Posted on 05/16/2007 3:32:02 AM PDT by Tailgunner Joe
AMONG the ranks of the great and good, few come greater: a retired foreign secretary; a former British ambassador to Moscow; a man credited with having helped to build one of Britain’s most high-profile companies; the former chief executive of a leading European telecoms equipment manufacturer; plus a couple of well-connected Washington insiders.
All are the bluest of blue-chip individuals. All provide a magnificent adornment to any corporate letterhead.
But all now find themselves tied in with – and de facto representatives of – one of the most controversial business empires on the planet.
The company is the Russian conglomerate Alfa Group, headed by 43-year-old oligarch Mikhail Fridman. It has a telecoms offshoot, Altimo, and it is this part of the Alfa empire that can now boast the backing of an admirably heavyweight “advisory board” that includes: Lord Hurd, the former foreign secretary; Sir Roderick Lyne, who was British ambassador to Russia; Kurt Hellstrom, president and chief executive of Ericsson until 2003; Sir Julian Horn-Smith, who spent more than two decades with Vodafone, becoming the company’s deputy chief executive until his departure last summer; Jack Rosen, chairman of the Council of World Jewry and a former confidant of Bill Clinton; Peter Watson, who sat on America’s National Security Council during the first George W Bush administration.
Their presence undoubtedly gives Altimo gravitas. To a man, they are people who command respect and who can open doors in the corridors of power.
Altimo needs respectability. The company, more than 90% controlled by Alfa, is weighing up the idea of a listing on the London Stock Exchange. A further option is to try to secure a tie-up with another large, established player in the telecoms market.
Whichever route is chosen, Altimo’s investors or a partner will want to be convinced that the company is well run, has strong corporate governance and conducts itself in a way that befits an international group with an estimated market worth of $20 billion (£10.1 billion).
But Altimo, Alfa and Fridman have displayed an unnerving ability to become entangled in controversy, scandal, litigation and mud-slinging.
Perhaps the most colourful story stems from a legal dispute of Byzantine complexity that has pitted Altimo against a Bermuda-based group, the Ipoc International Growth Fund.
The clash between the two companies has led to allegations of fraud, deception and money-laundering being batted to and fro in a string of court cases around the world.
Separately, the Bermuda government asked KPMG Financial Advisory Services to look into Ipoc. And it subsequently emerged that Diligence, a Wash-ington DC-based firm of corporate private eyes, had managed to infiltrate KPMG in an effort to find out what the accountants had turned up. A KPMG employee was persuaded to start leaking information to Diligence.
Was Diligence working for Alfa or Altimo? Both companies say no and, strictly speaking, that is true. But it is undisputed that Diligence was employed by a firm of lobbyists, Barbour Griffith & Rogers. And BGR was in turn working for an offshoot of Alfa.
The story might be dismissed as nothing more than an everyday tale of corporate spooks – but for two twists.
When KPMG and Ipoc found out what was going on, they were predictably upset. Equally predictably, they filed lawsuits. Nick Day, co-founder of Diligence, was accused of having overstepped the mark – even by the standards of corporate espionage. The legal claim said Day pretended to be from British intelligence when he approached the KPMG man.
Day – who was indeed an MI5 officer in the past – issued a carefully worded denial: “We’ve always respected the laws of the jurisdictions in which we operate.” Maybe so. And, said Diligence, Day never explicitly claimed to be from British intelligence when on the project.
But Diligence admits that “he may have given that impression”. And the firm concedes that Day certainly did nothing to correct any misunderstanding that he was in fact an intelligence officer. The case was settled when Diligence paid KPMG $1.7m – without admitting liability.
The second twist gives the tale a particular piquancy for British observers. The chairman of Diligence’s European operation is none other than Michael Howard, former Conservative leader and one-time cabinet colleague of Hurd. And sitting on Diligence’s advisory board is Lord Charles Powell, former foreign-affairs adviser to Marga-ret Thatcher and John Major.
The Diligence episode may simply be unfortunate for Alfa in the publicity it brought. No company likes to be accused of digging dirt on rivals – particularly when those private eyes are caught.
But a rather more serious threat to Alfa’s reputation is its involvement in the United Nations’ oil-for-food programme under which Iraq was allowed to sell $64 billion-worth of oil from 1996 until the invasion in 2003.
The oil was sold at a discount – sufficient to allow some buyers of the oil to make a profit while also handing kickbacks to Saddam Hussein and his allies in the form of “surcharges”.
The scandal was investigated by Paul Volcker, former head of the US Federal Reserve. And one of the companies whose name cropped up was Alfa Eco, part of Fridman’s Alfa empire.
The Volcker committee report said in 2005: “The committee approached a number of Russian companies, including Alfa Eco ... furnishing them with copies of embassy payment receipts and requesting comments.’’ The receipts were for cash payments uncovered by Volcker’s team.
The report went on: “Alfa Eco was the fourth-largest purchaser of Iraqi oil under the [oil-for-food] programme, executing 15 oil contracts for more than 106m barrels of oil ... a total of $2,351,880 in surcharges was paid on four of Alfa Eco’s 15 oil contracts ... most of the payments – $2,039,161 – were made through the Iraqi embassy in Moscow.’’ Alfa has consistently denied channelling money to Saddam, and no charges have been brought against it. The firm said it never violated any “norms established by the international community and national legislation”.
But Volcker encountered problems trying to get to the bottom of the matter. The committee contacted Eco “on several occasions requesting a meeting to discuss the surcharge payments”, said its report. Initially, the company said it would help. But subsequently, Alfa declared that it would communicate with the committee only through the Russian Ministry of Foreign Affairs. Detailed questions went unanswered.
The allegations linking Alfa to the oil-for-food scandal were known before Hurd and his colleagues were recruited last year to become Altimo advisers.
But more recently, the worthy members of the Altimo “advisory board’’ have faced the backlash from another affair.
Altimo is at loggerheads with Norway’s state-owned telecoms group, Telenor. The companies jointly own the Ukrainian mobile-phone company Kyivstar. Telenor maintains Altimo is using unfair tactics to gain control of Kyivstar, and the dispute is now with the International Court of Arbitration in New York.
In itself, there is nothing remarkable about that: telecoms joint ventures are often dogged by rows. But two months ago Telenor filed papers with the court alleging Altimo was funding a smear campaign against it. Telenor said the campaign included making payments to place stories in newspapers that undermined the Norwegians.
Altimo has denied the claims. It said the documents on which Telenor’s complaint was based were forgeries.
But now Telenor has taken its complaints to Hurd and his colleagues. It has written to the advisory board accusing Altimo and its affiliates of unleashing “a sustained, multi-front attack” to undermine Telenor’s position in both Kyivstar and Russia’s Vim-pelcom, in which the two firms also have stakes.
Telenor accuses its one-time Russian allies of “multiple violations” of shareholder agreements, “ongoing efforts to attack and erode” corporate-governance provisions at Kyivstar and attempts to disrupt the New York arbitration proceedings.
Put simply, Telenor thinks Altimo is behaving appallingly, and the members of the advisory board should put a stop to it.
At last month’s 10th annual Russian Economic Forum in London, Lyne came face to face with Kjell-Morten Johnsen, head of Telenor in Russia.
Lyne voiced his disappointment that Telenor had made its complaints public through an open letter. Ever the diplomat, he would have preferred a private approach. Strikingly, he also reminded Johnsen that he and his advisory-board colleagues are, as their title suggests, only advisers. They have no fiduciary duty, no legal role in running Altimo.
Clearly, Lyne, Hurd and their colleagues face challenges in burnishing Altimo’s image. Within the past week, lurid allegations have emerged in the Far East about Altimo’s attempts to secure a stake in the Indonesian telecoms company Indosat. The allegations – denied by Altimo– have caused particular uproar in Singapore as the company with the most to lose would be Singa-porean group ST Telemedia.
The head of Altimo in Indonesia insisted that the company “wouldn’t do anything unethical”.
The six luminaries on Altimo’s advisory board are discovering that there is more to life as an adviser than being a corporate decoration. They are having to work for their fees.
AMONG the ranks of the great and good, few come greater: a retired foreign secretary; a former British ambassador to Moscow; a man credited with having helped to build one of Britain’s most high-profile companies; the former chief executive of a leading European telecoms equipment manufacturer; plus a couple of well-connected Washington insiders.
All are the bluest of blue-chip individuals. All provide a magnificent adornment to any corporate letterhead.
But all now find themselves tied in with — and de facto representatives of — one of the most controversial business empires on the planet.
The company is the Russian conglomerate Alfa Group, headed by 43-year-old oligarch Mikhail Fridman. It has a telecoms offshoot, Altimo, and it is this part of the Alfa empire that can now boast the backing of an admirably heavyweight “advisory board” that includes:
- Lord Hurd, the former foreign secretary;
- Sir Roderick Lyne, who was British ambassador to Russia;
- Kurt Hellstrom, president and chief executive of Ericsson until 2003;
-Sir Julian Horn-Smith, who spent more than two decades with Vodafone, becoming the company’s deputy chief executive until his departure last summer;
- Jack Rosen, chairman of the Council of World Jewry and a former confidant of Bill Clinton;
- Peter Watson, who sat on America’s National Security Council during the first George W Bush administration.
Their presence undoubtedly gives Altimo gravitas. To a man, they are people who command respect and who can open doors in the corridors of power.
Altimo needs respectability. The company, more than 90% controlled by Alfa, is weighing up the idea of a listing on the London Stock Exchange. A further option is to try to secure a tie-up with another large, established player in the telecoms market.
Whichever route is chosen, Altimo’s investors or a partner will want to be convinced that the company is well run, has strong corporate governance and conducts itself in a way that befits an international group with an estimated market worth of $20 billion (£10.1 billion).
But Altimo, Alfa and Fridman have displayed an unnerving ability to become entangled in controversy, scandal, litigation and mud-slinging.
Perhaps the most colourful story stems from a legal dispute of Byzantine complexity that has pitted Altimo against a Bermuda-based group, the Ipoc International Growth Fund.
The clash between the two companies has led to allegations of fraud, deception and money-laundering being batted to and fro in a string of court cases around the world.
Separately, the Bermuda government asked KPMG Financial Advisory Services to look into Ipoc. And it subsequently emerged that Diligence, a Washington DC-based firm of corporate private eyes, had managed to infiltrate KPMG in an effort to find out what the accountants had turned up. A KPMG employee was persuaded to start leaking information to Diligence.
Was Diligence working for Alfa or Altimo? Both companies say no and, strictly speaking, that is true. But it is undisputed that Diligence was employed by a firm of lobbyists, Barbour Griffith & Rogers. And BGR was in turn working for an offshoot of Alfa.
The story might be dismissed as nothing more than an everyday tale of corporate spooks — but for two twists.
When KPMG and Ipoc found out what was going on, they were predictably upset. Equally predictably, they filed lawsuits. Nick Day, co-founder of Diligence, was accused of having overstepped the mark — even by the standards of corporate espionage. The legal claim said Day pretended to be from British intelligence when he approached the KPMG man.
Day — who was indeed an MI5 officer in the past — issued a carefully worded denial: “We’ve always respected the laws of the jurisdictions in which we operate.” Maybe so. And, said Diligence, Day never explicitly claimed to be from British intelligence when on the project.
But Diligence admits that “he may have given that impression”. And the firm concedes that Day certainly did nothing to correct any misunderstanding that he was in fact an intelligence officer.The case was settled when Diligence paid KPMG $1.7m — without admitting liability.
The second twist gives the tale a particular piquancy for British observers. The chairman of Diligence’s European operation is none other than Michael Howard, former Conservative leader and one-time cabinet colleague of Hurd. And sitting on Diligence’s advisory board is Lord Charles Powell, former foreign-affairs adviser to Margaret Thatcher and John Major.
The Diligence episode may simply be unfortunate for Alfa in the publicity it brought. No company likes to be accused of digging dirt on rivals — particularly when those private eyes are caught.
But a rather more serious threat to Alfa’s reputation is its involvement in the United Nations’ oil-for-food programme under which Iraq was allowed to sell $64 billion-worth of oil from 1996 until the invasion in 2003.
The oil was sold at a discount — sufficient to allow some buyers of the oil to make a profit while also handing kickbacks to Saddam Hussein and his allies in the form of “surcharges”.
The scandal was investigated by Paul Volcker, former head of the US Federal Reserve. And one of the companies whose name cropped up was Alfa Eco, part of Fridman’s Alfa empire.
The Volcker committee report said in 2005: “The committee approached a number of Russian companies, including Alfa Eco ... furnishing them with copies of embassy payment receipts and requesting comments.’’ The receipts were for cash payments uncovered by Volcker’s team.
The report went on: “Alfa Eco was the fourth-largest purchaser of Iraqi oil under the [oil-for-food] programme, executing 15 oil contracts for more than 106m barrels of oil ... a total of $2,351,880 in surcharges was paid on four of Alfa Eco’s 15 oil contracts ? most of the payments — $2,039,161 — were made through the Iraqi embassy in Moscow.’’
Alfa has consistently denied channelling money to Saddam, and no charges have been brought against it. The firm said it never violated any “norms established by the international community and national legislation”.
But Volcker encountered problems trying to get to the bottom of the matter. The committee contacted Eco “on several occasions requesting a meeting to discuss the surcharge payments”, said its report. Initially, the company said it would help. But subsequently, Alfa declared that it would communicate with the committee only through the Russian Ministry of Foreign Affairs. Detailed questions went unanswered.
The allegations linking Alfa to the oil-for-food scandal were known before Hurd and his colleagues were recruited last year to become Altimo advisers.
But more recently, the worthy members of the Altimo “advisory board’’ have faced the backlash from another affair.
Altimo is at loggerheads with Norway’s state-owned telecoms group, Telenor. The companies jointly own the Ukrainian mobile-phone company Kyivstar. Telenor maintains Altimo is using unfair tactics to gain control of Kyivstar, and the dispute is now with the International Court of Arbitration in New York.
In itself, there is nothing remarkable about that: telecoms joint ventures are often dogged by rows. But two months ago Telenor filed papers with the court alleging Altimo was funding a smear campaign against it. Telenor said the campaign included making payments to place stories in newspapers that undermined the Norwegians.
Altimo has denied the claims. It said the documents on which Telenor’s complaint was based were forgeries.
But now Telenor has taken its complaints to Hurd and his colleagues. It has written to the advisory board accusing Altimo and its affiliates of unleashing “a sustained, multi-front attack” to undermine Telenor’s position in both Kyivstar and Russia’s Vimpelcom, in which the two firms also have stakes.
Telenor accuses its one-time Russian allies of “multiple violations” of shareholder agreements, “ongoing efforts to attack and erode” corporate-governance provisions at Kyivstar and attempts to disrupt the New York arbitration proceedings.
Put simply, Telenor thinks Altimo is behaving appallingly, and the members of the advisory board should put a stop to it.
At last month’s 10th annual Russian Economic Forum in London, Lyne came face to face with Kjell-Morten Johnsen, head of Telenor in Russia.
Lyne voiced his disappointment that Telenor had made its complaints public through an open letter. Ever the diplomat, he would have preferred a private approach. Strikingly, he also reminded Johnsen that he and his advisory-board colleagues are, as their title suggests, only advisers. They have no fiduciary duty, no legal role in running Altimo.
Clearly, Lyne, Hurd and their colleagues face challenges in burnishing Altimo’s image.
Within the past week, lurid allegations have emerged in the Far East about Altimo’s attempts to secure a stake in the Indonesian telecoms company Indosat. The allegations — denied by Altimo — have caused particular uproar in Singapore as the company with the most to lose would be Singaporean group ST Telemedia.
The head of Altimo in Indonesia insisted that the company “wouldn’t do anything unethical”.
The six luminaries on Altimo’s advisory board are discovering that there is more to life as an adviser than being a corporate decoration. They are having to work for their fees.
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