In 2002, in a class action, an American federal jury returned a verdict for the plaintiffs and against a company called Edsaco in a complex securities fraud case. (1) The case was interesting in two respects. Firstly, the plaintiffs’ plea through their lawyers that Edsaco was in fact ‘a front for organised crime’; secondly, the nature of Edsaco and the identity of its owners/partners.
Shareholders claimed they were defrauded into buying stock in a non-existent company, Scorpion, selling non-existent business software, based on the assurances and fraudulent business practices of Edsaco. Edsaco was a British firm registered in the Channel Islands but with a London address, Sceptre House, 169/173 Regent Street, London, W1R 7FB. This was the former address of CMM (Carnelutti MacKenzie Mills) the law firm of David Mills. As is recorded in the High Court verdict re: Silvio Berlusconi and Mills, Edsaco took over CMM when Mills dissolved the firm. Mills became, with others, a partner in Edsaco, while moving the administration of Berlusconi’s various offshore companies to Withers, the established law firm in which he became a new partner. As also recorded in this verdict, other Withers partners now began to take part in the administration of Berlusconi’s offshore companies. (2)
This was not the only time Edsaco had been accused of criminal activities. According to Barron’s (25 August 1997), Edsaco provided camouflage for people engaged in fraud and money-laundering. Edsaco was itself owned by the Swiss bank UBS. There was another complex fraud case in Jersey which overlapped with Edsaco via UBS-Cantrade, a subsidiary bank of UBS. UBS were the ultimate owners of Edsaco. The case centred round the activities of a corrupt and convicted banker, Robert Young. He had been involved in ‘churning’ the accounts investing and reinvesting funds while taking commissions at such a rate that the original capital is exhausted. (3)
This U.S. Edsaco case had interesting legal consequences. Successful settlements are crafted based upon a credible threat of achieving a substantial verdict against the defendant if the case proceeds to trial. The vast majority of plaintiffs’ securities laws firms, however, had not taken a single case to trial over the previous decade and prevailed. The damages awarded against Edsaco were over $170 million, including $160 million in punitive damages, the fourth largest securities fraud verdict in US legal history up to that time.
Winning the verdict and collecting the money in civil fraud cases are however two different things. Usually the money is never collected due to a combination of financial exhaustion and the legal complexities experienced during the appeal process. Unusually, this didn’t happen. On appeal Edsaco agreed to pay almost 100% of the awarded damages in return for the federal jury’s verdict being vacated, that is cancelled. Edsaco also relinquished its right to appeal. Given the criminal nature of the activity revealed in the civil case, this prevented an almost certain federal investigation and prosecution if the original verdict had stood. It seems reasonable to suppose that Edasco wanted no further investigation and were prepared to pay nearly $170 million to ensure this. (On 14 June 2002, U.S. District Court Judge Susan Illston commented: ‘Counsel for the plaintiffs did a very good job…..the recovery that was achieved for the class in this second trial is remarkable, almost a hundred percent.’)
Arcadi Gaydamak
A further investigation of Edsaco at that time would have been likely to reveal the activities of one of its partners, Arcadi Gaydamak, a central figure in ‘Angolagate’, the arms-running scandal which rocked the French political and intelligence establishments in the late nineties and beyond.
In the following, the substance and facts are taken from, ‘Making a Killing’ a long article written by Yossi Melman and Julio Godoy and published by The Centre for Public Integrity through the ICIJ (International Consortium of Investigative Journalists). The complete text is available on their website. (4 )
Gaydamak was a Russian Jewish immigrant to France in the last days of the Breznev regime in the then Soviet Union. He arrived penniless. He is now a multibillionaire and has claimed that he is the fifth richest person in Israel. After a succession of low-paid jobs he was a gardener for a while he established a business as a technical translator. This gave him a comfortable but non-ostentatious lifestyle. All this changed in the aftermath of the Soviet Union’s collapse in the late eighties. He then suddenly emerged as a fixer with subsequently revealed connections both to the highest levels of French political life, including Mitterand’s son and Charles Pasqua, the former French Minister of the Interior, and the intelligence organisations of various countries, including that of Israel. Russian Interpol began to show an interest in him at this time and requested information about him from the French authorities. These requests were ignored. The French didn’t even acknowledge they had been made for over eighteen months. It later emerged in the Falcone trial, the central legal event of Angolagate, that Gaydamak had been the main instrument in the complex series of overlapping deals that had facilitated the illegal trafficking of arms from Eastern Europe to Angola in exchange for oil and diamond concessions. Gaydamak has always insisted that he was never an arms-dealer but a facilitator of deals. Notwithstanding this distinction, he found it advisable to remove himself from Paris to London.
In London
In London he quickly turned up as a partner in Edsaco and was given a residence permit without encountering any apparent problems. (One of his fellow Edsaco partner David Mills’ functions had been to facilitate the granting of British residence permits.) Although resident in London, Edsaco was not Gaydamak’s only enterprise. He participated in a maze of enterprises in Russia, the Netherlands, France, Luxembourg, England, Switzerland, and Israel. In France, he formed the International Company of Technology and Investment. In London, among others, it was Minotaure (UK) Ltd and Edsaco Holdings (UK) Ltd; in Jersey, Edsaco Participation Ltd; in Luxembourg, Extrainvest, Palmeto, Luxstreet, and Pivoine; in the Netherlands, Reminvest BV; and he registered at least one company, Rangoon, in the Isle of Man. These various offshore western enterprises were complemented by his eastern connections. To quote the ICIJ’s report:
‘Gaydamak cultivated relations with Russian leaders and the country’s emerging tycoons. His contacts in the post Soviet power structure came to include Russian Foreign Minister Igor Ivanov; the president of Kazakhstan, Nursultan Nazarbayev; the former military chief and later governor of Russia’s Karatchevo Cherkesia province, Vladimir Semenov; and the Russian oil magnate Mikhail Khodor-kovsky, president of Yukos Oil. In December 2000, Gaydamak was appointed chairman of the Russian Credit Bank, a post that was filled, when he stepped down in 2001, by the economics minister and adviser to former President Boris Yeltsin, Aleksandr Livsits.’
When Angolagate exploded in December 2000, Gaydamak again removed himself, this time from London to Israel, where he became a respectable citizen giving millions to charity. He continued in business there, numbering among his partners and associates, General Amnon Lipkin-Shahak, the former Israeli tourism minister and ex-chief of staff of the Israeli Defense Forces. Other business associates included Danny Yatom, who headed Mossad, Israel’s intelligence agency. Gaydamak also employed Avi Dagan, Mossad’s former head of intelligence gathering.
As this article was being written, David Mills, along with Italian Prime Minister Berlusconi and others, is threatened with prosecution by the Milanese magistrates on charges of money laundering, fraud and perjury. Berlusconi had passed a law making it impossible to prosecute a serving Prime Minister but this was abrogated as unconstitutional on the grounds that it was legally discriminatory against other citizens and there violated the European Convention on Human Rights. The possible perjury charges against Mills arise from his previous testimony to the Italian courts where he revealed the existence and structures of Finninvest B, Berlusconi’s series of shadow companies. As Mills testified, he had set them up. But the Italian magistrates believe that he had been less than forthcoming about his own degree of involvement. They have pointed out that he did not tell the truth about the length of his association with Berlusconi. He has claimed previously that this only goes back to the early nineties but the London High Court hearing revealed that they were established as early as the early eighties. Mills claimed a lapse of memory.
In The Observer (6 November 2001) Anthony Barnett has claimed that an earlier scandal may return to haunt Mills. This involved the alleged use of his wife’s (Tessa Jowell) ministerial contacts to facilitate an Iranian airbus deal Mills was involved in. She only registered a potential conflict of interest after journalists began to investigate the deal.
This last potential scandal is similar to the mess surrounding David Blunkett’s recent, second resignation from a ministerial post. As is the surrounding rhetoric. It has not yet been judicially decided whether Mills is guilty or not of any criminal offence(s). Apart from his testimony in British and Italian courts, his sole public statements have a familiar New Labour ring: I have done nothing wrong. This is something of a New Labour mantra. David Blunkett used precisely the same formula in his various recent post-resignation statements. It translates as ‘I sincerely believe I managed to walk between both the legal and moral raindrops.’
It is precisely the distinction between the public and the private which is at issue, and at stake, here. Tessa Jowell has complained that the press are pursuing Mills only because of her private relationship to him. Her and Blunkett’s plea that it is the press who threaten democracy in confusing the public and the private, becomes ironic when one considers that the sole consistency of the current Blair administration lies in the attempt to abolish this distinction.
Notes
[1] Claghorn v. Edsaco Ltd., Northern District, 98-3039
[2] Regina v The Secretary of State for the Home Department, Ex Parte Finninvest, Friday, 25 October 1996. Smith Bernal Reporting Limited.
[3] A detailed account of the various claims and counter-claims with reference to this case can be read on AABA, the website concerned with financial and accountancy fraud run by Austin Mitchell, MP, and Prem Sikka. <http://visar.csustan.edu/aaba/aaba>
[4] <www.publicintegrity.org/bow>