National Bank Trust v Yurov & Ors

INTRODUCTION

In this trial the Claimant, National Bank Trust (the “Bank”/“NBT”) brings claims under

The Bank’s case is that the money received by the Shareholders’ companies was in large part swiftly transferred away to a myriad of further companies, also beneficially owned and controlled by the Shareholders, in what were said to be deliberately complex chains of fake or artificial transactions, often involving sham and/or back-dated documents, before ultimately being used for purposes such as making interest payments or repaying principal on other “loans” from the Bank as well as (in certain instances) for the personal benefit and enrichment of the Shareholders themselves. Much of the money lent to the

Some of those companies (the “Borrowers”) were, or had originally been, associated with an underlying business project (e.g. Stivilon and Priangarskiy) and did provide some security to the Bank; but the Bank says that these were generally failures and these companies owed large sums to the Bank at the time of its collapse. The exceptions to this are Willow River (“WR”) and Retail Chain Properties (“RCP”), two offshore companies which the Shareholders admit they own, and which own valuable and profitable commercial property in Russia. The Shareholders say that they always beneficially owned these profitable companies, but disavow any such interest in the vast majority of other (debt-ridden and insolvent) companies that the Bank says were established, held and managed in exactly the same way. The Bank says that there is a wealth of contemporaneous material, much actually signed by the Shareholders, confirming they owned all of the companies. The Bank submits that following the trial, the Defendants still have no credible explanation in respect of such evidence.

The Bank’s claim is based on the outstanding debt owed by the Borrowers, taking into account any recoveries. That outstanding debt is well over US$1 billion, reflecting (says the Bank) the facts that the Borrowers: (a) were generally offshore shell entities with no independent business or means to repay; and (b) in many instances gave no security for

The Bank identifies that the problem with a scheme that involves repaying or servicing loans with what are said to be sham loans is that it is self-perpetuating: if a shell company, A, “borrows” money from the Bank, which is actually used to repay loans to B, C and D, then A has no money to repay its own loan, and a yet further loan has to be made to E to enable A to repay. Such a scheme therefore becomes more and more complicated as those involved in the scheme have to juggle more and more (re-)payment obligations, as to both interest and principal, and have to enter into more and more transactions to (as the Bank puts it) “keep the house of cards from collapsing”.

The scheme in its ultimate form involved hundreds of companies (many of which were offshore), thousands of transactions, and what the Bank characterises as a team of people engaged full-time in devising the individual schemes, planning the money transfers and managing their implementation, through what the Bank describes as a sophisticated fake document factory and money-laundering machine, with all of this being funded with more funds said to have been extracted from the Bank in what are characterised as further fake transactions by the same network of Shareholder companies.

The Bank poses the question why, if such schemes were honest, was it necessary to create fake and backdated documents; recruit dozens of “nominee UBOs” and conceal the Shareholders’ beneficial ownership of any companies (including those that they admit they owned)? The Bank’s answer is that it was not – they say it involved lending real money deposited by ordinary Russian savers to offshore shell companies secretly owned by the Shareholders personally, much of which cannot be accounted for, and submitting knowingly false accounts to the CBR to cover up the fact that this was being done.

The Bank’s case, in short, is that the “balance sheet management” (a phrase coined by Mr Yurov) is fundamentally dishonest, not in the Bank’s best interests, and unreasonable; and it says the Shareholders were in serious breach of duty in procuring, facilitating, approving or acquiescing in it, and are liable to the Bank in respect of it.

The effect of “balance sheet management” led to a very large increase in the size (or apparent size) of the Bank’s corporate loan portfolio and therefore the (apparent) asset base between 2008 and 2014. The unchallenged evidence of the Bank’s expert Mr Allen was that the corporate loan portfolio more than doubled from about RUB 24.8 million in 2008 to about RUB 58 billion in the first half of 2014 (Table 3.1 to Allen 1).

That it was “balance sheet management” involving the Borrowers that led to the large apparent increase in the Bank’s corporate loan portfolio is apparent from the fact that as at 30 June 2014, RUB 45.3 billion of the Bank’s loan portfolio consisted of loans to just the Borrowers at issue in these proceedings (Table 3.2 to Allen 1). As the Bank points out, that was, in itself, a significantly greater sum than the size of the Bank’s entire corporate loan portfolio in 2008 (c. RUB 24.8 billion). As at 31 December 2013, the Bank’s total reported capital was just RUB 17.5 billion. Thus, says the Bank, this was not a “closed loop” in which a fixed amount of money was recycled round and round in a series of loans, with the hole in the balance sheet at the end of the process being the same as an original

“loss” at the start.

An illustration of how the “balance sheet management” required more and more loans to be taken out to service existing loans is provided by the use of Erinskay and Baymore which, despite being Cypriot shell companies, became by far the Bank’s largest corporate borrowers – a table to the CBR’s 2014 Audit Report in relation to the Bank’s largest corporate borrowers at that time records that they had, between them, borrowed over RUB 9 billion (about US$230 million), as at 1 October 2014. That table also illustrates that the Borrowers in this case dominated the corporate loan portfolio.

The source of the funding was mainly small-scale retail depositors, i.e. ordinary Russian savers, who deposited money with the Bank. The Bank’s principal business in the relevant period was retail banking; and by 2014 it had over 400 branches across Russia holding the deposits of some 1.5 million individual customers, totalling around US$1.9 billion. The Bank pursued an expensive, and highly successful, advertising campaign (that included the hiring of the Hollywood actor, Bruce Willis, who was paid around US$2 million a year) to bring in retail depositors – and such advertising emphasised the Bank’s name (i.e. Bank TRUST to imply that the Bank could be trusted with depositors’ money). In the event the depositors’ savings were saved by a taxpayer-funded deposit scheme in Russia in the form of the Deposit Insurance Agency (the “DIA”).

In this regard, the size of retail deposits was not matched by the size of the retail loan book. Mr Allen’s Appendix 5a shows that the customer deposits were consistently larger than the (growing) retail loan portfolio: e.g. customer deposits in 2012 were RUB 142.5 billion, whereas the retail loan portfolio was only RUB 98.1 billion. It was, says the Bank, customer deposits that constituted the only real money coming into the system from the outside world.

Mr Allen’s evidence (at Allen 3.17-3.20), which was not challenged in cross-examination was that:

“3.17

The large increase in the asset portfolio was not financed through equity: the total capital of NBT reported in its IFRS financial statements increased by only RUB 4.5 billion in the period between 2005 and 1H 2014, compared to an increase in the total asset portfolio of RUB 145.4 billion.

3.18.

Instead, the increase in total assets appears to have been largely funded by an increase in liabilities, primarily the “amounts due to customers” (including mainly customer deposits and current accounts) which increased by RUB 114.2 billion (or some 4 times) between 2005 and H1 2014.

3.19.

When the Bank entered administration, and a shortfall between assets and liabilities of some USD 1.9 billion was exposed, these and other external liabilities had to be covered, inter alia, by the DIA financing of USD 2.3 billion referred to in paragraph 2.2 above.”

It is the Bank’s case that had the CBR known about the true nature of the Bank’s lending and the Bank’s true financial position it would have stepped in to protect depositors by revoking the Bank’s licence – instead of which the Bank says the Shareholders continued

The Bank submits that the Shareholders’ true state of mind was summarised in a memo Mr Yurov sent on 28 June 2015 in Russian to Mr Belyaev and Mr Fetisov (though only disclosed in these proceedings by Mr Fetisov) to their private email addresses, set against a backdrop of Russian criminal proceedings concerning two of the companies involved in the scheme (Erinskay and Baymore) and which the Bank says was Mr Yurov’s attempt to defend themselves against allegations of criminality. As addressed in due course below Mr Yurov seeks to distance himself from this document asserting that it had been prepared by his Russian lawyers EPAM (which the Bank says is, itself, a dishonest suggestion in the light, amongst other matters, of the associated metadata). Neither Mr Fetisov nor Mr Belyaev responded stating that they disagreed with what was said. In relation to Bank losses, the memo provided, amongst other matters that:

“If such losses had been recorded in the bank’s books back in 2008, the CB would have had to revoke NBT’s banking licence as the reduction in capital would have been over 20%. As a rule, as soon as a bank’s licence is revoked, it becomes bankrupt because the depositors have the right to withdraw their deposits.

Since no share capital could be attracted after NBT’s shares were unlawfully attached in 2008 on the grounds that they allegedly belonged to Khodorkovsky (the attachment is still in force regardless of 12 complaints and petitions), a decision was made to start submitting false accounts to the CB (which, in my understanding, was only an administrative offence punishable at most by a fine and licence revocation (in any case, the risk of licence revocation already existed)) and focus on providing loans to individuals instead (as the most profitable transactions) in order to offset the previous years’ losses by the received profits, recover the bank’s capital over time, and stop submitting false accounts to the CB. This business logic had failed as NBT incurred new losses, this time on loans to individuals, and had to file for rehabilitation proceedings to avoid bankruptcy.” (emphasis added)

A Worldwide Freezing Order (“WFO”) was made against the Shareholders in these proceedings by Leggatt J at an ex parte hearing on 11 February 2016. Mr and Mrs Yurov sought to discharge it at a three-day hearing in July 2016 (the Fourth, Fifth and Sixth Defendants are the First to Third Defendants’ wives, sued in respect of monies said to have been received by them). That application was dismissed by Males J in a judgment dated 28 July 2016 ([2016] EWHC 1913 (Comm)) (the “Males Judgment”).

In his challenge to the WFO, Mr Yurov’s response to the Bank’s case was not to dissociate himself from the allegations of the deliberate manipulation of the balance sheet by secret, uncommercial and artificial related-party lending, but rather to accept and aver that it had happened and that he knew of and had been involved in it, but to argue that it was in fact honest, legitimate and in the best interests of the Bank. A similar line of defence is advanced on Mr Fetisov’s behalf.

In describing that case, Males J referred to this recycling of funds through offshore shell companies to give the impression to depositors and regulators that all was well with the Bank as “dishonest” and “a Ponzi scheme with a fancy name”. The “fancy name” is a reference to Mr Yurov’s description of this process as “balance sheet management” – which the Bank says is no more or less than a euphemism for the deliberate falsification of the Bank’s balance sheet to create the misleading impression that existing debt was being serviced when in truth it was bad and the Bank was in a dire financial position. Mr Yurov’s case before, and at, trial was that such “balance sheet management” was carried out in good faith and in the best interests of the Bank and was common practice in Russian banks at the time.

It was not, however, contended that such practices were lawful, and in his Second Affidavit Mr Yurov acknowledged that (a) they were “not strictly in accordance with Russian banking regulations” (which the Bank says is something of an under-statement); and (b) the purpose of the exercise was to stop the CBR from revoking the Bank’s licence

In Mr Yurov’s witness statement for trial (at paragraph 39) he criticises the views expressed by Males J, suggesting that Males J.’s criticism of his case was “misplaced” and that there had been a “misunderstanding of the background” on the part of the Judge, who had failed to understand how the “rigid and formalistic” Russian regulatory system meant that it was (according to Mr Yurov) both “lawful and honest” to “apply the rules formally, and to use techniques such as off-balance sheet structures to achieve commercially sensible results”.

At the trial before me, none of the Defendants has adduced expert evidence (for example from their Russian law expert, Mr Gerbutov) to the effect that the “balance sheet management” was lawful. I have also heard evidence, on behalf of the Bank, from Ms

For his part Mr Yurov maintained at trial that he did nothing wrong, whether in relation to “balance sheet management” or otherwise and that he was not under any liability to the

At any rate, the various schemes (in outline and in detail) were well-known within the Bank. When the DIA was appointed, they were not hidden. The DIA and the Bank’s new management from Otkritie was told about them by employees, and by Mr Yurov. Mr Yurov openly offered to transfer the off balance sheet companies to Otkritie, or as it might direct, and was ready to do so. In those circumstances, the Bank knew about the alleged wrongful acts, not just as a matter of suspicion but as a matter of positive knowledge, by early 2015. Because that was more than a year before the relevant claims were made, the Bank is out of time.

In fact, even if they are wrongful, the various schemes caused very little actual loss. They probably inflated the apparent assets of the Bank, as interest accumulated, but they did not involve the expenditure of any real cash or any new liability or loss. The biggest loss suffered was in bond trading by Erinskay and Baymore, but that was not a loss caused by the scheme but by the market and would not have been significantly higher if the Bank had held the bonds itself. Otherwise, apart perhaps from the very small amount that went to Merrill Lynch and for the Kolyada litigation, and apart from the significant but not high costs of maintaining and operating the network (which together amount to around 2 or 3 percent of the money lent), the money all returned to the Bank and the Bank is not thereby worse off than it would have been if the various Loans and Transactions had not been made.

In those circumstances, if a fair and adequate assessment of the sum required to compensate the Bank were required to be made, it would arrive at a figure representing a very small fraction of the total amount of the Loans.

In any event, if the Bank did suffer loss, that was not Mr Yurov’s intention. Mr Yurov did not desire to cause loss to the Bank; nor was he indifferent to it. He positively desired that the Bank would benefit from the Loans and Transactions. Even if he was negligently wrong about that, the Bank’s claim is limited under the Labour Code based on Mr Yurov’s salary.

The Bank disagrees, and joins issue, with all such submissions, submitting in particular, that the submission that “the money all returned to the Bank and the Bank is not thereby worse off” is absurd, being it is said wrong in principle, wrong in law, and unproven on the facts, whilst the suggestion that Mr Yurov played a conventional role as Chairman of the Supervisory Board is, so it is said, both absurd and indeed tasteless.

Mr Fetisov adopts a similar line of defence to Mr Yurov (and indeed adopts the arguments set out in Mr Yurov’s Closing Submissions). He submits, as reflected in paragraphs 1 and 2 of his own Closing Submissions:-

“1.

Mr Fetisov explained in his opening submissions that the use of the off-balance sheet structures was not intended to cause harm to the Bank; that it was neither in bad faith nor unreasonable; and that it did not, in any event, cause loss to the Bank. To the contrary, his actions were intended to benefit the Bank, in particular by giving it the opportunity to realise the value of certain assets and investments following the 2008 financial crisis.

2.

The evidence given at trial supports Mr Fetisov’s defence. That evidence is also inconsistent with the Bank’s case that the Loans were part of a dishonest and knowingly unlawful scheme for the Defendants’ own ends and/or their personal benefit. In particular, the evidence has shown that:

(1)

the Borrowers were, and were understood to be, used for the benefit of and under the control of the Bank (save for the Priangarskiy ‘group’ and Willow River/RCP, which were

personal investments and known to be such);

(2)

the Bank’s senior management, who were experienced and professional bankers with no reason whatsoever to participate in any dishonesty, used the off-balance sheet structures as an integral part of the Bank’s infrastructure and in its best interests; and

(3)

the monies lent to the Borrowers were, with very limited exceptions which do not undermine the general rule, used for the purposes of balance sheet management, investments on behalf of the Bank and associated expenses. Even if the off-balance sheet structures should not have been used, the Bank has not suffered any significant loss as a result.”

The Bank again joins issue with such matters and denies that the evidence is to the effect alleged.

Mr Belyaev’s defence is, and has always been, somewhat different. He essentially denies all knowledge of the matters pleaded by the Bank including in relation to “balance sheet management” and denies being party to any dishonest scheme. He goes so far as to plead (at paragraph 3 of his Defence) that, “save as expressly admitted below, Mr Belyaev was entirely unaware that he had any interest, whether direct or indirect, in any of the Borrowers until after the commencement of the proceedings. Even now, he does not admit that he has an interest and the Bank is required to prove the accuracy of the structure charts in the Particulars of Claim”. Mr Belyaev submits that the only properly pleaded allegations against him relate to 7/8 Credit Committee (“CC”) decisions in which he participated. He says that he did not act unlawfully in relation to any of these decisions, and in respect of other CC decisions he did not vote and cannot be held liable in respect thereof.

The Bank submits that in fact, the contemporaneous documents, many signed by the Shareholders themselves, establish beyond any doubt that all of such companies were owed jointly by Mr Yurov, Mr Fetisov and Mr Belyaev, in the same proportions as they held their interests in the Bank itself (3/7 Yurov, 2/7 Fetisov and 2/7 Belyaev). The Bank also points out that each of Mr Yurov, Mr Fetisov and Mr Belyaev were the settlor and sole beneficiary of their respective purported discretionary trusts established in the Isle of Man which, from 2014, held their respective interest in the network of companies.

All the claims against the Defendants are made under Russian law. In relation to Russian law the Bank relied upon the expert evidence of Dr Rachkov, the Defendants relied upon the expert evidence of Dr Gerbutov, and each witness was cross-examined at length in relation to the issues that arise. There were numerous differences between them as identified in the Agreed Facts and Issues (Issues 39 to 47, 3 and 18A), and addressed in Section M below. However, as recorded in the Joint Memorandum of Experts on Russian Law (the “Russian Law Joint Memo”) there were also a number of matters of common ground that related to liability under civil legislation, and under the Labour Code, in particular Article 53(3) of the Russian Civil Code (“RCC”), the new Article 53 of the RCC (effective from 1 September 2014) and Articles 71(1) and 81-84 of the Joint-Stock

Companies Law (the “JSC Law”) which applied to the Shareholders (as directors’ duties and/or labour law obligations). These are at the heart of the case. In this regard the ultimate issue on liability is Issue 42 which asks:-

“In view of the findings made on the issues identified above in relation to the nature of the Loans and Transactions and the Shareholders’ knowledge and involvement in them, were the Shareholders in breach of Article 71 of the JSC Law and/or Article 53 of the RCC in respect of the Loans and Transactions? As set out above, it is common ground that, if the Shareholders were in breach of these obligations, they would also be in breach of their Labour Code obligations.”

In this regard:-

In relation to such provisions, the following, amongst other matters, is common ground (paragraphs 14 to 16 of the Joint Memo on Russian Law):-

“14.

It is agreed that under the Initial Article 53(3), the New Article 53(3), and under Article 71(1) of the JSC Law, members of the board of directors were obliged to act in the interests of the company when performing their rights and obligations of members of the board of directors and to perform their rights and obligations in relation to the company in good faith and reasonably.

15.

It is agreed that with respect to liability under the Initial Article 53(3), the New Article 53(3), and under Article 71(1) of the JSC Law:

(1)

the claimant must prove the bad faith and/or unreasonable actions (or omissions) of the director which caused damages to the company, existence of damages, as well as the causal link between the behaviour of the director and the damages suffered by the company.

(2)

the amount of damages has to be established with reasonable certainty. However, when the amount of damages cannot be established with reasonable certainty (although it is clear that certain losses were suffered), the damages claim cannot be dismissed on that basis. In such a case, the amount of damages awarded by the court is to be determined by the court given all the circumstances of the case and proceeding from the principles that the compensation should be fair and adequate.

(3)

the causal link between the behaviour of the director and the damages suffered by the company must be immediate (direct).

(4)

the claimant has a duty to mitigate its damages and a violation of that duty is a ground to reduce liability of the defendant

16.

It is agreed that paragraphs 2 and 3 of Resolution No. 62 list situations establishing rebuttable presumptions of bad faith and/or unreasonable actions of the director.” (emphasis added)

A central issue is accordingly whether, in relation to the findings made on the properly pleaded issues, the Shareholders were in breach of Article 71 of the JSC Law and/or Article 53 of the RCC. As addressed in Section D.4, there is an issue between the Bank and the Defendants as to what matters have been properly pleaded against the Defendants in this regard, and so go not only to credit, but as to the merits.

The history of the Bank is largely common ground, but it forms part of the backdrop to events that followed. In this regard two banks, Trust Investment Bank (“TIB”) and Bank Menatep SPB (“MSPB”) were part of the Menatep Group, owned by Mr Khodorkovsky and a number of his business associates.

Mr Yurov graduated from the Faculty of Economics of the Moscow Institute of Aviation and has a diploma in money market and treasury management from the TRESOFI Business School in France. He worked in the banking sector in France before joining Bank Menatep in Moscow in 1995 and subsequently moved to TIB. He initially served as the deputy chairman of TIB’s Management Board and in 2000 was promoted to chairman of TIB’s Management Board and CEO of TIB. In September 2003 he was appointed chairman of the Supervisory Boards of both TIB and MSPB.

Mr Belyaev’s professional background is in financial markets and he is a former Head of the Treasury Department of AvtoVAZbank and later Rosestbank. He joined TIB in 1999 as Deputy Head of the Management Board with responsibility for treasury and financial markets operations. During 2001, TIB began to specialise in investment banking, and Mr Belyaev and Oleg Kolyada (“Mr Kolyada”) were appointed Mr Yurov’s deputies at TIB.

In 2003, Mr Belyaev was appointed to the Supervisory Boards of both TIB and MSPB and he also became the CEO of TIB.

Mr Fetisov has a background in mathematics and an MBA from the University of Minnesota. He has experience in fixed income securities and derivatives and was invited by Mr Yurov to join TIB in August 2001, Mr Fetisov accepted an offer to become executive vice president of the structured products team at TIB. His role included managing TIB’s bond trading and debt capital markets business. In 2003 he was appointed to the Supervisory Boards of both TIB and MSPB.

Whilst TIB was part of Group Menatep, it serviced other companies in the Group, including Yukos Oil Company (“Yukos”). In late 2003, Mr Khodorkovsky was arrested. Yukos was forcibly broken up and returned to State control. It has been widely reported that such actions were part of a State-orchestrated campaign against Mr Khodorkovsky, who was at that point one of Russia’s wealthiest men.

In late 2003, Mr Yurov led a management buyout of TIB and MSPB, together with Mr Fetisov, Mr Belyaev, Mr Kolyada and Artashes Terzyan and a dozen other-top level managers at the Banks. This resulted in the purchasers paying some US$100 million for a 63.38% holding in TIB and a 99.35% holding in MSPB. These shares were owned through a holding company called TIB Holdings Limited (“TIBH”). It is the Bank’s case that in fact the Shareholders borrowed money to buy the shares, and then put the debt onto the Bank’s own balance sheet.

The Defendants maintain that the management buy-out was an attempt to distance TIB from the controversy surrounding Mr Khodorkovsky. Despite the change in ownership, they allege that they continued to suffer politically-motivated interference by the Russian Government (as well as entities said to be aligned to the Russian Government). This is said to have included:

Following the management buy-out, MSPB changed its name to National Bank Trust and in late 2008 merged with TIB to form OJSC Trust National Bank. The merged bank changed its name to National Bank Trust i.e. the Bank, and the Claimant in these proceedings. When TIB merged with MSPB in 2008 Mr Belyaev became the “President of the Investment Block” and his employment contract was amended accordingly. His witness evidence was that around this time he was “also overseeing the Bank’s corporate banking business”.

The Bank’s holding structure was complex and varied over time. The immediate majority owner of the Bank was CJSC Management Company Trust (“MC Trust”), a Russian company. Mr Yurov, Mr Belyaev and Mr Fetisov were at all material times the majority beneficial owners of MC Trust, through holding companies including TIBH and TIB Investments Limited (“TIBI”).

In August 2006, TIB recruited Mr Eggleton (formerly of Credit Suisse) as its CEO, replacing Mr Belyaev who became President of TIB and continued to be involved in its investment banking business. Part of Mr Eggleton’s strategy was for the Bank to open additional retail branches. Another part of his strategy involved financing lower quality real property and fixed assets, such as real estate developments in Glukhovo Village and Gelendzhik (which form the subject matter of part of the Bank’s claim in these proceedings). Mr Eggleton stayed at the Bank until 2009 when he resigned. Mr Belyaev’s evidence was that after the departure of Mr Eggleton, “the Bank’s management board fell much more under the control of Mr Fetisov”.

In 2006 it was suggested that Mr Kolyada, one of the minority shareholders of the Bank, was involved in a fraud connected with Yukos and its subsidiary Tomskneft. He was later prosecuted for fraud and imprisoned. Towards the end of 2006, a decision was taken by YBF to buy out Mr Kolyada’s shareholding, which they claim was designed to disassociate him from the Bank. The acquisition of Mr Kolyada’s shares was funded by a loan from Credit Suisse acting together with a number of other international lenders. In March 2007 US$40 million was paid to MC Trust. YBF personally guaranteed the loan and pledged some of their shares in TIBH and other Bank entities to Credit Suisse. Immediately following the payment, YBF borrowed US$40 million from MC Trust. Mr Yurov used the funds to purchase Mr Kolyada’s shareholding in TIBH, subsequently transferring shares to Mr Belyaev and Mr Fetisov.

The loan facility with Credit Suisse was subsequently increased by an additional US$100 million, which was also personally guaranteed by YBF. The Defendants claim that this part of the Credit Suisse facility was advanced to the Bank as financial support. In November 2007, the Bank attracted the interest of Merrill Lynch, which acquired a 8.92% stake in MC Trust for a sum of US$85 million.

THE ISSUES THAT ARISE FOR DETERMINATION

The written Opening Submissions of the parties were lengthy (permission having been given at the pre-trial review for such Skeleton Arguments to exceed 50 pages each). In the event the Opening Submissions for the Bank totalled some 200 pages, for Mr Yurov some 66 pages, for Mr Belyaev some 70 pages and for Mr Fetisov some 78 pages – over 400 pages in total.

From a consideration of the same, and the parties’ respective oral opening submissions, it was readily apparent that there was a necessity for the parties to clarify, in a common document, precisely what facts were agreed and what issues arose for determination at trial so that all parties could focus their evidence, and in due course their submissions, in closing, by reference to a common document. This led to the parties producing a “List of Agreed Facts and Issues to be Determined at Trial” (the “Agreed Facts and Issues”), which was agreed by the parties during the course of the trial. Due to the distinctions between the case of Mr Belyaev and that of Mr Yurov and Mr Fetisov, a number of qualifications as to the Agreed Facts and Issues were made by Mr Belyaev, as recorded on the face of the document.

It has proved to be a useful document, and all the parties addressed the issues arising, in their Closing Submissions, by reference to the Agreed Facts and Issues. The Agreed Facts and Issues did not, however, lead to a shortening of the length of the written closing submissions. In the event the Bank’s Closing Submissions ran to 388 pages (Volume 1) and 203 pages (Volume 2 – the Borrower Specific Schedules), Mr Yurov’s to 424 pages, Mr Belyaev’s to 186 pages and Mr Fetisov’s to 151 pages – over 1350 pages in total.

I set out below the Agreed Facts and Issues other than those that relate to the particular Loans and Transactions (which are addressed in Section R below). The footnotes are an integral part of the Agreed Facts and Issues, and accordingly they are also set out in full. The Issues themselves are highlighted in Bold for ease of reference.

The precise role of the Supervisory Board is in issue between the Russian law experts. See also Article 17 of the Bank’s Articles of Association (although the Defendants contend that the phrase “general management” in Article 17.1 is a mistranslation and should read “overall governance”).

See also Article 18 of the Bank’s Articles of Association.

See Articles 19.3 – 19.9 of the Articles of Association and the Audit Commission Regulations.

The members of the Audit Commission were:

Mr Belyaev was an employee of the Bank until at least 1 January 2009

What were the Defendants’ respective roles and responsibilities at the Bank during the relevant period (2008 to 2014)?

What was the legal effect of a resolution of the CC approving the entry into a particular transaction and, in particular, did a resolution constitute a mandatory instruction to the Bank’s management to enter into a transaction? Was there, as a matter of fact, any further independent consideration of whether or not to enter into a proposed transaction after it had been approved by the CC and what (if any) relevance does this have?

The companies in the network were originally managed by Mr Drozdov (the Bank’s Head of Legal) and others. In about December 2009, Mr Worsley was engaged for this purpose. During 2011, Columba took over the administration of the network.

Willow River, RCP, SiberianKD, Business Group, Priangarskiy, Taransay and Moscow River were beneficially owned by the Shareholders.

Were the following companies beneficially owned and/or controlled by the Shareholders (as contended by the Bank) (Footnote: ⁴) or by the Bank itself (as contended by Mr Yurov and Mr Fetisov): Erinskay, Baymore, LBCS, Mourija, LLC5, Gofra, Stivilon, Stroyecologiya, Belenfield, Wave, Edenbury, Black Coast, Oldehove, Crylani and NRT/Yaposha? (the “Disputed Companies”) (Footnote: ⁵)

Did the Shareholders believe, contemporaneously, that the Disputed Companies were beneficially owned and/or controlled by the Bank? (Footnote: ⁶) What was Mr Belyaev’s contemporaneous knowledge and belief of the beneficial ownership of the Disputed Companies?

Were the Disputed Companies held and/or used for the benefit of the Bank and, if so, what if any relevance does this have for the pleaded claims?

It is common ground between the Bank and Mr Yurov and Mr Fetisov that, throughout the period under consideration, the Bank engaged in “balance sheet management” (Footnote: ⁷) by, amongst other things, making loans to companies that were not recognised or accounted for as Bank subsidiaries on the Bank’s balance sheet in order to service and/or repay debts owed to the Bank by existing borrowers.

In relation to personal benefits received by the Defendants (Accountancy Issue 2), the accounting experts have agreed that: (Footnote: ⁸)

When present at or participating (for the relevant item) in the CC meetings at which the Loans/Transactions were approved and/or their terms amended, the Defendants:

In relation to the Central Bank of Russia (“the CBR”), it is common ground that:

Pursuant to the Instructions, the maximum permissible exposure to a single borrower or group of related borrowers is 25% of a bank’s capital. (Footnote: ¹⁰)

Did companies in the network take over certain assets using financing from the Bank following the 2008 financial crisis and defaults on previous loans/investments secured on them and, if so, what were those assets? If and to the extent that this happened, for what purpose and for whose benefit was it done? What was Mr Belyaev’s knowledge of these facts and matters at the relevant time, and what is the consequence of such knowledge or the absence of such knowledge?

Did each of the Loans and Transactions have one or more of the characteristics identified in paragraph 18 of the Re-Amended Particulars of Claim (“RAPOC”) and, if so, did each of the Shareholders know that?

Was the “balance sheet management” exercise (Footnote: ¹¹): 16.1. dishonest and not bona fide, reasonable or in the best interests of the Bank, because inter alia each “balance sheet management” loan increased the overall indebtedness to the Bank and thereby caused the Bank immediate loss in circumstances where, on the Bank’s case, the borrowers provided little or no security for the loans and had no genuine or legitimate commercial business to generate funds to make repayment; and/or (insofar as it occurred) substituted secured loans with unsecured loans to entities with no means to repay? or

Did the Shareholders cause or procure, or agree amongst themselves that one or more of them should cause or procure, each of the Loans and Transactions? Alternatively, did the Shareholders deliberately or recklessly acquiesce in and fail to question or prevent the making of each of the Loans and Transactions? In particular:

What was the extent of knowledge of the Bank’s management of the true nature and purpose of the Loans and Transactions (including the ownership of the relevant companies); and what, if any, significance does any such knowledge have for the pleaded claims?

Did the Shareholders stand to, or in fact, benefit personally from the making of each of the Loans and Transactions? If so, was it each of the Shareholders’ intention to personally benefit from the proceeds of the Loans and Transactions and/or did they intend such proceeds to be used for the benefit of the Bank?

Did the Shareholders benefit from the “balance sheet management” exercise itself including by way of:

Is the Bank entitled to rely on the following additional alleged personal benefits to the Shareholders (Footnote: ¹³) that have been addressed in the accountancy reports served on behalf of the Bank and the First and Third Defendants, specifically (i) the Menatep Transaction; (ii) the Kolyada

Was the CBR aware (or did Mr Yurov and/or Mr Fetisov believe that the CBR was aware) of the fact that the Bank was lending money to offbalance sheet companies in order to service or repay debts owed to the Bank by other borrowers, and, if so, did it tacitly approve and/or not require the Bank to cease such practices?

Is the Bank entitled to advance a case that the lending caused the Bank to be in breach of the Instructions and, if so (i) has that case been made out and (ii) to what extent did the Shareholders have knowledge of such breaches?

As to Erinskay, Baymore, LBCS, Mourija, Edenbury, Black Coast, Oldehove and/or Crylani:

Was the making of the Loans and Transactions in bad faith and/or contrary to the Bank’s best interests and/or unreasonable and/or and in breach of (a) the Bank’s Charters, (b) the Credit Committee Regulations, (c) the CBR Instructions relating to “N6” and if so, did each of the Shareholders know that?

As to the following alleged facts, is the Bank entitled to rely on each or any of them in support of its case that each of the Shareholders acted in breach of duty and/or dishonestly, as well as going to the credit of the relevant Shareholder(s); and, if so, are they proven:

The Bank’s case was that all the above matters are relevant both to the credibility of the Shareholders as witnesses and the substantive issues. It was agreed as between the Bank and Mr Yurov and Mr Belyaev that the question of whether the Bank is entitled to rely on such matters in relation to the substantive issues is a matter to be dealt with in the parties’ closing submissions but Mr Fetisov reserved his rights in relation to seeking a ruling prior to closing submissions in relation to that issue.

The obligations established by Article 53(3) of the Russian Civil Code (the

“RCC”), the new Article 53(3)²⁰ and Articles 71(1) and 81-84 of the JointStock Companies Law (the “JSC Law”) applied to the Shareholders (as directors’ duties and/or labour law obligations).

With respect to liability under the Initial Article 53(3), the New Article 53(3) and Article 71(1) of the JSC Law, that the Shareholders, as members of the Supervisory Board, were obliged to act in the best interests of the Bank when performing their rights and obligations as members of the board and to perform their rights and obligations in relation to the Bank in good faith and reasonably (although it is in issue whether these duties only apply when the Shareholders were exercising their rights and performing their duties as members of the Supervisory Board).

The claimant must prove the bad faith and/or unreasonable actions (or omissions) of the director which caused damages to the company, existence of damages, as well as the causal link between the behaviour of the director and the damages suffered by the company. The causal link must be immediate

The amount of damages has to be established with reasonable certainty. However, when the amount of damages cannot be established with reasonable certainty (although it is clear that certain losses were suffered), the damages claim cannot be dismissed on that basis. In such a case, the amount of damages is to be determined by the court given all the circumstances of the case and proceeding from the principle that the compensation should be fair and adequate.

Paragraphs 2 and 3 of Resolution No. 62 of the Plenum of the Supreme Arbitrazh Court dated 30 July 2013 list situations establishing rebuttable presumptions of bad faith and/or unreasonable actions of a director.

A proposed transaction would be an interested party transaction under Articles 81-84 of the JSC Law if:

If a proposed transaction is an interested party transaction in the required sense, Article 82 of the JSC Law requires the director concerned to notify the company’s supervisory board, audit commission/internal auditor and external auditor.

When a claim is made against an employee of a company who has a labour contract with that company and is simultaneously a member of the Supervisory Board of the company for his/her activity in their capacity as employee of the company (and not in their capacity as a member of the Supervisory Board), the Labour Code (and not civil legislation) will apply to such claim.

In relation to liability under the Labour Code:

The requirement of “intentional” harm under Article 243 of the Labour Code is satisfied where (i) the employee deliberately commits actions aimed at inflicting direct harm to the employer and (ii) either knew that such consequences would occur and desired their occurrence or was indifferent to whether or not they would actually occur. It is agreed that, absent reckless indifference, the mere fact that an employee (objectively) should have known that harm would be suffered as a result of his actions does not suffice to constitute intentional harm.

Were the Shareholders employees of the Bank as a matter of Russian law after 15 October 2003 (Mr Yurov), 1 January 2009 (Mr Belyaev) and 2 June 2014 (Mr Fetisov) (it being common ground that the Shareholders were employees up to those dates)? In particular, does Russian law recognise a contract by which a person is purportedly employed act as a member of the company’s Supervisory Board as creating an employment relationship?

Is the Bank estopped from alleging the Shareholders were not employees of the Bank at all material times?

Is the Bank entitled to bring claims against the Shareholders under the RCC and/or JSC Law, or (as the Shareholders contend) is the Bank required to bring any claim against them solely under the Labour Code as a matter of Russian law? In particular:

In view of the findings made on the issues identified above in relation to the nature of the Loans and Transactions and the Shareholders’ knowledge and involvement in them, were the Shareholders in breach of Article 71 of the JSC Law and/or Article 53 of the RCC in respect of the Loans and Transactions? As set out above, it is common ground that, if the Shareholders were in breach of these obligations, they would also be in breach of their Labour Code obligations.

When will parties to the Loans and Transactions be regarded as related for the purposes of Article 81 of the JSC Law and/or for the purposes of the Credit Committee Regulations? In particular:

Was each of the Loans and Transactions a related-party transaction for the purposes of Articles 81-84 of the JSC Law and/or for the purposes of the Credit Committee Regulations? If so:

Did the Shareholders act in breach of the express terms of their employment contracts and/or Article 21 of the Labour Code (including by acting in breach of the Bank’s Charter and/or the CC Regulations)? (Footnote: ¹⁷)

Did the Shareholders act unlawfully under the general law in that: 46.1. The making of loans to service bad debts owed to the Bank by other companies was a breach of and/or caused the Bank to be in breach of CBR Regulation 254-P because, in particular, the making of such loans was intended to have and had the result that the Bank’s publicly stated accounts were misleading in that bad debts that should have been recorded on the Bank’s balance sheet were concealed;

Is the Bank entitled to advance the allegations set out in paragraph 46 above on its statements of case and expert evidence? In particular: (a) has the Bank sufficiently particularised the allegations, including alleging and particularising the primary facts on which it relies, and (b) has the Bank adduced proper expert evidence of the content, meaning and effect of the CBR Instructions/Regulations and Criminal Code on which it relies?

It is agreed that the total principal sums outstanding (as between the Bank and the Borrowers) in respect of the Loans and Transactions as at 31 December 2015 (excluding the Erinskay and Baymore derivative transactions) are as set out in the table in the Accounting Joint Memorandum at {C3/6A/5}, but the rows entitled “Costs incurred under the investment contracts” and “Other receivables” no longer form part of the sums claimed by the Bank.

The Bank does not pursue any claim in respect of:

The experts have not undertaken a full transactional analysis of the back-toback lending through EWUB or Donau. (The Shareholders contend that no issues have been raised by the Bank in its statements of case as to the lending through EWUB or Donau whereas the Bank contends that EWUB and Donau are a relevant part of the factual background to the Loans and Transactions and is also relevant to the issue of personal benefits.)

To the extent that there were breaches of rules requiring particular procedures to be followed, disclosure to be made and/or approvals to be obtained: (i) is it legally relevant whether the Loans would have been made even if the relevant procedures etc. had been followed, and (ii) would the Loans have been made even if those procedures had been followed? In particular, would the CC and/or Supervisory Board have been able lawfully to approve transactions that were:

If the Shareholders were in breach of duty, what financial loss has the Bank proven was directly (immediately) caused to the Bank by such breaches of duty? In particular has the Bank suffered loss in an amount representing the difference between (i) the amount of the outstanding principal owed by the Borrowers and (ii) the value of collateral and other assets held or recovered in respect of such debts (as the Bank contends)?

What findings or assumptions should be made about what happened to funds that were advanced to the Borrowers that have not been specifically traced by the accounting experts? (The Bank relies on the table at {L1/4/1} as being an accurate summary of Mr Davidson’s evidence in relation to tracing, but this table is not agreed by the Defendants.)

Is the Bank’s loss to be calculated taking into account any of the following matters:

If so, what impact do such matters have on the Bank’s loss? In particular: 55.1. to what extent were those monies directly or indirectly returned to the Bank?

What credit is to be given in respect of the Bank’s recoveries, collateral and other assets held and/or recoverable? (Footnote: ¹⁹)

Are the Shareholders entitled on their statements of case to advance a positive case that the Bank has failed to mitigate is loss in the specific respects now relied upon? If so, has the Bank failed to mitigate its losses as regards (a) the price agreed in the settlement agreement between the Bank and Belenfield, (b) the prices agreed for the acquisition of interests in land as between the Bank and Crylani and/or Oldehove, (c) the acquisition of the interests in land from Stivilon and Lazurnaya Bukhta through bankruptcy auctions at a significant discount to their appraised market price, and (d) the sales of the Bank’s rights under loans and associated security in respect of Stroyecologiya and Priangarskiy/SiberianKD to parties with existing interests in the projects and without proper marketing?

It is agreed that according to Article 401(1) of the RCC, an agreement governed by civil (as opposed to labour) law which purports to eliminate or to limit liability in advance for the intentional violation of an obligation is void. Accordingly, if and insofar as the claim can be brought under the RCC/JSC Law without reference to the Labour Code, the limitation of liability provisions in the 2010 and 2013 Employment Contracts would be void in the event that they purported to apply to intentional wrongdoing.

It is agreed that (i) unless otherwise provided for in the Labour Code or other federal laws, an employee’s material liability for the harm caused to the employer is limited to the employee’s average monthly salary but that (ii) there is “full financial liability” under Article 243 of the Labour Code where an employee has intentionally caused harm.

Insofar as the Bank is only entitled to bring claims against the Shareholders under the Labour Code:

The limitation period for claims under the RCC and JSC Law (if such claims are not required to be brought under the Labour Code) is 3 years and the claims against the Shareholders are not time-barred if a 3-year limitation period applies.

Article 392 of the Labour Code establishes a limitation period of 1 year for individual labour disputes.

It is further agreed that:

Does the 1-year limitation period in the Labour Code apply to the Bank’s claims against the Shareholders?

Had the harm been revealed to the Bank for the purposes of Article 392 of the Labour Code more than one year before the relevant date of commencement? In particular:

What is the relevant date for the commencement of the Labour Code claims? In particular, is it:

If the Labour Code claims are prima facie time-barred are there ‘valid reasons’ why the claims were not brought in time and, if so, should the Court restore the limitation period and allow the claims to be brought?

Are the Shareholders the true beneficial owners of the assets referred to at paragraph 100 of the RAPOC on the basis that the Shareholders’ wives hold the assets nominally, or as trustee, for the relevant Shareholder?

Alternately, insofar as the beneficial ownership of the relevant assets was transferred to the Shareholders’ wives, should such transfers be set aside pursuant to s. 423 of the Insolvency Act 1986? In respect of each transfer:

Are Mr and Mrs Yurov entitled to advance a case by reference to Russian or any other foreign law on the basis of the matters pleaded in their Defence? If they are so entitled, or if they are given permission to amend their Defences to advance such a case, is the effect of Russian law that Mr and Mrs Yurov jointly own the relevant assets as matrimonial property and that none of the transfers referred to at paragraph 100 of the RAPOC had any effect on such joint ownership?

THE WITNESSES AND THEIR EVIDENCE

In JSC BM Bank v Kekhman [2018] EWHC 791 (Comm) at [41]-[92] I set out the relevant principles in relation to issues that arise when pleading and proving fraud, and making associated factual findings. All parties were content to adopt what was there stated as a useful summary of the key principles, and authorities, and had nothing to add in that regard. I have given careful consideration to, and borne well in mind, those principles. What follows is a headline overview for ease of reference only. The applicable principles are as addressed in the identified paragraphs in Kekhman:-

I comment on particular aspects of the evidence of the Bank’s witnesses when addressing particular issues below. In this Section I identify the witnesses called by the Bank and focus on them as witnesses and how I found their evidence.

Mr Popkov graduated from the St. Petersburg State University of Economics and Finance in 1996 after which he has had over 20 years’ experience in the banking industry first with the Industrial and Commerce Bank, then from 2006-2009 as Financial Markets Director at Petrocommerz Bank, before being appointed Deputy Head of Capital Markets and Investment Banking at Otkritie Capital where he was appointed as director responsible for distressed assets, and continues to be employed by Otkritie Bank with responsibility for distressed assets. Between 25 December 2014 and 22 June 2015 he was employed as an Advisor to the temporary administration of the Bank. Between 23 June 2015 and 22 February 2018 he was a member of the Supervisory Board of the Bank and employed as an Advisor to the CEO of the Bank.

I found him to be a careful and measured witness who gave honest evidence, although on the second day of his evidence he, on occasions, gave rather long answers to questions asked of him. I bear well in mind that he acted as an Advisor to the Bank but I did not consider him to be partisan or untruthful in his evidence generally. I address particular aspects of his evidence, as relevant, in due course below. He was not challenged on much of his written evidence. He was cross-examined in relation to the (truncated) transcript of the meeting in Cyprus on 26 May 2015 which he exhibited to his second affidavit but I do not consider it to be fair to suggest that he presented evidence unfairly. It is clear that he provided the recording to the lawyers who afterwards gave him the transcript which did not purport to be verbatim. His second affidavit was prepared for the purpose of Mr

After graduating from the Leningrad Institute of Finance and Economics with a degree in economics in 1985 Ms Podstrekha has worked since 1996 for the CBR, being appointed in May 2000 to the position of Chief Banking Supervision Administration, and in April 2012 she was appointed Deputy Director of the Banking Supervision Department.

She gave her evidence in a precise and open manner, and I formed the view that she was genuinely attempting to assist the Court in her evidence. I bear in mind that the CBR itself has a position to protect as a regulator, but I do not consider this impacted on the worth of her evidence.

In 2000 he was employed at the Moscow Branch of Menatep Saint Petersburg Bank as a customer service manager, thereafter being promoted to become Chief Specialist of the Planning and Economic Department and later Deputy Head thereof and Head of the Planning and Economic Unit. Following the change in name of Menatep Saint Petersburg Bank to National Bank Trust he was initially employed as Deputy Director of the Finance and Economics Department, and employed in various positions latterly as Deputy Chief Financial Officer, his immediate supervisor being Ekaterina Krivosheeva, the Bank’s CFO. In 2011 he was appointed by Mr Yurov as General Director of Columba (which, at one point, Mr Yurov described as the Shareholders’ “family office”), before he returned to the Bank to become head of financial control direction.

I consider that Mr Iskandyrov under-played his involvement in relation to the offshore network in his written evidence and that he was also indiscriminate in his reference to

“Shareholders” in his written evidence when (often) that did not include Mr Belyaev (as Mr Penny, on Mr Belyaev’s behalf, demonstrated at some length during crossexamination). I bear well in mind that he was very much involved in what forms the subject matter of the Banks’ criticism of the conduct of the Shareholders (and so is himself subject to that criticism to the extent that it is justified), but ultimately I consider that he gave truthful evidence before me and was not, as was suggested on Mr Belyaev’s behalf, “hopelessly compromised by the position in which the Bank placed him”. The documentary trail as to Mr Iskandyrov in any event largely speaks for itself. He was proved right in his evidence that he provided regular reports to the Shareholders before and after 2008 – something that Mr Belyaev presumably denied given the line of questioning advanced by Mr Penny in cross-examination, but which the documentation showed did occur.

After graduating with a degree in law from St. Petersburg State University in 2001, he worked from 2003-2008 at Investment Bank KIT Finance as Head of Legal and then from 2008-2010 as a Vice Director at that bank. He joined Otkritie Bank in 2010, and between 2015 and 2016 was Director of the Non-Core Assets Unit of the Bank and later Director of the Special Projects Unit before being appointed to the position of Chairman of the Management Board on 26 April 2016. Prior to that appointment he was responsible for distressed assets including the loans to the 18 Borrowers and as Chairman had oversight of the recovery efforts.

I consider that he was an honest, though not particularly impressive, witness who tended to give long answers and at times became argumentative in his answers. Nevertheless, I do not consider the criticism of him, in terms of his dealings with the Borrowers to be fair, and do not consider that he gave a misleading impression relating to his dealings with the Borrowers as was alleged. His evidence related to the discrete areas of recovery strategies and recoveries that were made by the Bank. That evidence is relevant to Issues 56 and 57, as addressed in due course below. Suffice it to say at this point that notwithstanding his short-comings as a witness I see no reason not to accept his evidence as to recovery strategies and recoveries made. Equally I do not consider there can be any criticism in the Bank effectively controlling both sides of the litigation against Baymore in the context of the inquisitorial model followed by the Russian courts and the need for expedition when seeking to make recoveries.

Mr Zavadsky has a Master’s degree in Applied Mathematics from the Oil & Gas University of Moscow and certificates in relation to accounting including International Financial Reporting Standards (IFRS). He joined the Bank in 2005 initially working as an economist in the department responsible for IFRS reporting and from 2007 was in charge of the department dealing with IFRS reporting, reporting to the Bank’s Deputy Chief Financial Officer (initially Ms Krivosheeva and then after her departure Mr Romakov).

When cross-examined, Mr Zavadsky admitted being involved in back-dated securities documentation in the months before the Bank’s collapse. He also (ultimately) accepted that he knew that the Bank could request that companies managed by Columba enter into transactions connected with the Bank. Whilst such matters do impact upon his credibility, and whilst I also bear in mind that he was a relatively junior employee, he was in a factual position to comment on how the IFRS accounts were, as a matter of fact, put together, and what was, and was not, included in the category of “related-party” transactions. He was not challenged in that regard, and I accept his evidence in relation to that. In large part, in any event, the documents speak for themselves (for example, in terms of the size of loans to WR and RCP which were, and remained, around US$110 million (at least RUB 3 billion), and so they cannot have been included in the related-party lending figures in the accounts). I also bear in mind that he was a factual witness and that there was no permission to call an expert on IFRS accounting. Nevertheless, from his knowledge and involvement in the preparation of such accounts, he was in a position to give factual evidence in relation to the Bank’s IFRS accounts and the associated IFRS requirements.

After graduating from the Finance Academy in Moscow in 1993 she worked in the banking industry specialising in bank rehabilitation. In 2012 she was hired by Otkritie Commercial Bank OJSC to the position of Chief Financial Officer, and in 2013 transferred to the position of Deputy Chairman of the Management Board. Following the DIA taking control of the Bank on 2 December 2014, on 13 January 2015 she was employed by the DIA as the temporary administrator of the Bank between 13 January 2015 and 22 June 2015, after which she was appointed Chairman of the Management Board of the Bank, resigning in late August 2015. She is now the Director of the Financial Planning and Control Department of the DIA.

She struck me as an honest witness. I do not consider, as suggested on behalf of Mr Yurov, that she had a rather pedantic turn of mind, though it is fair to say that she was certainly quite precise, and on occasions literalistic, in her answers to questions put to her. I address her evidence (which relates in particular to limitation) in due course below.

Whilst there was some suggestion in the Shareholders’ witness statements and the Defence pleadings that her appointment was unorthodox or inappropriate given her previous role at Otkritie, her then appointment by the DIA as the temporary administrator of the Bank and her subsequent return to Otkritie, this was not pursued in crossexamination and I do not consider that to be the case. In this regard she was not crossexamined in relation to paragraphs 3 to 5 of her second witness statement which I accept:-

“3.

A proposal by the DIA to an employee of an investor to come to work for the DIA for the purposes of managing a bank under rehabilitation is standard practice.

4.

Moreover, pursuant to Federal Law No. 127-FZ dated 26

October 2002 (as amended on 29 December 2014) “On Insolvency (bankruptcy)”, employees of a temporary administration of a bank have to be employees of the DIA.

5.There is certainly nothing “unorthodox” about this since there are a number of recent examples when employees of various investors were engaged by the DIA to manage banks under rehabilitation (to my knowledge these include, “Investtorgbank”, “Timer bank”, “Rost Bank” and other banks). The main purpose of this is so that the investor can get up to speed with work within the shortest possible time and proceed directly with managing the bank under rehabilitation (especially at an early stage when the situation is particularly strenuous).”

Equally the evidence she gave as to her own appointment was open and candid, and I accept it:-

“Q. And you resigned from employment with Otkritie at the same time. Is that right?

A. Yes.

Q. And it was a requirement that you resigned, wasn't it, because it would not have been permissible for the head of the administration also to be associated with the investor, an employee of the investor's group?

A. According to the legislation, heads of temporary administration must be employees of the DIA. That is why I resigned and came to the DIA to work.

Q. You continued to use your Otkritie email address, though, didn't you, throughout the time you were employed by the DIA?

A. I worked using the Bank Trust email address for some

time and using Otkritie email address because I had a notebook and that was convenient to me.

Q. Did you have an assurance from any Otkritie company that you would be re-employed by Otkritie once the temporary administration had finished?

A. When moving to that position, of course I was interested

what would happen to me when the temporary administration will come to an end, would finish its work. I asked the question to Mr Dankevich once and I received a reply that all will be well, such an expert as yourself will always be required and called for.

This is the maximum that we discussed.

Q. Did you receive any payment from any Otkritie group company in respect of the work you did whilst you were an employee of the DIA, whether it was paid at the time or paid later?

A. No, I did not receive any such payment.”

Mr Romakov joined the Bank as CFO in February 2013, becoming a member of the Management Board in May 2013 and of the Credit Committee in January 2014. At the time of his witness statement he was in prison in Russia serving a sentence having been convicted for his alleged role in frauds on the Bank. Amongst other matters he gave evidence in relation to his role at the Bank, the Bank’s operations and his relationship with the Shareholders. I was not impressed by his evidence. He was clearly involved in “balance sheet management” but he denied it. I do not consider him to be a witness of truth and I am satisfied that no value can be attached to his evidence, such as it was.

Mr Yurov was cross-examined across four days. By the conclusion of his evidence I was in no doubt whatsoever that Mr Yurov was a dishonest and untruthful witness, and that his dishonesty in the witness box (often when seeking to distance himself from conduct which was itself self-evidently either dishonest, dishonourable or not in the best interest of the Bank) was equally reflective of his approach to business dealings and his relationship with the Bank, including a willingness to deceive, as illustrated by his willingness (amongst other matters) to back-date documents so as to create a false representation as to what actually happened and when. In consequence, and in circumstances where Mr Yurov was not a witness of truth, his written and oral evidence cannot be taken at face value or given any weight save where it is corroborated by credible evidence or is contrary to his interest.

Perhaps in recognition of the unfavourable impression that Mr Yurov gave when giving evidence, as reinforced by the wealth of contemporary damning documentation to which

To suggest that what Mr Yurov did was simply to take a “somewhat cavalier view of the finer points of corporate governance” is something of an understatement – indeed in the best traditions of English understatement. It is also a euphemism to distance Mr Yurov’s actions from the reality of what he was involved in. In any event, honesty is not a geographical concept, and what stands to be applied here is Russian law no more, no less. Unsurprisingly, and as was common ground between the experts, under Article 53(3) of the Russian Civil Code and Article 71(1) of the JSC Law, members of a board of directors are obliged to act in the interests of the company when performing their rights and obligations as members of the board of directors and to perform their rights and obligations in relation to the company in good faith and reasonably. In that regard it is necessary to examine the specific allegations pleaded and whether they have been made out.

However, in terms of the credibility, and worth, of Mr Yurov’s evidence, which are relevant when considering the allegations made against him, the tone was set by Mr Yurov’s answers, at the very start of his evidence, to questions asked about his June 2015 memo to Mr Belyaev and Mr Fetisov, to which reference has already been made. This example well illustrates both that Mr Yurov was not a witness of truth, and that he was willing to countenance the Bank acting contemporaneously in a manner which he recognised amounted (at the very least) to an administrative violation of Russian law.

It will be recalled that on 28 June 2015 Mr Yurov sent a memo in Russian to Mr Belyaev and Mr Fetisov (though only disclosed in these proceedings by Mr Fetisov) to their private email addresses under a heading, “for the attorney examination”. The backdrop to the document was Russian criminal proceedings concerning two of the companies involved in the scheme (Erinskay and Baymore) and which the Bank says was Mr Yurov’s attempt to defend the Shareholders against allegations of criminality.

The memo is written in the first person. It starts with the words, “I first heard about Erinskay and Baymore”. It records that Erinskay and Baymore were, along with a “few dozens” of other foreign companies used “in order not to record previous years’ losses from banking operations in its reporting to the CB”. Various types of loss are then listed, including losses sustained when borrowers failed to repay their loans in 2008 as well as the failure of individuals to pay back retail loans in 2012 and 2013 (said to have caused RUB 19 billion of losses). It was then stated:

“If such losses had been recorded in the bank’s books back in 2008, the CB would have had to revoke NBT’s banking licence as the reduction in capital would have been over 20%. As a rule, as soon as a bank’s licence is revoked, it becomes bankrupt because the depositors have the right to withdraw their deposits.

Since no share capital could be attracted after NBT’s shares were unlawfully attached in 2008 on the grounds that they allegedly belonged to Khodorkovsky (the attachment is still in force regardless of 12 complaints and petitions), a decision was made to start submitting false accounts to the CB (which, in my understanding, was only an administrative offence punishable at most by a fine and licence revocation (in any case, the risk of licence revocation already existed)) and focus on providing loans to individuals instead (as the most profitable transactions) in order to offset the previous years’ losses by the received profits, recover the bank’s capital over time, and stop submitting false accounts to the CB. This business logic had failed as NBT incurred new losses, this time on loans to individuals, and had to file for rehabilitation proceedings to avoid bankruptcy.” (emphasis added)

There is a later reference to “the forced decision of 2008 to submit false accounts to the CB in order to avoid the revocation of licence and bankruptcy”. Those acting for Mr Yurov submit that “false accounts” is too strong a translation and that the reference is to submitting inaccurate returns which is an “administrative violation”. The Bank submits the translation is accurate. Either way it is an admission that what had been done was (at the very least) something that could result in a fine and the revocation of the Bank’s licence. The drafter was clearly seeking to minimise and justify what had been done, but on any view it was a damaging admission of wrongdoing. It is clear that Mr Yurov wished to distance himself from the memo, however it was to be interpreted.

The memo is, in fact, entirely consistent with what Mr Yurov told Mr Popkov in a meeting in Cyprus in May 2015, “here it is a kind of the total amount of losses. I can't say for sure now, but, in any case, it was such that if the bank reflected it ... on ... created provisions, well, proceeding as it were, well, from its scale, directly, yes, there it would be revoked the license in 2008” (informal translation from the Russian). It is also consistent with his Second Affidavit (albeit in a sanitised form) in which he swore:

“28.

Then the global financial crisis hit in late 2008. This caused the Bank (now merged into one) considerable difficulties (as it did for all other banks in Russia and elsewhere). In particular (i) there were large numbers of defaults from 2008 onwards on corporate and personal loans that had previously been made; and (ii) the Bank suffered heavy losses from the fall in the value of Russian securities in 2008, and again in 2014. The Bank also suffered as result of the fall in the Russian Rouble, in particular in 2014. In addition, in 2009 the Russian courts found the Bank liable to Rosneft for US$75 million (the claim arose out of a previous transaction entered into by the Bank on behalf of Yukos), which further reduced the Bank's capital. I estimate that between 2008 and 2012, the Bank lost around US$70 million in total, which was around a quarter of the share capital.

29.

All of these problems placed the Bank in a very precarious financial position. The impact of the diminution in capital was magnified, because the Bank was restricted in its ability to lend funds by reference to a multiple of its capitalisation. Accordingly, the Bank's ability to lend was greatly reduced by any fall in capital. This was compounded by the fact that the Bank was unable to raise additional capital by issuing further shares, because its shares were frozen.

30.

As a result, there was considerable concern that if those losses had all been recorded on the Bank’s balance sheet, it would have had its licence revoked by the Central Bank of Russia and consequently been declared bankrupt. For obvious reasons, the Bank’s management wished to do everything possible to prevent this from happening, and took steps to manage its balance sheet using its pre-existing offshore structure (as I will describe in more detail below)”.

His statements for trial do not repeat such evidence. By this stage there has been a clear distancing of himself from such evidence. When questioned about the memo Mr Yurov denied it was a document that he wrote to justify and defend his behaviour once the criminal investigations had started getting underway in 2015 saying, “No, it is not. That’s not my memory”, and when asked to admit that he wrote the document he said “no”.

It was pointed out to him that the metadata showed that he was the author, it was created on Sunday 28 June 2015 at 09.24hrs and last saved by him after a total editing time of 118 minutes. Mr Yurov’s response was to say that it was a document generally prepared by his Russian lawyers EPAM. In his Closing Submissions it was submitted that this is probably right (though there is no reference in it to correspondence from EPAM, nor has any such correspondence been disclosed). It was also submitted (rightly) that a document can be re-saved as another document, thereby generating its own metadata.

Yet Mr Yurov also said that he combined this letter, “from different emails or letters” which he got from EPAM by himself “for the purpose to send this to my colleagues and partners to show the way how [EPAM] is think that [it] will be proper to present our position in the proceedings against Mr Dikusar”. This shows, on any view, that he had a hand in the document either as its drafter or its editor – as such it is inconceivable he would send it containing an admission with which he did not agree. When it was put to him that it contained an admission of criminal conduct, his response was that “that was a wild idea of [EPAM]”.

It is quite plain (1) that Mr Yurov either drafted the memo or adopted it as his own (having worked on it for 2 hours) when he sent it to Mr Fetisov (twice) and Mr Belyaev (once); (2) on any view he agreed with its contents or otherwise he would have qualified the memo either in the memo itself or in his covering email (he did neither), and (3) that it did contain an admission (at the very least) of a decision to submit inaccurate returns which is an “administrative violation” leading to a fine in circumstances where the Bank’s licence would otherwise be revoked – that is an admission of wrongdoing. What is also notable is that neither Mr Fetisov or Mr Belyaev responded saying they disagreed with the contents of the memo or that the admission was not true (nor, it will be noted, did Mr Belyaev suggest that this was the first he knew of such conduct).

The suggestion that the contents were a “wild idea” of EPAM’s is absurd and is a clear attempt by Mr Yurov to distance himself from the contents – it is absurd to suggest that

Another example of Mr Yurov giving answers which are incredible and obviously untrue is in the context of Mr Yurov (and Mr Fetisov and Mr Belyaev) obtaining substantial personal benefits from the Bank. There are pleaded allegations of personal benefits (including those pleaded at paragraph 14 of the Yurov Reply). However, Mr Yurov was also asked about two yacht holidays that he and others enjoyed at the expense of the Bank (as matters going to credit). Even though this was not a pleaded benefit (and not pursued as such), it portrayed him (and Mr Belyaev and Mr Fetisov) in a bad light – and no doubt as a consequence he was prepared to give obviously untrue evidence, in the form of inventing a patently false explanation in an effort to justify the receipt of personal benefits at the Bank’s expense.

The two yacht charters were set up so that the yachts were ostensibly chartered by Mr Worsley, who was either put in funds or reimbursed using the Bank’s money. In relation to the 2010 charter of MV TRIDENT, it was agreed between Mr Worsley, Mr Fetisov and Mr Drozdov that Mr Worsley would pay the (very substantial) cost of the charter via one of his companies and then be reimbursed by TIB Equities (a subsidiary of the Bank). The following year, the yacht chartered that year (the MV KOGO) was chartered for €680,000 for 8 days. Mr Worsley sought and obtained approval from the Shareholders to go ahead with the charter, which was paid for by his company Polden Coombe with Mr Worsley being reimbursed by the Bank. The Shareholders, their wives and Mr Worsley completed the trip with a private jet from Bodrum to Istanbul.

It appears that the two yacht charters were enjoyed exclusively by the Shareholders, their wives and Mr Worsley at the Bank’s expense of (more than) €1.1 million for two weeks. When it was put to Mr Yurov that, as all the evidence suggested, these were in fact personal holidays of the Shareholders at the expense of the Bank Mr Yurov stated that they were in fact planned corporate events; but that on both occasions the supposed corporate invitees had cancelled at the last minute, leaving the Shareholders with no choice but to go ahead with their cruise around the Mediterranean without them. This is a simply incredible suggestion which was obviously untrue. For this to happen once would appear unfortunate (if true), but for it to happen twice (and with the Shareholders not having learned lessons from the first trip to ensure that clients were invited and were attending) defies belief.

Mr Yurov went so far as to claim to be able to name those invited on the first trip, but there is no contemporaneous evidence to support his suggestion that they had in fact ever been considered for, let alone accepted, an invitation. There is nothing in any of the emails about inviting or preparing for corporate clients of the Bank. It is inherently implausible that the documentation that does exist would not refer to such matters, or indeed that no such documentation would exist, had Mr Yurov’s account of events been true. As for the second, 2011, charter Mr Yurov could not even identify any of the “clients” who were supposed to be attending. Mr Yurov’s evidence was absurd, and obviously untrue. The truth is equally obvious – but Mr Yurov was not prepared to admit it – namely that these were high-end luxury holidays for the Shareholders and their wives paid for by the Bank.

Mr Yurov chose to lie rather than make an honest admission of the true position, which is even evidenced in the contemporary correspondence. Thus as Mr Worsley said in relation to the first charter in an email at the time to a Marta Pawlowska dated 8 July 2010, “Its for the shareholders. I am renting it only in name:)” (emphasis added) - there was not even a pretence, at the time, that it was for the Bank.

Whilst Mr Belyaev would not concede that what was done was improper he ultimately

The importance of Mr Yurov’s lies are not that he, Mr Belyaev and Mr Fetisov improperly used the Bank for their own personal benefit in relation to the yacht charters (which they clearly did – and in doing so were not performing their rights and obligations in relation to the Bank in good faith and reasonably) – given that these are not pleaded improper benefits, but rather Mr Yurov’s willingness to invent a story, and lie on oath, demonstrating that he is not a witness of truth, and that his evidence cannot be relied on. Of course it also says something about his (and Mr Belyaev and Mr Fetisov’s) attitude to their duties as directors of the Bank which is of resonance when considering those allegations which are pleaded, and do arise for determination.

There were other instances in relation to personal benefits where I am equally satisfied that Mr Yurov not only obtained personal benefits in breach of his duties to the Bank, but was prepared to lie in relation to such matters (often in the form of expressing ignorance of matters that he was obviously aware of). A good example is in relation to his personal loans from the Bank and the role of TIBI in that regard – and Mr Yurov’s professed ignorance or lack of recollection, of the role played by TIBI in this regard.

The Excel “receivables and business financing” spreadsheet (in translation) contains details of the various personal loans taken by Mr Yurov and the other Shareholders from the Bank via TIBI and other companies which were not transparent by reason of the use of the EWUB/Donau schemes which effectively hid such loans from view (I consider the EWUB/Donau schemes in greater detail below). It also refers to the large personal loans that the Shareholders had taken from MC Trust, when it had borrowed US$140 million from Crédit Suisse and Merrill Lynch for the purpose of buying out Mr Kolyada and making shareholders’ loans to the Bank. As is apparent from the document Mr Yurov personally borrowed substantial sums from TIBI and others during 2007/8 (with many of the loans being expressly described as “personal”).

As the Bank points out, there is nothing wrong in principle with (genuine) loans being taken out by the Shareholders with the Bank provided they are properly documented, authorised, and disclosed as related party transactions. Such loans, one might anticipate, would be direct from the Bank. But that is not what was done. Instead the loans were from TIBI, being routed through the EWUB/Donau scheme rendering the routing of monies opaque.

For present purposes what matters is Mr Yurov’s reaction when such loans were explored with him in cross-examination. Despite TIBI being central to the EWUB/Donau schemes (borrowing large sums from EWUB/Donau and then lending them to other companies in the offshore network including Yaposha and Business Group (as is apparent from an email of Mr Fetisov and attached spreadsheet dated October 2008)), Mr Yurov, when crossexamined, feigned a total lack of any recollection whatsoever agreeing that his evidence was that he had “a memory blank about that company”. He clearly wanted to distance himself from the role played by TIBI (and for that matter EWUB/Donau) in the context of personal loans made to him.

His evidence in this regard was, I am satisfied, a lie. He knew perfectly well about TIBI and indeed had referred to it in evidence when it suited him. There are two references to TIBI in his first witness statement (at paragraphs 125 and 134(b)) and another in his reply statement at paragraph 41 where he refers to TIBI as being “obviously related to the Bank”. He also made express reference to TIBI in his witness statement in the Kolyada proceedings in 2014 when he stated, “Nor have I received any dividend or income from my shares in TIB Investments Limited, or my shares in NBT”.

So any “memory blank” would have to be recent – despite Mr Yurov no doubt having prepared to give evidence for the present trial and refreshed his memory in relation to his witness statements and contemporary documents. His alleged “memory blank” is just not credible and I am satisfied it was an untruth.

There are two further reasons why it is inherently improbable that Mr Yurov did not know about TIBI. The first is that there are numerous references to it in contemporary documentation to which he was a party. For example, when Mr Drozdov sent structure charts showing the Bank’s holding structure to the Shareholders he told them in an email dated 18 December 2008 that, “I’m sending the structure of the TRUST Group and NBT stockholders for your information. I didn’t say that TIB investments owns 60% of the shares of the 3Sistercos, since you are the ultimate owners of TIB investments in a ratio of 1:1:1.5”. Then in late 2009/early 2010 when Mr Worsley became involved he created and distributed structure diagrams that showed TIBI interposed between Tactio (owned by the Shareholders) and various intermediate companies in the holding structure of the Bank. Whilst Mr Yurov claimed during his cross-examination that TIBI was a subsidiary of the Bank, it is common ground that it was beneficially owned by the Shareholders.

The second is the sheer size and number of the loans made to Mr Yurov which involved TIBI. The use of TIBI to make personal loans is considered in Mr Allen’s Schedule 7. He addresses how particular liabilities of Mr Yurov to TIBI were cleared on 1 December 2008 by what he describes as a “cycle scheme”. The involvement of TIBI is illustrated with an example where monies originating from the Bank ended up with Mr Yurov (via TIBI) to be withdrawn “in cash” and used for Mr Yurov’s own personal benefit. On 1 December 2006, the Bank made a loan of RUB 300 million (about US$10 million) to Nikilin. RUB

In short, I am satisfied that Mr Yurov had no genuine “memory blank” about TIBI and that he pretended he had as he did not want to be asked questions about it or associated with its use as a conduit through which “loans” were received by him.

Another aspect of this is whether these were in truth loans at all. When asked about how the loans were repaid Mr Yurov’s evidence was that:

“… I don't remember but I have, like, the only answer

To that, that the only source of money which I had, again in Russian Federation, from 1999 until 2014 were my bonuses and salary in the Bank and the proceeds of the sale of my shareholding in one way or form to Merrill Lynch. So I can tell you I presume that they will repay it from these sources.”

However, Mr Fetisov’s evidence in relation to the Merrill Lynch share purchase was that: “Mr Yurov, Mr Belyaev and I used our share of the proceeds of selling part of our shares to Merrill Lynch to purchase Mr Terzyan’s shares, as he had decided to retire” (Fetisov 1 at para 55). Indeed this was Mr Yurov’s own evidence in the Kolyada proceedings: “The money Merrill Lynch paid was used to buy out another shareholder, Mr Terzyan”. When asked why the Bank would lend him money via TIBI his evidence was as follows:

“ Q. … it's right, isn't it, that the reason you borrowed it from TIBI was so no one realised you were actually borrowing money from the Bank?

A. I don't think that's the case. I think that was the most efficient or comfort way for the Bank to provide this loan to me.”

This answer makes no sense whatsoever – there is no reason why this would be the “most efficient or comfort way” for the Bank to provide a loan to him. Like his professed ignorance of the use of the EWUB/Donau scheme, I am satisfied that Mr Yurov was not telling the truth not only about his knowledge about TIBI, but also as to why it was being used – which was indeed, I am satisfied, so that no one realised he was actually

“borrowing” money from the Bank – money that there is no evidence he ever repaid.

He also claimed it was “efficient” for the Bank to lend him money via TIBI but this made no sense at all. In short, Mr Yurov’s evidence in relation to TIBI was untrue because he knew exactly what TIBI was, how it had been used and he chose to hide behind a false pretence of ignorance.

Another example of Mr Yurov giving untrue answers, again in order to distance himself from conduct which he no doubt recognised was inappropriate, related to his answers concerning documents that he was involved with which had clearly been backdated and/or which misrepresented what had occurred (or when). The issue of the backdating and falsification of Credit Committee minutes is addressed in due course below in relation to Issue 2, but his answers when questioned about back-dating were, I am satisfied, untrue.

For example, on 13 August 2012, Mr Postnov wrote to Mr Yurov, “Please approve and instruct the BCC secretary to include in the minutes of the previous meeting the item on providing Yaposhka City with a bank guarantee for $160,000…” (my underlining) attaching a draft (undated) resolution of the CC. Mr Yurov approved the insertion of this resolution into the minutes, which were then reproduced and back-dated to 25 July 2012 as if the additional resolution had been: (1) on the agenda (see point 8 of the “agenda”); (2) raised and discussed at the meeting (see page 9 of the English version, which specifically notes: “Speaker: D S Postnov”); and (3) voted on and approved by the Committee. At p. 13, the minutes are then signed by Mr Yurov personally as if they were true. It is therefore readily apparent that the minutes are deceptive and contain false representations.

When this was put to him, he was quite unwilling to acknowledge that he had signed a document containing a false representation:-

“Q. You signed this document as a minute of a meeting that took place on 25 July 2012, didn't you? A. Yes.

Q. And you knew that part of it was recording something that did not take place on 25 July 2012, didn't you?

A. I accepted to include to this meeting the decision which was took -- the decision of the Credit Committee which was taken later, yes.

Q. It was dishonest of you to sign that minute and pretend that the matters recorded in it were discussed on the date it bore, on 25 July, wasn't it?

A. Sir, I just explained to you my position on that. No,

I cannot accept that.”

This is but one example – other examples are addressed in due course when dealing with particular meetings. The relevance of the point, for present purposes, is that Mr Yurov was not willing to give a straight answer and acknowledge his involvement in any matter which he knew was wrong or inappropriate (such as back-dating documents), and he was prepared to brazen his way out rather than recognise the reality of his conduct. It also shows, of course, that Mr Yurov was prepared not to be honest in his business dealings – the back-dating of documents is not an acceptable practice whatever country’s laws are in play. Russian law is no different in this regard having regard to the agreement

Perhaps the most egregious example of this related to events on the day that the temporary administrators arrived to take over management of the Bank on 22 December

The meaning of the question is obvious and in reality the text can only bear one meaning – Mr Yurov was being asked if he wanted Mr Worsley to ask Ms Sidorova to wipe his computer clean to remove all documentation and emails that would or might be on his computer, or indeed to remove it (so that it was not available to the administrators). He responded “OK” – the only possible meaning of this word is that he was agreeing to such (inappropriate) conduct. It is not the response of someone who had nothing to hide. On the contrary, and as the Bank submits, rightly in my view, it is the action of a guilty man. In the very same exchange of texts on 22 December Mr Worsley is proposing names for an “indemnity”, to include himself – the obvious context in which indemnities would be needed would be in the context of contemplated proceedings (civil and/or criminal).

Admittedly Mr Yurov was between a rock and a hard place when cross-examined about this, but the only honest answer would have been that he had indeed agreed that his computer should be wiped. However, no doubt alive to how damning such conduct would be regarded as, he denied instructing his secretary to wipe his computer:

“Q. And pausing there, you did indeed ask your secretary to clean your computer so that no incriminating material could be found on it, didn't you? A. No, I didn't do it.

…

Q. Do you have any explanation for why the hard drive of your computer was formatted at the time the new administration was going into the Bank?

A. Again, I seriously doubt about that because I never gave such instructions to nobody and, no, and I cannot -- I do not have any explanation to that, if it really happened.”

There was also this series of answers:

“ MR JUSTICE BRYAN: …. Tatyana was your PA? A. She was my PA, yes.

MR JUSTICE BRYAN: Did Tatyana normally follow your instructions?

A. Well, yes, sir, I mean, (inaudible) of course.

I am satisfied that Mr Yurov was not telling the truth when he denied that he agreed to Ms Sidorova cleaning is computer or wiping it. It is perfectly plain that Mr Yurov was agreeing that Ms Sidorova should clean his computer. It is also clear that this was actioned. In this regard as Mr Popkov explained at paragraph 14 of his statement (about which he was not challenged in cross-examination):-

“On 27 December 2018, I prepared a draft outline of the key ongoing issues that I sent to Ms Dolenko. Action points included, amongst other things, the rehabilitation plan, balance sheet risks, loans, financial market conditions, potential staff changes in the Bank as well as next steps on assessing “problem assets”. The situation at that time was a complete mess. I advised Ms Dolenko that steps needed to be taken to preserve the Bank's IT systems but we later established through the Bank's internal security team and from speaking to senior management of the Bank that shortly before the collapse of the Bank the email accounts of most of the Bank's senior management had been deleted and some personal computers and servers had been completely wiped using special software, making our job much more difficult.” (emphasis added)

The Bank’s Second Disclosure Statement of 27 October 2017 provides further information as to what was found:-

“5.

As explained in Steptoe's letter of 30 January 2017 and at paragraphs 44-49 of the Ninth Witness Statement of Neil Dooley (“Dooley 9”), after the rehabilitation of the Bank and the temporary administration in December 2014, the Bank's IT specialists (led by Andrey Babiy, an independent IT contractor) established that data from the Bank's email servers had been deliberately deleted shortly prior to the Bank's rehabilitation. In particular, emails held on the accounts of the First to Third Defendants (the “Primary Defendants”) and other senior executives (including Mr Iskandyrov, Ms Balkan, Ms Sidorova, Mr Pospelov, Mr Postnov, Mr Popov, Mr Vartsibasov, Ms Karalkina, Mr Kazakov, Mr Kuznetsov) had been systematically deleted. (Footnote: ²⁰)

6.

In addition to the deletion of emails from the Bank's servers, the Bank established that immediately prior to the temporary administration, the desktop office computers of the Primary Defendants had also been wiped clean and held no recoverable data. The Bank sent the relevant machines to an external IT forensic laboratory for further analysis, but the Bank was informed that the desktops had been professionally cleaned and that deleted data could not be restored.” (emphasis added)

Accordingly, this is a further instance of Mr Yurov not telling the truth when questioned. It also relates to a matter that had serious potential implications for what evidence was available to the court when judging the allegations against the Defendants. In the event the Bank settled with Mr Worsley, and so secured his email archives. It is notable that the text exchange with Mr Worsley is not addressed in either Mr Yurov’s Closing Submissions or the oral closing submissions made on his behalf.

Other examples where I am satisfied that Mr Yurov was not giving a truthful account to the court about particular matters include who the “CBR consultants” were that are referred to in the documents, and what they were doing. Mr Yurov initially denied that he knew who these consultants were, but later suggested they were small time Russian law firms advising the Bank on CBR regulations. Given the amounts paid (US$2.7 million in 2013), this seems implausible. One of Mr Worsley’s memos under the heading “potential partners” referred to the involvement of “X”, and included the comment, “We need to provision for what happens if/when X is caught doing all of this. Currently, we pay X on a deal by deal basis. In other words we have some room to escape from trouble by saying that it was a one off. In the proposed new deal, we would be embedded with X in a concrete fashion and we risk being dragged into any charges that X may one day face. This sounds dramatic, but as it could involve NBT directly, we should not ignore such a risk”.

I am not in a position to reach any firm conclusions, and it is not in any event a pleaded issue – but whatever they were doing it does not appear consistent with it being the giving of proper advice to the Bank. Mr Yurov, when asked for an explanation, gave no coherent explanation. I am satisfied that Mr Yurov’s account was not a frank and truthful account.

This is not the only area where it is not possible to reach any firm conclusions about what was actually going on but in relation to which it is clear enough that Mr Yurov’s evidence was not a truthful account. One example is Mr Yurov’s evidence as the source of cash deposits totalling around US$14 million in cash into his account with the Bank between 2010 and 2014 (receipt of which he did not dispute), and which he said represented profits from a boxing academy and promotion company (Mr Fetisov received

Another area illustrating Mr Yurov’s propensity to give untruthful evidence relates to the purchase of the Kolyada shares, the Kolyada case itself, and legal costs recovered in that case. As to the first Mr Yurov denied that the Bank ended up paying for his, and the other Shareholders’ acquisition of Mr Kolyada’s share in the Bank in 2006/7 stating that the money to pay back Credit Suisse/Merrill Lynch originated from the sale of shares to Merrill Lynch. However, the difficulty with this is what is stated in an email on 15 October 2014 from Mr Worsley to him summarising discussions between him and Mr Worsley in which it is stated, “NBT paid back ML and CS facilities”. He could not offer any explanation for this other than to say that Mr Worsley was in “unstable shape”.

In fact it is clear that the email itself was all about a dishonest plan to pretend that the Shareholders had bought Mr Kolyada’s shares as nominee for the Banks so that if the case was lost Mr Yurov would look to the Bank to pay the costs. Again it involved putting in place (false) documentation to support the plan:-

“After further long discussions today: You (plural) stepped up to save the business

This involved buying out the Kolyada TIB shares

Monies were raised for this. TIB had board meetings in regard to it

NBT paid back the ML and CS facilities

Thus, it is seen that you acted as Nominees for NBT, and that you are

holding the shares in bare trust on behalf of the bank

The 2006/2007 transaction will be seen as a share buy back by

NBT

If the price of the buyback deal is altered by the High Court (EG from 40 to

(40+x)) then it is NBT who will pay the 'x' in the equation.

This is because you are simply nominees.

The other side of this is that:

i)

You (plural) cannot benefit from the 16%. You have not to date,

so it's

OK.

We need to put in place the corporate governance so that the deeds of trust are in place, and all paperwork is formalised.

In other words, the price of the indemnity is that you will not have the 16% -

You simply hold it on behalf of NBT.

I do not think that there is another way around this issue.

Work continues, and I will keep you posted, but I think that you and B&F need to be ready to do this if you want the protection.

Points:

I need to sit with the team and work through the steps, and what it means

for things like the MICEX deals etc. That can be managed. It's a question of mathematics and paperwork.

I spoke to James - this does NOT change our pleadings in the case. The fact

that you are a nominee for part of the holding does not change what we have pleaded or what we need to say in court. It's ok.

I will revert ASAP. We are working on the draft indemnity now.”

(emphasis added)

It is also clear that what was being contemplated was an irrevocable indemnity to be given by TIB Holdings so that Mr Yurov would not bear responsibility for wrongdoing. Once again it was contemplated to involve the fabrication and back-dating of documents. In this regard in an email of 10 July 2014 from Mr Worsley to Ms Evangelides headed

“Indemnity”, Mr Worsley described what was planned:

“Thoughts on actions which need to be indemnified:

Decision to buy out Kolyada's equity in the bank

Power to agree price for that deal

Instructing Drozdov to make the paperwork

Mistakes in Drozdov's paperwork, and any mistakes made by any member of the team

Mistakes made by YBF in any negotiations with Kolyada

Pricing errors (too high or too low)

Signing a Deed of Trust rather than an SPA (it saved time)

Signature to buy the shares under the DOT

Using NBT funds to pay the 40M via Yurov

Yurov selling on to BF

BF using NBT funds to buy the shares from Yurov

Receiving salary based on the higher shareholding that YBF all had Receiving any other benefits in cash or ownership terms based on the higher shareholding that YBF all had

Using NBT money to pay legal costs in this case

This must stand up under Cypriot law

There needs to be a meeting of the Directors to approve and sign it. They need to discuss that at the time, if Kolyada had been a shareholder when he was arrested, the bank would have fallen

Thus, it was in the best interests of TIBH to have agreed this trade. Question: How is it in the best interests of TIBH to sign this now I think the answer is around reputation, and protecting NBT's reputation and future.

We should also see this like Director's Insurance from TIBH to YBF.,

EG: Drozdov drafted the DOT badly - that is the basis of this whole case So TIBH need to indemnify the employees and shareholders for the actions of the employees of TIBH's main asset (NBT).... Also, this was in the interest f TIBH at the time, so indemnity is fair and honest.

It must be irrevocable. If someone buys NBT in 2 years’ time, this must stand up.

Thoughts?”

When cross-examined about this proposal, he stated as follows:-

“as I said before -- and I think it's quite obvious that NBT money were used to purchase Kolyada to some extent, some small amount of money, but everything was repaid to NBT after the 40 million was raised from Credit Suisse -- sorry to say that but I think, you know, there was a special clause in -- in the loan documents -- I don't remember -- with Credit Suisse or whether this facility -- loan facility were extended for 140 million that 40 million -- certain amount of money had to go to buy out Kolyada. So I think -- well, it's -- it's just like some kind of hysterical mistake by Mr Worsley or something else.” (emphasis added)

The proposal speaks for itself – what was envisaged was for the benefit of Mr Yurov, and what was being envisaged may have been dishonest but it was not “some kind of hysterical mistake” by Mr Worsley. Mr Yurov was, once again, simply seeking to distance himself from such matters.

Mr Yurov accepted that the Bank’s funds had been used to pay for his costs in the

When the Kolyada case settled Mishcon received £1.9 million in respect of Mr Yurov’s costs from Kolyada. That was, on any view, the Bank’s money (as Mr Yurov acknowledged). That money in fact ended up in the Shareholders’ personal Swiss bank accounts with Mr Yurov receiving US$1.276 million. When cross-examined about this he was not prepared to accept the obvious – that the money should have been paid to the Bank not enjoyed by the Shareholders. His explanation for what he intended – that the money would somehow be accounted for to Otkritie when they bought the Shareholders’ shares on the Bank makes no sense as the money was owed to the Bank not Otkritie – and it was no explanation for why the money had gone to, and been split between, the

Many of these matters are collateral to the central pleaded issues, but go to demonstrate that Mr Yurov was not a witness of truth. However, there are other matters which are of central relevance to the pleaded issues in relation to which I am equally satisfied that Mr Yurov did not give a truthful account, which I address when dealing with the particular issues that arise for determination.

One of the most important of these relates to ownership of companies used in the offshore network and supposed distinction between “Bank Companies” and “Personal Companies”. I address the offshore network and its administration in due course in detail in Section F below. Suffice it to say at this point, that I am satisfied that there was no such distinction contemporaneously, that it is simply incredible that Mr Worsley could have so fundamentally misunderstood the true position in terms of ownership or that the Shareholders would not have recognised such misunderstanding. Mr Yurov’s evidence to the contrary is, I am satisfied, simply a lie. The reality, as demonstrated by the transfer of

It is equally clear that the purported distinction between Bank Companies and Personal Companies was only manufactured late in the story when, in the early summer of 2014, the Shareholders decided what companies they wished to keep (those which were either profitable or could be sold as such) and those which they would abandon so as to avoid the need to finance the lending that had been used to keep them going. As Mr Worsley put it in his text to Mr Yurov of 27 May 2014 (which reflected the truth of the decision to be taken), “Main problem is that we have loans of 1.2 billion USD, 90% of which are under water… And we have to finance them… And service all [these] companies that get loans… I will also make a corporate event budget. Basically, if you guys keep only the two cash flow positive companies for Billa, plus the trusts, the costs are super minimal… Like almost zero. The weight is in the bad debt stuff…”

The supposed distinction between Bank Companies and Personal Companies is belied not only by the lack of any contemporaneous reference to such distinction but also by reference to actual events which are simply inconsistent with the existence of such distinction. The best example is that given by the Bank in relation to the negotiations to sell the “Personal Companies” Willow River and RCP in 2015 - i.e. after the Bank’s collapse. As the Bank points out, the Shareholders were in negotiations to sell Willow River and RCP, and the commercial properties owned by Willow River and RCP were managed by another company in the offshore network called Alians Development which was owned by Wave. Yet Wave was used for balance sheet management and so on the Shareholders’ version of events they had to argue that it was a “Bank Company”, owned by and run for the benefit of the Bank with the result (it would follow) that Alians Development was a Bank Company. Despite Wave being allegedly a “Bank Company” in 2015 the Shareholders were arranging a transaction with the Guriev family whereby the Gurievs would buy Willow River, RCP and Alians Development (which required Wave agreeing to sell Alians Development – this could not have been procured if Wave was a Bank Company). I am satisfied that the reality was that there was no such distinction and the companies were all beneficially owned by the Shareholders.

Mr Yurov could offer no credible (or coherent) explanation:

“Q. If you believed, Mr Yurov, that Wave was a company owned

by or run for the benefit of the Bank, then you were effectively misappropriating the Bank's assets when you sold Alians to the Gurievs, weren't you?

A. Well, again, I knew that Alians and Wave was acting in all material times prior to this contract for the Bank but as well I knew that Wave and Alians were just management companies for the best of my understanding, without any assets or anything else; it was just -- if I may say so -- infrastructural companies, that was the best of my understanding, which do not have any economical value if the main, like, benefit for the Bank was that to some extent -- sorry, in all material times this company was employed by the Bank employees and was monitoring the cashflows of the Retail Chain Properties and Willow River, so that was my understanding.”

That there was no contemporary distinction between “Bank Companies” and

“Personal Companies” is also illustrated by an email from Mr Drozdov to Mr Yurov dated

13 January 2015 after the collapse of the Bank, which draws no distinction between “Bank Companies” and “Personal Companies” in an accompanying “list of assets for transfer” as it logically would if any such distinction had existed. In the email (sent by Mr Drozdov from a private email address that did not include his name – 2332537@gmail.com) Mr Drozdov stated:

“The meeting was yesterday. They invited me to cooperate on returning all the assets financed out of bank funds to the bank’s books.

I have several options for my next steps:

…

I don’t want to argue with anyone and am ready to structure all asset transfer deals to repay the debt by transferring assets to the Bank’s or Otkrytie’s books.

Attached is a list of assets for transfer. It’s not complete, since I put it together quickly for lack of time. It will be expanded.

If my suggestion is accepted, I’d put together a letter acceptable to me, that I’m carrying out the will of the shareholders with respect to the asset transfer and I’d sign the appropriate addenda to my employment contract with Otkrytie on work with the assets.

And I’ll get to work. This needs to be done quickly, since financing was suspended, and the assets might simply be lost for reasons beyond our control.

Please review and take a decision. They are awaiting my decisions.” (emphasis added)

When cross-examined Mr Yurov asserted that Mr Drozdov knew of the alleged distinction – but he gave no explanation as to why (as would be expected) that distinction was not referred to in a private email addressing the transfer of assets to the Bank:-

“Q. Mr Drozdov plainly had no idea there was any distinction between companies you say now were the Bank's companies and companies you are prepared now to admit were shareholder companies, did he?

A. No, my understanding that he definitely had such knowledge.

Q. This document, Mr Yurov, proves that he did not and that's the truth, isn't it?

A. Well, if I may look at it again because I have one thing in mind.

Q. By all means have a look at it again.

A. Can you please return me to ... a page back. (Pause) Yes, I don't see here any distinctions -- any at least point here distinctions between the Retail Chain Properties, Willow River, Priangarskiy and all other companies.

Q. Because he knew, Mr Yurov, that they were all yours, didn't he, all of these in this list?

A. No, I can only repeat myself: he definitely knew that some of these companies were beneficially owned partly by me, partly by my partners and some of them -- some of these companies, the majority of these companies, were beneficially owned by the Bank.”

I am satisfied that the distinction between “Bank Companies” and “Personal Companies” was an invention, and that Mr Yurov’s evidence in that regard was untrue.

I found Mr Belyaev to be an unsatisfactory witness from the very outset of his evidence. First, it was abundantly clear to me from the start of his cross-examination not only that he had received witness training but that he had taken from that witness training just about every available technique to avoid answering questions asked of him if he did not wish to do so or wished to gain time before doing so. These techniques included asking for questions to be repeated, re-phrased or broken down when not required and questioning the meaning of phrases when the meaning was obvious. I formed this impression within minutes of him starting to give evidence but his approach pervaded the entirety of his evidence and the answers he gave. In this regard I consider the points made by the Bank in its Closing Submissions at paragraph 134 (and the examples given) to be entirely apposite and representative of his approach to questions asked of him.

An examination of any line of questioning would yield representative examples, but one will suffice. I choose it because it was very close to the start of his cross-examination and related to a central matter on which he must have given prior thought and cannot possibly have lacked an understanding of the issues arising – namely balance sheet management (I address the issues relating to this in due course below as his actual answers were no more satisfactory):-

“Q. …

Do you know that Mr Yurov and Mr Fetisov, in their witness evidence, refer to there being a network of companies that were used to keep assets and liabilities off the balance sheet of the Bank that they referred to as an offshore network?

A. Could you, please, break down that question?

Q. Mr Yurov, in his witness evidence, has told the judge that there was a network of companies used to keep assets and liabilities off the Bank's balance sheet, referred to as the offshore network. Do you know that? A. I believe I read it in his statements, yes.

Q. Right. Mr Yurov refers to that network of companies being used for what he calls balance sheet management purposes. Do you remember him saying that?

A. I believe I remember him referring to it as a balance sheet management or some similar terms, yes.

Q. Right. Considering the period between 2008 and 2014, Mr Belyaev, were you aware of such a network of companies as those?

A. Can you, please, define a network of companies because I believe your question has some very broad, undefined definition. What do you consider exactly to be the network of companies?

Q. Mr Belyaev, have you received training in witness questioning before today? A. Yes, I did.”

I have borne well in mind that when a witness adopts such techniques when answering questions it may not always be their fault, or entirely their fault, and that it does not necessarily impact upon the veracity of the evidence being given by the witness. What it undoubtedly does do, however, which is both unsatisfactory and unacceptable, is to increase the length of the cross-examination and it makes the task of eliciting the truth more difficult for the cross-examiner, one of the very reasons why such techniques are (wrongly) deployed. However, ultimately such techniques do a witness no favours, and I am in no doubt whatsoever that Mr Belyaev was using such techniques to his own advantage to avoid, so far as possible, answering questions where he considered that a straight answer would be adverse to his interests.

I agree with the submission of Mr Yurov’s counsel (at paragraph 16(i) of Mr Yurov’s Closing Submissions) that Mr Belyaev’s oral evidence was slow and “rather” unsatisfactory (though this is an understatement), and that he “sometimes” seemed evasive (again an understatement). However, I do not agree with the suggestion that the evasiveness sprang from a rather pedantic turn of mind, rather than from the deployment of the techniques I have identified, and because he did not wish to acknowledge the truth where it was adverse to his interests. To the extent that Mr Belyaev was pedantic, and he was at times, he used that to his advantage when answering questions.

In any event, and quite apart from his manner of answering questions, I am satisfied that Mr Belyaev was not an honest witness and did not give honest answers to the Court. In consequence I do not consider that any real weight can be given to his evidence save to the extent that it is corroborated by documentation or other evidence. In fact, and as appears below, I consider that the contemporary documentation, including documentation received by Mr Belyaev, and signed by Mr Belyaev, sheds by far the greater light on the truth, including as to Mr Belyaev’s knowledge which is no doubt why he was forced to deny (variously) reading emails, recalling receiving emails, reading documents, and denying that he read that which he signed. This evidence was neither credible nor, I am satisfied, true.

The evidence of Mr Belyaev, that he did not read all emails sent to him or could not recall receiving a number of emails in this case or did not read documents he signed, or did not read documentation relating to matters in respect of which he was voting in favour of in the context of CC meetings, is not credible and I am satisfied that Mr Belyaev did not give a truthful account as to his reading of emails and documentation and signing of documents. As already identified, and contrary to paragraph 21.2 of Mr Belyaev’s Closing Submissions, there is every reason to doubt Mr Belyaev’s version of events as to not reading emails and not reading documents he was signing, not least because I am satisfied that he is not a witness of truth, and his evidence is simply not credible, and is contrary to common sense. It is inherently improbable that he did not read emails sent to him or documents he was asked to sign. If he was in late 2008 and following working 20 hours a day trying to save the Bank (as was his evidence) that is all the more reason why he would perform his duties diligently and read what was sent to him, and read what he was asked to sign. A pressure of work defence might be an answer to missing something in a particular document but not failing to read anything, and failing to put his mind to anything he signed – those are not the actions of someone performing their duties and acting in the best interest of the Bank.

Indeed, to suggest otherwise is also in conflict with his duties under his contracts of employment and as a director – it is difficult to see why he would commit such a dereliction of duty. This is not to “apply conventional Western European business standards to judge the conduct of Mr Belyaev and the other Defendants” (Belyaev Closing Submissions paragraph 20), it is to recognise (1) that people normally read that which is sent to them, (2) a fortiori if the documentation is sent either (a) in a business context in relation to which they have responsibilities or (b) in relation to matters where they have a personal interest (and so an interest in what is said), and (3) there is no feature of Russian law as identified by the experts to suggest that this is not the case in Russia in relation to responsibilities under Russian law (very much the reverse in the context of the experts’ agreement concerning Article 53(3) of the RCC and Article 71(1) of the JSC Law).

One aspect of his denial of reading emails that was itself self-evidently untrue – and in relation to which he was caught out in cross-examination – was an alleged inability to read emails outside of the office, in particular an email sent by Mr Worsley to the Shareholders on 14 January 2010. That email contained a detailed update of the progress made by Mr Worsley in relation to restructuring the offshore network. Mr Belyaev’s response when the document was put to him was to say that, “if we are talking about 2010 and this is the Bank's email, "trust.ru", I'm suggesting that I was only able to read this email being present at the Bank”. I am satisfied that this was not true. He had a Blackberry at this time from which he could send and receive emails if out of the office. He was able to, and did, email Mr Worsley from his “trust.ru” (work) account when he was travelling to Las Vegas. See, for example, his email to Mr Worsley at 9.11pm on 18 January 2010 from his “trust.ru” email address in response to an email from Mr Worsley to that email address:

“Hi Ben!

Coming back to Moscow next monday. Let us talk about it. Regards!

Sergey”

The language of this email “coming back” to Moscow next Monday, makes it very unlikely that he might have been in Moscow (and in the office) when he sent this email.

Another technique when cross-examined was to suggest that he deleted emails without reading them. Whilst, in the abstract, that might be a tenable line, it is not when the sender of an email is someone in the position of Mr Drozdov. Mr Belyaev himself described Mr

When an email from Mr Drozdov that was sent to him and the other Shareholders in December 2008 which attached a presentation called “Non-affiliate companies chart”, and a document called “TIB Investments stake”, was put to him and it was put that he knew that he owned TIB Investments as to “2/7ths”, he replied that he “didn’t see this chart of this structure”. This was the particular occasion on which he gave his evidence about working 20 hour days:-

“So that was probably about the worst of the 2008 crisis, the financial markets and the Bank and all the banks in Russia went through and that was exactly the time where it was pretty much 20 hours a day occupied with holding endless meetings with the customers of the bank, corporate customers, that pulled out in the fall of 2008, $800 million of deposits within two weeks and I had to spend days and nights in the office trying to solve the liquidity problem, keep the money in the Bank and deal with all related issues, literally saving the Bank. So I do not think that there would be any emails which would not be related to what I was involved pretty much 24 hours a day that I would be at leisure to read.”

Mr Belyaev’s answers in relation to this email led the Court to ask him, “when you receive emails to your email address, such as the one we have just seen, in particular for example from Mr Drozdov, I would be assisted to know…what your normal practice is, as to whether you read emails or not.” His response was that:

“at the time I would receive, like, maybe hundreds of emails every day from all different places, different departments and what not. And sometimes, especially in this, you know, fall/winter 2008, when there was a crisis, I probably wouldn't read pretty much anything unless it was something like urgent from Mr Eggleton with, like, three exclamation points or something, and if I would – if I would read emails for two or three days, there would be normally like hundreds of emails and I just scroll. If something important catches my attention, I would read it, most of the other stuff I just leave and normally delete later without even opening”

It was then put to him by Mr Pillow, on behalf of the Bank, that leaving aside what might be called regular reporting emails from departments or branches or whatever, he would not have deleted any individual email that came in before he had looked at it to decide whether it was important or not. To which he replied:

“I just delete a lot of them in one go and email from Mr Drozdov is, you know, is not an important email because he is not in operational kind of chain, what you say, so nothing urgent can come from him.”

Mr Belyaev’s evidence in this regard is simply not credible and I reject it. I do not consider that he would have deleted an email from Mr Drozdov without first reading it, given Mr Drozdov’s position, and in suggesting this was not the case I consider that he is endeavouring to avoid being fixed with the knowledge that is contained in Mr Drozdov’s email.

It was not only emails that Mr Belyaev denied reading – he also denied reading documents. He even went so far as to say that he did not have knowledge of the Bank’s Articles of Association or Charter saying it was a “very dry, long document, I do not believe I really paid a lot of attention to it, if I did read it”. If true, this would be a surprising state of affairs given that it set out the functions and responsibilities of members of the Supervisory Board, including Mr Belyaev, and would be a rather cavalier attitude to be adopted by him.

However, I am satisfied it was not true – and that this was an aspect of his quite astonishing (and wholly incredible) attempts to downplay what his responsibilities actually were at the Bank which reached its zenith in relation to his evidence concerning his employment contacts. In this regard:-

As for evidence in relation to signing of documents his evidence was even less credible. Mr Belyaev signed various documents declaring him to be one of the beneficial owners of companies in the offshore network. His signature upon such documents is, selfevidently, unhelpful to his denial of knowledge of the offshore network, his denial as to the use of that network in “balance sheet management” and his denial of a personal interest in the offshore companies, as such signatures (at least at first blush) fix him with knowledge of the contents of those documents. When asked about this he claimed not to have read what he was signing in particular cases. Indeed, in the context of “regulatory” documents and “anything to do with indemnifying” he went as far as to suggest that it was his practice not to read documents of such types. This evidence was not credible and if true (which I am satisfied it was not) would be a serious dereliction of duty of a director of a Russian company under Russian law – based on the expert evidence before me (there being no evidence of the alleged Russian banking practices alleged):-

Mr Belyaev’s approach to signed documents that he considered were adverse to his interests did not stop with a denial that he had read that which he had signed. Another technique he (repeatedly) adopted was to claim that documents bearing his signature were in fact forgeries, going so far as to suggest that such documents were created after the Bank’s collapse so as to implicate the Shareholders. This is despite the fact that there has been no challenge to authenticity of such documents, nor indeed any previous challenge by Mr Belyaev himself.

As to the former, and by way of example:-

“I would like to go back to the time of 2011 and pick up the story with you and Mr Worsley and so on by going, please, to {D2/8/1}, because this is an application form in the name of Mourija Trading, one of our borrowers, to open a bank account, as you can see, at Piraeus Bank with a turnover of $50 million for investment and lending in the areas of securities and in Russia and the CIS and if you turn over, {D2/8/2} you will see the source of funds was going to be loans and revenues from clients, from Cyprus, BVI, Russia and Nevis and that's where the money was expected to be sent to and you signed this on or around 23 November 2011, didn't you?

A. Well, it really doesn't look like my -- that, you know, that I signed it and especially Nikolay Fetisov's signature doesn't look right. It looks like it's something that been made at some point but it doesn't look like my signature, but I do not recall.

As to the latter he stated:-

“in my opinion there are lots of documents which were probably forged by Mr Worsley, or I don't know by whom, in 2015, when he was trying to somehow, you know, put those companies on us and get out of the cloud of criminal investigation that started in

Russia.”

There is no evidence before me that would justify the conclusion that such documentation is not authentic or that they are anything other than documents signed by Mr Belyaev evidencing his involvement in, and knowledge of, the matters contained in those documents – which relate to the operation of the offshore network, and companies of which the Shareholders were beneficial owners. I am satisfied that Mr Belyaev’s evidence in respect of such matters was neither frank, nor honest. The evidence points to him having signed such documents and being aware of their contents.

Turning to particular areas of Mr Belyaev’s evidence which demonstrated that he was not a witness of truth, and that he was prepared to lie, a clear example of an untruth (and one that went to the heart of the Bank’s case) is what was pleaded at paragraph 3 of Mr Belyaev’s Defence supported by a statement of truth signed by him:

“3.

Save as expressly set out below, Mr. Belyaev was entirely unaware that he had any interest, whether direct or indirect, in any of the Borrowers until after the commencement of these proceedings. Even now, he does not admit that he has an interest and the Bank is required to prove the accuracy of the structure charts in the Schedules to the Particulars of Claim. Mr. Belyaev does not recognise the names of and details relating to the Borrowers and Connected Companies (as defined) identified in Schedules A to Q, being the transactions which are the subject of the claim. This is not surprising, given the very limited role Mr. Belyaev played in the management and governance of the Bank post 2008.” (emphasis added)

Mr Belyaev is there stating (supported by a statement of truth) (1) that he was “entirely unaware” (so stating in unequivocal and positive terms (if not with a degree of hyperbole)) that he was unaware that he had an interest direct or indirect in any of the Borrowers until after the commencement of the proceedings; (2) he did not admit that he had an interest; (3) he did not (when pleading his Defence) recognise the names of, and details relating to, the Borrowers and connected Companies (as defined) identified in Schedules A to Q; and (4) (1)-(3) were “not surprising, given the very limited role Mr Belyaev played in the management and governance of the Bank” (so seeking to explain such lack of knowledge or recognition by seeking to distance himself from the management and governance of the Bank).

In response to paragraph 80.1 of the Particulars of Claim, which pleaded that the Shareholders each “held an ultimate beneficial interest in and controlled each of the

There are numerous contemporary documents either sent to, or copied to, Mr Belyaev which referred to the Borrowers. As addressed above, I do not accept his evidence that he did not read emails sent to him – that evidence was not credible and was itself a lie. However, the statement that he did not recognise the names of, and details relating to, the Borrowers and connected Companies (as defined) identified in Schedules A to Q would be incredible (if true), but in fact was, I am satisfied, untrue. Amongst the Schedules to the Particulars of Claim was Schedule F (Stivilon) and Schedules H, I and J (Priangarskiy, Business Group and SiberianKD).

As to Stivilon, and notwithstanding what was stated in his Defence (that “Mr.Belyaev does not recognise the names of and details relating to the Borrowers and Connected Companies (as defined) identified in Schedules A to Q”) when cross examined Mr Belyaev accepted that when he saw the Particulars of Claim (to which his Defence was responding) he recognised the name Stivilon, knew that Stivilon was one of the Bank’s biggest customers and that it was a company where the Bank had a direct investment:-

“Q. …when you saw the Bank's particulars of claim, did you recognise the name Stivilon, I think in Russian it's OOO Stivilon, often translated as LLC Stivilon? A. As far as that relates to Gelengic project, yes, I did recognise the name Stivilon.

Q. Right. And you knew the Bank had lent a lot of money to Stivilon in relation to -- well, over the period 2008 to 2014, didn't you?

A. I knew that Stivilon was one of the big customers of the bank and I knew that Stivilon was also a company where Bank had a direct investment, direct stake.

Accordingly, in relation to Stivilon, it was simply untrue to say that Mr Belyaev did not recognise the names of the Borrowers when he pleaded his Defence, as he recognised the name of Stivilon when he saw the Particular of Claim (to which the Defence was responding). The reality, I have no doubt, is that Mr Belyaev was well aware of the name Stivilon at all material times.

However, whatever the position in relation to Stivilon, what was said in the Defence

There is contemporary documentation referring to these entities provided to Mr Belyaev from which he clearly knew the names of these entities and was aware of an interest in them. By way of example (taking matters chronologically):-

In any event, and in relation to the point currently under consideration, quite apart from the contemporary documentation, there is evidence of Mr Belyaev’s knowledge, from what he now admits, and what emerged through cross-examination. Thus, in his second witness statement (his main statement for trial), Mr Belyaev did not make any mention of SiberianKD or Business Group, and the only reference to Priangarskiy, was in relation to one CC meeting he “attended” in relation to Priangarskiy. He did not acknowledge that he was one of its owners or had any economic or other interest in it. In his third (reply) witness statement he again did not mention Priangarskiy, Business Group or SiberianKD by name but he agreed with paragraph 35(b) of Mr Yurov’s witness statement which admitted that the three Shareholders did own these, amongst other, companies – Mr Belyaev thereby admitting that he was, indeed, one of the beneficial owners of Priangarskiy, Business Group and SiberianKD.

It is also apparent, from Mr Belyaev’s cross-examination, that knowledge of ownership of particular Borrowers pre-dated these proceedings. Thus he admitted that he

“knew we had an economical interest with the other defendants” in the “Kodinsk mill factory in Siberia” and (contrary to the suggestion that he did not know how it was held) the connection between the plant in Siberia and SiberianKD was patent. He also admitted that at the time of the CC meetings he “could probably presume that [Priangarskiy] is related to the Kodinsk mill factory somehow” and that when he wrote his witness statement, he “knew that Priangarskiy is the company that is somehow related to the Kodinsk mill factory”.

The impression I formed was that Mr Belyaev was not willing to admit anything unless he had no choice but to do so – and that he resorted to denying he had read documents or read what he was signing, if the admission he had done so would have been adverse to his interests. Still further, if he did not like the content of a document he would attempt to belittle the content or its relevance. The most egregious example of this related to the document sent by Mr Yurov to Mr Belyaev and Mr Fetisov on 28 June 2015 in which a decision being made in 2008 to start submitting false (or as Mr Belyaev would have the translation “unreliable”) accounts to the CBR is acknowledged – as addressed above in the context of Mr Yurov’s evidence. This is, on any view, an admission of obvious impropriety. If such a decision was not made, or Mr Belyaev was not party to it, the obvious response would be for him to reply either saying it was not true, or (if he had not been aware of it) expressing shock and surprise at such impropriety. He did neither.

When cross-examined about this he had no answer, resorting to describing a communication from his fellow Shareholder, in the form of Mr Yurov, as “garbage”:

“MR PILLOW: Mr Belyaev, there is no record in the emails that we have of you responding to this document or email. Can you explain that?

A. How do you respond to that garbage?

Q. Right. Is that your answer to the judge?

A. My answer is I couldn't respond to that nonsense because it is a nonsense and I don't know what was the meaning of that exercise and who wrote this but that looks to me as, you know, as most of it is written without any understanding of how the banks work, of how the procedures operate. Like any banker would know that depositors would not be able to withdraw deposits if the licence is revoked. Like any decent banker would absolutely know that.”

I did not find this answer to be credible – the obvious inference (which I draw) is that Mr Belyaev did not respond to Mr Yurov’s memo because he knew perfectly well that the memo contained the truth, and that he was (contrary to his denial) party to that decision. Yet further, if he genuinely regarded it as “garbage” one would have expected him to engage with his fellow shareholder upon it. His evidence in this regard, when asked questions by the Court, was no more credible and involved resort to the familiar technique of not recalling the email and not remembering seeing it, before speculating that he and Mr Yurov could have talked over the phone and speculating further as to what might have been said (in terms which themselves were not a credible response to Mr Yurov’s email):- MR JUSTICE BRYAN: Mr Belyaev, just help me, just in terms of your relationship with your fellow shareholders.

Mr Belyaev’s evidence was particularly unsatisfactory when it came to areas that involved his (alleged) knowledge of matters at the heart of the Bank’s case specifically knowledge of the offshore network, knowledge of “balance sheet management” including knowledge of the Bank lending to companies set up or controlled by Mr Worsley.

I have already given the example of Mr Belyaev rather than answering questions as to his knowledge of the offshore network asking for a definition of the “offshore network” when he knew perfectly well what that meant. He himself had said in his witness statement that Mr Worsley had been hired to “manage various companies for the Bank, a number of which were incorporated outside Russia”. He was particularly coy about even referring to companies in the “offshore network” choosing instead to use the term “SPV” for such a company which was neither apposite (given that SPVs are neither necessarily offshore nor necessarily off-balance sheet) nor a term that features heavily in the contemporary correspondence. Even when asked to give an example of an “SPV” being used to take over a defaulted asset/project during the relevant period (a practice he accepted he had some awareness of in a general sense), Mr Belyaev asked for a “specific company” to be named.

When asked about balance sheet management, he chose instead to say that “yes, there were companies that were SPV companies to conduct transactions and hold assets and liabilities”. He then chose to deny knowledge of “balance sheet management”. There was this series of exchanges:

“Q. Were you aware at any time between 2008 and 2014 that such companies, SPVs as you would call them, were being lent money by the Bank to service loans that the Bank had given to other companies?

A. I cannot -- can we, please, define what companies we are talking about, because the question is too broad to give an answer and if I give a positive answer, that would be an answer to unlimited -- undefined amount of companies.

If I give a negative answer, it will be the answer to unlimited number of, you know, negative answer to an unlimited number of companies and I will be probably giving incorrect evidence and answer in every case. So if you could specifically ask me about any company that you have in mind, I will be able to answer what I think I know or knew at the time about that company.

Q. No, Mr Belyaev, I've asked you the question I want you to answer and I will repeat it. Were you aware at any time between 2008 and 2014 that SPVs, as you would call them, were being lent money by the Bank to service loans that the Bank had given to other companies, any other companies?

A. I could say that I would be -- I am aware that some of the companies which will be receiving loans from the banks as a part of their operational business would be passing money to the other companies. Q. Right. Can you name any examples, please?

A. Well, that was just a very general conclusion. I can't think of any example.”

Mr Belyaev was equally evasive in relation to his knowledge of the Bank lending to companies set up or controlled by Mr Worsley as can be seen from these exchanges:-

“Q. Were you aware between 2008 and 2014 that the Bank was

lending money to companies set up or controlled by Mr Worsley?

A. I was aware that the bank was lending money to some of the SPVs which were -- some of them probably were set up and controlled by Mr Worsley (^ck sentence).

Q. Can you name any of those companies that the bank was lending to that were set up by Mr Worsley?

A. Do you want my -- do you want my answer to be my recollection from 2014 or as a part of what I have been, you know, shown and become familiar with in the process of first criminal investigation in roubles and then this process in the UK?

A. Let's start with the names of any companies you were aware of between 2008 and 2014 that fall into that description, please.

A. What description, please?

Q. Companies controlled or set up by Mr Worsley to which the Bank was lending money, Mr Belyaev.

A. And you said starting from 2008?

Q. Yes.

A. It is my understanding that Mr Worsley didn't appear ^(inaudible) to the Bank until 2010 or 2011.

Q. Is that your answer to my question, Mr Belyaev?

A. Let me think about any examples. The answer is, no, not really.”

Whilst, as can be seen from such answers, Mr Belyaev was keen not to admit any knowledge of “balance sheet management”, or Bank lending to companies set up or controlled by Mr Worsley, his very evasiveness begs the question why he was being so evasive in his answers. He was similarly evasive about the various documents he signed declaring him to be one of the beneficial owners of companies in the offshore network (as has already been noted). I am satisfied that the reason he was lying as to not reading documents he signed and not reading emails he was being sent which revealed the use of the offshore network and “balance sheet management” was precisely because he knew about “balance sheet management” and the use of the offshore network but was prepared to lie rather than admit he had such knowledge, given that it was adverse to his interest to do so.

It would, in fact, have been incredible if Mr Belyaev did not know about the use of balance sheet management given that he was (on his own evidence) still participating in the Bank’s business following the events of 2008. The genesis for balance sheet management, at this very time, was explained by Mr Yurov on Affidavit in these terms:-

“29.

All of these problems placed the Bank in a very precarious financial position. The impact of the diminution in capital was magnified, because the Bank was restricted in its ability to lend funds by reference to a multiple of its capitalisation. Accordingly, the Bank's ability to lend was greatly reduced by any fall in capital. This was compounded by the fact that the Bank was unable to raise additional capital by issuing further shares, because its shares were frozen.

30.

As a result, there was considerable concern that if those losses had all been recorded on the Bank’s balance sheet, it would have had its licence revoked by the Central Bank of Russia and consequently been declared bankrupt. For obvious reasons, the Bank’s management wished to do everything possible to prevent this from happening, and took steps to manage its balance sheet using its pre-existing offshore structure (as I will describe in more detail below).”

“Balance sheet management” was conceived and implemented at a time when Mr Belyaev was, on any view, still participating in the Bank’s business and I am satisfied that he must have been aware of it. There is, in this regard, a very telling email from Mr Worsley to Mr Belyaev alone (to his private email address) dated 19 December 2012 – i.e. when balance sheet management was in full swing with a network of offshore companies set up or controlled by Mr Worsley, which shows that Mr Belyaev knew very well what was being done by Mr Worsley in relation to an offshore network for balance sheet management with fake nominee UBOs and the like. It was in these terms:-

“Sergey,

Hi. FYI - the 5 copies of the paperwork in storage for the new people are of course already in place.

We did not discuss this, but it is of course in hand, and was indeed handled several days ago - IE well before the transfer of assets as per the papers to sign today.”

The reference to the “new” people (in my judgment manifestly a reference to the new nominee i.e. fake UBOs) would only make sense to Mr Belyaev if he had discussed such matters with Mr Worsley, and knew what he was talking about (otherwise it would be gibberish) – and equally Mr Worsley would only write to him in such Delphic terms in circumstances where Mr Belyaev would know what he was talking about. Mr Belyaev did not respond asking what Mr Worsley was talking about. I am satisfied that Mr Belyaev (contrary to his evidence) knew perfectly well about the offshore network, and its use for balance sheet management (as well as the ultimate beneficial ownership in the Shareholders – as reflected in the numerous documents signed by Mr Belyaev declaring him to be one of the beneficial owners of companies in the offshore network). Mr Belyaev was simply unwilling to tell the truth given that it would implicate him in balance sheet management.

That Mr Belyaev knew about balance sheet management and about all the companies being owned by the Shareholders is also illustrated by the fact that Mr Belyaev (like the other Shareholders) received, and did not react with surprise, to Mr Worsley’s 17 June 2014 “how to carry the assets” email (sent to the Shareholders’ private email addresses), an email revealing that all the companies were being treated as the Shareholders’ and suggestions were being made as to factoring out the “dead assets” (to be characterised as the Bank’s) leaving the “good assets” with the Shareholders. When Mr Pillow put this document to him, his response was evasive, as usual, in an attempt to avoid being fixed with knowledge of the contents:-

“…Pausing there, you knew by this stage, didn't you, that the funding of the offshore companies involved circular payments through multiple companies to pay interest on loans?

A. I can see Mr Worsley's description of, you know, some kind of situation but if you were to generalise it somehow, I do not agree with your statement.

MR JUSTICE BRYAN: Mr Belyaev, did you read this email at the time and did you acquire the knowledge that is set out in this email at the time or not?

A. I can't really say, my Lord, because I might as well be travelling, which is most likely, because I spent in 2014 more time, you know, abroad than in Russia and

I would have to check with the date, which is -- this

is June, middle of June. I don't know, I really don't know. I would have to look at it. But if -- even if I read this email, just, you know, I cannot -- would not go into any deep conclusions that the counsel is trying to infer here.

…

MR PILLOW: If I may, Mr Belyaev, I think the judge was asking you whether you read it and the fact that you weren't in Russia isn't an answer to that question, is it, because this is to your private address and even you accept that you could read those emails from your mobile devices.

A. Yes, I agree but it is less likely that I would read it if I'm travelling than if I'm at the Bank, so it's just as simple as that, if I'm travelling and if I'm busy with some stuff, I would check my emails regularly. If something would catch my attention, I would go over it. As you know, I was not really involved with the Bank at that point. But if I'm at the Bank, I would, you know, most likely read it or definitely read it because, you know, that would be convenient.

Q. Why do you think Mr Worsley didn't send it to your bank

address but sent it to your three private addresses instead?

A. I do not have an answer to that question but I would probably suggest that he was not even using my bank address at the time at all. That would be probably the only address in his phone that he would be using if he wants to address me because he knew that I travelled most of the time.”

Mr Belyaev also sought to down-play evidence that connected him to relevant events even where he had initially addressed such matters. The most egregious example of this related to his relationship with Mr Plyakin the Director of the Banking Regulation and Supervision Department at the CBR who had attended a meeting with the Bank’s representatives on 7 December 2009. Mr Belyaev went so far (in his evidence in chief) to delete evidence from his own witness statement that he and Mr Plyakin knew each other socially from attending martial arts classes together (which he must have consciously included in his witness statement, before subsequently regretting saying that). He then also denied attending that meeting despite Mr Belyaev being recorded as attending in the contemporaneous minutes signed by Mr Plyakin himself and sent to the Bank under cover of a letter also signed by Mr Plyakin. It is difficult to see why the minutes would be other than accurate or if not accurate why they would not have been corrected. An attempt was made to get Mr Fetisov to confirm that Mr Belyaev was not there – but that attempt failed rather dramatically, Mr Fetisov saying, “I think he was there, you know, that’s what I think”. Once again, I am satisfied that Mr Belyaev gave evasive and untruthful evidence in this area.

There are also numerous matters going to credit on which Mr Belyaev was crossexamined where I am satisfied Mr Belyaev did not give truthful evidence, and which reflect adversely on his character. One example will suffice at this point, namely the yacht charters already addressed above in relation to Mr Yurov. Mr Belyaev too was unwilling to accept the obvious that the use of the Bank’s money for personal holidays was improper and dishonest, albeit he accepted it was “unethical”:

“Q. And you knew all of this at the time, Mr Belyaev, not the details of precisely which accounts were being debited and credited but you knew that the Bank was funding your lavish holiday, didn't you?

A. No, I didn't -- no, I didn't know that and I should say that actually to the best of my understanding of, you know, how Russian banks work, it would be under Russian legislation a permittable expense for the Bank. It just would have to be funded probably from the profit of the Bank but it would be quite possible to do that. I would not think that it would be right way to do that personally but legally and from a financial standpoint, that would be perfectly fine. As you probably know, banks in Russia own, you know, planes, can pay for the travels of the executives, they charter yachts. This is a permissible way of doing things. I would not agree that this is probably the, you know, the most ethical way to do things.

Q. And, Mr Belyaev, you know that this was improper use of the Bank for your personal benefit and that's why you can't give a straight answer to a straight question about any of this, can you?

A. If by improper, it means unlawful, then the answer is absolutely not. If by improper it means that it's somehow unethical or it would be better, you know, if it would be paid personally, then I agree with you.”

Mr Fetisov, like Mr Belyaev before him, was also a user of techniques such as denying he had been at meetings or had read mails when he considered that presence at those meetings or the contents of those emails, to be contrary to his interest. Tellingly such matters tended to be at the heart of the Bank’s case in relation to particular loans that are in issue and his approval of them at CC meetings, and his ownership of companies in the offshore network. He was also defensive and argumentative at times as candidly recognised in Mr Fetisov’s Closing Submissions. I do not consider, however, that he was an “essentially” honest witness (as I was invited to find at paragraph 8(1) of Mr Fetisov’s Closing Submissions). On the contrary, and in the circumstances I identify, I am satisfied that Mr Fetisov did not give honest answers of questions asked of him, and was prepared to lie with a view to evading evidence that he perceived as contrary to his own interests. He made wild and, I am satisfied, unjustified allegations against Mr Worsley (largely in

Mr Fetisov’s attempts to distance himself from events, and from involvement in the Bank’s activities is well illustrated by his omission of his role of President of the Bank in his written evidence and the denial of various responsibilities set out in his contract of employment. As to the former, Mr Fetisov does not mention, anywhere in his Defence or in two witness statements that he was President of the Bank, as well as being the chairman of the Management Committee for significant periods of time.

It is difficult to see how this could be anything other than a deliberate omission given the importance of addressing what his roles and responsibilities were set against the backdrop of the pleaded allegations made by the Bank, and his pleaded Defence that he was “not involved … in the day-to-day management of the Bank”. His answer (which is hardly credible given his (rightful) recognition that he should have mentioned it), is that

“it must have slipped through”:-

. “Right. What is your explanation to the judge for why that information is not in any of your pleadings or witness statements?

A. I guess -- it's hard to say. It must have slipped through.

Q. This was the position at least nominally at the head of the Bank, wasn't it? The president is the person in charge. So it's hardly something that would have slipped your mind?

A. No, that's a wrong assessment. President of the Bank was not the person in charge at all. But I agree that I should have probably reflected the fact that I was the president of the Bank in -- well, in defence or in my witness statement.”

I am satisfied that it was an untruth to suggest that “it must have slipped through” – given the issues in play as to his role and responsibilities, a matter going to what his role and responsibilities were would logically be addressed, unless there was a conscious decision not to do so, so as to downplay his involvement in relation to management. So far as Mr Fetisov’s positive plea in his Defence that he was “not … involved in the dayto-day management of the Bank” this is difficult to square with his contractual responsibilities as set out in his 2010 employment agreement (and his 2013 employment agreement which is materially identical). As to the former it provided, amongst other matters under the heading “Subject of the Agreement” that (Clause 2.1), “The Bank shall hire the Manager (a) for performance of the functions of the President of the Bank…”.

The accompanying Annex, entitled “Functions of the Manager’s Position” provided, amongst other matters that:-

“President of the Bank

The competence of the President of the Bank includes the following matters:

1.1

Organization of execution of the decisions of the General Meeting of Shareholders and the Board of Directors of the Bank;

1.2

Organization of work of the Management Committee of the Bank created as the permanent collective working body of the Board of Directors, including, without limitation:

•

exercise of the powers of the Chairman of the Management Committee of the Bank; • convocation of meetings of the Management Committee, performance of the functions of the chairman at the meetings of the Management Committee and organization of recordkeeping;

•

determination and approval of the agenda of the meetings of the Management Committee;

•

decision-making on the inclusion of additional issues into the agenda of the

Management Committee;

•

signing of all documents approved (adopted) by the Management Committee;

•

approval of minutes of the meeting of the Management Committee;

•

appointment of the Executive Secretary of the Management Committee.

1.3

General management and coordination of activities of the following supervised units and areas of activities of the Bank:

…

•

Unit of Development of Business with Legal Entities and Small Enterprises;

•

Unit of Risk Management;

…

•

Legal Directorate;

•

Accounting Unit and Unit of Management Accounting and Directorate of Financial Control;

•

Unit of Retail Business;

…

•

work with distressed assets;

•

debt financing and securitization.

By decision of the Chairman of the Board of Directors of the Bank, the list of supervised units and areas of activities of the Bank in this clause may be amended without any additional consent of the Manager.”

Yet Mr Fetisov had denied responsibility for risk management in his Defence (at paragraph 8(4), supported by a Statement of Truth, “Mr Fetisov was never responsible for risk management or the Bank's finance department.”). The Bank’s audited IFRS accounts (bearing Mr Fetisov’s signature) provide (under the heading “Risk management policies and procedures”) that

“The Management Committee has overall responsibility for the oversight of the risk management framework, overseeing the management of key risks and reviewing policies and procedures as well as approving significantly large exposure.

The Management Committee is responsible for monitoring and implementation of risk mitigation measures and making sure that the Group operates within the established risk parameters. The Chief Risk Officer is responsible for the overall risk management and compliance functions, ensuring the implementation of common principles and methods for identifying, measuring, managing and reporting both financial and non-financial risks. He reports directly to the President of the Bank and to the Management Committee.”

When questioned about the contradiction between what he had stated at paragraph 8(4) of his Defence and what was stated in the IFRS accounts that he had signed, he suggested that it was the accounts that were inaccurate. That is not credible. He stated:-

I am satisfied that there was no mistake or misstatement in the accounts in this regard, and that it is paragraph 8(4) of his Defence which is not true, an untruth which he perpetuated when he was cross-examined. There is no reason why the IFRS accounts should mis-state the position in this regard and every reason for them to be accurate on a matter of factual detail. The reason for Mr Fetisov’s answers is clear enough – to attempt to distance himself from responsibility for risk management.

Mr Fetisov was keen to distance himself from the audited accounts that he himself signed in 2008, 2009 and 2011. Despite the importance of the signing-off of accounts as a result of which one would expect anyone in Mr Fetisov’s position to read carefully what he was signing Mr Fetisov suggested that he had not read the part setting out the Bank’s policies in relation to subsidiaries, and he would not accept that companies owned or controlled by the Bank (per Mr Fetisov’s evidence on the offshore network of companies) would fall within such definition. The former is not credible – any competent director in

Whilst it might just be conceptually possible that Mr Fetisov had not read the detail of the accounts he signed, the suggestion that he simply ignored, or paid little or no regard to emails from Mr Worsley is incredible, as are the reasons he gave such as that Mr Worsley was full of “wild business ideas”. I am in no doubt that Mr Fetisov’s evidence was untruthful in this regard. His professed reasons for not reading emails from Mr Worsley is typified by reference to questions concerning an email from Mr Worsley to the Shareholders (to their private email addresses) of 30 May 2012, which provided:-

“All,

Re the meeting tomorrow at 1030am

VP Bank: A rated Swiss bank

Meeting: CEO Roger Hartmann

Reason for the meeting: VP need to get to know you all, so that they are

comfortable to trade with NBT. Be relaxed, be cool, etc Transactions under review:

1)

We build a trading history with them (EG in Russia 30)

2)

Part of those securities are lent to companies, under Fiduciary agreement (as per Winter Bank). Then Repo, and monies used to cover positions.

3)

Key Issue: VP asked me why such a structure is needed. I said that some of NBT borrowers do not wish that the market knows that they borrow from NBT, as the Moscow market is very competitive, and for example if Company A wants to sell an asset to Alfa Bank or RosBank etc, it is best that Alfa/Ros do not know that NBT is lending to Company A VP accept this view.

4)

Presentation: I have presented myself as a borrower from NBT, and also a consultant to NBT who runs its non banking assets. Hence, as a borrower, I am interested in setting up this structure. I have signed NDA with VP re NBT. In the NDA, I agreed that I would be the channel between NBT and VP (except trading decisions), so that as with Winter, we keep this private.”

When questioned about this document and the meeting. Mr Fetisov stated, amongst other matters:

“A …I think I didn't go, if the meeting took place.

Q. Well, you knew that a meeting was planned and you knew that Mr Worsley had already lied to VP Bank about himself and the business that was going to be discussed, didn't you?

A. No, I didn't know. I probably paid very little attention to this email, skipping through first three or four lines, if that, understanding that's not my cup of tea and I would not be going regardless, and that's really it. That's really -- what he lied about, I probably didn't read, if he lied about anything.

Q. You can see in number 3 that he was telling you, about

a meeting you were meant to be having "tomorrow", apparently, that he had told VP Bank that some of the Bank's borrowers don't wish the market to know that they borrow from the Bank, and it gives the example of AlfaBank and RosBank. You knew that wasn't true, didn't you?

A. If I read that email, that wouldn't be true, but --

Q. Right. That's all I was asking.

Then number 4, the same thing: he says he's presented himself as borrower from the Bank and, "as borrower", he says, "I'm interested in setting up a structure with VP Bank". And you knew that wasn't true, didn't you?

A. If I read that, that wasn't true. However, I say that those type of emails with those wild business ideas which Mr Worsley from time to time shoot to me -- I think Mr Yurov was receiving a lot more of them -- I didn't pay -- I paid very little attention to his contemplations on how some sort of business arrangement should be arranged.

I have plenty of examples of wild behaviour and unreasonable behaviour of Mr Worsley with regards to -- to some sort of business arrangements where he was involved in 2012. So handling him on some wild ideas wasn't my responsibility, and I repeat: I paid probably

very little attention to this email”

This was not a wild business idea, but one carried through to draft fiduciary arrangements being negotiated between the Bank and VP Bank, albeit Mr Worsley was stating matters that were untrue in the email. Mr Fetisov would have known of the untruths but did not respond to Mr Worsley asking why he was stating such matters. Mr Fetisov’s denials of reading such documents are an attempt to disassociate from what Mr Worsley was saying, where what Mr Worsley was saying to a third party was not true. Mr Worsley’s emails could not, as a whole, be characterised as containing “wild ideas” and the suggestion that Mr Fetisov would not read what was sent to him by Mr Worsley who was not only managing the offshore network, but also managing personal assets of the Shareholders including Mr Fetisov is simply incredible, and I reject it – Mr Fetisov was not telling the truth in terms of his knowledge of the contents of emails from Mr Worsley.

Mr Fetisov accepted the following matters in cross-examination:-

“MR PILLOW: Mr Fetisov, if you knew that an asset was owned

by the Bank or for the benefit of the Bank, it would have been improper for you to cause it to be transferred to yourself personally unless you'd paid a proper price for it, wouldn't it?

A. Generally, yes, I agree.

Q. Indeed that would be dishonest, wouldn't it?

A. I guess so, yes.

Q. And it would be improper for you to take the income or profit from a Bank asset personally instead of the Bank getting that money, wouldn't it? A. Generally, yes.

Q. And it would be dishonest, wouldn't it?

A. Yes, I agree.

Q. If you knowingly transferred an asset that was the Bank's into a discretionary trust of which you were the sole beneficiary, that would also be improper and dishonest, wouldn't it? A. Generally, yes”.

This is precisely what Mr Worsley planned to do, and in due course did, even though how it was contemplated it would be done, and it was done, changed over time. When such proposed structures were put to Mr Fetisov (by reference to a proposed structure chart sent by Mr Iskandyrov to Mr Worsley dated 15 January 2010 that Mr Fetisov was cc’d into) Mr Fetisov resorted to the blatantly untrue suggestion (effectively itself a wild

“conspiracy theory” against Mr Fetisov himself):-

“Q. … what I'm suggesting to you is that in substance this is what ended up happening because although the names of the companies changed and the places of incorporation because Mr Worsley was advising on those matters, ultimately what happened was that he restructured the network so that you did come to own these companies personally through offshore companies and nominees, didn't you?

A. I did not. I disagree with your presumption. In essence, what Mr Worsley has created eventually is the big deception, conspiracy, in a way against me in particular, and the structure which he created secretly, without proper authority, without instructions, had nothing to do with that.” (emphasis added)

If Mr Fetisov disagreed with what Mr Worsley was doing he would have responded disassociating himself from what was being proposed but he never did so. On the contrary he signed numerous documents showing he was the beneficiary in relation to various companies with no distinction between whether they were “Bank Companies” or

“Personal Companies”. For example, on 29 July 2010, he (and the other Shareholders) signed letters to Chrysanthou & Chrysanthou as beneficiary, in respect of Willow River, Moscow River (admitted Shareholder Companies) and Black Coast (allegedly a “Bank Company”). When this document was put to him (somewhat incredibly) he said: “I've seen a number of documents during this trial, where my signature clearly is not mine or initials not mine. Here it looks strange. It looks like it's superimposed, basically, and there are plenty of other documents in this. I think -- you know, I might have signed but there is a certain degree of doubt here.”. When asked to account for the lack of any apparent distinction between the Shareholder companies and Black Coast he suggested that “if you have a bunch of companies with different holding structures, run by the same service provider, you give instructions to the service provider with one list”. This makes no sense. As was pointed out to him there would be no way for Chrysanthou & Chrysanthou to understand that there were different beneficial ownerships. In any event Mr Fetisov cannot have been signing as beneficial owner of the Bank as the schedule shows the beneficiaries with shares 2/7th, 3/7th, 2/7^th beneficially owned which, as Mr Fetisov admitted, was not the same percentage as their ownership of the Bank. Mr Fetisov would not accept the obvious which was that he was signing personally because he knew they were his companies. This whole series of answers shows Mr Fetisov obfuscating when shown documents demonstrating his beneficial ownership of companies and the lack of any Bank/Shareholder distinction.

If Mr Fetisov has not understood what he was being asked to sign, and why, he could and would have asked Mr Worsley – in this regard he accepted that, as an intelligent businessman he understood the importance of legal documents he signed – there is no rational reason why Mr Worsley would not have told him what he was doing and why. However, the reality, I am satisfied, is that Mr Fetisov did not ask such a question because he knew perfectly well that the reason why Mr Worsley structured or transferred the companies in the offshore network into Mr Fetisov’s beneficial ownership and then into his personal discretionary trust was precisely because Mr Fetisov (and the other Shareholders) regarded such assets as their own personal assets.

However rather than acknowledge this, I am satisfied that Mr Fetisov gave untruthful answers to explain the companies ending up in his personal discretionary trust involving wild accusations of “dishonesty and deception and maybe possibly fraud” on the part of Mr Worsley (seemingly allegedly against him and the other Shareholders), that ultimately made no sense and had not been advanced before Mr Fetisov gave evidence:-

“So what I've seen in the documents which -- in the emails, which Worsley passed on to me. Worsley undertook a massive fabrication exercise, which lasted from about February 2016 to about May of 2016, whereabouts dozens and dozens if not hundreds of deeds of trust from various companies, I think a lot of them on this list, it's really hard to -- I didn't do exact -- you know, table -- but dozens of documents, if not hundreds are created. Companies are moved around. Shareholder relationships are changed in order to stash it all under Valesior. I think Valesior Holding, where, surprisingly enough, a deed of trust to Arlingham exists. That's what -- the knowledge I gained later on through this failed settlement, which didn't come to the -- to the successful completion with Worsley.

So that's why I think this table at the end of, I believe -- that was the end of 2016 -- was incorrect because all these newly created documents which Worsley, you know, done on his own accord, I believe also he -- you know, he might have been instructed by the claimant to do that and definitely paid by the claimant at that time, as recognised by himself, so it was all stashed under the Valesior once again. I also seen that – the whole arrays of the documents missing, he showed me emails, for instance -- I've seen emails where Worsley communicates with employees of Teos and this particular lady called Melanie -- -- I forgot her last name but she comes up saying: I have nothing, no documents whatsoever on these, these, these, companies, can I create them as usual. And miraculously, like later in the day or next day or two days, documents appear to be suddenly available, found somewhere. So this is why I'm saying that this is all -- like not clear to me how it was all organised, I definitely never gave instructions to include all that into my personal trust and, at best, I think that all constitutes big sort of dishonesty and deception, maybe possibly fraud.”

A difficulty with this wild conspiracy theory, quite apart from the contemporary documentation signed by Mr Fetisov and reflecting his knowledge, is that there has never been any challenge to the authenticity of any of the contemporary documents disclosed by the Bank, the Defence makes no such allegations, nor did Mr Fetisov do so in his discontinued Part 20 proceedings against Mr Worsley – it appears to be a recent creation on the part of Mr Fetisov.

In this regard Mr Fetisov went so far as to suggest that Mr Worsley tried to “trick” him by transferring what were alleged to be “Bank Companies” to Arlingham and Brora – “What basically Worsley had done here is, I guess, trick to maybe do what you just described without explanation, without proper – proper disclosure of what has been done”. The fundamental difficulty with this suggestion is that there is no apparent reason why Mr Worsley would want to defraud Mr Fetisov or trick Mr Fetisov by deliberately transferring what Mr Worsley supposedly knew to be “Bank companies” into the personal ownership of Mr Fetisov or his personal discretionary trust – if anything it would be the Bank being defrauded. Also the motivation of Mr Worsley for doing so (i.e. acting other than in accordance with the Shareholders’ instruction, or for that matter the Bank’s) is entirely opaque. When asked for his explanation, Mr Fetisov responded with a yet further (new) and ultimately incoherent theory that finds no foundation in the evidence before me:-

“Why would Mr Worsley possibly want to trick you, as you've suggested to the judge might be the case? A. That was just a suggestion. I think by that time already, 2012, Mr Worsley has established a system of improper benefit from these -- from various companies and from the structures he ran for the Bank and for the -- well, for us personally, for RCP/Willow River and other companies, PLPK, whatever, I've seen the documents in this dataset which Worsley passed on to me and my solicitors at the failed settlement which I was trying to achieve with him. There are indications there that he was taking a cut with nominees. He was getting a feed -- how it's called, paybacks from certain service providers, from accounting firms, from some possibly auditors. So there are bits and pieces there which show that there was a system in place to benefit him personally at that time already.”

Another unsatisfactory aspect of Mr Fetisov’s evidence is that, somewhat surprisingly given his acknowledgment of knowledge of “balance sheet management”, and his defence of such practice in his Defence and witness statements, during the course of his crossexamination he went so far as to distance himself from such practice, and indeed answered

This professed lack of knowledge is inconsistent with his Defence, the Schedule thereto dealing with Erinskay, his witness statement and his Skeleton Argument for trial:-

Mr Fetisov’s last minute denial in cross-examination that he knew at the time that the funds lent by Erinskay and Baymore, the two largest “balance sheet management” borrowers, has been used to service and/or repay loans taken out by other companies was simply untrue. It was, I am satisfied, a last ditch “change of tack” in an attempt to distance himself from balance sheet management. I am satisfied that Mr Fetisov knew perfectly well what these companies were used for, and that it was not honest.

Equally Mr Fetisov’s attempts to suggest that the purpose of the Bank lending to offshore companies was so that they could buy bonds and then repo them so as to generate liquidity for the Bank made no sense, and he could offer no coherent explanation when cross-examined:-

“How is it advantageous for the Bank to use cash that it already has to give to other companies for what you call liquidity purposes?

A. I don't know how it was exactly advantageous. I was not involved in the bond trading, as you know, and then other people made those decisions and made those allocations between the companies and the Bank balance sheet, which should trade which bonds and how it should be financed.

Q. And how do you say it generated liquidity for the Bank? A. Well, bonds were repo'd, as I understand, from time to time.

Q. Yes, but if the Bank had the cash to lend these companies, it had liquid cash. So how did these companies generate liquidity for the Bank?

A. The position of the bonds, I understand -- we have been through one of the examples, I think, on Friday, that the bonds -- the amount of the bonds purchased with the cash received far exceeded the amount of the cash because there is an outside financing of the repo counterparty involved. That's my understanding of how it worked.

Q. The Bank could have done that itself and at better rates on repos, couldn't it?

A. Done what itself, I'm sorry?

Q. Used the cash to buy bonds and repo them?

A. Indeed. I'm sure it did but there were, I think, restrictions on the limits, counterparty limits, as far as how much bonds the Bank could repo. I think that was the reason.”

Perhaps in recognition that his description of such companies as “liquidity” or “treasury companies” did not really make any sense, he described them during crossexamination as “bond trading companies”, but bond trading could have been done by the Bank, and there is no evidence to support Mr Fetisov’s suggestion (which seems entirely misplaced) that the “bond trading” activities of Erinskay and Baymore had generated “millions of dollars of profit” from the Bank.

In fact, as the Bank points out, and as I accept Mr Fetisov knew, in the first half of 2014 a scheme was being put in place to use Bank funds notionally borrowed by Erinskay and Baymore to allow the Bank’s own shares to be purchased in the name of Mr Piecha. This can be seen from:-

“Balance sheet management” was not the only area where Mr Fetisov’s evidence shifted during the course of the trial, and in relation to which I am satisfied Mr Fetisov gave obstructive, and ultimately untruthful evidence. Indeed the most egregious example was in relation to his attempts to resile from his attendance at CC meetings and participation in all the CC decisions that the documents record him as participating in. It was common ground in the Agreed Facts and Issues that he participated in all of the CC decisions for which the documents record him as having attended. This was entirely consistent with Mr Popkov’s evidence (which went unchallenged) that his team reviewed records of all of the CC meetings (both in person and in absentia), the relevant details (including the participants) were identified in Appendix 1 to his first statement, and that where there were physical meetings, there exist full minutes signed by the Chairman (usually Mr Yurov himself), which have been checked to confirm their conformity to the disclosed extracts (see paragraphs 10 to 11 of Mr Popkov’s second statement).

Yet during the course of his evidence, in particular on Day 23, Mr Fetisov denied having participated in just about every (of the many) CC decision he was shown. He augmented such denial in particular cases with an account of being away at the time of meetings. Thus, he said he was in eastern Russia racing rally cars on 25 February 2010, when the documents show that, along with Mr Yurov, he voted in favour of a loan to Business Group (this was an absentee ballot). However, he had not previously suggested that he had not approved this loan or sought to modify his evidence by a corrective or supplemental witness statement.

The reality is, however, that Mr Fetisov could have approved this, and other decisions, which were made by absentee ballot, remotely. Indeed, ultimately, I understood Mr Fetisov to accept that in fact where there was an in absentia vote, and he was away, he did approve the decision on his return to the office:-

I am in no doubt whatsoever that the documentary record, and the evidence of Mr Popkov (which went unchallenged in this regard) was accurate as to presence and approvals, and that Mr Fetisov’s evidence in cross-examination was a dishonest attempt to deny he had approved and voted for every decision which the documents showed he voted for (regardless of where he was when he did so, or indeed when he did so). This was another example of Mr Fetisov obfuscating and attempting to distance himself from the CC decisions that are in issue.

I am also satisfied that he also sought to distance himself from attendance at meetings with the CBR and his recorded attendance at two meetings with the CBR in August 2009 and April 2010. He was recorded as attending in the official minutes in his capacity as President of the Bank. Ms Podstrekha gave evidence as to the care taken over CBR minutes, and those minutes were sent to the Bank contemporaneously and did not prompt a call for correction. Notwithstanding his suggestion that he was not in Moscow at the time of the first meeting the weight of the evidence is that he attended those meetings, and I am satisfied that this is another illustration of Mr Fetisov seeking to distance himself from a matter by saying he was elsewhere at the time.

As with Mr Yurov and Mr Belyaev, Mr Fetisov was also cross-examined in relation to various matters going to credit, including in relation to the yacht charters. He too attempted to defend the indefensible and chose to support the implausible account of events recounted by Mr Yurov that I am satisfied was a false account of events. It was submitted in Mr Fetisov’s Closing Submissions by Mr Willan on behalf of Mr Fetisov that in relation to the intended use of the yachts if any findings can safely be made in relation to the intended use of the yacht they will tell the Court little about the quality of Mr Fetisov’s evidence on the matters in issue in the case. I disagree. His evidence shows that he was prepared to lie to the Court and to defend that which was not capable of being defended. That shows he is not a witness of truth and this inevitably impacts on the veracity of his evidence as a whole. It also shows that he was prepared, contemporaneously, to act in a dishonest manner, which is of relevance when considering the inherent probability of him acting dishonestly in the respects which are in issue.

In relation to the first trip Mr Fetisov recounted the same (implausible) account of events:

“A. The first trip? Yes, I do remember. Q. It's the Kogo, I think, at this stage.

A.

Yes.

Q. And that was never intended to be anything but a private excursion for you and your wives, was it?

A. No, it was not. Actually, I think Mr Yurov gave quite a full account of what has been -- what has been planned for this trip. Unfortunately, people who were supposed to be there, they very rich and very, you know -- they have really extravagant life styles, so they didn't show up. And that so happened that -- yes, they were -- Mr Yurov with his wife, Belyaev with his wife, myself, and Mr Worsley joined in because he was helping to organise that trip.

The initial correspondence with the charter company on 3 June 2010 is for a vessel of an appropriate size for the Shareholders, their wives and Mr Worsley, and that initial correspondence between the charter company and Mr Worsley was forwarded to the Shareholders including Mr Fetisov (at two email addresses) who forwarded it to his wife. There is nothing in the initial email or subsequent correspondence about any involvement of corporate guests whether or not including the Guriev family.

Mr Fetisov recounted the same (implausible) account as Mr Yurov in relation to the second trip:-

“Q. Right. Do you say -- in relation to the next yacht trip -- I should have said that was the Trident, not Kogo. The next yacht trip in 2011, the same time approximately, do you say that was planned as a private trip or had it been intended for corporate clients originally?

A.

No, it was also intended for corporate clients. There was a bit of, I think -- the way I remember that -- because I didn't deal with the corporate clients. There were a few ideas that I think Mr Yurov and Mr Belyaev pushed around again, Gurievs and some others and then also Mr Chukseyev was involved. He was saying that as an alternative he can bring in the chief editor of RBC, which is a business Russian sort of daily internet site.

I think it's still the leading business internet site. So that was the talk at the time, when the plan was put together. Again, it didn't work out that way and I remember the trip on the second boat was a disaster in all the respects, you know, so that's -- Q. So --

A. It was planned as some sort of similar exercise. The answer to your question, yes.

Q. It was just a coincidence that you ended up on a 600,000 euro yacht alone with your wives and Mr Worsley for the second year running at the same time, was it? A. Believe me, I didn't enjoy it…

… If you --

A. Well, I ended up -- yes, I ended up -- it happened that way.

MR PILLOW: It was a coincidence, right.

A. It was absolutely coincidence, it would be my last choice to take vacation together with Mr Belyaev and Mr Worsley wasn't that much fun as well on that particular trip.

Q. And yet you went with your wife?

A. Yes.”

As already discussed in relation to Mr Yurov I am satisfied that this was no corporate event gone wrong not once but twice, but rather two high-end luxury holidays for the Shareholders and their wives paid for by the Bank. Like Mr Yurov, Mr Fetisov chose to lie rather than make an honest admission of the true position that the charters were for the Shareholders at the Bank’s expense and unlike Mr Belyaev did not even proffer any recognition that what was done was unethical.

In Wisniewski v Central Manchester HA [1998] PIQR 324 the Court of Appeal addressed the circumstances in which adverse inferences may be drawn from the absence of a witness who might have been expected to have material evidence to give on an issue in the action. After a consideration of previous authorities Brooke LJ (with whom Aldous and Roch LJJ agreed) stated as follows:-

“From this line of authority I derive the following principles in the context of the present case:

(1)

In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)

If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)

There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)

If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

It is apparent therefore that the particular issue must be identified, there must be an identified witness who might be expected to have material evidence to give on that issue, the other party might reasonably have been expected to call that other party, and there must be some other evidence (a case to answer) i.e. evidence going in the direction of the inference that is sought to be made. It is then necessary to ask, in each case, whether there is a satisfactory explanation for that person’s absence. If there is then no adverse inference may be drawn. If there is not but there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified. If, however, there is no such explanation the Court may draw an adverse inference, but it remains a matter for the Court to decide whether, in all the circumstances, an inference can properly be drawn in a person’s favour.

It is therefore necessary for each of these points to be addressed by a party in the context of any invitation to the Court to draw an adverse inference in relation to a particular issue. In such circumstances I do not consider that the general approach advocated by Mr Belyaev at paragraph 12 of his Closing Submissions would be appropriate as it does not grapple with the matters to be addressed in relation to particular issues and particular witnesses:-

“… the Court is invited to treat this as an overarching submission that should be applied to all of the facts and matters alleged against Mr Belyaev, and in respect of each piece of evidence relied upon by the Bank to ask itself whether these individuals, or others, might have been able to give contrary evidence had they been called by the Bank.”

Such an approach would not grapple with the principles identified in Wisniewski and the matters to be addressed. It would also place an unjustified burden upon the Court. Accordingly, it is necessary for a party inviting the Court to draw adverse inferences to address matters by reference to particular witnesses and the issue or issues to which their evidence is said to relate. I address below the witnesses that have been identified and the application of the principles to those witnesses.

Mr Worsley was not called to give evidence by the Bank, but equally he was not called by Mr Yurov or Mr Fetisov (who had issued, and then settled, Part 20 proceedings against him) or Mr Belyaev (who did not issue Part 20 proceedings against him).

For its part, at an interlocutory stage, the Bank relied on two affidavits from Mr Worsley in the context of its application for the (continued) Worldwide Freezing Order (WFO). Such evidence was provided by Mr Worsley pursuant to his obligations of cooperation under a settlement agreement with the Bank dated 17 November 2015. The Bank approached his evidence on the basis that he was an “insider” to an alleged fraud who had decided to “come clean” about what was going on and, at that stage at least, it was in his interests to cooperate with the Bank.

However, as was (rightly) recognised by Males J on the application to continue/discharge the WFO, “Mr Worsley’s primary importance to the bank is likely to be as a source of documents.” In this regard the Bank obtained from Mr Worsley a very large amount of contemporaneous documentary material, including hundreds of thousands of emails. The Bank says (but the Defendants very much deny) that this material demonstrates what was really happening in relation to the offshore network. On the exchange of witness statements for trial, the Bank served a Hearsay Notice in relation to Mr Worsley’s affidavit evidence, but then withdrew it, choosing not to rely on Mr Worsley’s evidence at trial, although it says that Mr Worsley’s evidence was (and remains) consistent with the vast number of contemporaneous documents he supplied. It says that it did not need to rely on Mr Worsley’s evidence on the basis that, post-disclosure and exchange of witness statements, the Bank’s case can be proved by other evidence.

In the meantime, both Mr Yurov and Mr Fetisov commenced Part 20 proceedings against Mr Worsley. Most of the obligations under the Bank’s settlement agreement with Mr Worsley lapsed on 31 December 2016; and the Bank submits that Mr Worsley’s interests, or his perception of them, shifted when he was faced with the Part 20 claims in this action, criminal complaints in Cyprus, and various other civil claims brought against him by Mr Yurov and/or Mr Fetisov.

On 16 April 2018, Mr Worsley reached an agreement to settle the Part 20 claims that Mr Yurov and Mr Fetisov had brought against him in this action (along with claims made in another set of proceedings before this Court, as well as in civil and criminal claims in Cyprus) and such agreement required, amongst other matters, his cooperation in providing a witness statement and attending as a witness at this trial. Indeed, clause 4.4(a) of this agreement provided that the release of claims was not to take effect until Mr Worsley has

“signed and permitted to be served a witness statement in the Commercial Court Proceedings”.

Mr Fetisov has since stated that both he and Mr Yurov obtained proofs of evidence from Mr Worsley but that he is nonetheless not calling Mr Worsley because he does not believe he can be put forward as a witness of truth “in circumstances where Mr Fetisov considers that Mr Worsley has given misleading and incomplete evidence to the Bank in his [interlocutory affidavits]” (paragraphs 21 to 22 of Davies 5). To similar effect Mr Yurov says that since he considers that Mr Worsley gave misleading and incomplete evidence in his interlocutory affidavits, “it would not be appropriate for him to call Mr Worsley” (paragraph 4(b) of Kakkad 11).

It is not stated that what he said in the proofs of evidence provided to Mr Yurov and Mr Fetisov is itself believed to be true. The explanations for not calling him are specifically stated to be in terms of an alleged unreliability of his previous evidence, given to the Bank in 2016. In those circumstances the Bank submits that the Court should draw an inference that whatever Mr Worsley told Mr Yurov and Mr Fetisov following his settlement with them undermines their case and/or supports the Bank’s, and that the reasons for not adducing his recent evidence are tactical rather than ethical. The Bank submits that this is hardly surprising since (it says) the documents tell the true story, and there is little or nothing that Mr Worsley could truthfully say that would support the Shareholders’ cases.

For its part, the Bank states that it was not willing to go along with what it characterises as a farcical situation that it alleges Mr Yurov and Mr Fetisov had attempted to engineer whereby they, having settled with Mr Worsley and procured his cooperation, would conduct a friendly-fire, pre-scripted “cross-examination” of Mr Worsley at trial pursuant to CPR 33.4, in circumstances where the Bank would have no advance notice of what he was going to say, and no opportunity to cross-examine him itself.

For his part, Mr Belyaev submits that whatever the position may be as between the

On the Bank’s case, Mr Worsley appears to have been a party to the “dishonest scheme/massive fraud” and he was certainly present at a large number of the meetings and discussions in respect of which the Bank has alleged that Mr Belyaev must have discussed material issues concerning the alleged dishonest scheme: for example, the meeting in London in April 2010 with SMP, the yacht charters and the various meetings referred to in his emails which Mr Belyaev either denies took place or stated in evidence that he had no recollection of the meeting. The Bank could have adduced evidence from Mr Worsley about the content of these meetings, it has chosen not to do so, and it has thereby deprived Mr Belyaev of the opportunity of cross-examining Mr Worsley. It is said that this is a particularly important factor when it comes to the Bank trying to piece together a chronological narrative that depends upon establishing that Mr Belyaev was a party to discussions. In the absence of that evidence from Mr Worsley, the Court should apply Wisniewski and find that the Bank has not established that Mr Belyaev discussed the matters that the Bank relies upon. Mr Belyaev also identifies other matters on which it is said he would have liked to cross-examine Mr Worsley including Mr Belyaev’s evidence that he would sign bundles of papers without reading them, indeed that he would do so as a matter of course of his work at the Bank, and that it was standard for senior Russian bankers to sign stacks of documents brought to them each day which had been prepared by executives and managers at the Bank. It is said that in the absence of Mr Worsley’s evidence, the Court should accept Mr Belyaev’s explanations as to how he came to sign so many documents and how, despite his signature appearing on so many documents, he did not have any knowledge or understanding of what he was signing.

It is also said that Mr Worsley was described as a man who was obsessed with security and who liked to act like James Bond, and it would appear that he was something of a fantasist and prone to exaggerate, and that he was prepared to act dishonestly and to backdate documents. It is submitted that in the absence of an opportunity for the Defendants to cross-examine him (and in any event), Mr Worsley’s emails and documents must be treated with great caution. Where his emails say that meetings or discussions took place, it cannot be assumed that they did take place. In short, unless there is clear evidence that Mr Belyaev read and responded to an email from Mr Worsley, the Court should not find that the Bank has established that he did in fact read and understand the contents of the email. Had Mr Worsley been in Court, he would have been able to assist the Court on these matters.

For his part Mr Yurov submitted at paragraphs 57 to 58 of his Opening Submissions:-

“Either party might have called Mr Worsley to give evidence; but neither is doing so. The Bank originally served a Civil Evidence Act notice in relation to affidavits provided by Mr Worsley for the Bank’s freezing order applications and the subsequent discharge application made by Mr and Mrs Yurov, but withdrew the notice when it became apparent that the price of relying on it might be that he was cross-examined. There is little point for either side trying to make much of the other’s reluctance to call Mr Worsley. It must be apparent to all that, on anyone’s view of the case, he is a venal and dishonest person, ready to say whatever suits him, accustomed to mixing truth and falsehood, and a habitual liar. Had he been called to give evidence by either side, he would probably have provided the Court with some mix of truth and falsehood; he is evidently a witness that anyone would sooner cross-examine than call; and both sides have taken essentially the same decision in that regard.

… Still, as the Bank says, the Court has his documents. Sometimes those provide useful information about what was happening. But his documents, no less than the man himself, have to be handled with care. In particular, his ex-post facto explanations of his role should be treated with caution.”

At paragraph 19 of Mr Yurov’s Closing Submissions it is stated:

“Despite Mr Worsley’s physical absence from the trial, the Court will now have formed an impression of him, and will understand why nobody would be inclined to call him as a witness expecting his evidence to have any positive value or to be anything other than a self-serving mixture of truth and lies. It remains important to handle his documents with care. He evidently often had an agenda of his own, and his only consistent loyalty was to his own self-interest. One sometimes says that documents ‘speak for themselves’. In Mr Worsley’s case, however, they often speak through many layers of self-aggrandizement, paranoia, drama, and pretence. As a non-Russian speaker (or rather, as it was suspected, a Russian-language refusenik), whose relationship with his key staff such as Mr Iskandyrov seems to have been appalling, he probably did not understand much of what was really happening. While the fact that Mr Worsley wrote a particular email on a particular date remains a fact, the extent to which anything he wrote was true is highly doubtful. The Bank cannot legitimately place much reliance on anything he said as actually reflecting reality, and the Court should treat it all with as much or more circumspection as it would treat any evidence he might give.”

Mr Worsley was certainly a witness who might be expected to have material evidence to give on many of the issues in this case (although there is something of a lack of definition as to the particular issues relied upon and associated evidence in support of an inference). However, I consider that Mr Belyaev’s application, and indeed that of the Bank against Mr Yurov and Mr Fetisov, fails in circumstances where I do not consider either the Bank, Mr Yurov or Mr Fetisov might reasonably have been expected to call Mr Worsley, and in circumstances where I am in any event satisfied with the explanation given as to why they did not call him.

Mr Worsley is an independent third party not employed by the Bank and not beholden to the Bank who was (on the Bank’s case) heavily involved in a fraud upon the Bank, and who had also given statements to Mr Yurov and Mr Fetisov who were alleged to be at the heart of that fraud. Equally, and though he was obliged to provide evidence on behalf of

The reality is that it is simply unrealistic to suggest that the Bank (or for that matter Mr Yurov or Mr Fetisov) could reasonably be expected to call Mr Worsley in circumstances where whoever called him would not be in a position to cross-examine him, and the other party or parties might well attempt “friendly” cross-examination that the other party would not be in a position to rebut. In any event I am satisfied with the reasons given why Mr Worsley was not called and there is no basis for the drawing of adverse inferences against the Bank (or against Mr Yurov or Mr Fetisov).

I would only add that if, in truth, Mr Belyaev considered that there was evidence that Mr Worsley could give that was helpful to his case, there is no property in a witness, and Mr Belyaev could have sought to call him himself. He did not do so. Of course had he done so, the Bank could have cross-examined Mr Worsley on any of the issues arising in the case including matters that the Bank submitted told against Mr Belyaev.

So far as the documentation provided by Mr Worsley is concerned, I bear well in mind the submissions that have been made in that regard, and the need to be satisfied that what is said in such documentation is true, but I reject the submission that little legitimate reliance can be placed on anything said by Mr Worsley in that documentation. Each item of documentation must be considered on its own merits, what it says, how it ties in with other evidence (and the issues that arise, who it was provided to, and what response it did or did not generate and from whom). It is also to be borne in mind that much of the documentation either speaks for itself, or does not relate directly to Mr Worsley, but was simply disclosed by him. In circumstances where there is evidence (as already identified) of computers and servers at the Bank being professionally wiped immediately prior to the administrators coming in, the documentation provided by Mr Worsley is a valuable source of contemporary documentation, albeit that, ultimately, each document, and what it states stands, to be considered on its own merits.

He was head of the Bank’s corporate risk management department, a member of the CC and, as Mr Belyaev recognised, based on the contemporaneous email traffic was actively involved in the arrangements between the Bank and Columba in respect of the Borrowers, the Loans and Columba. It is said he could have given evidence in relation to

Mr Postnov might well be expected to have material evidence in these areas (though it does not necessarily follow that such evidence would be supportive of the Defendants’ evidence). Indeed, in the context of his active involvement in the arrangements between the Bank and Columba in respect of the Borrowers, the Loans and Columba he would (says the Bank) be fixed with the same (guilty) knowledge as the Bank says the Shareholders have. Whether that is true or not, and given the nature of the allegations, it seems inherently improbable that he would be prepared voluntarily to submit himself to cross-examination.

Mr Popkov’s written evidence was that Mr Postnov had given extensive evidence in the Russian criminal proceedings but that he had explained to him that he was not prepared to give evidence in England because he fears that the Shareholders may use this as a basis to make a criminal complaint against him in Russia because of his role in balance sheet management and being responsible for risk reports that were misleading. When it was put to him in cross-examination that this did not make sense, Mr Popkov reiterated that Mr Postnov was scared of the risk of his evidence being used against him, and that Mr Postnov had refused to give even a written statement. As he put it, “he would be compelled to testify against himself. That was his fear.” In such circumstances Mr Belyaev’s suggestion that the possibility of him giving evidence by video-link should have been explored is not in point – the evidence before me is that Mr Postnov was not willing to give evidence (full stop). I see no reason not to accept Mr Popkov’s evidence and I find the stance of Mr Postnov to be unsurprising given his involvement in balance sheet management and the allegations the Bank makes about that, which the witness would now be aware of, whether or not the witness was knowingly involved at the time. I cannot see why Mr Postnov would wish to expose himself to cross-examination in relation to such matters. In such circumstances I am satisfied with the reason given why Mr Postnov was not called by the Bank to give evidence and no question of an adverse inference arises.

However, there is a further fundamental point – which is why, if it was considered Mr Postnov could give evidence that would be of assistance to the Defendants or their knowledge (or lack of it) or account of events, he was not called by them given that he is closely connected to the Defendants in terms of being a co-director, supervisory director, and close colleague who was also present at CC meetings. There is no evidence before me as to whether and if so when they were last in contact with him, what he said if they asked him to give evidence, or indeed anything justifying what his evidence would have been, or that it would have been of assistance (given that he himself was, as Mr Belyaev recognises, actively involved in the arrangements between the Bank and Columba in respect of the Borrowers, the Loans and Columba). The very same point applies in relation to Mr Drozdov and Mr Vartsibasov – they too no longer have any connections with the Bank but were (so the Bank alleges) the Shareholders’ “closest lieutenants”, and there is no evidence of the Defendants making any enquiries as to their willingness to give evidence – and indeed the questions put to Mr Popkov were open questions about anyone calling them.

Mr Drozdov dealt with problem assets and he sat on the Bad Asset working group with Mr Fetisov and Mr Iskandyrov in 2008-2010, and he featured in emails relied upon against Mr Belyaev on the basis that Mr Belyaev must have read and understood the content of those emails and their attachments (as already addressed above). Whilst Mr Drozdov might have been able to assist as to whether he discussed those emails with Mr Belyaev, the emails to an extent speak for themselves and the central issue is as to Mr Belyaev’s knowledge rather than whether he discussed them with anyone, and I have already found above that his evidence was not credible in that regard. In any event Mr Popkov’s evidence was that though he did not know of any reasons why he was not testifying (an open question equally applicable to all parties), his evidence was that Mr Drozdov and he “said [their] goodbyes in March 2015”. In circumstances where the documents involving Mr Drozdov speak for themselves (and Mr Belyaev was a counterparty thereto), and in which Mr Drozdov was said to be one of the Defendants, “closest lieutenants” I do not consider the Bank might reasonably be expected to have called him. In any event, and given Mr Drozdov’s involvement in events, I consider it inherently improbable that he would willingly have given evidence in any event. Once again the Defendants themselves could have sought to call Mr Drozdov if they considered it would have been in their interest to do so. I do not consider there is any scope for drawing adverse inferences in relation to the Bank not calling Mr Drozdov.

Mr Vartsibasov was a Board member and CC member, attending CC meetings with Mr Belyaev. He also assisted the new administration. It is said he would have been in a position to give evidence of procedure at CC meetings. Mr Popkov’s evidence was that he did not know for sure whether there was any reason why he could not have given evidence (an open question equally applicable to all parties) as he “stopped any communication with Vartsibasov in March 2015”. In circumstances in which Mr Vartsibasov is said to be one of the Defendants, “closest lieutenants” I do not consider the Bank might reasonably be expected to have called him. In any event I doubt whether Mr Vartsibasov would willingly have given evidence. Once again the Defendants themselves could have sought to call him if they considered it would have been in their interest to do so. I do not consider there is any scope for drawing adverse inferences in relation to the Bank not calling Mr Vartsibasov.

She was Chair of the Management Board and CEO of the Bank between 2008 and 2012. It is clear that she was aware of balance sheet management and the off-balance sheet structure being party to correspondence (for example from Mr Iskandyrov) in which a circular finance scheme was set out. She also signed the Bank Winter agreements and the IFRS account and was the signatory of the letters prepared for the CBR relating to EWUB. I accept she could have had material evidence to give in relation to such matters, and she is an employee of Otkritie (i.e. the Bank’s owner) so, prima facie, the Bank could have been expected to call her.

However, the evidence before me from Mr Popkov was that he talked to her about giving evidence but that she told him that “it's all past history, water under the bridge for her, and she doesn't want to talk about it”. His evidence was also that she said that, “there could be no questions really because under no circumstances will she testify for either party.” Whilst Mr Popkov was questioned as to why he did not mention this in his witness statement (he stated he did not consider it “pertinent”), Mr Popkov was not challenged as to the truth of his evidence. In such circumstances the evidence before me is that Ms Cherkasova was not willing to give evidence and I am satisfied that this explains why she was not called by the Bank. It is unrealistic to expect the Bank to attempt to compel her to give evidence in such circumstances (even assuming, under the terms of her employment contract, it could do so – as to which there is no evidence before me). In the above circumstances I do not consider that there is any scope for drawing adverse inferences in relation to the Bank not calling Ms Cherkasova. I would only add that I do not consider that it can be assumed what her evidence would be in relation to balance sheet management or that her views would assist any of the Defendants on the issues in this case.

Ms Vashenko was the executive secretary of the Credit Committee and Head of the Bank’s Operational Unit at the time. It is said, and I agree, that she could have given relevant evidence of the working of that committee and what documents it saw. However the evidence of Mr Popkov was that in relation to any possibility about her giving evidence, “I spoke with her a long time ago about it. I think it was at the time of the start, when we got the freezing order. She categorically declined to testify in relation to these hearings”. It was asked if he tried again before witness statements were exchanged to persuade her otherwise, and his evidence was that, “She was asked, that it was important to the Bank that she would testify in relation to a number of issues. She said, "I'm not ready to do it. I'm ready to meet with the lawyers and, if necessary, to discuss things with them but I'm not going to testify in court.". Whilst it was pointed out that Mr Popkov did not mention this evidence in his witness statement, the veracity of the evidence was not challenged. Given that she refused to give evidence, the possibility of her giving evidence by video link does not rise. In such circumstances the evidence before me is that Ms Vashenko was not willing to give evidence and I am satisfied that this explains why she was not called by the Bank. In the circumstances there is no scope for the drawing of an adverse inference in her case.

Ms Krivosheeva was the Bank’s former finance director (prior to Mr Romakov), and she gave evidence in the Russian proceedings. Mr Belyaev submits that she could, amongst other matters have given evidence of Mr Belyaev’s (alleged) lack of involvement in material aspects of the Bank’s business and balance sheet management, alleged lack of knowledge of communications with the CBR, and whether (as I have found) Mr Belyaev attended the December 2009 CBR meeting. Whilst I agree that she could be expected to have material evidence to give, Mr Popkov’s evidence (the truth of which was not challenged) was that he did not know where she was employed and when he spoke to her at the end of 2015 or start of 2016, she refused to communicate with him. Given that she refused even to communicate with him, and it was not known where she was employed, the evidence before me leads to the conclusion that she was not willing to give evidence and I am satisfied that this explains why she was not called by the Bank. In the circumstances there is no scope for the drawing of an adverse inference in her case.

Mr Belyaev refers to the fact that the chief accountant was not called by the Bank. He submits that he could have given evidence in relation to Mr Belyaev’s case that he was not involved in the Bank’s accounting function. Mr Popkov’s evidence is that the chief accountant had left the Bank by about May 2015. Whilst it is true that there do not appear to have been any attempts by the Bank to contact him, by the same token there is no reason why, if Mr Belyaev or others thought that Mr Popov could give evidence that assisted them, they could not have contacted him and there is no evidence before me of any such contact, or if there was contact what he said. I do not consider there is any scope for an adverse inference in the context of the Bank not calling an ex-employee who could equally have been called by Mr Belyaev if Mr Popov was willing to give evidence.

In the above circumstances and for the reasons that I have given, I do not consider it is appropriate to draw any adverse inferences against the Bank. I nevertheless bear well in mind when considering what findings can properly be made, that not all evidence that could potentially have been available has been adduced before the Court .

THE PLEADED ISSUES (ISSUE 27)

The List of Agreed Facts and Issues at Issue 27 records the disagreement between the parties about the extent to which particular matters are legitimately matters which the Bank is entitled to rely upon, in the sense of proving part of its case (as opposed to matters which could legitimately be put as going to credit). The Bank’s case is that all the matters identified in Issue 27 are relevant (and can be relied upon) not only as to credit, but as part of the substantive issues for determination. The Defendants submit that some or all of the matters are not properly or sufficiently pleaded and may not be relied upon as part of the Bank’s case against the Defendants.

There was a danger that lengthy debate about, followed by a ruling upon, the scope of the pleaded issues could have derailed the tight, and actively managed trial timetable. There was also a recognition that matters were in any event potentially relevant to credit, and as such could be put to witnesses. In the event the trial finished on schedule in no small part due to active trial management, the co-operation of the parties and the transcribers, and the willingness of the Court to accommodate longer Court days where necessary and to compress judicial reading time of the written closings before the oral closings.

As part of active trial management and the efficient use of Court time, and following discussion with the Court, it was agreed as between the Bank and Mr Yurov and Mr Belyaev (as recorded in the List of Agreed Facts and Issues) that the question of whether the Bank is entitled to rely on the matters identified in Issue 27 was a matter to be dealt with in the parties’ Closing Submissions (and dealt with in the judgment) and that relevant questions could be put to witnesses in cross-examination and their evidence heard de bene esse. This was a sensible agreement which was endorsed by the Court. Mr Fetisov reserved the right to seek a ruling prior to closing submissions, and in due course raised before the Court whether it would be appropriate to do so. However even a preliminary identification of the issues arising by Mr Willan on behalf of Mr Fetisov consumed a significant amount of Court time, and I ruled that matters would proceed as agreed by the other parties with the pleading issues being dealt with in Closing Submissions, as occurred. This ensured the efficient use of Court time and facilitated the conclusion of the trial on schedule. It is unlikely that this would have been achieved if the pleading points had been argued out and ruled upon as the trial timetable could not have accommodated such an approach.

Issue 27 (“entitlement to rely on specific matters”) asks, as to the following alleged facts, “is the Bank entitled to rely on each or any of them in support of its case that each of the Shareholders acted in breach of duty and/or dishonestly, as well as going to the credit of the relevant Shareholder(s); and, if so, are they proven” (which is addressed, where appropriate, in due course below):

The applicable legal principles are well-established and, unsurprisingly, were largely common ground, although equally unsurprisingly there was a difference between the Bank and the Defendants in terms of the authorities they chose to emphasise in support of their respective stances.

The Bank’s over-arching submission on its pleadings can be seen from paragraph 163 in Section I. of its Closing Submissions:-

“… As is common in cases such as this, the Defendants have raised a series of “pleading points”, which are summarised in Issue 27 and the ten sub-issues thereunder. The Bank’s position, in outline, is that its case has been adequately particularised over the hundreds of pages of pleadings already served, which already vastly exceed the guideline length for cases in this Court. In adopting that position, the Bank does not seek to belittle the importance of pleadings in defining the issues and giving the parties fair notice of the case that they will have to meet (or make) at trial. But the Bank does say that, in this case, the Shareholders’ suggestions that the Bank is not entitled to rely on the matters listed in Issue 27 are not well-founded because the relevant issues are adequately pleaded, insofar as they needed to be; and there is no question of the Shareholders having been taken by surprise or not having had a fair opportunity to deal with them on their merits.”

If what is being said in the first sentence is that not all “pleading points” that are taken prove, on analysis, to be good so that it is necessary to consider what is or is not pleaded with care, I would agree. As for the second sentence, and the length of the pleading and the number of allegations, the mere length of a pleading does not tell one anything about the adequacy (or indeed appropriateness) of the way a matter is pleaded, and equally you cannot judge whether an allegation is properly pleaded or particularised by looking at other allegations. Ultimately what is needed is to consider what is or is not pleaded and what should be pleaded in order to pursue a particular allegation applying the applicable principles as to pleading. The final sentence sets out the Bank’s case and needs to be considered in the context of the issues that arise to see whether the Bank makes that case good.

The Bank is on sure ground when it relies upon what was said by David Richards J in HMRC v Begum et al. [2010] EWHC 1799 (Ch) at [89]-[91] which makes the important point that pleading is not a game and it is about fairness and fairly understanding the case that has to be met, and points about whether a case has been adequately pleaded are to be looked at in that context:-

“89 In approaching criticism of the very detailed nature put forward by the defendants in this case, it is as well to bear in mind the following passage in the judgment of Saville LJ in British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd (1994) 45 Con LR 1 at 4-5:

The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularisation even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the Court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it. Pleadings are not a game to be played at the expense of the litigants, nor an end in themselves, but a means to the end, and that end is to give each party a fair hearing. Each case must of course be looked at in the light of its own subject matter and circumstances. Thus general statements to the effect that global or composite claims are embarrassing and justify striking out, to be found for example in Hudson 11th Ed. paragraph 8–204 are not automatically applicable to every case. With regard to the particular pleadings in question, I remain unpersuaded that either McAlpines or PDP were put to any sort of material unfair disadvantage by the way the matter had been set out by the Plaintiffs.”

90

To like effect, after the introduction of the CPR, was Lord Woolf MR in McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775 at 792–3:

The need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party's witness statements, will make the detail of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise. This does not mean that pleadings are now superfluous. Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader. This is true both under the old rules and the new rules. The Practice Direction to CPR, paragraph 9.3 requires, in defamation proceedings, the facts on which a defendant relies to be given. No more than a concise statement of those facts is required.

As well as their expense, excessive particulars can achieve directly the opposite result from that which is intended. They can obscure the issues rather than providing clarification. In addition, after disclosure and the exchange of witness statements pleadings frequently become of only historic interest. Although in this case it would be wrong to interfere with the decision of Eady J, the case is overburdened with particulars and simpler and shorter statements of case would have been sufficient. Unless there is some obvious purpose to be served by fighting over the precise terms of a pleading, contests over their terms are to be discouraged.

91

As against those principles, Miss Newman relied on the requirement for proper particulars of allegations of dishonesty. I am satisfied that the case of dishonesty is sufficiently pleaded. It is to a significant extent based on what are alleged to have been Mr Uddin's statements in the taped conversations and on inference from facts which are pleaded in paragraph 3.2.2, the alleged transactions and the consistent failure by the importers to account for VAT. There are not general and vague allegations of fraud such as were addressed in Re Rica Gold Washing Co (1879) 11 Ch D 36 and Wallingford v Mutual Society (1880) 5 App Cas 685.”

As already noted the Bank also submits that it is entitled to and does rely upon all ten matters as going to the Shareholders’ credit, as well as to their propensity or willingness to participate or acquiesce in improper or dishonest banking business (which the Bank submits supports the Bank’s case that they did so in relation to the Loans and Transactions in this case).

For its part the Defendants identify the following principles (which I do not understand to be controversial):-

The formal statements of case are still of fundamental importance in civil litigation in the CPR era. As was said by Lewison J in the Court of Appeal in Lowe v Machell [2012] 1 All ER (Comm) 153 at [74]:

“The formal statements of case or pleadings presented to the court are still of fundamental importance in civil litigation. As Lord Phillips of Worth Maltravers MR said in Loveridge v Healey [2004] EWCA Civ 173 [2004] C.P. Rep. 30 (§23):

‘It is on the basis of the pleadings that the parties decide what evidence they will need to place before the court and what preparations are necessary before the trial. Where one party advances a case that is inconsistent with his pleadings, it often happens that the other party takes no point on this. Where the departure from the pleadings causes no prejudice, or where for some other reason it is obvious that the court, if asked, will give permission to amend the pleading, the other party may be sensible to take no pleading point. Where, however, departure from a pleading will cause prejudice, it is in the interests of justice that the other party should be entitled to insist that this is not permitted unless the pleading is appropriately amended. That then introduces, in its proper context, the issue of whether or not the party in question should be permitted to advance a case which has not hitherto been pleaded.”

A further point emphasised by the Defendants is that it is not simply a question of what causes of action are pleaded – if a fact is necessary to establish a cause of action it must be pleaded. In this regard reference was made to the case of JN Dairies v Johal Dairies Ltd [2010] EWCA Civ 348 at [41]-[43]. That case involved a claim for misuse of confidential information, but in the course of the trial there were respective allegations of perjury on the one side and bribery and conspiracy on the other, and questions arose as to whether those should have been pleaded. Stanley Burnton LJ (with whom Sullivan and Mummery LJJ agreed) considered they should have been stating at [41]-[42]:

“41.

For the Respondent Mr Flynn QC submitted that it had been unnecessary for the Respondent to plead the bribery or the conspiracy. If established, the bribery and conspiracy were no more than evidence on which the judge could find that what was the Respondent’s case throughout was established, i.e. that the Appellant had misused the Respondent’s confidential information. Mr Flynn submitted that it would have been unfair to require him to plead the bribery and conspiracy allegations while leaving the Appellant free to make an unpleaded allegation of conspiracy to pervert the course of justice. Thirdly, he submitted that the factual findings made by the judge had been fairly addressed during the trial. The Appellant had not sought an adjournment or sought to adduce any of the evidence that it now suggested, at this very late stage, would have been adduced if the Respondent’s allegations had been pleaded.

42.

I have no doubt that the Respondent’s allegations of bribery and conspiracy should have been pleaded. The Respondent should not, as Mr Lord submits, have been able to have its cake and to eat it. CPR Part 16.4 (1)(a) requires a claimant to include in its particulars of claim “a concise statement of the facts on which the claimant relies”. The Respondent did rely on the fact of bribery, by adducing evidence that Jitty had been seen paying a large bribe to Gurbir Singh, and the fact that there had been a conspiracy between the Defendants for Gurbir Singh to steal the Respondent’s invoices. Moreover, paragraph 8.2 of the Practice Direction to CPR Part 16 requires the claimant specifically to set out any allegation of fraud and illegality where he wishes to rely on it in support of his claim. The Respondent should not have adduced evidence of the alleged conspiracy and bribery without amending its Particulars of Claim, and Mr Flynn should not have examined or cross-examined witnesses with a view to establishing those facts. It is no answer that the Respondent could have succeeded in establishing liability without establishing those facts: those facts were part of its case at trial. A party’s pleadings set out for the other party and for the Court the facts to be investigated during the trial. The Particulars of Claim in this case did not do so. Nor is it any answer, if it be the case (which I address below), that the Appellant’s allegation of conspiracy was also unpleaded. By alleging the unpleaded matters the Respondent assumed the burden of pleading them. Moreover, once the Respondent’s allegations of bribery and conspiracy had emerged, the preliminary issue as formulated became wholly inappropriate.”

Mr Yurov addresses the pleaded issues in detail in paragraphs 33 to 71 of his Closing Submissions. Helpfully Mr Belyaev in his Closing Submissions (paragraph 342) and Mr Fetisov in his Closing Submissions (paragraph 163) adopt the arguments set out in Mr Yurov’s Closing Submissions. I also heard further argument in relation to such issues during the course of the oral closings which I bear well in mind.

In the event, and as often occurs once the issues are aired and evidence heard (albeit some of it heard de bene esse and so of itself not relevant when considering whether a matter should have been pleaded), there has been both clarification of how the Bank puts its case in closing, and what matters go only to credit, and also a narrowing of the points taken in relation to the Bank’s pleaded case, although issues remain for determination in relation to certain aspects of the Bank’s case.

It is convenient first to address those Issues where there is no remaining substantial dispute, before turning to those issues where there remains an issue to be determined. Accordingly, the Issues are not addressed below in the same order as in the Agreed Facts and Issues, and the issues that remain are also grouped together where appropriate.

I can deal with this point in short order as Mr Yurov (in his Closing Submissions at paragraph 70) does not object to the Bank making part of its case that the REPO transactions used in connection with the Loans were designed to conceal the reality of the transactions. The REPO transactions are pleaded and they are, on everyone’s case, part of the balance sheet management exercise. I am satisfied that the Bank is entitled to make this allegation based on the pleaded facts (see, in particular PoC para 21.2.2 and Yurov Reply para 11). The points made in reply themselves respond amongst other matters, to

In circumstances in which the Bank only relies upon this allegation as a matter going to credit, it is not suggested that is necessary for me to address whether the matter has been properly pleaded.

The Bank says that such matters occurred in the context of the operation of the offshore network and “balance sheet management”. The Bank’s case is that the matters go to establishing the inherent or objective impropriety of that operation and those schemes (otherwise it is said, there would be no need to engage in such practices) and to what is said to be the pervasive and systematic nature of the wrongdoing. In this regard in relation to Issue 27.5 the Bank says that prime examples are the Shareholders’ involvement in pretending to Vassiliades that they (a) did not own amongst other entities RCP, and (b) they had sold their interest in Oldehove, Crylani, SiberianKD and the like (via Tactio) to new investors. Ultimately, I did not understand, in oral closings, that the Defendants objected to the subject matter of Issues 27.5 and 27.6 being advanced by the

This is again relied upon in the same context as Issues 27.4 and 27.5, and as going to credit, and Mr Stanley, on behalf of Mr Yurov, did not suggest that it was necessary to determine any pleading point in relation to Issue 27.6.

Mr Yurov (and, as I understand it, the Defendants who adopt his submissions) do not object to the Bank relying on the fact that various Bank officers used iPads provided by Mr Worsley, and that different email addresses were sometimes used, as evidence that balance sheet management was known to be improper, on the basis that whether or not those facts should have been pleaded (the Defendants would say yes) there are no further investigations or disclosure which would have been required, the essential underlying facts are clear, and the matter has been explored with the witnesses in cross-examination. Mr Stanley on behalf of Mr Yurov realistically acknowledged that this was the sort of pleading point that might (rightly) be described as “technical” and as such was not pursued.

That leaves three matters where the Defendants do submit that the Bank’s case is not properly pleaded and whether that is so or not requires determination namely:-

This does not arise as a pleaded issue as such because no claims are made in respect of the (alleged) breaches of duty by the Shareholders in entering into the EWUB and Donau schemes. In relation to Issue 27.2, the only point that the Defendants object to is the allegation that the fiduciary lending arrangements involving EWUB and Donau “were inherently dishonest”. As Mr Stanley confirmed in his oral closing submissions, no objection is taken to them being addressed, and findings made, as to the existence of the arrangements, the history of them, and their deployment as part of the matrix to various other points that are made, including as one of the ways the off balance sheet lending was done.

It is not in dispute that it is not pleaded that the fiduciary lending arrangements involving EWUB and Donau were inherently dishonest. On the principles I have identified I consider that if a finding was to be sought that the fiduciary arrangements involving EWUB and Donau were inherently dishonest then this case should have been positively pleaded (and particularised), and it was not. I do not consider, however, that the point is of any real significance in relation to the issues that arise for determination – if the Bank is right in its submissions about balance sheet management it would matter not that it is not entitled to submit that the fiduciary lending arrangements involving EWUB and Donau were “inherently dishonest”, as that is not a necessary requirement to its case on the inappropriateness of balance sheet management (and the alleged breaches of duty that it submits arise in that regard). In any event, none of the Loans or Transactions under consideration appear to have been made via the EWUB or Donau schemes (although some were used in the context of “unwinding” such schemes). In the above circumstances, and whilst I find that it is not open to the Bank to allege that the EWUB and Donau schemes were “inherently dishonest”, such a plea is not on the critical path in relation to the Bank’s case on balance sheet management or my overall findings in that regard.

It is convenient to consider these issues together in the context of how they were addressed in the Closing Submissions and the oral closing submissions. The Bank says that these matters were squarely pleaded, and that they are also advanced as part of the Bank’s direct answer to the Shareholders’ own case.

In this regard paragraph 94A and 94B of the Re-Amended Particulars of Claim provide as follows:-

“94A. Paragraphs 75A to 75L above are repeated. In the premises, and in the periods when they were employees of the Bank, if and insofar as they were in an employment relationship with the Bank at the relevant time, each of the Primary Defendants: 94A.1. breached the contractual obligations owed under their respective Employment Contract(s), specifically:

94A.1.1. Mr Yurov and Belyaev breached clause 2.1(a) of their 1999 Employment Agreements in failing to perform their duties conscientiously and/or in accordance with the Bank’s own internal regulations and Charter and/or failing to act exclusively in the interests of the Bank;

94A.1.2. Mr Fetisov breached clause 3.1 of his 2005 Employment Agreement in failing to perform his duties conscientiously and/or in accordance with the Bank’s own internal regulations and Charter and/or failing to provide disclosure in relation to transactions between the Bank and companies in which he had a beneficial interest and/or failing to act exclusively in the interests of the Bank;

94A.2. breached the obligations under Article 21 of the Labour Code to perform his work duties in good faith and to comply with the Bank’s internal working regulations;

94A.3. breached their contractual obligation to comply with the JSC law (and the Bank relies on the particulars of breaches of the JSC Law pleaded at paragraphs 99 to 103 above);

94A.4. breached the Bank’s internal regulations and Charter; and

94A.5. acted unlawfully under the general law in that:

94A.5.1. the making of loans to the Borrowers under the false pretence that the Borrowers intended to use the loans for genuine business purposes, whereas the actual purpose was to use the loan proceeds to service bad debts owed to the Bank by other companies, was a breach and/or caused the Bank to be in breach of the Russian Central Bank Regulation 254-P; in particular, the making of such loans was intended to have and had the result that the Bank’s publicly stated accounts were misleading in that the bad debts that should have been recorded on the Bank’s balance sheet were concealed;

I consider that from these pleadings, and in particular those parts emphasised above, that the Shareholders had proper and fair notice that it would be in issue at trial whether the Bank’s accounts were, and were known to them to be, deliberately misleading and that the CBR was misled – meeting the first of Lord Millett’s principles in Three Rivers (which Mr Yurov’s counsel appears to accept albeit that it was submitted that the principle was “barely” met). However, it is said that to the extent that these pleas are pleas in fraud, they are insufficiently particularised to meet the second of Lord Millett’s principles.

A preliminary point is that the Bank’s case, whilst extending to what can be described as fraud, does not depend on fraud – the Bank’s case is equally that what was being done was not in the interests of the Bank and the Shareholders were not performing their rights and obligations in relation to the Bank reasonably (or in good faith) for the purpose of the relevant obligations of directors under Russian law.

However, to the extent that the Bank’s case is one of fraud, in the respects under consideration, it is not an inferential type of fraud case to be inferred from primary facts that have not been pleaded. What is being said (for example) is that the making of the loans to the Borrowers was under the false pretence that the Borrowers intended to use the loans for genuine business purposes, whereas the actual purpose was to use the loan process to service bad debts owed to the Bank by other companies and this was intended to have and had the result that the accounts were misleading in that bad debts should have been recorded on the Bank’s balance sheet but they were not (as they were concealed). Based on these facts the Bank invites the Court to infer or find bad faith on the part of the Shareholders.

The plea that the accounts were false or misleading is not a case which is based upon, or requires consideration of, (for example) what precise figure should have been on the balance sheet applying IFRS principles or the like, or requiring expert evidence on such matters. The plea is simply that the accounts were false because of the matters pleaded.

What it is said the Shareholders knew is equally clearly pleaded – for example in relation to the CBR that the Shareholders knew (were aware) that the CBR would take action to prevent “further recycling of funds through offshore loans and falsification of the balance sheet had the true position been disclosed and/or would have caused the Bank to enter the DIA bail-out scheme”. Where an inference is then sought, it is clearly pleaded out – “It is to be inferred that the [Shareholders] ensured and procured that false information was submitted to [CBR] in order to avoid such preventative action.” The Shareholders knew what they needed to know to respond to this plea.

There is also a certain artificiality (if not coyness) in the Shareholders’ stance on the pleadings in this area given the terms of the memorandum sent by Mr Yurov to Mr Belyaev and Mr Fetisov on 28 June 2015 which it will be recalled provided, amongst other matters in relation to Bank losses:

“If such losses had been recorded in the bank’s books back in 2008, the CB would have had to revoke NBT’s banking licence as the reduction in capital would have been over 20%. As a rule, as soon as a bank’s licence is revoked, it becomes bankrupt because the depositors have the right to withdraw their deposits. Since no share capital could be attracted after NBT’s shares were unlawfully attached in 2008 on the grounds that they allegedly belonged to Khodorkovsky (the attachment is still in force regardless of 12 complaints and petitions), a decision was made to start submitting false accounts to the CB (which, in my understanding, was only an administrative offence punishable at most by a fine and licence revocation (in any case, the risk of licence revocation already existed)) and focus on providing loans to individuals instead (as the most profitable transactions) in order to offset the previous years’ losses by the received profits, recover the bank’s capital over time, and stop submitting false accounts to the CB. This business logic had failed as NBT incurred new losses, this time on loans to individuals, and had to file for rehabilitation proceedings to avoid bankruptcy.” (emphasis added)

I do not consider that the fact that these points were pleaded in the context of the

The pleaded issues properly in play also have to be considered by reference to the matters pleaded in the Shareholders’ Defences and the Bank’s pleaded response thereto.

Thus, by way of example, Mr Yurov and Mr Fetisov plead as follows in their Defences in relation to the CBR:-

The Shareholders have themselves put in issue the fact of “balance sheet management”, its appropriateness (which includes its impact on the accounts) and whether the CBR knew about it or not (and what their reaction would be when informed about it, if they did not know about it).

The Bank, in turn, in its Replies, joins issue with the Defendants’ pleas to the Bank’s case, and positively pleads variously (examples given by reference to the Yurov Reply):-

A consistent theme throughout the Bank’s statements of case is accordingly the plea that the Bank was falsifying the accounts in the respects alleged, and the Court is invited to infer that the Defendants acted in bad faith in that regard (albeit that that is not a necessary element of the claim given the Shareholders’ duties under Russian law).

It is also relevant to note the chronology of how the pleadings developed from which it is clear that from a very early stage (certainly by the time of the hearing of Mr Yurov’s discharge application) the Defendants knew the nature of the Bank’s case against them both affirmative, and in response to the Defendants’ case. In this regard, the Bank originally pleaded the Particulars of Claim on the basis that the loans were themselves uncommercial, in bad faith, and in breach of duty (and that remains a free-standing aspect of the Bank’s case). It was in riposte to that that Mr Yurov advanced a defence based on

“balance sheet management”, and in relation to which he made a number of admissions in his affidavit served in relation to his discharge application:-

(1)

In 2008 there was “considerable concern that if those losses had all been recorded on the Bank’s balance sheet, it would have had its licence revoked by the Central Bank of Russia and consequently been declared bankrupt. For obvious reasons, the Bank’s management wished to do everything possible to prevent this from happening, and took steps to manage its balance sheet using its pre-existing offshore structure (as I will describe in more detail below).” (Mr Yurov’s second affidavit para 30)

(2)

“60. … The key in the short term was to ensure that, in the interim, the Bank did not have to enter all of this bad debt on its balance sheet and so risk bankruptcy.

The Bank’s own riposte (as later pleaded out in the Re-Amended Particulars of Claim in 2017) was that these were artificial banking transactions mis-stating the true state of the Bank’s financing which involved false accounts and the deception of both the CBR and depositors. That such matters were live issues even at the time of the discharge application can be seen from the terms of the Males J. judgment in which express reference is made to the deception of the CBR and allegations of false accounting:-

“8.

…

The bank says that as a result the shareholders embarked upon a scheme to disguise the bank's toxic debts by recycling money, largely by way of sham loans to further offshore companies under their control. Instead of using the loan funds for legitimate business purposes, these offshore companies would use them to service the bad debts owed to the bank by other companies in the offshore network, paying interest in order to avoid a default but not reducing (to any great extent or perhaps at all) the outstanding principal. This was a selfperpetuating process since the borrowers could only pay back these loans with money recycled through further sham loans and the overall result was to increase the amount owed to the bank. The bank says that the object and the result of this circular flow of funds was to deceive the outside world, including the Central Bank of Russia and the ordinary Russian savers who deposited their savings in the bank, over many years, by falsifying the bank's accounts and concealing its insolvency.” (emphasis added)

In the above circumstances, I am satisfied that the Bank’s case that the CBR was misled, to the knowledge or at the direction of the Shareholders (Issue 27.3) and that the accounts were false to the knowledge or at the direction of the Shareholders (the gravamen of Issue 27.10) are properly pleaded and particularised in the Particulars of Claim and Reply and that the Bank is entitled to advance its case in that regard. I note, again, that it is not the Bank’s case that there was some particular breach of IFRS or accounting practice (such a case would probably have raised issues that would have involved expert accountancy evidence).

I also consider that the Bank is entitled to advance a case that steps were taken to deceive the Bank’s auditors (including through the provision of false information in interviews) to the knowledge or at the direction of the Shareholders - the same being pleaded at paragraph 11 of the Yurov Reply (as quoted above). However, I do not understand this to be a free-standing point, but rather one deployed to support other aspects of the Bank’s case and/or to undermine the Defendants’ defences thereto. Thus, in order for the balance sheet management to work, it is said that the accounts had to be manipulated to reflect something other than the true state of the Bank’s balance sheet, and in order for this to happen the auditors (who are not alleged to be complicit) would have to be deceived. The false information given in interview also goes to the alleged distinction between “Bank Companies” and “Shareholder Companies” given what the auditors and third parties were told about the relevant companies being owned by other individuals (Mr Worsley’s UBOs), and goes to undermine the Shareholders’ pleaded case that the relevant companies were owned by or for the benefit of the Bank itself.

I would only add that the Bank’s case that the CBR was misled, to the knowledge or at the direction of the Shareholders and that the accounts were false to the knowledge or at the direction of the Shareholders are not necessary elements of the Bank’s case that the Shareholders acted in breach of duty in relation to “balance sheet management” given the other features of that of which the Bank complains (including, but not limited to, loans of millions of dollars to companies said to be owned by the Shareholders on what are said to be patently uncommercial terms with no security, that purport to be arms-length loans to commercial borrowers owned by third parties when (it is said) the Shareholders know they are no such thing and that they are not in a position to service, still less repay loans themselves and indeed that the plan is that the Bank ultimately pays and services such loans).

THE SHAREHOLDERS AND THE STRUCTURE OF THE BANK (ISSUES 2-3)

Issue 3 is addressed in the context of the consideration of Russian law in Section M below. This section addresses the Shareholders’ roles and responsibilities in the context of their position as Supervisory Board Directors and members of the Credit Committee and how those roles fit into the Bank’s structure. Paragraph 1 of the List of Agree Facts and Issues contains matters relating to the Shareholders and Structure of the Bank that are agreed. I have already quoted these above in Section B.1 above and will not repeat such matters here.

The structure and organisation of the Bank is set out in its constitutional documents in particular its “Articles of Association” or “Charter” (both expressions are used synonymously).

It is common ground that the Shareholders were, at all material times, members of the Bank’s Supervisory Board and Credit Committee. However, the Shareholders’ precise roles and responsibilities remain in issue. The Bank had two boards: the Supervisory

The Supervisory Board was elected on a yearly basis at the annual general meeting of shareholders (the “AGM”). There were always at least 7 members on the Supervisory Board. At all material times the Shareholders were members of the Supervisory Board and Mr Yurov was its Chairman. The other members varied over time. The Supervisory Board met once per quarter and had the power to make changes to the composition of the Management Board.

There was some debate between the parties as to the precise role of the Supervisory Board. In particular Mr Yurov, in his evidence, sought to characterise it as having some sort of strategic oversight role which seems to have been an attempt to distance himself (and the other Shareholders) from the transactions in issue which he suggested were promoted and implemented by the Bank’s executive management.

I consider that the surest guide to what the Supervisory Board was and what its role and responsibilities were, is to look at the Bank’s Articles of Association/Charter where such matters are addressed.

Article 17.1 provides: “The Board of Directors shall carry on general management (Footnote: ²¹) of the Bank’s activities, except settlement of issues that are within the competence of the General Meeting of Shareholders pursuant to the current laws and these Articles of Association.”

Article 17.2 sets out a number of specific competencies of the Supervisory Board (“The competence of the Board of Directors shall cover the following issues”). Specific competences of the Supervisory Board include:-

Article 17.8 is an important provision when considering the respective roles and responsibilities of the Supervisory Board and the Management Board. It provides:

“Issues that are within the competence of the Board of Directors may not be submitted to the Chairman of the [Management] Board or the [Management] Board for settlement”.

This makes clear that matters within the competence of the Supervisory Board are its responsibility and are non-delegable. In other words the Supervisory Board could not delegate issues within the competence of the Supervisory Board including (for example) matters such as the classification of loans and writing off bad debts to the Chairman of the Management Board or the Management.

Article 17.10 sets out the specific competencies of the chairman of the Supervisory Board including (amongst other matters):

“17.10

The competence of the Chairman of the Board of Directors shall cover the following issues:

17.10.1

organising the work of the Board of Directors;

…

17.10.4

holding joint meetings of the Board of Directors and the [Management] board.

…

17.10.7

entering into an agreement with the Chairman of the [Management] Board on behalf of the bank.

17.10.8

exercising control over activities of the Chairman of the [Management] Board and the [Management] Board, as well as Committees of the Board of Directors;

17.10.9

issuing orders within his/her competence and the competence of the

Board of Directors to be binding upon all of the Bank’s officers”

Thus, amongst Mr Yurov’s other competences (i.e. responsibilities) as Chairman of the Supervisory Board was the organising of the work of the Supervisory Board including

It is clear from the above Articles that the Supervisory Board had a superior position in the corporate hierarchy of the Bank, including “hiring and firing” powers in relation to the Bank’s management, with the Supervisory Board having the specific and nondelegable responsibility for matters such as the classification of loans and writing off of bad debts, as well as establishing and enforcing effective internal controls within the Bank. Indeed under Article 17.8, the Supervisory Board was not permitted to delegate such functions to the Bank’s management.

Although this was not part of the Bank’s pleaded case, and it was not dealt with by the witnesses, or in the expert evidence, it is also clear that the Supervisory Board (per Article

It was the Supervisory Board that was responsible for calling the AGM, at which the members of the Supervisory Board were themselves elected. It was the Supervisory Board that was responsible for making proposals to the AGM in relation to the approval of related-party transactions (although, tellingly, the Borrowers were not mentioned). Thus at the meeting of 10 May 2012, the Supervisory Board (including each of the Shareholders) agreed, at item 10, to recommend that the shareholders approve the entry into related-party transactions “that the Bank may carry out in the ordinary course of business” (with a list of companies which were mainly companies in the Bank’s own holding structure) and with the individual Shareholders personally. This proposal was then adopted at the 2012 AGM. There was no mention of any of the Borrowers (for example Erinskay, which in fact borrowed substantial sums from the Bank in 2012). Equally at the 2010 AGM there was no reference made to WR or RCP which together borrowed around US$110 million from the Bank at the end of 2010 – and which the Shareholders now admit owning.

It is clear that the Shareholders were aware that one of the responsibilities of the Supervisory Board was to make proposals to the AGM in relation to the approval of related-party transactions, not least as Mr Yurov, on his application to discharge the WFO, went so far as to suggest that the Bank should have referred to the generalised personal approvals (as part of the duty of full and frank disclosure on the ex parte application). This is a singularly bad point (not pursued in the witness statements for trial) given the nature of those approvals which cannot possibly extend to specific loans to companies in the offshore network beneficially owned by the Shareholders. Males J (in my view rightly), gave this argument short-shrift at [59]:-

“In my judgment there is nothing in this complaint. The resolutions passed at the annual general meetings do not begin to constitute approval of the grant of unsecured loans for “balance sheet management” purposes, let alone of the siphoning off of part of the loan funds for the shareholders’ personal use. In any event it is hard to see how transactions of this nature could validly have been approved by the shareholders as they appear to have amounted to a fraud on depositors. Disclosure of the resolutions was unnecessary and would have added nothing.”

The significance of this role of the Supervisory Board is two-fold. First it is another example of the Supervisory Board’s role being much wider than the Shareholders suggest. But secondly, and importantly, it means that the Shareholders were well aware that there was a specific process to be followed for the approval of related-party transactions – indeed they followed this process for relatively minor dealings between the Bank and companies in its own holding structure, and for personal loans); but they singularly failed to do so for “balance sheet management” transactions or loans to what the Shareholders now admit were their own companies (including SiberianKD, Business Group, Priangarskiy, WR and RCP). The consequence (quite apart from the Shareholders’ failure to follow that process) is that such transactions, which were related-party dealings which would clearly require disclosure and approval, appeared instead, in the Bank’s audited accounts, to be genuine arm’s length commercial lending.

It is quite clear that the role of the Supervisory Board was not limited to giving general strategic overview and ensuring the Bank complied with its business plans and budgets, and I reject Mr Yurov’s evidence in that regard. Such evidence is inconsistent with the terms of Article 17 which makes clear that the Supervisory Board’s role and responsibilities were wider than that. Equally, and whilst Mr Belyaev’s evidence was that the Bank’s Charter “was a very dry, long document, I do not believe I really paid a lot of attention to it” (which may say something about Mr Belyaev’s attitude to his responsibilities as a member of the Supervisory Board if he really did not pay a lot of attention to it), the Bank’s Charter does set out the competencies i.e. responsibilities, of the Supervisory Board – and they included matters of particular relevance to the allegations against the Shareholders in this case.

Equally it is clear that the Supervisory Board was involved in lending at a transactional level, as shown by its involvement in approving “large transactions” and “transactions with interest in execution”, in the “classification of loans (determining the borrower risk category)”, “writing off bad debts and/or those recognized to be uncollectible” and

“taking the decision on lending to related persons”, as well as its role at the AGM in relation to related-party transactions.

The overall impression I have formed, in particular given the terms of the Charter and the matters I have identified above, is that Mr Yurov (and the other Shareholders) unjustifiably downplayed the role of the Supervisory Board and that they did so in an attempt to distance themselves from the transactions in issue (given their membership of the Supervisory Board). I consider that a similar (equally unjustified) approach was adopted in relation to the Credit Committee decisions to which they were party.

The Management Board was a collegiate executive body, which was overseen by the chairman of the Management Board (otherwise referred to as the CEO) who was responsible for the daily operations of the Bank. None of the Defendants were at any time a member of the Management Board.

Pursuant to Article 18.5 of the Bank’s Charter the competence of the Management

The Credit Committee reviewed and approved individual lending transactions, including all of the relevant transactions in the present case. The Shareholders were at all material times members of the Credit Committee. At least one of them was present at each of the Credit Committee meetings at which the relevant transactions were considered. Mr Yurov acted as the chair of the Credit Committee at every meeting he attended and, when Mr Fetisov was present and Mr Yurov was not present, Mr Fetisov acted as the chair.

The CC Regulations are of particular relevance as the Articles of the CC Regulations define the parameters in which the Credit Committee operated, and speak for themselves as to the Credit Committee’s role, and the responsibilities of members of the Credit Committee.

Articles 1 and 2 provide:

“1.

Purpose

These Regulations describe the status, authority and decision-making procedures of the collegiate competent authority – the Credit Committee of [the Bank].

Article 6.2 provides that “the Credit Committee is created for the purpose of implementing Bank’s credit policy and making decisions concerning the credit risk management”.

Article 6.3 provides, “Activities of the Credit Committee are governed by the effective legislation of the Russian Federation, regulatory acts of the Central Bank of Russia, Bylaws of the Bank, resolutions of the Board of Directors Management of the Bank, regulations on the Bank’s credit policies, as well as these Regulations and other regulatory documents of the Bank.”

Article 6.4 provides that: “Implementation of resolutions issued by the Credit Committee is mandatory for all structural subdivisions and Bank’s staff members participating in the credit transactions” (emphasis added). Notwithstanding this express provision of the 2010 CC Regulations it apparently remains part of the Shareholders’ case on Russian law (as addressed in Section M.6 below) that decisions of the Credit Committee approving the making of loans were advisory only and that the decision actually to issue a loan or to conclude an agreement was ultimately that of the relevant executive officer (such as the CEO).

However, there is no evidence in fact that anyone (including any executive officer such as the CEO) did consider resolutions passed by a Credit Committee and whether they were in the best interests of the Bank (the lack of such consideration is consistent with the express language of Article 6.5, as implementation is expressly stated to be mandatory). Indeed, Mr Yurov appeared to accept that, as a matter of fact, this did not take place as it was stated at paragraph 103 of his Written Closing Submissions that, “since approval was essentially a formality because the Loans and Transactions had been arranged within the Bank and were known to be for the benefit of the off balance sheet network no further independent consideration was required after approval by the Credit Committee”. Whilst this is based on the premise that there was nothing wrong with balance sheet management (and also that what was being done was for the benefit of the Bank rather than Shareholders), each of which is said to be a false premise by the Bank, it is a recognition that there was no independent consideration by anyone after approval by the Credit Committee as to whether the loan was in the Bank’s best interests.

If there was to be any approval of Credit Committee decisions, Article 6.5 of the 2010 CC Regulations suggests that it would be by the Supervisory Board. Article 6.5 provides

Article 7.1 contains detailed provisions concerning the authority of the Credit Committee. Article 7.1.4 addresses decisions of the Credit Committee in relation to corporate borrowers.

Article 8 governs the decision making procedure, and also provides for the organisation of the Credit Committee and the appointment of its Chairman, Pursuant to Articles 8.4 to 8.7:

“8.4.

The Credit Committee is authorised to make decisions if the voting is attended by more than one-half of the members of the Credit Committee, whose votes participate in voting in accordance with paragraph 8.2. of these Regulations (unless stipulated otherwise by the Board of Directors).

8.5.

Members of the Credit Committee can vote “in favour”, “against” or “abstained”. The resolution is adopted in the wording submitted for voting if a simple majority of voters (50% +1 vote) have voted “in favour”. If the number of “in favour” votes is equal to the total number of “against” and “abstained” votes, the final decision on the wording submitted for voting shall be made by the Chairman of the Credit Committee.

8.6.

If any member of the Credit Committee has interest in the adopted resolution, such interested party must leave the meeting while the matter is being debated and he or she cannot participate in voting.

8.7.

If the interested party is the Chairman of the Credit Committee, he or she cannot participate in voting. In this case, the resolution is adopted in the wording submitted for voting by simple majority of votes”.

The operational procedures of the Credit Committee are set out in Article 11. Article

provided that “meetings of the Credit Committee are usually held on the weekly basis, each Wednesday. Meeting start time is at 16:00. If necessary, the Chairman of the Credit Committee can change the date and time of the meetings, schedule additional meetings or cancel the meetings.” 317. Article 11.3 provided that:

“11.3.

In order to add a matter to the Agenda of the Credit Committee, a subdivision of the Bank that proposes such issue must submit, no later than at 14:00 on Monday, the wording of the issue to the Executive Secretary and to indicate the speaker. Bank’s subdivision that proposes the matter must submit the following documents to the Executive Secretary in the electronic format no later than 12:00 on Tuesday: - draft of the Credit Committee resolution; - credit memorandum (report) prepared by the credit subdivision of the branch or the headquarters (in case of credit limit establishment for a client or execution of a singular credit transaction with a client); - report from the Risk Management unit (in case of credit limit establishment for a client or execution of a singular credit transaction with a client); - report from the Legal Department (if necessary); - report from the Managerial Accounting unit (if necessary, in case of matters related to the risk of violation of Bank’s regulations); - reports from other Bank’s subdivisions (if necessary); - other documents (if necessary). Reviewing the matter without the documents listed in this paragraph is not allowed.”

However, and whilst I bear well in mind the possibility that not all documentation is before the Court (a point stressed on behalf of the Defendants), I am satisfied that the reality was very different to that contemplated under Article 11.3 in terms of the provision of supporting documentation. In this regard there is an absence of any actual documentation justifying the commercial rationale and credit risk of most of the loans in issue in the present case, contrary to what would be expected if a bank, and its credit committee, was acting in a normal commercial manner considering the risks of a loan on its merits (which is what was clearly contemplated in the context of the provision of the documentation identified in Article 11.3). To take one example (as identified by the Bank), when the Credit Committee approved a RUB 3 billion loan to Stivilon in March 2010 (approximately US$100 million at the time) there is no evidence that the Credit Committee had any reports assessing matters relevant to the risk, including assessing the Gelendzhik project, its anticipated timeline and Stivilon’s ability to generate the revenues that would be needed to service the loan and pay it back within the loan period (3 years). 319. In other cases, I am satisfied that such paperwork as was produced as purported justification for the loans was, in fact, positively misleading, as I address below in the Erinskay/Baymore and LBSC Borrower Sections below (Sections R.2 and R.3 respectively).

The Shareholders claimed that, notwithstanding the lack of such documents in evidence, they did exist. Mr Fetisov’s indicated that, to the best of his recollection, up to about 2012 when he attended physical CC meetings, the documents were circulated by email but following 2012, when he attended meetings in absentia, the documents came as a physical stack of papers which he would look at when he returned to the office. Mr Yurov’s evidence was that such documents were circulated to members of the Credit Committee. Mr Stanley suggested that the documents may have been uploaded onto the

Notwithstanding the Shareholders’ evidence (which is not supported by any corroborating contemporary documentation) the fact is that no such documents were found following an extensive disclosure process. The credit files for all the borrowers relevant to the claim were within the body of material searched for the purposes of standard disclosure. Due diligence documents were found for Erinskay and Baymore (albeit in positively misleading terms) so I consider that had credit memoranda and risk reports been created for other borrowers they would be in the material before the Court. It is also notable that the Defendants did not take issue with the predictive coding used by the Bank during standard disclosure, and have not made any requests for specific disclosure in the 18 months since standard disclosure took place. The Bank’s case has always involved a claim of lack of due diligence and so the relevance of this category of document has always been apparent.

I consider that it is inherently improbable that such documentation did in fact ever exist. If it did exist then one would have expected not only that a substantial number of examples would have been revealed in the disclosure exercise (even if not a complete picture of all such documentation), but also that at least some such documentation would have been referred to in the minutes (even making allowance for the fact that the minutes were formal in nature containing a record of the terms that were considered and the decision).

There is also the fact, already alluded to, that any due diligence documents which were available were fictitious and deceptive documents, giving the false impression, for example, that Erinskay and Baymore were genuine commercial borrowers (falsely suggesting that they had a real independent business with management offices and employees and the like), the clear purpose of which was to mislead anyone reading the credit file.

It is also difficult to see how, in fact, there could have been genuine due diligence documents addressing the merits of particular proposed loans given the recurring theme of lending what amounted to hundreds of millions of dollars to offshore companies with no assets, no genuine commercial business and no security. The likelihood is that if any other similar documents were generated, they would have had to be similarly deceptive, otherwise they could not have justified the lending, and terms, proposed.

Mr Willan, as counsel for Mr Fetisov, referred to certain documents in relation to Priangarskiy which were sent by email to Bank employees (and therefore were said to be in the Bank’s custody). These included documents relating to a December 2013 Audit and an April 2014 analysis of the competitive position of Priangarskiy, undertaken by Pyroy (an industrial consultant). He also referred to certain correspondence with the CBR which alluded to due diligence having been undertaken for a number of borrowers. However, no such due diligence emerges from the documentation that has been disclosed. Equally the documents referred to do not appear to have been the type of documents that it was envisaged would go before a credit committee, and there is no contemporary documentary evidence establishing that due diligence was considered at any Credit Committee meeting to determine whether it was in the Bank's best interests to lend the money to the borrower in question.

In the above circumstances I reject the Shareholders’ evidence that such documentation was generated and was provided to members of the Credit Committee, such evidence coming from witnesses none of whom I have found to be witnesses of truth, and each of whom had every reason to give untruthful evidence in this area. It is inherently improbable that no such documentation would exist or be referred to in minutes if, as alleged, it was provided in relation to every Credit Committee meeting.

There is also a history of back-dating of Credit Committee meetings and the recording of matters as discussed which were not discussed at the time. Thus, whilst there was a procedure (in Article 11.9) in relation to the changing of Minutes of meetings that had already taken place, there is evidence of the widespread production and approval (other than in accordance with the Article 11.9 procedure) of back-dated Credit Committee meeting minutes so as to include matters that were never even discussed at the time, but were (falsely) represented as having been discussed, in such subsequent back-dated documents.

I have already addressed Mr Yurov’s involvement in relation to this when commenting on the evidence of Mr Yurov, and why I am satisfied that Mr Yurov gave untrue answers concerning documents that he was involved with which had clearly been back-dated and/or which misrepresented what had occurred (or when), no doubt in order to distance himself from conduct which he recognised was inappropriate. The example I gave related to correspondence on 13 August 2012 in relation to a resolution of the Credit Committee on 25 July 2012. However many other examples exist.

By way of further example, on 23 May 2012 Mr Postnov wrote to Mr Yurov (via his secretary) asking him “coordinate and instruct the secretary of the CC” to:

“1.

To include the decision regarding the provision of a loan to the company Arelwind Investments Ltd. amounting to 300 million roubles in the minutes of one of the Committee’s previously held meetings. The loan will be used for satisfying margin call requirements by the Bank’s borrowers carrying out operations in the federal loan bonds market…

2.

To insert a change proposing the reduction of the share of the cession price, paid for by the purchaser of the claims on the date that the deal was made, from 25% to 15%, into the previously adopted decision regarding the making of a deal on the cession of the right of claim under the retail loan portfolio by the collection agency Pravo i biznes...

3.

To include the decision regarding the completion of a foreign exchange forward transaction amounting to $10 million with the company TIB Investments in the minutes of the Bank’s Credit Committee’s meeting that took place previously on 25/04/2012. The aim of the transaction is to manage the foreign exchange position of the Bank and of its clients and is already taking place at the present time…

4.

To include the decision regarding the extension of the aforementioned forward transaction in a part consisting of $2 million in the minutes of one of the previously held meetings”.

It could not be a more blatant example of the falsification of minutes of Credit Committee meetings than to suggest that the decision be put in “the minutes of one of the Committee’s previously held meetings” (i.e. it did not matter which, as plainly no such decision had taken place at a particular meeting). Equally the reference to “the loan will be used for satisfying margin calls requirements by the Bank’s borrowers carrying out operations in the federal loans market” is clearly a reference to “balance sheet management” and no doubt the need for more money to be lent to the offshore network to meet margin calls on REPOs.

Mr Yurov went along with this dishonest charade. The next day, Ms Sidorova replied with a scanned image of the page signed by Mr Yurov and the words: “I. S. Yurov’s consent” which I am satisfied she would not have done unless Mr Yurov had consented.

Such back-dating and falsification of Credit Committee minutes was clearly rife. As the Bank identifies, there were multiple examples in November 2012 including on 8 November 2012, 16 November 2012 and (probably) on 23 November 2012 (though no back-dated minutes including the proposed resolution have been found in the disclosure).

The relevance of the back-dating and falsification of Credit Committee minutes is four-fold. First, it shows that Mr Yurov was not prepared to be honest in the discharge of his responsibilities (and was also cavalier in the discharge of those responsibilities). Second, it sheds light on the fact that Credit Committee minutes were used, on a number of occasions, to provide an approval “paper-trail” (as the Bank accurately puts it) rather than as a forum where there was a genuine and bona fide consideration of a particular loan on its merits. Third, it rather tells the lie to Mr Yurov’s evidence that his role as a member of the Credit Committee was to manage credit risk and ensure not a single kopek of Bank money was lost due to credit risk, and that he had to be convinced by all the materials available to him that the credit risk had been properly reviewed, valued and calculated, and that making a loan would not harm the Bank due to credit risk. That is hardly consistent with the conduct of someone who was prepared to back-date and falsify documents approving a loan seemingly unaccompanied by any materials, and not even considered at a particular Credit Committee meeting yet to be (dishonestly) recorded as such. Whilst there is no evidence that this practice took place in relation to the approval to make any of the loans in question in the present case, such practice, and Mr Yurov’s involvement in it, is part of the backdrop against which Mr Yurov’s role in relation to the loans under consideration is set. Fourthly, given that such requests for back-dating and inclusion in minutes after the event (and in some cases even without regard to the subject matter of a particular meeting) were directed by Mr Postnov to Mr Yurov, this shows that the management looked to him (as opposed to the other CC attendees) to approve such matters – which is of relevance in the context of Issue 17 (Shareholders causing and/or procuring and/or agreeing Loans and Transactions, as addressed in due course below).

I would only add that there is no evidence to support Mr Yurov’s assertion, when examples were put to him cross-examination, that there would or must have been discussions between or approvals of other members of the Credit Committee approving of such further resolutions. Given the clear paper trail between Mr Postnov and Mr Yurov it is plain that had there been involvement with, or approval by, other Credit Committee members, this would feature in the contemporary documents – yet there is no such documentation. The fact that Mr Postnov contacts Mr Yurov and no one else itself evidences, I am satisfied, a recognition that back-dated and falsified resolutions were in the gift of Mr Yurov rather than the Credit Committee as a whole following proper consideration thereof.

The 2010 CC Regulations also govern attendance and when a resolution in absentia could be obtained. First, all members of the Credit Committee were obliged to attend meetings, except for in exceptional circumstances (Article 11.8). Second in case of an urgent need to obtain a resolution, the Credit Committee could provide approval in absentia by means of a questionnaire ballot (Article 12).

However, it is plain that, in reality, meetings often took place in absentia, and had nothing to do with urgent need. Indeed, Mr Fetisov (albeit, I am satisfied, over-stating the position) even went so far as to say in evidence (despite being shown as being present at meetings) that “I'm pretty certain that within the last two years of me being in the Bank, 2014 and 2013, there was not a single time, not a single time when I went in person to sit at any Credit Committee. I signed some ballots, definitely I did that, but I just say that this somehow document -- probably the real process was slightly different to what it was. So

In the context of a vote in absentia, the procedure, was that members of the Credit Committee provided their approval by means of the collecting signatures on a questionnaire ballot. In this regard Article 12.4 provided “in case of interest of any members of the Credit Committee in the adopted resolution, the interested member of the Credit Committee is excluded from voting”. There is no evidence of this happening in reality in relation to the Shareholders and the Borrowers under consideration, as addressed in the Borrower Specific Sections. Article 12.4 also provides that, “The Chairman of the Credit Committee signs the questionnaire ballot after all members of the Credit Committee have expressed their opinion on the debated matter”.

The Bank’s case is that Credit Committee resolutions for the transactions relevant to this claim were passed by the Shareholders sitting on the Credit Committee without any scrutiny of the purpose of the loan, its terms or the ability of the borrower to repay the loan – certainly there is no evidence that this took place – and if it did it is difficult to see how such loans could have been approved as being in the Bank’s best interests (as addressed under Issue 17 and in the Borrower specific sections below).

Mr Yurov and Mr Fetisov’s evidence was that in relation to borrowers held for the benefit of the Bank (which they say includes most of the borrowers in issue in these proceedings), the Credit Committee approval process was largely a formality, as it essentially amounted to an internal transfer of funds within the Bank, which everyone on the Credit Committee was aware of. The difficulty, however, with this evidence (quite apart from the fact that it would, itself, suggest a lack of appropriate scrutiny), is that it is predicated on the basis of a distinction between “Bank Companies” and “Shareholder companies” (as opposed to all the companies being treated as if they were beneficially owned by the Shareholders) and the (false) premise that “balance sheet management” was in the Bank’s best interest (which it was not), as has already been foreshadowed and as is addressed in relation to Issue 17 below as well as in the Borrower specific sections.

In cross-examination, Mr Yurov’s evidence was that the first loan to each borrower was not a pure formality (even in relation to companies said to be held for the benefit of the Bank), as the Credit Committee had to be sure it was prepared to accept the initial credit risk. However, subsequent decisions to advance loans to the same borrower were a formality, as the credit risk had already been assessed and accepted.

All of this, says the Bank, is a recent invention by Mr Yurov. The reality, says the Bank, is that there was no discussion of the commercial merits of loans, or the ability of borrowers to repay any of the loans. Further, when one looks at first loans advanced it can be seen, for example by reference to the case of Erinskay, that the first loan advanced involved the use of a positively false and deceptive risk report which misrepresented the company’s true position. The loans are considered in the Borrower specific sections – suffice it to note at this point that there is no evidence of any actual discussion of the commercial merits of loans or the ability of borrowers to repay loans.

Mr Belyaev claimed that generally he would follow the decision of other members of the Credit Committee, who would be the ones to analyse the issue of credit risk in depth, including by way of a balance sheet analysis and by reference to managerial accounting ratios. One difficulty with this evidence (quite apart from the lack of evidence that anyone on the Credit Committee was analysing the issue of credit risk in depth) is that it comes close to Mr Belyaev admitting, if not averring, that he did not put his mind to the appropriateness of individual loans at all, and that he was abrogating the responsibilities he had. His evidence was also that if the matter before the Credit Committee concerned a roll-over of an existing loan, a change to the currency of the loan, interest rates or drawdowns within existing and pre-approved credit lines, he would not have considered credit risk in any detail as these sorts of changes would not create additional credit risk for the Bank. Again, this does not suggest that Mr Belyaev was, in reality, putting his mind to the appropriateness of particular decisions of the Credit Committee.

The Agreed Facts and Issues record agreement as to certain facts as to the employment history of the Shareholders at paragraphs 1.9 to 1.11 which I have already quoted in Section B.1 above.

Mr Yurov executed contracts of employment on 8 February 1999, 15 October 2003, 18 January 2010 and 18 January 2013. It is common ground that Mr Yurov was an employee until at least 15 October 2003. The Bank disputes that he was an employee after this date, primarily because it contends that under Russian law it is not possible to employ an individual as a member of the Supervisory Board. Mr Yurov was employed as the Chairman of the Supervisory Board and did not have a separate employed capacity. I consider this issue further in my consideration of Russian law in Section M.

Mr Belyaev executed contracts of employment on 26 April 1999, 18 January 2010 and 18 January 2013. The Bank initially put Mr Belyaev to proof as to the validity of his 2010 and 2013 employment contracts, but following the evidence acknowledges Mr Belyaev had a defined executive role in addition to his membership of the Supervisory Board and was an employee at all relevant times.

Mr Belyaev admits that he was involved in overseeing the Bank’s proprietary portfolio, including making decisions on the Bank’s proprietary and securities positions (having actively managed them up at least until 2010), working on the Bank’s Asset and Liability Committee, which was responsible for defining the Bank’s policies in terms of currency risk and setting general guidelines with respect to liquidity management. His evidence was also that he was involved in internal working groups, including heading up a group responsible for addressing the repayment of fees charged by the Bank to retail customers after such fees were declared impermissible.

However, and as already addressed when considering Mr Belyaev’s evidence as a witness, he made quite incredible attempts to downplay what his responsibilities actually were at the Bank under his employment contacts. In this regard I repeat for ease of reference my findings in this regard:-

Mr Fetisov executed contracts of employment on 1 June 2005, 18 January 2010 and 18 January 2013. As with Mr Belyaev, the Bank initially put Mr Fetisov to proof as to the validity of his 2010 and 2013 employment contracts, but now accepts he was an employee at all material times.

As well as being a member of the Supervisory Board and Credit Committee, Mr Fetisov was President of the Bank (from 2006 until early 2014), Chair of the Management Committee and a leading member of the distressed assets group which formed following the financial crisis in 2008 (other members of the group included Mr Buyanovsky and Mr Nazarov, as well as members of the Bank’s legal, finance, risk management, accounting and security departments). It appears that the distressed assets group was concerned with the projects themselves, as opposed to how they were held or how their financing was structured. Mr Iskandyrov agreed that the decisions taken in the group were ones of high level principle rather than detail.

I have already addressed Mr Fetisov’s responsibilities including his role as President of the Bank when commenting upon Mr Fetisov as a witness, and I will not repeat here my findings in Section C.3.3 above about his evidence and about his responsibilities. He too attempted to distance himself from events, and from involvement in the Bank’s activities as was well illustrated by his omission of his role of President of the Bank in his written evidence and the denial of various responsibilities set out in his contract employment. In this regard Mr Fetisov does not mention, anywhere in his Defence or in two witness statements that he was President of the Bank, as well as being the chairman of the Management Committee for significant periods of time, and as already addressed I am satisfied that this was a deliberate omission and not something that “must have slipped through”.

So far as Mr Fetisov’s positive plea in his Defence that he was “not … involved in the day-to-day management of the Bank” I have already noted that this is difficult to square with his contractual responsibilities as set out in his 2010 employment agreement (and his 2013 employment agreement which is materially identical). As to the former it provided, amongst other matters under the heading “Subject of the Agreement” that (Clause 2.1),

THE BORROWERS AND OTHER COMPANIES WITHIN THE NETWORK (ISSUES 5A-8)

The issues that arise in relation to the Borrowers and the other companies under Issues 5A to 8 are inextricably bound up with the chronology of the development of the offshore network which will be set out and addressed at this point. It is appropriate also to include within that chronology the Bank’s dealings with the CBR given that the development of the offshore network is set against the backdrop of the Bank’s dealings with the CBR.

It will be recalled that it is common ground between the Bank, Mr Yurov and Mr Fetisov that the companies in the network were originally managed by Mr Drozdov (the

It is also common ground between these parties that Willow River, RCP, SiberianKD, Business Group, Priangarskiy, Taransay and Moscow River were beneficially owned by the Shareholders (paragraph 5 of the List of Agreed Facts and Issues).

So far as Mr Belyaev’s position is concerned, Mr Belyaev is prepared to agree the above facts as common ground from the case materials he has seen, without prejudice to his case that (i) as regards paragraph 4, he was unaware of these facts and matters at the material time; (ii) as regards the companies listed in paragraph 5, he was aware that he had an economic interest in all of the underlying commercial projects barring Taransay, and in respect of Taransay he was entitled to and did split profits from its trading with Mr Yurov and Mr Fetisov but he says he was unaware at the material times that he owned a beneficial interest in the companies and was unaware of how precisely his economic interest was held.

The issues that arise for determination in this Section are:-

Of the seventeen companies which entered into pleaded loans and transactions, it is common ground that three of them were beneficially owned by the Shareholders. These were: SiberianKD, Business Group and Priangarskiy (which together formed a corporate group with interests in a project to construct and operate a timber processing facility).

It is also common ground that further companies held in the offshore network were beneficially owned by the Shareholders personally. These were: Willow River/RCP; Moscow River; and Taransay. The Bank does not plead in relation to specific loans or transactions entered into by these companies, but they are relevant to the claims as a whole and in relation to Willow River/RCP they are said by the Bank to constitute similar fact evidence.

As to the remaining fourteen companies which entered pleaded loans and transactions, the parties disagree as to for whose benefit they were held. The relevant companies are: Erinskay, Baymore, LBCS, Mourija, LLC5, Stivilon/Gofra, Stroyecologiya, Belenfield, Wave, Edenbury, Black Coast, Oldehove, Crylani, Yaposha. These are referred to in the List of Agreed Facts and Issues as “the Disputed Companies”. At times in this judgment I will also use the terms “Bank companies/assets/projects” and “Shareholder/Personal companies/assets/projects”. This is a shorthand to distinguish between companies, assets and projects said to be held for the benefit of the Bank and those said to be held for the Shareholders personally.

There were broadly two different categories of company in the offshore network. Firstly, what the Shareholders have referred to as “treasury” or “balance sheet management” companies, which were used for balance sheet management purposes and did not relate to any underlying commercial projects. Secondly, companies which held commercial projects or assets. I set out the project companies in the following table:

Spartakovskaya Street

It is clear that even before the 2008 financial crisis off-balance sheet structures, including offshore companies, were already being used. Mr Fetisov’s evidence was that prior to the 2008 financial crisis under the leadership of Mr Eggleton, the Bank used such structures in order to hold interests in investments, issue structured loans and establish hedge funds. The Bank also made use of fiduciary lending schemes through East West United Bank in Luxembourg (EWUB) and VTB/Donau Bank in Austria (Donau). These schemes, and the purpose of such schemes, are addressed below.

It appears that the 2008 financial crisis had a significant impact on the Bank (in common with many other banks), and that it was after the 2008 financial crisis that the use of “balance sheet management” intensified. As already noted Mr Fetisov was head of the “Distressed Assets” group following the 2008 crisis. He describes how the Bank was “hit especially hard” by the crisis and that the Shareholders “needed to find a solution which would allow the Bank to continue operating through difficult market conditions”. However whilst the impression he seeks to portray is of the Bank taking over investment projects whose owners had defaulted on their loans i.e. the Bank acquiring the ownership of such projects or the project company for itself, I am satisfied that this version of events is incorrect. Only Stivilon and StroyEcologia could be said, even theoretically, to fit this pattern, and it appears that in fact those projects were taken over and owned not by the Bank but by the Shareholders personally (although the evidence is that the Shareholders procured the Bank to purchase 19% of Stivilon).

On 2 September 2008 Mr Drozdov (the Bank’s Head of Legal) (who was described by Mr Fetisov as “like a computer” and “very accurate” sent corporate structure diagrams to the Shareholders under cover of a “FYI” email. As Mr Drozdov was responsible for running the offshore network at this stage (as is common ground) I can see no reason why he would mis-describe the structure, nor why Messrs Yurov, Belyaev or Fetisov would not write back to him if they considered the structure to be wrong (not least since the diagrams are being sent to them for information – i.e. it is contemplated they will have regard to them).

From the first of the diagrams it was apparent there were six offshore holding companies at the top of the main structure called Jermanta, Zosimal, Nikilin, Sapkont, Nomiranta and Agalid (all Cypriot limited companies). These six companies in turn owned a network of further offshore and Russian companies, including companies relevant to the transactions at issue in this case such as OOO Jermanta (the Russian company), Business Group (the Borrower in this case admitted to be a Shareholder Company), Gofra, Oil Group, Crylani, Sapkont and Elis Trade.

It is apparent from the second diagram that the Shareholders (in the usual proportions) were the direct shareholders of Tactio Developers Limited (“Tactio”), which owned 60% of NRT, the holding company for the Yaposha Group. There was an attached narrative at page 6. Amongst the matters stated was that Tactio was “the company of the shareholders”. Tactio was also the vehicle for the Otradnoye (aka Degunino) business centre development that came to be owned by Oldehove (which the Shareholders now claim (falsely says the Bank) to be a “Bank Project”).

Mr Drozdov circulated further structure charts to the Shareholders on 17 December 2008. These again recorded that the Shareholders directly held Tactio, which in turn owned 60% of NRT and the Yaposha group; and that they also owned TIBI through Tactio (as to 99%) and 100% of EuroGroup, which owned the Otradnoye/Degunino property. Again, there would not appear to be any reason why Mr Drozdov would make errors as to the ownership of such companies. Equally the Shareholders did not respond to express surprise or to suggest that Mr Drozdov had got the ownership structure wrong.

I consider these early documents to be of particular significance. They show in documents provided directly to the Shareholders, that at that time the Shareholders themselves were the direct owners of 60% of the Yaposha group and 100% of Eurogroup, which owned the Otradnoye (Degunino) office development. Realistically, there is no room for argument or ambiguity in this regard. As such, these charts are highly significant documents. None of the Shareholders suggests that there was ever any difference in beneficial ownership as between Yaposha and Otradnoye/Degunino, on one hand; and any of the other disputed companies/assets (including the other commercial property assets) on the other hand. They maintain that they are and were always Bank Companies. But if, as these documents show, Yaposha and Otradnoye/Degunino were Personal Companies then (1) the Shareholders have lied about Yaposha and Otradnoye/Degunino being “Bank Companies”, (2) the fact that these were Personal Companies strongly supports the conclusion that all the disputed companies/assets were Personal Companies, and (3) this also supports the conclusion that there was never any distinction between the two (and such distinction is a later invention).

There is also the fact that Business Group was always a Shareholder Company and it appears in the main structure chart as owned by Jermanta Limited which again leads to the same conclusion, namely that the entire structure was the Shareholders’ and not that of the Bank.

At this time, and as the Bank points out, the offshore companies were administered by

The Shareholders’ response to the structural diagrams and what they show is somewhat mute and less than convincing. Mr Yurov does not address the structural diagrams in his Closing Submissions at all (other than in the specific context of the section on Oldehove/Crylani).

Mr Belyaev predictably (given his approach of denying reading just about anything) asserts that he does not recall seeing the emails and that their contents do not reflect his contemporaneous knowledge. It is said the latter email, in particular, was sent by Mr Drozdov at the height of the 2008 Russian financial crisis at a time when Mr Belyaev was working intensively to address the accompanying difficulties being experienced by the Bank. It was in this context, indeed, that Mr Belyaev gave his unbelievable evidence that he would generally not pay particular attention to any emails from Mr Drozdov, and even went so far as to say that he would delete emails from Mr Drozdov without reading them (evidence that I have already addressed earlier when commenting on Mr Belyaev’s evidence as a witness). Mr Belyaev’s evidence in this regard is simply not credible given that as Mr Fetisov acknowledges, Mr Drozdov was a “senior member of the Bank’s management” and “in charge of the shareholding structure of the bank” and I reject Mr Belyaev’s evidence in this area, for the reasons I have already given.

Mr Fetisov also seeks to distance himself from the contents of the structure charts saying that he did not pay a great deal of attention to precise corporate structures. I do not consider this evidence to be credible either. The structure charts were sent to the Shareholders by Mr Drozdov. To say that he trusted Mr Drozdov (who he says reported principally to Mr Yurov) to make the “necessary arrangements” is no reason not to read what was specifically sent to him and the other Shareholders. In this context Mr Fetisov relies upon his evidence that particularly during the financial crisis from late 2008 onwards, Mr Fetisov had “far more urgent issues requiring his attention”.

It is also submitted on behalf of Mr Fetisov that the label “non-affiliates” structure which was held through companies like Jermanta and Nikilin was “presumably used to describe companies used by and for the Bank but not formally affiliated to it” (and it is said that it would be a strange way of describing Shareholder Companies). However, such submission ignores what is actually stated about ownership in the structure charts which shows that particular companies are owned by the Shareholders not the Bank, and this is of rather more significance than any description of “non-affiliated” which could perfectly well simply be a contemporary euphemism. It is no answer to say that Mr Fetisov “always considered these companies to be Bank companies and Bank investments. It could have been an SPV type of arrangement or whatever Drozdov decided at the time. He was the

By late 2008, before the financial crisis hit, there was already a massive amount of

“off balance sheet” lending being carried on. This is illustrated by an email from Mr Fetisov to Mr Eggleton dated 14 October 2008. The perceived propriety (or rather lack of it) in relation to such lending is rather well captured by what Mr Fetisov himself said at the time to Mr Eggleton namely that what he attached was “one more version of assets we hidden assets and financings” (emphasis added). Such description somewhat speaks for itself as to what Mr Fetisov thought about what was being done. Unsurprisingly, when asked, Mr Fetisov struggled for an answer as to why he was referring to “hidden assets” replying, “And then I don't know why I wrote that “hidden”. It might have been used by probably someone with a – but that's not forwarding, that's me. So I don't know why I used that word or that particular strange English here. But I forwarded to Eggleton something that has been assembled for BNP Paribas presentation.”

In any event the Table that was attached showed the sheer scale of lending that had been undertaken through the EWUB scheme through TIB Equities, TIBI and other companies – some 21.3 billion RUB (or around US$819 million) including variously, over RUB 500 million of personal loans to Shareholders, over RUB 1.1 billion of lending to the Yaposha group, a RUB 56 million loan to Mr Eggleton and substantial loans to companies involved in real estate projects, specifically Morledge, Eurogroup, Filenta and Royston.

The sums deposited with EWUB and Donau Bank were characterised as “cash or cash equivalents” in the Bank’s accounts – that is as liquid assets that required no provisioning. The accompanying table of “acceptable assets” and “unacceptable assets” spelled out various reasons why particular loans could not be included on the Bank’s balance sheet. For example, the personal loans to Shareholders could not be included by reason of N6, N9 and N10.1 standards (because it would reveal lending to connected parties) whilst other loans would have required large provisions if included on the Bank’s balance sheet (amongst others, loans to Yaposha and Nikilin), and in relation to companies holding real estate, there would be a violation of N6 standard if they were included on the Bank’s balance sheet.

Why such “off balance sheet” lending was being undertaken at this stage is clear enough and was acknowledged, and attempted to be justified, by Mr Yurov, at an interlocutory stage, “in 2008 there was considerable concern that if those losses had all been recorded on the Bank’s balance sheet, it would have had its licence revoked by the Central Bank of Russia and consequently been declared bankrupt. For obvious reasons, the Bank’s management wished to do everything possible to prevent this from happening, and took steps to manage its balance sheet using its pre-existing offshore structure.” (Mr Yurov’s second affidavit para 30) and “The key in the short term was to ensure that, in the interim, the Bank did not have to enter all of this bad debt on its balance sheet and so

Whilst the Bank sought to advance a case that the fiduciary lending arrangements involving EWUB and Donau were inherently dishonest (a plea that I have ruled the Bank is not entitled to advance), the existence and use of such arrangements remains of relevance as part of the other pleaded issues including the relationship with the CBR and whether the CBR was misled, false accounting, and the circumstances in which it became necessity to expand (and develop) the offshore network of companies.

The Bank’s case is that the Bank was coming under increasing pressure in 2009 from the CBR in relation to what appeared to be circular lending to “technical companies” in the context of concealment of back to back lending in the EWUB scheme. Further the Bank says that the Bank’s problems in this regard were compounded when in September 2009 Ernst & Young performed an audit of the Bank on behalf of a company that was considering a merger with the Bank (Rosneft), and soon (correctly) identified not only the Bank’s poor financial state but lending on a massive scale to the Shareholders’ projects, and a risk of licence revocation by the CBR. Ernst & Young’s “General Conclusions” included:

“About 50% of the Bank’s assets are loans granted to companies of the Bank’s shareholders for implementation of their projects (including regulation of the Bank’s standards).

Net assets of the Bank, excluding transactions with the companies of the Bank’s shareholders as of 30 June 2009, were negative. The scope of the Bank’s liabilities to third parties exceeds the scope of the Bank’s assets under unrelated transactions by 22.5 billion roubles.

Reveal by the Bank of Russia of financing of subordinated loans out of the Bank’s funds may entail fines; rejection of financing by the Bank of Russia; revocation of the license.

…

To ensure repayment of short-term liabilities of the Bank (up to 6 months) as of 30 June 2009, the need for monetary resources amounted to 35 billion roubles.”

The Bank says that it was against that backdrop that Mr Worsley was recruited to establish a new ownership structure designed to conceal what it says was the Shareholders’ ownership of companies borrowing from the Bank and to make it difficult or impossible for anyone (including the CBR) to link such companies to the Shareholders.

In contrast, Mr Yurov and Mr Fetisov claim that “balance sheet management” was disclosed to the CBR who were not misled, that there was nothing wrong with “balance sheet management”, and that the Shareholders did not own the companies that the Bank now alleges they owned. As will appear, none of these claims bears examination. However

It is clear that in 2009 the Bank was heavily committed, as lender in respect of various real estate projects in Russia (such as the Gelendzjik project, the Yaposha restaurant group and the Priangarskiy timber project) and was in correspondence with the CBR about such lending. However, what is equally clear is that what was being stated to the CBR about such lending was misleading, that the true position was not revealed, and that the CBR was suspicious about what was going on.

Thus, following a meeting on 20 April 2009, on 22 April 2009 the Bank wrote to the CBR stating that it was sending “requested information”. Amongst other matters it addressed loans to “non-resident” (i.e. offshore) legal entities as counterparties, and did so in terms that did not reveal that what was actually going on was the making of loans to companies owned by related parties be that the Shareholders or (per the Shareholders in relation to particular companies) the Bank, and was not, on any view third party armslength lending to independent third parties.

That letter provided, amongst other matters as follows:-

“As communicated previously by the Bank in letter no. 1/45-20-1362 dated 18.12.2008, sent to the Bank of Russia in accordance with the results of the meeting held on 15 December 2008, in connection with the crisis situations in the economy, in order to reduce credit risks, active work is being carried out by the Bank to change the funding structure of a number of the Bank’s clients’ business projects, and also of real estate investments in the territory of the Russian Federation, having been carried out previously under the principle of syndication with the involvement of non-resident banks. The main aim of this restructuring is to gain full control over quality assets, including guarantees in the form of pledged assets and guarantees from the recipients of funds and asset owners.

As part of this strategy, over the course of February and March 2009, the Bank performed a number of loan transactions, where non-resident legal entities were the counterparties. A distinctive feature of these transactions was that borrowers, who from the perspective of the nature of their activities were financial companies, used the Bank’s loan resources for investments in commercial enterprises located in the territory of the Russian Federation. In the majority of cases, the investments were carried out by means of the borrowers acquiring shares in capital of Russian economic businesses or of a foreign holding company, being the owners of such shares.

The funding of transactions in the form of loans provided by the Bank to non-resident companies is explained by the fact that at the time of their completion, the Bank’s counterparties did not have sufficiently developed infrastructure to conduct business in Russia. So far, companies registered in accordance with Russian legislation, that the Bank 23.04.09 [Signature] D8/17T/1 2 is planning to extend loans to, have come into their corporate structure. On account of the funds provided by the Bank, the companies will buy back assets from non-resident companies, which in turn will pay off the loans to the Bank. The Bank believes that this funding structure is final and allows the Bank to protect its creditor’s rights in the Russian jurisdiction and, if necessary, initiate foreclosure procedures and exercise its rights in accordance with the legislation of the Russian Federation. Therefore the structure of the transaction, including the pledge, shall be preserved, which eliminates the appearance of additional risk for the Bank.”

The impression given is not of lending to the Bank or to its Shareholders, but rather the Bank as lender to “non-resident” companies who were acquiring the projects with funds that would allow the underlying Russian debtors to pay back their loans to the Bank. The reality, however, which was not revealed to the CBR, was that the offshore borrowers were in fact vehicles of the Shareholders, the companies that were borrowing for these purposes being Jermanta LLC, Elis Trade LLC, Sapkont LLC, Oil Group LLC and Zosimal LLC.

What was actually occurring was that in April 2009 there were a series of transactions by which one set of Shareholder companies was “purchasing” project companies from another set of Shareholder companies using large loans that had been taken out from the Bank, and whilst particular loans were mentioned in the letter as “part of the implementation of the programme” that was referred to, what was not made clear is that this is what was happening. Thus:-

The appearance created was of external investors coming in to buy into the projects and taking them over, using loans from the Bank, whereas the reality is that what was actually occurring was simply that a stake in a project company was being transferred from one Shareholder company to another. Thus, it appeared that the Bank was acting as a true lender to the likes of Mourija, Nikilin and Zosimal and was not itself acquiring a stake in these projects, portraying the anticipated outcome for the Bank as simply being the loans being serviced and repaid rather than the Bank having the opportunity and right to participate in the profits on any upside. Indeed, the 22 April 2009 letter specifically spelled that out:

“Therefore the funds provided by the Bank to borrowers as part of the aforementioned loan transactions were ultimately directed towards different sectors of the Russian economy – to the manufacturing sector, consumer services and construction. The selection of the transaction structure was determined by objective factors, the most significant of which was the elimination for the Bank of the risks that accompany direct investments, which are not part of its core business. The Bank’s risks are also lowered on account of the pledge of assets acquired by borrowers, which are in the course of being registered.” (emphasis added)

It is clear that the CBR was suspicious about the loans and asked questions at a meeting with Mr Yurov and others from the Bank on 22 July 2009. The Minutes of the meeting record amongst other matters:-

“Within the meeting an issue of assets quality and Bank's liquidity state was discussed …. As the Department consider that the Bank's portfolio is not transparent (actually all the loans aim at the replenishment of the circulating assets of the borrower, which prevents from the real perception on the ways of their use, large scope loans are issued for a long term (for three (3) years) under non-market rates (5% - 7%)), the Bank representatives were asked during the meeting on the activity of a number of major borrowers of the bank and the risk appraisal on them.

According to the information provided by I.S. Yurov actually all major loans were extended to purchase property rights, claims and shares in the capital of various companies, carrying out an economic activity. Crediting of real economy sector makes inconsiderable part in the bank's credit portfolio. Pledge of property rights, claims and shares in the borrower's authorized capital is as a rule the security on the loans mentioned above.

…

The securities portfolio of the bank mainly consist of the credit notes of non-resident corporations (Cyprus, Netherlands, Luxembourg). According to the representatives of the Bank, the investments into notes are connected with development projects funding.

Responding the question of the representatives of the Bank of Russia on the securities bank transactions, considering that technical default occurred on the securities of a number of issuers in RUB 2.4 bln, the Bank representatives explained that the calculated reserve for these securities amount to 100%, but considering the security, actually formed reserve amounts to less than 1%.” (emphasis added)

The Bank was subject to a CBR audit/inspection which resulted in a report being produced. The CBR was clearly concerned about the large volume of debt securities held by the Bank whose value “cannot be determined reliably” (these were securities relating to Gofra, Loughran, Crylani, Oldehove, RTM, Amelside Comnet and the Bank itself).

The Report provided that:

“The working group paid special attention to the loans granted in April 2009, including to: Elistrade LLC, Jermanta LLC, Zosimal LLC, Oil-Group LLC, Sapkont LLC. It has been established that the loans of these borrowers (except for Oil-Group LLC) were a source to repay loans of non-residents, granted in the first quarter of 2009. During the analysis of financial situation of Elistrade LLC, Jermanta LLC, Zosimal LLC, Oil-Group LLC, Sapkont LLC, as well as LLC Collecting Agency Law and Business and NRT Holdings Limited, it was noted that the performance indicators improved significantly in the first quarter of 2009 (with respect to NRT Holdings Limited - in the fourth quarter of 2008), including the growth of net asset value due to undistributed profits, incomparable with the received net profit. According to the bank’s explanations, this circumstance was due to the founders’ contributions to the companies’ assets. In addition, the above borrowers (except for NRT Holdings Limited, LLC Collecting Agency Law and Business) have the following similar characteristics: absence of revenue, insignificant net profit in 2008, growth of financial result in the first quarter of 2009, actual location at the addresses of mass registration, performance of functions of the sole executive body by management companies (including Elistrade LLC, Jermanta LLC - Akonit LLC, Sapkont LLC - Tandem LLC, Zosimal LLC - Titan LLC), absence of the position of chief accountant in the staffing chart of the companies. The powers of the sole executive body of LLC Collecting Agency Law and Business were assigned to the management company - Titan LLC, the obligations of the chief accountant were assigned to the director general.

The audit showed that the main part of the portfolio of loans to legal entities consisted of investment loans. The purpose of granting a number of loans (OilGroup LLC, Jermanta LLC) was to acquire risks and benefits from the bank on CLN belonging to it, subject to classification into the 5th quality category with formation of provision in the amount of 100% according to the requirements of Regulations of the Bank of Russia No. 283-П dated 20.03.2006 due to the technical default of issuers (delay in redemption of coupons on the notes over 30 calendar days). Thus, the economic essence of the operation was to transform the risks of financial instruments into credit risks. The amounts of financing deposited in the bank (formed by credit resources) were used by the bank to minimize the estimated provision for CLN to ensure the first quality category. However, the analysis of the legal structure of agreements on participation in CLN showed that the amounts of financing received by the bank did not meet the criteria established in clause 6.2.1 of Regulations of the Bank of Russia No. 254-П dated 26.03.2004 to ensure the first quality category.” (emphasis added)

It is clear, therefore, that the CBR had identified suspicious features of the loans in question and that the CBR believed that bad debts were being transformed into loans to offshore companies of higher quality resulting in a need for lower provisioning. This is not consistent with the CBR being told of, and approving, “balance sheet management” as a legitimate practice.

Indeed, it was clear from the evidence of Ms Podstrekha that she suspected that there was artificial lending with the involvement of technical companies going on but far from admitting this (i.e. making full disclosure of “balance sheet management”) the Bank was denying it:-

The report considered that the Bank was showing signs of bankruptcy and (by reference to a table) that many loans should be reclassified as being of lower quality with higher provision:

“During the analysis of quality of the loan and equivalent debt, the working group made an interim conclusion on the presence of bankruptcy signs in NB TRUST (OJSC) as of 01.07.2009 in accordance with art.4 of Federal Law No. 40-FZ dated 25.02.1999 On Insolvency (Bankruptcy) of Credit Institutions, due to the absolute decrease in the value of own funds (equity), as compared to their (its) maximum value achieved in the last 12 months, by over 20 percent with simultaneous violation of one of the obligatory norms established by the Bank of Russia (H6). This conclusion was based on the results of the analysis of debts of the following borrowers: Elistrade LLC, Jermanta LLC, Oil-Group LLC, Sapkont LLC, NRT Holdings Limited, Yaposhka LLC, Yaposhka-City

The Bank rejected the suggestions of the CBR, and indeed in a letter to the CBR on 19 August 2009 continued to portray the lending as normal, and legitimate, commercial lending:

“Regarding the composition and quality of the Bank’s loan portfolio, we report the following. The Bank provided several large loans directed towards funding investment projects. The amount of information for these projects exceeds the content of a usual credit file to a significant degree, and part of the documents that the Bank had at the start of the inspection were only in English. According to the Bank, this created specific difficulties when carrying out the analysis of the loan portfolio and led to the formation of a misinformed opinion regarding its ‘opacity’. The Bank actively cooperated with authorised representatives of the Bank of Russia and members of the inspection group, offered all the necessary additional documentation at their request, and arranged informative meetings with employees directly involved in the completion of loan transactions. The Bank believes that this allowed a sufficient level of transparency of the loan portfolio to be ensured.

…

What must be taken into account as far as the corporate loan portfolio is concerned is that operations formally arranged in the form of acquiring shares in capital in economic businesses and property rights are actually investments in different sectors of industry and the services sector.” (emphasis added)

On 19 August 2009 there was also a further meeting between the CBR and the Bank. I have already referred to Mr Fetisov’s denial of being present, together with Mr Yurov, at this meeting despite attendance as “President” of the Bank being stated in the minutes. As already addressed, and notwithstanding his suggestion that he was not in Moscow at the time of the meeting the weight of the evidence is that he attended this (and a later) meeting with the CBR, this being another illustration of Mr Fetisov seeking to distance himself from a matter by saying he was elsewhere at the time. The minutes of the meeting state, amongst other matters:

“Within the meeting an issue on the Bank assets quality was discussed. According to the viewpoint of the working group, which carried out the audit in the Bank as of the moment, the credit portfolio was not transparent. The risk appraisal on the loans of Jermanta LLC, Ellis Trade LLC, Sapkont LLC, Oil Group LLC and Zosimal LLC (totally amounting to RUB 9.6 bln) is inadequate, the additional formation of the reserves for possible losses is needed under loans of the indicated borrowers. the indicated loans possess the similar features:

–

authorized capital of the borrowers amount to RUB 10 thous;

–

overlapping of positions of General Director and Chief Accountant;

–

conducting of functions of the executive body of the managing companies; – the loans were extended against 5 % per annum and were sent to purchase the shares in the authorized capitals of various companies or to purchase securities etc.;

–

the terms for interest payments are 6 months;

–

the debt servicing is considered “good” due to the receipt of RUB 1 thous of fees from the borrowers.

Besides other Bank major projects raise questions, including those, which are aimed at their use, financial standing of the borrowers etc.

In its turn the Bank expressed its disagreement with the viewpoint of the working group and informed that the loans extended to Ellis Trade LLC, Zosimal LLC and Jermanta LLC were sent to fund the investment projects. the loans of Oil Group LLC were used to purchase the rights under the debt securities, which are mainly connected with the investment project.

….

The Bank expressed its readiness to furnish the working group and the Department with the appraisal reports of the projects mentioned above, their budgets, cash flow schedules and other managerial information.”

Ms Podstrekha’s evidence in relation to this meeting (in her first witness statement), which I accept, is that although the CBR expressed concern about the transparency of a number of the loans made by NBT in that they had similar characteristics (notably the loans to Jermanta LLC, Elis Trade LLC, Sapkont LLC, Oil Group LLC and Zosimal LLC totalling RUB9.6 billion), “NBT’s senior management disagreed with our concerns and provided explanations to us, which, in the absence of cogent evidence, we could not rebut”. What is apparent is that the CBR was not told that these companies were owned by the Bank or (as I am satisfied was the case) that they were owned by the Shareholders – if either of such matters had been told to the CBR its suspicions about related party lending and associated issues about reserves would have been confirmed.

In this regard it is important to appreciate that what was of most concern to the CBR was not ownership per se or related party lending per se (though it did expressly ask about ultimate beneficial ownership, contrary to what was submitted on Mr Yurov’s behalf in closing – see the CBR’s later letter to the Bank dated 19 October 2012) but what the implications of that were for reserving. This was expressly addressed by Ms Podstrekha in her oral evidence (in relation to a later meeting on 24 February 2011):-

“Q. […] the whole topic of discussion had nothing to do with how these companies were controlled, did it?

A. Because for us the main thing was not how they were controlled but how the risk related to the companies would be evaluated. They could be controlled by the shareholders indeed but please do 100 per cent reserve for them and reflect that in the profits and then you can issue loans to whoever.”

This also emerged clearly from the following series of questions and answers in the cross-examination of Ms Podstrekha:-

“… it is very important to assess the risks correctly. I wanted to draw your attention to this fact, that there is no prohibition to provide loans to repay loans, provided that the risks are adequately assented, mathematically it turns out that the capital is decreased in the Bank and then there will be reasons to give rise to bankruptcy. If we were to provide adequate reserves, adequate provisions for the loans provided.

Q. And I think that's -- put it differently. Your real concern wasn't who was running these companies, your real concern was whether the reserves were reasonable reserves, wasn't it?

A. Our main concern is the adequate assessment of risks of those companies. If a company has no possibility to repay the loan and it is obvious from whatever we have read in the inspection report, then the reserve for the company, the provision, should be formed in accordance with 254B, not less than 21 per cent and preferably more, up to 50 per cent. That is how the reserves should be formed. The Bank always sets the reserve as 1-2 per cent for those companies. The Bank thought that they were risk-free loans, practically, despite all the things that we saw now that one pays the other, they pay the third and it goes round in circles.

Q. But you raised that with the Bank and the answer that they gave you is that underlying these loans there were investment projects which the loans were financing.

That was what they told you.

A. Yes, that's correct. And we were telling them the risk is high in those loans and they were saying, no, it's not high.

Q. But that wasn't because of whether they were owned or run by the Bank. You've just told my Lord that that didn't matter; it was all down to the judgement that you made about the underlying investment projects, wasn't it?

A. What is important is the essence, the substance, the form or the shape, the semblance, is secondary.

Q. Well, the essence and the substance here, as was obvious from the report, was that the bank was running these investment projects, wasn't it?

A. The Bank was managing them but they never acknowledged it at our meetings. They were always saying, no, no,

they are not our projects.”

As Ms Podstrekha also explained:-

“If the balance really reflects what's happening, how it should be, the balance is simply a reflection of the operations that are being carried out. So if it's honest and transparent, there is no need for balance management. It reflects the picture in fact but when they are hiding the losses, hiding the losses and the myriad of technical companies, that is -- that is balance sheet management. Why? So nobody would get to the bottom of it. What's really happening.”

The essence of Ms Podstrekha’s evidence (which I accept) is that lending for paying back other loans is acceptable as long as it is properly provided for in the relevant amount

It is in that sense that Ms Podstrekha refers to balance sheet management at paragraph 34 of her witness statement (after confirming that the Bank never stated in any meetings that she attended that it had an offshore network of companies that it used for balance sheet purposes) and states that “‘Balance sheet management’ is not legal. It is fraudulent and deceives not only the CBR but auditors and depositors.” Ms Podstrekha confirmed this evidence when cross-examined (Day 6/94:10-Day 6/95:25). It is also in that context that her evidence is that “If this information had been disclosed to the CBR (formally or informally) it would almost certainly have led to the immediate revocation of NBT’s licence (both because of the breach of formal requirements and also due to the concealment of this).”. I address the evidence she gave when cross-examined about this, in due course below when addressing Issues 22 to 23 (in Section I below).

It is also equally clear that the Shareholders knew that (improper) balance sheet management was not lawful, and that this was precisely what was going on from 2008 onwards, as is apparent from what is said in Mr Yurov’s memo of 28 June 2015 to the other Shareholders expressly referring to losses not being recorded in the Bank’s books as otherwise the CBR would have had to withdraw the Bank’s licence, and a decision being taken to start submitting false accounts to the CBR.

Over the same time period in 2009 the CBR was asking the Bank, about the EWUB scheme which it (rightly) suspected was being used to conceal related party (long term) lending. Thus the Minutes of the meeting with the CBR on 22 June 2009 that Mr Yurov attended, that has been referred to above, also recorded:-

“Besides the representatives of the Bank of Russia asked concerning interbank loans extended regularly to VTB Bank (Austria) and East-West United Bank S.A. I.S. Yurov agreed to the Department's supposition that these transactions in their essence are not interbank loans but are related with funding of the Bank transactions, but has not provided any detailed explanation.”

It is apparent that the CBR also contacted EWUB in relation to the lending, as is apparent from an email from Ms Krivosheeva to the Shareholders (cc’d to others within the Bank) in relation to an “action plan to resolve the situation with the N3 requirement in the context of the CB audit” which referred to a request and response from EWUB. The request asked EWB to confirm that the transactions between EWUB and the Bank were short term borrowing with a term of 30 days and referred to transactions with a value of about US$90.7 million + RUB 7 billion. The response from EWUB referred to “shortterm funding…. in the form of interbank deposits” and stated: “The funds raised from NBT are used for onward lending for the respective tenors”. It was true that money was being lent on a short-term basis to TIB and Tactio but what was not stated was that those companies were then lending it on a longer term basis to other entities including in relation to the Shareholders’ own projects and the Shareholders personally. Ms Krivosheeva continued: “We tell the CB that we have a plan to change the structure of our liquid assets, that we plan reduce short term interbank credit until the end of the year by 4.4 bn roubles and replacing it with a higher-yield portfolio of liquid assets – FLBs – and we make a schedule with our plans….” and she requested that the Shareholders approve the plan.

The inter-bank lending was also discussed at the 19 August meeting and it is apparent from the Minutes that the CBR suspected that the EWUB inter-bank loans were in fact being used for longer term funding, but the Bank continued to deny this:

“Concerning the interbank loans, which were regularly extended to VTB Bank (Austria) and East-West United Bank S.A., the representative of working group informed that these banks credit the Bank loans in comparable amounts (TIB INVESTMENTS LIMITED (Cyprus) and Т&В EQUITIES LIMITED

(Cyprus)). Besides the interbank crediting is made under non-market rates, the calculations on the issue and repayment of the loans between the indicated banks and National Bank TRUST, by the indicated banks and Bank clients (TIB INVESTMENTS LIMITED (Cyprus) and Т&В EQUITIES LIMITED

(Cyprus)) shall be conducted simultaneously. The presence of the cash flows, which coincide by time (from National Bank TRUST to non-resident bank, from non-resident bank to National bank TRUST) and conducting of the transactions under non-market prices may testify on the technical character of extension and recovery of loans to conceal real term for interbank loan extension and liquidity loss risk, incurred by the bank.

Besides the character of interrelations between the Bank and TIB

INVESTMENTS LIMITED (Cyprus) and Т&В EQUITIES LIMITED

(Cyprus) is obscure, considering the purchase transaction by the Bank of credit notes from the indicated clients issued by С.R.R. B.V.

In its turn the Bank expressed the disagreement with the opinion of the working group and readiness to furnish the additional documents to confirm its position on the short-term and namely interbank character of transactions held with VTB Bank (Austria) and East-West United Bank S.A.” (emphasis added)

The Bank maintained that stance in the letter to the CBR the same day:-

“The Bank does not agree with the Banking Regulation Department’s suggestion, documented in the Minutes of the working meeting, that by definition operations to invest funds in the banks VTB Bank Austria and East West United Bank are not inter-bank loans. Detailed explanations of this issue with the presentation of all the requested documents were provided by the authorised representatives of the Bank of Russia and by members of the inspection group. Additionally, we consider it necessary to emphasise that despite the long-term nature of cooperation with the banks VTB Bank Austria and East West United Bank in the inter-bank loans market, the agreements that regulate the relationship of the parties when concluding each specific operation in no way limits the Bank’s right to dispose of the invested funds in the period corresponding to the reflection of this asset in the Bank’s balance sheet in accordance with the terms of the concluded agreement. This, in particular, is confirmed by the attached letters from the aforementioned counter-party banks, which they drew up at the Bank’s request in order for them to be provided to the Bank of Russia on request.

The decision regarding the total amount of funds invested in the aforementioned borrowing banks in the next period is made on a quarterly basis, taking into account other

factors that determine the status of the Bank’s balance sheet and the dynamic of its resource base and planned assets operations. The Bank believes that operations carried out by the Bank to invest funds in the inter-bank market are an effective instrument for managing liquidity, particularly for the purposes of fulfilling the requirements of the Bank of Russia to observe the compulsory N3 ratio. The provided inter-bank loans are a low-risk asset, which can be converted into liquid resources in a period established by corresponding contracts and, generally, consisting of no more than 30 days. Over the previous months, the Bank has consistently cut this balance sheet item. Over the course of August 2009, the Bank cut the amount of provided inter-bank loans by 1.5 billion roubles and intends hereafter to adhere to the selected strategy.” (emphasis added)

The result is that throughout this period the CBR suspected that the EWUB scheme was being used to conceal longer term lending (as it was) and the Bank (to the knowledge of the Shareholders), continued to deny this.

A further snapshot of the offshore network at this time can be gained from a due diligence report of the Bank produced by Ernst & Young in September 2009, as well as the Bank’s reply to that report. Ernst & Young prepared the report on behalf of Rosneft, who were at that time considering a takeover or merger of the Bank. It is clear that Ernst

The report concluded, amongst other matters “Lending to corporate clients is substantially focused on lending to the Bank’s shareholders and related parties.” The report went on to distinguish between “Core Banking Business” and “Group’s (shareholders’) business”, concluding that related-party lending made up 62% of the Bank’s loan portfolio. The report listed a number of “shareholder projects” in the Bank’s loan portfolio, including financing the acquisition and maintenance of three buildings rented by the Bank for business operations (which Mr Yurov agreed probably referred to Spartakovskaya, Perevedenovskiy and Veshnyaki); development projects of the shareholders; and the acquisition and operation of the Yaposha restaurant chain. The report also reclassified “short term deposits with other banks” (which likely reflected the EWUB and Donau schemes) as loans rather than cash or cash equivalents.

The report also concluded that about RUB 31.8 billion out of a total asset base of RUB

Ernst & Young’s “General Conclusions” were expressed in remarkably percipient terms:

“About 50% of the Bank’s assets are loans granted to companies of the Bank’s shareholders for implementation of their projects (including regulation of the Bank’s standards).

Net assets of the Bank, excluding transactions with the companies of the Bank’s shareholders as of 30 June 2009, were negative. The scope of the Bank’s liabilities to third parties exceeds the scope of the Bank’s assets under unrelated transactions by 22.5 billion roubles.

Reveal by the Bank of Russia of financing of subordinated loans out of the Bank’s funds may entail fines; rejection of financing by the Bank of Russia; revocation of the license.

…

To ensure repayment of short-term liabilities of the Bank (up to 6 months) as of

30 June 2009, the need for monetary resources amounted to 35 billion rubles.”

In cross-examination, Mr Yurov criticised the Ernst & Young Report, claiming that it was not a proper due diligence exercise and made a number of mistakes. He pointed out that Ernst & Young were not acting as auditors and that their report was simply for the purposes of preliminary discussions with Rosneft, and argued that Ernst & Young were mistaken on many of their findings, and pointed to a letter written in response to the report, signed by Mr Yurov himself.

In fact the Bank’s lengthy letter in response (signed by Mr Yurov) stated as follows in relation to the ownership of companies:-

“Following the Annex G, E&Y made a conclusion that the Bank's shareholders control the business of a number of Russian and foreign entities. We assume that such a conclusion is based upon the Bank's close partnership relations with a number of its clients, as well as upon the actual disposition of participation interest in capital of the companies at the Bank's shareholders. However, the conclusion made by E&Y is incorrect in relation to the following companies.

[The letter then referred to CRR BV, FTC CJSC, Eglington Trading, IBK International, Cluster Logistics, BSC Logistiv, and Omsk Trade Alliance.]

Meanwhile, as far as other companies listed in Annex G concern, it should be noted that they are not affiliated with the Bank or its shareholders in terms of the Russian laws and their financial statements are not subject to consolidation into the Bank's statements in terms of the IFRS rules. However, the opinion that the Bank's shareholders have operational control over the companies listed below is correct in general, as the Bank arranges project financing through these companies.”

(emphasis added)

The letter proceeded to list companies including: Crylani, Oldehove, LBCS, Oil Group, Zosimal, Sapkont, Elis Trade, Jermanta, Mourija, Filenta, NRT/Yaposha, Nomiranta, Nikilin and Jermanta.

In cross-examination, Mr Yurov suggested that the reference to “operational control” in the original Russian text should be read as monitoring, rather than strict authority, but I do not see how this changes the sense of what is being admitted. The Shareholders contend that the fact the Bank was described as “arranging project financing through these companies” supports the idea that, whilst according to Russian Law the Disputed Companies were not related to the Bank, they were used by the Bank for its own purposes. I do not consider that this description supports such an idea.

However, I am in no doubt whatsoever that this letter in fact contains a clear contemporaneous (and unguarded) admission (in a document signed by Mr Yurov) that the Shareholders, and not the Bank, had control of companies in the offshore network, including the specified companies (which include many of the “Disputed Companies” for the purpose of Issues 6 and 7), which is also consistent with these companies being not only controlled, but also beneficially owned, by the Shareholders. Certainly, it is neither stated, nor is there anything to suggest, that they are beneficially owned by the Bank.

Once again it is notable that the alleged distinction between “Bank Projects” and “Personal Projects” is not made and the projects that are dealt with by the Bank (rightly, I am satisfied) being presented as lender to the projects or as a provider of “project finance” and not as owner of the projects themselves. For example, in relation to NRT/Yaposha, which the Shareholders now say was always a “Bank Project”, the letter refers to loans granted to Zosimal, Elis Trade, NRT and the Yaposha companies before purporting to analyse the finances of the underlying business and its ability to generate

There were then further meetings between the Bank and the CBR on 12 November 2009 and 7 December 2009. In the former the Bank informed the CBR that deposits with EWUB had decreased considerably as noted in the Minutes:

“On the transactions on the repayment and extension of interbank loans to nonresident banks – EAST-West United Banc S.A. (Luxembourg) and VTB Bank (Austria) AG, the representatives of the Bank informed on the considerable reduction of the conducted transactions. Assets and Liabilities Committee of the bank resolved to increase the shares of the public securities in the structure of tools to support the liquidity.”

Under the heading “Outcome of the Meeting” it was stated that:

“– transactions on the repayment and extension of interbank loans to nonresident banks –

EAST-West United Banc S.A. (Luxembourg) and VTB Bank (Austria) AG, including indicating the scopes of transactions, interest rates effective during the audited period, incomes received by the Bank on these transactions, considering the current situation;”

In a letter to the CBR the same day the Bank again informed the CBR that deposits with EWUB had decreased considerably whilst characterising these deposits as funds invested by the Bank “in these non-resident banks” (i.e. without regard to the lending-on from EWUB or the term of such loans):-

“In accordance with the strategy to manage liquid assets, selected and approved by the decisions of the Bank’s Assets and Liabilities Management Committee, over the course of 2009 the Bank reduced the amount of funds invested in the form of inter-bank deposits in non-resident banks according to plan.

In particular, for the examined period, the amount of funds invested in VTB

BANK (AUSTRIA) AG and EAST-WEST UNITED BANK S.A. was reduced by

5,035 million roubles.

On 04/09/09, VTB BANK (AUSTRIA) AG settled its obligations towards the Bank in full by a deposit amounting to 45 million US dollars on 04/09/09. For the period that passed since the end of the inspection, the amount of funds invested by the Bank in EAST-WEST UNITED BANK S.A. was reduced by 1,730 million roubles. For the two aforementioned banks the total investment for the period that passed since the end of the inspection was reduced by 2,047 million roubles. Therefore, since the start of the year the amount of funds invested by the Bank in these non-resident banks was reduced by 7,082 million roubles, i.e. almost twofold.” (emphasis added)

Thereafter, the Bank wrote to the CBR on 25 November 2009 in relation to provisions that had been made in respect of loans to, amongst other companies, Elis Trade, Zosimal, Filenta (and Oil Group (Quality category III: 22%)). The letter then sets out arguments as to why the Bank submits that other loans should not be downgraded in their quality (which would lead to larger provisions) as recommended by the CBR in its 2009 audit.

There then followed a further meeting with the CBR on 7 December 2009. It will be recalled that the minutes state that both Mr Fetisov and Mr Belyaev were present. I have already addressed Mr Belyaev’s claim that he did not attend this meeting and identified why I am satisfied that Mr Belyaev’s evidence in this regard is not truthful and that he did attend (consistent with the Minutes (sent to all attendees for approval), Mr Fetisov’s pleaded case, Mr Fetisov’s witness statement and his recollection when cross-examined by Mr Belyaev’s counsel). Equally I am satisfied that the reason why he denied being present at the meeting was because he wished to distance himself from both the “balance sheet management” schemes and the deception of the CBR.

The meeting itself is of importance and it is in issue what was discussed and said at that meeting. I consider that the Minutes are the surest guide as to what was said at that Meeting. The purpose of the meeting is clearly identified at the start of the Minutes:-

“Contents of the Meeting:

The meeting discussed the issues related to the assessment of credit risks of the Bank based on the results of inspection, as well as dubious transactions of a number of the Bank’s clients.”

The “dubious transactions” are clearly those that the CBR are concerned about and which it wishes to discuss.

It is apparent from the Minutes that what occurred at the Meeting was a discussion of the quality (category) of the various loans addressed including Oil Group, Elis Trade, Stivilon (although it had not borrowed directly at this stage), NRT (i.e. Yaposha), Filenta,

What is not mentioned is that the Shareholders personally were the beneficial owners of Business Group and the Kodinsk (Priangarskiy) project (as the Shareholders now admit). Equally, there was discussion of a loan to Oil Group being used for the “acquisition of securities” in a company called RTM Vermogens (RTM), which was part of the Shareholders’ personal acquisition of the Billa property portfolio, and was refinanced and ultimately came to be held through Willow River and RCP, but no mention of the fact that these transactions were for the personal benefit of the Shareholders (as is now admitted). If there had been any such disclosure this would self-evidently have been of considerable interest to the CBR and would have been recorded in the Minutes. I am quite satisfied that there was no such disclosure.

Nor is it recorded that the Bank informed the CBR that the Bank itself owned or controlled the various borrowers under discussion or that ownership was being kept “off balance sheet” for the purpose of “balance sheet management”. Again such matters would have been of considerable interest to the CBR and would have been recorded in the Minutes.

Contrast Mr Fetisov’s account in his witness statement:-

“92.

At the meeting the other representatives of the Bank provided explanations of many of its loans on a transaction-by-transaction basis. In doing so they made clear that several such loans were made to companies which the Bank controlled, but which the CBR knew were not held on its balance sheet. Insofar as I can remember, both Mr Postnov and Ms Krivisheeva made presentations, but I did not do so myself. It was a long meeting, lasting from lunchtime until well into the evening. This was my only visit the CBR's headquarters.

93.

The representatives of the CBR did not suggest that there was anything wrong with loans to off-balance sheet companies (this was not surprising, as the use of such structures was widely accepted commercial practice within Russian banks at the time). To the best of my knowledge, no-one at the CBR suggested that the Bank should stop using off-balance sheet structures until December 2014.”

There is no support for this account in the Minutes, no mention of the CBR being told that loans were being made to companies that the Bank controlled but which were off balance sheet, nor that the CBR knew this, nor of anyone from the CBR going along with this. I am satisfied that Mr Fetisov’s account is untruthful. It is inherently improbable that detailed Minutes would not record such matters – they would have been of obvious interest to CBR, and I am satisfied they would have (contrary to the impression sort to be conveyed by Mr Fetisov) have provoked a strong and, for the Bank, unpleasant reaction from the CBR. Indeed the true position (as recognised by Mr Yurov in Mr Yurov’s memo to the other Shareholders in June 2015) is that the Bank started submitting false accounts from 2008 as a result of the balance sheet management that was being undertaken and “if such losses had been recorded in the bank’s books back in 2008, the CBR would have had to revoke NBT’s banking licence”. The suggestion that the CBR would have reacted with equanimity to any such revelations in the meeting on 7 December 2009 is not credible, and defies belief. The reason for Mr Fetisov’s lies are clear enough – a desire to portray “balance sheet management” as unobjectionable when the reality is that it was anything but (as addressed in relation to Issue 16 in Section G.3 below), and to distance himself from what actually occurred in that meeting (i.e. the painting of a false picture as to the lending that was taking place) coupled with a failure to reveal Shareholders’ ownership of particular companies.

In December 2009 Mr Worsley was recruited by the Shareholders to take over the administration of the offshore network. The Bank’s case is that the catalyst for Mr Worsley’s recruitment, and the move out of the Bank of the management of the offshore network of companies and its expansion, was the need for more secrecy prompted by the unwelcome attention of the CBR in mid-2009 that has been addressed above. In contrast Mr Yurov and Mr Fetisov say that the decision was due to a loss of confidence in Mr Drozdov, including a suspicion that he had been involved in covering up the embezzlement of funds by Mr Maximov from the offshore network. This rather begs the question as to why Mr Drozdov continued to be employed by the Bank in a senior position

I am satisfied, and find, that the catalyst for Mr Worsley’s appointment was indeed the increasing scrutiny the Bank was under from the CBR as a result of which it would have been plain to Mr Yurov and Mr Fetisov (Mr Belyaev’s knowledge is a separate issue, addressed below) that the practice of undertaking lending to an offshore network run by Mr Drozdov from within the Bank and use of the EWUB scheme to conceal further related party lending was not going to be a sustainable approach going forward.

Mr Worsley’s background was in corporate recruitment, and he had previously assisted the Bank recruit a number of senior managers, including Mr Eggleton as CEO. Mr Fetisov’s evidence as to the appointment of Mr Worsley includes that:

“in mid to late 2009 and after consulting Mr Belyaev and me, Mr Yurov decided to take the administration of the network away from Mr Drozdov and run it from outside the Bank…. during the early 2000s Mr Worsley had worked as a head-hunter and had assisted the Bank in recruiting several senior managers. As a result, I knew him to be both well connected and knowledgeable about the Russian banking sector. By 2009 Mr Worsley still had his headhunting business but was also managing offshore companies for some high profile people in Russia (including, as I understood it at the time, former Alfa Bank CEO Alex Knaster). He had told me that he was also looking for new opportunities, as his recruitment business was focused on the Russian financial sector and had been hit hard by the 2008 financial crisis. 103. This led me to think that Mr Worsley might be an appropriate person to take over the administration of the offshore network ( with the assistance of the existing team, save for Mr

Mr Fetisov’s evidence may or may not be true in terms of Mr Worsley’s previous experience, but I see no reason to disbelieve his evidence that Mr Yurov did consult with both him and Mr Belyaev about taking away the administration of the network from Mr Drozdov and running it from outside the Bank by someone, and that the person that was alighted upon was Mr Worsley. Mr Belyaev’s evidence, which was confirmed by Mr Yurov, was that although he was told of the decision to hire Mr Worsley, he was not consulted about it. I do not consider that anything turns on this.

However, Mr Belyaev claimed he believed Mr Worsley was tasked with establishing a family office which would include him, being one of the Bank’s shareholders, as a client, whilst denying knowledge that Mr Worsley was recruited to manage the offshore network. I do not find that evidence credible. I accept Mr Fetisov’s evidence that Mr Belyaev was consulted about the replacement of Mr Drozdov (as was also Mr Yurov’s evidence) and was told about the appointment of Mr Worsley. The role of Mr Worsley (replacement of Mr Drozdov) meant that Mr Belyaev must have known that he was going to do what was done before. In any event, as appears below Mr Belyaev in due course was a recipient of emails from Mr Worsley from which his role in the offshore network, and its use for “balance sheet management” and for the Shareholders’ benefit was clear, and the documentation equally shows that Mr Belyaev knew about that. In this regard I have already referred to the very telling email from Mr Worsley to Mr Belyaev alone (to his private email address) dated 19 December 2012 – i.e. when balance sheet management was in full swing with a network of offshore companies set up or controlled by Mr Worsley, which shows that Mr Belyaev knew very well what was being done by Mr Worsley in relation to an offshore network for balance sheet management with fake nominee UBOs and the like (“Sergey, Hi. FYI - the 5 copies of the paperwork in storage for the new people are of course already in place….”).

There is an issue as to what it was contemplated Mr Worsley would do and what Mr Worsley was instructed to do. What actually happened with the management of an offshore network transferred to a separate external Russian company set up headed by Mr Worsley (Columba) is not in dispute and speaks for itself. Whilst Mr Yurov claimed, in his oral evidence, that Mr Worsley was recruited as the Shareholders could not understand how they owned their assets and needed someone to restructure them, this account does not bear analysis given that Mr Drozdov had sent the Shareholders the structure charts in September 2008 that have already been referred to, and he could no doubt have answered any questions they had. More fundamentally, I am satisfied that the restructuring that took place was clearly designed not to simplify the structure but to make it more opaque with the use of multiple nominee UBOs with the result that true ownership was concealed which facilitated (amongst other benefits for the Shareholders) being able to treat companies as their own, and also to circumvent CBR requirements on related party and concentrated lending.

Mr Fetisov and Mr Yurov met Mr Worsley in Moscow on or around 10 December 2009. Mr Worsley confirmed he would like to take on the role and Mr Fetisov then introduced him to Mr Iskandyrov and other Bank employees. It also is clear that in addition to undertaking the restructuring and running the restructured network Mr

It is clear from the contemporary documentation that Mr Worsley was not simply taking over the existing structure, but rather undertaking a restructuring. Thus, in an email of 22 December 2009 from Mr Fetisov to Mr Drozdov and others he stated, “someone got to talk to Ben to comment on the proposed structures and explain which things he needs to check on”. What was to be done is also described as “first part restruct[ur]ing… of structure ownership” in the subject line of an email from Mr Iskandyrov to Messrs Maksimov, Drozdov and Worsley, copied to Mr Fetisov, on the same day. Mr Fetisov was clearly very much in the loop in relation to the contemplated restructuring.

On 22 December 2009 Mr Drozdov sent a further email to Mr Worsley, copied to Mr Fetisov, Mr Iskandyrov and Mr Maksimov. The email attached additional structure charts and stated:

“(…) The main target is to create a new representable holding structure of some projects of Group TRUST and of major shareholders and starting to transfer holding and assets to the new structure.

Stake in the bank will be possessed by major shareholders (Yurov, Belyaev and Fetisov) threw [sic] the RBT Management Limited (BVI) (Russian BANK TRUST Management Limited).

Holding in other projects near the Group Trust will be under the level of RHT Management Limited (Russian Holding TRUST Management Limited) which also be holding by major shareholders (Yurov, Belyaev and Fetisov) but on the nondisclosure basis to third parties.”

This email mentions the Yaposha restaurant group, stating: “Now we are holding 60% of Yaposha’s stake threw [sic] the 2 RUS SPV” and that Yaposha would be transferred to the “invisible” RHT. Similarly, it was stated that TIBI would be transferred “under the hidden RHT level with the interface of nominee (individual or company)”.

Three PowerPoint slides attached to the email show the existing structure and proposed changes to it, including that: (a) the Defendants would become the beneficial owners of RHT (proposed to be a BVI company) in the usual 3:2:2 proportions; and (b) Mr Worsley would act as a nominee to hold corporate assets on behalf of RHT. Further slides sent to Mr Worsley in January 2010 anticipated that RHT (and so the Shareholders) would become the owners of a large number of Shareholder companies.

The diagrams show:

On 23 December 2009 Mr Worsley sent an email with comments to Mr Drozdov, which was copied to Mr Fetisov and later forwarded to Mr Yurov. The email provided:

“(…) RE the RHT Structure: There is no problem with this concept. However, we need to look ahead: I do not currently have details about the companies that are held by TIB Investments at the moment. We discussed 57 companies. Is this the main vehicle that will hold the majority of these companies, or is TIB Investments the hedge fund vehicle? I lack information here to comment properly. My current comments are as follows: We need to look ahead now, in order to minimise future risks. The main issues are around share transfer to ensure 'good title' (see above), and the disclosure of beneficial ownership (IE the identity of the final Shareholders). IF there are going to be many companies under the RHT structure, we should look at the possibility of several identical structures. EG if later, a hedge fund, or Yaposha, needs to be financed, or sold, then it may be better to have separate structures for some of the entities, so that each transaction is individual, and risks around identity are minimised. In such a case, each individual structure would be such that the final beneficial owners (the Shareholders) would have the same level of security that is required…”

On 23 December 2009, Mr Worsley informed Mr Yurov he was “communicating with Nikolay [Mr Fetisov] on day to day issues about the structure” and asked if Mr Yurov would like to be copied into such communications. Mr Yurov replied, indicating that he did.

Mr Worsley attended a meeting in Moscow on 28 or 29 December 2009 with Mr Iskandyrov and (the Bank suggests) the three Shareholders. It is not clear who was in fact present. Mr Yurov’s evidence was that he did not recall attending the meeting and that he doubted such a meeting took place. Mr Belyaev denied attending, claiming he was out of the country at the time (Mr Belyaev’s passport records show he was in Finland between 21 December 2009 and 10 January 2010). An email from Mr Worsley to the Shareholders on 14 January 2010 begins, “Since we met on the 29^th” (emphasis added). It appears that this email was overlooked by those instructed on behalf of Mr Belyaev at the time of the drafting of Mr Belyaev’s Opening Skeleton Argument which (wrongly) asserted that the “first email communication that Mr Worsley had with Mr Belyaev was on 28.3.10”. I consider it likely that a meeting did take place in late December in Moscow, but I am not in a position to conclude who was present at that meeting. Nothing turns on this.

Notwithstanding the fact that Mr Fetisov was clearly involved in discussing the structure with Mr Worsley and was copied into correspondence attaching the associated charts and diagrams (including on 22 December 2009 and the further correspondence in January 2010), by the time of trial he was attempting to distance himself from any such involvement (or associated knowledge gained or affirmed thereby) stating that whilst in the course of preparing his evidence for trial he has been shown the structure charts sent to Mr Worsley in early 2010, at the time he did “not appreciate that Mr Yurov, Mr Belyaev and I had been named as the owners of the companies” and that he “assumed” that all of the offshore companies were owned by the Bank “to the extent I gave such matters any thought at all”. I reject such evidence as untruthful.

Mr Fetisov was clearly involved in the contemporary email traffic, it was Mr Fetisov himself who instructed Mr Iskandyrov to talk to Mr Worsley “to comment on the proposed structures and explain which things he needs to check on”, Mr Fetisov received the 22 December 2009 email and associated charts and diagrams (which clearly showed the proposed ownership structure), and the following day Mr Worsley told Mr Yurov, in a contemporary email that he was, “communicating with Nikolay [Fetisov] on day to day issues about the structure”. I did not find credible his oral evidence that he was not in fact in communication with Mr Worsley on such matters, or that he was not directly responsible for giving instructions to Mr Worsley at this time, or that he would not have followed the discussions closely whilst they were a work in progress. I am satisfied, and find, that Mr Fetisov did appreciate that he had been named as owner (with the other Shareholders), that he was well aware of what was being proposed and that he did not assume that all the offshore companies were owned by the Bank.

Mr Belyaev was equally keen to distance himself from knowledge of what was going on, and it was in the context of Mr Worsley’s 14 January 2010 email to the Shareholders including Mr Belyaev, which contained a detailed update of the progress made by Mr Worsley in relation to restructuring the offshore network, that led to what I am satisfied was Mr Belyaev’s untrue assertion, as already addressed, that he could not read emails whilst out of the office. In fact not only could he do so but in response to an email from Mr Worsley on 18 January 2010 stating “I will be in Moscow soon let’s catch-up (about hunting as well as the business issues) (emphasis added), Mr Belyaev responded by email the same day, “Hi Ben! Coming back to Moscow next monday. Let us talk about it. Regards! Sergey”. Given that a meeting was contemplated in Moscow between Mr Worsley and Mr Belyaev later in February, I consider the likelihood is that it took place. Certainly, Mr Worsley met with Mr Fetisov and in Mr Yurov in January on 22 January 2010 before a further meeting with them in Moscow on 9 February 2010.

The email of 14 January 2010 from Mr Worsley to the three Shareholders provided:

“Dear All,

Since we met on the 29th I have had many meetings in Europe and in London. I am in London today and I plan to be in Luxembourg on Monday.

We will have access to banking relationships in Luxembourg Switzerland. We will also be able to set up banking relationships in other territories as required. I have potential advisors in Cyprus. I am meeting a bank in Luxembourg, and as well as providing banking relationships they will also be able to offer advice.

I have sourced an international tax advisor in London (via my lawyers). They are a boutique firm who specialise in strategic international tax structuring. They work with major companies, and can provide umbrella advice on the whole structure - risk, jurisdictions, and related topics. my feeling is that it is critical that we have this 'overview' strategic advice from an independent firm. As well as overview advice they are also able to offer execution of the structure via other firms. However, we can decide slightly later on how we split the execution side.

I have briefed this firm on the general situation. I will be sending them a nondisclosure agreement to sign later today. I will also send them cleaned versions of the existing structures (with company names and Shareholder names removed). They will then revert with pricing for their work. Ballpark numbers are GBP7-10K for the overview. I feel that this is money well spent. This is a new structure, and we need to take into account all of the international legal and tax issues in one view before we move ahead to execute the structure. I will act as a central point to bring together the advice, and then the structure itself.

The firm in question is well respected in the City, and yet it is not a large legal/accounting firm who will run up huge costs. Of course, if so required, we can also move ahead ASAP with individual companies at any time.

Please let me know your thoughts.”

The following day, on 15 January 2010, Mr Worsley sent an email to Mr Iskandyrov, copied to all three Shareholders stating:

“I am seeing the advisors later this morning.

They will be instructed to advice on ideas for the new structure, taking into account legal and tax issues.

They will also be instructed to point out current risks, and also potential future risks.”

It is clear that both Mr Yurov and Mr Fetisov were themselves involved in advancing the new offshore structures around this time. On 22 January 2010, Mr Worsley met with Mr Yurov and Mr Fetisov in London. Mr Yurov and Mr Fetisov’s evidence was that they did not specifically recall the meeting, but Mr Yurov agreed there was a high probability that it took place. Mr Belyaev did not attend. On the evidence I am satisfied that such a meeting took place (there is also a reference to points having been discussed with

Immediately prior to the meeting:

Mr Worsley subsequently communicated with a number of other tax advisors. On 27 January 2010, he indicated to Mr Iskandyrov:

“I met the tax advisors today. They need three weeks to come up with their results. It feels too long. I am pushing them to get results sooner. Until they agree to a shorter time scale I have not mandated them. Tomorrow I am talking to other advisors who can take their place.

I am also talking to other people. These are people who can execute the structures in all jurisdictions.

In this way, we can get to a stage where in 3 weeks, we can start active executing the new companies.

I am coming to Moscow later this week. Let’s meet to discuss all details”

By early February 2010, Mr Worsley had drafted a memorandum to the Shareholders giving an overview of his work to date. The metadata of the document shows it was created on 1 February 2010. The document provided:

Mr Yurov agreed that at some point he was given a thick hard copy document comprising advice on jurisdiction and tax issues, although he could not say whether the memorandum formed part of that document. Mr Fetisov’s evidence is that he did not recall reading the document at the time. Mr Belyaev’s evidence was that he could be “pretty sure” he did not. In circumstances in which Mr Worsley clearly prepared the document for the Shareholders I consider that it is more likely than not that it was provided to each of the Shareholders. I view with circumspection the evidence of Mr Fetisov and Mr Belyaev that they did not read it. I consider it more likely than not they would have read it given that it concerned both what they considered to be their own personal assets, and the methodology by which they were seeking to preserve the Bank.

Meanwhile, on 3 February 2010, there was another meeting between the Bank and the CBR attended by Mr Yurov. Ms Podstrekha also attended this meeting. The purpose of the meeting was to discuss the CBR’s “audit findings”. Per the Minutes:

“Within the discussion, the representatives of the Bank of Russia confirmed the opinion stated before on the adequate appraisal by the bank of the credit notes on a number of loans. The Bank representatives were informed of the need to additionally form the reserves for the possible losses on the loan and similar debt on a number of loans, namely on the loans to Jermanta LLC, Sapkont LLC, ElisTrade LLC, Law and Business Debt Collection Agency LLC, Nomiranta Limited, Zosimal LLC. Oil Group

LLC, Mourija Trading Limited. The relevant request will be sent to the Bank by Moscow Main Territorial Department of the Bank of Russia.”

After discussion of the possible acquisition of the Bank by Rosneft before Mr Yurov is recorded as making the following statement:

“I.S. Yurov supposed that the negative publishing appeared in mass media concerning the Bank are related to the union of the banks. Besides concerning the Bank's loan portfolio, I.C. Yurov informed that the borrowers of the bank are not related to the Bank owners and the investment projects, which are credited by the Bank are not the business of the Bank owners.

That was, of course, an opportunity for Mr Yurov to tell the CBR the truth about ownership of off-balance sheet companies by the Shareholders but it is clear he did not do so, and instead told a blatant lie. Mr Yurov accepted in cross-examination that he had no reason to doubt that he said these words. Ms Podstrekha also stated in her oral evidence that she had a vivid memory that Mr Yurov had “looked me in the eye – I said “Are they your companies?” and he looked me straight in the eye and he said, “No they are not ours”. Ms Podstrekha’s evidence (which I accept) is that she understood Mr Yurov’s statement as applying to the entire loan portfolio. I reject the suggestion (advanced in Mr Yurov’s Skeleton) that the statement related only to those borrowers that are specifically referred to at the start of the Minutes. That is not consistent with the wording of the Minutes (which the Bank would have had the opportunity to comment on and correct) and which encompasses all borrowers and “investment projects”. In any event, even if that were so, (and I am satisfied it was not), the evidence is that the likes of Jermanta, Sapkont and Elis Trade were owned by the Shareholders, so it was a lie to state that those companies were not related to the Bank’s owners. Even had the borrowers been beneficially owned by the Bank (but concealed off balance sheet) it could not honestly be said that such borrowers were “not related to the Bank’s owners”.

There was some suggestion, in the cross-examination of Ms Podstrekha, that the CBR should have seen through Mr Yurov’s lie. This is not an attractive suggestion. Whatever the CBR’s suspicions, it had received an express assurance from Mr Yurov that the borrowers were not related to the Shareholders and the off-balance sheet structure meant that the CBR was not in a position to disprove what was stated. The restructuring that was in train would make that even more difficult (if not impossible), as I have no doubt Mr Yurov was aware.

Simultaneously, on 3 February 2010, Mr Worsley was writing to Mr Stennett of SMP to seek to instruct his firm to provide strategic advice in relation to the restructuring (a previous London firm had quoted for the work but had apparently let him down). It is plain from the correspondence with SMP that Mr Worsley had told them that the existing holding and ownership structure of the relevant assets was to be transferred into a new structure under the Shareholders’ personal beneficial ownership. In the 3 February email, Mr Worsley referred to “some obvious points, as discussed with shareholders in London”, stating:

“Our basic idea is to have a structure as follows:

Russia company owned by a company in one of the jurisdictions listed below

That owned by a co in a place such as BVI or Belize etc

That in turn owned by the shareholders via a fund, another offshore co, or a foundation etc.

In some cases we need confidentiality for the shareholders, in some instances we need transparency.

FYI: At the moment there are multiple companies in Russia, owned via Cyprus by companies in other places. It is quite a complex current situation. See attached presentations with names removed.

The shares in (say) a current Cyprus company would be transferred to a new Cyprus co, or a Luxembourg co (and up into the structure that own that New CO) etc, thereby effectively transferring the beneficial ownership of the Russian asset”

The reference to the “presentations with names removed” is a reference to those prepared by Mr Worsley and referred to in his email of 14 January to the Shareholders. The presentations show the proposed transfer of the Yaposha group companies under the new BVI structure, using Mr Worsley as a nominee through a trust deed, the Cypriot Jermanta, Nomiranta, etc. holding structure, to be restructured under the new BVI company to be held by the three Shareholders personally (these were anonymised versions of the slides sent by Mr Iskandyrov to Mr Worsley (cc Mr Fetisov) under cover of an email on 15 January).

In response, Mr Stennett proposed to provide:

“● A holding company matrix for Russian investments summarising the relevant tax implications including withholding tax rates and capital gains for Cyprus, Luxembourg, Netherlands and Offshore holding companies with participations in Russian trading and real estate entities;

…

●

A summary of suitable structures to hold the relevant Cyprus, Luxembourg or Netherlands holding company to minimise tax leakage;

●

Answers to the “Questions/issues for each multiple jurisdiction structure”.

The final point was a reference to a document with that title prepared by Mr Worsley on 22 January 2010. This covered:

On 8 February 2010, Mr Worsley sent an email to Mr Yurov and Mr Fetisov, stating:

“I am still in Moscow.

Can we find a time for the three of us to catch up this week pls? Maybe tomorrow or Wednesday? I can come to the Bank, or we could grab a quick dinner?

There are a few (not many) key questions that I need to ask you prior to next steps next week (see below).

Update: The London based tax people went on holiday instead of working. So, I found new consultants in the Isle of Man, and fired the London specialists. The Isle of Man people have a lot of experience with Russia, and are good.

They are also cheaper, and faster. I will have their first report tomorrow or Wednesday.

I plan to go to the Isle of Man to meet them for further meetings. I guess I will be there Monday and Tuesday next week. After that we will have a good picture of how the final structure could look. I will have several options, that we can then discuss.

I may have to go to one or two other places for related meetings, before coming back to Moscow to discuss it all with you face to face.

There is research going on about which Cyprus companies to use. They are like commodities.... Best to go there, and I will choose the most efficient and cheapest people around. That is easy to do, and comes after the overall structure is agreed in first principles.” 462. It appears from the correspondence that Mr Worsley met with Mr Yurov and Mr Fetisov the following day, on 9 February 2010. Mr Fetisov’s evidence was that he did not recall such a meeting. Mr Belyaev was not involved.

On 11 February 2010, there was an email exchange between Mr Worsley and Mr Iskandyrov in which Mr Worsley referred to requests from Vassiliades for information about the beneficial owners and commented: “it is too early to start to disclose beneficial ownership to Vassiliades. We need to stop that process”. Mr Iskandyrov replied in the following terms:

“Ask IOM guys how will they opening account in the bank? Are they need information about final beneficiary?

As a variant we need to find real reach [rich?] person who will be nominee beneficiary (with trust deed from our shareholders), but who will be talk all of around that he real owner”

This is clearly a reference to what in fact happened with the “nominee UBOs”. This email exchange ended with Mr Iskandyrov saying that a conference call would be arranged with Mr Fetisov on 12 February 2010. The likelihood is that the subject matter of any such call would be what was quoted above – that is how the companies would open bank accounts and provide KYC information without revealing their true (final) beneficial owners who would be the Shareholders with a trust deed between them and nominee beneficiaries (the “nominee UBOs”). However I cannot be sure that this call actually took place (in his oral evidence Mr Iskandyrov could not recall whether it did). If it did the likelihood is that such matters would be discussed though again I am not convinced it would be a call about Mr Fetisov “approving” the recruitment of nominee UBOs. The fact is, however, that that is precisely what Mr Worsley went on to do, and it is inherently improbable that he was on a frolic of his own and was not doing so with the knowledge (and approval) of the Shareholders.

The Bank claims that the three Shareholders communicated about and approved Mr Worsley proceeding to re-structure the offshore network using predominantly Cypriot companies, nominee UBOs and secret deeds of trust up to the Shareholders personally.

Mr Yurov’s and Mr Fetisov’s case is that the proposal to restructure and use nominee UBOs came from Mr Iskandyrov and/or Mr Worsley themselves. Mr Yurov and Mr Fetisov claim they received high level progress reports on restructuring, but did not engage with any of the details. Mr Fetisov’s evidence was that he believed the discussions related to transferring Bank projects and assets into orphan SPVs or trusts for the benefit of the Bank.

Mr Belyaev’s evidence was that he did not have knowledge of any proposed restructuring of the offshore network. He was not copied into a majority of the correspondence and did not attend any of the meetings, and as such was not aware what Mr Worsley was doing at the time.

Whether or not the Shareholders knew, at this stage, the precise manner in which the restructuring was going to take place (and on balance I consider the likelihood is that they did, given that Mr Worsley would no doubt have ensured they were aware of, and content, with what was proposed), I am satisfied, in the light of subsequent correspondence and meetings, that they became aware, if they were not already aware, that an offshore network was being created in relation to which they would be the ultimate beneficial owners of the companies concerned.

In an email on 15 February 2010, Mr Worsley indicated to SMP “Our goal is to create a final structure where the identities of any final beneficial owners are completely private”. What was envisaged was a structure whereby a “Russian asset” was owned through a series of offshore companies owned by a “public nominee” such that “the final beneficial owners would then own shares in the final offshore company”.

At some point after this Mr Worsley (though not the Shareholders) attended a meeting in the Isle of Man with SMP following which SMP produced a memo dated 26 February 2010. The memo outlined the “next steps” and provided inter alia:

“1.3

METHOD OF TRANSFERRING ASSETS:

It will be necessary to determine how the assets will be transferred from the current structure to the future structure. We will need to understand whether there will be:

•

a gift or sale of assets

•

a transfer at full value, under value or nil value

•

It will also be necessary to determine at which level the transfer will take place e.g. will the beneficial owner gift the existing structure into trust or will the Russian entities be transferred into the future structure. 1.4 OTHER ISSUES:

•

We understand the current structure is owned by three Russian resident individuals

•

The ultimate ownership is split 40%, 30% and 30% between the three individuals

•

We can recommend appropriate Russian lawyers based in Russia or alternatively we can recommend Russian lawyers based in the UK. We would liaise with the Russian lawyers to ensure that the assets are transferred into the structure in an effective way

•

We would need to consider these steps for each separate asset class  We understand the separate asset classes are:

◦

The Russian bank o A Fund

◦

Assets acquired by the bank on the default of loans: real estate

Mr Fetisov referred to this final paragraph (and in particular the last bullet point) obliquely in cross-examination and expressly when taken to it in re-examination in these terms:-

“A. Well, that's, I think, very telling from this paragraph, Russian bank is National Bank Trust. A fund is a clear reference to a Florin fund or some other holding fund for the assets, which were funded by the Bank, and assets acquired already by the Bank on defaulted loans, I think there can be no disagreement on what that means. That just bank acquired assets on the default of the initial loans. So the assets went under the control of the Bank and according to what I understand, and what I remember, there was -- should be a discussion on how to hold these different type of assets in the proper way”.

The Shareholders rely on the last bullet point which they say shows that the assets held in the offshore network belonged to the Bank. They also rely on section 3 of the memo, which comprises advice as to the establishment of an orphan trust for the Bank. Mr Fetisov contends this reflects his general understanding that SMP were advising on the use of orphan trusts/SPVs to hold assets acquired by the Bank for its own benefit. For its part the Bank contends that the none of the assets belonged to the Bank. To the extent that the memo suggests otherwise, SMP misunderstood or misstated the position, or were misinformed by Mr Worsley.

I consider the most likely explanation is indeed that SMP were misinformed by Mr Worsley due to a misunderstanding by Mr Worsley as to the historic origin of particular companies. First, Mr Worsley made a similar suggestion to SMP in October 2010 after SMP (in a compliance context) queried which assets were being placed inside the new structure and Mr Worsley replied with a list that included Stivilon, Willow River/RCP, Yaposha, the commercial real estate and Priangarskiy/Business Group stating “Mainly assets seized by the bank during the crisis” when in fact there is nothing to suggest that Yaposha or any of the commercial real estate projects had been acquired on the default of any loans. Second, the documentation that has already been referred to that Mr Worsley was sent and which he passed on to SMP (in anonymised form) clearly showed that Yaposha was directly owned by the Shareholders not the Bank, and Business Group (identified in the structure charts) and the Billa (that is the Willow River/RCP) property portfolio was (per the Shareholders themselves) never acquired by the Bank.

It is also the case that no such structure actually came into fruition, and it was not suggested in other correspondence sent at the time (which refers to the use of a BVI holding company and nominees, holding assets on trust for the defendants personally). I reject Mr Fetisov’s evidence that the reference in section 3 of SMP’s letter to an “orphan trust” structure to “own Bank assets” and his evidence that this represented “my general understanding how the assets of the Bank were supposed to be handled” as it is simply inconsistent with all of the proposals in the multiple structure charts and emails circulating previously, which refer to the use of an “invisible” BVI holding company RHT and nominees holding on trust for the Shareholders personally, and even more fundamentally, it is not consistent with any of the structures subsequently put in place including by or through SMP, Boston or Vassiliades (see below). Equally the SMP “orphan trust” proposal involved the orphan status being achieved by the trust having a charitable beneficiary (not the Bank or Shareholders) with a real transfer of asset held by the Bank to the trust structure at full market value with a profit share agreement with the Bank so that the Bank had an economic interest. Quite clearly this is not what happened.

SMP proposed an alternative structure in Section 3.2 of the letter which contemplated not “an orphan trust” but rather at the top of the structure an Isle of Man trust of the Shareholders – described by SMP as “a simplified version of the structure and in practice it would be structured so that ownership of the Isle of Man Co is split between the three beneficial owners” - with any profits from the sale of the assets being paid up through the structure to the Shareholders. Whilst this assumed the acquisition of the Russian assets at full market value using loans from the Bank (which never happened and the assets were not transferred for value) this is much closer to what actually happened subsequently.

On 13 March 2010 Mr Worsley informed SMP that the “sales” of assets would in fact be only for nominal consideration, stating:-

“The ongoing work in the next few days is all about the corporate assets i.e. everything except the bank itself. This is because the Russian lawyers here need to work on the logistics around the CBR before any changes can be made to the Bank holding structure…

Here are the key points:

1)

There will not be a ‘gift’ of the corporate assets to a new trust. Instead there will be a sale. The local Russian valuations mean that the assets will be sold for nominal prices. However nonetheless we will need to organise a financing structure so that it is a proper sale.

…

4)

Due diligence implications and process.

I need complete clarity about this process. I understand that if we set up the trusts, and then the trustees set up the whole structure, then each formation agent will know the details of the UBOs.

However, if I (using SMP) set up the Cyprus/Lux Cos, then set up the next level (e.g. Dubai), and at the same time set up the related bank accounts, and I then sign the nominee agreement after the companies have been set up, would I be correct in saying that in this instance the formation agents in Cyprus/Dubai/Lex/Ireland, and the bank managers etc., will not know the identity of the UBOs??? This would be because until I sign the nominee agreement, I am in fact the UBO of the companies…

FYI obviously I would sign the nominee agreement prior to the actual sale taking place…”

On 28 March 2010 Mr Worsley sent the three Shareholders an email to their work email addresses with a password-protected Word document. The email provided: “let’s consider flying to London for the 16^th, or agree another date for London (see notes).” The Bank suggests that the document contained details of how the offshore network was to be restructured. It has not been possible to see the contents of that document. Whilst I cannot be sure what was enclosed, in the context of the proposed meeting and what it is apparent was discussed in that meeting I consider that the overwhelming likelihood is that the document did address the proposed restructuring.

Before the meeting in London, Mr Worsley prepared a series of charts described as

“Silos” of companies divided up into “Property”, Financial”, “Corporate” and “Restaurant” assets, each with “Shareholder Offshore Co” at the top of the structure. There was no distinction drawn between “Bank Companies” and “Personal Companies” (again supporting the conclusion, that I have reached, that there was no such distinction). If there was such a distinction then I consider it would have been reflected in the charts, and would not have resulted in “Shareholder Offshore CO” at the top of each structure.

Correspondence refers to a meeting taking place on 16 April 2010 at a hotel in London which the Bank says was attended by all three Shareholders together with Mr Worsley and SMP. All three Shareholders gave evidence that they did not specifically recall the meeting, but accepted based on the documents that it was likely that it took place. Mr Belyaev claimed that no specific assets would have been discussed and that the meeting would have been no more than a general theoretical discussion of how the Shareholders could hold their assets and business. I am satisfied that all three Shareholders did attend the meeting in London and that there was discussion of assets (even if not at the level of specific assets) and how the Shareholders would benefit from income generated by the companies, and that the Shareholders are seeking to downplay their knowledge of what was discussed, and envisaged, at that meeting.

As to the former Mr Stennett’s email to Mr Worsley of 19 April 2010 provides, “Thank you for arranging the meeting on Friday in London. It was a pleasure to meet with I, N and S”. As to the latter, this clearly emerges from what is described as a synopsis of the meeting from Justin Scott of SMP to Mr Worsley (cc’ing others at SMP including Mr Stennett) dated 19 April 2010. I see no reason why what was recorded is anything other than a summary of that meeting (given that the accompanying email refers to a “synopsis of your recent meeting” and it begins “To summarise our recent meeting”). It provides, amongst other matters:-

“To summarise our recent meeting we agreed that while a discretionary trust directly holding Russian situs commercial/trading assets does offer administrative advantages and an element of asset protection, the level of asset protection from a Russian perspective is limited where it involves Russian creditors. In addition the trustee responsibilities and therefore the costs are greatly increased when the rust holds commercial/trading assets.

Instead, a bespoke company (or companies) acting as nominee / bare Trustee on behalf of X, Y and Z should sit at the top of the commercial structures. In this way, an ownership veil is ostensibly created and costs are kept to a minimum. In relation to the Bank assets, as there would be a clear Declaration of Trust in relation to the nomineeship, it would be difficult to envisage resistance by any Russian authorities.

It then becomes important to ringfence upstreamed income (to the nominee) generated by income generating businesses. To that end, X, Y and Z should each establish their own separate irrevocable discretionary Trust which would then receive cash from the nominee by appointment (either directly or via another nominee), which would be held outside Russia. These Trusts would afford proper asset protection for X, Y and Z and act as an investment pool to invest in / hold non Russian situs assets — cash, properties, yachts, aircraft, other investments. These Trusts would not be registered anywhere.” (emphasis added)

It is clear from this document that what was being discussed at the meeting was how income from the relevant assets would end up beneficially with the Shareholders and how this would be achieved/structured culminating in each of the Shareholders having their own irrevocable discretionary trust to receive income generated by companies. It is the ultimate beneficiary who receives dividends and the structure that is being contemplated (as I am satisfied each of the Shareholders must have known from attendance at the meeting and what was discussed) envisages the Shareholders themselves being the beneficiaries, and thus the true ultimate beneficial owners of the companies concerned (in contrast to the Shareholders’ case). Once again there is no distinction between “Bank Companies” and “Shareholder Companies” – it is envisaged that all benefits would go to the Shareholders’ personally as is reflected under the headings “Nominee Company” / “Discretionary Isle of Man Trusts x3”:

“…

-

Dividends and other payments arising from the underlying commercial assets will flow upwards to Nominee Company;

-

Funds held within the Nominee Company will be appointed to the relevant discretionary Trust to be settled by the beneficial owners.

…

No payments will flow directly from the companies holding the commercial assets directly to the Trusts; there is thus no discernible trail from the Russian situs assets to the offshore assets.”

There is a reference to the “Bank assets” in the context of stating that, “there would be a clear Declaration of Trust in relation to the nomineeship, [so] it would be difficult to envisage resistance by any Russian authorities.” It is not clear what is meant by this and it may be that SMP was not fully in the picture as to what the current position was and what was intended – there was no intention to tell the Russian authorities of the nominee structure, indeed, to do so would have defeated one of the very purposes of the contemplated structure.

Whilst Mr Yurov suggested in his oral evidence that the envisaged structure must only have been intended to relate to Willow River and RCP there is no such discernible distinction in the document, and it seems inherently unlikely that there was any such distinction not least given that Willow River was not even incorporated until 23 July 2010. It is interesting, however, that Mr Yurov makes this distinction. In doing so he is recognising (rightly in my view) that the structure as described is one through which assets would be held for the Shareholders’ personal benefit, rather than the Bank’s. I am quite satisfied that this is indeed what was discussed at the meeting, as reflected in this contemporary document.

The same theme can be seen in a memo of a possible “final structure” produced by SMP on 13 May 2010, including an analysis of “nominee issues”. The memo proposed a structure with discretionary trusts for the Shareholders at the top (which would “receive cash from the nominee by appointment (either directly or via another nominee)”), and holding in turn: a “UBO Nominee co” – a “Final Holding Co” (offshore) – a “BW Nominee Co” – a “Holding Co” (in Cyprus)” – and finally a “Russian Co”. The memo contained a diagram which appeared to show dividends flowing up from a Russian or Cypriot Company to three separate trusts at the top. The memo contemplates amongst other matters:-

“…Nominee Co. 2 would hold the shares in Isle of Man Co under a simple Declaration of Trust therefore dividends and other payments arising from underlying assets will flow upwards to Nominee Company.

Any funds held within the Nominee Company would generally be appointed over to the X, Y and Z Rollover Trusts…

…We have assumed that X, Y and Z Rollover Trusts will be Isle of Man Discretionary Trusts. These Trusts would afford proper asset protection for X, Y and Z…” (emphasis added)

I consider that the synopsis, and this document, supports the Bank’s case that the proposal at this stage was for the Shareholders each to have an offshore trust which would receive income generated by the companies in the offshore network (including companies said to be “Bank Companies”) and that they proceed on the basis that the associated assets are the Shareholders’ (“asset protection” pre-supposes that the assets being protected are beneficially owned by the Shareholders). Such documentation is not consistent with the Shareholders’ contention (which I reject) that they believed SMP to be advising on the use of orphan trusts/SPVs for the Bank’s own assets and/or tax issues relating to proposals to move their Bank shareholdings into offshore trusts.

It is also clear that from this stage on, shareholder vehicles were used by Mr Worsley (and in due course others) as nominee UBOs to conceal the true beneficial ownership resting with the Shareholders. Further (consistent with what was previously envisaged, and what occurred thereafter) the Shareholders were aware that UBOs were being used for their benefit and to conceal their beneficial ownership of companies.

Indeed it is clear that Mr Fetisov was himself aware of the very first such shareholder vehicle that utilised Mr Worsley himself as a nominee UBO, and must have been aware, though he denied it, that this would involve a (dishonest) pretence on Mr Worsley’s part whereby he acted as a nominee in the on-going acquisition of the RTM CLN’s for the Shareholders’ benefit through Costells Holdings Limited. Thus, on 14 April 2010, Mr Litvyakov of the Bank emailed Mr Worsley (copying Mr Fetisov, as well as Mr Buyanovsky) about “a new project”. Mr Litvyakov wrote:

“We will prepare drafts of the trust deeds and send you for execution. In the meantime, we will appreciate receipt of the scanned copies of your passport, a recent utility bill and a brief CV.”

To which Mr Worsley replied, “In order that the cv ‘looks’ right, could you tell me more about the project pls?”, to which Mr Litvyakov responded:

“…the project includes two parties: Costells Holdings Limited (CHL) (which interest you represent) and R2. The project's aim is to arrange assets exchange between CHL and R2. This will include involvement of the Escrow Agent (Julius Baer, subject to completion of a satisfactory KYC). CHL will hold on the escrow account opened with the Escrow Agent a) cash and b) defaulted notes. R2 will on the escrow account opened with the Escrow Agent its 95% stake in a newly set up company called R1 (the other 5% will be owned by CHL). At a certain point provided in the Escrow Agency Agreement the Escrow Agent will transfer a) cash and b) defaulted notes to R2 and 95% in R1 to CHL. For KYC and commercial reasons you will be a registered owner of CHL. All companies names mentioned above are indicative, save for CHL.”

This was an accurate description of the final stage of the Shareholders’ acquisition of the Billa portfolio, which was refinanced by the loans to, and acquired by, Willow River and RCP later in 2010 (“R2” refers to RTM and “R1” was Vorsa).

What then occurred reflects the use of declarations of trust up to TIBI Holdings, rather than the Shareholders naming themselves as beneficial owners. This matched the practice employed by the Cypriot structures held at this stage through Totalserve in Cyprus (with Cypriot holding companies such as Jermanta and Nomiranta at the top).

Thus on 19 April 2010 Mr Litvyakov sent Mr Worsley Declarations of Trust for him to execute showing Costells owned by Ledra Nominees on trust for Mr Worsley, who was in turn to hold them on trust for TIB Holdings (i.e. for the Shareholders). The next day, Mr Litvyakov forwarded to Mr Worsley a request for more KYC information as to his “Education; -Family situation; -origin of wealth; -past/present sources of income; description of business (if any website, presentation)”. To which Mr Worsley responded: “Ok. For this transaction, how rich am I meant to be pls? i.e. how much is transaction

Mr Fetisov was well aware (as he admitted in cross-examination) that Costells was owned by the Shareholders. From this he must have been aware that what Mr Worsley was doing was a (dishonest) pretence, as I am sure he was (I reject his denial as both incredible and dishonest) – what Mr Worsley was doing was readily apparent from the face of the document that was copied to Mr Fetisov on 14 April 2010.

In the ensuing months Mr Worsley set-up a number of the Borrower companies including (early on) Willow River, Moscow River and Black Coast. Associated bank accounts were opened with Piraeus Bank in Cyprus which thereafter provided banking facilities to the offshore network. It is clear enough that it was willing to effect transactions without asking too many questions about the associated (in most cases sham) paperwork that was generated.

The next important event (so far as Mr Worsley’s role and his relationship with the

Whilst the fee proposals were clearly just that (and not ones that found favour with the Shareholders) I am satisfied that the services he identified were indeed being provided by him to the Shareholders. There are numerous references to the services that he was providing to the Shareholders as opposed to the Bank. That he regarded himself (rightly I am satisfied) as acting for the Shareholders and their interests (as opposed to those of the Bank) can be seen from his contemplation as to what would happen if the Shareholders exited the Bank, “Fees structured now so as to be payable from bank expenses. If NBT Shareholders exit NBT due to merger (EG in 3 years time), then annual fees to be reviewed/ re-structured so that personal cashflow of NBT Shareholders is not impacted unreasonably.”

It was accepted by Mr Yurov and Mr Fetisov that this email seemed to refer to the proposal in the draft “term sheet”, but neither of them recalled seeing the specific document. However I consider that it is clear that the term sheet and included fee proposals were provided to the Shareholders as evidenced by an email from Mr Worsley to Mr Fetisov on 8 July 2010 in which he stated, amongst other matters, “I hope that I did not offend either Ilya or yourself with my proposal. The things I am working on are important issues for you guys, and also for myself. I am sure that we will find common ground on the financial side.”

If Mr Worsley (and later Columba) were acting on behalf of the Bank, one would expect that there would be a contract in place between Mr Worsley and the Bank and/or between Columba and the Bank. However there was nothing of that sort. On the contrary (and as already addressed above) it was the Shareholders who recruited Mr Worsley and he was paid via Kuri Hills (i.e. out of loan proceeds to companies in the network) in effect on his own authorisation. Such payment terms as were agreed were between Mr Worsley and the Shareholders. For example (as reflected in a much later email from Mr Worsley to Mr Yurov dated 17 April 2014), “my personal retainer that was agreed ages ago is USD750K a year. I pay it to myself quarterly” to which Mr Yurov responded “Yes that’s clear” and requested information about other items (cars, travel, holidays).

The documentation does not suggest that (as Mr Yurov suggested in his oral evidence”) Mr Worsley was acting for the Bank as a provider of services and separately as a provider of services to the Shareholders in managing their “family offices” (though the latter is clearly part and parcel of what Mr Worsley was doing for them).

There are then events in late July 2010 which I consider again tell the lie to the Shareholders’ case about the distinction between “Bank Companies” and “Shareholder Companies” and also fix the Shareholders with knowledge that the companies are their companies and not those of the Bank.

As noted, in the summer of 2010, Mr Worsley established a number of Cypriot companies with the help of Trusban (a BVI corporate service provider), including Willow River, Moscow River and Black Coast. As is apparent from a structure chart produced by Mr Iskandyrov around August 2010, Mr Worsley held a number of companies through Beauduc Capital, of which he was the nominee UBO. It appears the plan at that stage was for Beauduc Capital to execute a trust deed in favour of RHT Management, which the chart shows was held by the Shareholders personally. Mr Schildbach, who worked for Trusban, sent an email to Mr Worsley on 25 August 2010 attaching an engagement letter dated 29 July 2010 which was to be signed by the beneficiaries of the companies.

The Shareholders were asked to sign various documents in their avowed capacities as beneficial owners of the companies (including an indemnity to the Cypriot lawyers then acting as the corporate services provider, Chrysanthou & Chrysanthou) – which the Shareholders duly did. In particular, on 29 July 2010, Chrysanthou & Chrysanthou sent an engagement letter to Willow River, Moscow River and Black Coast which had been recently incorporated. On the Shareholders’ case, the first two companies were “Personal Companies” whereas Black Coast was a “Bank Company”. No distinction is drawn in the letter between the companies or their ownership and the “Beneficiaries” are defined as “The persons whose names and details appear on the Schedule 2 hereto” – namely the three Shareholders (with their shareholdings in the usual amounts handwritten in). The document itself is stated to be “Approved” by the three Shareholders who have each signed under their name.

Mr Yurov clearly sought to distance himself from this document variously suggesting that it may not have been his signature and even that Mr Worsley was using him as the UBO nominee of Black Coast owned by the Bank:-

“Well, it's look like my signature but I saw, like you know, in the context of this trial quite a lot of signatures which was look like mine but I absolutely sure that I never signed such documents. I'm not talking about that document.

Q. So are you saying that you did or did not sign this document?

A. I don't have specific recollection of signing this document. So the signature is really very look like mine but I also cannot prove this 100 per cent honestly. Q. If you can turn over the page to page 7, please, {D1/344.2/7}, you will see that someone else has also added in in manuscript that you are the beneficiary as to 42 and a bit per cent, which is your traditional 3/7ths share in these sorts of companies, isn't it?

A. Well, yes, but it should not be right -- again for my understanding for the Black Coast -- because my understanding is that Black Coast was the company controlled indirectly by the Bank, so the shareholding there should be a bit different, at least, like, in context with the shareholding of TIB Holdings.

Q. If what you are saying is true, Mr Yurov, that's exactly what you would see here and the fact that you don't is one of the reasons why I say that you are lying about who you believed Black Coast was owned by. A. You know -- as I said, I have only understanding as I described above, that if I am here put as an ultimate beneficial owner of the Black Coast property development, which for me is a company which I presume was the Bank company -- and this is not mistake and this is authentic document -- the only reason why I'm here is because Bank or Mr Worsley or, I don't know, somebody else decides to use me as a nominee UBO of this company.”

I am quite satisfied that Mr Yurov’s answers were not truthful, that he did sign this document (the authenticity of this document/his signature has never been challenged) and that in doing so he is acknowledging, as I am satisfied was the case, that he (and the other Shareholders) were the beneficial owners of Black Coast as well as Willow River and Moscow River.

It was soon thereafter, in September 2010, that the Shareholders and their wives, together with Mr Worsley enjoyed the first of the luxury yacht charters in the Med at the Bank’s expense (some €500,000). I have already addressed the circumstances of this charter and my associated findings, when addressing the evidence of Mr Yurov, Mr Belyaev and Mr Fetisov. I am satisfied that Mr Yurov, Mr Belyaev and Mr Fetisov improperly used the Bank for their own personal benefit in relation to the yacht charters and that Mr Yurov was willing to invent a story, and lie on oath, in that regard, as was Mr Fetisov in support of such lie which is one of the reasons I do not consider either of them to be witnesses of truth. These are not pleaded allegation, but as already noted, it also says something about Mr Yurov’s (and Mr Belyaev and Mr Fetisov’s) attitude to their duties as directors of the Bank which is of resonance when considering those allegations which are pleaded, and do arise for determination.

On 27 October 2010, SMP wrote to Mr Worsley stating that the BVI companies were ready and in a position to undertake transactions, and

“Debbie has the two BVI companies ready and they are now in a position to undertake any relevant transactions.

We have the due diligence on the relevant ultimate beneficial owners and we can proceed with any transaction as required.

From our compliance perspective and for control purposes we need to document the exact nature of transactions undertaken and the exact nature of assets held. This will not delay any transaction being undertaken, but ideally should be undertaken prior to the transaction or as soon as possible after the transaction takes place.

The nature of the proposed acquisitions are not such that we would have any undue concerns at this stage. If we do have queries or concerns we would raise these in relation to specific transactions or assets and we would assume that you would be able to adequately deal with these queries. This enables us to have a full view of the activities and protects you as much as it does us.

In the unlikely event that we cannot obtain sufficient comfort the entity in question could be transferred to another provider and the structure itself would remain unchanged.” (emphasis added)

Mr Worsley responded, stating “I will use another supplier. This is not because we have anything to hide - I have discussed the whole structure, the backgrounds of the UBOs, and the nature of the assists in great detail over many months with SMP.”

SMP replied that they were happy with the proposed structure and the details of the UBOs but that they had not been provided “with specifics of the assets that will be held and in due course this information would need to be obtained as we cannot provide a structure to own an asset if we don’t know the actual asset held”, adding that “[a]ny other provider of suitable calibre would be required by their licensing and regulatory requirements to obtain similar information”

On 28 October 2010 Mr Worsley provided some details to SMP about the assets.

“As to details:

Land for building outside Moscow

Land for hotel development on the black sea

Chain of retail stores in Moscow

Chain of restaurants in Moscow

Several large commercial real estate buildings in Moscow

A leasing company

A large residential development piece of land outside Moscow for about 200,000 people (flats)

A timber company in Siberia

Mainly assets seized by the bank during the crisis. And we may add other assets at our own discretion.

Even the cypriots do not know the details.

Is this info enough for you?

Bottom line is that these are Russian assets. If SMP is not comfortable with such assets Its zero problem to us but please let me know to save wasting your time.”

The list of assets accordingly included a mixture of admitted Shareholder assets and alleged Bank assets and (erroneously) states that “mainly assets seized by the bank during the crisis”. SMP’s response suggests that it was intended, at that time, for BVI companies to acquire Wave (a supposed “Bank Company”), Moscow River (a supposed “Personal Company”) and Black Coast (another supposed “Bank Company”) before noting:

“What we need to ensure is that several years down the line we know what the assets and liabilities are and who owns what. The information will be required in Cyprus in order to meet the statutory requirements for the account and tax filings.”

Whilst this correspondence only shows that as between Mr Worsley and SMP there was never any distinction between the two I can see no reason why Mr Worsley would make such a mistake. I am satisfied (by reason of the correspondence I have identified, and further identify below, involving the Shareholders) that this was not a case of Mr Worsley failing to maintain a distinction without the Shareholders’ knowledge, authority or instructions, but rather that there was never any such distinction. and that the Shareholders knew and intended that there be, and had instructed Mr Worsley and SMP to implement, a structure in which, they personally (rather than the Bank) would sit at the top to receive any income and profits.

An example of Shareholders’ knowledge of the structure in place is illustrated by the exchange between Mr Worsley and Mr Fetisov on 1 November 2010. Mr Worsley wrote:-

“…BVI Holding companies (the top level vehicles owned by the three of you): The first service provider was unreliable. We now have a choice: to use someone like the Isle of Man guys. That may mean a few more forms to sign and a bit of admin hassle. However they are rock solid and if there was ever a need to implement the Deeds and take control via that method, the Isle of Man people would do a 100% job to secure the assets…”

From about May 2010 Mr Worsley set about recruiting a team of individuals to act as nominee UBOs for companies in the offshore network. He recruited friends and associates, including Morgan Webb (a British Airways flight attendant), Nicholas Laing (a travel agent) and Spencer Rowe (a handyman at Mr Worsley’s home in France). Mr Laing, for example, was the nominee UBO of Willow River. Mr Webb was not only a nominee UBO himself but he also recruited others, and payments to nominee UBOs were routed through Mr Webb with payment to the nominee UBOs being paid out of loan proceeds (routed through Kuri Hills) – i.e. they were paid by the Bank, but in relation to companies which on any view included companies admitted to be Personal Companies/Shareholder Companies.

An example of the attempted recruitment of a UBO nominee can be seen in an email to Mr Echeverria on 4 May 2010. Mr Worsley indicated he was acting as a nominee for a group of shareholders in a Russian bank and invited Mr Echeverria to become a “second nominee”. He explained that Mr Echeverria would be the public face of companies in Russia and that the arrangement would involve a Russian asset owned by a Cypriot company of which Mr Echeverria would be the legal owner, as well as another company which would be owned offshore.

Mr Worsley explained that the reasoning behind having a nominee was that Mr Echeverria “could be seen as an individual whom has made money over the years in the City, and has now invested in distressed Russian assets”.

It is self-evident, to anyone with a modicum of financial knowledge and/or the slightest moral compass that not only are “nominee” UBOs a contradiction in terms (as they are not, in fact, the ultimate beneficial owner) but that to purport to be someone you are not, and to purport to perform a role that you do not perform (other than in name) is inherently dishonest and deceptive – and indeed the purpose of the use of nominee UBOs is equally obvious, namely to deceive third parties (be they other banks, auditors or the CBR) and to render opaque both the link between the Bank and particular companies/assets, and between the companies and the ultimate beneficial owners (the Shareholders under the structures that were set up).

That part of the role of nominee UBOs was to circumvent CBR connected lending regulations and deceive the CBR can be seen from Mr Worsley’s reply when asked by the travel agent Mr Laing “why do you not just front them all?”. His response shows both one of the purposes of the use of nominee UBOs and his knowledge as to the deception being practised:

“Good question.

One potential recruit with a banking background immediately recognised both one of the purposes of the use of nominee UBOs, and why the same was misleading whether or not illegal:

“I don't think that I could do this. Whereas the direct legal risks might well be modest (tho' assuredly not zero), the reputational and even physical risks look to be potentially of concern. These include:

-

the fact that the scheme is presumably 'window dressing'; designed to remove devalued assets from the bank's balance sheet to avoid the bank having to recognise a loss. Not sure if this is actually illegal in Russia, but it certainly appears to be designed to be misleading. As nominee, I would be party to this scheme and could easily find the regulator on my case as well as tax authorities querying why I was receiving fees for this ostensibly back-to-back arrangement;

-

based on past, bitter experience. I wouldn't lend my name to any scheme the UBO(s) of which, I didn't know and trust personally. When/if things go wrong, the nominee could well find himself hung out to dry and cries of 'I'm just a front' would cut no ice. I guess this rules me out of any such scheme that isn't that of a close family member and maybe not even then....;

-

your innocent nominee could become the target of the dispossessed former owner. This would not be funny at all. As you know, the distinction between nominee and beneficial ownership is not well-understood in Russia - ING, as a major depositary bank, is constantly being attacked in the local press because it is thought to own major slugs of Russian blue chips. As an individual ostensibly owning some mini-garch's former business, one would be wide open to such 'misunderstandings'.

I'm sorry if my negative response seems unduly pusillanimous. Put it down to age-related risk aversion.”

However this was not age related risk-aversion it was a recognition (rightly) that what was being done was misleading, and therefore dishonest.

There were, however, plenty of individuals willing to act as nominee UBOs in return for payments for (effectively) doing nothing – and indeed such were the numbers, and the need to track who was a UBO for which entity, that regular spreadsheets had to be created to keep track of matters.

I am satisfied that the Shareholders were well aware of the use of such nominee UBOs and the role that they were playing in concealing (their) ultimate beneficial ownership at the top of the structures. I have already referred to the email from Mr Worsley to Mr Belyaev on 19 December 2012 referring to “5 copies of the paperwork in storage for the new people” (which would be understood to be a clear reference to new UBOs to anyone who had knowledge of such matters, but making no sense in the abstract) whilst Mr Yurov expressly confirmed when cross-examined that, “I was definitely aware that Mr Worsley established relationships with different nominees and they were paid some amount of money” and Mr Yurov also acknowledged that he remembered the name of Jean Rene, who was contemplated, initially at least, to be one of the main nominees.

As for Mr Fetisov, he denied being aware that there would be nominee UBOs holding themselves out as the true owners of companies “to deceive the CBR or anybody else”, but I am satisfied that Mr Fetisov was not telling the truth in this regard as to his knowledge of the use of such nominees which is what matters for present purposes. He himself referred to one incident where Bordier Bank informed him that Mr Worsley was holding himself out as the owner of a company (i.e. as an UBO) and what matters for present purposes is not whether Mr Fetisov had an intention to deceive, but whether he knew that persons were being used to hold themselves out as owners of companies, when in fact they were nominees for the UBOs in the form of Messrs Yurov, Belyaev and Fetisov. Mr Fetisov’s denials of such knowledge are not credible given his knowledge of the structures being put in place with the Shareholders at the top, given the fact that the various companies end up in his (and the other Shareholders’) family trusts and the fact that such a structure was put in place (hence the numerous Declarations of Trust in that regard such as that signed by a Maria Mylona in respect of SiberianKD that she was holding on behalf of the Shareholders including (expressly) Mr Fetisov).

In due course in June 2015, after the collapse of the Bank, all of the nominee UBOs signed further Declarations of Trust declaring that they held their shares in the offshore companies for certain BVI companies that were owned by the Shareholders (specifically Brora, Arlingham and Gingerson). Mr Worsley sent these Declaration of Trust to employees of Teos (the Cypriot corporate service provider he had set up) stating, “As you will have seen, the investors have stepped back. Their assets are underwater financially, and they have ‘thrown in the towel’ and vested control of the companies. They see no future in Russia. Please update your KFC records for the companies in question.”

I am satisfied that the purpose of the use of the nominee UBOs was to conceal the Shareholders’ ultimate beneficial ownership of the companies – those companies (and the associated structures including the UBOs) were not under the control of and used for the benefit of the Bank (as suggested, for example, in Mr Fetisov’s Written Closing) but for the benefit of the Shareholders – as evidenced by the structure charts and the fact that the assets ended up in the Shareholders’ own family trusts (as addressed below). It defies belief that this was all Mr Worsley off on a frolic of his own under some fundamental misunderstanding as to what was required of him by the Shareholders, or indeed that the Shareholders would not have been aware had Mr Worsley been proceeding under some fundamental misunderstanding (which I am satisfied he was not). It is to be born in mind that the companies that the Shareholder admit being the beneficial owners of (such as WR and RCP) were treated in exactly the same way as all other companies.

In February 2011 Mr Worsley prepared a MS Word document describing the intended nominee structure:

“The diagram shows the nature of the Nominee structure in use.

We have used local Cypriot and Nevis/Offshore nominees to hold the shares of the Cypriot and Offshore Cos. The reason for this is that it makes it easier to sell the companies without the local authorities knowing that there has been a sale.

The chain of ownership provides a clear picture to the outside world, and we can show that there is a UBO who has received a loan and has bought the assets.

A Deed of Trust is signed between the Nominee UBO and an offshore Co that is owned by the NBT Shareholders.

Protection of Ownership

Under the new global due diligence rules, a service provider must know the identity of the UBO of a company.

If one uses a structure such as the one shown, one also has to put in place a system whereby if you want to transfer the Beneficial Ownership, the Cypriot service provider knows about this possibility in advance.

If one was to turn up in Nicosia with a copy of the main Trust deed between the Nominee and the NBT Shareholder vehicle, the Cypriot provider would be entitled to say (and indeed bound to say, under Cypriot law): I have not previously been told about the fact that there is in fact a different UBO. I must there protect the rights of the UBO about whom I have been informed.”

As one now sees, if a nominee dies, or goes rogue, this can be a potentially very serious problem.

Thus, as noted above, it is critical that the Cypriot provider himself helps to prepare the documentation that can change the beneficial ownership. In this way, it is impossible for the service provider to be surprised when the document is brought into use.

A reason for the document needs to be given to the service provider. This would normally be that the Nominee UBO has borrowed money in order to make the purchase, and the lender wants to protect their position. This is a plausible story.

As to the nature of the instrument to be used: Option, Charge Agreement. Such instruments would be specific to the company and the situation. They are more secure than a one paragraph bland instrument of transfer &. Because, by definition, there is a reason for the transfer in the eyes of Cypriot law. “

Aside from the new structures that are being put in place, we need to check that existing old structures are properly protected.”

Whilst there is no document referring to this document having been provided to the Shareholders, it is reflective of the structure being put in place that I am satisfied that the Shareholders were aware of, and as such I consider that the overwhelming likelihood is that it was either shared with the Shareholders or reflected discussions Mr Worsley had with the Shareholders.

At the end of February 2011 Mr Worsley prepared a further memo summarising the work he had undertaken. He explained that Cyprus had been settled on as the jurisdiction of choice and proposed a Moscow office separate from the Bank where staff would handle the day to day management of assets and undertake a number of other functions. The memo provided:

“Company Administration and re-Structuring:

There needs to be i) an overall review of what companies there are (we started with discussion of 60 companies). ii) Discussion/decision about how each of those companies is to be treated (in terms of offshore/ownership issues/restructuring etc.). iii) A list of actions for each company to be made, and then executed in a timely fashion. iv) A proper and secure system put in place that documents, and secures, the document chain, including trust Deeds and other important documents.

(…)

Moscow Office

Whilst the administration may be moved offshore, there needs to be a staff locally in Moscow that deals with the actual day to day/month to month management of the assets.

I would suggest that this office needs to be separate from the Bank itself - or, if inside the Bank's physical premises to save duplication of security coverage and rental payments, then it should be a separate, discreet unit.

In either case, this local office should not keep any sensitive paperwork on its premises.

There needs to be a strict management information system in place so that we can see what steps are being taken, what is actually happening, and what success there have been. This will evolve organically as the decisions in section (2) of this document are taken.

There need to be regular review meetings so as to discuss developments.

If you prefer to move even the asset management element offshore, this will incur travel costs as 2-4 people travel between the Office and Moscow. To be discussed.

Security

In moving the operation out of the bank, and offshore, we need to take extreme caution re security issues. This needs to include who is authorised to sign what/instruct whom, physical data and paperwork security, etc.

Communication Protocols will also be put in place. For example when a Nominee is purchasing an asset from NBT, using a loan from NBT, the Family Office needs to make provision for the fact that the Nominee needs to be seen as an independent UBO for the corporate service providers in Cyprus, the Bank needs to treat the Nominee as a borrower, and yet in fact will know that it is in reality a related party. Etc etc. At the moment the communication protocols are a mess. Emails chains are sent to CSPs in Cyprus with internal NBT comments on them, etc etc etc

The Family Office will implement and keep updated computer security and communication security systems. It is likely that a Mac based system will be used, as this allows for greater protections.

Corporate Structure etc

Rather than combining the assets into one fund, they should be held in individual company structures.

This reduces risk, and also allows for the fact that the assets are currently held/will be held under the names of various nominees who have 'bought' the assets with loans from NBT (and can also sell them as such).

The office will by definition organise all of the workings of the whole structure in such a way as to be as tax efficient as is possible in all and every instance on every issue.

For the purposes of the outside world, this Office will simply be a consulting company. The real purpose of the entity will be kept discreet in external terms. This is easy to achieve as the Office Company itself will not hold actual assets (assets to be in the structures discussed).

In order to facilitate transactions and structuring across the markets, the Office will develop a network of relationships with banks, service providers, lawyers, etc. These relationships will be key going forward.

The Family Office will need to have Shareholder time to discuss issues as needed. I suggest regular Board Meetings to review. This too is part of the discipline of the new structure.

Other

As positions are exited and revenues accrue, cash reserves will grow. Clearly, the Family Office can take on many different roles at that point: Using the existing expertise to re-invest in Russia, asset allocation in global listed funds, purchasing properties/homes for Shareholders using SPVs to protect tax positions, providing SPVs that enable Shareholders to have access to cash in a tax efficient manner, Etc

As required, and as time allows, the Office can also provide structures that will allow for revenue to be channelled out of other assets (EG the Bank) and to the Shareholders.

There are other practical issues that a family office can assist with - it can be a hub for family logistics when so needed, it can work with lawyers to look at issues around family Trusts, Etc.

As the Office develops there are many opportunities for the Shareholders to use the Office. You will remember the level of service and efficiency on Trident. One thought about something, one asked for something, and seconds later it was there. A Family Office can make your whole personal lives like that.....

As a new era of truly organised and disciplined situation management is brought in, it may also be that there can be an element of overseeing NBT problem areas. EG Family Office to bring on trouble-shooters on short term contracts to address specific problems, and indeed to address specific growth requirements. One thing at a time.

Risk Management - the Family Office should look at managing all risks in its operations. And finally - the more discipline we put into the Office, the more freedom you will have to travel without concerns. "It's being handled"…”

Once again there is no documentary evidence demonstrating that this memo was provided to the Shareholders, but it is addressing matters of direct relevance to the Shareholders themselves (including the “Family Office”) and what was taking place (including the move to Columba) could not conceivably have taken place without the knowledge and approval of the Shareholders, and I am satisfied that this would have occurred. Equally whilst Mr Fetisov and Mr Yurov’s case is that whilst Columba did provide some services to them personally, its principal role was as a service provider to the Bank, that is not consistent with what was contemplated or what occurred. I find incredible (and reject) Mr Belyaev’s case that he was not aware that Columba was taking over the administration of the offshore network in 2011. It is inconceivable that such a fundamental development would have occurred without the Shareholders knowing of it.

In due course in August 2011, on the instructions of Mr Yurov, Mr Iskandyrov resigned from the Bank in order to join Columba and become its General Director, working directly under Mr Worsley.

SMP were involved in the move to Columba, and in this regard Mr Worsley met them at the end of February, and then sent them an email on 3 March 2011 that provided, amongst other matters:

“As discussed, once we take over the reins from the existing team, we will have opened a can of worms. I need to get admin in place in Moscow ASAP who can handle things. Also I think that once we start, we will need 1-2 weeks of solid work. It will be like a data room situation. We will have stacks of paper, and we will need to go through it all page by page, file it, organise it, analyse it, decide on next steps etc. etc.

etc…”

It was contemplated that SMP would go to Moscow in April 2011 to address the necessary paperwork to be put in place, and the contemporary documentation shows that the visit did take place. In this regard there is an email from Mr Worsley to Mr Belyaev’s secretary on 14 April 2011 asking whether “Ali” (that is Mr Stennett of SMP) could come down to see Mr Belyaev’s passport.

Starting from March 2011 onwards, management of a large part of the offshore network was transferred from Totalserve, to Vassiliades & Co (“Vassiliades”), a Cypriot law firm which took over the role of corporate service provider from Totalserve. Mr Fetisov’s evidence was that the decision to transfer management of the companies to Vassiliades was due to a scandal regarding Totalserve involving Bank documents which were thought to have been leaked to clients. It is not necessary to address whether that was so or not. What is relevant, and clearly established, is the Shareholders’ knowledge and approval of the use of Vassiliades in relation to the management of the offshore network.

Thus, on 1 March 2011, the Shareholders personally signed an engagement letter with Vassiliades for three companies, instructing them to provide corporate services to three companies, Costells (the company involved in the acquisition of distressed loan notes relating to the Shareholders’ acquisition of Willow River and RCP and the subject matter of Mr Worsley’s first UBO a year earlier), Royston (a company that owned the Veshnyaki office development) and Goldstone. These letters were signed by the Shareholders as individuals – they were not signed on behalf of the Bank. Further they undertook personal liability for Vassiliades’ fees and gave personal indemnities in respect of claims brought by third parties as a result of the services provided by Vassiliades (Clauses 3.3, 4 and 6). 532. On 2 September 2011, the Shareholders also personally signed an engagement letter with Vassiliades for a large number of other companies including: NRT/Yaposha, Crylani, Mourija, Oldehove, Morledge, Yeleran and LB Collection (all alleged to be Bank Companies) as well as RCP and SiberianKD (which are admittedly Shareholder Companies). The engagement letter also purported to transfer the administration of three companies agreed to be subsidiaries of the Bank (Fiennes Investments Ltd, TIB Consultants Ltd and TIB FS Ltd).

On 8 September 2011 Vassiliades wrote to Totalserve notifying them that they were taking over the administration of the companies and asking for documents relating to the companies to be handed over. The Shareholders personally signed instruction letters for all of the companies to be transferred, representing themselves as the beneficial owners of these companies. The instruction letters which they signed included letters in relation to the Bank subsidiaries identified above, as well as an instruction letter for Metcalfe Investments Ltd - which is agreed to be a company owned solely by Mr Belyaev, but was signed by all three Shareholders.

Whilst both Mr Yurov and Mr Fetisov questioned the authenticity of their signatures on the instruction letters, there again has been no challenge to authenticity and they ultimately accepted that if they had been given documents to sign in relation to the transfer from Totalserve to Vassiliades, they would have signed them. I am satisfied, and find, that all the Shareholders did indeed sign such documentation whether or not they focussed on the identity of every individual company.

In this regard the Shareholders argue that the inclusion in this list, and the existence of such instruction letters, in respect of three companies that were in fact subsidiaries of the Bank (i.e. Fiennes Investments Ltd, TIB Consultants Ltd and TIB FS Ltd) means that the Shareholders could not have been signing any of them as beneficial owners of the individual companies, as opposed to signing as “beneficial owners” of the Bank itself. I do not consider that such argument bears examination or is logical. First, the Shareholders are quite clearly signing as “beneficial owners” and there is no suggestion that they are signing on behalf of the Bank. Second, the Shareholders are not the only shareholders of the Bank, and so it would be neither appropriate nor rationale for them to sign personally on behalf of the Bank, as if they were. Third, a number of the companies are, indeed, avowedly admitted Shareholder Companies, such as RCP and SiberianKD and the Shareholders are (indisputably) the beneficial owners. Fourth, and fundamentally, the letters to Vassiliades were followed by Declarations of Trust over the shares in the companies in favour of the Shareholders personally (and not in favour of the Bank), but (tellingly) this was not done for the three companies that were subsidiaries of the Bank.

Thus, for example, on 13/19 September 2011, such Declarations of Trust were signed by nominee Cypriot shareholders in favour of the Shareholders personally in respect of Oldehove, SiberianKD, Arooj, Nikilin, Nomiranta, Crylani, Mourija, Zosimal and LB Collection Services. The lack of any distinction between the Declarations of Trust in relation to what are now alleged to be Bank Companies (e.g. Oldehove) and those admittedly Shareholder Companies (e.g. SiberianKD) again supports the conclusion that this alleged distinction is a recent invention. The consistent theme (and overall picture that emerges) from the documentation over time is that there was no contemporary distinction and that all the relevant companies were Shareholder Companies. I reject, in this regard,

I consider that the explanation for the Shareholders (wrongly) signing the letters in respect of Fiennes Investments Ltd, TIB Consultants Ltd and TIB FS Ltd is either (most likely) that they needed to do so (due to the manner in which Totalserve had originally been instructed), or erroneously did so whether on the basis that they thought they could sign for the Bank (which seems unlikely as they were purporting to sign as beneficial owners, and were not the only Bank shareholders) or (more likely) that it was a simple error and they did not pick the error up as virtually all the companies were beneficially owned by them and they did not spot the difference viz these three companies, perhaps because they did not read the documents sufficiently carefully (and the vast majority of the companies were beneficially owned by them so sight of their names would probably have meant that they did not focus on each company).

Whilst this was all going on, from 11 September 2011 onwards, the Shareholders and their wives were enjoying the second of the luxury yacht charters in the Med, at the Bank’s expense. I have already addressed my findings in that regard when commenting on the evidence of Mr Yurov, Mr Belyaev and Mr Fetisov.

The Shareholders signed other documentation (dated 23 November 2011) as “beneficial owner” including to procure bank accounts for the companies in Cyprus, to declare that companies would not be used for money laundering and to consent to personal data use. Whilst Mr Yurov accepted that his signature and handwriting appeared to be authentic, Mr Belyaev (again) questioned the authenticity of his signature, though (again) there has been no formal challenge to authenticity and I consider this to be a yet further example of Mr Belyaev seeking to distance himself from documentation that he considered to be against his interest.

When cross-examined about an example of this documentation (in the form of an account opening form for Crylani – now said to be a Bank Company) Mr Yurov said he signed on the basis that he was the UBO of the Bank and so signing as UBO of the Bank Companies. I do not accept this (contrived) suggestion – it is not what is said, it is not how you would go about signing on behalf of the Bank, and it would not be appropriate to sign in such manner given that there were also other shareholders of the Bank, as has already been noted.

In December 2011, the Shareholders also signed deeds of indemnity to Vassiliades for 39 companies in the offshore network (including Disputed Companies), declaring that they were the beneficial owners of the companies and agreeing personally to indemnify Vassiliades in relation to the companies. Some of these bear a manuscript date of 8 December 2011, and on 15 December 2011 Mr Worsley wrote to the Shareholders’ secretaries asking “Any news on the paperwork” (which would appear to be a reference to such documentation) to which Ms Sidorova replied, “Belyaevs’ and Yurov’s documents” are ready. Once again no distinction was made between Shareholder Companies and companies alleged to be Bank Companies – they were all signed by the Shareholders personally as “beneficial owner” of the companies.

A separate (though parallel) structure was set up and implemented in relation to the companies set up or re-structured by Mr Worsley utilising the nominee UBOs he had recruited. These companies were also administered by Vassiliades – the position being represented to Vassiliades that the nominee UBOs were in fact the genuine UBOs (as opposed to the Shareholders).

It appears from Vassiliades’ records that by the end of 2011 there were around 37 companies which Vassiliades understood (or at least had on record) were beneficially owned by Mr Worsley’s nominee UBOs. The nominee UBOs had in fact executed deeds of trust in favour of companies owned by the Shareholders.

Of the companies set up using nominee UBOs two that were to become of particular importance were Erinskay and Baymore. These were incorporated on 11 and 12 October 2011 with Mr Chadwick and Mr Laws as their nominee UBOs. They were to be utilised for further “balance sheet management” from 2012 and were well suited to that purpose as they were unknown to the CBR – and they were (falsely) held out as genuine independent trading businesses with their own offices and employees, unconnected to the Bank or its Shareholders.

Although the initial proposal, as already identified above, was to incorporate a BVI company at the top of the structure (referred to as RHT), this company never came into existence and the Shareholders first held an interest in the offshore network through existing personal companies, including TIBH and Tactio.

On 20 March 2012, Mr Worsley wrote to Mr Zalevsky at the Bank:

_“Dear Alexander,

Hello.

As you may know, I run the non-banking assets / family office for the Shareholders of Trust.

Ilya Yurov suggested that I get in touch with you to discuss the property projects that you are overseeing. lE Glukovo and Siberian Timber.

I need to get a clearer understanding of the projects, and I am writing to suggest that we meet later this week.

I do not know the full details of the projects, and it is best that I start from zero, so as to get a clear picture. I would like to ask Irma to put together some information for me - I imagine that much of this information is already available. Inna can translate it for me.

Herewith are some thoughts on the sort of information that it would be useful to get. We can then discuss these points.

Does this make sense?” (emphasis added)

Two points emerge from this email. First, in this email, “Glukovo” (the name of the Stroyecologiya development) and “Siberian Timber” (a reference to Priangarskiy) are treated in precisely the same way and no distinction is made between them despite it now being alleged that one is a “Bank Company” whilst the other is admitted to be a “Personal Company” this being a further contemporary example of a lack of distinction between the two. Second, it is apparent, as Mr Yurov confirmed when cross-examined, that the same people were being used within the Bank to run both projects – a further illustration (like the yacht charters) of the Bank being utilised for the personal benefit of the Shareholders.

On 20 April 2012, Mr Worsley sent an email to the Shareholders indicating that there was an error in relation to four of the offshore companies (RCP, Tiesto, Arooj and Sapkont). The email is of some importance not only because it shows an awareness on the Shareholders part of the use of nominees (such as Mr Worsley himself and Mr Webb) but that what was contemplated was the production of false back-dated documents – which the Shareholders were prepared to sign, and did sign.

Mr Worsley stated:

“Back in 2009 and 2010, when Drozdov was running the processes, 4 companies were transferred from TIB Holdings to two Nominees (myself and Morgan Webb). The properties are Retail Chain (Billa) [i.e. RCP], Tiesto… (a service company), Arooj and Sapkont.

At the time Deeds were signed between the nominees

(Worsley/Webb) and TIB. However at the time of the transactions the combination of Drozdov/Buyanovskiy/Maximov etc etc did not bother to follow up with SPAs to document the ‘Sale’ between TIB and the nominees. This has waterfalled down and now Vassiliades still has [you] three registered as the UBOs of these companies.

This is not what is needed for the Billa sale. We need to reregister (on Cyprus) the UBOs as myself and Webb. Bear in mind that the Deeds between myself and Webb were signed in 09/10 already. SPAs have today been prepared and executed (backdated) to document the transactions of 2009 and 2010. I will bring the letters in on Monday, plus copies of the Deeds that Webb and myself executed back in 09/10.

FYI – a new full audit of all documentation has recently been started.” (emphasis added)

It is plain that what the Shareholders are being told is that what was required were back-dated documents, in order to evidence an apparent sale of RCP and other companies from the Shareholders to nominee UBOs. This is what was prepared for the Shareholders’ signatures:-

Also on 20 April 2012, Mr Worsley sent an email to Vassiliades listing the supposed dates of the SPAs. Vassiliades responded attaching existing corporate documents and documents to be signed by the Shareholders to correct the deeds of trust. One document required the Shareholders to “irrevocably, unconditionally and unequivocally confirm and declare that due to a clerical error, it was erroneously stipulated that we are the beneficial owners of RETAIL CHAIN PROPERTIES” and this was superimposed onto the original deed of trust.

It appears from an email sent to each of the Shareholders’ secretaries on 23 April 2012 that the relevant documents were signed by the Shareholders on the 24 April 2012. In this regard Mr Worsley emailed the Shareholders’ secretaries in these terms:-

“There are some papers that Ilya, Nikolay and Sergey need to sign. I can bring them in. When is a good time please… It will not take long (e.g., 10 mins) but it is important. Can we do it tomorrow…?”

Each of the Shareholders’ secretaries confirmed that this was convenient.

It was suggested on behalf of the Shareholders that the email from Mr Worsley to the Shareholders showed a transaction had in fact taken place, and that Mr Worsley was therefore simply correcting a mistake by documenting something which had already happened. That suggestion does not bear examination. It is plain that what was being proposed was the production of false back-dated documentation purporting to show that such a sale had taken place when it had not.

It was also claimed that the Shareholders would not have paid much attention to the email from Mr Worsley or the documents which they were asked to sign. That claim does not bear examination either. It was quite apparent from the email what Mr Worsley was proposing, namely the back-dating of documents to mislead third parties (including Vassiliades) and it is not credible to suggest that the Shareholders did not read the email and were not aware of what was contemplated. Whilst Mr Yurov claimed that there was some distinction to be drawn between being the beneficial owners and the ultimate beneficial owners that appears to be no more than an attempt to distance himself from what was clearly dishonest conduct.

It was around this time that the first loans to Erinskay and Baymore were advanced which were to form part of a whole new phase of “balance sheet management” involving the lending of huge sums to Erinskay and Baymore. This is addressed in the

In the immediate aftermath of the clear up of the “error” in the paperwork Mr Worsley instigated an “audit” of all of the documentation relating to the offshore network. In this regard, on 27 April 2012 Mr Worsley sent an email to Mr Manko (who ran the TIB companies in Cyprus) stating:

“I am organising an audit of our structure. We will make sure we know where every piece of paper is for all companies.

Part of this structure are the Deeds from the Cypriot Nominees, up to TIB Holdings. We will call this “The TIB Group”

Also part of it are the Deeds that go from Worsley/Webb/Laws etc. to TIB Holdings. We will call this “The BW Group”

The BW Group Deeds are very very private. We will have two audit systems – one for the TIB Group, and a separate one for the BW Group.

The BW Group is only for discussion with myself, yourself, Marat [Mr Iskandyrov] and Andrey Grechishnikov. It is NOT for discussion with Vassiliades, or Ilya Korneyev or Irina Bronina etc” (emphasis added)

This was followed by a further email from on 10 May 2012:-

“1)

…The companies that should have Deeds from the nominees up to TIB Holdings are: RCP, Sapkont, Arooj and Tiesto. 2) All of the other companies that are owned by Y/B/F should have Deeds up to TIB Holdings, or another YBF entity.

I am putting in place a major audit of all of our structure. This will include executing new deeds in many cases. The reason for the new deeds is that the new wording will allow for multiple copies. Then we will keep these new deeds in secure safes. Some in Cyprus and some offshore. I will then have them executed ASAP.

We also decided to use an external legal firm to check the work of

Vass etc…” (emphasis added)

The reference to an “external legal firm” was to Simcocks (a firm of Isle of Man lawyers) who were instructed by Mr Worsley around this time as well as Boston Limited (“Boston”) (a further Isle of Man trust company which was retained in addition to SMP). 559. After instructing Boston (who in turn consulted KPMG in relation to the tax implications), it was decided to structure the offshore network such that the interests held by Mr Worsley and his nominee UBOs (i.e. the part described as the “very very private companies”) through BVI companies, including Arlingham, Brora, Gingerson and Serrinson.

On 24 May 2012 Boston Nominees Limited (“Boston Nominees”) (who were the legal owners of the shares in Arlingham and Brora) executed deeds of trust over those shares in favour of the three Shareholders (in the usual proportions).

On 27 June 2012, Mr Worsley informed Boston and Simcocks that some 20kg of hardcopy documents were being sent to them by DHL, comprising multiple copies of the Declarations of Trust for the various offshore companies, and asking that they compile an audit document to keep track of them all.

On 30 July 2012, Simcocks sent Mr Worsley that audit document. It is an important document as it shows (as at July 2012) which offshore companies were owned by which others (as a result of the Declarations of Trust) and the locations where hard copies were stored (in case it was necessary to assert ownership against a “rogue”, or dead, “nominee UBO”). Once again it shows a lack of any alleged distinction between Shareholder and Bank Companies. It shows, (amongst other matters):-

Willow River and RCP were Shareholder Companies generating significant sums for the Shareholders. I consider that as a result the Shareholders would have paid close attention to such companies and how the ownership of them was structured. As a result, it is inevitable that they would also be aware of how the offshore network was structured generally and they would know that the structure was the same for all companies. They would therefore have been well aware that the structure adopted was one where they were the ultimate beneficial owners of all the companies. I am satisfied that they were so aware, and that the suggested distinction between Shareholder Companies and Bank Companies is a subsequent invention. In this regard a meeting in London at Claridges on Tuesday 20 November between the Shareholders, Mr Worsley and Boston is of particular importance, as addressed below.

In summary, the position by late 2012 was that many of the “nominee UBO” companies were ultimately beneficially owned by the Shareholders via Arlingham, Brora, Gingerson or Serrinson, in the Boston structures; and the other (mainly Cypriot) companies in the offshore network were ultimately beneficially owned by the Shareholders through the Vassiliades structures.

On 19 November 2012, the Shareholders were due to fly to the Isle of Man to meet Boston, but this was not possible due to weather conditions. Instead, Boston travelled to London for a meeting at a conference room in Claridges the following day. What was discussed at this meeting is very much in issue. The Bank submits that it is plain that the recent changes in the offshore network would have been discussed (including bringing a large number of offshore companies under Arlingham, Brora, Gingerson and Serrinson) as well as proposed changes to the structure (including the transfer of further companies under the Boston Structure, and the transfer of the Defendants’ interest into personal discretionary trusts), which were actioned the very day after the meeting.

Mr Belyaev claimed that the meeting was (only) a general presentation about the idea of moving into personal trusts. Mr Fetisov claimed that the meeting covered Boston’s services and gave an overview of different trust structures and pricing, without discussing any detail. Mr Yurov could not recollect the offshore structures being discussed. I consider it defies belief that the changes to the offshore structures already made, and that were proposed to be made (which would have revealed the ownership structures in place and to be put in place) were not discussed on an occasion when the Shareholders had travelled to London, and Boston had also travelled to London for a meeting between the Shareholders, Boston and Mr Worsley. That would be a lot of effort for a “meet and greet” which is also belied by the fact that a conference room was hired for the purpose and Mr Worsley emailed Mr Buyanovsky on Tuesday evening stating that he was in London “with YBF last two days”.

I am satisfied and find that there must have been discussion of the offshore network and its structures so that if (as appears inherently unlikely) the Shareholders were not already aware of how that network was structured (culminating in their beneficial ownership of all companies) they would be by the end of the meeting. In the usual way the cost of this meeting was met through the offshore network through Kuri Hills (and therefore as part of a loan to one of the companies in the offshore network). If (which is inherently unlikely) the meeting was only about personal trusts – then the Shareholders would also effectively, have been getting the Bank to pay for advice to them in their personal capacity.

I consider that it is no coincidence that the very next day after the Claridges meeting

Mr Worsley actioned the transfer of further Vassiliades companies into the Boston

“nominee UBO” structure. The advantage of the Arlingham/Brora structures was that it had an enhanced level of separation from the Shareholders and other companies in the offshore network (which was ideal for further “balance sheet management”).

It is also clear that what was being transferred were assets owned by the Shareholders personally. Thus, on Wednesday 21 November 2012, Ms Bronina of Columba wrote to Mr Worsley asking for “clarification regarding the restructuring process” and referring to the proposed transfer of Crylani. In Mr Worsley’s reply he commented in relation to the necessary (fake) share purchase agreements that would need to be generated:

“If YBF own the asset via (say for example) TIB Holdings, then it can be between TIB Holdings and Gigha (for example).

Or if they own it direct, then between YBF and Gigha.”

It is clear, therefore, that what was being addressed were assets owned by the Shareholders whether that was directly or indirectly. The same day Mr Worsley told Mr Iskandyrov: “I want to avoid the new investors signing contracts with the YBF names on them if possible. I prefer that the new investor companies buy [from] YBF”.

The contemporaneous documents show that the modus operandi for the transfer was by the Shareholders first transferring their existing interests in those companies to

There was, of course, no actual sale of distressed assets (nor were the assets distressed). Mr Worsley then listed the following companies as being the subject of this fictitious “sale of distressed assets”: Yeleran (owner of StroyEcologiya); SiberianKD (owner of Business Group and Priangarskiy); Agalid; Mefrito; Oldehove (owner of Eurogroup/the Otradnoye or Degunino development and of the Pokrovka development); Crylani (owner of Morledge/the Perevednovskiy development; and Royston/the Veshnyaki development); Mourija; GFI Global Factoring; and Baymore.

It appears that initially the plan was to transfer the companies to TIBH first, and then to companies owned by the nominee UBOs. However, TIBH was substituted for Tactio. In December 2012, the Shareholders personally signed documents transferring the beneficial ownership of the above companies to Tactio. In these documents, the Shareholders declared that they were the beneficial owners of the share capital in each company, agreeing to “irrevocably, unequivocally and unconditionally transfer the beneficial ownership, title and interest (...) [over the shares held on trust on their behalf] to TACTIO DEVELOPERS LIMITED" and instructed Vassiliades to issue a “new declaration of trust and/or share certificate as per the instructions of TACTIO DEVELOPERS LIMITED”. The Shareholders also signed a further set of documents declaring that they were the beneficial owners of Tactio (which in turn was the beneficial owner of the relevant companies) and agreeing to transfer beneficial ownership of the companies to BVI companies owned by nominee UBOs. These BVI companies were in turn held on trust for Arlingham, Brora, Serrinson and Gingerson, which were owned by the Shareholders.

For example, in relation to Crylani (now said by the Shareholders to be a “Bank Company”) the relevant document was signed by the Shareholders personally in their capacity as the beneficial owners of Crylani and instructed Vassiliades and the relevant directors and nominee shareholders to transfer the beneficial ownership of Crylani to Tactio. They signed a similar document for Mourija (also now said to have been a “Bank Company”), as well as for Oldehove. SiberianKD (an admitted “Personal Company”) was transferred at exactly the same time and in the same way. The separate set of signed documents contain instructions from the Shareholders to Tactio to transfer the companies to holding companies in the Boston Arlingham/Brora structure, including Oldehove to Cape Bay House, SiberianKD to Lismore Trading, Mourija to Venn Investment Holdings, Yeleran to Tranaro Holdings and Crylani to Cedar Line Investments.

There were no new investors – these were simply the nominee UBOs – namely David Morris, Kenneth Caple, David Gadsby, Mr Laing and Mr Malko who were the supposed owners of (respectively) Cape Bay House, Lismore Trading, Venn Investment, Tranaro Holdings and Cedar Line Investments – which were BVI companies in the Boston structures which I am satisfied were ultimately beneficially owned by the Shareholders personally via Arlingham and Brora.

The Shareholders personally signed these documents on 17 and/or 20 December 2012.