Viktor Khrapunov’s caprices: one flew over the cuckoo’s clock/III

When looking for the real victims of Kazakhstan’s white-collar criminals one does not have to go very far – meaning not half as far as one, saeen from Almaty, has to look for the illicit income having been stacked. Preliminary results of an ongoing judicial investigation into the wheelings and dealings of former Almaty mayor Viktor Khrapunov have revealed a number of business connections through strings of both domestic and offshore companies in the style of his son’s spouse’s father Mukhtar Ablyazov. Some of them had already been identified in media reports. But names and locations of mailbox and camouflage companies also point at Switzerland as Khrapunov’s main haven to stack his embezzled funds and collected “commissions” years before he ended up on the bank of Lake Geneva himself: a well prepared network to cache assets’ and funds’ ownership and keep them out of reach for Kazakh authorities trying to recuperate lost paper and cash. A recent global request for Khrapunov’s arrest and subsequent extradition to Kazakhstan was issued in late February this year. Switzerland is unlikely to honour such a bid, since “economic offences” are excluded from its list of reasons to extradite any foreign citizen, and on top of that Khrapunov’s application for Swiss citizenship dates from earlier times and therefore the extradition request cannot be taken into consideration in the decision whether or not to grant it to him. This, and the lengthy procedures involved, will give him all the time he needs to erase the traces of his Ablyazov-style embezzlement web.

BY CHARLES VAN DER LEEUW, KZW SENIOR CONTRIBUTOR

Viktor Khrapunov’s caprices: one flew over the cuckoo’s clock/IIIAs noted before, Viktor Khrapunov’s soft landing as of 1997 as mayor of Almaty looks like an evacuation operation from national politics, with the option to combine the tragically famous combination of pubic responsibility with corporate irresponsibility after the notorious examples of the likes of Boris Berezovsky and Mikhail Khodorkovsky in the Russian Federation. By the time he made his second soft landing, this time in Switzerland, the mattress had become substantially thicker. As also noted before, Depta Bank seems to have been playing a key role in he fraudulent transaction, back in 2003, of 15 million US dollar worth in bonds originally issued by the municipality of Almaty for the nominal sum of $7 billion, with the obvious channel to filter the difference minus a handsome commission for the German bank to Khrapunov’s Swiss-Dutch financial tandem Helvetica. But it might very well have played a similar role in cases where the honourable mayor and his equally honourable spouse and other associates could have played somewhat less honourable roles in a modern boardroom variant of Shakespeare’s display of old-time English royalty performance.

At the time when Kazakhstan’s leadership started to realise on how many assets they were sitting on while not knowing how to capitalise on them, foreign sharks were already besieging those assets – say uranium, oil, gas, base and precious metals and ceramics – which could be “commercialised”, meaning undervalued and subsequently be seized at scrap prices. In this domain, there was little chance that white-collar cowboys of local origin could ay any hand on any property worth trying. Instead, people like Khrapunov must have started to look at what would and could be done with the spin-off in terms of cash collected from upstream commodity deals. This, of course, meant the luxury assets the gainers of the upstream business would like to indulge in – and lo and behold: there were all of a sudden the former Soviet property assets in vogue. The case of nursery schools as an example how to do it has already been described.

The test case seems to have come with the option for Khrapunov to lay his hands on some “immune” property secured by the public sector in this manner back in 2001. At stake were two plots of historic prestige even though they hardly might have looked like it. But the two dull-looking premises on the outskirts of the centre of Almaty harboured the most venerable old soldiers who heroically exposed themselves to the deadly gun- and tank-fire in the Second World War and after that in the Soviet Union’s hapless war in Afghanistan (featuring remarkable similarity with America’s present-day killing fields on the same location) in which despite the war’s misconception they hardly showed to be less foolhardy for it.

In 2001, Khrapunov must have decided somehow to lay his hands on two premises which consisted of homes for war veterans and other honourable pensioners. By law, they were prohibited from privatisation, but transforming them from pubic organisations into so-called joint stock companies with one hundred per cent of the stock owned by either the state, the province or the municipality appeared to be perfectly according to the letter of the law. Even better: such structures remained open to new capital support which without having to go through laborious procedures left the door open to private purchases of interests in such enterprises.

What happened afterwards, according to documents made available to the public domain by Kazakh prosecutors, went roughly as follows: initially, 5 per cent of the stock were handed over against a capital injection input of rather symbolic-looking proportion to KazRealIncom LLP, as described earlier under control of the Khrapunov family. Subsequently, the remaining stock in the public company was handed over to the private company under conditions that were to remain unclear well into the year 2012. The property is supposed to have been re-sold subsequently for a multiple amount, even though the purchaser, who had got the right through Khrapunov’s associates in the public sector to demolish the existing buildings and make space for a fancy project, may well have been unaware at the scheme that had led to the deal at the time, investigators note. At the back, though, there is supposed to have been a multi-million kickback which, somehow, must have ended up on the accounts of Helvetica in Switzerland – meaning in the pockets of the happy family in exile. Last but not least: Depfa Bank must have played a key role somehow in the entire process.

Depfa Bank is a name that popped up throughout the avalanche of reports filtered into the Kazakh public domain in regard to Khrapunov-related cases into the year 2012. The bank had been established in 1922 at the time of the Weimar Republic in its attempt to make Germany rise from its ashes in the wake of the First World War. With the state’s cash reserves having been drained because of the winning Entente’s excessive demands for war damages, the bank’s main task was to raise funds in order to provide financing for residential construction projects. Its more recent history began in 1950s, when the bank became a federally owned corporation, and was to provide for a wide range of residential mortgages – pretty much in the same manner in which iot had started its existence. When the corporation lost its tax-free status in the 1970s, it entered the commercial lending industry, becoming the largest German underwriter of public covered bonds. The bank was privatized in 1990, and obtained a FSE listing in 1991.

At the end of the 1990s, the bank went through a legal restructuring, which led the bank to move its headquarters to the IFSC in Dublin, Ireland. In 2002 the Irish government specifically legislated for it.[2] Depfa Bank was purchased by German mortgage giant Hypo Real Estate a subsidiary of Bayerische Hypo- Und Vereinsbank AG in October 2007. From there on, it all started going terribly wrong. The bank ran into liquidity problems in 2008 as a result of the economic and financial turmoil in the United States. At the same time banking supervision in Ireland was very weak, soon to be proved by the 2008-2010 Irish banking crisis. Depfa underwrote a group of municipal bonds in the U.S. that subsequently had their ratings downgraded. Under the terms of the underwriting, Depfa was required to buy back the securities after downgrade in the ratings. Because of the difficulties in obtaining short-term funding in the markets at that time, Depfa’s liquidity became a major concern. Through a series of bailouts, the German government ended up with 100% ownership of Depfa’s parent company, Hypo Real Estate.

The Hypo Real Estate Holding AG was a much younger entity and had been established back in 2003 from the real estate financing business of HypoVereinsbank. It used to employ about 2,000 people and was one of the 30 members of the DAX stock index of the largest German companies between December 2005 and December 2008, before the shares were demoted to the MDAX. Its shares were further demoted to the SDAX in September 2009. In 2007 it acquired public finance Depfa Bank, according to a report from Agence France Presse’s economic branch AFX dated August 29 2007. The company remains a legal entity as a wholly owned subsidiary of the Hypo Real Estate Group. The firm was bailed out by the Bundesbank and other German banks in October 2008 in the midst of the global financial crisis, before approving a complete nationalisation a year later.

Hypo Real Estate encountered financial difficulties during the liquidity crisis of September 2008, principally due to the heavy debt burden of its Depfa subsidiary, Market Watch reported on 29 September 2008. The same day, Finance Minister of Germany Peer Steinbruck announced that a €35 billion credit line would be extended to Hypo Real Estate from the government and a consortium of German banks, the news report was to read. On October 4, The Associated Press was to report that the deal had fallen through that very day after the banking consortium involved had pulled out.] A second proposed bailout was to be agreed upon as of 6 October, with German banks to contribute €30 billion and the Bundesbank €20 billion to a credit line.

The big issue remains where the original money amounting to the staggering sum of 50 million euro “gone missing” had wandered to, which may well have been connected with the retreat of most of the bank’s former management. Among the plausible answers to that question features the possibility that renegade bankers and others with financial cloust from the former Soviet Union – including Viktor Khrapunov and his associates. The irony of it all, reading available documents come out of investigations on the Kazakh side of the law, could well be that part of the money had been spent on Khrapunov’s embezzlement deal at the cost of both public funds and mortgage holders. This raises the astounding suspicion that there could have been a substantial part of the “missing” cash at America’s, Europe’s and other banks into high-flying thin-air “projects” of doubtful intention – including those presented by the likes of Khrapunov and Ablyazov.

At the time the first trouble concerning Khrapunov’s German home bank in Kazakhstan arose, the Deutsche Welle on October 6 showed Germany’s Counsillor Angela Merkel pledging that her government would “pledge that those who have conducted business irresponsibly will be held to account. The government will ensure that that happens.” When it is supposed to do so, she failed to mention. This leaves German victims a long way from any possible comfort to the money thus plucked out of their pockets from the global racketeers’ gang known as corporate banking business. Where that leaves their victims in Kazakhstan is not very hard to guess. In all: crime pays – from the glamorous Brandenb?rger Tor to the back streets of Almaty.