FSA sought government's view on whether to allow Rosneft to float

Fears of legal action over money-laundering claims · Minutes show extent of regulator's concern Terry MacalisterWednesday July 19, 2006The Guardian
The City regulator was so worried about money laundering claims against Russian state oil company, Rosneft, that it asked for Treasury advice before agreeing the shares could be listed in London today.
The Financial Services Authority (FSA) also discussed whether to inform Gordon Brown of its decision "due to the diplomatic implications," according to documents lodged with the high court.
The revelations came as a judge yesterday refused to halt the share trading at the request of rival Russian firm, Yukos, but did say he would have liked to see clearer information on legal claims against Rosneft in its prospectus.

Last night, Yukos said it still might appeal against the judgment but and would pursue its case in the European court of human rights while Rosneft "welcomed" the chance to proceed with its listing.
The FSA confirmed the shares would start trading but declined to comment further. The initial public offering remains deeply sensitive because many in the City are worried this and other controversial floats will damage the standing of the London Stock Exchange.
Yukos, founded by the now-jailed oligarch Mikhail Khodorkovsky, alleges that its main operating arm Yuganskneftegaz was "stolen" from it by the Russian government via a sham auction to raise cash to pay a disputed multibillion tax bill and handed over to Rosneft.
Yukos took the FSA to court arguing that it had not fulfilled its duties properly and left itself - and the LSE - open to action under the British anti-money laundering legislation: the Proceeds of Crime Act (POCA).
Although the FSA still gave the green light to the Rosneft float, documents show that the FSA's executive committee had meetings to discuss how vulnerable it might be to POCA as the Rosneft shares could constitute "criminal property".
Minutes of the executive committee (ExCo) meeting on July 3 show members agreeing the FSA's senior counsel, Andrew Whittaker, should ask the government for its view on legal advice it had received. It concerned a "state doctrine" defence to POCA whereby the actions of a friendly foreign state - in this case Russia - are not subject to scrutiny by an English court.
The minutes state: "AW [Andrew Whittaker] to raise the scope for seeking government view on act of state doctrine with the senior lawyer at HM Treasury."
They also add: "HS [Hector Sants from the FSA] to inform Clive Maxwell of HM Treasury and JT [John Tiner from the FSA] to inform John Kingman of HM Treasury, that we would be asking for a legal view on act of state doctrine."
By July 10, a minute notes that "JT informed ExCo that he had spoken to John Kingman of HM Treasury, who had written to say that it was HM Treasury's view that it would be unlawful for the government to offer a view on state doctrine and moreover that it would be unlawful for the FSA to accept such a view, since FSA was independent of government."
A note of an ExCo meeting 24 hours later decides against notifying Gordon Brown for the moment "but this decision would be kept under review in the event of any change of circumstances".
Rosneft shares were priced at the top end of expectations last week and conditional trading has already begun in the first privatisation in which the Russian public has been able to participate.
Some western institutional investors declined to participate given a number of legal challenges by Yukos shareholders in both the US and continental Europe but strong demand from BP and other strategic investors drove the price up.
Yukos, which has been crippled by the removal of Yuganskneftegaz, will hold a creditors' meeting tomorrow to decide the company's fate while its key shareholder Group Menatep said it feared the worst.
"This is the final step in the expropriation of the shareholders' equity in Yukos," said a statement from Menatep, which has claimed it has been denied access to a report from interim receiver Eduard Rebgun.
Yukos has suggested a rescue plan offering to repay $15bn (£8bn) in 18 months if it is allowed to operate but, Menatep, which had links with Mr Khodorkovsky, doubts it will be approved. Yukos has already paid $20bn in back taxes which it believes were demanded by the state as part of a plan by the Kremlin to seize control and further punish Mr Khodorkovsky.