By John Helmer in Moscow
It’s either a comedy starring Pinocchio, or a tragedy ending in Seppuku.
According to Section 1 of Sovcomflot’s corporate code of governance — ratified by the company board in 2007, and posted on the company website — one of the principles is “prompt disclosure of complete and reliable information about the Company enabling informed decision-making by the shareholders and investors of the Company”. Another of the provisions in this section obliges company officeholders to ensure “compliance with ethical standards of business conduct.” By these standards, what is to be made of the public clash in a London courtroom last week over evidence of a relatively paltry sum of one million dollars that hasn’t managed to be identified in Sovcomflot’s accounts yet?
The Sovcomflot trial, now in its fourth week at the High Court London, has heard the company accountant, Cyprus-based Marios Orphanos, admit that in 2005-2006 there had been an unlawful coverup in the company books of the payment of $1 million by Victor Borisenko, who has served as chief financial officer and deputy CEO, and is currently titled senior advisor to the chief executive. Orphanos admitted concealment of the payment from the SCF board and auditors Moore Stephens was a serious violation of accounting rules. But he swore he had not known of the provenance of the payment when it was lumped into the company’s revenue line, nor what had prompted it.
Orphanos was read earlier testimony in court by CEO Sergei Frank, who blamed Orphanos for the coverup, because he “had been personally the man always very sympathetic to Mr Borisenko.” Orphanos insisted he had never known of the Borisenko payment, and he dismissed the CEO’s claim as “one of the theories of Mr Frank”.
The contradiction between the two men is one of the keys to the defence claims in the trial. These allege that Frank discovered a fraudulent cash diversion scheme involving Borisenko as CFO and Yury Privalov, when the latter headed Sovcomflot’s operations in London. Frank’s targets — former CEO Dmitry Skarga and former Sovcomflot investor and chartering partner, Yury Nikitin — are charged with running a fraud of their own, depriving the company of up to $800 million in proceeds from ship sales and chartering deals that were arranged on non-commercial terms, with the market profit going secretly to themselves.
Skarga and Nikitin have responded by opening a parallel trial of their own. They are charging the two key witnesses for Sovcomflot’s claim, Borisenko and Privalov, had started their corrupt cash diversion scheme well before Skarga took over at Sovcomflot in 2000. According to the documents and oral testimony, Privalov arranged with bankers to the fleet company – notably the Banque Cantonale Vaudoise (BCV) – to agree to an arrangement fee for refinancing ship loans with the bank; charge roughly double this figure on Sovcomflot’s books; and pocket the difference. This scheme was also extended, allegedly, to ship sale commissions. How long the two men were operating their diversion scheme, and how much money the two netted, isn’t yet clear. Borisenko claims that a desk drawer at his Moscow home stacked with $250,000 in hundred-dollar notes was filled with life savings filled honestly from his labours in the 1990s. Borisenko admits he confessed to Frank in October 2006 that he had skimmed about $1 million.
According to Skarga in court, Frank then forced Borisenko to pay this amount back to the company and avoid criminal liability, as part of an agreement to testify that the money had been paid as under-the-table commissions from Skarga. This deal also allowed Borisenko to keep his job at the shipping company, and receive fresh salary and bonuses larger in value than the money he had returned. One reported condition — Frank and Borisenko had to keep the deal secret while Borisenko prepared his witness statements accusing Skarga.
Borisenko testified in court that even though he was chief financial officer at the time he made the payment and signed the deal with Frank, he didn’t believe the transaction was reportable: “I wasn’t aware of this particular requirement of international accounting standards.” Asked if he had been the one to keep Orphanos in the dark, Borisenko pointed the finger away from himself: “I was not instrumental,” he claimed.
In the London court, Frank claimed that accountant Orphanos had known of the Borisenko settlement, but kept it out of the accounts in order to “find a way how really to do less harm for his name”.
Asked if he was afraid Frank might cause him “an awful lot of trouble”, Orphanos testifed: “Again, that’s the theory of Mr Frank, and the fact is: I didn’t know that this money came from Mr Borisenko and Mr Privalov.”
Privalov is to testify this week by videolink from Moscow, where he is still under local indictment for his part in the alleged scheme.