MOSCOW - A controversial deal last September, in which Roman Abramovich, the London-based Russian billionaire, arranged the sale of a remote Siberian gold deposit he controlled to Highland Gold for $34.9 million, is under official investigation by Russia's independent Audit Chamber. Sergei Stepashin, the former Russian prime minister who heads the chamber, confirmed the investigation in remarks in London this week. He also said the investigation is looking at "many claims" related to Abramovich's handling of budget funds of the Chukotka region, where he has been governor since December 2000.

Independently, sources have told The Russia Journal that the chamber had briefed President Vladimir Putin on the scope of the investigation before it began, and got his permission to proceed. The Audit Chamber inquiry was conducted by Sergei Ryabukhin. Stepashin has convened a hearing of senior officials of the Chamber to review Ryabukhin's preliminary finding next Friday, May 21. The hearing had been set for May 15, but was postponed to allow more time. Stepashin has publicly invited Abramovich to attend, offering him a state-funded airfare from London to Moscow, if he will do so.

The Audit Chamber is the Russian equivalent of the U.S. General Accounting Office or the UK's National Audit Office. It was set up by the Russian parliament a decade ago, and reports to the State Duma. If the Chamber finds evidence of criminal violations, it refers its recommendations to the General Prosecutor and other government agencies for action. For the past year, Stepashin has been one of a handful of Putin confidantes who have built official cases for tax evasion and other alleged crimes against Russia's oligarchs, the men who acquired most of Russia's oil and other resource companies in the 1990s.

Stepashin has had Abramovich in his sights for some time now, sources close to him have told The Russia Journal publicly during a symposium of government audit agency officials in London, Stepashin said that his agency has been making a forensic audit of the budgetary policies of the Chukotka region. The main focus, he said, is the way the budget of the region has been spent, including what Stepashin referred to as documented cases of diversion of budgetary resources to unspecified projects.

In addition, Stepashin said, his agency is investigating Abramovich's principal source of wealth, the Sibneft oil company. "We are also interested in investigating cases of minimization of taxes and the different schemes used as vehicles for conducting such operations, including Sibneft and other major companies tracked by the agency,” Stepashin said. Sizeable tax claim investigations have also been reported as under way by the federal tax authorities.

John Mann, a former executive of Burson-Marsteller, a U.S. public-relations firm, and now spokesman for Abramovich, has tried to deflect the attack, telling a UK newspaper recently: 'It is very important that you understand the distinction between [Roman] Abramovich, shareholder, and Sibneft the company. Mr. Abramovich held positions in the company only in 1996-1997, when he was head of the Moscow representative office and a board member."

The legal distinction is important, because as the elected governor of Chukotka for the past four years, Abramovich enjoys personal immunity from prosecution, in the event the Russian authorities pursue Sibneft, as they are currently pursuing Yukos, which acquired Sibneft last year. The two leading shareholders of Yukos, Mikhail Khodorkovsky and Platon Lebedev, are in prison awaiting trial on alleged charges of share fraud and other criminal offences. Tax claims of several billion dollars against Yukos are also pending in a Moscow court.

Stepashin's inquiry strikes at Abramovich's personal vulnerability, because, under Russian law, he can be prosecuted for "abuse of power", a category of offences by an officeholder with state funds and resources.

Mann told a London newspaper recently: "Roman has changed the lives of 70,000 people in Chukotka. Before they were starving, but now they all have Dolby Surround Sound."

On September 5, the day after Highland Gold, a London listed junior miner, reported acquiring the Maiskoye gold deposit in Chukotka, Mann told The Russia Journal that the seller of Maiskoye "is not connected in any way whatsoever with Abramovich”. Highland Gold's purchase of Maiskoye was made at a time it was facing serious rivalry from the Mnogovershinnoye goldmine, whose principal source of cash is located in the Khabarovsk region.

Subsequent admissions by officials of Highland Gold revealed that Abramovich was the seller of Maiskoye. In addition, Highland Gold acknowledged, as governor, Abramovich arranged special terms in the mining license and financial benefits from Chukotka budget funds to encourage Highland to make the purchase.

Highland Gold’s investment relations executive, Christine Coignard, has told The Russia Journal that, when Highland Gold announced on September 4, 2003, that it had acquired Maiskoye, a front company had been used. "The official seller was Deerfield Universal,” she said. "The person behind it was [Roman] Abramovich. Abramovich was the beneficial owner and seller.”

Asked what form the sale negotiations took, Coignard said they had taken place over "several months". They were finalized, she said, in direct talks involving Abramovich, Highland Gold's chairman Lord Peter Daresbury, and Ivan Kulakov, Highland Gold's CEO. All three "were directly involved," Coignard confirmed.

According to Coignard, at the time Abramovich was selling Maiskoye to Highland Gold, he no longer owned an interest in Highland Gold itself. He had sold that, she claimed, when Highland Gold was formed in 2002. She said there had been a "management buyout", in which Kulakov had been joined by Fleming Family & Partners. In an interview with the Sunday Telegraph, published on November 9, 2003, Daresbury is reported as saying that Abramovich "accepted $30 million for it." Daresbury said this occurred in "in spring 2002". But it is unclear whether this was before, or after, Harmony Gold paid $18.9 million to acquire a 31.7 percent stake in Highland Gold. Kulakov was allocated a 23 percent stake, and Flemings 34 percent, according to Allison Howard, a press spokesman for the company. Harmony Gold sold out of Highland Gold in September 2003.

Coignard has also disclosed that Abramovich used his powers as governor of the Chukotka region, where the gold deposit is located, to sweeten the Maiskoye purchase for Highland Gold. “During the negotiations,” she told The Russia Journal, “Abramovich ‘had two roles’ - one as a seller, and one as the governor [of Chukotka].” He gave an undertaking regarding the [mining] license. He said he would help renegotiate the terms of the license to make it mineable." According to Coignard, these were changes that required approval by the Chukotka administration. She said one of the changes Abramovich offered to make was proposal to "remove production targets". While these changes must be effected in written documentation, Coignard added there was another undertaking from Abramovich she was not sure had been put down in writing. “This,” she said, “was that the Chukotka administration would build at state expense a road between the town of Pevek and the Maiskoye site for all but the last 10 kilometers of the 180-kilometer distance. "So far as I know, this is not a written agreement," Coignard said, "but an undertaking."

Coignard has had many years of experience in the Russian mining sector. Until 2000 she worked on investment relations at Norilsk Nickel, Russia's largest mining company. She joined Highland Gold at the start of 2003, she told The Russia Journal.

Sources have confirmed that the dossier on the Maiskoye case was seen by Stepashin early in the investigation. Stepashin defended his chamber’s investigation of Abramovich, saying, "our actions are absolutely legal within the framework of the Russian laws, and therefore, are in no way, in violations of entrepreneurial freedoms in the country." He added: "at times, people say that the Audit Chamber 'dips its inquisitive nose' into people's private wallets, despite their rights to spend their money the way they deem fit. The question we are asking is how this money was earned in the first place. That's all the question we asking."

Stepashin also claimed that the UK authorities have begun to investigate whether the inflow of Russian funds into the UK may violate the money-laundering statutes. Stepashin said that on May 13 he had met with Sir John Bourn, head of the National Audit Office. According to Stepashin, "the National Audit Office plans to look into the nature and origin of Russian oligarchs' capital in the United Kingdom."

Abramovich could not be reached for comment in response to Stepashin's remarks.

This is the second attempt by Stepashin's agency to make Abramovich accountable for his spending spree in the UK over the past three years. Through privatization of Slavneft, and the sale of Sibneft to Yukos, Stepashin claims that Abramovich has shortchanged the government of over 10 billion rubles ($345 million), part of which, he claims, went into financing Abramovich's purchase of the Chelsea Football Club in London.

Litigation is also being prepared against Abramovich accusing him of personally directing the alleged theft of a Khanty-Mansiysk oilfield, with an estimated 2 billion barrels of reserves, from a joint venture with Sibir Energy, a UK-listed company.