Abramovich facing huge back-tax bill

HARDLY anyone had heard of him nine months ago. Now he is the richest man in Britain. Roman Abramovich sprang to prominence when he paid £140m for Chelsea and promised a latter-day Russian revolution at the Premiership football club.

Cash was splashed out on a galaxy of star players in an attempt to bring back the glory days to the west London club.

Abramovich has not stopped at football. He has even gifted a mining company - Highland Gold, whose main asset is a mine in the far east of Russia - to a group of influential investors in the City, including the Fleming banking dynasty.

But fresh questions are being asked about his controlling stake in Russian oil giant Sibneft, the major source of Abramovich's fabulous wealth - revealed as £7.2bn in The Mail on Sunday's Rich Report today.

According to a secret report by Russia's top financial watchdog, obtained by Financial Mail, the cut-price privatisation of Sibneft in the mid-Nineties was 'invalid' and left the Russian government almost $3bn out of pocket.

The report claims that the sale of Sibneft was 'conducted with multiple legal violations', was 'ineffective' and ' financially inadequate'.

And, most devastatingly of all, it questions the legitimacy of the source of the funds used by Abramovich and his mentor, Boris Berezovsky, to take control of Sibneft for just $100m.

The explosive findings by the Audit Chamber of the Russian Federation - the equivalent of Britain's National Audit Office - are highly embarrassing for Abramovich, as the Sibneft stake still forms the bulk of his fortune.

The report is a reminder of the controversial circumstances in which he and a group of elite, super-rich businessmen known as the oligarchs reaped massive windfalls during the era of 'cowboy capitalism' under then Russian President Boris Yeltsin.

Yeltsin's successor, Vladimir Putin, has cracked down on this group in the run-up to next Sunday's presidential elections.

Berezovsky has been forced into exile in Britain, while Mikhail Khodorkovsky, Russia's richest man, languishes in jail after being arrested at gunpoint last year on charges of fraud and tax evasion.

The detention put paid to a planned merger between his giant Yukos oil company and Abramovich's Sibneft. Events took a tragic turn last week when Stephen Curtis, the London-based lawyer who recently tried to resurrect the deal between Yukos and Sibneft, was killed in a helicopter crash near Bournemouth airport.

Abramovich, though, had appeared to prosper - until now. In a surprise move last week, Sibneft was hit with a $1bn (£540m) tax demand from the Russian authorities for 2000-2001.

The move echoed a recent $3bn back-tax demand on Yukos. In the past, Sibneft has used a variety of schemes to minimise the amount of tax it pays, including employing large numbers of handicapped workers at Sibneft-linked firms.

But it is the way that Abramovich came to control Sibneft in the first place - buying state assets at way below market prices - that continues to rankle with the Kremlin and the siloviki, a group of powerful military and security advisers close to Putin.

The Audit Chamber recently reopened an investigation into the entire privatisation process and will no doubt draw on the findings of its 1998 report, which has never been published.

The 16-page document, which names Abramovich ten times and Berezovsky twice, found that when 51% of Sibneft was put out for tender in 1997, the market value was actually $2.8bn, or '25 times higher than the starting price for this stake' - $110m. 'According to this valuation, the government lost about $2.7bn'.

The Audit Chamber also found that the sale of a further tranche of Sibneft shares was not competitive. It said: 'The auction cannot be considered competitive, since there was only one participant in the form of two affiliated companies' controlled by Abramovich and Berezovsky.

And it concludes: 'The sources of funds used for the aforementioned transactions have not been confirmed by the necessary documents. Therefore the origination of such funds cannot be considered legitimate.'

In Moscow this weekend, Sibneft spokesman John Mann disputed the findings, saying: 'Sibneft was privatised in a series of competitive auctions in 1996 and 1997, fully in accordance with the laws of the Russian Federation.'

As for the latest $1bn in back taxes, he confirmed: 'We received two letters from the Tax Ministry stating opinions that Sibneft and our production subsidiary, Sibneft-Noyabrskneftegas, underpaid taxes for 2000-2001. The procedure is that we respond with our own explanation for the periods, which we will do shortly.

'It is important to note that the Audit Chamber has, on several occasions, audited Sibneft and its subsidiaries and has confirmed the legality of our tax planning.'