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. Last Updated: 07/27/2016

Freeze Put On State's Foreign Accounts




Controversial Swiss businessman Nessim Gaon has struck again, convincing a French court to freeze $63 million worth of the foreign-held assets of the Central Bank and other organizations in a dispute to settle claims against the federal government.


Central Bank Chairman Viktor Gerashchenko admitted Monday that the accounts of 70 state-connected entities operating in France had been seized as the result of a Stockholm arbitration court decision dating back to February 1997.


"Our gold and hard-currency reserves are not part of this," said Gerashchenko. He did not say when the ruling had been handed down, although he added that he had learned of the matter late last Thursday.


Gaon said he is determined to track down every Russian government asset he can lay claim to as he pursues his case, which stems from a series of trade-goods-for-oil deals he struck with the federal government in the early 1990s.


"We will arrest everything we can find, including ambassadors' art," said Gaon, owner of the Swiss-based Noga d'Importation et d'Exportation SA, in a telephone interview from company headquarters in Geneva.


The federal government still faces the serious possibility of a massive $650 million payout to Noga, said Alexander Shokhin, a State Duma deputy who was responsible for attempting to settle a dispute with Gaon's company during his tenure as deputy prime minister from 1991 to 1994.


"We can criticize the decision of Stockholm arbitration courts, but there were plenty of reasons on our side to lose the hearings," said Shokhin, who now heads the Duma banking committee, in remarks posted on his personal web site (www.shokhin.ru).


By producing claims on assets of the Central Bank the Paris court created a dangerous precedent when the bank is forced to service liabilities of the government, said Sergei Alexashenko, former first deputy chairman of the Central Bank, in an interview with the Agency of Financial Information.


"This is a serious blow because the Stockholm court considered the Central Bank liable for obligations of the government. The court created a precedent, allowing a claim on the government to be retroactively transferred to the Central Bank in case of default."


He added that he expects similar decisions will soon follow in a New York court.


Meanwhile, Gerashchenko said that the Central Bank's Paris subsidiary, Eurobank, plans to mount a legal challenge to the Paris ruling.


Gaon's relations with Russia stretch back at least as far as 1989. Around that time, he struck a deal with then-Agriculture Minister Gennady Kulik on financing tomato crops in the Crimea, according to Shokhin. The tomato crop failed, leaving Gaon $1 million out of pocket.


Kulik, who served as deputy prime minister in Yevgeny Primakov's Cabinet and is now deputy head of the Duma's budget committee, was not available for comment Monday.


Gaon then struck new deals with the newly created Russian state - and with Kulik. Gaon's company signed a deal to trade goods for oil. From April 1991, Noga began importing consumer goods and agricultural products to Russia in exchange for oil, under contracts worth $1.45 billion, Shokhin said.


When those deals soured, Gaon started pursuing the federal government through the courts. In the mid-1990s he succeeded in having $700 million of Russian assets frozen in Switzerland and Luxembourg.


The Stockholm court in 1997 partially satisfied Noga's claims - awarding the company $23 million of the $680 million demanded for repayment, according to Shokhin.


That claim was disputed at the time by Moscow. Government officials declined Monday to comment on the issue and it remained unclear whether the amount had been paid to Noga.


Meanwhile, Gaon's firm went on to produce claims for 450 million francs ($63 million) in a Paris court, which ruled in its favor in March, basing its ruling on the decision of the Stockholm arbitration court.


Neither Eurobank nor Gaon's lawyers in France were able to name the legal entities whose accounts have been seized.


An official at Eurobank said similar orders were sent to other banks within French jurisdiction, namely Credit Lyonnais and other commercial banks.


Gaon's lawyers said that the issue was of a confidential nature and that no details could be disclosed.


The Paris court decision to freeze state accounts abroad represents Noga's second attempt to get hold of the Russian government's assets abroad.


Luxembourg courts seized accounts of a number of state-owned companies in 1993, but unblocked them in 1997, according to government officials.


Gaon maintains that some $700 million worth of Russian assets are still frozen in accounts in Luxembourg.


Central Bank officials have said it was Gaon's moves to have those assets frozen that led to the creation in the early 1990s of the now-infamous FIMACO scheme.


FIMACO, or Financial Management Co., was an obscure off-shore vehicle based in the tax haven of Jersey, one of the British Channel Islands. The Central Bank churned about $50 billion from its hard-currency reserves through FIMACO between 1993 and 1998.


When former Prosecutor General Yury Skuratov first broke the news of FIMACO's existence in February 1999, Central Bank officials denied the charges. Later, they admitted using FIMACO, but cited the alleged danger posed by Gaon as a defense of the scheme.


However, the Central Bank is not formally part of the federal government and creditors cannot produce claims against assets held in the bank's vaults. None of the assets seized or frozen by the courts in relation to the Gaon case have been part of the Central Bank's hard-currency reserves, as far as The Moscow Times has been able to determine.


When the FIMACO scandal erupted the International Monetary Fund and other international lending institutions suspended their loan programs with Moscow.


After a series of IMF-ordered PricewaterhouseCoopers audits into the Central Bank, Fund officials said the Central Bank had lied about its reserves in 1996.


One of the PricewaterhouseCoopers audits also revealed the Central Bank had been counting among its reserves funds placed on deposits in its foreign subsidiaries. The comparatively risky character of these assets should have excluded them from consideration as hard-currency reserves. The Central Bank later had to write down these deposits in order to bring down to market the value of its international reserves.


FIMACO was put under scrutiny and the Central Bank was forced to improve transparency in areas related to management of its foreign reserves.


Gaon's capacity to pursue Moscow so relentlessly turns on the fact that the contracts Kulik signed with Noga surrendered the sovereign immunity that nations usually retain for themselves in commercial transactions, making it easier for Gaon to win his seizure orders, according to Shokhin.


Some of the contracts signed by Kulik committed Russia to go on delivering oil even if Noga stopped supplies of food products, said Shokhin. Shokhin and others - such as Grigory Yavlinsky in early 1999 - have called for probes into alleged corruption surrounding these early food-for-oil deals.