The UK government faces an “extraordinary” $1bn damages claim, a court has been told, in a lawsuit brought by a mining company that has been bankrolled by Russian banks targeted by sanctions.
ENRC, the UK-based arm of a global mining conglomerate belonging to oligarchs, is seeking compensation for losses it claims it suffered as a result of a decade-long Serious Fraud Office (SFO) investigation that was dropped last year, according to court documents.
A judge ruled in December that the fraud and corruption investigation was launched as a result of “the SFO’s wrongdoing” and that this resulted in unnecessary costs for the mining company.
The SFO is seeking permission to appeal against that judgment. In a filing to the high court on Monday, the anti-corruption agency said “it appears ENRC will contend that losses” were in the region of $1bn, an amount the agency describes as “extraordinary”.
The $1bn figure is more than 10 times the SFO’s annual budget, and would dwarf the total compensation paid out to post office operators.
The SFO assertion is based on ENRC saying in legal correspondence that it incurred higher borrowing costs of more than $90m annually as a result of the 10-year investigation. ENRC has not yet formally said how much it is seeking in damages.
A forthcoming further trial will decide the scale of damages and who is liable to pay them. The SFO argues that ENRC’s former lawyers should make a contribution towards the damages bill it ends up with. But even the prospect of such a huge claim is a significant blow for the agency.
ENRC’s latest accounts, filed last September, name the state-owned Russian banks Sberbank and VTB as “major lenders” to ENRC’s Luxembourg-based parent company. Both banks are controlled by Vladimir Putin’s regime. They were placed under UK and other sanctions after his full-scale invasion of Ukraine in 2022.
The accounts said ENRC’s parent company “envisages payments to Sberbank and VTB in 2024 … in compliance with all applicable laws and regulations”. A representative of ENRC said it had no debts to these banks and that “to the best of our knowledge” neither did its parent company.
ENRC’s parent company “does not plan any payments to these institutions”, the representative said. The representative did not respond to questions about whether the conglomerate had cleared these Russian debts, and if so how it had achieved this while complying with sanctions. He added the company “adheres to strict monitoring of sanctions legislation.”
Founded by three oligarchs from the former Soviet Union known as “the Trio”, ENRC floated in London in 2007 and was worth £20bn at its peak, gaining a place on the FTSE-100 list of the UK’s most valuable companies.
The fight with the SFO stems from a dispute between ENRC and its own former lawyers. In 2010, ENRC hired a City lawyer, Neil Gerrard, to conduct an internal investigation into allegations of fraud and corruption in Kazakhstan and Africa.
Gerrard found what he said was serious wrongdoing that could have led to prosecution by the SFO. ENRC held talks with the SFO on avoiding prosecution by reaching a settlement but when it broke off those talks in 2013 the SFO launched a criminal case.
ENRC fired Gerrard and in 2017 sued him and his firm, Dechert, saying he had secretly fed information to the SFO and used the threat of an SFO prosecution to earn millions in fees. Two years later, ENRC also sued the SFO itself, accusing it of conniving with Gerrard and Dechert in the hope of scoring a win after years of embarrassing failures.
In 2022, the judge, Mr Justice Waksman, ruled that the SFO showed “bad faith opportunism” in its dealings with Gerrard. Richard Alderman, the SFO director at the time, acted in “gross and deliberate breach” of his duties, Waksman found. Waksman has said he expects to make “a very substantial award of damages in favour of ENRC and against the SFO”.
After the SFO launched its criminal investigation, the Trio bought back the ENRC shares they had sold on the London Stock Exchange, taking the company private. They shifted the corporate headquarters to Luxembourg, folding ENRC into their new Eurasian Resources Group.
The Trio and their companies have always denied the fraud and corruption allegations.
