IPOC pleads guilty in BVI – $45m set to be confiscated

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The latest chapter in a dizzying saga of alleged international money laundering came to a head yesterday in a British Virgin Islands High Court, where lawyers for the Bermuda-based IPOC International Growth Fund and three BVI-domiciled entities pleaded guilty to furnishing false information and perverting the course of justice.

Hodge M. Malek, Q.C., a UK-based consultant acting on behalf of the Crown moved for confiscation of funds and sentencing to proceed later in the day, but sentencing was delayed until this morning.

The charges stem from allegations that IPOC along with Lapal Limited, Albany Invest Limited, and Mercury Import Limited, all BVI incorporated IBCs, furnished false or manufactured information in five documents from 2004, later used in an accounting report by Ernst and Young and tendered in an Eastern Caribbean Supreme Court civil appeals proceeding in the BVI.

  • <B>Island presence: </B>The outside of the office building where Ipoc has a registered address in Bermuda.

    Island presence: The outside of the office building where Ipoc has a registered address in Bermuda.


The latest chapter in a dizzying saga of alleged international money laundering came to a head yesterday in a British Virgin Islands High Court, where lawyers for the Bermuda-based IPOC International Growth Fund and three BVI-domiciled entities pleaded guilty to furnishing false information and perverting the course of justice.

Hodge M. Malek, Q.C., a UK-based consultant acting on behalf of the Crown moved for confiscation of funds and sentencing to proceed later in the day, but sentencing was delayed until this morning.

The charges stem from allegations that IPOC along with Lapal Limited, Albany Invest Limited, and Mercury Import Limited, all BVI incorporated IBCs, furnished false or manufactured information in five documents from 2004, later used in an accounting report by Ernst and Young and tendered in an Eastern Caribbean Supreme Court civil appeals proceeding in the BVI.

All four companies have been locked in litigation in the BVI over the last four years, but this is the first time criminal charges have been brought in the territory.

As early as last week, lawyers were summoned before the Magistrates Court sitting in Prospect Reef where they were served with the indictment. The preliminary inquiry into the charges reportedly finished on Friday, and the trial was committed to the current High Court Assizes.

According to the indictment, the alleged falsified documents showed that Lapal, Albany and Mercury received payments from third parties for services rendered, when at least in part those companies had not provided the services claimed to have been delivered, or had not made the payments.

Andrew Mitchell, Q.C., who represented IPOC and Richard Kovalevsky, Q.C., who represented Lapal, Albany and Mercury, said they had received instructions from board resolutions this month resolving to enter guilty pleas on each charge. Both lawyers were assisted by local counsel Arabella di Iorio, of Maples and Calder.

The IPOC case gained international notoriety last November, after the Wall Street Journal broke a story that BVI Director of Public Prosecutions Terrence Williams was seeking assistance from the US Justice Department into an investigation alleging that IPOC was simply "a front for the laundering of the proceeds of crime of, amongst others, the Russian Telecommunications Minister Mr. Leonid Reiman," according to a letter Mr. Williams wrote in August as part of his request.

Investigations into irregularities in the Bermuda-based fund were launched in 2004 after litigation was heard in the BVI over the contested ownership of a 25.1 percent stake in the Russian mobile provider MegaFon.

According to court records, in 2003 LV Finance sold their share in MegaFon through its subsidiaries to three BVI companies owned by the Alfa Group, now rebranded as Altimo, one of Russia's largest private conglomerates and owner of competing mobile company, VimpelCom.

But IPOC contested the sale to Alfa Group, alleging it had previously brokered an options agreement with LV Finance as early as 2001. For the last four years, the question of who owns the 25.1 percent stake along with counterclaims of alleged illegal schemes and fraud has bounced from court to court throughout Europe and the Caribbean. In May 2006, a Zurich Arbitral Tribunal rejected IPOC's claim to enforce the options agreement.

The BVI's involvement in the ownership stake of MegaFon began in September 2003, when IPOC brought a suit against the Alfa Group in the territory. In response, the 16 civil defendants, namely CT Mobile and Alfa-Eco, applied for security costs and the fortification of the undertaking in damages, which Justice Suzie d'Auvergne granted in the sum of $30 million dollars. Later that year Justice of Appeal Ian Don Mitchell ordered the company pay a further $10 million dollars to the court.

Over the course of the next nine months, IPOC paid the money through an account at the Bermuda Commercial Bank in Bermuda, an account funded in turn by its subsidiaries Lapal, Albany and Mercury. But by May 2004, the civil defendants rejected the security paid to the court, claiming that IPOC was a "money laundering vehicle and the sums paid into court were the proceeds of crime," according to Court documents.

IPOC resisted the civil defendant's allegations and by August 2004, the fund had placed evidence before the court detailing the source of its funds, including a report by the accounting firm Ernst & Young and signed affidavits from Michael North, president of IPOC, and Jeffrey Galmond, the funds beneficiary owner.

Only one month later, the ECSC Court of Appeal insisted on full disclosure and ordered IPOC to turn over documents referred to in the accountant's report. The five files that IPOC produced, which detailed the consultancy agreements that supplied a "significant proportion" of IPOC funds, would turn out to be the same documents the Crown alleged were criminally misleading, false and deceptive, yesterday in High Court.

When the BVI Authorities began to investigate the contract agreements, officials found a litany of irregularities. Counterparties who were not true parties to the agreement, signatures allegedly forged, services accounted for that were never provided and payments that had never been received. In some instances, no contract was ever entered into with the named counterparties.

According to court documents, IPOC has accepted it benefited from the offences and as of April 2007, gave an undertaking to the BVI Court not to remove the funds held in the territory, now valued at around $45.4 million dollars with interest.

The latest charges brought against IPOC will not directly effect Mr. Reiman - a close ally of Russian President Vladimir Putin - who repeatedly has denied being a beneficiary of IPOC Group.

According to the November WSJ report, the BVI government - which believes Mr. Reiman owns a large chunk of Russia's telecom industry through the offshore fund - intends to prosecute Mr. Galmond for covering up the Russian Minister's role.

IPOC's primary beneficiary, Mr. Galmond, is a Danish lawyer and long-standing investor in the Russian telecom sector, according to the US Security and Exchange Commission.

According to court documents, the BVI plans to confiscate the entire funds of IPOC within its jurisdiction, while the BVI domiciled IBCs, Lapal, Albany and Mercury will be wound up and dissolved no later than April 2009.

In February, Bermuda Finance Minister Paula Cox filed petitions with the Bermuda Supreme Court to liquidate a series of IPOC-related funds holding a controlling stake in Telecominvest, a joint-stock holding managing company set up in 1994 by St. Petersburg's telecom industry and founded by Mr. Reiman.

With all parties pleading guilty to the charges, the future for the IPOC fund and its subsidiary IBCs should be nearly settled. This morning lawyers and Crown counsels meet at the High Court to determine sentencing.

The Crown is seeking to confiscate the $45 million and has asked that its legal costs, surpassing $2 million, be paid at least in part by the defendants.

What is unclear, however, is whether yesterday's hearing will be the end of the BVI's prosecution of the alleged fraud, or a sign of cases to come.

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