Abramovich's 'opaque' route to riches revealed

Oligarch received tax breaks for hiring disabled people and bought back oil from his own firms

Employing disabled people which would qualify him for tax exemptions, and selling oil between his own companies were business tactics the Chelsea Football Club owner Roman Abramovich was forced to admit to as he faced questions on how he went about transforming himself from a very rich man to an obscenely rich man at the end of the 1990s.

The court heard how Mr Abramovich employed a company called Valmet to set up a "complex and opaque" web of offshore companies and trusts, which he used to remove hundreds of millions of dollars from Sibneft, the oil firm he bought and set up for $100m (£62m) in 1995 with the assistance of Boris Berezovsky, and sold in 2005 for $13bn.

By the time of the sale, Mr Berezovsky and Mr Abramovich had fallen out. Mr Berezovsky is suing Mr Abramovich for what he believes should be his share of the $13bn, after he claims Mr Abramovich forced him to sell his share at a knockdown price.

At the heart of the matter is the controversial practice of "transfer pricing". Mr Berezovsky's lawyer, Laurence Rabinowitz QC, accused Mr Abramovich of selling Sibneft's oil to his own offshore oil trading companies, then buying it back for three times the price.

It is a scheme highly similar to that for which fellow oligarch Mikhail Khodorkovsky was imprisoned late last year, in a case which drew global criticism of the impartiality of the Russian legal system. Vladimir Putin, Russia's Prime Minister, claimed at the time that "a thief must stay in jail".

Meanwhile, Mr Abramovich, with whom Putin maintains a "good working relationship", divides his time between his vast property empire and his fleet of five super-yachts.

The court heard how Mr Abramovich was able to buy crude oil at the Russian price of "between $10 and $10.50 a barrel" and then sell it on at the global market price of $17. He also kept trading companies in Russian States with generous tax regimes, including Chukotka where he served as Governor from 2001 to 2008, and took advantage of government schemes to provide tax relief for companies with a high proportion of registered disabled workers.

"Do you dispute that you established oil trading companies with primarily disabled staff in order to take advantage of certain tax exemptions?" Mr Rabinowitz asked.

"We've done it," he replied. "I don't recall why it was done but these were real people and we paid them salaries."

The arrangements allowed Mr Abramovich to pay 5.5 per cent tax on the profits, rather than 35 per cent. He claimed that "all the money [saved] was going to Chukotka's budget or charitable foundations", which caused an eruption of laughter from a court annexe.

When legislation after the election of President Putin in 2001 made transfer pricing more difficult, Mr Abramovich integrated the trading companies into Sibneft, causing a research report to conclude it was "good news for Sibneft's minority shareholders going forward, despite the annoyance of realising how much they have missed out on in the past".

Mr Abramovich claims Sibneft did not become profit-making until 2001, and so a number of substantial payments made to Mr Berezovsky during this time did not represent the ownership share Mr Berezovsky claims he had, but was in fact "krysha" or protection money, in return for his political influence and physical protection. Mr Berezovsky was crucial in securing the finance needed to buy the companies in 1995. "Compared with Mr Berezovsky... I was a nobody," Mr Abramovich said.

A significant problem is that there is little documentary evidence for the payments that were made. Mr Berezovsky claims one payment of $10m in autumn 1995 was written down as in exchange for cars from his dealership LogoVaz, which Mr Abramovich disputed to much laughter in court. "In 1995, I had a Bentley," Mr Abramovich said. "LogoVaz was not a Bentley dealer."

Mr Abramovich maintained that some of his payments to Mr Berezovsky are documented. "We paid his expenses," he said. "We paid his credit card bills, we paid for his chateau in Southern France – they are all documented."

The case continues.

Roman revelations

* Employed disabled people which gave tax exemptions.

* Accused of engaging in controversial "transfer pricing", involving selling oil to a private company then buying it back for several times the price.

* Was driving a Bentley at 29.

* Admitted: "Compared to Mr Berezovsky, I was a nobody."

* Has received legal advice from Conservative peer Lord Gold, a top litigator.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Implementation Executive

£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own