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Russian Telecom Minister Accused In Offshore Scandal

by Tatiana Smolenskaya, Tax-News.com, Moscow

19 November 2007


Prosecutors in the British Virgin Islands have claimed there is "overwhelming evidence" that Russia's Telecommunications Minister, Leonid Reiman is the main beneficiary of an offshore fund which owns substantial assets in companies that his ministry regulates.

The Wall Street Journal revealed last week that Terrence F. Williams, the BVI's director of public prosecution, told the US Justice Department in a letter filed last month that it was preparing charges against Jeffrey Galmond, a Danish lawyer and a close associate of Reiman. Galmond is accused of obscuring the fact that the Russian minister is the beneficial owner of the Bermuda-based IPOC International Growth Fund Ltd., which is said to hold sizeable holdings in Russian telecommunication firms, including Megafon, the country's third-largest mobile operator.

Reiman is said to be a close ally of Russian President Vladimir Putin, and the two were close associates when the former was deputy mayor of St Petersburg and the latter was on the board of a state-owned telecoms firm. Putin has also worked for one of Reiman's companies.

The letter, a request for legal assistance, was dated August 21 and filed in a US district court in Delaware on October 31. The letter described the BVI prosecutor's office investigation to establish whether the IPOC fund is a "front" for the laundering the proceeds of crime, including those of Reiman. Some of the companies involved in the three-year investigation in the BVI are also registered in the US, the letter revealed, hence the request by Williams for legal assistance by the US Justice Department.

According to the WSJ report, the letter explained that preliminary criminal charges have been drafted, which include one count against Galmond for perjury and perverting the course of justice, and four counts of "acquisition, possession and use of the proceeds of criminal conduct" against Galmond and a director of IPOC.

At the centre of the affair is a long-standing dispute between IPOC and Alpha Group, an industrial holding firm which also has major investments in Russian telecoms firms, in addition to Russian oil companies. Through its lawyers in the BVI, Alpha is alleging that $40 million in legal costs put up by IPOC were sourced from the proceeds of crime. IPOC argues that the money originated from consultancy services it supplied to a number of entities, including US-based ones. But prosecutors in the BVI now believe that these consultancy agreements were in fact "shams".

A civil tribunal in Switzerland has also ruled that Reiman secretly owns stakes in Russian telecoms through the IPOC fund. In a decision delivered in May 2006, a Zurich Arbitration Tribunal concluded that Reiman was the only beneficiary of the fund and its option over a 25% stake in MegaFon.

This ruling came as a result of a legal battle between IPOC and LV Finance Group, which was owned by Alpha Group, and stems from the murky world created when Russian business and politics meet. Alpha had a 25% share in Russian mobile operator VimpelCom, a rival to MegaFon. In 2004, VimpelCom became the recipient of a $158 million claim for back taxes in what observers suggested at the time was a politically-motivated attack against Mikhail Fridman, the billionaire tycoon who owns Alpha Group, and who came into direct conflict with Reiman when he acquired the MegaFon stake in 2003.

Reiman has consistently denied any link to the IPOC fund and allegations that he owns holdings in Russian telecom firms. "I would like to own just the tiniest part of what is being claimed I do," he said in a statement relayed to the Financial Times. IPOC has also pointed to the results of an investigation by Russian prosecutors in 2006 which uncovered no evidence of money laundering by the fund.


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