State is the real loser even if attempt to unwind Quinn asset-stripping scheme is successful

Sat, Nov 3, 2012, 00:00

ANALYSIS:The cost of recovering Quinn assets means the State faces a long road

THERE ARE strong reasons for believing that the disaster that is the Quinn family asset-stripping scheme has a long way to run yet.

The extraordinary fact is that the family admits that it set out to put an international property group worth up to $500 million (€389 million) beyond the reach of the State-owned Irish Bank Resolution Corporation (IBRC), even though that bank had security on it.

The family paid $1 million to a firm of Moscow lawyers, Attorneys and Business, and also engaged a firm in Dubai called Senat, as part of the scheme.

The bank believes that even after the High Court ordered last year that the family desist, members of the family continued to implement the scheme, and continue to implement the scheme. Seán Quinn snr has now gone to jail for contempt for continuing the scheme after these orders, and his son has already served a three-month sentence.

IBRC executive Richard Woodhouse told the court on Thursday the bank believes the Quinns continue to seek to put the assets beyond reach and that it is the bank’s view that the family “has no intention of abiding by the orders” of the court or reversing the asset-stripping scheme.

The bank thought it was making progress in its efforts in Russia, but more recently these advances have been reversed.

Having won control of the valuable Kutuzoff Tower in Moscow in July, by way of a Russian court, it lost control again on October 11th. The company that runs the towers has $8 million in cash in its bank accounts. Furthermore, because it has lost control of the Russian company, efforts the bank’s administrator began last July to reverse “a series of large cash payments” the bank believes were made for bogus reasons will now most likely be abandoned. Likewise with efforts initiated to retrieve money paid to family members as “purported salaries”.

The tower is worth up to $180 million, while other Russian assets are worth up to $205 million. A shopping mall in Ukraine is worth up to $50 million. The whereabouts of about $45 million in rental income from these properties in the period since the Quinns launched their asset- stripping scheme are not clear.

It is because of the series of bizarre moves that have frustrated the bank over the past year that it has engaged the services of the $59.9 billion Alfa Group. The Russian group is a substantial player in Russia and Ukraine and “any individual or organisation will be wary of being in conflict with such an influential player”, according to Woodhouse. The group is “best placed to counteract any instances of local corruption” it encounters.

In essence, the bank has decided the Quinns are not going to help it gain control of the assets and, therefore, the bank has cut a deal with the Alfa Group to help it thwart the Quinns’ scheme.

As part of this, the bank has entered an agreement that will see the Russian group get about 35 cent for every euro of value recovered. This translates into a loss to the exchequer of more than $100 million if assets worth more than $300 million are recovered. After costs, Alfa will get the first $31 million seized. Thereafter differing splits have been agreed between Alfa and the bank. The objective does not appear to include the retrieval of the missing rent.

If the bank is correct in its belief that the assets are under the control of the Quinn family, then the tens of millions of dollars already taken from the group are likely to be held for their benefit.

The bank may yet take further contempt proceedings in an effort to put more pressure on the family to unwind the asset-stripping scheme, though the appointment of Alfa would appear to indicate it has chosen a different tack.

It is noteworthy that the bank’s agreement with Alfa includes an agreement that any evidence of asset-stripping activities uncovered will be made available to the bank in a manner that “preserves its evidential integrity”, according to Woodhouse.

In his lengthy affidavit to the court, Woodhouse made a number of references to fraud.

“IBRC has been met with fraudulent activity and delays which I believe to have been orchestrated by the defendants,” he said. The bank has been hampered by “the fraudulent activities of the defendants, their servants or agents”. Alfa has experience in “recovering fraudulently alienated assets”. The engagement of Alfa is an indication of IBRC’s determination to “recover the assets and uncover the fraud”. The bank has also mentioned fraud in its dealings with the High Court in Belfast.

Under the Criminal Justice Act 2010, the bank is obliged to report suspected criminal offences to the authorities. It would seem to follow that the Garda, and possibly the PSNI in Northern Ireland, have been notified by the bank of its concerns.

If the bank is correct in its suspicions, the Quinn asset- stripping scheme has seen it benefit to the tune of a significant fortune, even if the properties being targeted by Alfa are recovered. The loser has been the Irish State.