LONDON – A Kazakh mining company sued the UK’s anti-fraud authority for $93-million – the amount it has racked up in legal costs – as the agency moves closer to a decision on whether to charge one of its billionaire owners.
Eurasian Natural Resources Corp claims the SFO colluded with the company’s own lawyer to manufacture grounds for a probe, forcing the company to pay millions on legal fees for internal investigations and defense, according to the lawsuit filed in London Tuesday.
The lawsuit is the latest escalation of a very public battle between ENRC and the white-collar crime prosecutors that has been in and out of the courts since at least 2014. In addition to the company, SFO investigators are considering charges against Alexander Machkevitch, one of ENRC’s three billionaire founders, and business partner Dan Gertler, whose mining assets ENRC bought, according to two people familiar with the case.
The latest claim skewers frequent targets of ENRC, including Neil Gerrard, a lawyer at Dechert in London, who led one of the company’s earliest internal probes. ENRC says the SFO abandoned its role as a neutral investigator when it began working with Gerrard to build a case against it.
After ENRC first made the allegations in court filings last year, the SFO hired a retired judge to review the matter. The SFO said the review "will enable independent and impartial scrutiny of the matters which are the subject of ENRC’s complaints," according to an emailed statement.
"We emphatically reject any suggestion of an improper relationship between Dechert/Neil Gerrard and the SFO or that there was any unauthorized disclosure of information to or from the SFO," a spokesperson for Dechert said in an emailed statement. “We stand by the work we did and look forward to the opportunity of defending it in open court."
ENRC delisted from the London stock exchange in 2013, shortly after the SFO began its investigation, and moved its mining assets to Eurasian Resources Group, which is also owned by the three billionaires. Gertler doesn’t have a known stake in the companies.
The $93-million figure accounts for ENRC’s legal costs to date, excluding interest and reputational damage stemming from the scrutiny, according to the company.
ENRC has filed multiple cases related to the probe, and last year won a landmark ruling that strengthened the attorney-client privilege in the UK. An appeals court in September said the company didn’t have to hand over documents that were part of Dechert’s probe.
But while the courtroom battles have drawn headlines, investigators have quietly proceeded with their case and are close to making a final decision on Machkevitch, Gertler and other executives at the company.
Investigators believe Machkevitch is ENRC’s key decision-maker even though he doesn’t hold an official executive function, according to the people, who didn’t want to be named because the details of the investigation are private.
ENRC denied "all allegations of criminality against it," according to a spokesman.
Machkevitch, who started out as an academic in the Soviet Union, arrived in Kazakhstan in the 1990s, securing the mineral assets that became the foundation for a multinational mining empire. The ENRC spokesman said that Machkevitch declined to comment.
Gertler’s company, Fleurette Group, “disputes all allegations and will vigorously defend its reputation", a spokesman said by email. "The company has at all times acted with integrity, honesty and transparency in the Congo. Nothing has ever been proven in a court of law to suggest otherwise.”
UK prosecutors received an assist in November when a Swiss court ruled that the agency could get bank records related to the case, which focuses on three transactions for Congolese copper and cobalt mines between 2010 and 2012.
The SFO believes that ENRC paid Gertler hundreds of millions of dollars too much for mines in Congo, some of which was meant for bribing Congolese officials, the Swiss ruling shows. ENRC vastly overpaid for one copper company as part of a "fraud of the highest order," the the ruling said. In July 2011, ENRC purchased Dezita Investments for $195-million without first trying to establish its value, the court said. Much of the money flowed through Swiss bank accounts, which is why the SFO requested legal assistance to obtain the documents from there.
The price for Dezita dropped from $300-million days before the transaction, so that, the SFO believes, it wouldn’t require approval from the board. Three years later, when ENRC valued Dezita, it established its price at between $200 000 and $7.7-million, the Swiss court cites the SFO as saying.
The SFO believes the $195-million was paid into an account controlled by Gertler and was then almost entirely taken out over 51 withdrawals, according to the Swiss ruling. Gertler appears to be the SFO’s main suspect, the ruling said.
The "most important" act of corruption relates to $35-million paid in cash, which the SFO suspects was used as bribes, it said. The necessary bank records would allow the SFO to reveal potential kickbacks paid to officials engaged in acts of corruption, the Swiss court said.
ENRC was not a party to these proceedings in Switzerland, a spokesman said, adding that the SFO withdrew a similar request for assistance to Swiss authorities relating to another affiliate of the company.
The names in the Swiss ruling were replaced with letters, but people familiar with the decision confirmed the references were to Gertler and Dezita.