Offshore Leaks reveal so far unknown BVI connection in Ablyazov files

While Kazakhstan’s embattled bank BTA, now majority-owned by the state through the country’s National Welfare Fund Samruk Kazyna which is keen on putting it on sale following a clearance deal with international creditors, tries to scramble cash and collateral diverted by its one-time major shareholder and president Mukhtar Ablyazov, more details about the latter’s methods and connections appear in the open almost by the week. A freshly discovered link on the British Virgin Islands, where most of the assets to be recovered are legally located, consists of an offshore mailbox firm fixer called Commonwealth Trust Limited (CTL), now under fire for alleged fraud and whitewashing of illicit gains for amounts totaling billions of greenbacks. With the culprit on the run and officially hiding in an unknown location, while having been condemned in England for contempt of court (perjury), BTA has already obtained clearance by the court to recapture billon worth of cash and assets. The latest information, obtained through an international investigative journalism team under the name Operation Offshore Leaks,could help BTA to actually recuperate some sales rights of collateral – most of all since CTL, as a convenient outrage, is still in operation – though now the property of a Dutch parent enterprise.

CHARLES VAN DER LEEUW, WRITER, NEWS ANALYST

Offshore Leaks reveal so far unknown BVI connection in Ablyazov filesAt the centre of the latest affair connected with Mukhtar Ablyazov is an enterprise Commonwealth Trust Limited (CTL), “a firm in the British Virgin Islands that sets up overseas companies and trusts for clients around the world” as one polite description reads. The whistle has first been blown by Russia’s renowned hedge fund Hermitage Capital Management Limited, which one day discovered that CTL had helped one of its clients, described as a “gang of mobsters” funneled assets owned by Hermitage to the BVI while changing their ownership in the process – a method which to those acquainted with Ablyazov’s must look all too familiar. Altogether “$230 million in bogus tax refunds” were thereby embezzled. The affair led to the controversial death of one of Hermitage’s lawyer, Sergey Magnitsky, in prison which in turn led to a row between the governments of the Russian Federation and the USA. Today, details have appeared in the open thanks to a spectacular operation by the International Consortium of Investigative Journalists, dubbed Offshore Leaks, which also shows direct links between CTL and Ablyazov’s network.

CTL was set up in 1994 by two consultants bearing the names of Thomas Ward and Scott Wilson. Whereas the name Ablyazov appears only in the sidelines of reports publicised so far and few details about his relation to CTL have been given, it has been the Magnitsky affair around the Hermitage Fund that exposed the BVI firm first. “Secret documents obtained by the International Consortium of Investigative Journalists show that CTL set up at least 23 of the offshore companies that Hermitage claims were used by the alleged fraudsters to move money and cover paper trails,” a lengthy article published by a newsreel called Premium Times (http://premiumtimesng.com/news/129007-the-story-of-ctl-the-go-between-that-provided-shelter-for-fraud-oyakhilomes-secret-company.html) on April 11 read. “Internal CTL documents obtained by ICIJ cover the firm’s relationships not only with figures linked to the Magnitsky case but also with thousands of other clients. The secret files show the firm served as a middleman for an extensive list of shady operators — setting up offshore companies for securities swindlers, Ponzi schemers and individuals linked to political corruption, arms trafficking and organized crime.”

The formula was carefully chosen in such a manner that CTL could never be blamed for any irregularity or worse on its customers’ conscience. Moreover, in many cases negligence on the side of the authorities also appears to be among the reasons CTL could get away with what it did for a long time indeed. “There is no evidence CTL engaged in fraud or other crimes,” the article continues. “Records obtained by ICIJ indicate, however, that CTL often failed to check who its real clients were and what they were up to — a process that anti-money-laundering experts say is vital to preventing fraud and other illicit activities in the offshore world. The documents show authorities in the British Virgin Islands failed for years to take aggressive action against CTL, even after they concluded the firm was violating the islands’ anti-money laundering laws.”

The documents which have reached the public domain so far containing details about the wide global network used by CTL amply explain that the relation between the likes of Ablyazov and CTL must have been more than skin-deep. “The secret documents show CTL attracted much of its business with the help of ‘master clients’ — lawyers, accountants and other middlemen in Russia, Cyprus, and elsewhere who brought in the customers who wanted to set up companies,” the PT article reads further down. “CTL’s standard procedure was to let these professionals be responsible for what’s known in the financial world as ‘due diligence,’ checking clients’ identities and backgrounds. […] More questions about how CTL screened its clients and business partners came in March 2003, when the main regulator of the BVI’s offshore industry, the local Financial Services Commission, conducted an inspection of the firm’s files. The commission determined CTL had breached the BVI’s anti-money laundering laws by failing to verify and record the identity of its clients, court records show. It ordered CTL to update its due diligence on its customers , but took no other action, putting the case on hold for nearly three years. The company provided regular updates on its progress in complying with the order, even as it continued taking on new clients from Russia, Eastern Europe and other places known for being sources of shadowy money.”

Apart from the highly sophisticated network serving fund diverting operations it is first and foremost authorities’ lenience which strikes attention in the chronology of CTL and its affiliated organisations. “Questions about how CTL screened its clients and business partners came in March 2003, when the main regulator of the BVI’s offshore industry, the local Financial Services Commission, conducted an inspection of the firm’s files,” the PT report reads. “The commission determined CTL had breached the BVI’s anti-money laundering laws by failing to verify and record the identity of its clients, court records show. It ordered CTL to update its due diligence on its customers , but took no other action, putting the case on hold for nearly three years. The company provided regular updates on its progress in complying with the order, even as it continued taking on new clients from Russia, Eastern Europe and other places known for being sources of shadowy money.”

For CTL, it meant as much as a green light for business as usual. The only thing is that the bolder the firm became, the murkier and the more dangerous its business relations were becoming. “Problems with the regulators didn’t do much to slow the firm’s growth. One internal company document shows the number of offshore companies it formed in the BVI more than tripled in seven years, going from 2,100 new companies established during 2000 to 6,600 established during 2007. The clients who signed on with CTL during this period included Dmytro Firtash, a billionaire businessman from Ukraine with a suspect back story. Media reports going back to at least 2003 had raised questions about his links to Semion Mogilevich, a reputed Russian mob boss who had been indicted in the U.S. in a $150 million investment scam, a case that would land Mogilevich on the F.B.I.’s ‘Ten Most Wanted’ list. U.S. State Department cables have reported that Firtash acknowledged to a top American diplomat ‘that he needed, and received, permission from Mogilevich when he established various businesses, but he denied any close relationship to him’. Firtash set up an offshore company through CTL, Group DF Limited, in 2006, months after he’d publicly acknowledged that he owned a big stake in RosUkrEnergo, a partnership with Gazprom, the Russian natural gas giant. Group DF Limited became the holding company for Firtash’s vast interests in energy, chemicals and real estate.”

The work CTL did for Mogilevich and Firtash coincided with its connection with Ablyazov and associates. “Internal records show CTL also set up 31 companies in 2006 and 2007 for an individual later named in U.K. court claims as a front man for Mukhtar Ablyazov, a Kazakh banking tycoon who has been accused of stealing $5 billion from one of the former Russian republic’s largest banks,” the article quoted above reads further. “Twenty-five of the 31 companies appear on the list of entities that BTA Bank alleges Ablyazov used to cover his tracks as he looted BTA between 2005 and 2009. Lawyers for Ablyazov – who maintains that the allegations are the work of political enemies in Kazakhstan – did not reply to requests for comment.”

It was only at this stage that shadows for CTL seemed to be growing longer. “When BVI regulators returned for another inspection in early 2006, they concluded that CTL had done little to improve its client-screening procedures. The regulators also believed, a judge later wrote, that the company had provided ‘false and misleading’ information in its progress reports. This didn’t prompt immediate action. The Financial Services Commission and company had what the judge later described as an ‘ongoing dialogue’ over another 12 months, while the commission wrote its report and figured out what to do about CTL. […] “When BVI regulators returned to CTL for a follow-up inspection in July 2007, CTL officials acknowledged they’d done no due diligence since early 2006 on files involving individual clients and that they’d completed due diligence on fewer than half their master clients, according later testimony by a commission official,” the PT article reveals. As a result, CTL’s licence to attract new clients was blocked by the authorities – even though this did not prevent them from serving out existing contracts.

For Ward and his partners, however, the sign on the wall that something should be done about shifting end-responsibilities within the enterprise, including a shift in jurisdiction as to where such responsibilities would resort, looked rather clear. “CTL’s staff grew worried in 2008 and 2009 because, along with being blocked by regulators from taking on new business, the firm was losing existing clients,” in the PT article’s words. “The clients were moving their companies to other registered agents or other jurisdictions. Many were frustrated with the “more onerous regulatory environment” and were refusing to provide the identifying data that BVI regulators were pushing CTL to gather, internal documents said. If CTL wanted to ensure its survival, it needed a plan. Rescue came from a Dutch company, Equity Trust. CTL and Equity Trust made a proposal to BVI regulators: If Equity Trust bought CTL, would the regulators consider withdrawing the order banning CTL from taking on new clients? The plan worked. In June 2009, the BVI’s Financial Services Commission approved Equity Trust’s takeover of CTL and lifted the ban on signing new clients. Ward stayed on with the firm, officially listed as a consultant while serving as the firm’s director of marketing and sales.”

The most astounding news of late has been that CTL and its founder have miraculously survived all the turmoil. Dutch authorities are as indifferent to obscure dealings by offshore firms that happen to be conveniently located on the country’s territory – not just on the Dutch Antilles but also, and increasingly, in The Netherlands proper. “CTL still operates — under the change of ownership — in a new set of offices in the BVI’s capital, Road Town,” the article concludes. “It is still an approved agent for new clients in BVI. Ward said he continues to work on a part-time basis, helping CTL manage client relationships. The Financial Services Commission declined to answer questions about CTL’s status or its investigation of the firm. In a written statement, agency officials said they maintain ‘world-class regulatory and registration regimes and we demand high standards of integrity and sound financial management of ourselves and from all of our licensees.’ Equity Trust, which is now owned by Amsterdam-headquartered TMF Group, said in its own written statement that it has worked with the commission since 2009 to reshape CTL’s operations.”

For BTA, this means that in order to recover assets handled at the time through CTL the bank might have to appeal to Dutch courts of law, which until now have shown mainly caution and reluctance to accept such cases. But the newly revealed facts and connections concerning Ablyazov’s cases also strongly confirm the much-heard suggestion that rather than acting as a lonesome cowboy performing a one-man-led operation, Ablyazov has in fact only been part of a much broader and bigger international criminal organisation which is believed to have embezzled trillions of dollars resulting in rapid dwindling of liquidity in regular circulation, eventually resulting in the notorious “crunch” and the bail-out of banks which allowed the “disappeared” cash to remain in the shadow circuit. To get it back into regular circulation without having been whitewashed first is a task that requires a lot more commitment and determination from national and supranational authorities’ side. The current lack of such commitment painfully evokes the smell of cover-ups.

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