Dutch company entangled in Israeli fraud case

Arcadi Gaydamak.

By Steven Derix in Rotterdam and Guus Valk in Tel Aviv

A Dutch chemical company has been linked with a convicted Russian arms dealer who is a suspect in an Israeli fraud case.

A Russian arms dealer takes over a Dutch chemicals manufacturer so he can sell precursors for nerve gas to Iran. It sounds like the plot of a spy-novel, but it was recently considered a very real possibility by the Dutch prosecutor. In a letter to parliament last week, the Netherlands’ justice minister, Ernst Hirsch Ballin, admitted that the Dutch public prosecutor carried out a "preliminary investigation" into "the trade in certain chemicals" by the company Thermphos, based just outside of the Dutch town of Vlissingen. The arms dealer involved is the Russian billionaire Arcadi Gaydamak. According to the justice minister, the public attorney acted on "information from the Israeli authorities".

Gaydamak is mired in financial scandal in Israel. Last October, the public prosecutor in Tel Aviv announced that Gaydamak will be tried on suspicion of fraud and money laundering.

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According to the Israelis, Gaydamak acquired Thermphos, a producer of phosphorus and phosphates, through a puppet-investor in 2003. They claim Gaydamak saw lucrative business opportunities in the chemicals, which could be used to make chemical weapons. The Israelis shared their suspicions with the Dutch police in a letter sent on September 18, 2003. "We have reason to assume he intended to deliver chemicals to Iran through the Dutch company," the letter read.

Thermphos produces four controlled substances listed by the Chemical Weapons Convention. As a known producer of nerve-gas precursors, the company is supervised by the Dutch authorities, but no irregularities were found in either 2004 or 2008. Absolutely no evidence was uncovered proving deliveries of chemicals to Iran, according to the justice minister. Since the Israelis offered little proof, the public prosecutor in the Netherlands saw no reason to bring a criminal case against the company.

Intimate business relationship

The company declares that the charges brought in Israel are also untrue. According to Thermphos, Gaydamak never owned a stake in the company. He walked away from a potential takeover when another investor objected to his involvement. "There has never been any relationship between Thermphos and Gaydamak," the company stated on its website.

But a link does exist: Thermphos’ current owner, the Israeli businessman Nahum Galmor, is one of the seven suspects in the case against Gaydamak. NRC Handelsblad has discovered that the two have long maintained an intimate business relationship.

In 2003, the Israeli police warned the FBI about the Russian billionaire’s methods. "He distances himself from his properties, companies and bank accounts," the Israelis wrote. Gaydamak’s considerable fortune, it turns out, is registered in other people’s names.

Arcadi Gaydamak (born in Moscow in 1952) moved to Israel in 1970, kept his Russian nationality, and became one of the richest people in the country. He is well connected politically, also within the Israeli secret service Mossad. Arye Bar Lev, as Gaydamak is known in Hebrew, is also a controversial figure. Police forces in several countries, including the Netherlands, consider him a member of "Russian organised crime". Last fall, a Paris court sentenced Gaydamak to six years in prison on charges of illegal arms export to Angola in the 1990s. Jean Cristophe Mitterand, the French president’s son and France’s former minister of the interior, Charles Pasqua, were also found guilty in the same case. Gaydamak was absent from the trial and is currently staying in Moscow.

Linking Gaydamak and Thermphos

Galmor, Thermphos’ owner, first met Gaydamak in the Kazakh capital of Almaty, where the two were introduced by the Israeli ambassador. Galmor (born in Bucharest in 1948) is an Israeli businessman who amassed his fortune in the phosphorus business. Shortly after the two first met, Gaydamak sold his fledgling Kazakh phosphorus business, Kazphosphate, to Galmor.

In the spring of 2002, Nahum Galmor showed up on Thermphos’ doorstep. Thermphos, a company that uses raw phosphorus to make products ranging from fertiliser to nail polish, was up for sale at the time. Several investors, including the Dutch bank, ABN Amro Capital, were looking to ditch what was turning out to be a poor investment.

The Israeli prosecutor asserts that Galmor served as a puppet for Gaydamak in acquiring Thermphos. The prosecutor said Gaydamak knew "his reputation" would prevent the Dutch from ever selling the company to him. This is where Galmor came in, or so the Israelis think. "To conceal Gaydamak’s identity as the true purchaser behind the Thermphos acquisition," the charges read.

The Israelis claim that a local bank, Haoplim, forged paperwork showing Kazphosphate had sufficient means to finance the takeover, while in reality the money was Gaydamak’s. But Nahum Galmor says he never made a secret of Gaydamak’s involvement. He claims Thermphos’ management knew very well that it was Gaydamak who was seeking to invest. Several members of the board confirmed this when interrogated by the Isreali police.

Name never disclosed in writing

Both Galmor and Thermphos argue that ABN Amro also knew about the Russian billionaire’s involvement. "Everyone knew the name of our backer," Galmor told Israeli police, "But that didn’t matter. What mattered was whether we could save the company. The sellers, including ABN Amro, wanted to get rid of it."

But even if "everyone" knew who was behind the Thermphos acquisition, the name Gaydamak never appeared in official paperwork. Kazphosphate consistently referred to its backers as "financers" or "a financial group".

ABN Amro Capital seemed to pay little heed to this until its compliance department decided to get in on the case. After it learnt that Gaydamak was the founder of Kazphosphate, the department sent the company queries asking about his continued involvement, and the identity of ‘financiers’ who would back the takeover. Both Kazphosphate and accountants at KPMG, however, declined to put Gaydamak’s name in writing. "For commercial reasons to be discussed between ABN Amro and KPMG’’, the Kazakh company wrote in an e-mail to the bank. Gaydamak’s name was only disclosed face-to-face, never in writing.

When ABN Amro decided not to sell to the Kazakh company, Galmor and KPMG proposed the takeover be financed with money borrowed from the Kazakh Halyk bank. To put as much distance as possible between Gaydamak and the acquisition, a Dutch company, not Kazphosphate, took over Thermphos.

The Israelis prosecutor claims the Halyk-loan was also fraudulent, and that it was still really Gaydamak who funded the Thermphos takeover.

Will Gaydamak defend himself in court?

A week before the takeover, Gaydamak had 30 million dollars wired from his Hapoalim account to a Halyk bank account controlled by Kazphosphate. The Israeli authorities insist Hapoalim bank employees fraudulently tried to conceal that the money was Gaydamak’s.

However, the Israelis do not have any proof establishing a connection between the 30 million dollar transfer and the Thermphos takeover. A point which Thermphos’ lawyer Pieter van der Korst was quick to point out. "The Israeli prosecutor implies Gaydamak was party to the definite Thermphos takeover," Korst said. "But he has only charged him with matters related to the run-up to the acquisition. Apparently a six year investigation has yielded no result."

The Israeli prosecutor begs to differ. In an email to NRC, the prosecutor confirmed he suspects Gaydamak used the 30 million transferred to Kazakhstan to purchase Thermphos.

ABN Amro said its compliance department had doubts about the financial construction and therefore rejected the takeover. A bank spokesperson said ABN Amro was left with no other option than to sell because a majority of other shareholders supported the sale. Minutes of the shareholder meeting approving the sale show little reluctance on ABN Amro’s part however.

KPMG did not respond to request for comment, apart from than stating it "did not recognise" the picture painted in this reconstruction.

Gaydamak currently resides in Moscow. The businessman has repeatedly said he would defend himself against the charges in an Israeli court, but he has yet to return.

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