The U.K. litigation of Boris Berezovsky and Roman Abramovich has been dubbed one of the biggest private court battles in human history. Boris Berezovsky, a Russian oligarch, claimed that Roman Abramovich, another Russian oligarch, cheated him out of more than USD5 billion. Roman Abramovich vehemently contested the allegations. The fortune of the 41-year-old Abramovich according to Forbes Magazine has been assessed at 12.1 billion British pounds, while the wealth of the 62-year-old Berezovsky was estimated at a relatively modest USD1.3 billion.

The case of Berezovsky and Abramovich has not yet been researched by legal scholars and has not been thoroughly discussed in literature because the London court handed down its final decision only on August 31, 2012. Nevertheless, the case materials themselves provide ample ground for drawing conclusions about customary business practices that prevailed during the time of privatization in post-Soviet modern Russia.

A review of procedural history will first show that the court action was commenced in 2007. The hearings in the matter progressed from October 2011 to January 2012. Judge Gloster took slightly over half of a year to reach her decision. The legal action generated a large volume of records. The decision itself contained 539 pages of text, and every day of hearings produced from 120 to 150 pages of transcripts that chronicled the Russian oligarchs’ explanations of business practices in Russia after the dissolution of the U.S.S.R. in 1991.

The literature is replete with various aspects of the biographies of Berezovsky and Abramovich, describing how two ordinary workers from the Soviet Union became oligarchs and dollar billionaires within the Russian Federation. Still, the two legal claims of the plaintiff and the defendant’s responses to those claims are reflective of how the process of privatization in Russia progressed, of how an entire class of millionaires and billionaires took shape in Russia, as well as of what principles those individuals were guided by in their work.

Both parties, Berezovsky and Abramovich are Russian citizens and generally enjoy recognition as successful businessmen. Mr. Berezovsky fled from Russia to France in 2000 after his open and direct confrontation with President Vladimir Putin, who was elected in March of that year. After his emigration from Russia, Berezovsky entrenched himself in England and received political asylum in the United Kingdom, where he continues to reside. As Berezovsky was leaving Russia, he had substantial capital invested in various Russian commercial enterprises. Berezovsky is wanted in Russia, and in March 2006, Russia’s Prosecutor General announced that the Russian government renewed its U.K. extradition request for Boris Berezovsky, accusing him of new crimes, namely performing acts directed at the violent seizure of power.

Mr. Abramovich, though officially residing in Russia, frequently visits England, where he owns the Chelsea football team. He also had substantial capital assets invested in Russian commercial entities at all times relevant to the subject matter of the litigation.

Berezovsky brought two claims against Abramovich in the High Court of Justice, Queen’s Bench Division, of the Commercial Court in London for the total amount of USD5.6 billion. The first claim was based on an interest that Berezovsky alleged he had in Sibirskaya Neftyanaya Kompaniya (Sibneft), a Russian joint stock company, which was created as part of the privatization program. Sibneft subsequently became a major integrated oil company generating large profits. The second claim was connected to an interest that Berezovsky alleged he had in Russkiy Alyuminiy (RUSAL), which became a substantial company in the Russian aluminum industry.

The privatization of Sibneft and corruption

The dispute between Berezovsky and Abramovich arose from the time when both men made their fortunes in the murky Russia of the 1990s. The claim central to Berezovsky’s case was that he was a partner with Abramovich in the Russian oil giant Sibneft. According to Berezovsky, Abramovich later forced him to sell his interest in the company at a grossly undervalued price, exploiting Berezovsky’s conflict with Vladimir Putin in 2000. The London judge described the official version of Berezovsky’s claim against Abramovich as simple as that two business partners cannot agree on dividing up the profits of a company that they both at one time owned.

This same story sounded drastically different from the mouths of the plaintiff and the defendant. Bound by the oath to tell the truth, the two parties talked about the actual events surrounding the privatization of Sibneft, the largest Russian state company at the time.

The state company Sibneft was created in 1995 by an executive order of President Yeltsin as part of the program of privatization. It effectively emerged from the union of two companies in the oil sector, Noyabrskneftegaz and the Omsk Oil Refining Plant. The director of the latter plant Mr. I. Litskevich was against the merger, but he drowned in a river several days before the official papers for the creation of the new company were signed, with the official cause of death ruled as heart disease.

The state company Sibneft was created for the sole purpose of its immediate privatization, as Abramovich’s lawyer Lord Jonathan Sumption said in his remarks on the second day of his address to the court. In 1995, Berezovsky talked the Russian President Boris Yeltsin into creating Sibneft and privatizing it, so that the profits the company generated would finance the operation of the ORT Channel 1 television network that Berezovsky owned. With this financing mechanism in place, the major media network was to support Yeltsin’s reelection campaign in 1996.

Of even greater interest was the testimony of Roman Abramovich relative to the privatization episode. The Russian tycoon admitted under oath that the Sibneft collateral auction was a fiction. He talked about the ways in which preferential conditions were created so that the company Berezovsky and Abramovich controlled would win in the bidding. More specifically, Abramovich described the manner in which all other participants in the auction were eliminated.

Abramovich affirmed that Berezovsky and his partner Badri Patarkatsishvili “talked” with the other two participants of the auction and that one of the participants then sharply reduced its bid, while the second participant withdrew its offer altogether. These behind-the-scenes maneuvers allowed Berezovsky and Abramovich to buy Sibneft at the price near where the bidding started – USD100.3 million, only slightly up from the starting price of USD100 million. 

Answering the questions of Berezovsky’s lawyer Lawrence Rabinowitz, Abramovich said that Berezovsky could have himself reached an agreement with the Menatep bank of Mikhail Khodorkovsky so that it would put in a lower bid: “Berezovsky and Khodorkovsky could very well have reached that agreement. The bidding documents from Menatep were prepared by Kagalovsky, the bank’s vice president.”

Abramovich also said that Patarkatsishvili played the key role in getting the third participant of the auction Sameko, a front group for Inkombank, to withdraw its bid. According to Abramovich, if Sameko had not withdrawn its tender offer, he would have had to pay at least 217 million dollars for Sibneft, which he did not have at the moment. Abramovich shared with the court the details of his own participation in neutralizing the Inkombank bid. He went to Samara, where the offices of Sameko were located, one day before the auction and came back on the day that it was held. The billionaire admitted that he came to talk with Sameko only after Patarkatsishvili already reached an agreement with Sameko, “The most important negotiations were conducted before I came there, but there was a need to finalize some documents. It would not have been possible without Badri Patarkatsishvili.” Thus, Lord Sumption also acknowledged that the Sibneft auction was a corrupt transaction.

The testimonies of the parties to the action as to how the 100 million dollars was paid make this deal all the more suspicious. Abramovich said that Berezovsky did not put up a cent for the bargain, an allegation that Berezovsky himself has not denied. At the same time, Abramovich also did not have 100 million dollars. Instead of paying for the acquisition with real money, Berezovsky got Abramovich acquainted with the owner of the SBS-agro bank Alexander Smolenskiy. Smolenskiy, in turn, helped the entity of Berezovsky and Abramovich secure a line of credit for the transaction in an intricate scheme that folded back on itself. The companies constituting the newly-formed Sibneft took out a loan with their long-term export contracts as collateral. The cash they obtained was deposited into accounts with SBS-agro, which in turn opened a line of credit to Abramovich to buy Sibneft out. While the Berezovsky-Abramovich entity borrowed a comparatively small amount of funds from another bank, Sibneft was effectively purchased with its own money. Abramovich himself paid for the transaction only 17 million dollars.

The result of this elaborate half-criminal and corrupt acquisition scheme unfolding in 1995 was that three men Berezovsky, Abramovich, and Patarkatsishvili came to acquire the largest Russian private company at an incredible bargain price. Some 10 years later, in 2005, the influential Russian newspaper Vedomosti reported that a significant share of Sibneft (72 percent) was sold to another state company at the price of USD13.1 billion. As the remaining part of Sibneft was later sold for another USD4 billion, it is clear that the real market value of the company at the time of its sale must have been around USD17 billion. 

In the 1990s, the main mechanisms for the transfer of state assets were the so-called collateral auctions. The cash-strapped state transferred the shares of large state companies as collateral for loans to a large commercial bank. In the event the state did not return the funds, the bank became the full owner of the collateralized shares, accepting into its ownership a large state enterprise. The first collateral auction conducted in 1995 had exactly these consequences in terms of transferring full title of an industry mainstay enterprise to a private bank. For USD170 million ONEXIM bank received the controlling share of stock in the Norilsk Nickel Combine, the world flagship in the production of nickel, chromium, cobalt, and platinum. According to confirmed statistics, the monetary inflows for Norilsk Nickel in 2001 were USD1 billion, with capitalization exceeding USD10 billion. A bid of the Rossiyskiy Kredit bank presented at the collateral auction for a sum of money over two times more than what ONEXIM bank had offered was rejected by the state. In the same year 1995, Mikhail Khodorkovsky and his Menatep group purchased a 78-percent controlling stake in the state oil company Yukos for only USD350 million. Two years later, in 1997, the company was worth more than USD9 billion.

In December 1995, in the course of a collateral auction, the Berezovsky-Abramovich group operating as the Oil Financing Company and the Stolychniy Bank Sberezheniy (Capital Savings Bank) acquired a 51-percent stake in state company Sibneft for USD100.3 million, much of it borrowed with the company’s own money. In 2000, the company’s profits stood at USD674.8 million.

In the London High Court, the same story was recounted not by some researchers or economists, but by the very participants of those events. In describing the Russian business climate of the mid-1990s, the lawyer for Abramovich asked the judge to go back to the time of Shakespeare and imagine that post-Soviet Russia was a place where the law disappeared, where the government collapsed, where police corruption was rampant, and where the courts were unpredictable at best. “Nobody could do business without access to the government,” Lord Sumption said. “If you did not have political power yourself, you had to have access to a godfather, who had it.” Berezovsky had tremendous influence in the 1990s as a result of his friendship with the members of Boris Yeltsin’s family. “He understood that being close to political power can in and of itself be a source of getting rich,” Lord Sumption remarked. The lawyer emphasized that Berezovsky “did not invest a single penny” into the company and did not participate in its management. Lord Sumption stated that Berezovsky was not in reality an owner of Sibneft’s shares, even though Berezovsky himself contended to the contrary. According to Lord Sumption, from 1995 to 2002, companies that were under the control of Abramovich paid Berezovsky two billion dollars for his political patronage, which Berezovsky used to buy palaces in France, expensive paintings, and diamonds for his girlfriend.

Lord Sumption argued that in 2001, as Abramovich was making his last payment for political patronage to Berezovsky in the amount of 1.3 billion dollars, he was paying him not for the shares of Sibneft, as Berezovsky did not own any such shares. Rather, in the words of the lawyer, Abramovich paid Berezovsky because he felt “a strong moral obligation” before his former business partner, to whom he was indebted for the start of his business career.

Of critical significance to the determination of the legitimacy of the transaction between Berezovsky and Abramovich was the form the transaction took. As it became apparent during court hearings, the parties did not have any formal contract. In the course of the legal action, almost no official documents were presented to the court, as the deals that were talked about were sealed with handshakes, not with signatures on contracts or rubber stamps. Further, a number of possible witnesses have since died.

There were no documents to the effect that Berezovsky owned any shares in Sibneft, just as there were no documents to show that Abramovich owned any shares in that oil company. The company with market value reaching into billions of dollars was directed by two shareholders who had only an oral agreement between themselves. While the Russian civil law does not recognize the legitimacy of such transactions, the provisions of Russian law had little or no effect on the conventions of doing business in the early post-Soviet era, when most of the wealth in Russia was formed and accumulated. 

The RUSAL company

By early 2000, the same three partners Berezovsky, Abramovich, and Patarkatsishvili became significant players in Russia’s aluminum sector. In 2000, Abramovich bought from Trans World Group two aluminum plants and an alumina refinery. Patarkatsishvili was once again responsible for negotiations. “I would not have enmeshed myself in that without Badri Patarkatsishvili. Someone was getting murdered there every three days. I did not need a business like that,” Abramovich said before the court.

On an offer from Abramovich, the participants in the business decided to enter into a joint arrangement with Russian aluminum baron Oleg Deripaska to create a monopoly company RUSAL. According to the terms of the alleged business agreement reached in March 2000 at the Dorchester Hotel in London, one 50-percent stake in the new enterprise was to go to Deripaska and his partners and the other 50-percent stake was to be transferred to Abramovich, Berezovsky, and Patarkatsishvili. The latter group agreed to split its shares in the following manner: 25 percent to Abramovich and 12.5 percent each to Berezovsky and Patarkatsishvili. “The deal we made with Deripaska covered everything that we needed to pay for the assets,” Abramovich acknowledged. It therefore appears that Abramovich received his share in RUSAL without any substantial contributions for his own part. 

An important component of the alleged agreement was that none of the three could sell out his interest without the consent of all others. In the fall of 2003, Abramovich sold his shares without obtaining approval either from Berezovsky or from Patarkatsishvili. Abramovich’s sale of his stake to Deripaska gave rise to the second claim in Berezovsky’s legal action. This commercial story has political overtones that were not reflected in the claim submitted on paper. In terms of his influence with the Russian political elite, from March of 2000 to the fall of 2003, Boris Berezovsky transitioned from being a prince to being nothing more than a pauper. In early 2000, he was a key participant in the Russian political process. By 2003, he was in effective political exile living in Great Britain. This shift understandably led to significant changes in the behavior of Abramovich. When Abramovich sold his stake in the business to Deripaska, he received for his 25 percent some USD1.75 billion. With Deripaska’s acquisition of a controlling stake in the enterprise, the shares of Berezovsky and Patarkatsishvili markedly went down in value. When they sold their outstanding stakes to Deripaska in July of 2004, they received only USD450 million. Receiving inadequate consideration for the sale of RUSAL’s shares prompted Berezovsky to accuse Abramovich of violating their agreement and to demand compensation of USD600 million.

As before, court hearings shed light on a number of unknown details of the transaction for splicing up major industrial assets of the Russian Federation. In summary, the testimony of Abramovich was that Berezovsky could not have held any shares in RUSAL. “Berezovsky did not do anything that would guarantee him any stake in the company,” Lord Jonathan Sumption said on the last day of his address to the court that summed up the case for the defense following witness presentations lasting two months. Like the previous business transaction, this deal was also made orally, as there were no documents evidencing the agreement or the transfer of shares.

The circumstances surrounding the events giving rise to Boris Berezovsky’s claim make clear that the process of privatizing certain companies and even entire industries in Russia took place in violation of existing laws. The basic property transfer mechanisms worked through connections with corrupt government officials, personal friendships, and other informal quasi-criminal property takeover instruments.

What were the conventions of doing business in Russia that the case of Berezovsky v. Abramovich brought to the forefront? The candid testimony in the matter of two Russian oligarchs before the London court brings into focus a list of the most important precepts for doing business in the post-Soviet era. While by no means exhaustive, that list allows one to draw up an alternative “business code” in force in the Russian Federation throughout the period of transition from socialism to capitalism. 

Every businessman must have a krysha

While the figure of speech used by the parties to the litigation will be discussed more fully below, it is important to note at the outset that the Russian word krysha literally means a roof. The essence of this thesis is that every businessman must have among his relatives or friends influential people in positions of power. According to outside observers, a Russian business ultimately cannot be successful without the krysha, or protection provided by powerful political or criminal contacts. In that sense, krysha has been described as serving a dual function in Russia: to protect against threats from organized crime groups and to ensure favorable application of the law or access to government benefits.

Boris Berezovsky, who had friendly relationships with members of Boris Yeltsin’s family, was able to provide political support. “Berezovsky was able to cut through the waves. He took care of all the problems. That is why we paid him for it,” Abramovich explained. According to Abramovich, he paid Berezovsky for the krysha USD80 million in 1996, and USD50 million in both 1997 and 1998. Abramovich could not exactly remember all later payments to Berezovsky: “In 1999, we paid for the TV-6 network, for the Kommersant newspaper, for the ORT [Channel 1 television network]; we paid for Berezovsky’s credit cards, for his chateau in Southern France, and for many other things.” The last and the largest payment in the amount of USD1.3 billion made in 2001 Abramovich also characterized as a payment for the krysha.

Boris Berezovsky was Russia’s chief kryshevatel (or krysha-provider) of the mid- and late 1990s. Berezovsky received money for his patronage not only from Roman Abramovich. Many other ambitious businessmen of that era needed Berezovsky’s political and physical krysha. When Boris Yeltsin’s health markedly declined in 1996, his entourage received a dominating role. Berezovsky had excellent relationships with the grey cardinals of the Kremlin. At trial, Abramovich reassured the High Court that he considered Berezovsky to be the political leader of big business, to whom he came for assistance because he did not feel confident enough to work at that level. He was ill at ease even approaching the director general of Noyabrskneftegaz Mr. Gorodilov (Noyabrskneftegaz was merged with the Omsk Refinery to form Sibneft). Berezovsky, in the words of Abramovich, became a political corporation unto himself, to which the executives of large Russian business enterprises had to pay tribute.

According to Abramovich, the last USD1.3 billion tranche that ended his relationship with Berezovsky was his payment to “buy freedom.” According to Berezovsky, the money was for Abramovich’s buy-out of Berezovsky’s stake in Sibneft at an undervalued price. Abramovich addressed this situation at the hearings in the following way: “The traditional understanding of the krysha does not allow you to break up the relationship unilaterally. We both had to agree to enter into that arrangement and both had to consent to leave it. I do not regret that I paid him. While I am not proud, I am content that I did it this way because I am very thankful to him for what he did for the company. I do think that he had a right to demand payment, although 1.3 billion is a number that we can argue about.” From this rhetoric, it appears that Abramovich considered himself to be the victim: he was compelled to pay for the krysha and it cost him a fortune to buy out his “freedom.” While Berezovsky’s views were diametrically opposed to those of Abramovich as to the substance of their commercial relationships, he never denied that he in fact supplied the requisite political influence. Altogether, it appears that the krysha-type patronage was an important, albeit dubiously legal, feature of Russian business practices in the post-Soviet period.

Every businessman can reach an agreement with a competitor

The so-called collateral auctions in Russia for the sale of state property into private hand were a pure fiction to get assets into private hands. These privatization auctions were a giveaway of Russia’s most important companies at bargain prices to a few well-connected kleptocrats, who got the funds to buy these companies by skimming from the government and transferred their skimming talents to the enterprises they acquired.

“You pre-arranged the results of the auction, did you not?” Judge Gloster asked Berezovsky. “You entered into a secret conspiracy with one of the participants of the auction and bought out the second one?” In acquiescing with the statements the judge pronounced as questions, Berezovsky explained that “such were the rules of the game.” Competition took part not at the auction, but long before the auction.

Corrupt schemes of business acquisition later gave rise to criminal systems of managing business operations, including the non-payment of taxes. The omnipresence of such schemes contributed significantly to the prevalence of the general sense of lawlessness in the Russian business community. Other fragments of testimony given in Berezovsky v. Abramovich lend full support to this conclusion.

A businessman can have illegal income, as, for instance, Abramovich acknowledged that he had illegal income. In utilizing a scheme of registering companies to various associations of the disabled, Abramovich was able to increase his fortune in the year 2000 alone by USD300 million in tax reductions and incentives. Abramovich exploited loopholes in the Russian law by directing Sibneft to facilitate its supplies through trading companies, where the majority of the employees were physically handicapped. The companies in turn received tax benefits.

To his credit, Abramovich later did engage in charity work and did much for the development of the Chukotka region, but it was not until millions of dollars were siphoned from Russian taxpayers through elaborate maneuvers. During questioning, Berezovsky’s lawyer Rabinowitz said to Abramovich showing to him a piece of paper reflecting Sibneft’s 2000 income: “Judging by this document, it is possible to determine how much you made from Sibneft using the tax evasion scheme. For example, in 2000, you earned 1.5 billion pounds.” Abramovich replied: “I have no comments.” In another exchange in the British court, Abramovich openly admitted to conducting illegal activities: “They cancelled the tax benefits, and so I said [to my subordinates] that we will be making our money legally, paying taxes and dividends.” Rabinowitz next asked him: “So, before that time you were earning money illegally?” Roman Abramovich answered “Yes, it is so.”

A company can escape paying taxes

Sibneft used various schemes to avoid paying Russian taxes with the use of offshore zones, a practice that was violative of Russian criminal laws. The High Court heard testimony as to the methods the business partners used to shelter their profits from taxation and to send money out of Russia. Abramovich himself implicitly acknowledged that such schemes did exist. First, the subject raised concerned the optimization of Sibneft’s taxes through the use of internal offshore zones. From 1998, Noyabrskneftegaz sold almost all of the oil that it extracted (98 percent) to intermediaries registered in Chukotka and Kalmykia, while the latter sold the same oil to Sibneft at prices two to three times higher. In the absence of the intermediaries, the tax rate would have been 35 percent. The use of offshore zones allowed the companies to decrease the tax rate to 11 percent. The fact that more than half of the workers at the intermediary companies were handicapped allowed decreasing the tax rate even more to 5.5 percent. The intermediary firms were finally merged with Sibneft in 2001. 

According to Renaissance Bank estimates, two intermediary companies from Kalmykia named Olivesta and Vesta received USD300 million of net profit in 2000. Both of these companies were sending money out of Russia through the Latvian Bank of Trade. The money was effectively being sent to an account of Palmex S.A., a Panamanian company, purportedly for payments on contracts for the purchase of machinery, such as heavy trucks and bulldozers. The contracts were then cancelled, and the money sent back to the Latvian Bank of Trade.

Second, all of the oil imported from Sibneft was purchased by Runicom S.A., registered in 1994 in Sweden (owning a 12.22-percent stake in Sibneft) and Runicom Ltd. (registered in Gibraltar). Abramovich acknowledged that both traders belonged to him and that from 1996 to 2000 their profit could have totaled hundreds of millions of dollars.

Payments are always done in cash

It came out during the hearings that Abramovich paid to Berezovsky and Patarkatsishvili millions of dollars in cash. In contrast with the United States, in the 1990s, Russian consumers normally did not use bank accounts to make payments because bank payments in Russia were notoriously unreliable. Still, one would expect that serious businessmen exchanging large sums of money would use a cashless settlement process to memorialize the transfer of significant liquid assets.

“[Demands for payment] were for the most part oral requests. Badri could call me up, send an invoice and ask to bring the money somewhere, or just to bring USD50 thousand to the club… Berezovsky also called often when he needed money,” Abramovich recounted.

An employee of Abramovich’s company Marina Goncharova told the court that, in 1995, she went with a bag containing one million dollars to the LogoVAZ club to see Berezovsky. “Your honor,” Goncharova complained to the judge. “I do not know if you can imagine a million dollars, but it is quite heavy.” The guards did not want to let her in, but she insisted and went into the office of Berezovsky. He was speaking on the phone when she entered and became so enraged at her entry without having asked permission that he threw his telephone into his assistant. Goncharova said that she “just left the bag and walked away.” The witness recalled that she was later contacted by Patarkatsishvili and had to bring new bags with cash. At the same time, no documents evidencing payment have remained. When Rabinowitz asked Abramovich whether those documents had been destroyed, he replied that they just were not preserved: “They might have been jotted down in some notepad.”

The profits received were skillfully laundered

In order to transport to the U.K. almost one and a half billion dollars that he allegedly paid for the ORT network and Sibneft, Berezovsky and Patarkatsishvili used as an intermediary sheik Sultan Khalifa bin Zayed Al Nahyan, a member of the royal family that rules Abu-Dhabi for 250 years. It has been widely recognized that in the absence of an effective anti-money laundering system, the laundering of illegally derived income within and outside of Russia has been accomplished with relative ease.

In this case, according to Berezovsky, his beneficiary shares in Sibneft were bought by Devonia, and sheik Sultan Khalifa bin Zayed Al Nahyan became the guarantor of Devonia’s obligation to pay. The sheik transferred his money to Berezovsky and Patarkatsishvili and then transferred the assets to Abramovich. Berezovsky explained that the involvement of the sheik was needed to hide the fact that the end purchaser of Sibneft’s shares would be Abramovich. According to Abramovich’s version of the story, to which the court gave credence, the sheik’s role was limited to helping Berezovsky in circumventing the laws of the United Kingdom in combating the laundering of unlawful proceeds, since any payment received by Abramovich had to be for some specified real business transaction. The lawyers for Abramovich argued that the Arab sheik received USD260 million for serving as the intermediary in the transfer of USD1.3 billion to Berezovsky. 

Privatization in Russia was criminal

Criminal groups in Russia have controlled the privatization process that was supposed to have been open to the public. The trial of Berezovsky’s case showed that the phrase “aluminum wars” that was coined in Russia in the years of privatization is not only a metaphorical expression. Abramovich admitted that he had no interest in participating in the “aluminum wars” of the late 1990s, as a consequence of which he became the owner of the Krasnoyarsk and the Bratsk aluminum plants and the Achinskiy alumina refinery, without the protection of Badri Patarkatsishvili and his intimate involvement in the transactions. While Abramovich first said that “aluminum wars” was only a figurative expression that did not entail bloodshed, in other parts of his testimony, the Russian tycoon acknowledged that people working in that sector were being murdered every three days. Thus, Mr. Abramovich has admitted that in this business sphere, the division of property was proceeding along with the use of criminal tactics.

Russian businessmen do not always have a formal education

In his testimony, Roman Abramovich admitted that he never graduated from the Moscow Automobile and Road Institute. On the first day of Abramovich’s questioning, the primary subject of discussion was his biography. Abramovich admitted that he never finished his studies at the Institute, where he first took evening classes and then studied by correspondence. The list of Sibneft board of directors that Berezovsky’s lawyer read in open court stated that Abramovich graduated from the Moscow Automobile and Road Institute in 1987. Abramovich himself acknowledge that he has not completed the course of studies at the Institute. Rather, he said that after finishing school, he studied for one year and a half at the Ukhtinskiy Industrial Institute and then went to serve in the army. The first diploma of higher education Abramovich received in 2001, when he completed a correspondence course of studies at the Moscow Academy of Law. After several questions on the part of lawyer Rabinowitz to the effect that Arbamovich, having received a degree in law does not seem to understand legal subjects well, Abramoich replied that “[he] was never a good student and that [he] does not know everything there is to know about the law.”

Other miscellaneous items of Russian business practice

The testimony of Abramovich was particularly revealing of the workings of the Russian legislature and the Russian border protection service. As such, Abramovich was asked in court how could he have been voting in the Russian State Duma on December 14 and 20 if, according to his prior statements, he was in Chukotka at the time. In response, Abramovich explained that while he was in fact missing from the State Duma on those days, he transferred his voting card to the former governor of Krasnoyarsk krai Mr. Zubov, who voted in his stead. Abramovich also said during hearings that he signed backdated documents, admitting that the practice is ubiquitous in Russia. Lastly, Abramovich said that he at least on one occasion left Russia without being checked by the border service. The billionaire stated that his private jet can get him from Moscow to Niece in three and a half hours.

Why quarrelling with the President is a bad idea

During hearings, Berezovsky talked about his relationship with President Putin. He said that they first got acquainted with each other in 1991 in St. Petersburg and became friends. They met together many times and even spent a vacation together. In early 1990s, Putin was a guest at Berezovsky’s chalet in Switzerland.

The friendship stopped in 2000, after the sinking of the Kursk submarine. The ORT television network, 49 percent of which was owned by Berezovsky, voiced criticism toward Putin. According to Berezovsky, in August 2000, the head of the presidential administration Aleksandr Voloshin told Berezovsky that he could either sell ORT or go to prison. Within a short time of the meeting with Berezovsky, Badri Patarkatsishvili also met with the Russian President, and the same demand to sell ORT was communicated to him once more.

Abramovich said in the London court that “[he] was not close to Putin,” but that they had “good relations.” Abramovich also disclosed that Sibneft spent USD50 million for Putin’s election campaign.

The language of the participants

Thanks to the trial in Berezovsky v. Abramovich, the English language was enriched with a number of Russian words, including krysha, otkat, kinut, and zamochit. The parties to the litigation regularly used criminal jargon in their expression. In the 1990s, with the market transition in post-Soviet Russia, the people who knew how to take advantage of the societal chaos and collapse to their profit were for the most part former criminals. Special relationships and special practices have emerged as a consequence of the situation surrounding the mass entry into the market of people with a criminal past. A special lexicon was formed characterizing the advancement of people from ordinary walks of life to billionaire oligarchs.

The word krysha was said at trial without any translation. The parties just said krysha. Abramovich explained the meaning of the word as follows: “You are being protected and you are paying for that protection, do you understand? While in some places people could refer to the practice as lobbying, in Russia, the proper way to describe the patronage arrangement is with the word krysha. Though the word has a pronounced negative connotation and is very often used in connection with the criminal process, it is often used to show political patronage. I did not want to insult the plaintiff, but that word is very descriptive of the arrangement we had at the beginning of our relationship.”

The lawyers for Abramovich also analyzed the meaning of krysha with the use of expert witnesses, “Krysha is an alternative system of obligations. This is a classic product of a society that cannot rely on the protection of laws because the government cannot secure the execution of laws.”

In his turn, Berezovsky offered to the court his explanations as to the meaning of the Russian word kinut. “I will build a simple mathematical model. There is a collective game, where all of the participants are connected with some type of an obligation. If someone violates the obligation, the collectivism ends. This is called kinut. Abramovich did this to me. He is a genius in that respect. If he wants to convince someone, he can go a long way. And you believe him so much that you think he is doing it sincerely.”

Other Russian expressions used at trial also come from criminal jargon. Otkat (criminal jargon) is a bribe paid to a state official, who is in charge of allocating lucrative contracts or organizing pre-arranged auctions. The word zamochit (criminal jargon) means to kill. These words are used among Russian businessmen with some regularity even today.

The epithets used by Berezovsky and Abramovich in the litigation also received a great deal of attention during the trial. As such, Berezovsky said that he harbored fatherly feelings toward the defendant many years ago: “He convinced me that he was like a son to me. He is no doubt a genius.” Although, at a later point in his testimony Berezovsky was no longer as kind to Abramovich, calling him “a bastard,” a “blackmailer,” and “a traitor.” In response, Abramovich’s lawyer Lord Sumption called Berezovsky a liar and said that he provided the krysha to his client, with the caveat that krysha does not necessarily entail the use of gangster tactics or violence, only the provision of political patronage.” It is at the same time quite evident that the services Berezovsky rendered were of a criminal nature, such as his corrupt political cover and his physical protection from militant Chechen groups.

Decision of the court

The judge rejected the claims of Berezovsky against Abramovich. Summarizing her decision, the judge wrote of significant evidentiary problems that confronted the two sides to the dispute.

Prior to handing down her decision in the matter, Judge Gloster took the matter under advisement for a whole seven months to study the piles of documents and conflicting evidentiary accounts, as well as to weigh the equities of the parties and their witnesses. The judge, no doubt, must have had a hard time reflecting on the nature of the underlying transactions because it is difficult to believe that business deals for billions of dollars would be done without a written contract, that large state enterprises would be given away practically without any payment, and that the legal regime in a country as large as Russia would be almost non-existent. In balancing the merits of the two cases, the judge was to grapple with the fundamental question of what was it that Berezovsky and Abramovich did. Were the graphic descriptions of the krysha system, corruption, and the theft of state property pure racketeering or business as usual in Russia?

As the court’s decision in the case shows, the judge decided to forgo discussing the modern history of Russian business, focusing narrowly on one commercial dispute and concluding that Berezovsky and Abramovich in effect did not have any business together. While there might have been oral agreements at some time, the judge was reluctant to believe in them.

Judge Gloster also referred to the sides’ lack of complete candor and their at times untruthful accounts of events, which, according to her, were substantially re-edited by the lawyers to polish their content. The judge was impressed with the weakness of the plaintiff’s case, including the unbelievable testimony of Berezovsky and his witnesses, which were full of internal inconsistencies and oftentimes constituted rambling speeches on general topics. Finally, the judge did not believe that Berezovsky and Patarkatsishvili had to receive a certain percentage of Sibneft’s income in exchange for some type of protection. The judge reached the same conclusion with regards to RUSAL. There were no agreements that would allow Berezovsky to receive a percentage of the income from the aluminum enterprise. Abramovich agreed to pay Patarkatsishvili for his protection and influence, but for no more. The judge also saw no merit to the plaintiff’s argument to the effect that an agreement among Berezovsky, Patarkatsishvili, Abramovich, and Deripaska was made in the Dorchester hotel. On the whole, the judge did not find Berezovsky do be a witness worthy of the court’s credence.

What is most important in this court action is not which side prevailed. The case itself showed the world just of what doubtful origins Russian businesses and the Russian wealth really are. The Russian government that supplied the krysha to all of the quasi-criminal and the actually criminal business dealings of the 1990s fares no better in the courtroom of world opinion after the trial in Berezovsky v. Abramovich. One of the largest court battles in the world turned the history of modern Russia inside out, showing the public not only the dirty laundry of the private parties involved, but also the lifestyle of the Russian elite – the elite of the largest country in the world. The trial also went down in memory for the candor of the parties in that they casually talked about bribing the government, hiring mobsters, and ravaging an entire country.

The lawyers are the real winners

The lawyer for Abramovich Jonathan Sumption received USD12 million for his participation in the trail, which is four times as much as what Berezovsky’s lawyer Lawrence Rabinowitz got. The British newspaper The Guardian wrote after the trial was finished of a substantial increase in the income of legal professionals: “Profits at top 100 London law firms increased by 8 percent to 5.4 billion pounds last year, with billings up 17 percent to 17.7 billion pounds. Russian oligarchs’ taste for British justice helped London lawyers rake in a record-breaking 5 billion pounds of profits last year.”

This year, Great Britain became the forum for several other large legal actions involving businessmen from Russia and the countries of the former Soviet Union. For example, RUSAL’s Oleg Deripaska is also embroiled in a legal dispute with the former Russian aluminum king Mikhail Chernoy in a London court. Other court matters involving Russian oligarchs include the litigation of Arkadiy Gaydamak and Lev Levaev, as well as the case of a Kazakhstan’s billionaire banker Mukhtar Ablyazov. In view of what experience has shown so far, it appears that the incomes of English barrister will go up even more.

As Mark McAteer, national editor of Legal Business Magazine in Great Britain, said to The Guardian newspaper: “Litigation for Russian clients has been a massive source of revenue for a number of firms – both big firms and boutique firms.” In particular, McAteer said that the Russians prefer to have their cases heard in the U.K. because “they approve of the system of usually having a fair playing field.”

Conclusion

The moral ambivalence of Russian business conventions and practices in the 1990s is just as significant as the transition of the country’s system of production and distribution of goods from a centrally-planned economy to a market-driven one. Political influence, rather than legal rights or monetary wealth, was the chief method for obtaining and preserving privileges under the Soviet system. The collapse of the Soviet system notwithstanding, the case of Berezovsky v. Abramovich serves as a testament to the undeniable role of power and political connections in Russia that to this day matter more than any judicially-enforceable obligations or even vast monetary fortunes.