High Court: Sanctioned Russians “probably owned” litigation funder

Cockerill: Sale price surprising 

There is “reasonable cause to suspect” that the funder of the claimant in a $1.3bn action was controlled by sanctioned Russians, the High Court has ruled.

Mrs Justice Cockerill said the sale of A1 LLC for a mere £714 as its founders were sanctioned was of particular concern.

“The figure given for the sale price is surprising on its face. The financial documentation adduced (in a lengthy and full exchange of evidence) fails to provide a coherent or robust justification for that figure.

“On the contrary there are what seem like obvious omissions, and the explanations given are inadequate and do not tie in with the rest of the document.”

Her ruling was the latest in long-running litigation brought by Vneshprombank LLC (VPB) over an alleged massive fraud carried out by Georgy Bedzhamov.

VPB was declared bankrupt in 2016 and a Russian state corporation appointed to act as its liquidator. Mr Bedzhamov denies his participation in any fraud.

There were also bankruptcy proceedings against Mr Bedzhamov in Russia, which culminated in the appointment of a trustee in bankruptcy.

In the hearing before Cockerill J, Mr Bedzhamov sought a declaration that there was reasonable cause to suspect that A1 – which had to that point funded VPB and the trustee – was owned or controlled by designated persons under the Russia sanctions regulations.

The judge said the application “has to some extent been prompted by judicial concerns” – Mrs Justice Falk said in a ruling last year that it was “impossible at this stage to dispel the concern that the March 2022 transaction was not genuine, but instead arranged to give the appearance that A1 is no longer under the control of sanctioned individuals”.

Falk J said A1’s role was “an unusual one that appears to go well beyond that of a conventional litigation funder”, as it was managing the proceedings on the liquidator’s behalf.

A1 is no longer funding the case, having been replaced by Cezar Legal Consulting Agency in March, after the latest hearing.

Though Mr Bedzhamov’s representatives continue to undertake due diligence on Cezar, Cockerill J said she had not been minded to delay hand down of the judgment.

A1 is part of the Alfa Group, which describes itself as “one of the largest privately owned financial-investment conglomerates in Russia”.

Up until March 2022, A1 was owned by a Luxembourg company whose major shareholders were Mikhail Fridman, German Khan and Alexey Kuzmichev. All three were all designated under the sanctions regime on 15 March 2022.

VFB said that, around the date but before Mr Khan and Mr Kuzmichev – who between them held 52% of A1 Investment – were designated, they sold their shares to an Alfa director who was not. A week later, all the shares were sold to another undesignated director of A1, a Mr Fayn, for £714.

Cockerill J, sitting with Master Kaye, held that, as a matter of construction, the Russia (Sanctions) (EU Exit) Regulations 2019 did not engage if there was only reasonable ground to suspect that an entity was owned or controlled by a sanctioned person or entity; it had to be a matter of fact.

But for various reasons she went on to consider if there were reasonable grounds to suspect and concluded that there were, “by some margin”.

The “unsatisfactory nature of the evidence about the sale price” was the primary factor.

“Then there are the bases for reasonable cause lying within the structure and timing of the disposal. There is very slight evidence of the share disposal or its timing.

“That disposal is not to a neutral third party but to a long-term employee of the founders. The sale too is to a long-term employee, with some evidence of his previously acting as a nominee shareholder.

“Accordingly, were it necessary to do so we would conclude that there is reasonable cause to suspect that, despite the share transfer in A1 Investment and sale of A1 to Mr Fayn there is reasonable cause to suspect that A1 is owned or controlled by a designated person or designated persons within the meaning of regulations 5-6 of the Russia (Sanctions) (EU Exit) Regulations 2019.”

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