Dirty money: Trump and the Kazakh connection

Ever since a series of bank­rupt­cies left banks unwill­ing to lend to him, Donald Trump has been on the look­out for part­ners will­ing to fund the build­ings that bear his name.

Over the years the US pres­i­den­tial can­di­date has assem­bled an eclec­tic col­lec­tion of back­ers and col­lab­o­ra­tors. Some had che­quered pasts, with links to organ­ised crime or fraud schemes. But per­haps the biggest risk for Mr Trump’s com­plex, often opaque, busi­ness empire was that it might be used for a pur­pose US offi­cials fear is rife in the country’s real estate sec­tor: laun­der­ing dirty money.

A Financial Times inves­ti­ga­tion has found evi­dence that one Trump ven­ture has mul­ti­ple ties to an alleged inter­na­tion­al mon­ey laun­der­ing net­work. Title deeds, bank records and cor­re­spon­dence show that a Kazakh fam­i­ly accused of laun­der­ing hun­dreds of mil­lions of stolen dol­lars bought lux­u­ry apart­ments in a Manhattan tow­er part-owned by Mr Trump and embarked on major busi­ness ven­tures with one of the tycoon’s partners.

As Mr Trump runs for the White House, the rev­e­la­tions raise ques­tions about what steps his busi­ness takes to ensure that the funds that pour through it are clean.

Jennifer Shasky Calvery, then direc­tor of the US Financial Crimes Enforcement Network, warned in January that “cor­rupt for­eign offi­cials, or transna­tion­al crim­i­nals, may be using pre­mi­um US real estate to secret­ly invest mil­lions in dirty money”.

One for­mer exec­u­tive at a devel­op­er that worked with Mr Trump accused him of “wil­ful obliv­i­ous­ness” to the details of his part­ners’ deal­ings. 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 com­pa­nies . . . par­tic­u­lar­ly in the United States”.

Mr Khrapunov, who now lives in Switzerland, says he is being tar­get­ed for oppos­ing the man he used to serve, President Nursultan Nazarbayev, Kazakhstan’s author­i­tar­i­an ruler since 1989. His sup­port­ers say the family’s for­tune comes from busi­ness suc­cess, not embezzlement.

Among the dozens of com­pa­nies the Almaty lawyers say the Khrapunov laun­der­ing net­work used were three called Soho 3310, Soho 3311 and Soho 3203. 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. Mr Jajan did not respond to a request for comment.

On the face of it, Mr Trump was not a ben­e­fi­cia­ry of the apart­ment sales. The ven­dor was anoth­er lim­it­ed lia­bil­i­ty com­pa­ny, Bayrock/Sapir Organization LLC. 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. But as the star of The Apprentice, his celebri­ty stock was ris­ing. Partners such as Sapir and Bayrock were pre­pared to pay to license his name.

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. Both com­pa­nies declined to comment.

Mr Garten said he had “no doubt” that “every legal require­ment” had been ful­filled. Asked how a mem­ber of the Khrapunov fam­i­ly could nonethe­less have bought apart­ments in the Trump Soho — two years after the fam­i­ly was charged in Kazakhstan with finan­cial crimes — he said: “Maybe there’s some­thing wrong with the law but we can’t fault [Bayrock and Sapir] for com­ply­ing with the laws.”

The laws reg­u­lat­ing US real estate deals are scant, experts say. Provisions against ter­ror­ism financ­ing in the Patriot Act, passed in the after­math of the September 11 2001 attacks, oblig­ed mort­gage lenders to con­duct “know your cus­tomer” research. But mon­ey laun­der­ers pay in cash. Sales such as those of the Trump Soho apart­ments have passed through this loop­hole, which was par­tial­ly closed only this year.

In January, the US launched a pilot pro­gramme designed to iden­ti­fy the ulti­mate own­ers of shell com­pa­nies used to buy pre­mi­um prop­er­ty in Manhattan and Miami. In July offi­cials report­ed that the new rules had cor­rob­o­rat­ed con­cerns that “all-cash lux­u­ry pur­chas­es of res­i­den­tial prop­er­ty by a legal enti­ty are high­ly vul­ner­a­ble to abuse for mon­ey laun­der­ing”.

A spokesman for the Khrapunov fam­i­ly declined to answer detailed ques­tions about the Soho apart­ment trans­ac­tions and oth­er deals. “Kazakhstan is using the legal sys­tems of west­ern coun­tries to harass, wear down and destroy polit­i­cal oppo­nents,” the spokesman said. All the Khrapunov family’s busi­ness activ­i­ties “have been con­duct­ed in full accor­dance with Swiss laws,” he added.

Mr Garten of the Trump Organisation said: “We have no knowl­edge of who [the Khrapunov fam­i­ly] are and have done no busi­ness with them.”

Mr Trump’s for­mer part­ners Bayrock, how­ev­er, have dealt with them.

As work on Trump Soho got under way in 2007, the part­ner­ship between Mr Trump and Bayrock was gath­er­ing momen­tum. Another tow­er, in Fort Lauderdale, was ris­ing. A 2008 Bayrock pre­sen­ta­tion includes a pic­ture of Mr Trump grin­ning beside Mr Arif and names him as a ref­er­ee. Bayrock had its office on the 24th floor of Trump Tower and calls the Trump Organisation a “strate­gic partner”.

The same pre­sen­ta­tion says 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”.

Donald Trump and three of his chil­dren with rep­re­sen­ta­tives of Bayrock and Sapir at the launch of Trump Soho in 2007, includ­ing Tevfik Arif (sec­ond from left)

Swiss Development Group said it had been sold in 2013 but that it was still suf­fer­ing “relent­less and unsub­stan­ti­at­ed pres­sure . . . for the sole rea­son [that] it was linked at some point in time to some­one the Kazakh gov­ern­ment wants to prosecute”.

The Kazakh gov­ern­ment has also accused Helvetic Capital SA, anoth­er Swiss com­pa­ny, of being a vehi­cle for Khrapunov laun­der­ing. According to a 2007 draft con­tract, seen by the FT, Helvetic Capital planned to enter a $1.5m joint ven­ture called KazBay. Its part­ner was to be Bayrock. In a 2011 depo­si­tion, giv­en in a dis­pute over the Fort Lauderdale project, Mr Trump said he had “nev­er real­ly under­stood who owned Bayrock”.

Jody Kriss, a for­mer Bayrock finance direc­tor, has claimed in rack­e­teer­ing law­suits against his for­mer employ­er that Bayrock’s back­ers includ­ed “hid­den inter­ests in Russia and Kazakhstan”. Bayrock has denied Mr Kriss’s alle­ga­tions but declined to answer ques­tions about the source of its funds and its rela­tion­ship with the Khrapunovs.

Asked if the Trump Organisation had known where Bayrock’s mon­ey came from, Mr Garten said: “No. I had no rea­son to ques­tion the source of funds. Its prin­ci­pal investor [Mr Arif] had a suc­cess­ful track record.” He added: “When you do due dili­gence you act in good faith and try to look at all rel­e­vant mate­r­i­al but there’s only a cer­tain degree that you can look at things. You can do as much as pos­si­ble but you are lim­it­ed to pub­lic records.”

Bayrock-Trump alum­ni worked for Khrapunovs

At least two alum­ni of the Bayrock-Trump part­ner­ship have gone on to work direct­ly with the Khrapunovs. 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”. Mr Ridloff did not respond to a request for com­ment; Mr Sater declined to com­ment. 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.

Original inves­ti­ga­tion: FINANCIAL TIMES,

Tom Burgis

Published Oct 19 2016