Is “Londonograd” hiding a culture of dirty tricks in banking?

A legal dispute is coming to a head concerning an alleged banking fraud committed during the sale in 2016 of Vivacom the largest Bulgarian telecoms company.

Vivacom, the largest Bulgarian telecoms company, was sold in August 2016 by VTB Capital Plc (“VTBC”), a UK-based investment subsidiary of the Russian state-owned VTB Bank, in a pledge foreclosure process.  The sale was said to be conducted at an “auction” run in London by Ernst and Young in 2015 for €330m to an investors consortium by the name of ‘Viva Telecom (Luxembourg) SA’.

Viva Telecom (Luxembourg) SA was at that time an investment consortium whose ultimate shareholders included, among others, the group of VTB Bank (“VTB Group”), certain executives of VTB Group and a Bulgarian businessman Spas Roussev allegedly acting as straw man for VTB and its allies. In order to implement the acquisition of Vivacom Viva Telecom (Luxembourg) SA raised finance from the VTB Group, and the VTB Group also provided additional finance to help the shareholders to finance their equity in Viva Telecom (Luxembourg) SA.

Less than 4 years later, Vivacom was sold in JUly last year for €1.2bn to United Group controlled by a UK private equity firm BC Partners. The successful resale of Vivacom within 4 years represents one of the most successful telecom deals in Europe.

Consistently, since 2016, a major former shareholder of Vivacom called ‘Empreno Ventures Ltd’ has been challenging the sale through “auction” of Vivacom in various courts alleging that the “action” was fraudulent and rigged to allow a predetermined winner to acquire Vivacom at a heavily undervalued price.  

VTB’s position is that here was nothing wrong with the “auction”, and that they have successfully defended any legal challenges to their conduct. But the key question at dispute is whether fraud was committed when the leading Bulgarian Telecoms operator was sold four times cheaper than its fair market valuation. In 2019, the English court issued a judgement on technical matters but did not consider the fraud allegations on their merits. On a technicality, the dispute can only be resolved by a Luxembourg court, where it is now under review, with a final judgement pending in either 2021 or 2022.

Empreno claims that in 2015 it was precluded by VTB from refinancing a loan, the default of which triggered the “auction” process, and also that
Empreno was not allowed to participate in the auction to buy Vivacom. 
Empreno further claims that in late 2019, in the course of the discovery legal proceedings in the United States, they obtained certain key email correspondence and documents. These allegedly include correspondence between VTB, Spas Roussev and the minority shareholders of Viva Telecom (Luxembourg) SA regarding their arrangements immediately before the “auction” was conducted. Empreno stay that they intend to reveal this correspondence to the ongoing Luxembourg court proceedings.

Allegations of fraud have also been made by Empreno to the UK authorities including the Financial Conduct Authority, under whose jurisdiction VTB Capital is regulated, and the UK Serious Fraud Office. To date no formal investigations have been started.

Whatever the final outcome decided by the courts, the case of Vivacom deserves to be followed – as it may demonstrate the vulnerabilities of Western financial and legal infrastructure when confronted by the corrupt and ruthless business culture spawned by the “economic warriors” of modern Russia.

The case also raises questions about the passive role that British authorities take when administering the financial sector in England; Reuters has commented on other scandals involving VTB. One might reasonably ask  whether the modern Russian banking elite feel more confident about their dealings in Europe cocooned behind the façade of a UK-regulated bank in the comfort of Londonograd?

James Wilson is the Director of The International Foundation for Better Governance (better-governance.org)