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Anton Imennov on possible involvement of Aleksey Kudrin and Viktor Zubkov in proceedings under Sergey Pugachev’s case in the Hague Arbitration Court

As it has become known to the Bell, Head of the Accounts Chamber Aleksey Kudrin, Chair of Gazprom's Board of Directors Viktor Zubkov and Investment Banker Oksana Reynhard were invited to speak at the hearings of former banker Sergey Pugachev’s case at the international arbitration court. The hearing will take place in the first half of November in Paris.

The details. The hearings of the Pugachev vs Russia case will take place between November 12 and 17, according to Sergey Pugachev’s website. The case was kicked off by a claim filed by the former banker’s party in 2015 in the Permanent Court of Arbitration in the Hague.

Kudrin, Zubkov and Reynhard were invited to speak at the hearings via letters from the chief arbitrator (the chief of the three arbitrators) Eduardo Zuleta Jaramillo, as reported by an interlocutor of The Bell familiar with the details of the litigation. According to him the letters were sent in late September and they say that the hearings will take place in Paris (the arbitrator himself refused to comment). If the addressees decide to come, they will be questioned both by the tribunal and the parties. The fact that Kudrin, Zubkov and Reynhard were invited by the arbitration itself is confirmed by another interlocutor of The Bell.

Pugachev’s party asked to summon the three to court as witnesses, but the court refused to issue a mandatory order, another interlocutor also familiar with the progress of the case objects. According to him, instead the court allowed the claimant to invite them to speak at the hearings. Invitations signed by the arbitrator were sent to them, but on the part of the claimant, not under a motion on the part of the tribunal, he assures. Such invitations are not binding, the source adds.

Kudrin and Zubkov are invited to talk about the Red Square project, which, as claimed by Pugachev, ended in expropriation of his assets, one of interlocutors tells The Bell. That concerns the project opposite St. Basil’s Cathedral, which was announced in the year 2000 by the President's Administrative Directory. The Kremlevsky enterprise was later created for this purpose. In 2004 Pugachev’s company signed an investment contract (originally worth $140 mn, but later the amount was increased to $300 mn by mutual agreement of the parties) with a specially established company. In return the banker was hoping to get the residential part of the new building complex for administration and partial ownership. In 2008 E&Y estimated the project to be worth $950 mn. But in 2007 the construction was suspended and then the Administrative Directory terminated the contract and handed the site over to the Federal Protective Service.

Pugachev filed a claim against the Ministry of Finance and collected 1.68 bn rubles. But that didn't cover the investor’s claims: he claimed that the buildings were actually confiscated without compensation. At the time the project was under way Kudrin was the Head of the Ministry of Finance, Zubkov was at the head of the Russian Financial Monitoring Committee until 2007 (later renamed Rosfinmonitoring), after which he took office as Prime Minister. Kudrin’s representative refused to comment, and Zubkov didn't answer The Bell’s inquiry.

Reynhard is invited to speak as the former head of the special bonds department of the Japanese Nomura Securities financial company, an interlocutor tells The Bell. As specified on her LinkedIn page, she held the post in 2010—2012. According to an interlocutor of The Bell, she already gave written statements in 2012 with regard to Pugachev’s case and revocation of International Industrial Bank's license. After the crash of the credit organization a Nomura representative inquired about the fate of eurobond holders of the bank, as was reported by Interfax (there is no information in open sources on whether Nomura was among them). Now, judging by her LinkedIn, Reynhard is at the head of the developing markets department at SMBC Nikko Capital Markets Limited investment company (The Bell’s request for comments was never answered).

Pugachev’s representative does not comment on the invitation of witnesses, and Bettolegal, the law firm representing his interests, refused to comment as well. Arbitrator Thomas Clay appointed by the prosecution claimed that he is not authorized to speak about the case. Law firm White&Case representing the interests of the Russian Federation in this case also refused to comment. The detailed stance of the Russian Federation of July 2017 is available here (the document is published on Pugachev’s website). The Bell sent an inquiry to the Ministry of Justice, but to the moment of publication hasn't received a reply.

The background of the conflict. The story of mutual claims of Russia and the former Kremlin banker, as the media used to call him, Sergey Pugachev has been going on for almost 10 years and unfolding in courts of a number of countries.

In 2015 the claim against the Russian Federation on the part of Pugachev was filed by King & Spalding law firm, whereof it officially notified Russia. The grounds for the claim were the international treaty between the USSR and France of 1989 On investment promotion and protection (Pugachev has a French citizenship). The amount of the claim was at least $12 bn for damages allegedly inflicted to Pugachev by the actions of Russian authorities. The astronomical amount includes his investments, loan interest, lost profit and compensation of damages.

Pugachev is accusing Russia of expropriation of four groups of assets: shipbuilding enterprises, Yenisey industrial company, construction project Kremlevsky at the Red Square (Red Square 5, where a new elite hotel was supposed to be erected) and plots of land in Moscow region. The text of the claim also contains an accusation against Russian authorities of initiation of a criminal and a civil case against Pugachev under far-fetched pretexts. The details of his claims to Russia are available here.

The former senator left Russia in 2011. A year earlier International Industrial Bank founded by him had been stripped of its license (Pugachev claimed that at that moment he wasn’t one of its shareholders anymore). According to the investigation’s version which formed the basis of the case on expropriation and embezzlement on an especially grand scale, loans of the Central Bank in the amount of 32 bn rubles were siphoned off from the bank through a chain of offshore companies (Pugachev said that he simply transferred his own money from a correspondent account in VTB and the amount was slightly different). In 2015 the Investigative Committee initiated another case with regard to International Industrial Bank, as a result the claims against Pugachev amounted to about 100 bn rubles. He is on the international wanted list and arrested in absentia.

The Deposit Insurance Agency is hunting the former banker’s assets all over the world: first under the agency’s claim Moscow Arbitration court held Pugachev and former International Industrial Bank managers subsidiarily liable for his debts in the amount of 76 bn rubles (details of mutual claims of Pugachev and former deputy head of the Deposit Insurance Agency Miroshnikov were covered by us here). Later the Supreme Court of London following the claim filed by the Agency in 2014 ruled to freeze Pugachev’s assets worth $2 bn all over the world. Some of those assets have already been sold, but the litigation continues. Also in 2015 the court prohibited him to leave England and Wales, but Pugachev managed to flee to France. His departure was explained by the fact that staying in Britain put his life at risk. The British court also sentenced Pugachev to two years of imprisonment in absentia for contempt of court.

What's next? The invitation, which, as reported by one of The Bell’s interlocutors, was received by Kudrin, Zubkov and Reynhard, does not state they are being summoned as witnesses. They are invited to “appear and testify”, he says.

In what capacity the addressees are invited. If the invitation to speak at the hearings does not refer to a specific status of the addressee, but it is stated that they are invited to appear and testify, then we are most likely talking about a summoning of a witness (at least, since the rules of the UN Commission on International Trade Law do not provide for participation of someone other than the parties, witnesses or experts in the process). But the essence of this notion may be different from its meaning in Russian. We are not talking about a witness for defence or prosecution, but about a person summoned to establish legal facts, Partner of Paragon Advice Group Aleksandr Zakharov explains. The notion of witness is usually mentioned in criminal cases, but may be used in disputes between a state and investors, Lawyer of Forward Legal Darya Shlyapnikova explains. We are also talking about sworn testimony.

Who chooses the witnesses? The decision on who should be summoned to the hearings is made by the arbitration, but the parties may file motions with regard to this matter, lawyers say. In 2017 Pugachev already mentioned his plans to ask the tribunal to summon Kudrin as a witness in this process. Then the former banker mentioned a number of other last names, for example, Head of Rosneft Igor Sechin and Minister of Economic Development Aleksey Ulyukayev. Pugachev’s representative answered The Bell’s question on whether the former banker’s party asked to summon the witnesses this time.

To go or not to go? Formally the recipient of such letter may ignore the hearing, Managing Partner of Moscow office of Pen & Paper Attorneys at Law Anton Imennov explains. There is no liability for that, adds Ms. Shlyapnikova from Forward Legal. We are talking about an invitation, not a summons. However the court may draw conclusions based on the very fact of agreement or refusal of the witnesses to appear at the hearing, says a lawyer of a European legal firm. Technically if the invited person is in the EU, the judge may address the state court with a request to ensure attendance (that is provided for by EU regulations). If the person is not in the EU, but in Russia, for instance, the court still has tools it can use to insist on participation of the invited persons in the process, explains Mr. Imennov of Pen & Paper. The procedure goes as follows: the Netherlands’ court submits a judicial inquiry to the Ministry of Foreign Affairs of the Netherlands, and they, in turn, address the Russian MFA. But under this scenario the “timeline will be considerably stretched out and take up to at least 6 months,” Imennov says.

About the court. The Permanent Court of Arbitration in the Hague where the case is being examined is an international arbitration court founded for hearing of international disputes, as well as disputes between foreign investors and states. Sometimes it’s also called the Hague Arbitration Court, Mr. Imennov of Pen & Paper explains. A commonly used wording “the Hague Tribunal” usually refers to the International Criminal Court, which prosecutes for war crimes. Here we are talking about a different court.

The Hague International Arbitration deals with disputes in which parties have failed to settle their differences anywhere else and or to reach an amicable agreement. For each case an ad hoc (to this case) arbitration is composed, adds Ms. Shlyapnikova from Forward Legal. The question is, was the claimant a citizen of the French Republic when he lost his assets. If that isn't the case, his right to defence of investments as a foreign investor raises questions, said  Mr. Zakharov from Paragon Advice Group.

The progress of the case. In July 2016 the process was suspended due to Russia's failure to appoint an international arbitrator on time. Later the hearing was resumed and in early 2017 the tribunal passed its first technical ruling published on Pugachev’s website. Then the Russian Federation addressed the tribunal with a request to classify the process, the website claims. In July 2017 the tribunal agreed to partly restrict access to the information about the process.

* The Bell asked lawyers questions on the judicial procedure without reference to the parties in the case or the details of the litigation.

Anastasiya Stogney