THE Bermuda Supreme Court has recognised a Swiss arbitration ruling that described the island-based IPOC International Growth Fund as a money-laundering organisation.

The ruling, which was made last week by Judge Ian Kawaley, is a legal blow to the $1-billion fund, which was set up by a convicted fraudster and has been investigated by the Finance Ministry.

The Supreme Court case was the latest episode in a three-year litigation saga featuring a dispute over the ownership of a 25 per cent stake in Megafon, Russia's third-largest mobile operator.

And the ruling represented the second legal defeat in successive days for IPOC after a Swiss court ruled against it in a separate case.

The background to the dispute is that LV Finance Group sold its stake in Megafon to Alfa Group in 2003, but IPOC claims it signed option agreements to buy back those same stocks back in 2001. The disagreement has sparked lawsuits in the Bahamas, the British Virgin Islands and Switzerland.

Two tribunals have ruled on the affair in Switzerland. The first, constituted by the International Chamber of Commerce in Geneva in 2004, found in favour of IPOC, while the second, in Zurich earlier this year, found against the Fund. Last week, however, the Swiss Federal Tribunal dismissed the Geneva ruling because of new evidence that had come to light in the case.

Some of that evidence surfaced in the Zurich tribunal, which found that Russia's IT and Telecommunication Minister Leonid Reiman amassed great personal wealth in the IPOC Fund by taking advantage of his role in public office.

The three-member tribunal also clearly stated its opinion that the money in the Bermuda fund included the laundered proceeds of crime.

And it said Mr. Reiman, a close ally of Russian President Vladimir Putin, had pursued his own "personal enrichment" at the expense of state assets he had an obligation to protect.

The tribunal's finding did not carry as great a legal authority as a court ruling, which is one reason why the Bermuda Supreme Court's recognition of it is significant.

The Zurich ruling also spelled out how Mr. Reiman had cashed in on his ministerial position and his influence on the awarding of licences to telecommunication companies.

Another key finding in Zurich was that Mr. Reiman is the "sole beneficial owner" of the Fund. This is despite IPOC's repeated claims that Danish lawyer Jeffrey Galmond, a friend of Mr. Reiman who has been doing business in Russia since the 1990s, is the owner.

IPOC lodged an appeal, which is still pending, against the Zurich tribunal ruling.

LV, a British Virgin Islands-based company, is also trying to obtain an injunction from the Supreme Court to prevent IPOC from taking its case to the Arbitration Court of St. Petersburg.

It is believed by sources close to the case that a Russian court would be seen as a "friendly" venue by IPOC.

KPMG Advisory Services was commissioned by the Ministry of Finance to investigate IPOC and affiliated companies. Under Bermuda law a company being investigated must pay the cost of the probe and so IPOC paid out around $8 million to KPMG.

Finance Minister Paula Cox had no comment yesterday on whether she would be taking any action against IPOC based on the report's findings.