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The Cavities of EU Justice

A tale of European values—and expensive "dental care"

This post first appeared on Russia Insider

Early in March, I read the article about two Russian brothers who battled against Cyprus raiders who tried to steal their Moscow business. The brothers won their case after many years but still lost their business due to that fraud and the costs of defending themselves. The main criminals, a lawyer called Panayiotis Neocleous and the Andreas Neocleous law firm were found guilty on five counts; bribery of a public official, corruption, conspiracy to subvert the course of justice, and conspiracy to defraud.

Neocleous was handed a two and a half year prison sentence. As mentioned in that piece “big stinks usually start with small whiffs, so I assume we shall be hearing more”…. Well yes there is more, several malodorous aromas involving justice are wafting over Russia from the EU’s offshore haven of Cyprus. Little wonder more and more Russians are de-offshoring these days and repatriating assets.

Inmate Panayiotis Neocleous, sentenced last March over the corruption case that also brought down former deputy attorney-general Rikkos Erotokritou, was recently transferred from prison to an apartment adjacent to a rehabilitation center in Limassol, where he is to receive long term dental treatment. His dental treatment may take up to two and a half years. Seriously?

The decision to have Neocleous moved to the apartment-cum-dental-suite instead of serving his time in jail has been variously called unlawful, fishy, a squandering of public funds and inconsistent with the “values” of justice. The auditor-general of Cyprus told MPs during a closed-door session specially convened to explore and get to the root of Mr. Neocleous’ recently diagnosed dental nightmare. The auditor said the ministry had ignored the opinion of the attorney-general to keep the fellow locked-up regardless of his plaque build-up.

The report also said the transfer was forced upon the prison administration through inappropriate interventions of the Minister of Justice personally and the medical board who did not even consult a doctor about the finer points of dental procedures. On top of all this, the medical board, according to the report, concluded in its first two meetings that dental surgeons at the Nicosia General Hospital renowned dental clinic could quickly and easily perform the treatment.

However, in their next two meetings they did a 180-degree reverse, deciding unanimously that Neocleous “needed an intense plan… that simply could not be provided by any public facilities.” Questions and eyebrows were raised concerning the speed with which the medical board responded. This board was convened four times in six weeks with the first meeting held 13 working days after the dental request was first filed. For serious health issues the board usually sits to review first requests at minimum after two months, according to the auditor’s report.

These “humane” arrangements for Mr. Neocleous and his gleaming teeth will cost the people of Cyprus €200,000 in 2017, and €500,000 in 2018, or Euro 25,000 per month for this wondrous dentistry. The finance ministry, following a written request by the Minister of Justice Nicolaou, approved the funds. Seems like Cyprus never had an EU supported bank “bail-in” after all, it must have only been a dream.

Many remark justice is blind; pity those in her sway, shocked to discover she is also deaf.” DAVID MAMET, Faustus.

The other day I learned of another EU/Cyprus drama concerning Russians through the business grapevine between Nicosia and Moscow. Another similar “offshore” event involving Russians and their businesses is again happening on Cyprus. This time it is Russians raiding Russians in Russia using the offshore legal playing field of EU’s Cyprus to make robbery look both Kosher and presentable.

Fraud charges have been filed with the district court in Nicosia where the main accused is the Cyprus branch of the well-known Russian Promsvyazbank (PSB). The bank is accused of embezzling the business of several Russian companies under the umbrella name "Ramfood" from its former owner – a Russian owned offshore company called United Investments Limited (the Netherlands). This is the first time that a large Russian bank as a legal entity has become a defendant in an EU court process on charges of committing a serious crime.

The group of companies comprising "Ramfood" includes a meat processing plant, a pig farm/complex in the Saratov region and a chain of retail stores. Ramfood’s problems began at the end of 2014 when they were hit with unexpectedly sharp and sudden increases in their cost of borrowing. It is said that the main creditor of Ramfood was PSB, which acquired more than 80% of Ramfood debt and all of its collateral. The management of Ramfood itself was then said to be taken over by the management of a certain “White Bird Company” (Belaya Ptitsa), whose ultimate owners, according to persistent market hearsay, are the brothers Alexei and Dmitry Ananyev, who coincidentally are also the co-owners of PSB.

A bit of historic background: Mr. Kerstein is a Russian fellow who was the single owner of Ramfood/RamHolding group of companies through a Dutch holding called United Investors Company BV (UI). UI owned 100 % of both Ramfood and RamHolding. Then in July 2015 Mr. Kerstein sold 80% of his stake in UI to a Mr. Alexei Pavlov in exchange for his investing and attracting the money necessary to cover Ramfood/RamHolding suddenly very expensive cost of funds and outstanding debt. Mr. Pavlov proceeded to invest about USD $25 million of his own funds to both clear the debts and to finance growth and expansion of swine-breeding facilities within Ramfood.

As PSB was one of the major creditors of Ramfood/RamHolding it is rumored they may have had a particular interest in taking over the business. PSB has a track record of similar actions when they took over the company “White Bird Company” (poultry production) and soon after became especially interested in local porker businesses especially after Russian protectionist counter-sanctions were introduced in 2014.

Hearsay has it that Mr. Dmitry Ananyev had a personal meeting with Mr. Pavlov as the new majority shareholder of Ramfood/Ramholding and announced his bank's strong desire to acquire the business. It is said that Mr. Pavlov was given a proposal from PSB to sell them the businesses of Ramfood/Ramholding at a price equal to the investment he has already made.

Pavlov then may have suggested that the bank instead pay a fair market price based on an independent third party professional valuation of the business. The bankers expressed no interest in such valuation. Afterwards it is rumored PSB started sub-rosa talks with Mr.Kerstein who was at that time the diminished 20% minority shareholder of UI.

Mr. Kerstein in exchange for a full waiver/write-off of his personal indebtedness and obligations before the bank, plus other unknown benefits, allegedly agreed to dilute Mr. Pavlov's share in the Ramfood companies in favor of the offshore Cypriot special purpose entity under PSB's informal control called “Maxaton”.

Hearsay persists that in December 2015 without notifying or otherwise agreeing with Mr. Pavlov (who then was the Director and 80% shareholder of UI), the estimable Mr. Kerstein used a Power of Attorney which he secretly prepared the day before he first sold the business to Mr. Pavlov, enabling him to quietly dilute UI’s share in Ramfood and RamHolding in favor of company called Maxaton.

The Cyprus branch of PSB then paid for these shares of Maxaton, which appears to be a simple shelf company fully financed by the bank. The net result is that the businesses of Ramfood and Ramholding are under bankruptcy proceedings, having had their main assets acquired by companies under the indirect control of PSB, using money provided by PSB.

During the upcoming trial in Cyprus scheduled for September 29 the bank must either disclose evidentiary information, or fight for dismissal maybe for lack of evidence. According to Cypriot legislation, money laundering provides for a penalty of imprisonment for 14 years and (or) a fine of up to 500 thousand euros. Fraud - 10 years, and for a company, a fine.

"United Investors Limited" started the legal process in Cyprus, and were able to obtain a criminal case against the bank and its alleged accomplices. Supervision of the activities of this bank is controlled by the Central Bank of Cyprus.

Further and possibly of interest is that the management company "Promsvyaz" also has a branch in Cyprus - PSB AM (Cyprus) Ltd. From verbal sources in the market, it appears that the Cyprus branch of PSB has been formally accused of "fraudulent misappropriation of the business of a group of Russian companies "Ramfood" from its former owner - the company United Investors Company BV". This was enabled by conspiring with a client (also a debtor) of the bank – and the offshore Cyprus Company called Maxaton Holding Limited.

It remains to be seen if both the Cyprus court system and Ministry of Justice can objectively manage to apply the stringent judicial “values” proclaimed by the EU in Brussels, and rise above weighty issues such as jail time vs; dental hygiene. It would be refreshing to clarify this Russian offshore business tragi-comedy playing out on Cyprus.

We shall wait and see what September 29 will reveal from all these rumors, hearsay and innuendo, and where the “values” of justice in the EU in fact reside. In my experience, it is precisely these grey areas that reveal the darkest heart of a matter more clearly than any court of law.

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