By Andrew Callus
LONDON (Reuters) - A former TNK-BP employee may have confessed to fraud out of fear during a meeting in the office of German Khan, the head of the oil company and one of Russia's most prominent businessmen, according to a British High Court judge.
In the first judicial account of encounters earlier this year between Khan and his former subordinate Igor Lazurenko, testimonies from the two men paint a picture of fear and mistrust at TNK-BP, one of the country's largest private companies which is half-owned by Britain's BP.
The actions and methods of Khan and other oligarchs who grew rich from the privatizations of the 1990s are a sensitive issue in Russia, where President Vladimir Putin is trying to increase state control and crack down on profiteering without scaring off investment. The case opens a window on a world where courts, police and imprisonment are seen by many Russians as tools of the wealthy.
Khan, BP and TNK-BP's other shareholders are trying to fold their business into state oil company Rosneft. Closing the deal, one of the biggest energy takeovers in history, would net them billions of dollars in cash and could make them shareholders in the state company.
BP has secured government approval to acquire Rosneft shares from the state and expects to complete its part of the sale by mid-2013, but Khan's side of the deal is only partly formed and has no approvals yet. The whole deal is worth $55 billion.
"Whilst it is clearly not possible at this stage to make any definitive findings... Mr. Khan's own evidence provides some support for Mr. Lazurenko's evidence that he was coerced into making this confession," said Andrew Sutcliffe QC, sitting as judge of London's High Court, in a November 20 decision.
This week, TNK-BP decided not to appeal the judgment, and on Tuesday, Lazurenko's lawyers were seeking a total of 1.6 million pounds ($2.6 million) in costs from the company.
In his 88-page ruling, Sutcliffe dismissed TNK-BP's attempts to bring fraud charges against Lazurenko, a one-time Russian army officer who was in charge of organizing oil transport contracts. Sutcliffe called TNK-BP's potential for a case "very weak", described some claims as "false and misleading" and was critical about its lack of evidence against Lazurenko.
TNK-BP has also abandoned its attempts to stop Lazurenko from publishing certain documents in his possession. Lazurenko has said they provide evidence of high-level corporate and government corruption and implicate high ranking Russian officials. He has not published them.
The claimant in the November 20 ruling is OJSC TNK-BP Holding, the main holding company of TNK-BP. The defendants are Lazurenko, three other individuals, and a number of companies with which he is connected.
TNK-BP alleged that Lazurenko, who worked for the company from 2003 until he quit this year, took bribes and laundered the money through businesses operating in Montenegro. In August, TNK-BP obtained a UK court order that froze 39 million euros ($51 million) worth of the defendants' assets.
The judge's account in the November 20 ruling reveals a detailed picture of the encounters in Khan's office.
In one of them, Lazurenko's testimony says, Khan told him he stood accused of accepting $8 million in bribes for oil transport contracts and threatened "strong action" against him and his family if he did not admit to doing so. Lazurenko denied the allegations on that occasion.
As he arrived for a later meeting, Lazurenko says he saw a man sitting outside "who looked to me like he was from the Moscow police or Ministry of Internal Affairs. I find it hard to explain in the English court how and why I formed this impression," he said, "but I think it would be very obvious to a Russian judge. It relates to the way this individual looked and was dressed."
Inside, "Khan told me he had someone outside his office who would arrest me unless I admitted that I had received this money and agreed to repay it".
He said Khan also told him to remember the fate of Viktor Paliy, a business associate of AAR, through which Khan holds his stake in TNK-BP, who ended up in prison.
"I was scared and knew that I could not continue to deny his allegations if I wanted to get out of his office and leave the building. Therefore I admitted the allegation, even though I knew it to be untrue," the court document cited Lazurenko saying.
Khan, in his testimony, acknowledged that he referred to the implications for Lazurenko's family, and that he mentioned the fate of Paliy. He said his intention was to persuade Lazurenko to admit to his crimes.
BETTER TO CONFESS
"I may well have said that if he did not make an admission it would cause serious problems for him. I did not say that he had to confess if he wanted to get out of my office freely and leave the building," said Khan in his testimony.
Khan denied there had been a policeman outside the office, but said "there may have been someone from internal security service, many of whom are former law enforcement officers."
He went on to say Lazurenko had "a reputation as a very cold, detached individual", and that any suggestion he was frightened was "wholly ridiculous."
However, Sutcliffe used more of Khan's own testimony to back up his judicial view that Lazurenko might have been right to be scared.
"I told Mr. Lazurenko on at least one occasion that he should think about his family," the judge quoted Khan as saying. "This was not a threat to harm either Mr. Lazurenko or any members of his family ... It is a well-known fact that persons accused of economic crimes can spend years in prison even before being tried, and risk having their assets frozen by the state pending trial... I was offering Mr. Lazurenko a sensible alternative. Pay back the money he stole from TNK-BP and thus avoid the risk of prison."
The judge also noted Khan's response to Lazurenko's description of him as "extremely ruthless".
"As is well known," Khan said, "Doing business in Russia is not for the faint hearted."
Asked for a response to the judgment and the judge's remarks, TNK-BP said in an emailed statement it was "confident in our position and will continue pursuing Mr. Lazurenko in all appropriate jurisdictions."
It added: "Before fleeing Russia Mr. Lazurenko admitted his wrongdoing against the company... Mr. Lazurenko did not make any reports to the Russian or English police about any coercion."
A spokesman for Lazurenko said: "The two damning judgments against TNK-BP... bring to an end a seven month campaign instigated by TNK-BP in an attempt to gag Mr Lazurenko and guarantee his silence.
"Despite its vast resources and lengthy investigations, TNK-BP has been unable to produce any evidence to support its allegations against Mr Lazurenko," he said in an email.
BP and AAR, a consortium holding 50 percent of TNK-BP, both declined to comment on the contents of the court document.
The separate UK gagging order keeping Lazurenko's documents secret was lifted on October 16. The judge who lifted it revealed that Transneft, the Russian pipelines monopoly, was named in the corruption allegations. Transneft has declined to comment on the subject. TNK-BP had plans to appeal against the lifting of the injunction, but has since dropped that action too.
The Khan-Lazurenko dispute dates back to March when Khan made Lazurenko the subject of an internal inquiry. In April, Lazurenko resigned and left Russia.
TNK-BP is a 50-50 venture between BP and AAR. AAR is a consortium owned by Khan and fellow tycoons Mikhail Fridman, Viktor Vekselberg and Len Blavatnik.
BP has been at odds with the AAR shareholders on and off for years. Problems came to a head in 2010 when BP wanted to do business with increasingly powerful Rosneft, and the tycoons resisted. The sale to Rosneft is set to bring the saga to an end.
BP last month won Russian government approval to acquire Rosneft shares from the state holding company Rosneftegaz, a step on the way to securing $12.3 billion of cash and an 18.5 percent stake in Rosneft that will raise its holding to 19.75 percent. AAR's side of the deal is less complete, but Rosneft has said it hopes to agree it in December.
After the acquisition, Rosneft, headed by Putin ally Igor Sechin, will be pumping 4.6 million barrels of oil equivalent, more than U.S.-based Exxon Mobil.
Lazurenko was represented by solicitors Mischon de Reya and TNK-BP by Bryan Cave.
(additional reporting by Doug Busvine in Moscow and Dmitry Zhdannikov in London; editing by Janet McBride)