Contractgate 2 – Ilyumzhinov-Paulson memorandum

by ChessBase
1/31/2014 – About ten days ago a draft contract between Garry Kasparov and Ignatius Leong was leaked. It suggested that large sums of money were passing to Leong in return for votes in the FIDE presidential election. Kasparov replied to the accusations by publishing the full text of the final contract. Now a contract between FIDE President Kirsan Ilyumzhinov has surfaced and is causing similar furor.

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The Clash of Kings

The contract, in Russian language, has been sent to numerous news sites and blogs. It is a photo of the two-page "Agon Memorandum", is initialled on the first page and signed in full on the second. Some sites have reproduced it, but we will not do the same, since the legality of the way the document was obtained has been called into question. Braver souls than us have published a full translation, in spite of a warning by one of the signatories, Andrew Paulson, CEO of Agon ("the document was stolen from my office by an employee who took a job working for the Kasparov Campaign and 'gave' it to Garry Kasparov who gave it to Nigel Short who leaked it to the Sunday Times").

Last weekend the Sunday Times in London broke the story, originally scheduled for a week earlier, but delayed when Andrew Paulson's lawyer sent the newspater an urgent legal notice, warning that the planned article referred to confidential communications and negotiations between AGON and Ilyumzhinov in early 2012, which had evolved and then ultimately "did not result in any final and binding agreement and the proposal was abandoned."

The text of the leaked memorandum, as published in translation on GM Kevin Spragget's blog, suggests that the president of FIDE signed a private deal to become majority shareholder in a company he then, in capacity as FIDE president, sold all FIDE chess rights to. The (paywalled) Sunday Times article, which appeared after a clarifying 3½ hour discussion – "with with no subject off limits" (Paulson) – between the Times journalist and Andrew Paulson, says:

The [Ilyumzhinov-Kasparov] battle for the presidency of the World Chess Federation reads like the plot of an espionage novel with secret memoranda, multimillion-pound deals and even an appearance by Vladimir Putin, the Russian president. At the centre of the clash is the unlikely figure of Andrew Paulson, the American head of the English Chess Federation, and the man who was once seen as the game's kingmaker.

Initially Paulson was brought in by Ilyumzhinov to broaden chess's appeal and in doing so turn it into a money-making machine. Now Paulson has found himself trapped between the two rival camps. Kasparov claims documents leaked to him show that Paulson and Ilyumzhinov were negotiating a deal in which Ilyumzhinov would fund the company secretly run by Ilyumzhinov, which controls the rights to run chess tournaments around the world. Ilyumzhinov would have a majority share in it while Paulson would be its public face and ostensibly its sole owner.

In the memorandum seen by The Sunday Times, Paulson offered Illyumzhinov a 51% stake in a company that was subsequently awarded an 11- year contract to promote chess and organise its top tournaments. The document ... further stated that in return for a share of the profits from events and sponsorship Ilyumzhinov would provide the company with its start-up capital. Paulson asked for a salary of €240,000 (£198,000) a year.

In a move worthy of any grandmaster, when Paulson was asked about the secret memorandum by The Sunday Times, he circulated another document – this time about Kasparov. ... The document appeared to show that Kasparov had offered Ignatius Leong, general secretary of FIDE and a supporter of Ilyumzhinov, $500,000 (£303,000) to switch sides. Kasparov's lawyer said that the document was authentic but had been superseded by a contract in which all money would go to chess development and none to individuals.

We reported on this last matter in our "Contractgate" report a week ago. The Kasparov team responded to initial accusations by publishing the full text of the final contract. Kasparov also spoke extensively about the matter in a press conference during the Tata Steel tournament in Wijk aan Zee:

We return to the AGON-FIDE memorandum, and Kevin Spraggett's January 29th blog entry. In it the Canadian grandmaster quotes in full the text of "a polite and informed response" he received, after publishing the contents of the memorandum a day earlier, from Andrew Paulson.

Paulson (above right) writes:

Nigel Short [above left] claims that this document proves that Kirsan Ilyumzhinov is a shareholder in AGON. I have repeatedly stated that this is false. The last sentence of the document demonstrates that the document does not prove anything of the kind: “We are willing to discuss other possible variants, including an initial [or including the original] model, in which all financial risk would lie on our side.”

There were several models that we explored over many iterations while establishing the shareholder structure of AGON after the FIDE/AGON contract had been negotiated. I am the sole owner of AGON and the sole shareholder. I am currently in the process of selling the company, as I am running for Deputy President of the European Chess Union and owning AGON would constitute a conflict of interest.

Attached to the communication was a letter that Paulson sent to the Sunday Times, which Spraggett also publishes in full. In it the lawyer of the AGON CEO states:

Our client, Mr. Paulson, is the Founder of, and owns 100% of the ordinary voting shares in AGON Ltd (AGON) both legally and beneficially. There are no other shareholders in AGON and no other classes of shares. This is Jersey Limited Company Registered Number: 109840. Mr. Paulson is the sole shareholder. There are two shares and share capital of £2. There are no directors.

AGON is a private company and its accounts are private. Jersey was selected as a highly regulated but tax effective location. AGON’s income is international and such a jurisdiction is appropriate to avoid incurring unnecessary national taxes imposed by jurisdictions other than at income source. Under the contract with FIDE, for transparency, two elected FIDE officials have access to the accounts of AGON. This was determined to be sufficient by FIDE.

The letter to the Times continues:

We also note that if your source, via a Mr. Nigel Short, is Mr. Robert Fontaine, you should know that he is a former disgruntled employee of Mr. Paulson who left to work as Campaign Manager for Mr. Kasparov. Mr. Kasparov is standing against Mr. Ilyumzhinov for the presidency of FIDE and is clearly seeking to discredit him. We understand that Mr. Short is also working for the Kasparov campaign and is politically motivated. We remind you of the requirement to critically assess your sources and their allegations as a matter of responsible journalism.

For those who are really interested and want to wade into the full details of this new twist in the Contractgate plot we advise you to do so by jumping to Kevin Spaggett's fairly racy chess blog.

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