Temtrade is Seeking the Revision of the Judgement That Dismissed Its
Claims in 2002 by Presenting to the Court New Evidence Proving Beyond
Any Doubt, in the Opinion of the Swiss Company, the Direct Involvement
of L'Oreal/PBI On the Grey Market in Russia
L'Oreal/PBI's Amazing Russian Businesses
GENEVA, Sept. 18, 2007 (PRIME NEWSWIRE) -- The direct sales by L'Oreal (Division Parfum et Beaute International) on the grey market of luxury cosmetics in Russia at the end of the 1990s, in violation of its exclusivity contract with the Swiss company Temtrade, has returned to haunt L'Oreal management at its highest level.
The Court of Appeal in Paris (5th Chamber Section A) has recently examined Temtrade's application for the revision of the judgement made on 23rd October 2002 which had dismissed its claim for compensation following the violation of its exclusivity contract with L'Oreal/PBI. The application for revision is based on documents of which neither the Court nor Temtrade had any knowledge back in 2002 and which prove, according to Temtrade, the direct involvement of L'Oreal/PBI on the grey market in Russia.
Temtrade was represented by Mr Maurice Lantourne, L'Oreal/PBI by Mr Georges Jourde. The decision of the Court is expected in mid-October.
Executive Summary
* According to Temtrade, the documents presented recently in Paris provide unquestionable evidence of the direct responsibility of L'Oreal/PBI's top management in Paris and its Parmobel subsidiary in Dubai in the illegal sales of L'Oreal/PBI products to the Russian parallel market, which are estimated at some 110m euros for the 1994 -- 1999 period. * The development of the parallel market in Russia was decided at the highest level of L'Oreal/PBI management in Paris, starting with Messrs Gilles Weil(1), Pascal Castres Saint-Martin(2) and Jean-Yves Frolet(3). * In all likelihood, Sir Lindsay Owen-Jones, chairman and chief executive officer at the time, should have known about these illegal sales as of the fourth quarter of 1997 as they started in 1995-1996 and were managed and controlled by some of his closest aides; Temtrade has the evidence that he was fully informed on 18th January 1999 at the latest. * The documents presented by Temtrade throw a crude light on L'Oreal/PBI's amazing business partners on the Russian parallel market and its illegal exports which would be mostly paid in cash and shipped at times by Russian military planes to Moscow. * In its defence, L'Oreal/PBI's never denied the facts themselves. * According to professionals, one of the consequences of their sale on the grey market has been that the brands of L'Oreal/PBI, especially Lancome, incurred a significant loss of image and prestige in Russia, Ukraine and Belarus, which the Group has been unable to offset to date. * Most of, if not all the profit generated by these illegal sales was diverted through screen companies and tax havens to the advantage of beneficiaries still unidentified to date -- which is currently the subject of a criminal investigation in France.
Temtrade, established 1967 in Geneva by Mr Janez Mercun, was from 1974 to the end of 1999 the exclusive agent for some of the most prestigious L'Oreal/PBI brands (Lancome, Guy Laroche, Giorgio Armani, Paloma Picasso...) in a region comprising, among other countries, Russia, Ukraine and Belarus.
The opening by Temtrade of three luxury L'Oreal/PBI shops in Saint-Petersburgh, Moscow and Kiev evolved, as of 1993, into the first chain of franchised perfumery and cosmetic shops in Russia, Belarus and Ukraine. Operating under the name of "L'Escale" since 1996, the chain, which was entirely financed by Temtrade, comprised 68 boutiques in 1998. Their decoration and luxurious settings had been prescribed by L'Oreal and sold its most prestigious brands only until that year.
The companies managed by Mr Mercun were never subject to criticism by L'Oreal. Moreover, they always complied with the legislation of the various countries where they located.
Encl.: Background Information
BACKGROUND INFORMATION
1. The application for revision of the judgement rendered 23rd January 2002
The application for revision by Temtrade is based on documents of which neither the Court nor Temtrade had any knowledge back in 2002. According to Temtrade, they provide the unquestionable evidence of the direct responsibility of L'Oreal/PBI's top management and its Parmobel subsidiary in Dubai in the illegal sales of L'Oreal products to the Russian parallel market. These sales are estimated to amount to 110m euros for the 1994-1999 period.
One of the clauses of the amendment to Temtrade's exclusive contract -- signed on 30th January 1998 -- stipulated that "the only obligation of PBI and its subsidiaries...is from now on not to deliver products directly to third-party distributors on the granted territory." (4)
2. An illegal trade initiated, managed and controlled by L'Oreal/PBI in Paris
The documents produced by Temtrade reveal that the development of the parallel market in Russia was decided, managed and controlled at the highest level of L'Oreal/PBI management in Paris(5).
According to Temtrade, L'Oreal's defence was consequently untrue and dishonest. It was based at first on the "impossibility of controlling the parallel market in Russia" (6) and, when this argument collapsed, on the attribution of parallel imports to "the failings of certain PBI staff members and to the role of Parmobel"(7).
As a matter of fact, these "failings" were those of Messrs Gilles Weil, vice president of L'Oreal in charge of the Parfums et Beaute Division, chairman of the board of L'Oreal's subsidiary in Dubai, Parmobel, Pascal Castres Saint-Martin, deputy general manager, vice president of the "direction generale de l'administration et des finances", Jean-Yves Frolet, gerant (to early 1997) and his successor Gerard Guyot-Jeannin, general manager, International (as of mid-1997), and Jean-Claude Bonnefoi, general manager of Parmobel.
In all likelihood, Sir Lindsay Owen-Jones, chairman and chief executive officer at the time, should have known about these illegal sales as of the fourth quarter of 1997 as they started in 1995-1996 and were managed and controlled by some of his closest aides. Temtrade has the evidence that he was fully informed on 18th January 1999 at the latest.
3. The parallel market in Russia
The decision to develop the parallel market in Russia was made by L'Oreal/PBI's general manager on 6th October, 1996, as a result of the Division's disappointing sales that year.(8)
In a note to top management, Mr Degueldre, the legal counsel to the Division, presented a perfect summary of the characteristics of the grey market in Russia: "The market is supplied by parallel sales, principally from the Middle-East, Italy, France, the USA, Germany, Turkey, Duty Free shops, etc., in other words, where Russian importers can find products which become attractive because they do not pay customs tax." (9) As a matter of fact, commercial sales in Russia were paid in cash so that no tax (VAT or other) could be levied until some order was re-established in early 1999.
L'Oreal/PBI products were shipped by air freight from Dubai and Paris to Moscow mostly through Brussels and Geneva, or by Russian military planes flying out of Sharjah airport (UAE). A concatenation of screen companies located in fiscal paradises was used for invoicing and re-invoicing purposes in order, to quote Mr Degueldre again, "to prevent from exposing a L'Oreal subsidiary." (10) The Russians would usually pay for the merchandise in cash in various hotels at Sharjah airport or in Dubai.
Commenting on the dispute between L'Oreal and Temtrade in a programme on the First TV Channel in Moscow, aired on 21st October 2002, Mr Mikhail Leontiev stated: "It is interesting to note that in fact, L'Oreal does not refute at all the facts and the charges that have been brought but that they are trying In Court to reject their responsibility using exclusively formal legal procedures. We shall see the judgement rendered in Paris. But how is that of interest to us? It is the French consortium itself that set up and organised in Russia a network of grey sellers trading dirty products and avoiding to pay taxes".(11)
4. The leading business partners of L'Oreal/PBI in Russia
Camasa and Arbat Prestige/Alvan Trading were L'Oreal/PBI's two leading business partners on the Russian parallel market.
* Camasa S.A.
Headquartered in Bellinzona (Canton of Ticino, Switzerland), Camasa maintained an office in Moscow which was located in the high security office building of Sibneft, the oil company owned at the time by Mr Boris Berezovskv(12). The office distributed L'Oreal/PBI products through two local wholesalers. Camasa was one of the three Swiss companies involved in triangular money laundering schemes with Prima SRL, an Italian company owned by Mr Oleg Berezovsky -- a nephew of the former -- and two U.S. companies, Becs and Benex, linked with the Bank of New York scandal.(13) A warrant for arrest was issued in Italy for Camasa's sole director, Mr Alfredo Camani.
* Arbat Prestige/Alvan Trading
At Arbat Prestige/Alvan Trading, commercial activities were handled by Mr Vladimir Nekrasov himself, general manager and majority shareholder of Arbat Prestige. However, he introduced Mr Janez Mercun and his close colleagues to Mr Shabtai von Kalmanovich, with whom Mr Mercun negotiated personally on two occasions, by indicating that the latter was the owner and the big boss of Arbat Prestige.
In its issue dated 17th January 2004, the French sports daily L'Equipe published a profile of this colourful character including the most obscure aspects of his life: a wheeler-dealer in Africa, an embezzler, condemned to 9 years in jail in Israel for being a KGB double agent and, among others, the owner of a women's basketball team in Russia, hence the article in a sports paper.(14)
In Russia, Arbat Prestige operated under several corporate identities (Coulisse, Estivale, etc.). From early 1997 to the end of 1999, the sales slips of its only distribution centre and shop in Moscow, Natasha Kovchova Street, showed Infantal as the beneficiary of the payments. Infantal, located at the same address, was then owned by "Konzern Infanta", a group of Chechen origin whose chairman, Mr Ruslan Baisarov, was, according to Kommersant(15), involved in the murder of the general managers of the Rossiya and Mezhdunaradnoya hotels in Moscow.
5. L'Oreal did not escape the law of unanticipated consequences
If they are unavoidable, the grey market and the selective distribution of goods are the source of permanent conflicts in most developed countries. However, the grey market of L'Oreal/PBI brands in Russia developed so much, and so quickly, compared to the official distribution channels that sales in Temtrade's 64 exclusive boutiques collapsed. As a consequence the image of L'Oreal brands was very seriously damaged, especially as deliveries from Dubai often included a mix of genuine and counterfeited products. According to professionals, Lancome, in particular, has not regained to this day its rank among the top selective distribution brands for consumers and the public at large.
The shareholders of L'Oreal did not benefit from the sales of their company on the parallel market in Russia: most of, if not all, the additional profit these illegal sales should have generated was diverted through screen companies and tax havens to beneficiaries who have remained unidentified to this day -- the subject of a current criminal investigation in France.
6. Mr Janez Mercun, chairman and chief executive officer, Temtrade S.A.
Mr Janez Mercun was born 1931 in Ljubljana. A former Yugoslavian dissident, he was expelled from all universities in his country in 1952 for his anti-communist opinion. Put in jail from June 1952 to December 1953, he was eventually authorised to pursue his law studies. In 2000, Prof. Dr. Joze Mencinger, the rector of the University Ljubljana, apologised for the persecution he had been subject to. From 1958 to 1964, he worked in Belgrade in an agency for foreign companies as an executive responsible for Gillette, Cheseborough-Pond, Elisabeth Arden, Helena Rubinstein, Sony and Storeys of Lancaster. In his capacity of Cheseborough-Pond's manager. Middle-East, USSR and Eastern Europe (1964-1970), he moved to Geneva, Switzerland, and was eventually to become a Swiss citizen.
7. Temtrade: a close cooperation with L'Oreal for almost a quarter of a century
Established 1967 in Geneva by Mr Janez Mercun, its chairman, CEO and sole shareholder since 1970, Temtrade started operations as the exclusive distributor of Cheseborough-Pond, Schick and Johnson Wax in the Soviet Union and Eastern Europe.
From 1974 to the end of 1999, Temtrade was the exclusive distributor of some of the most prestigious L'Oreal/PBI brands: Lancome, Guy Laroche, Giorgio Armani, Paloma Picasso... in the Soviet Union and most Eastern European countries. Moreover, Temtrade and L'Oreal set up a joint venture in India with a local partner, Baccarose Perfumes and Beauty Products, specialised in the packaging of L'Oreal products, including perfumes, for the Indian and Russian markets.
The opening by Temtrade of three luxury L'Oreal/PBI shops in St. Petersburg, Moscow and Kiev evolved from 1993 into the first chain of franchised perfumery and cosmetic shops in Russia, Belarus and Ukraine. Operating under the name of "L'Escale" in 1996, the chain, which was entirely financed by Temtrade, had grown to 68 boutiques two years later. Their decoration and luxurious settings had been prescribed by L'Oreal. These shops sold its most prestigious brands exclusively until 1998 when, at the request of L'Oreal, the chain started to sell competing luxury brands such as Chanel, Christian Dior, Guerlain, Clarins, Nina Ricci, Estee Lauder and Clinique.
Sales of L'Oreal/PBI's products by L'Escale stopped on 31st December, 1999, at the end of the contractual relationship between the two companies. Temtrade sold its businesses in Russia, Belarus and Ukraine in 2003.
The companies managed by Mr Mercun were never subject to criticism by L'Oreal. Moreover, they always complied with the legislation of the various countries where they were located.
Temtrade also owned a facility in the Canton of Berne, Switzerland, Temmentec AG, with a capital of CHF 10m. Specialising in the production of fine chemicals, the plant also contracted the production of perfumes and cosmetics for Boucheron, Cartier and La Prairie. It was sold in 2005
Only the French version is binding
(1) Vice president of L'Oreal in charge of the Perfumes and Beauty
International Products Division, chairman of the board of
Parmobel, L'Oreal's subsidiary in Dubai
(2) Deputy general manager, vice president of the "direction generale
de l'administration et des finances"
(3) Gerant (closest equivalent in English: "managing director")
(4) Amendment, 30th January 1998, attachment # 30
(5) Memorandum, 6th October 1996, attachment # 39
(6) Amendment, 30th January 1998, attachment # 30
(7) Conclusions by L'Oreal, August 2002
(8) Memorandum, 6th October 1996, attachment # 39
(9) Memorandum, 6th January 1998, attachment # 36
(10) Ibid.
(11) Official translation of the programme's transcript, attachment
# 9
(12) Currently in exile in London and, according to the Financial
Times (14th July, 2007), subject to a warrant of arrest and
extradition request by Brazil for money-laundering linked with
football.
(13) L'Hebdo, Lausanne, 12th September 2002. According to an Agence
France Press/Swiss Telegraphic Agency despatch, published 18th
May, 2007, by Tribune de Geneve, the Russian federal customs
office has taken an action for money laundering against Bank of
New York, claiming damages amounting to $22.5bn.
(14) These themes were excerpted from the L'Equipe article, 17th
January, 2004. A further excerpt from this article: "In the book
"The Red Mafia, How the Russian Mafia Invaded America" by Mr
Robert I. Friedman (Little, Brown and Company, New York, 2000),
the man who was then named simply "Kalmanovich" surfaced in
Africa in bizarre businesses. He was in Sierra Leone where he
dealt in oil and whisky imports with a Russian Mafioso. He was
also assigned to the personal safety of President Joseph Momoh
whom he would have saved from an assassination attempt. Momoh
would then have granted him the fishing and mining concessions of
the country. He was seen again later as a close associate of
Lucas Mangope, the President of Botswana, where he invited
Israeli security specialists to train the local police and where,
through his company Liat, he had a huge football stadium built.
But when rebels shut up the President in his stadium it was time
for Shabtai to take refuge in Sierra Leone. There, according to
Friedman, he received death threats from Russian and Italian
Mafiosi who would have lost 3 million dollars because of him. In
order to settle his debts, Kalmanovich diverted 27 million
dollars from Merrill Lynch using forged bank cheques. In May of
the same year, after he had lunch with the head of the Israeli
secret service in South Lebanon, he was arrested by Scotland Yard
at the Sheraton Hotel in London. Extradited to the USA, he
managed to escape thanks to a U.S. Congressman who vouched for
his "great reputation for integrity". He was released and flew to
Israel where he was immediately put in jail on the accusation of
being a KGB double agent and condemned to a sentence of 9
years.... He was released in March 1993 after he had served two
thirds of his sentence as part of the spy exchange negotiated
between Israel and Mikhail Gorbachev." In the book, mentions to
Mr von Kalmanovich are on pp. 58-61, 98 and 277.
(15) Kommersant, Russia's leading business daily, 27th November 1997.