Deal ensnared in tale of piracy, mafia, murder and the starving crews of six ships frozen in St Petersburg
The Bank of Scotland could lose £3 million after becoming embroiled in an international wrangle involving the Russian mafia, murder and piracy.
The row centres on six cargo vessels seized by factions of the Russian mafia believed to be led by a recently ousted state governor, Yevgeny Nazdratenko.
The ships have been unable to leave St Petersburg since May 1999, while an international diplomatic and legal row about their ownership raged.
Last night, a source close to the deal admitted the bank’s chances of recovering the ships, which were used as security for a £17m lending deal that went sour, are “virtually nil”.
The UK’s Moscow Embassy and consul-general in St Petersburg have been sucked into the dispute, and have been pressing the Bank of Scotland’s case to the local and Russian federal governments for the past 15 months.
But their pleas have fallen on deaf ears in the Kremlin, possibly because president Vladimir Putin realises it would be politically damaging to side with international investors in disputes of this kind.
In January 1995, Bank of Scotland became the lead member of a group of lenders who lent £17m to Vostoktransflot, which at the time was one of Russia’s leading shipping fleets, operating the post Soviet country’s second largest refrigerated cargo fleet. Among other things Vostoktransflot’s vessels were used to ship white fish used in products such as Bird’s Eye fish fingers and McDonald’s filet o’ fish.
Vostoktransflot used the money to buy three modern refrigerated cargo ships — the Blue Frost, the Blue Reefer and Icicle Reefer. Having vetted the company, the consortium of bankers anticipated steady returns as Russia’s economy seemed poised for growth in the wake of market reforms.
But the current impasse arose because of the unorthodox way in which the bankers covered their own backs.
An official from Russia’s Kirovsky region has since alleged the arrangement by which Vostoktransflot put up eight of its other refrigerated ships as collateral — and switched their ownership to newly created Cypriot companies which ran them using Cypriot “flags of convenience” — made this a “fake deal”. The creditor banks, their law firm Watson Farley & Williams and their recovery agents strongly dispute this.
Trouble really started to brew for the banks when Vostoktransflot changed hands three years ago. A perfectly sound Moscow-based company bought a controlling stake in the fleet —but did not meet the approval of Nazdratenko, the former governor of the Primorsky Kray region of Russia.
As with other firms which were not cooperating, Nazdratenko manipulated various arms of the state — including the police and judiciary — to intimidate the private company and secure a change of ownership. The situation was not helped when the fleet suffered a downturn in business in 1997-98, owing to the Asian crisis.
When Nazdratenko’s tactics failed in the summer of 1999, bailiffs accompanied by masked gunmen stormed the shipping firm’s head office and installed a more sympathetic management team.
These factors conspired to ensure Vostoktransflot started having difficulties meeting its debt repayments. The men on the Mound — led by the Edinburgh based bank’s head of shipping Joe Aitken — began to wonder whether the collateral might be needed after all. By June 1999, Vostoktransflot had paid back around £14m of the original loan, leaving more than £5m outstanding.
Luckily two of the “collateral” ships were berthed in UK waters when the deal went pear-shaped. These were sold for a total of £1.8m.
Vostoktransflot was declared bankrupt three months later, around the same time as Taisiya Ponomaryova, a legal adviser to the ousted management team, was assassinated in a bomb attack at her dacha north of Vladivostok. The assassination occurred on 12 September 1999, hours before she was due to fly to Moscow to meet lawyers at the Prosecutor General’s Office, with evidence as to how the company had been taken over.
The crew of the six stranded vessels suffered for months in below-zero conditions without pay. By May 2000 the crews decided their best solution was to formally arrest the ships. Last December the vessels were sold at auction to the Preobrazhenskaya Trawling and Fishing Base — believed to be controlled by Governor Nazdratenko — for £2.8m.
But Bank of Scotland and Recovery Services Ltd, which had been lining up a sale of the six vessels to Greek shipping company Laskaridis, insist that the auction was without legal foundation.
Andrew Fox, the British consul in Vladivostok said: “For BoS the situation is grim. From what I know, their ability to get back some money is mostly a function of what agreements they can achieve with the authorities in St Petersburg and Moscow. The good news is the Primorsky pressure to block such action should have now stopped along with the resignation of the governor and most of his team. They were actively involved in lobbying against Bank of Scotland so this should be good news — albeit a ray of sunshine in a storm.”
But Nazdratenko got his comeuppance when he was dismissed by President Putin, purportedly over his mismanagement of the recent fuel crisis.
Catch-up
The Bank of Scotland could lose £3 million after becoming embroiled in an international wrangle involving the Russian mafia, murder and piracy.
The row centres on six cargo vessels seized by factions of the Russian mafia believed to be led by a recently ousted state governor, Yevgeny Nazdratenko. The ships have been unable to leave St Petersburg since May 1999, while an international diplomatic and legal row about their ownership raged.
Last night, a source close to the deal admitted the bank’s chances of recovering the ships, which were used as security for a £17m lending deal that went sour, are “virtually nil”.
The UK’s Moscow Embassy and consul-general in St Petersburg have been sucked into the dispute, and have been pressing the Bank of Scotland’s case to the local and Russian federal governments for the past 15 months.
But their pleas have fallen on deaf ears in the Kremlin, possibly because president Vladimir Putin realises it would be politically damaging to side with international investors in disputes of this kind.
This was the news write-off of a Business Focus piece Mound of mafia trouble. Both were published in the Sunday Herald on 18 February 2001