Ablyazov’s, Khrapunov’s Fund Diversion Schemes: Midnight Cowboys From The Steppe Exposed

Belgiumgate: VdM et ses engagements vis-à-vis Moukhtar Ablyazov – piège ou trahison de justice?

How could billionaire, real estate magnate and imminent presidential candidate Donald Trump get involved in one of Kazakhstan’s worst embezzlement scandal? The many headlines the tripod Trump-Ablyazov-Khrapunov receives these days leaves the question unanswered directly. But suggestions that Kazakhstan’s fugitive former thieves-within-the-law look for a “face” abroad to “prove” that they have always been honourable citizens, victims of cruel persecution in their country of origin, look all too credible. For the victims, namely the Kazakh community, one more long, laborious march through this time US judicial institutions is in store.

The timing must be seen as almost perfect – at least in the eyes of Hillary Clinton who has her own fair share in the shower of scandals surrounding both US presidential candidates on the brink of elections. But the names of Mukhtar Ablyazov and is relative Viktor Khrapunov (whose son is married to Ablyazov’s daughter, with the young couple playing a pivotal role in the operations to launder the hundreds of millions in US dollar embezzled at times when Khrapunov was mayor of Almaty) in the affairs of Donald Trump makes it necessary to look a bit behind the headlines.

The scheme itself shows a long detour before it ends up in New York, in part to Trump’s benefit. The laundering operation started back in 2008, shortly after the Khrapunov family fled to Switzerland, and its first stage lasted till 2012. At that stage, at least 300 million euro had found its way from Kazakhstan to Switzerland. But Swiss authorities had then become wary, and the Khrapunov couple’s accounts and assets were frozen. Upon this, Khrapunov and his son Ilyas who is his main laundering conductor looked for diversions and found them with the help of a Belgian businessman named Nicolas Bourg, who set up a number of holdings in Luxemburg with the aim to funnel cash into the USA from a Cyprus-based bank. Through a compatriot named Eric Elkin Khrapunov meets the Moroccan New-York-based project developer Joseph Chedrit, who, finding that Luxemburg banks refuse to accept cheques from the Cypru bank FMBE, offers to put his personal bank account in the USA at Khrapunov’s disposition to transfer the money.

“How did it come about that Trump Organization projects came to be financed with dirty money originating with international financial criminals from Russian, Ukraine, Kazakhstan, the former Soviet Republic of Georgia and other Eastern European and Central Asian sources?,” one article in the New York Daily News read on Thursday. “The answer is simple: It had no choice, if it wanted to survive. After four business bankruptcies, nearly all the legitimate U.S. banks realized that any further loans to Trump would be reckless. The Trump business empire was on the verge of collapse. Salvation was found in Russian money of questionable origin. Trump SoHo in lower Manhattan is a case in point. In order to finance the project, the Trump Organization teamed up with two real estate development companies that had a direct pipeline to Russian, Eastern European and Central Asian money sources. Among investors was the FL Group, a conduit for wealthy Russians close to Putin to invest in Western European and U.S. projects; a “strategic partner” was Alexander Mashikevich, a Kazakhstan billionaire implicated in a corruption case involving a Belgian company doing business in Kazakhstan (settled with no admission of guilt). While Trump’s partners handled sales of condo units within the hotel, Trump until 2014 held an 18% stake in the profits. Among the buyers whose funds thereby found their way to Trump was Viktor Khrapunov, a former Kazakh energy minister alleged in federal court to have been engaged in a money laundering scheme at the time.”

“A source of controversy”

Lately, the Financial Times was among the media which took the Khrapunov-Trump link under the eyeglass. One of the things the article makes clear is that the intertwinement of Ablyazov’s en Khrapunov’s fund diversions is more profound than so far generally thought. Many details on Ablazov’s Swiss connections fail, and investigators remain in the dark regarding Ablyazov worked for Khrapunov or vice versa.

“One former executive at a developer that worked with Mr Trump accused him of “wilful obliviousness” to the details of his partners’ dealings,” the article reads. “But a spokesman for the Trump Organisation said it conducted “extensive” background checks on its partners, including hiring outside investigators. One of those partners, Bayrock, has already been a source of controversy. Now the details of Bayrock’s association with the family of Viktor Khrapunov, a former Kazakh energy minister and ex-mayor of the city of Almaty, show it was connected to an alleged laundering scheme at the same time as it was collaborating with Mr Trump. Lawyers for Almaty told a US court in March that Mr Khrapunov and his family ‘conspired to systematically loot hundreds of millions of dollars of public assets … and to launder their ill-gotten gains through a complex web of bank accounts and shell ompanies … particularly in the United States’.”

In August 2011, judicial investigations were opened against the former mayor of Almaty Viktor Khrapunov, for the usual list of suspected violations of the law: misappropriation of funds, embezzlement, forgery and a number of related offences. His bait was relatively modest, and expressed in hundreds of millions rather than the billions taken away by some of his fellow-mega-fraudsters in exile. But while entrenched in Switzerland with a Swiss passport in his pocket, Viktor Vyacheslavovich, had lost no time to join the chorus of very-well-to-do “democratic” saviours of the oppressed Kazakh nation singing its song from abroad.

Firms controlled by proxy

VILED International Unlimited, the parent company the formal owner and president of which was Khrapunov’s wife Leila Kalybekovna, was initially Khrapunov’s main instrument to stash his gains before he started diversifying his revenue in an ever-growing web of firms controlled by proxy. Numerous sites around town were bought by it that had no building permits and therefore looked of little value. He then ordered to issue building permits for them, which overnight multiplied their property value, and subsequently started offering them to the fortunate classes of Almaty. Some of these larger objects appropriated by the Khrapunovs included a plaza on the corner of Gogolya and Panfilova Streets, apartment and shopping space blocks on Furmanova Street Dostyk Avenue, both on the edges of the uppity business neighbourhood of Samal-2. For all 12 blocks identified as falling under VILED’s umbrella, together no more than the equivalent of 60 million US dollar was allegedly paid — at least this is what Khrapunov was to claim later — but in any case never found back in any budget in the city administration where the sums for the purchases should have been registered. Further uphill, property, including parts of protected natural zones, were bought up by VILED and affiliated firms for even more hilarious sums. Thus, a forest site named Wood Fairy Tale and another one known as Oak Grove were purchased by a company called Gulmira Ltd., run by one of the Krapunov pair’s associates by the name of Shebityevov and believed to be closely affiliated to VILED, for the negligible amounts of 1.8 and 2.1 million tenge respectively. Public property has also been sold illegally to another one among Khrapunov’s shell firms called Phoenix Unlimited, run by a certain G. Mukashev, who in particular obtained blue-chip locations with permission to demolish the kindergardens, pensioners’ homes and other social facilities located on them, with the aim to build commercial glamour objects on them.

Frozen by the Swiss authorities

As we reported at the time, among Khrapunov’s early Swiss links in the chain seems to have been a company called 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.

“According to Kazakhstan investigators, the Khrapunovs transferred to over $48 million and 7.7 million Euro to foreign accounts in Switzerland and to offshore accounts between 2003 and 2007, one report by the independent Kazakh newsreel Tengrinews dating from June 2015 reminded. “Viktor Khrapunov used to hold high-ranking positions in Kazakhstan: he used to be Energy Minister, Almaty Akim (Mayor), East-Kazakhstan Oblast Akim (Governor) and Emergency Situations Minister. In April 2008 he immigrated to Switzerland. In August 2013 all the bank accounts of the Khrapunov family in Credit Suisse и Schroder & Co Bank AG were frozen by the Swiss authorities ‘until the time the origins of the funds are defined. Bank, financial and other documents were seized for review and legal assessment,’ the Swiss police reported.”

Seeking “opportunities”

Confirmed information that has been known for some years reveals that the shopping list of the Khrapunovs in Switzerland and elsewhere appears to be long. Upon arrival of the parents in 2007, Elvira Kudryashova bought a luxury chalet, 49 chemin de Ruth, Cologny, for 32 million Swiss francs. Following this, the family purchased two uppity apartments downtown Geneva, 10 rue Rodolphe Toepffer and 28B chemin du Petit Sacconex, for 16 million each, followed by the purchase, for an undisclosed sum, of a seven-storey building, 3 rue du Mont Blanc. But the list of corporate interests is a lot longer. According to Kazakh prosecutors, Elvira is in control of at least three corporate entities: Phoenix International Holding, Dragon Financial Company and Unic Life Style Sarl. The latter firm in turn controls Phoenix Jewelry SA. Chairperson of the board of both Phoenix International and Dragon is said to be a certain Nicolas Garnier.

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 was meant to have a life-span of seven years, with the option to prolong it with another three years. The fund claimed 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. The fund’s “target equity” stood at 250 million Swiss francs Assets under the fund included 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 the Swiss Development Group Real Estate Investment SICAV-SIF SCA.

The ultimate beneficiary

It is through this vehicle that the Khrapunov family ended up sharing unpleasant headlines with Donald Trump. “Among the dozens of companies the Almaty lawyers say the Khrapunov laundering network used were three called Soho 3310, Soho 3311 and Soho 3203,” the FT report reads further down. “Each was a limited liability company, meaning their ownership could easily be concealed. The companies were created in April 2013 in New York. A week later, property records show, they paid a total of $3.1m to buy the apartments that corresponded with their names in the Trump Soho, a 46-storey luxury hotel-condominium completed in 2010 in a chic corner of Manhattan. Bank statements submitted by Almaty’s lawyers indicate that the ultimate beneficiary of the Soho companies was Elvira Kudryashova, Mr Khrapunov’s California-based daughter. According to the Kazakh government, she, with her brother Ilyas, is a key link in the family’s laundering network. Shortly before the Soho companies bought the apartments, more than $3.1m flowed out of Ms Kudryashova’s Wells Fargo account to the firm of Martin Jajan, a New York lawyer. Mr Jajan proceeded to sign purchase documents for the Trump Soho apartments as buyer’s agent. Other bank records show further links between Ms Kudryashova and her relatives and the Soho shell companies.”

“The vendor was another limited liability company, Bayrock/Sapir Organization LLC,”in the FT’s words. “It was named after the developers that jointly built Trump Soho: the Sapir Organisation, founded by Tamir Sapir, from Georgia, and Bayrock, founded by Tevfik Arif, a Kazakhstan-born former Soviet official. According to regulatory filings, however, Bayrock/Sapir Organization LLC had a third co-owner — the man who licensed his personal brand to the project. The Trump Soho, announced in 2006, was an early example of a building that bore the Trump name but was built by someone else. Mr Trump’s access to finance had been curtailed by bankruptcies. […] Until it fell into financial trouble and changed hands in a 2014 foreclosure sale, Mr Trump enjoyed an 18 per cent share of the profits of the Trump Soho. Alan Garten, general counsel of the Trump Organisation, said Bayrock and the Sapir Organisation were responsible for apartment sales and for conducting due diligence on buyers.”

“Equity for several new projects”

The name Bayrock appears elsewhere in the hefty Khrapunov files as well. “Bayrock was one of the backers of the redevelopment of the 101-year-old Hotel du Parc on the shores of Lake Geneva, owned by Swiss Development Group, a Geneva-based company. In May this year, Nicolas Bourg, a Belgian businessman who says he worked with Viktor Khrapunov’s son Ilyas on US real estate deals, claimed in a separate dispute that Swiss Development Group was ‘owned and controlled by Ilyas and his family and used to conceal the movement and investment of his family’s money’,” the FT’s documentary reads.

The name Bourg first appeared in a broader documentary published by a periodical called The RealDeal [http://therealdeal.com/issues_articles/nycs-dirty-money-files/] in early October. “In 2012, Joseph Chetrit, a Moroccan real estate investor known for his New York City developments, allegedly flew to Geneva to meet Nicolas Bourg, a Belgium-based real estate fund manager, to talk about raising equity for several new projects. Bourg was representing an investment fund backed with money allegedly stolen by two Kazakhstani investors — Viktor Khrapunov, the former mayor of Almaty, the largest city in Kazakhstan, and Mukhtar Ablyazov, the former chairman of the country’s BTA Bank. The two were eager to place their money in the U.S., and New York City seemed like a good bet for unloading a serious amount of cash quickly.

In order to make a deal, the Kazakhstanis offered Chetrit unusually favorable terms, agreeing to provide 75 percent of the cash needed to build the developer’s Flatotel condo project at 135 West 52nd Street for only 50 percent of the project’s profits. The difference effectively amounted to an above-market “promote fee” for Chetrit. It was the perfect solution for the developer, but there was a catch: Between the two of them, Khrapunov and Ablyazov were facing criminal charges in Kazakhstan, the U.K. and Switzerland over allegations that they’d stolen more than $4 billion through embezzlement and corrupt deals in Kazakhstan. They had fled their home country to avoid arrest, and their assets were frozen in all three nations. In other words, the money was dirty.“

“The investors had stored their allegedly ill-gotten gains in an account with FBME, a Cyprus-based bank,” The Real Deal’s documentary reads further down. “FBME was widely understood to be a bank through which money-laundering transactions could be routed, including on behalf of drug traffickers and even members of the Islamic militant group Hezbollah, according to the complaint filed against Chetrit by Almaty and BTA. FBME was later added as a defendant in the suit. In 2014, FinCEN designated the bank a concern and found that the institution was regularly used by customers to facilitate laundering, terrorist financing and transnational organized crime. The Kazakhs allegedly first attempted to transfer the funds through banks in Luxembourg, but the banks refused to accept wire transfers — partly because of the pending investigations. Then, Chetrit allegedly told Bourg to transfer the funds directly into an escrow account held by his personal and corporate attorneys, according to court documents. The funds were transferred May 20, 2013, directly from FBME to Chetrit’s attorneys.”

“Investigation for criminal fraud”

The case surrounding the Chetrit-Khrapunov connection made headlines in mid-November last year for the first time. “A New York developer has agreed to give up an equity interest in a Manhattan hotel and cooperate with Kazakhstan officials who had filed a civil lawsuit alleging he helped Kazakh men launder foreign money through U.S. real estate, according to people familiar with the matter. The developer, Joseph Chetrit, said in a joint statement with the Kazakhstan city of Almaty and BTA Bank that a civil dispute“ has been amicably resolved.”

The agreement will protect Mr. Chetrit from certain claims against him by his former business partners in the New York hotel,” The Wall Street Journal wrote on November 13. Almaty and the bank “have voluntarily dismissed with prejudice all claims against Joseph Chetrit, The Chetrit Group LLC and its affiliates,” the statement said. “As part of the settlement, Mr. Chetrit has agreed to transfer an equity stake in the Flatotel, a former midtown Manhattan hotel that he is converting to condos, to the Kazakh city and bank, according to a person familiar with the arrangement. That stake could be worth around $75 million or more, said a person familiar with the property. Mr. Chetrit will keep an equal equity interest in the Flatotel that is worth about the same, this person said. It isn’t clear why Mr. Chetrit has decided to cooperate with Almaty and the bank, which named him as a defendant in the complaint filed last month in a U.S. District Court. The lawsuit also named ex-BTA chairman Mukhtar Ablyazov and former Almaty Mayor Viktor Khrapunov, and sought damages of up to $18 billion against the three defendants. A spokesman for Mr. Chetrit said the developer had no response beyond the joint statement. The lawsuit alleges that two Kazakh men conspired with Mr. Chetrit to hide at least $40 million by investing in the Flatotel and the Cabrini Medical Center. Messrs. Ablyazov and Khrapunov are separately under investigation for criminal fraud in Kazakhstan, the October complaint says. “

“For Chetrit, who has not been the subject of any criminal investigation, the fallout from the partnership has nevertheless been more damaging, The Real Deal opines. “In May, a New York State Supreme Court judge ordered a court-appointed monitor to oversee distribution of the funds the two Kazakhstani men invested in the Flatotel project — a move the Chetrits strongly fought, arguing that it would taint the project for potential buyers. ‘The uniform perception of the marketplace, regardless of the exact details of the receivership, will be that the project is experiencing extreme financial distress,’ Lee Eichen, a consultant for Chetrit, said in court papers. ‘This will lead to strong hesitation by prospective buyers (and the broker community at large), who will be reluctant to become involved in a project that they perceive may ultimately fail.’ As of May, there were still 22 unsold units at the 109-unit condo, representing an expected $148 million in revenue, or roughly 40 percent of the condo’s total projected sellout, court papers show. The Kazakhstanis will not be able to access the money they invested, pending an investigation.”

“FBI informant with mob connections”

The Chetrit affair was the first to make the name Khrapunov pop up in New York, but not in the USA. Shortly before, the Beverley Hillbillies from Kazakhstan made headlines in California, concerning uppity realestate in Hollywood. “Singer Bruno Mars is the latest star resident of Los Angeles’ Studio City area after paying a reported $6.5 million (AU$8 million) for a property in Fryman Canyon,” a report posted on an Australian site on January 2 this year was to read. “The Uptown Funk singer, who has two Grammy Awards under his belt, has bought a piece of real estate in the gated community. The two-acre estate includes a home with seven bedrooms and eight bathrooms. The house has high ceilings and has been freshly refurbished ahead of its sale. It includes a spa, steam and dry sauna plus a wine cellar. The property also has a separate children’s wing with two bedrooms and a guest area for when Mars is entertaining. Plus there is a three-car garage and a built-in bar. The listing boasts that it offers five-star, hotel-style living. Mars is believed to have purchased the property from Elvira Kudryashova, the daughter of Kazakh oligarch Viktor Khrapunov. She paid $5.7 million for the real estate in 2013 and carried out extensive renovations before putting it back on the market with an asking price of $7.78 million just eight months later. Mars is joining a host of celebrity residents in Fryman Canon, which is adjacent to Laurel Canyon, including George Clooney and Teri Hatcher.”

Meanwhile, the Chetri affair may well be the tip of an iceberg where relations between Trump and te Khrapunov-Ablyazov tandem are concerned. “At least two alumni of the Bayrock-Trump partnership have gone on to work directly with the Khrapunovs,” the FT report concludes. “One is Daniel Ridloff, whose LinkedIn profile says he worked for Bayrock for five years until 2010, then spent eight months in ‘acquisitions and finance’ at the Trump Organisation. The other is Felix Sater, a Russian-born convicted fraudster and FBI informant with mob connections who was number two at Bayrock until 2008. On his LinkedIn profile, Mr Sater says he spent 2010 working at the Trump Organisation as ‘Senior Advisor to Donald Trump’. According to correspondence and company documents seen by the FT, both Mr Sater and Mr Ridloff worked closely with Elvira Kudryashova in 2012. They agreed to serve as directors of a company through which she would pour $3m into a business venture as part of her efforts to secure a US investor visa. The idea was to put vending machines selling gadgets on US military bases. Mr Sater even offered to take Ms Kudryashova and her husband out for dinner along with his own wife.”

While Ablyazov is currently waiting for his extradition either to Russia (as he fears) or to Ukraine (as he hopes since he has friends in high places over there) in a French jail, ashis lawyers spend millions in stolen money on ways to delay the government’s decision. In theory, the USA could demand his extradition for alleged money laundering as well. For Kazakhstan, getting the stolen funds back is more important than putting the culprit behind bars. But while the latter has already proven to be an endless strife, the former is even more complicated. In 2012, BTA compiled a list of over 600 companies – real ones and mailbox ones – connectedwith the fraud scheme. That list has now grown to over a thousand. And given the easy shift the Khrapunows made first from Switzerland to Luxemburg and now to the USA, the search for the ”flying cash” may well have to start all over again – and maybe not even for the last time since the complexity of such operations gives proxies on behalf of Ablyazov, Khrapunov and at least a dozen of similar fraudsters from Kazakhstan plenty of time to set up new diversion schemes and wipe  out the former ones’ traces.

by Charles van der Leeuw