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OAO Alfa Bank v. Center for Public Integrity

September 27, 2005


The opinion of the court was delivered by: John D. Bates United States District Judge


Plaintiffs are two Russian businessmen and their companies who have sued the defendants, a public interest organization and its reporters, for defamation for publishing an article alleging that plaintiffs have connections to organized crime and have engaged in narcotics trafficking. Defendants have filed a motion for summary judgment in which they argue, among other things, that plaintiffs are limited public figures, and that the evidence demonstrates as a matter of law that defendants did not publish the piece with actual malice. The Court agrees. Although defendants' actions are not beyond reproach, they do not rise to the level of actual malice that the Constitution demands in order to preserve a vibrant exchange of ideas on issues of public concern. For this reason, the Court grants defendants' motion for summary judgment on all plaintiffs' claims.


I. The Rise of the Oligarchs

This case traces its lineage to the turbulent days of the dissolution of the former Soviet Union. When Boris Yeltsin assumed power in 1991, Russia lacked many of the institutions of a market economy and was in desperate need of capital. The United States and international financial institutions such as the International Monetary Fund were willing to provide Russia with financial aid, but only on the strict condition that the country agreed to implement a series of rapid market reforms. Yeltsin turned to a group of young economists and academics to implement the necessary changes to the Russian economy.

These reformers crafted a set of radical policies designed to privatize and liberalize the Russian economy at a quick pace. As the privatization campaign went into effect, it became evident that the transition of the Russian economy had been sabotaged by corruption and collusion. A group of individuals with close political connections to the Yeltsin government amassed enormous wealth and power through the wholesale transfer of prized state assets and shady deals with government officials. These tycoons, known as "oligarchs," rose to power based in large measure on their ability to navigate and manipulate the rules of a corrupt and lawless post-Soviet Russian economy. The government evinced little desire to enforce the rule of law, and organized crime syndicates rushed to fill the void, assuming a prominent presence in the new Russia.*fn1 As the oligarchs grew their wealth through back-room deals, the rest of the country was thrust into a period of rampant poverty.*fn2

The rise of the oligarchs and the deterioration of the Russian economy was the subject of intense discussion in the United States and the rest of the world. Policy makers debated the causes and the potential cures of the various problems gripping Russia. Western intelligence agencies grew increasingly concerned that the country was becoming a haven for money laundering, arms trafficking, and gun smuggling.*fn3 The Director of the Federal Bureau of Investigation estimated in testimony before Congress that the Russian mafia had taken control of more than 70% of all Russian commercial enterprises and that most of the 2,000 banks in Russia were "controlled by organized crime."*fn4 Private investors lost billions upon the devaluation of the ruble, reports surfaced that billions more in foreign aid had been diverted to private accounts overseas, and many called for a reassessment of the United States' and the International Monetary Fund's policies regarding the country. Russia's devolution into a "criminal-syndicalist state" and the proper response from the West was at the fore of policy discussions in the White House,*fn5 the halls of Congress,*fn6 think tanks,*fn7 and in the press.*fn8

Plaintiffs Mikhail Fridman and Pyotr Aven were two of the key players in the economic transformation of Russia.*fn9 Fridman is the founder and Chairman of the Alfa Group, a business conglomerate that includes plaintiffs OAO Alfa Bank and ZAO Alfa Eco. Fridman was involved in the privatization of the Russian economy from the very beginning, when Alfa Bank won the first auction for a state-owned company, acquiring the Bolshevik Biscuit Factory. On the heels of Yeltsin's re-election in 1996, the Russian government placed the Tyumen Oil Company on the auction block. Alfa Group obtained 40% of Tyumen at a fraction of the company's value, allegedly relying on the company's allies at the highest levels of the Russian government.*fn10

Several years later, Fridman obtained the remainder of Tyumen in another auction. Fridman leveraged his Tyumen holdings in a series of deals that expanded his fortune and his power, and Alfa Group now possesses significant interests in the oil and banking sectors as well as Russia's largest television network and a series of supermarkets. Aven Bank is the single largest privately owned bank in Russia. According to Forbes magazine, Fridman is the third wealthiest man in Russia, and one of the hundred richest people in the world.*fn11

Aven was one of the handful of elite academics who Yeltsin chose to steer the country on a course to privatization.*fn12 Yeltsin appointed Aven to be his first Minister for Foreign Economic Relations. Aven Dep. at 38:8-51:7. Aven was tasked in particular with addressing the considerable problem of Russia's foreign debt, and he used his position to speak out on economic issues and the administration's reform agenda. The Russian and international press reported on his words and actions closely.*fn13 Following his departure from the ministry post in December 1992, Aven became the president of Alfa Bank, a position he continues to hold today. He owns a 15% ownership stake in Alfa Bank, Tyumen, and two telecommunications companies. Aven continues to write articles and speak to international bodies on economic reform in Russia, and he is approached twice a year with proposals to write a book about his time in the Yeltsin government. Aven Dep. at 62:20-63:25.

Fridman and Aven are recognized as two of the most powerful Russian oligarchs.*fn14 They have maintained a close relationship to the highest reaches of the Russian government, and forged a series of friendships and alliances with Russian luminaries and politicians.*fn15 In Fridman's words, they were "players in the oligarch games," amassing wealth and influence at an unprecedented rate.*fn16 At critical points in Russia's history, they have stepped forward to direct the course of the nation's events. When Yeltsin was confronted with a coup attempt in the fall of 1993, Fridman and the other oligarchs were called to the Kremlin.*fn17 Several years later, with privatization deeply unpopular and Yeltsin in danger of losing his bid for re-election to a communist, Fridman, Aven and the remainder of the oligarchs banded together to save the Yeltsin re-election campaign, installing a new campaign manager and (it is alleged) backing the re-election bid with money and support in the media outlets owned by the oligarchs.*fn18 Two years later, Yeltsin recruited the oligarchs to serve as a sort of economic advisory counsel, and during a market crash several months later, the oligarchs backed the government and reassured a concerned public.*fn19

In short, Aven and Fridman have assumed an unforeseen level of prominence and influence in the economic and political affairs of their nation.*fn20 Russian newspapers coined a name for the leading oligarchs (Aven and Fridman among them) and the power they wielded: "semibankirschina," or the "reign of the seven bankers."*fn21 The Financial Times in 1996 named Aven and Fridman as among the "group of seven businessmen and bankers that, according to one of their number, is now running Russia."*fn22 As the Moscow Times put it: "When Soviet leaders were in trouble, they turned to the Politburo for help. When President Boris Yeltsin is in dire straits, he turns to his own, updated version of the Politburo -- the coterie of bankers and businessmen who, by all accounts, run modern Russia." Sullivan Decl., Ex. 135 (June 3, 1998 Moscow Times article).*fn23

Aven and Fridman have widespread access to the media and other channels of communications. They have given numerous interviews to Russian and international press, have published articles in Russia's leading newspapers, and have spoken to international audiences on the subjects of reform, corruption, and the Russian economy. Their media presence extends to the United States. Aven and Fridman have spoken to numerous influential organizations in the United States (such as the Keenan Institute and the Carnegie Endowment for International Peace), and Aven has been interviewed by American television news outlets, including ABC's Nightlight and CNN. Phillips Decl., Ex. 226, 227. The Alfa Group has also devoted millions to developing a public relations strategy that includes in-house press departments, an external public relations agency, a litany of press releases, and an English-language web site on which plaintiffs post their own articles as well as favorable press coverage.*fn24

As a result of their positions of prominence and their media strategy, plaintiffs are the subject of extensive media coverage. An October 2003 search of an online news database for English language articles revealed more than 1,100 English language articles since 1990 that mention the name Mikhail Fridman, and more than 1,400 articles that include the name Petr Aven. Likewise, Alfa Bank has been the subject of 7,900 English language articles available online during this period, and Alfa Eco is named in more than 1,200 such articles. Affidavit of Sandra E.K. Burch, May 2, 2004, ¶ 4. An April 2001 search that confined the scope only to certain United States news publications (including the Washington Post, the Los Angeles Times, the New York Times, the Chicago Tribune, TIME, Newsweek, and Business Week) revealed more than 8,500 pages of articles that contain the terms Aven, Fridman, Alfa Bank, Alfa Eco, Alfa Group, or TNK. Id. ¶ 2.

Although Alfa Bank has developed a reputation in the international community as one of the most respected Russian financial institutions,*fn25 Aven and Fridman have been dogged by allegations of corruption and illegal conduct. Russian newspapers have published repeated claims that Aven and Fridman have rigged the auction of state assets through government connections, threatened the lives of government officials, ordered the assassination of a mobster, and engaged in narcotics trafficking and money laundering.*fn26 As one Alfa executive testified, "we all know the details because they have been printed over and over again, it's the same meetings with the same cartel representatives . . . crime, drugs, money laundering, all that stuff." Tolchinsky Dep. at 44:8-45:22. Plaintiffs deny the allegations, and none of the allegations has been prosecuted, let alone proven true. Even Fridman has acknowledged, however, that the "rules of business" in Russia "are quite different to western standards. . . . To say one can be completely clean and transparent is not realistic."*fn27

II. The Center for Public Integrity Article

Defendant Center for Public Integrity ("CPI") is a nonpartisan and nonprofit watchdog group founded by former "60 Minutes" producer Charles Lewis. Lewis created CPI to serve as a source for investigative and analytical reports on topics relating to government ethics and the accountability of public officials. One of the several publications that CPI operates is "The Public I," an internet report that the organization inaugurated in 1999. Publishing on the internet enabled CPI to increase its coverage of "spot news" reports, or breaking news that needs to be reported in a quick and compressed fashion. Lewis Dep. at 18:15-21:15, 340:1-10.

A. The Origins of the Article

Several days before the 2000 Republican National Convention in July of 2000, George W. Bush announced that he would select Richard B. Cheney as his vice-presidential running mate. When the news broke, Lewis assigned two reporters and two researchers to cover the announcement as a spot news report on The Public I. CPI had considerable experience in tracking the role of money and influence in politics, and so Lewis suggested that the piece focus on the ways in which Cheney's tenure as CEO of the Halliburton Company affected the relationship between the company and the federal government. Lewis Dep. at 8:18-18:14. Lewis explained that they needed to "jump on" the piece, and that time was "of the essence" because the Republican convention was a few days away. Lewis Dep. at 12:2-12:14. The two reporters assigned to cover the story were defendants Knut Royce and Nathaniel Heller.

Royce was an award-winning reporter with more than thirty years of experience who had contributed to three Pulitzer-prize winning stories. He had written extensively on international corruption issues, and possessed a number of contacts in the national security and intelligence community. Royce Dep. at 298:19-301:11; Sullivan Decl., Appendix ¶¶ 31, 33, 34. Royce recalled reading that Halliburton had connections to a Russian oil company that had obtained a high-profile loan guarantee from the United States Export-Import Bank ("Ex-Im bank"). While Heller searched public records for information on Halliburton's campaign contributions and federal contracts,*fn28 Royce conducted an internet search for articles regarding the Russian oil company and the Ex-Im bank loan. Sullivan Decl., Ex. 11 at 63:15-64:15, 78:2-79:13; id., Ex. 12 at 70:4-71:6 (Lewis Dep.).

One of the articles Royce found was a January 2000 Washington Post report by David Ignatius entitled "The Strange Case of Russia, Big Oil and the CIA." Sullivan Decl., Ex. 69. The report described how the Ex-Im bank had been nearing decision for some time on a $500 million loan guarantee to the Tyumen Oil Company. Although it was prepared to conclude that the loan met the bank's test of creditworthiness, the bank was facing an unusual campaign to reject the loan, led by BP Amoco, which was battling Tyumen for control of the assets of the debt-ridden Sidanco oil company in Russia. The article described how BP Amoco believed that Tyumen was using "improper tactics" to acquire one of Sidanco's lucrative oil fields in a closed door bankruptcy auction, with no public bidding and at a heavily discounted price. BP Amoco hoped that it could use a delay in the Export-Import loan application as leverage in its battle with Tyumen.

According to the article, what made the lobbying campaign "unusual" was that it was "accompanied by heavy pressure" from the Clinton administration -- stung "by criticism that it hadn't done enough to fight Russian corruption" -- to "reject or delay the loan." Sullivan Decl., Ex. 69. As the bank neared a decision on the loan, the article said that the National Security Council asked the Central Intelligence Agency to examine Tyumen and make information on the company available to the Ex-Im bank's directors. The CIA provided "several analytical reports and some raw intelligence," including a 29-page investigative report on Tyumen labeled "Secret."

Id. at 2. The article quoted a CIA spokesman as stating that a CIA cover letter accompanying the report explained that it had been "commissioned by an international oil company, and produced by a Russian security firm that employs former members of the Russian security service." Id. The CIA would not identify who commissioned the report, but the article reported that an "informed source outside the U.S. government" said that it was BP Amoco. Id.

The Washington Post article advised that two and a half pages of the CIA report were labeled "criminal situation," and included "some detailed allegations about Tyumen management." Id. The article did not describe the contents of this section of the document, but it quoted another anonymous senior intelligence official as stating that CIA analysts later gave Export-Import officials a briefing, at which "we gave them our take on the Tyumen report," namely that "it tracked other information the agency had gathered." Id. The article concluded with a discussion of the result of BP Amoco's lobbying campaign against Tyumen, pointing out that although the bank held its ground, the State Department ordered that the loan be halted on national interest grounds, and the next day Tyumen negotiated a settlement with BP Amoco. Id. at 2-3.

Royce reviewed other articles as well. One of these was a summary in "Banking and Exchanges Weekly" of a July 1999 article in the Russian newspaper "Versiya," that included a description of several criminal allegations against Alfa Group/Tyumen officers. The summary mentioned that Aven had met a Colombian drug cartel representative in Vienna in 1993, at which time they discussed an agreement to divert capital from offshore areas into Alfa Bank, that Fridman had a hand in organizing "drug trafficking from South East Asia to Europe via Russia," and that Fridman maintained "numerous contracts" with the "most aggressive" criminal syndicate in Moscow. Royce Dep. at 91:4-91:12, Ex. 46 (abridged Versiya article).

Another Russian newspaper article that Royce found reported that Victor Ilyukhin, Chairman of the Security Committee of the Russian Duma, had in 1997 asked the Ministry of the Interior to verify allegations that Alfa Group officials had "used criminal groups for eliminating rivals" and had been involved in "bribe taking" and "embezzlement." Sullivan Decl., Ex. 30.

A second article in "Versiya" profiled ties between the Alfa Group and "the most influential organized crime group in Moscow's criminal world," and said that the latter had "influence" over Alfa Bank, guarantees the protection of Fridman and Aven, and supports certain Alfa "operations." Sullivan Decl., Ex. 51 (email to Royce containing translation of Versiya article).

B. Royce's Intelligence Sources

With these articles in hand, Royce contacted one of his anonymous sources at the CIA. Royce asked the official about the report identified in the Washington Post article, and any information he possessed about Alfa Group or Tyumen independent of that report. Royce Dep. at 231:9-232:3. The source declined to give Royce a copy or summarize the contents of the report, and refused to tell Royce who had authored the report. However, the source acknowledged that the report existed and that the source had read the report, and confirmed that the criminal information described in the report "tracked what the agency had." Royce Dep. at 233:11-236:14. As Royce described it, the source "effectively confirm[ed]" what had been described in the Washington Post article. Royce Dep. at 237:16-237:20.

Royce then turned to a second source from the intelligence community, former CIA official Richard Palmer, who had been the Chief of Station in Russia in the early 1990s before working in the private sector in the Russian banking industry. Palmer Dep. at 115:8-115:22; Sullivan Decl., Ex. 47 (redacted Palmer testimony before Congress). Palmer provided Royce with a full copy of the Versiya article that Palmer had earlier read only in abridged form in Banking and Exchanges Weekly. Royce Dep. at 102:13-105:13. The article stated that the newspaper had obtained the report containing criminal allegations against Alfa Group officials that Ilyukhin had passed on to the Ministry of the Interior for investigation. The article reported in detail the allegations in the report, which included claims that Aven and Fridman had engaged in the drug trade and had ties to Russian organized crime. Sullivan Decl., Ex. 49.*fn29

Royce obtained other articles at this time that contained similar charges against Aven and Fridman. Royce reviewed a December 4, 1999 article in "The Economist" that repeated claims that Tyumen officials had "intimidated judges and journalists," that "its sources of funds are unclear," and that "behind the scenes it is run by bandits." Sullivan Decl., Ex. 33 at 1 (email to Royce containing Economist article). A former high-ranking State Department official also provided Royce with several Russian news articles about the Alfa Group that contained allegations that "Fridman was friends with many leading crime bosses." Sullivan Decl., Ex. 51 at 17-18.

C. The Russian-American Specialist and the FSB Report

Royce then contacted another anonymous source, this one a Russian-American specialist on business practices in the Soviet Union who had several contacts in the Russian law enforcement community. Royce Dep. at 139:17-140:6, 433:10-434:19. Royce describes the individual as "extremely knowledgeable about criminal activity" in the Russian business world.

Sullivan Decl., Ex. 11 at 160:1-160:10 (Royce Dep.). Royce met with the specialist for more than an hour, during which time the specialist described the ownership and management of Alfa Group and Tyumen and the controversy regarding its privatization. The specialist explained to Royce that "no major oil company is free of criminal activity," that all of this occurred at Alfa Group and Tyumen too, including "bribery, tax evasion, [and] corruption," that he had "little doubt that [Alfa Group and Tyumen] committed crimes in numerous occasions," and that Russian organized crime money "has gone through Alfa Bank." Royce Dep. at 151:7-154:22; Ex. 52 (handwritten notes).

Royce asked the Russian-American specialist about the report that Ilyukhin had forwarded to Russian law enforcement agencies. The specialist told Royce that he had contacted a source of his at the Russia Federal Security Bureau ("FSB," the successor agency to the KGB) to ask about the report, and the source informed him that the FSB would be investigating the allegations. When the specialist asked again a couple months later, the source had told him that the inquiry had been "put away for a better day" due to political considerations. Royce Dep. at 163:8-164:22.

Some time after their meeting, the specialist faxed Royce an abridged copy of the report (the "FSB report"). Royce Dep. at 162:1-163:8. The specialist wrote a note on the fax cover sheet:

Find enclosed the open letter to Ilyukhin as discussed. It is abridged and translated. The other document that I discovered was the unabridged version in the original Russian. I would still recommend looking into the Duma Archives for further actions on Ilyukhin's part.

P.S. Please don't take this article as the gospel.

Pl. Ex. 8. Royce explains that he understood the postscript to mean that he should not "assume that every bit of information is accurate," and that "[a]s in anything that comes out of Russia, be a little careful." Royce Dep. at 192:4-192:9. Royce did not show the cover sheet to, or discuss its contents with, Lewis, Heller, the fact-checker of the piece (Peter Smith), or the copy editor (Richard Prince).*fn30

The FSB report is eight pages long. The first page contains a header stating:

This memo contains excerpts from a letter, sent from an anonymous group of Federal Security Bureau agents to the head of the national security commission, Victor Ivanovich Ilyukin. Although we have been unable to determine the veracity of the allegations made in the letter, our sources confirm that they may be the basis for an ongoing investigation by the federal authorities in Moscow. Sullivan Decl., Ex. 29 at 1. The remainder of the document goes on to describe a number of criminal allegations involving the Alfa Group, including that:

Solntsevo mob). Id. at 3.

Asia through Russia and into Europe." Id. at 3.

at 4.

Alfa Group "cooperat[ed]" with various Russian crime groups (including the Fridman and Aven "allegedly participated in the transit of drugs from Southeast Fridman had "secretly cooperated with operatives of the KGB" in the 1980s. Id. The Ministry of Internal Affairs searched Alfa Eco buildings in April 1995 and found drugs and other compromising documentation in an Alfa Eco building. The search was conducted due to the fact that, at the end of March residents in the city of Khabarovsk were "poisoned, apparently with sugar"; in "the course of the investigation, it was learned that the poisoning resulted from the fact that a large dose of some narcotic ...

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