A Caribbean appeals court has segregated part of a $40 million security deposit from a Bermuda-registered fund that has come under scrutiny for its alleged links to money laundering and Russia?s telecom minister.

The ruling by the British Virgin Islands Appeals Court is part of a larger international legal battle between the Bermuda-registered IPOC International Growth Fund and Russian conglomerate Alfa Group over Alfa?s recent purchase of a 25.1 percent stake in Russia?s third largest mobile operator MegaFon.

IPOC, which the Wall Street Journal says controls assets in Russia?s wireless-telecom industry valued at more than $200 million, has also come under scrutiny in the Caribbean court because of an alleged ownership link to Russia?s minister of telecommunications Leonid Reiman.

The most recent ruling over the MegaFon ownership battle stems from defendants LV Finance and Alfa Group arguing that some $40 million of IPOC?s funds that were paid to the court as a security against legal costs in the dispute are the proceeds of money laundering and corruption. The defendants told the court they did not want to incur the risk of accepting any funds that could become the subject of future litigation because their origin was unclear. IPOC?s lawyers have denied allegations of money laundering as well as allegations that Mr. Reiman is connected to IPO, but in his ruling this week Justice Michael Gordon of the Court of Appeal of the Eastern Caribbean Supreme Court acknowledged concerns about the ?provenance of? the $40 million security deposit paid into the court by IPOC.

In his ruling dated November 22, Justice Gordon ordered the court?s registrar to segregate a portion of the funds against any future claims. Mr. Justice Gordon said that Vidya Sharma, former president and director of IPOC, gave evidence that IPOC was ?part of a sophisticated money-laundering scheme that has been taking illegitimately obtained money out of Russia and cleaning that money for reinvestment into Russia?. Mr. Justice Gordon also cited Alfa?s concerns that ?IPOC has demonstrated a marked reluctance to disclose details of who its beneficial owners are?.

According to the Wall Street Journal, the four-year-old IPOC fund was established by Mr. Sharma, a former Merrill Lynch & Co. broker. He was fired as IPOC?s president last year after the fund learned he was found guilty of fraud in Germany in 1998 and sentenced to prison. Mr. Sharma recently alleged in a sworn affidavit that the true owner of IPOC is Russia?s minister of telecommunications, Mr. Reiman.

His affidavit preceded others that have also put the spotlight on the true ownership of IPOC.

MosNews reported earlier this month that British businessman Anthony Georgiou alleged in an affidavit to the BVI court that Mr. Reiman ?developed his personal wealth and influence in the private sector by abusing his position within the state telecoms industry, he learned how to use others to shield himself from the public gaze?. Mr. Reiman, who became Russia?s telecommunications minister in 2000, has denied any financial links to IPOC or MegaFon and Danish lawyer Jeffrey Galmond has submitted an affidavit to the court claiming that he is the beneficial owner of the fund. Georgiou alleges however that the lawyer is in fact acting ?on behalf of powerful individuals in the Russian state, but most particularly Leonid Reiman?. Either version contradicts IPOC?s public stance that it is controlled by a group of wealthy Scandinavians and Russians.

The Bermuda Monetary Authority and Bermuda police have launched inquires into IPOC. The BMA was unwilling to speak to about the case since it is currently under investigation, but its Munro Sutherland told the Journal that generally speaking if any so-called investment scheme really has only one owner ?I would see that as a misuse of the concept of the vehicle.?

In his ruling on the security deposit, Justice Gordon said the court took into consideration that ?the evidence indicated that these alleged acts of criminality had been on-going for nearly a decade.? The Justice also said: ?17 or 18 large ring binders struggled to contain? evidence entered for the court?s consideration.

In a statement this week, Alfa Group said that by segregating part of the $40 million security deposit, Justice Gordon ruled that the segregated funds ?shall be proof against any restraining order? or similar action that could result in the future with regard to the provenance of IPOC?s funds. Consequently, defendants ?shall not be deemed to be ?recipients of illegal funds and will be deemed to have complied with the BVI?s Proceeds of Criminal Conduct Act and the Financial Investigation Agency Act.

According to MosNews, Alfa paid $300 million last year for the 25.1 percent stake in Megafon but IPOC has challenged the purchase through courts in Europe and BVI, saying that it had an option to buy the shares from the previous owner, LV Finance. The International Chamber of Commerce in Geneva ruled in IPOC?s favour in August. IPOC has accused Alfa Group of transferring the contested 25.1 percent stake in Megafon to offshore companies it owns that are registered in the British Virgin Islands and the Bahamas.

Alfa said in its release this week: ?Recent public statements by IPOC regarding these proceedings are both misleading and wrong. Alfa will continue to protect its interests in court and invites anyone interested in this case to get transcripts of the BVI hearings and judge the matters for themselves.?

Yesterday the Moscow Times reported that IPOC has increased its direct stake in Megafon from 6.5 percent to 8 percent by purchasing a 1.5 percent stake from one of MegaFon?s founders, Yevgeny Kesarev, who is now a citizen of Sweden. IPOC indirectly owns a further stake of more than 31 percent of Megafon through a company called Telekominvest. If IPOC were to secure the contested 25.1 percent stake, it would have majority control of Megafon with the other shareholder TeliaSonera AB owning 44 percent of MegaFon.