Mukhtar Ablyazov’s united kingdom: a tale of four files – and more files/V

As of the time of writing, the number of cases currently pending at the High Court of London concerning the freezing of assets belonging to entities under control of former BTA Bank head Mukhtar Ablyazov and a number of associates amounts to eight – with some of them being interrelated. As described in earlier reports, the first one, dubbed the Chrysopa case, leads to The Netherlands. The second, known as the Drey file, puts ownership and responsibility for loan and collateral diversion schemes in the Russian Federation at stake. The third one, known as the Tekhinvest case, takes us back downtown Moscow, and involves, among other projects, the Moscow City Tower – wherese case number four, about less is known concerning tangible assets (if there ever were any) is known as the Granton case, also after its most important offshore link in the chain. A fifth case concerns a Swiss connection, thought to be related to one or more oil-related diversion rings. This leaves three more cases which were added to the list later on, which altogether brings the sum sought to be recovered to well over 3 billion Sterling – or close to half of the hole left behind on BTA’s balance sheet by Ablyazov when he escaped through the back door.

by Charles van der Leeuw, KZW senior contributor

Mukhtar Ablyazov’s united kingdom: a tale of four files - and more files/VOn 28 July 2010, BTA filed UK proceedings against Roman Solodchenko, BTA’s former chairman of the board and one of Alyazov’s longstanding associates and men of confidence, along with two citizens of Cyprus by the names of Paul Kythreotis and Jason Hercules. The charges included the usual string of offshore companies believed to be affiliated to Ablyazov and company, in this case bearing the names of Celina Investment Holdings Limited, Shoreline Investment Holding Limited, Nafazko Investments Limited, Olofu Investments Limited, Mymana Holdings Investments Limited Mabco Inc, Calernen Finance Inc, Astrogold Corp and Grundberg Inc. The case has been dubbed AAA after the ratings of the bonds used as fake liabilities in the asset diversion scheme that must have taken place between mid-2008 and early 2009 – just weeks before Ablyazov’s exposure, downfall and flight.

“The Bank’s claims allege the misappropriation from the Bank of U.S.$295 million in AAA-rated investments and/or their value as part of a scheme that was implemented between June 2008 and January 2009, whereby the investments held by the Bank were transferred into an offshore account and then used as security for a contract whereby Celina, Shoreline, Nafazko and Olofu and Mymana (the “Receiving Companies”) agreed to sell to an investment house, Alfa Equity Investments, investments that matched the description of those held by the Bank,” a UK court document related to the cse reads. “These Receiving Companies were paid U.S.$295 million in June 2008 in return for a commitment to supply investments by the end of the year. The Bank’s case is that a security arrangement must have been put in place using the Bank’s investments to allow these monies to be paid to Receiving Companies (who provided no security of their own and did not appear to have any assets). The monies were then paid on by the Receiving Companies to the other corporate defendants. In January 2009, the Bank transferred its investments to the Receiving Companies. It is understood that the Receiving Companies used those investments to comply with their obligations under their contracts with Alfa Equity Investments. The Bank’s case is that it was left with no investments and was given no consideration for transferring them away. Mr. Solodchenko signed off on the documents implementing the scheme. Mr. Kythreotis and Mr. Hercules were directors of certain of the corporate defendants. The Bank alleges that they were all complicit in the fraud committed against it.”

The UK court granted BTA a freezing order for all assets of involved persons and enterprises to the claim’s amount on July 26, 2010. It also ordered the accused parties to hand over the current location of the contested sums. No reactions came from any of the firms on the list. Of the two Cypriot exeutives, only Paul Kythreotis finally declared the required information under threat of charges of contempt of court which in the UK is a criminal offence, whereas hearings such charges against Jason Hercules were due for early spring 2011, leaving the case pending. “Mr Solodchenko served his Defence on 19 October 2010,” the court’s report reads. “Essentially his case is that, whilst he signed the relevant documents that the Bank contends implemented the fraudulent scheme, he remembers nothing about them and considers that he would simply have been involved as an authorised signatory with others (unnamed) in the Bank reviewing and approving the transactions in accordance with the Bank’s internal procedures.”

Encouraged by the earlier freezing orders and apparently determined not to be scared off by the reluctance of the defendants to cooperate, BTA took fresh action once more in December 2010. The case involved an underground shopping centre downtown Moscow, next to the Pavletskaya railway station. Requests for freezing orders were filed at the English Commercial Court of assets belonging to Mukhtar Ablyazov and his associate Ildar Khazhayev, along with those belonging to the companies Paveletskaya OJSC, Samuel Finance Sarl, Simplecity Holdings Limited, Ringbell Investments Limited (“Ringbell”), Malabar Investments Group Limited (“Malabar”) and Mishia Investments Limited (“Mishia”). “The claim relates to a series of purported loan facilities amounting to approximately U.S.$269 million advanced by the Bank to Paveletskaya and Samuel Finance between 2005 and 2009,” the court’s documentation reads. “The loans were purportedly for the purpose of investment in the construction of an underground shopping and entertainment mall in Paveletskaya Square, Moscow (the “Paveletskaya Project”). The Bank contends that Mr Ablyazov orchestrated a scheme (the “Scheme”) to misappropriate these funds from the Bank for his own benefit through the loans to Paveletskaya and Samuel Finance. The Bank asserts that Mr Ablyazov controlled both Paveletskaya and Samuel Finance and that the loans were related party transactions which Mr Ablyazov failed to disclose in breach of Kazakh law.”

Freezing orders against the firms Malabar and Mishia, which are suspected of having the money currently on bank accounts on their names, were obtained from the court immediately after the claims had been filed. The structure of the case looks all too familiar: the loan was cut into slices, which were subsequently transferred to offshore companies over which BTA had no say but the strings of which were pulled by Mukhtar Ablyazov, either directly or by proxy. Assets to cover the 47 million dollar that failed to appear on the construction project’s accounts are thereby non-existing, while the rest of the loan could only be recovered by laying hands on the project. Currently, however, construction works are reported to lie still, and instead of an underground plaza, the space is poised to be used as an underground parking garage, thereby reducing its asset value to a mere fraction of the original sum – probably even far less than the loan’s lump sum of $269 million paid out by BTA.

“The Bank alleges that, as part of the Scheme, Mr Ablyazov engineered the transfer of the Bank’s funds to Paveletskaya and Samuel Finance without any adequate security arrangements being put in place,” the court documentation explains. “Any security which may have been obtained was subsequently released to the Bank’s detriment. Further, the Bank contends that at least U.S.$47 million of the loan monies were not used for the purposes of the Paveletskaya Project and were transferred to Ringbell without the Bank’s permission. The Bank has also identified two purported assignment agreements, dated 30 January 2009, under which the Bank’s rights to repayment of the Paveletskaya loans (save for one letter of credit) were purportedly assigned to two companies incorporated in the BVI: Malabar and Mishia. The Bank claims that the assignment agreements are shams and further evidence of the Scheme whereby Mr. Ablyazov sought to prevent the Bank from recovering the outstanding loan monies from Paveletskaya by assigning its rights to two BVI companies that he beneficially owned and/or controlled. The Bank seeks, amongst other things, a declaration invalidating the purported loans and assignment agreements, repayment of the money transferred under the loan agreements and delivery up of all assets to which any of the funds were applied.” Neither Ablyazov and Khazhayev, nor any of the companies under charge have complied with the order to declare the whereabouts of the cash taken and transferred.

And the list keeps growing longer, and the amount involved all the more staggering for it in the process. Thus, among BTA’s other new claims dating from early this year is that against one of Ablyazov’s cartels in a case dubbed DCM. “On 21 January 2011, the Bank issued the DCM Proceedings in the Commercial Court against Mr Ablyazov, Mr Zharimbetov, Fedelm Corp., Telford Financiers Corp. and Dowring & Associates, Inc (the latter three defendants being companies incorporated in the British Virgin Islands),” the British court documentation on the case reads. “The claim concerns five transactions, each comprising a loan to a Kazakh company (“Borrower A”), purportedly for the predominant purpose of purchasing and developing land, and a subsequent loan to a second (Kazakh or offshore) company (“Borrower B”), purportedly for the purchase of the shares in Borrower A (in one case from Mr Ablyazov himself). The Bank claims that these loans, conditions of which were commercially favourable to the borrowers but detrimental to the bank, were part of a dishonest scheme on the part of Mr Ablyazov and Mr Zharimbetov to misuse the Bank’s money for their own purposes and/or personal benefit. By its claim, the Bank seeks a declaration that the loan agreements under which moneys were advanced to three of the Borrower B companies, as well as the subsequent share purchase agreements whereby those Borrower B companies purportedly acquired interests in the respective Borrower A companies, are invalid. It also seeks the repayment of all the moneys purportedly paid pursuant to each of those loan and/or share purchase agreements, as well as damages or compensation in respect of its losses resulting from all five transactions. The total value of the claim is approximately U.S.$1.2 billion.”

All this brings the total sum claimed by BTA in British (including British Virgin Islands) courts of law to more than 5.1 billion US dollar. This is more than half of the “disappeared” money identified so far – excluding possible extra, so far non-identified “losses”. This turns the colourful package of frauds involving Mukhtar Ablyazov and his associates into one of the biggest swindles in world history – in the charming company of such darlings as Shah Pahlevi of Iran, Marshall Mobutu of Zaire, and Cardinal Marcinkus of the Vatican together with the Banco Ambrosiano to which he was linked. If the wave of popular revolutions in the world proceeds further, more names could be added to the hit parade. What makes Ablyazov and lesser peers among the world’s plush long-fingered gentry echelons’ champions is that (as far as known) he never committed the bloody massacres his political counterparts are accountable for in the process. With the exception of only a handful of cases so far involving bloodshed, most of Ablyazov’s operations have only hurt people’s (especially taxpayers’) wallets. The first case has been described last year and concerns Ablyazov’s one-time partner Tatishev’s mysterious death while he was in the company of one of Central Asia’s most feared mobsters. The second case concerns the less mysterious death of an Armenian businessmen downtown Kiev in broad daylight, also looked into last year. Here, most of all, the difference with Kyrgyz prominent lawbreakers in particular looks striking.

What also sets the case of Ablyazov and thereby the position of Kazakhstan apart is that the Kazakhstan authorities seem to be without compromise where it comes to efforts to bring the culprit to justice – whilst a vast majority of bankers and bank officials who pushed the world close to the financial abyss wondrously manage to make deals with courts of law in the USA and elsewhere through which varying parts of the money slurped up is paid back with handsome multi-million rewards for the perpetrators continuing to accumulate on their deposits. Whether such a strategy in the end could manage to deter fraudsters, unfortunately, remains subject to doubt. In general, criminals are much more resourceful than both legislation and law enforcement where it comes to taking cover and creating cover-ups. As some developments have already shown and looming ones are likely to add to them, Ablyazov’s schemes have been covered by master-schemes on top of them, factoring being one of the tools for the job. How to unravel those, eventually followed by attempts to recover their gains, is a process that just has begun. Meanwhile, the gains may well slip into yet other circuits which have to be uncovered first and caught subsequently, thereby granting time to the swindler to open the next valve. In all: a seemingly never-ending struggle which, however, is no excuse for giving it up.

(amounts in US dollar)

case known as: claim*) frozen**)
Chrysopa file 120m 120m
Drey file 401m 295m
Tekhinvest file 300m
Granton file 2461m 2461m
Reuel/RIRoil file 65m
AAA file 295m 295m
Paveletskaya file 269m 269m
DCM file 1200m
TOTAL 5111m 3436m

*) Some claims include interest losses, others consist of lump-sums
**) Some of the frozen assets overlap.

source: BTA/UK court documents