Ablyazov’s diversion schemes: the tale of the AAA-bonds’ long journey/II

The latest case in the ongoing campaign waged by Kazakhstan’s troubled BTA bank to get hold of embezzled funds suspected to be on British territory connected with the multi-billion fund and asset diversion schemes of its former president Mukhtar Ablyazov, has turned into a fresh eye-opener concerning one of the cases in which the latter has been convicted to 22 months in a British jail for perjury. The case, known as the AAA-files, concerns a clandestine transaction of high-brow bonds in prestigious investment institutions such as the International Finance Corporation and the European Bank for Reconstruction and Development. One astonishing aspect is that the issuers of the bonds at stake seem to have done nothing to prevent the income from the paper being entitled to their new holders to which they have been transferred – behind which as always sticks no one else than Mr. Ablyazov – either directly or by proxy. Even though more and more facts appear in the open that might facilitate such recuperation, the long-lasting battle is far from over.


Ablyazov’s diversion schemes: the tale of the AAA-bonds’ long journey/IIThe first two rounds of transactions in summer 2008 of the so-called AAA-paper saw the implication of Russia’s largest private bank Alfabank and its offshore investment subsidiary, as well as that of Trasta Kommercbanka of Latvia. In a second round of bond sales from the same issuers, another 292 million US dollar were diverted on 22 January 2009 – hardly more than a week before Ablyazov and his associates fell through. Like before, Bubris Investment Ltd, Granta Investment Holdings Ltd and Kyma Investment Holdings Ltd which later changed their names into Celina-, Shoreline- and Mymana Investment Holdings Ltd respectively, alongside Nafazko Investment Ltd and Olofu Investment Ltd appear to have been the sellers. The firms have become known as the BVI defendants since they are all located on the British Virgin Islands. The January 2009 transactions, in contrast to the previous ones, do not bear any traces of Trasta’s involvement. Its implication in Ablyazov’s schemes in 2008 had been only the latest blow to Latvia’s scandal-ridden banking sector, where in the wake of the global finance crunch two major banks collapsed in a manner that has widely been viewed as fraudulent.

Trasta slipped into controversy last year through its role in a scandal surrounding oil-related tenders in Ukraine. “Questions are growing over the role played by Latvia’s Trasta Komercbanka in controversial Ukrainian state tenders in 2011 allegedly involving the embezzlement of hundreds of millions of dollars.,” Business New Europe (bne) reported on June 11 this year. “Companies participating in the tenders were mere creatures of the Latvian bank, which has links to Ukrainian Minister of Energy Yury Boiko. As bne previously reported, in March 2011 a UK shell company called Highway Investment Processing won a tender to supply a drilling rig for $400 million to Chornomornaftogaz, which is a fully-owned subsidiary of national gas company Naftogaz Ukrainy. Norway’s offshore drilling giant Seadrill later confirmed that it originally supplied the rig to Highway but for only $248.5 million, raising questions about the size of the intermediary’s mark-up, and who was the lucky beneficial owner of Highway. In two parallel tenders in March 2011, a UK shell company registered at the same address as Highway Investment, Verylux Company, also with unknown beneficiaries, won contracts totalling over $150 million to provide supply ships to the same Naftogaz subsidiary Chornomornaftogaz. Market analysts pointed to nearly 100 per cent mark-ups for those deals. Naftogaz has disputed any irregularities in the tenders.”

So far, the bank has remained stoic amidst the waves of accusations. “Question marks continue to accumulate around Trasta Komercbanka. Apart from its involvement with the controversial Naftogaz tenders, at least two other cases raised eyebrows last year. In September 2011, asset retrieval proceedings by Kazakhstan’s BTA bank against its former owner Mukhtar Ablyazov at the High Court of London found that Ablyazov had diverted $1.5 billion of BTA assets via offshore companies to accounts at Trasta Komercbanka, with a Belarusian farmer holding an apparently fictive power of attorney for the offshores involved. And a Ukrainian court in September 2011 found a small Dnipropetrovsk bank had shifted a total of $2 billion out of the country via IOS-established companies to accounts at Trasta Komercbanka. ‘The bank controls all clients operations carefully in compliance with Anti Money Laundering Law. If the bank suspects or finds out that a client acts unlawfully, according to the law it notifies the national authority,’ Trasta Komercbanka assured bne.”

It was not the first time the bank had been brought into connection with Ablyazov. An earlier tale goes back to late 2006, when an amount topping 700 million US dollar seems to have been funneled away from asset control by its original source BTA-Kazakhstan, by two Latvian banks including Trasta, connected with the Russian real estate and project development schemes surrounding Eurasia Logistics. On 18 December 2006, a transfer of 118.704 million US dollar was made by a company called Starwood Contracts Limited, based in Victoria on the isle of Mahe, Seychelles, Kaznet, a US-based newsreel concentrating on Ablyazov at the time reported. The beneficiary was a firm named Somerset Projects IHC, based in Tortola on the British Virgin Islands, which had its account at Trasta Komercbanka. Somerset was controlled by a certain Stephen John Kelly. Shortly afterwards, Starwood received 100 per cent of all the shares in a firm called Archeston Solutions Inc. The latter was based on the British Virgin Islands, under a director by the name of T. N. Parskevich, and in turn it controlled 99 per cent of yet one more enterprise called Business Engineering, based in Moscow, which consequently owned 100 per cent in a firm called Central Engineering Company, equally Moscow-based, the director-general and “signatory” of which was named A. V. Fatayeva.

For the perpetrators in the BTA-related string of clandestine transactions, events in early 2009 triggered a severe turn in their actions – though not exactly a reversal in their schemes. Quite the opposite would appear to be true, even though a shift in identity of mailbox firms and implied individuals appears to be necessary. Communication between those involved discovered last winter in a container downtown London appears to reveal most fascinating details about how this was done. “On 2nd February 2009, the Kazakh government acquired 75.1% of the Bank, through a sovereign wealth fund, Samruk Kazyna,” the July 10 verdict by a London court this year relates. “It appears that at or about this time, Mr Solodchenko was dismissed as Chairman of the Bank’s management board, and Mr Ablyazov was dismissed as Chairman of the Bank, fled Kazakhstan, and came to London. On 2nd March 2009, Ms Victoria Kolyasova of Eastbridge emailed Mr Udovenko, Mr Ereshchenko, Mr Syrym Shalabayev the 14th Defendant (“Mr Shalabayev”) and others saying that if they (Mr Udovenko and Mr Ereshchenko) approved the application for powers of attorney for many companies including the BVI Defendants and some of the Further Recipients ‘please send a request to the Registrar’. The powers of attorney were apparently granted to Mr Ereshchenko, Mr Shalabayev, Mr Udovenko and Mr Rybalkin and others on 3rd March 2009. On 6th March 2009, Ms Kolyasova sent an email to Mr Udovenko and Mr Ereshchenko and others saying to Mr Udovenko that “by indication of [Mr Ereshchenko] I am … sending you the draft of letter to register for signing attached documents”. On 9th March 2009, Mr Ereshchenko emailed to Mr Kythreotis 5 securities sale and purchase agreements dated 5th January 2009 between the Bank and each of the 5 BVI Defendants (the “5 SPAs”). In March 2009, according to Mr Ereshchenko, Eastbridge closed its Moscow office. Also in that month, it appears that Mr Surapbergenov came to visit Mr Ereshchenko in London for a week and gave him the draft 5 SPAs and told him that he was very concerned about his position because of events in Kazakhstan.”

It looks as though a number of Ablyazov’s proxies got scared and ready to throw the towel in the ring – though this would later appear to be more easily said than done. “On 24th April 2009, Ms Kolyasova sent an email to Mr Udovenko and Mr Ereshchenko asking that an inquiry be sent to the registrar, Mr Kythreotis, in relation to Bubris. This was part of a series of emails, to which Mr Ereshchenko was a party, concerning bond trading at this time. On 12th August 2009, Mr Aizhulov ceased to be a director Eastbridge. […] In August 2009, Mr Aizhulov left London. In December 2009, Mr Udovenko left London and has not returned since then. His whereabouts are unknown. On 12th February 2010, Mr Udovenko resigned as a director of Eastbridge, leaving Mr Ereshchenko as the sole director of Eastbridge. On 28th May 2010, Mr Ereshchenko resigned as a director of Eastbridge. On 20th June 2010, Mr Ereshchenko says that he stopped working for Eastbridge. On 26th July 2010, the Bank obtained worldwide freezing orders against the first 12 Defendants in these proceedings. On 27th July 2010, the Bank obtained freezing orders against the Defendants to these proceedings incorporated in the BVI from the BVI court. On 28th July 2010, these proceedings were commenced against the first 12 Defendants. In August 2010, Mr Ereshchenko says that he threw his laptop computer away.”

But Ereshchenko or no Ereshchenko, business continued as usual, including the process to bring, and keep, the AAA paper out of reach for both authorities and claimants. “On 8th December 2010, the matter came before me on Mr Ereshchenko’s applications for a 14 day extension of time for compliance with the Disclosure Order. I stood over the application and extended the date for compliance with the Disclosure Order to 10th December 2010. In the course of the hearing, I made it clear that Mr Ereshchenko needed to tell the court what he had already done to comply with the Disclosure Order and what needed to be done and how long it would take. […] I did not, contrary to the understanding that seems to have been gained by Mr Ereshchenko, say that I would not grant an extension when the matter returned on 10th December 2010. Unfortunately, however, Mr Ereshchenko seems to have misunderstood that he would be obtaining no further extension and decided not to re-apply to me on the 10th December 2010. Instead, on 10th December 2010, Mr Ereshchenko made his December statement in response to the Disclosure Order. I shall set out the pertinent parts of this important statement in due course, but, in outline, he said that he did not have any information about the AAA Transactions, and that the BVI Defendants and the Further Recipients had been dealt with by Mr Udovenko’s part of the Eastbridge business.”

The entry of Eastbridge in the story makes the story a lot clearer – most of all after people from BTA’s law firm in London Hogan Lovells had come across a container where a great number of documents relating to the activities of over 600 offshore companies were stored. “This container was frequented by Salim Shalabayev who was helping his elder brother Sarym Shalabayev (both are brothers of M.Ablyazov’s wife) to hide Ablyazov’s assets from the Court,” Interfax reported on December 10 last year. “It came to the knowledge of the Court that Salim Shalabayev had been seen a number of times moving boxes with documents out of a container in Big Yellow Box storage facility and taking them to Ablyazov’s house in Bishops Avenue. He was also seen taking the boxes back into the container. BTA lawyers, who had a suspicion that the container might contain the documents that had been hidden from the Court, obtained access to the place where they did find Ablyazov’s documents on a large number of offshore companies, through which he was hiding the fraudulently obtained money.”

It now appears that Ereshchenko was involved in handling Ablyazov’s legal Ali Baba treasury. “On the evening of 10th December 2010, Mr Ereshchenko attended at the offices of SPW (UK) LLP, a firm of chartered accountants acting for Eastbridge,” the July 10 verdict relates. “He inspected 4 or 5 out of 20 boxes of documents that had been retrieved from the Big Yellow storage company by Mr Salim Shalabayev. On 15th December 2010, Mr Ereshchenko made his December affidavit verifying his December statement and saying: “I know nothing, so far as I can recall, about any of the transactions whereby US$300 million of AAA-rated investments were allegedly fraudulently transferred by the Bank to the BVI Defendants”. On 3rd February 2011, the Bank located 25 boxes of documents and the old Eastbridge server at the Big Yellow storage company. Apart from some relevant documents located on Eastbridge’s old server, the Bank does not suggest that the 25 boxes contained any documents that are relevant to the issues in these committal proceedings. On 3rd February 2011, Mr Ereshchenko was joined as the 17th Defendant to these proceedings, restricting him from leaving the jurisdiction and making use of his passport pending an application by the Bank to cross-examine him.”

For Ablyazov in person, the game was drawing to a close and a confirmation of his perjury jail term can be expected any day now. From there on, he has been declared barred from further personal defence – even though most of his co-defendants, both personal and corporate, maintain that right. For Ereshchenko it might take some time before he eventually joins his former lord and master behind bars. “On 16th February 2012, Teare J decided on the Bank’s application that Mr Ablyazov had been guilty of contempt of court in responding to the disclosure he had been ordered to make pursuant to a worldwide freezing order by falsely maintaining that he was not the ultimate beneficial owner of the 4th Defendant, Bubris Investments Limited, one of the BVI Defendants, and of certain other valuable properties and companies,” the verdict’s chronology concludes. “Later in February 2012, Mr Ablyazov was sentenced in his absence to 22 months in prison by Teare J for contempt of court. Mr Ablyazov has not returned to England to serve his sentence, but has appealed the decision. On 15th March 2012, the Bank issued a summary judgment application against Mr Ablyazov and the BVI defendants. On 19th March 2012, the Bank served detailed particulars of Mr Ereshchenko’s alleged contempt pursuant to directions given by Peter Smith J. On 20th March 2012, Peter Smith J adjourned the trial to 18th June 2012, and directed pleadings as to the alleged contempt, and limited disclosure by the Bank, and ordered that any fact found at the committal trial shall be conclusive between the parties unless fresh material becomes available and the Court concludes that that material potentially undermines the relevant findings. On 30th March 2012, Mr Ereshchenko served Points of Defence in relation to the allegations of contempt. On 2nd May 2012, Peter Smith J gave the Bank permission to amend its particulars of contempt, and required Mr Ereshchenko to amend his defence. On 4th May 2012, the Bank served amended particulars of the alleged contempt. On 18th May 2012, Mr Ereshchenko served his May affidavit in answer to the committal application. On 24th May 2012, Mr Ereshchenko served amended Points of Defence in relation to the allegations of contempt.”

The verdict remains contradictory to the superficial reader. However, judicially speaking the claim has been correct. In parallel, an appeal against Ablyazov’s verdict of 22 months behind (British) bars for perjury was proceeding – including a case concerning Bubris. The outcome might well give BTA ground for pursuing its claim against Erechenko further in a more appropriate manner. It might also get to further claims against other defendants and/or witnesses. BTA’s lawyers’ strategy so far has been to pave the way for the bank to recuperate as much of the funds and collateral on British territory and elsewhere as it possibly can and as speedily as it can. It remains to be discussed whether further implications of side-defendants in proceedings helps this, now that the main culprit, following the verdict on his appeal, is set to see him haunted by police and barred from further defence. BTA expects proceedings to get its assets back to start over summer this year. It might take till the end of the upcoming year or even longer, though, before the proceedings, with defendants other than Ablyazov alone still retaining access to the defence stand, could result in any tangible gain for the embattled bank.