The Khrapunov files: when justice follows bounty across the Atlantic

With Switzerland apparently having become “too hot” for the Khrapunov family to keep assets bought with embezzled revenue coming from sales of illegally obtained property in Almaty, the city’s former mayor has been looking for alternative hideouts for his fortune and found them in the USA, in particular (though apparently not only) in California. Bad luck: following complaints of the city of Almaty, American investigators started looking into the matter in spring last year, and now a trial has started in Los Angeles against a number of physical and corporate defendants, all of which can be traced back to the Khrapunov couple, with the aim to return the value of property purchased by the culprits on the sunny shorelands of the Pacific to its original rightful owners. The case is, as usual, complex and likely to last until well over summer, with the possibility that it could be passed on to a federal court which means at least a year more of legal arm-twisting.

BY CHARLES VAN DER LEEUW, WRITER, NEWS ANALYST

The Khrapunov files: when justice follows bounty across the Atlantic“The city of Almaty, Kazakhstan, sued its former mayor Viktor Khrapunov in California, claiming he “looted” $300 million through the sale of state-owned real estate and funnelled the money to Switzerland and the U.S.,” a Bloomberg report [http://kashagan.today/?p=152] posted at the time read. “Khrapunov’s children and their spouses have used the stolen funds to buy property in the Los Angeles area, including a $6.2 million home in Beverly Hills and a $5.7 million, 2-acre estate in Studio City, and lease Rolls Royce and Bentley sedans, according to the complaint filed today in federal court in Los Angeles. Almaty accuses Khrapunov and his family or racketeering and fraud and it seeks restitution as well as triple damages. The former mayor, who lives in Switzerland, left Kazakhstan in 2007. Almaty alleges he and his wife used rigged auctions to buy state-owned real estate at artificially suppressed prices and then sold them at a profit. Khrapunov has been charged in Kazakhstan with theft of public property, according to the city’s complaint.”

In a case filed on May 14 2014 [http://www.courthousenews.com/2014/05/14/67858.htm] the city was seeking restitution, a constructive trust and an injunction by court order from the defendants: Viktor Khrapunov; Leila Khrapunov; Iliyas Khrapunov; Madina Ablyazova aka Madina Khrapunova; Elvira Khrapuno, aka Elvira Kudryashova, aka Elvira Balmadani; Dmitri Kudryashov; RPM USA LLC, a New York corp.; RPM-Maro LLC, a New York corp.; Mr. Fumigation Inc.; Maro Design LLC; Haute Hue LLC; 628 Holdings LLC; Candian International Ltd., a British Virgin Islands corp.; Elvira Kudryashova as Trustee for The Kasan Family Trust; and Dmitri Kudryashov as Trustee for The Kasan Family Trust. The defendants include mailbox firms used, with the help of fake loans, invoices and claims, to funnel funds from Switzerland, where the stolen money was initially laundered, to further safe havens, middlemen managing the transactions and the people behind the entire scheme – meaning Khrapunov and family.

“VK abused his position of trust as a public official in order to convert and sell numerous assets belonging to the City of Almaty for his own benefit and the benefit of his co-conspirators, and VK and his co-conspirators thereafter set out to launder and conceal their ill-gotten gains by acquiring assets, including assets located in the Central District of California and within the United States, and making investments in entities in the United States and throughout the world,” the lawsuit stated. “Khrapunov was mayor of Almaty from 2991 until 2004. He then became governor of Pavlodar province until 2007, when he was appointed minister of emergency measures. He retired in late 2007, a retirement the city describes as “a flight into exile” with his ill-gotten gains, via private jet. The city believes he lives in Switzerland. It estimates his net worth as $324 million to $432 million.” Those millions, according to investigations by Kazakh authorities and later confirmed by their Swiss peers as “grounded’ (meaning: yet to be fully proven), within the period between 2003 and 2007 flew to the accounts in Geneva banks Credit Suisse and Schroder & Co Bank AG, registered for the daughter of Khrapunov Elvira. In July of 2011 Kazakhstan under the line of Interpol issued an arrest warrant on Viktor Khrapunov

“Net worth” probably excludes the assets, altogether worth an estimated quarter-billion-dollar-plus, initially bought in Switzerland and paid for through offshore bank accounts in a number of financial hideouts including Cyprus and The Netherlands. It took years of trouble to unravel the classical type of corporate loopholes behind the scheme. Among the links in the chain seems to have been two Swiss companies: one called Toepffer Investment and another known as Helvetica Capital SA, rue du Mont Blanc 3, Geneva. With a share capital of 100,000 Swiss francs, divided in 1,000 shares, the enterprise’s goal is being described as prise et administration de participations dans toutes sociétés ou enterprises à l’exclusion de prise de participations dans les sociétés immobilières en Suisse. In other words : a nominee interest holder in all kinds of enterprises with little other aim than hiding the identity of the true owner. As of January 19 2010, Helvetic Capital, registered in Switzerland, had two authorised directors, being Leyla Khrapunova and  Swiss national by the name of Marc Gillieron. A note dated April 4 2011 was to report Leyla’s retreat from her post, leaving the entire job to her Swiss peer. The Swiss company, for all it mattered, had, and assumedly still has, a Dutch subsidiary called Helvetic Capital BV, based at Schiphol Airport near Amsterdam.

The longest list of posts as chairman of the board, however, concerns Ilyas, including Swiss Development Group (Switzerland), Swiss Development Group Capital (Luxemburg), Thermal Development SA, Thermal Development 2 SA, Hotel Duparc Holding, Hotel Duparc Mont Pelerin SA, Swiss Standard IB AG, SaaFee Hotels and Residence Development Group SA. The list could be considerably extended with probably dozens, possibly hundreds of other enterprises, both in Switzerland and offshore, under nominal control of proxies.

Following exposure in Switzerland, a new “corporate vehicle” to funnel the Khrapunovs’ fortune was initiated over summer in 2012 with the Luxemburg-based Swiss Development Group Real Estate Investment SICAV-SIF SCA, the new fund is meant to have a life-span of seven years, with the option to prolong it with another three years. The fund claims to have accumulated half a billon Swiss francs so far from unnamed “investors” – leaving the tangible origin of the money hard to guess, but not its kind of origin. Assets under the fund include luxury tourist and residence resorts in Switzerland and Greece. According to local media in Kazakhstan at the time,Ilyas Khrapunov had already been spotted on surprise visits in the “Democratic Republic” of Congo – meaning former Zaïre, Gabon and Macaõ. The alleged purpose of his tour: seeking “opportunities” for a new investment fund based in Luxemburg at the cradle of which he is standing. Dubbed the Swiss Development Group Real Estate Investment SICAV-SIF SCA, the fund, established in the winter of 2012/’13, was meant to have a life-span of seven years, with the option to prolong it with another three years, according to a recent official announcement by the SDG. According to the communiqué, its “target equity” stand at 250 million Swiss francs. Today, it appears that attempts to funnel income from the sales of Swiss assets to the Mediterranean and from there into Africa and the Far East must have failed. Instead, the bulk of the funds are now believed to have ended up in California. Investigations are supposed to deliver enough evidence in America’s court to sustain their illegal origins.

According to a report dated April 25 2013 and published by Tengrinews (referring to a local newsreel known as Nomad) [http://tengrinews.kz/kazakhstan_news/smi-hrapunovyi-hranili-sberejeniya-v-bankah-kipra-233005/], Viktor Khrapunov and his spouse Leyla have deposits on Cyprus with “savings for a rainy day”. The article also suggests that revenue from the sale of the family’s main asset in Switzerland, known as Swiss Development Group to a Swiss tycoon are supposed to have ended up in Cypriot bank accounts. Preliminary results of an ongoing judicial investigation into the wheelings and dealings of the Khrapunovs 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 2014. It was later withdrawn since it appeared that 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.

Now, almost a year later, the American court appears to accept that the “corrupt former mayor” of Kazakhstan’s largest city looted $300 million and hid the money in the United States, the City of Almaty claims in Federal Court, the official court document concerning the complaint [http://www.courthousenews.com/2015/04/13/kazakh-city-says-oligarch-swiped-300-million.htm] reads.  The City of Almaty sued Viktor Khrapunov, his wife Leila, their children Iliyas and Elvira Khrapunov, and the children’s spouses, Madina and Dmitri Kudryashov, on April 8. Almaty, pop. 1.6 million, is in the foothills of southeastern Kazakhstan. Once the country’s capital, Almaty is still an important cultural and commercial center.

In the lawsuit now on the court’s desk, Almaty claims the Khrapunovs’ scheme was twofold: “(a) to steal and loot money from Almaty; and (b) to transfer, launder, and hide that stolen money in the United States where they believed it would be out of reach of Kazakh and other governmental authorities.” The lawsuit adds: “From 1997 to 2004, Viktor, Leila, Iliyas, Elivra and their co-conspirators systematically stole and looted money from Almaty as a result of Viktor’s corrupt use of his political power. In 2007, fearing discovery of their fraud, Viktor and Leila fled to Switzerland, where Iliyas and Elvira resided at the time, and attempted to launder and hide the stolen money in Switzerland.” With cooperation from Swiss authorities, Kazakh authorities brought “formal criminal charges” against the Khrapunovs in May 2011. In 2012, Switzerland investigated them for money laundering and began freezing their Swiss assets, according to the complaint. So the Khrapunovs relocated their fraudulent enterprise to the United States, which they considered “the ideal location to launder the stolen proceeds because they believed it was out of reach of the Kazakh authorities,” the complaint states. “The United States does not have a mutual legal assistance treaty or extradition treaty with Kazakhstan. Almaty claims the Khrapunovs used sham companies to hide the source of their stolen millions from Kazakh, Swiss and U.S. authorities.”

“Viktor Khrapunov was mayor of Almaty from June 1997 until December 2004, when he was appointed governor of Pavlodar, Kazakhstan’s northeastern province. In 2007 he retired to Switzerland, allegedly due to health reasons.  During his tenure as mayor, the city says, Khrapunov abused his authority by “plunder[ing] the city’s wealth and industry to enrich himself, his family, and his co-conspirators, at the expense of Almaty and its people.” As mayor, Khrapunov could sell state-owned real estate at auctions and acquire private property for state use. But Almaty says he gamed the system by, among other things, disclosing confidential bid information to his wife so her entities could adjust their bids; using sham entities to acquire property at low cost and selling it for “tens of millions of dollars in illicit profits;” not paying for properties acquired at auction; and using government influence to increase the value of certain properties he obtained at auction. Almaty claims the Khrapunovs laundered the dirty money through various offshore holding companies, including two Swiss companies owned by Leila, Iliyas and Elvira. Upon moving their enterprise to the United States, they used the laundered money to buy expensive cars and “lavish” mansions in Beverly Hills, and invested it in several U.S. companies, including a luxury hotel chain in New York, according to the complaint. Viktor and Leila filed false tax returns that listed their combined net worth at around $113,000, when in reality they had “amassed a fortune that reportedly exceeds $300 million,” the complaint states. In Kazakhstan, Viktor faces 24 criminal charges of for embezzlement, fraud, abuse of power and other crimes, and Leila faces five charges of money laundering and organized criminal activity, according to the complaint. Viktor Khrapunov did not return requests for comment Friday. Almaty seeks compensatory, treble, and punitive damages for RICO violations, breach of fiduciary duty, conversion and conspiracy, fraud and deceit. It also wants the $300 million. It is represented by David J. Schindler with Latham & Watkins.

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