Mukhtar Ablyazov’s beautiful laundrette: on the Siberian trail

Kazakhstan made small headlines in the British press in the last week of January by announcing that it seeks the extradition of fugitive tycoon and ex-banker Mukhtar Ablyazov. There is little hope that the request will be granted, given even much more serious cases such as Boris Berezovsky who is wanted in the Russian Federation and also enjoys plush life downtown London swimming in embezzled billions. Also in late January, Ukraine made it known that charges against Ablyazov are under preparation and once filed, he will be declared wanted. This will bring the number of countries the champion robber-banker is wanted to four, after Kazakhstan, Russia and Kyrgyzstan. As for Russia, the amount of stolen money believed to have been pumped into laundering machineries is growing by the day. The latest black-to-white schemes to have been revealed are located in southern Siberia.

by Charles van der Leeuw, KZW senior contributor

Mukhtar Ablyazov's beautiful laundrette: on the Siberian trailOn March 18 2010, a number of arrests was carried out in the Moscow branch office of Kazakhstan’s troubled Bank TuranAlem (BTA), in the process of being renamed ATM, as its local general director Alexander Volkov, financial director Artem Bondorenko, economic director Alexei Byelov and the head of the legal department Denis Vorotyntsev were carried off in handcuffs. The three former were apprehended on the premises, while Vorotyntsev was caught in Krasnodar where he was on holiday. The arrests were part of a broad investigation by Russian authorities into embezzlement schemes masterminded by former BTA president Mukhtar Ablyazov and a number of his associates. Close to the equivalent of 5 billion US dollar in various currencies has slipped out of BTA’s current owners, dominated by Kazakhstan’s state fund Samruk Kazyna through its Russian operations, investigators think. One of the schemes under scrutiny, worth alone in the order of $1.5 billion, concerns Eurasia Logistics, a company engaged in the construction of trade and transportation centres in the regions of Moscow (Northern Domodedovo), Yekatarinaburg (Pyshma), Kazan (Byek Tau) and Novosibirsk (Tolmachevo).

During the booming years between 2006 and 2008, Eurasia received from LLS BTA loans the lump sum of which totalled 775.4 million rouble, 19 million euro and 1.4 billion US dollar, the press release at the origin of the controversy issued by Russia’s interior ministry on March 19, the day following the intervention, reads. At some stage, according to some as late as 2009 shortly before Ablyazov was sacked as president of BTA and soon afterwards fled to London where he is entrenched up to this day, the loans were transferred to an affiliated company of Eurasia Logistics named Eurasia Global. According to the ministry’s press release, the latter was, and still is, under control of Mukhtar Ablyazov.

At the time, it looked like the objects under scrutiny, worth altogether up to the equivalent of 5 billion US dollar in obscured funding resources, were the only assets at stake in Ablyazov’s schemes. Later on, it would appear that the firms under Eurasia Logistics’ umbrella were used as vehicles for much further-stretching collateral deviation schemes. They included Eurasia Tower, a Canary Wharf-style business plaza in Moscow City, located with a Moscovite version of Paris’ La Defense on a river peninsula close to the Moscow World Trade Centre, worth in the order of 1 to 1.5 billion US dollar even in present-day real estate price assessments in the Russian capital, and an oceanarium on Poklonnaya Hill just outside the centre of Moscow, believed to have a face value of well over $100 million set against construction costs that hardly exceed $40 million.

But Ablyazov’s schemes now appear to stretch much further towards the east into the Siberian flatlands – and also a lot further back in time as it appears. In the course of 2003, the ownership of a one-time prosperous but now ailing mining company in Krasnoyarsk, Krasnoyarskkrayugol, somehow fell from its original shareholders led by its management and staff into the hands of five seemingly separate companies, each of which by the end of the year appeared to own 19.98 per cent of Krasnoyarskkrayugol, reported in late January this year. The remaining shareholder Sibtek Coal, affiliated with the Alpha Group founded and led by Russia’s tycoon Mikhail Friedman, found out to its dismay that its original share of 7.69 per cent had been reduced to less than one per cent – which deprived it from its seat on the board and forced it to sit by and watch how it was taken by no one less than Mukhtar Ablyazov, who then had recently come to the helm of Bank TuranAlem, and how Ablyazov’s longstanding business associate and deputy head of BTA Zhaksylyk Zharimbetov sprang out of the blue to take over the position of Krasnoyarskkrayugol’s president.

In the year 2003 during which the corporate putsch took place, Krasnoyarskkrayugol produced in the order of 3.8 million tonne. Previously, most of the output was sold to power stations and mining and smelting companies in the area according to agreements dating from Soviet times. But all of a sudden, in 2003 up to 2.8 million tonne were sold to outsiders. The following year, production dropped to 2.6 million tonne of coal. Only in 2006, output climbed again to 3.9 million tonne and in 2008 it reached its peak of 4.6 million tonne. Still, sales kept shifting from local clients to remoter ones, and by 2007 coal was sold to customers as far as Hungary. The same year, Zharimbetov all of a sudden disappeared from the board only to pop up in a backroom armchair job at BTA’s headquarters back in Almaty.

From there on, supplies started to stagnate, commitments to pay up for repairs, maintenance of existing mines and development of new ones were no longer lived up to, and as it appeared gaps between declared revenue over the years since 2004 and cash assets on the balance sheet growing wider and wider. Looking back, it now looks very much indeed as though Ablyazov and consorts have used Krasnoyarskkrayugol as a “milking cow” as Contur’s article’s author Alexey Loginov describes it, to tap cash needed to fill current accounts for Eurasia Logistics’ mega-projects in Moscow and elsewhere in the Russian Federation and the former USSR, while the real cash value of those projects, i.e. their value in terms of market revenue, was being drained by stacking their ownership rights in offshore havens controlled by Ablyazov and company but out of reach from credit suppliers, first and foremost of which was BTA.

Krasnoyarskkrayugol does not seem to be the only fund diversion scheme wrought by Ablyazov. In June 2010, Omsk Polymer, one of southwest Siberia’s most advanced and successful chemical industry enterprises, went bankrupt due to non-payment of a modest debt of 2 million euro to Sberbank. “The Omsk oblast arbitration court has declared Omsk-polymer Ltd., plastics and chemical feedstock manufacturer, bankrupt and ordered a monitoring procedure,” Kommersant wrote in its issue of June 16, 2010. Omsk-polymer owes this bank about 1,4 mln. Euro by credits. The total debt of the firm to the other 400 creditors amounts to over 5 bln. Rubles. Monitoring procedures will last till November 2010.” But on 30 November last year, Novosti reported that it had discovered that Omsk Polymer was majority-owned by Laplaus Group Ltd. – under control of no one less than Mukhtar Ablyazov. It can be assumed that the sell-out-and-cash-in method, by putting maximum produce on the market while diverting the revenue on their sales from the company’s books, has been applied in this case as well.

A complicating factor is that a substantial share in AMT, the label under which former BTA Russia now operates, is still in the hands of Ablyazov, who personally holds a stake in the same order of that of BTA proper, but through affiliated shareholders keeps exercising majority control over it. This means that under current ownership conditions, every penny BTA could recover would automatically play a sixpence into the hands of the ones who abused the system in the first place. The extraordinary thing is that while in the order of 4 billion Sterling on British territory has been frozen by a London court of law, pending procedures initiated by BTA to recover them (recently, a request for Ablyazov’s extradition from his London hideout was filed by the authorities of Kazakhstan), no such procedures have been started in the Russian Federation.

The same situation persists in Ukraine, where other assets stowed by Ablyazov and accomplices are located. Judicial investigations have recently started here, and an international warrant for Ablyazov’s arrest been issued. But as long as stalemate persists in civil procedures between parties and in criminal procedures between state authorities, there is little hope that much of the missing cash can return to its rightful owner which is BTA Kazakhstan, now majority public-owned.