Ablyazov case: another mystery middleman exposed

Kazakhstan’s ousted banker and master swindler, now on trial in London which could take him behind bars for one or two years to come, appears to suffer from amnesia of convenience where it comes to giving details about his multi-billion fund diversion schemes. During his interrogations last week his self-proclaimed unawareness of key facts was stunning. Taking resort to lengthy statements lamenting the alleged “political” persecution he claims to be subject to in his Kazakh homeland while saying nothing he only provoked the irritation of the judge at a London court of law. In contrast to David Cameron’s Home Secretary who was moved by Ablyazov’s crocodile’s tears to the extent of granting him political asylum in the UK, the courts have categorically dismissed the injured innocence of the man who would be Rockefeller ?-la-kazakhstanaise Among those who have reasons to feel haunted are those middlemen of modest stature who appear to have been lured by Ablyazov and his upper-rank associates into running financial camouflage operations. One of them, located deep in the countryside of Belarus, has now unwittingly, and much to his regret, appeared under the spotlight.

by Charles van der Leeuw, KZW senior contributor

Ablyazov case: another mystery middleman exposed– Are you aware of companies called Bergson and Carsonway which according to your earlier statements are managed by a certain Yerlan Kosayev, having received 210 million US dollar in credit from BTA?

“Such decisions have been made by the credit committee of BTA which was authorised to do so.”

– Are, you, or have you been, or are you not or have you not been the beneficiary owner of a company called Bubris?

“I deny the claimant’s allegation that this was ever the case.”

And so it went on for days last week at the Royal Court downtown London during lengthy interrogations by the judge – according to writings by Kazakh reporters in the audience. Whatever name of the more than 600 offshore mailbox firms and their caretakers came on the table, the standard answer by Ablyazov was that he “did not know”, “forgot” or “had entrusted things to others” – followed by wordy lamentations about how dangerous life has become for him, having been deprived of his property by forces of evil.

Much of the facts that now appear to have slipped Ablyazov’s mind – or so he pretends – have already become clear, tough, by an earlier case which served at the end of August, followed by a judgment in early October this year, the report of which has only been released on December 12. At stake was a (eventually successful) attempt by BTA to have a number of exemptions to the freezing order of assets owned or otherwise wholly or in part under control of Ablyazov and associates ruled in December 2010. The enterprises concerned were Granton, Branden, Aldridge, Zafferant, Forest, Incompro, Perspective and Maden. “The Bank contends that in making that order I was misled by the Respondents [i.e. the companies mentioned]into believing that they had made a genuine, if belated, effort to comply with the terms of a freezing order made on 9th June 2010 as continued and reinforced by subsequent orders,” Judge Clarke observed at the opening of the session, noting that unlawful loan schemes and loan misappropriation schemes had been carried out followed by attempts to conceal them from the court – thereby disobeying a disclosure order linked to the freezing order, which according to British law comes down to contempt of court. Two of Ablyazov’s associates, both of them now on the run, have already been convicted to 18 and 21 months in prison for the offence. Now, it should be Ablyazov’s turn. A verdict is expected early into the new year.

A particular role in relation to the firms focused on in the earlier case appears to have been played by Ablyazov’s longstanding associate and man of confidence Zhaksylyk Zharimbetov. “The Bank contends that under the Unlawful Loans Scheme Mr Ablyazov channelled monies from the Bank to companies ultimately owned and/or controlled by him (“Ablyazov companies”) and did so with the assistance of Mr Zharimbetov,” the court session’s report reads. “The Credit Committee, acting under the direction or control of Mr Ablyazov, authorised loans which totalled $ 1,428,840,000. The monies were paid into the accounts of a number of companies (“the Recipients”) held with Trasta Komercbanka (“Trasta”) in Riga, Latvia. On their face the loans were for the purpose of providing or replenishing working capital. They were then advanced by the Recipients to the Real Borrowers, being Ablyazov companies. The identity of the latter is unknown. The Recipients were: (i) Astrogold Corporation (“Astrogold”); (ii) Balgaven Invest Inc (“Balgaven”); (iii) Bergtrans Contracts Corporation (“Bergtrans”); (iv) Berit Ltd (“Berit”); (v) Brotex Group Ltd (“Brotex”); (vi) Business Code Ltd (“Business Code”); (vii) Calernen Finance Inc (“Calernen”); (viii) Carsonway Ltd (“Carsonway”); (ix) Ditron Solutions Ltd (“Ditron”); (x) Global Team Company (“Global Team”); (xi) Grundberg Inc (“Grundberg”); (xii) Kinmate Trading Ltd (“Kinmate”); (xiii) Lingard Industry Ltd (“Lingard”); (xiv) Mabco Inc (“Mabco”); (xv) Topgeo Holdings Ltd (“Topgeo”); (xvi) Trionfale Ltd (“Trionfale”) and (xvii) Westrade Ltd (“Westrade”). The monies were advanced between November 2007 and August 2008. The Loans were unlawful under Kazakh law being made to connected counterparties without the necessary declarations of interest. In April 2008 the FMSA, the Kazakh monetary authority, discovered this high volume of loans, which exposed the Bank to considerable credit risk. Following a report from it Mr Ablyazov and Mr Zharimbetov agreed with the FMSA to reduce the Bank’s exposure to such lending. This was done by the Misappropriation Scheme.”

According to BTA’s point as paraphrased in the document, the scheme has worked roughly as follows: “All the companies involved in both Schemes, save for Loginex, were off shore companies, registered in either the British Virgin Islands or the Seychelles. Loginex is an English company. The Loans were only made because Mr Ablyazov controlled the Bank and was able to implement the Unlawful Loans and Misappropriation Schemes with the assistance of Mr Zharimbetov. The Loans were shams, not being intended, in the case of the Unlawful Loans Scheme, for working capital for the Borrowers but to provide liquidity to Ablyazov companies, nor, in the case of the Misappropriation Scheme, to finance the purchase of equipment, but to pay back the monies advanced under the Unlawful Loans Scheme. Mr Ablyazov’s link to the Recipients and the Borrowers was never disclosed to the Bank as it ought to have been. The net effect of the Schemes was that the Loans which had concerned the FMSA were, for the most part, repaid. But the money for repayment was provided by the Bank and the Real Borrowers kept what they had received.”

It is in the description of Ablyazov’s defence that the report marks the entry of one of the ousted banker’s typical “distant henchmen” in the persons of simpleton-looking puppets who in reality used to be made instruments (and potential scapegoats) in his loan-camouflage carrousels. “The Respondents’ case is that they were beneficially owned and ultimately controlled by Mr Georgy Timichev (‘Mr Timichev’), the court report reads. “He, acting through his representative Mr Mukhtar Kuatbekov, made an agreement – the Bank Assistance Agreement – on behalf of himself and the Respondents with the Bank (acting through Mr Kairat Sadykov, a managing director) pursuant to which the Intermediaries would receive the payments and forward the sums received to certain identified companies – the Recipients. This enabled the Bank to advance loans to the Recipients which under the Bank’s regulations and policies they would not have received. Mr Timichev and the Respondents understood that the Bank Assistance Agreement was for the Bank’s benefit and that the sums would be repaid (directly or indirectly) to the Bank by the Recipients. Although the payments by the Bank to the Intermediaries and by the Intermediaries to the Recipients were in the form of loans it was understood that these “loans” would not be repayable by the Recipients to the Respondents. As a result of this assistance there was an understanding (“the Future Loan Understanding”) that the Bank might in future secure funds for the Respondents for the acquisition of equipment similar to that identified in the contractual documentation for the Bank Assistance Agreement. In that event, if the Bank was the lender, the Respondents would be obliged to repay the Bank broadly in accordance with the contractual documents drawn up for the scheme involving the Borrowers and the Intermediaries.”

It looks like the prefect model of Ablyazov’s fund diversion schemes’ patterns – which it is, in the bank’s view. “After the December order the Bank discovered two sets of documents which it contends show that, whilst Mr Timichev was presented to the Court as the owner and director of all the Respondents and, indeed all the Borrowers and Intermediaries, and the person who instructed the companies’ agents, in truth they were controlled and directed by a Mr Syrym Shalabayev, who is Mr Ablyazov’s brother in law, under the auspices of two companies, first Eastbridge Capital Limited and, secondly, Euroguard Assets Ltd.,” the court case report’s account of BTA’s plea reads. “Given the link between Mr Shalabayev and Mr Ablyazov it is, the Bank submits, legitimate to infer that the person who ultimately owns the Respondents is not Mr Timichev but Mr Ablyazov. On 26th January 2011, in the light of this material, Teare J made an order in 2009 Folio 1099 (“the Drey Proceedings”) that the Receivership Order obtained therein by the Bank on 6th August 2010 in relation to Mr Ablyazov’s disclosed assets should be extended to companies administered by Eastbridge, which included Branden, Aldridge, Zafferant and Austin. On 8th April 2011 he also ordered that the Receivership be further extended so as to encompass companies administered by Euroguard, including Perspective and Maden. These extensions were not based on findings that those companies were assets of Mr Ablyazov but that there was a good arguable case that they were.” Judge Christopher Clarke’s conclusion must have been bewildering for Ablyazov and his partisans: “It is apparent from this summary of the Respondents’ case that there was a sham,” his report reads – adding: “That is my characterisation, not the Respondents’.”

Timichev was initially to make his statement to the London court in early September 2010 through hired counsel in the person of Denis Silyutin, a Moscow lawyer from Law Office SPB Limited. “He exhibited powers of attorney dated 30th June 2010 on behalf of all the Respondents signed by Mr Timichev and gave an address for Mr Timichev in Belarus,” the October report reads. “In this affidavit, much of which deals with the Respondents’ assets, Mr Silyutin said the following: a) in relation to each of the Respondents Mr Timichev was (i) the legal and beneficial owner, (ii) the sole director, (iii) the instructor of its agents and (iv) the person who ultimately controlled the company; b) various nominees who had been the legal owners of the shares in the Borrowers had transferred legal title to their shares to Mr Timichev. […] Silyutin [in his first affavit] stated that Granton owned a 51% stake in two Kazakhstan LLPs – Caspioilgas LLP and Buzachi Neft LLP – which owned valuable oil and gas contracts[3], that Branden owned a 16% stake in a Kazakhstan company named JSC North Caspian Petroleum (“JSC”) which had the benefit of 6 oil and gas exploration contracts; and that Aldridge owned an 18.12% stake and Zafferant a 16% stake in JSC. In a later 4th Affidavit Mr Silyutin expressed the belief that the value of Granton’s interest in the two LLPs was $ 24.9 million and $ 357 million respectively; and the value of the interests of Branden, Aldridge and Zafferant in JSC was $ 536,032,000, $ 607,056,240 and $ 536,032,000, although he said that he could not confirm the liabilities of the relevant companies.”

What follows looks very much like a Hitchcock movie and also sheds light on the role of one of BTA’s representatives in the affair which to the bank’s discredit could indeed raise some eyebrows. “In a Witness Statement signed by him on 9th August 2011 Mr Timichev, who gives his address in Belarus, confirmed in paragraph 1 that he is the ultimate beneficial owner of the Respondents,” the judge’s report relates. “He then recounts how on 25th July 2011 at about 6 pm a car with Ukrainian plates drove up to his house. Out stepped Mr Solovyov who claimed to be a representative of a law firm. A conversation took place at his house. Mr Solovyov said that he represented the interests of the Bank. He said he had come round to convince Mr Timichev that he should deny that he was the owner of the Respondents and should say that they were owned by Mr Ablyazov. When Mr Timichev asked why he should relinquish companies that he owned Mr Solovyov said that several people had already changed their position and denied that they were the real owners, stating that the companies belonged to Mr Ablyazov. But he said that one man from Kiev had not “given up” and he suffered a bad fate i.e. extradition to Kazakhstan. Mr Solovyov said “You know what prisons in Kazakhstan look like: do you really need it?” Mr Solovyov said that it was his firm who helped prosecute that person. The meeting lasted for over an hour and a half. When Mr Solovyov’s attempt at persuading him to relent failed he suggested that Mr Timichev should have independent advice from a lawyer in Minsk which his firm would pay for. That lawyer, he said, would confirm that he should admit that he only owned the companies nominally, after which he, Mr Solovyov, would be prepared to meet with Mr Timichev and his lawyers anywhere in the world to legalise his denial of ownership which would be used against Mr Ablyazov. When Mr Timichev did not accept this Mr Solovyov said that Mr Timichev had not disclosed to the Belarus Foreign Ministry the fact that he owned the Respondents and received profits from them. Mr Timichev said that that was not Mr Solovyov’s business.Mr Solovyov then said that Mr Timichev might lose his property, his companies and even his family home and referred to someone in the Ukraine whose property had been taken from him with the help of Mr Solovyov’s law firm. Mr Solovyov left, urging Mr Timichev to take the right decision and said he would return in a fortnight.”

Following Timichev’s thrilling version of the story, it appears that now his mysterious counterpart had to take trouble not to lose his nerve. “Mr Solovyov’s witness statement of 19th August 2011 gives a somewhat different picture,” Judge Clarke’s report relates. “First, he says that the meeting took place on 26th July and he produces a receipt from a hotel in Posta for that date, which confirms to me that the meeting took place on that date. The purpose of his visit was to find out whether Mr Timichev had been the victim of identity theft and, if not, to understand the extent to which he was aware of the present proceedings and aware that he had been put forward as the beneficial owner of the relevant companies and of their business and their involvement in these proceedings. […] He showed him a Ukrainian newspaper article relating to the litigation against Mr Ablyazov, which Mr Timichev did not read, saying that he knew all this. He explained that the Borrowers owed the Bank over $ 1 billion and that there were on-going criminal proceedings in Kazakhstan, Russia and the Ukraine into the activities of Mr Ablyazov and his accomplices. This was not intended as a threat but was mentioned because of the Bank’s concern that Mr Timichev had not been made aware of the situation that he was involved in.”

Where the truth lies looks hard to tell. Nor is it clear whether or not Timichev and Solovyov ever met again. What seems to have happened is that after an interrogation by the Belarus authorities which took place on October 10, a compromise was reached and subsequently filed in various stages through declarations by lawyers on his behalf, followed by two personal statements next summer, at the London court which came down to the affirmation that Timichev had always sincerely believed that he had been the rightful owner and beneficiary of the firms concerned, unaware till recent notice that there was more to the business he had been lured into. “It is apparent that the prospect of proceedings in Belarus has not inhibited the continued presentation of the contention of beneficial ownership,” judge Clarke notes not without a flavor of cynicism in his report concerning Timichev’s reluctantly made half-confession. But he also observes: “I regard the account given by Mr Solovyov as distinctly more plausible than that given by Mr Timichev. It seems to me inherently likely that he would have been seeking, on behalf of the Bank, to discover whether Mr Timichev knew that his name was being used, and to what extent and on what basis, and unlikely that he threatened him with extradition to and prison in Kazakhstan and loss of his property or sought to induce him to say that Mr Ablyazov was the beneficial owner of the companies whether he was or not. At the same time it seems to me inherently likely that he stressed the enormity of the situation in which Mr Timichev had become embroiled, the need for him to tell the truth, and that, so far as the Bank was concerned, the truth was that Mr Ablyazov was behind it all. […] To repeat the bald assertion of beneficial ownership without responding to material suggesting the opposite would, if he is the true beneficial owner, seem the worst course.”

As a result of the exposure of Timichev’s case – with the latter wittingly or unwittingly cooperating under the threat of a crackdown by his home country’s feared authorities – all companies involved have now been included in the list of defendants both in the current proceedings as in the upcoming main trial over their destiny due to start in November 2012 and to last for several months. Noting that “the court has been seriously misled” by Timichev, Judge Clarke observes in his verdict that “… no useful purpose will be served in ordering Mr Timichev to file a further affidavit and produce further documents. He has indicated that he has no intention of providing any evidence for reasons which are not, in my judgment, acceptable. Fifth, there has been a history of non-compliance with orders of the Court and Mr Timichev has actively misled it before: […] It is in the interests of the administration of justice that the Court’s orders are obeyed and that sanctions for disobedience take effect unless solid grounds are advanced for the Court to grant relief against sanction for a second time. They have not been.” Finally, Judge Clarke ponders on the question “whether the failure to comply was intentional” with the conclusion: “It was. There is no evidence that reference to the position of Mr Shalabayev, Eastbridge and Euroguard and the documents which illustrate it was omitted by accident or misunderstanding. […] I propose to revoke the order which I made granting relief against sanction and enter judgment, the terms of which I shall discuss with Counsel, against the Respondents.” As a logical consequence, the only reasonable conclusion can be that if Timichev misled the court, he can only have done so under pressure from Ablyazov and the latter’s representatives – meaning that Kazakhstan’s failed financial mastermind has been the real culprit and should therefore follow the path to prison – unless something extremely extraordinary should occur from here into the new year when the party is over and the hangover is due.