Getting their Quinn's worth

A light snow falls on Moscow as Judge Tatiana Alekseevna Alandarenko takes her seat in courtroom 11021. An electronic noticeboard lists the cases to be heard today on the 11th floor of the modern building that houses Moscow City Arbitration Court. From 2.40pm on Monday this week, all the cases involve Anglo Irish Bank and a Russian property-management company called Finansstroy. The Irish Times is observing with the help of an interpreter.

Alandarenko, who looks to be in her late 20s and wears a long-sleeved black gown and white bib, is presiding over the latest chapter in the saga of the Quinn family’s foreign property portfolio.

Through the 2000s Seán Quinn used the business he had built up over decades as a basis for borrowing to invest in property. But instead of buying apartments in Dublin or holiday homes in Buncrana, he bought commercial property in the UK, Russia, Turkey and farther afield.

He also began betting on the performance of the bank he was borrowing from: Anglo Irish Bank. Without the bank knowing, he became its biggest shareholder as well as its biggest borrower.

Around April 2011, when the bank moved in to seize everything he and his family owned, he agreed to a proposal put to him by his nephew Peter Darragh Quinn that the family should try to put the international property portfolio beyond the bank’s reach.

These hearings are the latest in a series that are taking place in at least 10 jurisdictions as part of the ongoing war between the Quinns and the State-owned Irish Bank Resolution Corporation (IBRC), which includes the former Anglo Irish Bank.

When the first case is called, a number of young male lawyers with briefcases enter the courtroom. They stand to address the judge, who sits at a slightly elevated bench with a gold crest on the wall behind her.

At issue is about €20 million, money the IBRC says belongs to it and, therefore, to the Irish State.

The money constitutes about a year’s rental income from an office block in Moscow, the Kutuzoff Tower, formerly the jewel in the crown of the international property portfolio put in place by the now bankrupt Seán Quinn as part of his intended inheritance for his five children.

Deliberately smashed

On July 27th, IBRC had an administrator, Alexander Sherykhanov, appointed by the Russian courts to Finansstroy, which runs the Kutuzoff. Sherykhanov replaced Andrei Dimitrov, who the bank believed was acting in the interests of the Quinns. When Sherykhanov entered Finansstroy’s offices in the Kutuzoff in August, he found its computers had been deliberately smashed.

From the broken hard-drives and a back-up server, he retrieved a range of documents, including emails that, according to an IBRC executive, Richard Woodhouse, directly contradict evidence given to the Irish courts by Seán Quinn jnr. The emails, Woodhouse has told the Irish courts, show Quinn was in control of Finansstroy at a time when he had told the courts he had nothing to do with it.

Other documents retrieved show employment contracts for all the Quinn children, apart from Brenda Quinn, providing for six-figure salaries and multimilliondollar severance payments. Other documents show a series of large payments to former staff members, and to the company’s Russian lawyers, among others.

Sherykhanov initiated legal actions in Moscow alleging these latter payments were bogus, part of an asset-stripping scheme put in place by the Quinns. However, on October 11th, a Russian court removed Sherykhanov and reinstalled the former administrator, Dimitrov, following an application from local companies that claim they are owed money from Finansstroy. Woodhouse has told the Irish courts that IBRC believes these companies were operating for the benefit of the Quinn family. The family says this is untrue.

In the Moscow courtroom, parties who have received payments come forward in turn and say their payments were legitimate and were for work done. In each case Russian lawyers acting for IBRC argue that the payments were part of an asset-stripping scheme and were improper, and that the judge should order that they be reversed. The lawyer acting for Dimitrov says he doesn’t have all the documents he needs, and repeatedly asks the judge for adjournments. As the afternoon wears on, Alandarenko grows increasingly irritated.

First up is a middle-aged woman dressed in black slacks and a shiny crimson top. She argues that money paid to the firm she worked for was for the installation and maintenance of alarm and CCTV systems in the Kutuzoff. The bank’s lawyers say they believe the claim is bogus. The lawyer acting for Demitrov says he needs more time.

The judge leaves the room to consider the matter, returns within a matter of minutes and adjourns the case so that further documents can be circulated.

Next up is a young man with blond hair and a well-cut grey suit. He is representing AB solicitors, the Moscow firm the Quinn family has told the Irish courts it engaged to operate its plan to move the assets beyond reach. (The family says it has since lost control of the process and that the firm no longer acts on its instructions.) The man tells Alandarenko his firm provided Finansstroy with legal assistance on two matters in July of this year for a fee of 30 million roubles (about €750,000). He says the payments were legitimate and that they have documents to support them, and he objects to any repayment or adjournment.

Engaged by Quinns

The lawyers acting for IBRC say the firm was engaged by the Quinns to implement an asset-stripping scheme and was paid for this work. They say the July payments were themselves asset stripping. Dimitrov’s lawyer seeks an adjournment, saying he needs to see copies of the documents taken by Sherykhanov from the broken Finansstroy computers.

When the judge goes to an adjacent room to consider the matter, the lawyers continue their argument, sometimes playfully, sometimes heatedly. “Why were the documents [from the broken computer] given to the Irish media? The Irish media can have them but we can’t have them,” Dimitrov’s lawyer says. “How come the money started to be pumped out once Dimitrov was appointed?”

IBRC’s lawyers reply. “What did you do for 30 million roubles?” they ask the AB representative. “Sue all of Europe?”

The judge returns and the bantering stops immediately. Her short judgment is that the money will have to be returned. The young man in the grey suit scowls. The IBRC lawyers look pleased.

The next claim involves a female financial controller who was paid three million roubles (about €75,000) when she was let go, even though her salary, according to the Anglo lawyers, was a fraction of this. Another person got a severance payment that was more than 30 times her salary.

In all 40 claims are before the court. One involves the former director general of Finansstroy, Andrey Golyshev. He received payments totalling 16 million roubles (about €400,000). The IBRC lawyers say he approved the payments to himself after Finansstroy was declared bankrupt. (The bank told the Irish courts it believes the company was made bankrupt as part of a process whereby bogus creditors could end up owning the Kutuzoff.)

This case, too, is adjourned, as Dimitrov’s lawyer says he needs more documents. The judge scolds him for poor preparation. She also lashes out at the IBRC lawyers for asking witnesses about salaries and being presumptive in their comments to the judge.

Two former Finansstroy employees, who worked on tenant relations and leases, are allowed to keep the six-figure rouble sums they received.

Outside the courtroom

It is well after 6pm before all the listed cases are dealt with or adjourned. Outside the courtroom, The Irish Times asks the bank’s solicitors what law firm they work for. They say they can’t comment, as this was not mentioned in court.

Seán Quinn’s decision to invest in property in Russian cities such as Kazan, Ufa, Nizhny Novgorod, Ekaterinburg, Naberezhnye Chelny and Rostov-on-Don, as well as Moscow, fits perfectly with his inclination to take risks in pursuit of better returns. “Commercial property in Russia and the CIS [Commonwealth of Independent States] brings much higher returns than in western European economies: with the risks come rewards,” said Kevin Lunney, the group development director of the Quinn Group, in 2009, when the family was investing in commercial property in such places as Russia, Ukraine, Turkey and India.

The risks eventually spiralled out of control for Quinn, however, and he lost just about everything.

Doing business in Russia can be challenging, although according to a British business executive who has been here for more than a decade, a younger generation is coming along who never had to deal with the wild post-Soviet years when most of the reigning oligarchs began their journey to billionaire status. Many of these local entrepreneurs run excellent, effective and clean businesses, says the executive, who does not wish to be named.

Control

The Kutuzoff Tower is named after a popular Russian hero, Gen Mikhail Kutuzoff, credited with chasing Napoleon’s Grande Armée out of Russia after the battle of Borodino. The tower is a few stops outside Moscow’s centre, on the Arbatsko-Pokrovskaya metro line.

The tall, silvery block was officially opened in 2009 by the former Fianna Fáil minister of state for trade Billy Kelleher, who was on a trade mission to Moscow. A photograph on the Quinn Group website shows Kelleher cutting the ribbon, which is held by Seán Quinn’s nephew Peter Darragh Quinn, who is currently avoiding execution of a warrant for his arrest arising from contempt of court.

Earlier on Monday, during a visit to the Kutuzoff, none of the workers standing outside smoking in the snow has heard of a dispute about the ownership of the building. Finansstroy has its offices in the building, but the receptionist says there is no one there who can speak to the media.

The lobby has a large reception desk, a security system involving turnstiles, and a few small shops. It is busy with workers coming and going. The nameplates beside the lifts include Coca-Cola, Dunlop, Mitsubishi and Computershare, plus one for Quinn Property Russia/the Quinn Group. The receptionist says this office is the same as that of Finansstroy.

Whether the Quinn family still controls Finansstroy is at the core of the ongoing controversy. The Kutuzoff Tower is the most valuable property in a portfolio that is worth between $300 million and $500 million and that includes property in Russia, Ukraine, Turkey and India. The value of the portfolio is difficult to assess, according to those involved, because of the damage caused by the questions that now exist about ownership. IBRC says the assets should belong to it, because the Quinns have not been able to repay loans secured against them.

The Quinn family disputes a large proportion of the huge debt it has with IBRC but accepts it owes at least €455 million. Court hearings are pending in Ireland over the disputed debt, but, as the family has admitted, it decided to move the foreign properties beyond the bank’s reach before any court had ruled on the matter.

The ensuing mess has cost the State millions in legal fees (the State-owned bank refuses to say how much it has spent in this regard) and could lead to the portfolio being lost to the State.

The Quinns say they have lost control of the scheme AB put in motion for them and can no longer retrieve the assets. Seán Quinn snr and Seán Quinn jnr have been jailed for contempt for their parts in continuing the scheme after being told to desist.

The question at the heart of the debacle is who will walk away with what proportion of the disputed assets: the Quinn family, IBRC and the Irish State, or a third party such as the Russian asset-recovery company A1. The full truth of that may never become public.

What is certain is that the relationship between the Quinns and Anglo Irish Bank has cost the State a lot, and the bill continues to grow.

Cashflow: The global Quinn money trail

Dublin: Anglo Irish Bank loans hundreds of millions to the Quinn family. The money is secured against the family’s international property portfolio.

Stockholm: The Quinn family sets up a series of property-holding companies that in turn own property companies in a range of jurisdictions. After Quinn Group collapses, the Irish Bank Resolution Company gets a share receiver appointed to the Swedish companies, but he finds it hard to seize the companies in Russia and Ukraine.

Derrylin, Co Fermanagh:Demesne Investments, a Quinn family company owed money by the Quinn property companies in Russia and Ukraine, allows the family to get money from these jurisdictions back to Ireland. When the family decided to put the property beyond IBRC's reach, it transferred the right to the debts to the offshore companies Galfis and Lyndhurst.

Belize:Home of Galfis Overseas Ltd, which got the right to $163 million formerly owed to Demesne by Quinn property companies in Russia.

British Virgin Islands:Home of Lyndhurst Investments Ltd, which got the right to $44.2 million formerly owed to Demesne by Ukrainian company Univermag.

Russia:Debts transferred from Demesne are used to initiate bankruptcy proceedings against Russian property companies, which could see the properties being lost to IBRC.

Ukraine:Lyndhurst's rights to Univermag debts are now held by a Ukrainian company, Elegant Invest, which may end up owning the Ukraina shopping mall in Kiev.

Dubai:Home of Senat Legal, which was used to buy Lyndhurst and Galfis and to co-ordinate some Quinn family legal actions in foreign jurisdictions.

Asset recovery: Money back the Russian way

Irish Bank Resolution Corporation is poised to go into partnership with one of the wealthiest and most controversial business figures in Russia in an effort to recover assets from the Quinn family.

The deal between the bank and the A1 asset-recovery division of the huge Russian Alfa Group has yet to be finalised. If it goes ahead it will be the first time a western bank has gone into partnership with A1 in an effort to recover assets in the former Soviet Union.

The Alfa Group is the largest privately owned conglomerate in Russia and has featured heavily in the business press in recent times because of its involvement with BP in the Russian oil sector. The relationship between BP and its Russian partners was marked by continuing infighting.

Representatives of A1 met The Irish Times in the A1 offices in Moscow this week but would not discuss the deal with the IBRC, as it had not yet been finalised.

They say Alfa has a number of divisions and that A1, the asset-recovery division, is a separate entity within the group and has nothing to do with BP or other partnerships with western companies.

Asked what A1 could do about the fact that the Quinn controversy has involved a series of bizarre court rulings in Russia, public-relations executive Andrei Polyakovsky says A1 has a strong legal team and knows how Russia’s system works.

The A1 director of communications, Andrey Kocherov, hands over a translation of a recent article from the Russian-language business daily Vedomosti, in which A1 chief executive Mikhail Khabarov says that when pursuing assets in complicated bankruptcy cases, A1 has to be sure to win once it gets involved.

“Russia is like Byzantium and requires victories in battles. Any step back from maintaining position will be at once deemed as a sign of weakness.”

In the Quinn case, A1’s task is to secure the assets in Russia and Ukraine. It will share the proceeds according to a formula whereby the more that is recovered, the better the percentage return for the Russians. One bank source said it expects in the region of 65 cent in the euro out of the deal.

The Alfa Group has assets of up to $60 billion and is involved in banking, oil, gas, telecoms, food retail and cinemas. Its largest shareholder, Mikhail Fridman, is considered to be among the richest, if not the richest, of the Russian oligarchs. He is renowned for being a tough fighter, who engages in legal actions even with his own business partners.

“The Alfa Group is very aggressive and it doesn’t hide that fact,”says a British business executive who has been in Moscow for more than a decade. The executive, who doesn’t want to be named, says there is no doubt but that IBRC is going into business with a very tricky customer, but it should also be remembered that BP, which had a difficult relationship with Alfa, made an enormous profit out of the affair. “They can be a very effective partner. And when you are talking about Russia, it is relative. Are they more evil than other big players, or are they just better at what they do?”