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RUSSIA: Minister faces telecoms accusation

by Andrew JackFinancial Times
November 8th, 2004

Russia's telecoms minister was the main beneficiary of a trust that, until 2003, held shares in one of the country's largest private telecoms companies, according to testimony made by one of his colleagues.

In an affidavit lodged in the British Virgin Islands, Jeffrey Galmond, a Danish lawyer, claims that Leonid Reiman, Russia's telecoms minister since 2000, stood behind Fiduciare Commerce Trust in Liechtenstein, which indirectly controlled Telecominvest.

The details may be central to a legal challenge, which opens in the British Virgin Islands today, in the battle by Alfa, the Russian oligarch group, for a stake in Megafon, the Russian mobile operator in which both Telecominvest and TeliaSonera of Sweden hold shares.

They were provided in response to the allegations in the British Virgin Islands proceedings that Mr Reiman was involved in corrupt and criminal activities.

Mr Reiman has always denied any ownership link, stating only last April: "I have never had any financial connections with Telecominvest."

But Mr Galmond, in his affidavit, claimed that he established FCT in 1997 to hold shares in First National Holdings, which controlled Telecominvest, and made Mr Reiman "the primary beneficiary" under the terms of a letter of wishes.

He said that he intended to reward Mr Reiman, who was a director at Telecominvest in the late 1990s, in a planned sale of the First National Holdings shares to PLD Telekom for $150m. In the event, the transaction fell through following Russia's financial crisis in August 1998.

Mr Galmond said FCT swapped its First National Holdings shares for non-voting shares in Comtel Eastern in December 2001, which it held until they were redeemed in October 2003 since when the trust has been dormant.

"No appointments and no distributions whatsoever were made to Mr Reiman," he said.

Mr Galmond claims to be the owner of the First National Holding shares and other stakes in Megafon held via IPOC, a Bermuda-based fund.

IPOC is challenging the sale last year of a 25 per cent stake in Megafon by LV Finance, a British Virgin Islands group, to Alfa, the group controlled by Mikhail Fridman, joint shareholder in TNK-BP, the Anglo-Russian oil group, and other businesses.

IPOC won an arbitration in Geneva, but is being challenged in a separate arbitration in Zurich, and has lost a court case in the Bahamas while it continues to fight in the British Virgin Islands.

LV Finance and Alfa are countering on Monday that $40m in security put up by IPOC in order to continue their appeal in the British Virgin Islands is the result of money laundering and corruption.

"Mr Reiman at no time past or present had any share options or entitlement to any financial reward from a sale of Telecominvest," an IPOC spokesman said yesterday.

He described Mr Galmond's claims about the beneficial interest in the trust as "a red herring" in the broader dispute.

"In 1997, well before Mr Reiman entered politics, the owner of Telecominvest considered awarding him a discretionary bonus for his managerial contribution to the development of [Telecominvest] around a proposed sale.

"It is common practice the world over to pay bonuses to the top management of companies for completing successful sales of businesses.

"The sale did not, however, happen and Mr Reiman received no bonus."





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