avisma. He was paid by Dart Ltd, and another of the investors William Browder promised to support Hay for a directorship on the board of the Russian company.