Dublin-based firm is named in fraud conspiracy claims


TMC Trading International, an Irish-registered company based in Dublin which held exclusive foreign trading rights for Russian titanium and magnesium metals, is alleged to have been involved in a conspiracy to defraud the Russian metals producer, Avisma, of millions of dollars. TMC rejected the allegations made in an initial written claim before a US court and maintained that they had arisen out of a simple "mistake" by an office clerk at the Dublin office. The allegations revolve around transfer pricing - suggesting that Avisma was paid less than the market price for its titanium and was charged more for raw materials and services in order to reduce the apparent profits of the company which would have to be repatriated to Russia.

Spokesman Mr Chris Samuelson, president of the Valmet Group (which brought Avisma and TMC together), insisted Avisma was paid the market rate for titanium and that TMC transferred all trading profits after fees and costs to Avisma.

The allegations arose out of a lawsuit filed on August 19th in the US District Court for New Jersey. It is the first lawsuit to be brought under the US racketeering statutes alleging that a Russian company had been looted of its trading profits through a conspiracy between management and shareholders.

The court claim, filed by Mr Bruce Marks, an attorney for Avisma in New Jersey, alleges that the Menatep Bank of Moscow, which it states controlled Avisma and TMC, and then a group of US investors, who took over from Menatep, skimmed at least $50 million (€47 million) from the company, diverting the cash to offshore bank accounts from 1996 through late 1998.

TMC acted for Avisma as its foreign trading agent for most of the period involved and court proceedings in the Republic raised questions about the beneficial ownership of TMC.

The story is long and complicated. Long before the US court case was filed TMC, and the then majority Avisma owners, had fallen out.

That disagreement led to court proceedings in the Republic and in the Isle of Man which resulted in the payment of an out-of-court settlement by TMC to Mr Dart and other Avisma investors.

The Avisma majority shareholders of the time including Mr Dart and others see this payment as evidence that something improper was happening to Avisma's offshore profits. TMC disputes this, saying that the payment was made when agreement was reached on how much of the surplus held by TMC, as part of its normal trading arrangements with Avisma, was due to the Avisma shareholders.

TMC's version of what happened is simple enough. But the story behind the allegations and counter allegations now before the court in New Jersey is far from simple and TMC's version is not the only one.

TMC pre-paid Avisma for titanium deliveries, thereby assisting the company in purchasing supplies and raw materials for metal production.

But the US court documents, and a statement by Avisma, allege that the controlling shareholders in Avisma manipulated this prepayment scheme, obliging Avisma "to sell its products at below-market prices to offshore companies, which were then to kick back the profits on the resale of the products".

The documents also allege that "profits were siphoned by directing Avisma to purchase raw materials from the offshore companies at above-market prices, with the profits funnelled back to Avisma's controlling shareholders through kickbacks".

The TMC spokesman insists that TMC did not get anything other than its fees for the trading and that any surplus on trading was paid over to Avisma.

Asked if TMC had paid Avisma less than the market rate for its titanium and was involved in charging the Russian company above-market rates for materials/ services, the spokesman maintained: "Of course there was a margin for TMC. But the prices for Avisma were better than those they previously had with Interlink. These accusations are purely each side trying to throw mud." The story begins with Avisma, the largest producer of titanium sponge in Russia. In 1995, the company was taken over by the Menatep Group (which grew out of Bank Menatep) and placed in its sister-holding company, Rosprom. At that time exporting Russian companies usually had to sell through overseas agents because buyers were often unwilling to deal with Russian companies and overseas agents were able to help arrange/provide trade finance. The Rosprom-owned Avisma traded through a company called Interlink.

Some time after Rosprom took over Avisma there was a dispute with Interlink. According to TMC, Avisma then came to Valmet - an international administration services company in which Bank Menatep has a stake - seeking assistance in finding a replacement for Interlink.

TMC was set up to carry out Avisma's foreign trading and established in Dublin for the purpose. Mr Samuelson of Valmet insists that TMC's beneficial owner is financier Mr Peter Bond who, he says, set up the company to act for Avisma. "The agreement was very specific - any surplus earned on trading for Avisma after TMC fees were paid would be paid back to Avisma."

TMC (Titanium Metals Company) Trading International was registered and incorporated in Dublin in June 1995 and is a subsidiary of Isle of Man-based TMC Holdings. In addition there is another TMC company - the British Virgin Islands-registered company TMC Trading Limited which has an office in the Isle of Man. The Dublin company appears to have acted as an agent for this company. But in the High Court late last year Ms Justice Laffoy remarked that the affidavits filed on behalf of TMC raised a fundamental conflict about the ultimate beneficial ownership of the company and the nature of its operations.

In December 1997 - the date of the deal is disputed - Rosprom decided to sell Avisma to a group of shareholders including the Anderson Group, Kenneth Dart and the US-based Hermitage Fund with Bank Creditanstalt of Moscow acting as their agent. The new owners hoped to merge Avisma with VSMPO, a Russian processor of titanium sponge.

Avisma continued to sell through TMC with profit payments made through Barclays Bank in Dublin to the Avisma account at Bank Menatep in Moscow, according to TMC.

But in mid-1998 the Russian financial crisis put some of the Russian banks on a precarious financial footing. Around that time Avisma changed the payment instruction to TMC stating that the funds should now be paid to SBER Bank in Moscow.

Some time afterwards the "mistake" which TMC maintains led to the allegations happened.

According to TMC, it was instructed by Avisma in early November 1998 to pay $2.6 million to the Bank Menatep account. The TMC clerk did not spot that the name of the receiving bank was wrong - it should have been SBER Bank - and instructed that the payment be processed through Barclays. According to TMC this caused the Avisma investor group to think it was being defrauded, relations soured and the "mistake" triggered a claim against TMC for the return of Avisma surplus held by TMC. According to TMC it held on to this surplus - excess of sales revenue over funding and other costs and fees - by agreement with Avisma against any liability that could arise. A liability or shortfall could arise, for example, if an Avisma shipment was not of acceptable grade. There was never any doubt but that any surplus was the property of Avisma, he insists. But after the "mistake" Avisma and TMC disagreed on the amount of the surplus and on how it should be divided between the old and new shareholders in Avisma, he says.

This dispute came before the Irish courts where the Avisma investors sought injunctions to stop TMC from reducing its assets below $20 million. The investors argued that TMC was owned or controlled by Bank Menatep and Rosprom, that a significant part of the profits Avisma was able to earn on its products were taken offshore thorough the TMC companies and that this portion of the profits was now due to them for the period from which they became majority shareholders. In the court they expressed concern about the $2.6 million payment to Bank Menatep, calling it "unauthorised" and "improper" - and expressed concern that funds "may be freely moved around" among the TMC companies.

The case was eventually settled out of court in the Isle of Man. According to TMC a surplus amount was agreed and the undisclosed amount - "millions of dollars" - was paid over to Mr Dart's law firm in London, Rackesons. "TMC and Valmet were then released from any liability," he said. But before these legal actions were settled, Avisma in Russia was merged with VSMPO making the majority Avisma investors, including Mr Dart, minority shareholders in the merged group.

It is the new owner of Avisma - VSMPO - which is now suing in the US for the return of the millions of dollars it alleges were taken from the company by the former majority investors through the offshore companies used to sell the Avisma titanium. It is understood that TMC Trading International has now ceased operations in Dublin.