This webpage has been created for our business partners and other stakeholders to explain Ameropa’s relationship to the Russian ammonia producer Togliattiazot ("ToAz") and associated legal proceedings.
Since 2005, ToAz and its shareholders (including Ameropa) have been the target of two consecutive corporate raids, most recently led by sanctioned Russian oligarch Dmitry Mazepin and his company, Uralchem. Using many of the same techniques applied in the cases of Hermitage Capital/Sergei Magnitsky/Bill Browder and Yukos/Mikhail Khodorkovsky, Mazepin and Uralchem have manipulated the Russian legal system and their close relationships with top Russian government officials to achieve a singular goal: the unlawful takeover of Togliattiazot ("ToAz"), in which the Ameropa Group holds a minority stake. This illegal campaign has led, among other things, to civil and criminal verdicts in Russia against Ameropa and two of its directors, following proceedings marked by gross violations of due process and human rights.
Ameropa and its affected directors are appealing these judgments. Meanwhile, independent observers – including foreign courts and governments, international organizations, academics, and journalists – have consistently sided with Ameropa, describing the Toaz matter and the legal cases associated with it as "Kafkaesque", "flagrantly unfair", and "a classic example of Russian corporate siege and raiding practices". Indeed, according to a report by Russia experts from George Mason University, the ToAz affair stands out as one of the longest-lasting and most comprehensive illegal corporate raids in Russia, involving forgery and fraud, malicious prosecution, abusive tax inspections, misuse of shares, misuse of the banking system, violence, dark PR, and abuse of the rule of law.
Based on independent and reliable sources, the rest of this webpage provides more detail on the ToAz affair and how it relates to Ameropa.
ToAz is one of the world’s largest producers of ammonia and was, until recently, one of the last chemical companies in Russia not controlled by oligarchs close to the Russian government. The majority of the shares of ToAz (71%) are held by the Makhlai family. Ameropa has, since 2004, held an indirect minority stake in ToAz of 12.96%. The remainder of the shares, approximately 10%, are held by Uralchem since 2009.
Uralchem is a competitor of Toaz and one of Russia’s largest producers of fertilizer raw materials, including ammonia. The owner and Chairman of the Board of Directors of Uralchem since 2007 is the oligarch Dmitry Mazepin. Mr. Mazepin, who is sanctioned by numerous Western countries, enjoys close ties to the upper echelons of the Russian government, including Vladimir Putin.
CORPORATE RAIDING IN RUSSIA
Russian corporate raiding, or "reiderstvo" in Russian, differs fundamentally from corporate takeovers in the West. One expert described it as “the acquiring of business via manipulation of the law often with the involvement of law-enforcement officers and the courts” (see Paragraph 37). A legal adviser at the US Embassy in Moscow called raiding "a new and sophisticated form of organised crime which relies on court orders, shareholder resolutions, lawsuits, bankruptcy proceedings, and other ostensibly legal means as their cover for criminal activity" (see paragraph 41). A UK Magistrate court summarized some of the tactics commonly used in Russian corporate raids: "forgery and fraud, malicious prosecutions, tax inspections, misuse of shares, misuse of the banking system, violence, dark PR and abuse of law." (see paragraph 105)
The best-known case of reiderstvo is that of the Yukos Oil Company, which led to Russian founder Mikhail Khodorkovsky imprisoned for ten years in a Siberian gulag, while his $22 billion company was dismantled due to an alleged $22 billion of unpaid tax claims. Yukos shares were confiscated and assets sold off at rigged auctions, without any regard for its shareholders. The notorious death while in custody of Russian lawyer Sergei Magnitsky in 2009 was also related to a corporate raid, against Hermitage Capital, conducted by corrupt police supported by corrupt judges (see paragraph 35 and, for a fuller account, this book).
A recent report by three prominent Russia experts described the current climate in Russia as a "pandemic of illegal raiding", with cases involving malicious prosecution against business owners particularly common.
THE RAID AGAINST TOAZ (AND AMEROPA)
While less well-known than the Khodorkovsky and Magnitsky affairs, the raid on ToAz is emblematic of Russian corporate raiding tactics. The raid has targeted the majority shareholder (the Makhlais) and minority shareholder Ameropa with the goal of stripping both of their assets. A report by experts from George Mason University summarized the ToAz affair as follows:
"Since 2005, one of Russia’s largest ammonia producers ToAz experienced several raiding campaigns based on a cascade of multiple methods, ranging from semi-legal to illegal, applied sequentially or simultaneously. In the ToAz case, the cascade of tactics flowed upward on the scale of harassment, from an initial offer to buy the controlling stake to the abuse of the police and enforcement agencies; the misuse of tax inspections to bankrupt the company; fabricated civil and criminal cases on charges of fraud, tax evasion, and embezzlement; extradition requests and Red Notices issued on the ToAz former President and CEO, Vladimir Makhlai, his son, Sergey Makhlai, who replaced him as CEO in 2011, and the leadership of Swiss agribusiness Ameropa Holding. The Red Notices were eventually thrown out and an extradition request against then ToAz CEO Evgeny Korelev rejected. To discredit the Makhlais in the eyes of the business community, ToAz employees, and the public, the raiders allegedly hired black PR professionals who prepared "a series of incriminating materials" and "a number of fictitious situations" to imprison ToAz's top managers. In the first wave of attacks, it took the Makhlais almost five years to prove that their criminal prosecution on embezzlement and fraud charges was ungrounded.
Yet, in 2012, during the second wave, the raiders initiated criminal investigations with exactly the same allegations. In 2019, the Komsomolsky District Court of Togliatti sentenced Vladimir Makhlai and Sergey Makhlai to nine years in prison in absentia for embezzlement. In 2020, the Samara Regional Court upheld this conviction… [D]uring this almost decade-long legal fight, there have been multiple documented accounts of fabricated evidence, questionable expert reports, bribed witnesses, anonymous testimonies, and so-called "telephone justice" in the form of informal influence and pressure on the judiciary."
Another report by two of the same authors provides additional information on the techniques used including abuse of the legal system and of the rule of law, including via "telephone justice":
"The Russian phrase "zakaznoye delo" ("ordered case") refers to cases in which judges get orders "from above" about the decision to render in a specific case. In the West, this process is also known as "telephone justice" because a senior official simply picks up the phone and tells the judge how to rule. Since the calls don’t leave a trace, it is hard to estimate how common they really are. However, in the case of TogliattiAzot (ToAz), Russia’s largest ammonia producer, which has been fighting off raids since 2005, there is documentation of three separate cases in which judges in different courts were pressured by their superiors to rule against ToAz and were threatened with dismissal, or dismissed when they refused to do so. The best known one was in the Samara Regional Arbitrazh Court, whose judge, Nadezhda Kostyuchenko, protested her dismissal through the Russian legal system and then filed a complaint with the European Court of Human Rights when she was unable to get redress.
In the ToAZ case, the abuse of the police and enforcement agencies was also systematic. The first raiding attack on ToAZ began in 2004, when the company Syntech, headed by Victor Vekselberg, bought 9.14 percent of ToAz shares and tried to gain control over its Board of Directors. When then-Chairman of ToAz Vladimir Makhlay refused to sell a controlling stake to Syntech, the enterprise was raided by the police and the Investigative Committee of the Interior Ministry commenced a criminal case against him and CEO Alexander Makarov, charging with tax evasion through the sale of ammonia at below-market prices. In 2006, Vladimir Makhlay and Alexander Makarov were also charged with embezzlement and money laundering. Since both of them managed to flee Russia, extradition requests were issued by the Russian authorities. It took almost five years to prove that their criminal prosecution was ungrounded. Only in 2010 did the Investigative Committee finally drop all the charges against Vladimir Makhlay and Alexander Makarov because of the absence of actions that constitute a crime.
The second raid on ToAZ began in 2011 when Uralchem, another top Russian producer of ammonium nitrate headed by Dmitry Mazepin, bought 7.5 percent of ToAz shares. In the following years, Uralchem filed numerous criminal and civil lawsuits against ToAz. When all these lawsuits were either dismissed by courts or withdrawn by Uralchem itself, Dmitry Mazepin went further to instigate a criminal case against the new ToAz President and Chairman of the Board of Directors Sergey Makhlay, with exactly the same allegations that were used during the first raid against his father Vladimir. In 2015, the Moscow’s Basmanny District Court issued a decree of detention-in-absentia of Sergey Makhlay."
According to both reports, the attack on Toaz has been arguably the most comprehensive of all Russian corporate raids. Over the course of over 15 years, the ToAz raid has involved a comprehensive, multi-pronged attack applying the full arsenal of illegal corporate raiding. This chart, from the first report, shows how the ToAz affair compares to other major Russian corporate raids:
VIOLATIONS OF DUE PROCESS AND HUMAN RIGHTS
Of all of the illegal tools used in the ToAz raid, perhaps the most abusive and unfair has been the use of malicious criminal and civil prosecutions collectively targeting the majority shareholder and Ameropa. Because they refused to accede to threats from Mr. Mazepin and Uralchem, two Ameropa entities (Ameropa AG and Ameropa Holding) and two Ameropa directors, Andreas Zivy and Beat Ruprecht (along with numerous other defendants including the majority shareholders and former executives of ToAz), were prosecuted for criminal conspiracy involving theft. The investigator who led the investigation was the same as in the Yukos/Khodorkosky matter and applied the same unfounded theory of fraud – underpayments for goods. At the end of Kafkesque proceedings, the defendants were sentenced to between 8.5 to 9 years in prison and the corporate and individual defendants have been jointly ordered to pay 85 billion rubles (approximately USD 1.2 billion) of damages by the Criminal Court of Samara.
The case was characterized by gross violations of due process and human rights and other irregularities, including:
- The defendants were not properly notified of the charges against them;
- the Attorney General’s indictment was written on the computers of Uralchem, the raiding company owned by Dmitry Mazepin (as evidenced in the metadata of the file);
- Expert reports ordered by Russian courts and exonerating the accused were thrown out and replaced by manipulated expert reports supporting the accusation;
- Grossly inflated alleged damages;
- The prosecution relied on anonymous witnesses, who the defence was not allowed to question properly;
- Representatives of civil defendants were physically prevented from attending the hearings and even arrested;
- Judgment was based on documents which were never presented to the defense;
- Arbitrary and unjustifiable methods of calculating alleged losses and penalties;
- Exonerating evidence delivered by Switzerland by way of the Mutual Legal Assistance Treaty was ignored by the Court; and
- The raiding company, Uralchem, owned by Dmitry Mazepin, was granted the right to enforce the full judgment, despite owning only 10% of the ToAz
Ameropa’s press release on the July 2019 verdict can be found here.
In view of these and other abuses, numerous courts and governments, organizations and observers have been heavily criticized the proceedings and verdicts.
A UK Magistrate’s Court, in rejecting Russia’s extradition request for one of the co-defendants, summed up the case as follows: "a weak case without the crucial evidential foundation… a charge which grossly inflates the complainant’s loss, a complainant which is corrupt yet powerful, evidence of investigators who appear to be too close to the complainant,… a long history of attacks on the accused… evidence of a lack of independence of the judge". Referring to Mr. Mazepin, the owner of Uralchem, the UK court concluded, "I have no doubt that … Mr. Mazepin is a corporate raider" and that "there is ample evidence the [defendant] is a pawn in corporate battle and will face a "flagrantly unfair trial".
Western governments, including from Switzerland, the United States and Germany, have also taken a dim view of the matter, rejecting various requests for Mutual Legal Assistance from the Russian government in relation to the Toaz case.
As part of their harassment of the defendants, Russian authorities obtained Interpol Red Notices against the defendants, including Ameropa’s directors Mr. Zivy and Mr. Ruprecht. Fortunately, after evaluating the facts, Interpol revoked the Red Notices stating, in unusually stark terms, that "there is a predominant political dimension to this case" and concluding that the Russian request "[d]oes not satisfy the requirements of… Interpol’s Constitution".
According to the aforementioned report by experts from George Mason University: "[D]uring this almost decade-long legal fight, there have been multiple documented accounts of fabricated evidence, questionable expert reports, bribed witnesses, anonymous testimonies, and so-called "telephone justice" in the form of informal influence and pressure on the judiciary."
An Newsweek article, dated June 2019, summarizes the matter as follows: "A classic example of Russian corporate siege and raiding practices…can be found in the litigation between UralChem, where Mazepin is a core shareholder, and Tolgliatti Azot. In the course of Kafkaesque court proceedings launched in Togliatti and later appealed in Samara… Andrey Kirillov allowed anonymous witnesses, permitted the use of faked evidence, barred defense witnesses, denied interpreters for non-Russian speaking witnesses and threw out a preagreed court schedule, allegedly to suppress defense evidence and testimony."
In summary, in the view of independent observers, the ToAz verdicts are unlawful and illegitimate, part of a broader scheme by Mr. Mazepin and Uralchem to take over ToAz by illegal means.
AMEROPA'S QUEST FOR JUSTICE
Ameropa and its directors (together with the majority shareholders) maintain their innocence and continue to fight for justice to be served by overturning the unlawful trial court verdict. After the July 2019 verdict, they appealed to the Russian court of appeal in Samara, but the appeal was rejected in November 2019 after a brief and summary proceeding that did not examine any evidence (a press release on the appeal judgment can be found here).
Ameropa appealed again, this time to the 6th Court of Cassation, the highest instance court of appeal in Russia. Throughout the appeal process, the court refused to stay the execution of the verdict pending its decision, made repeated dubious procedural orders (including postponing hearings unreasonably), and then, finally, in March 2022, confirmed the trial court’s "Kafkaesque" verdict (a press release on the Court of Cassation judgment can be found here).
Ameropa is considering appealing to the European Court of Human Rights. Ameropa has also tried to initiate a claim against the Russian government under the Swiss-Russian Bilateral Investment Treaty on the basis of violations of the investors' rights, arbitrary and unfair treatment, and expropriation. However, the Russian government has blocked Ameropa’s access to justice by refusing to engage in the proceedings.
Although Ameropa incurred large losses as a result of the case (due to the seizure of its shares in Toaz, etc.), those losses have been accounted for and Ameropa does not expect any further material financial impact from this case going forward. Ameropa has no significant assets remaining in Russia and, in any event, the Russian court judgment should be satisfied through the seizure & auction of assets of the various defendants, including the majority shareholders. Lastly, due to the flagrant violations of due process and human rights, neither the criminal nor civil judgments are enforceable outside of Russia.
THE FUTURE OF TOAZ
While Ameropa's appeals were pending, Uralchem completed its takeover of ToAz. In a move that closely parallels the Khodorkovsky affair, the defendants' shares in ToAz were ordered frozen and an auction of these shares was planned in satisfaction of the verdict. In several auctions during 2022, over 83% of the shares in ToAz, originally belonging to various defendants (including Ameropa), were auctioned to Khimactivinvest, a company controlled, unsurprisingly, by Uralchem, giving them over 93% of the total shareholding of Toaz. The total auction price, around 67 Billion Rubles, was a fraction of what ToAz was estimated to be worth prior to the raid. Moreover, as the proceeds of the auctions went partly to ToAz and partly to Uralchem directly, Uralchem was effectively paying itself. Uralchem and its oligarch owner, Dmitri Mazepin, had achieved the takeover of one of the largest chemical companies in Russia without paying for it.
Meanwhile, in November 2021, prior to any auctions and despite holding less than 10% of the shares of the company, Uralchem used a combination of physical force and legal machinations to establish de facto control over ToAz. First, Uralchem, colluding with Russian state security forces, took physical control over the premises of ToAz. Once on-site, Uralchem organized an extraordinary general meeting of the shareholders and physically prevented the majority shareholders's representative from participating. Relying on dubious authority granted by a Russian court, Uralchem then voted the majority's shares to overthrow the existing Board of Directors and management and replace them with a new group loyal to Uralchem, including former senior managers of Uralchem. Although Ameropa's representative voted against the change, these votes were not counted.
Uralchem's unlawful de facto takeover of Toaz had been achieved.
As documented above, for almost two decades, ToAz (and by extension Ameropa) has been the target of an illegal Russian corporate raid, led since 2011 by Dmitry Mazepin and Uralchem. The raiders have deployed the full range of illegal tactics including fraud, bribery, malicious prosecution, abusive tax inspections, dark PR and abuse of rule of law. In the process, ToAz, once a highly successful company and one of the last independent chemical companies in Russia, has come under the de facto control of Uralchem. Meanwhile, Ameropa’s shareholder rights have been violated and several of its directors have had their reputations sullied and their rights abused in civil and criminal proceedings whose only purpose was to unlawfully strip them of their assets.
Despite the bleak situation, Ameropa has fought for justice in the ToAz matter, both in and outside of Russia and we are confident that the truth will eventually prevail, if not in Russian court then in foreign jurisdictions and the court of public opinion. In the meantime, we are encouraged by the fact that independent observers –including foreign courts and governments, international organizations, academics, and journalists – the world over have sided with Ameropa, calling out the flagrant unfairness and illegality of the present situation. Also, from a financial standpoint, Ameropa faces no further adverse exposure to the Toaz matter, as all losses have been accounted for and the unlawful Russian verdicts are not enforceable outside of Russia.