hraprupunovy

International institutions fail to measure up to the task of tackling globalized financial crime.

The sub­ject of law­suits in the United Kingdom and the United States, for­mer Mayor of Almaty Viktor Khrapunov, his TV-anchor­woman wife Leila, and their son Ilyas stand accused of embez­zle­ment schemes amount­ing to at least $300 mil­lion. Resident in Switzerland since August 2008 when they fled their native Kazakhstan to join their son — load­ing up a char­tered plane with an alleged 18 tonnes of art, antiq­ui­ties and assort­ed booty — the fam­i­ly is now the sub­ject of ongo­ing pro­ceed­ings by the Public Prosecutor’s Office of Geneva. With a net­work of con­nec­tions that span the globe, though, is the Khrapunov house of cards about to come crash­ing down, or will their friends in high places save them?

Simple, Yet Audacious Schemes

Born to a fam­i­ly of bureau­crats in north­ern Kazakhstan in 1948, Viktor Khrapunov moved to Almaty — then the country’s cap­i­tal — after com­plet­ing train­ing at a col­lege of indus­try and tech­nol­o­gy. Working as a mechan­ic while he con­tin­ued with his stud­ies, he decid­ed to join the Komsomol (the All-Union Leninist Young Communist League), a move which marked the begin­ning of his polit­i­cal ascent. Khrapunov served as min­is­ter of ener­gy and nat­ur­al resources before being appoint­ed may­or of Almaty, a posi­tion he held from 1997 to 2004. He went on to hold a gov­er­nor­ship and anoth­er min­is­te­r­i­al post, before retir­ing from all pub­lic posi­tions in 2007, pur­port­ed­ly for “health rea­sons.” It is his tenure as may­or, how­ev­er, from which alle­ga­tions of cor­rup­tion stem.Enjoying this arti­cle? Click here to sub­scribe for full access. Just $5 a month.

In August 2008, with local inves­ti­ga­tors clos­ing in, Viktor Khrapunov and his wife high­tailed it out of Almaty to the safe haven of Geneva, where their son was already res­i­dent. An inves­ti­ga­tion by the Kazakh author­i­ties sub­se­quent­ly uncov­ered 83 shell enti­ties that bore the family’s fingerprints.

The theft was com­mit­ted through the alien­ation of prop­er­ties in Almaty and land in pro­tect­ed envi­ron­men­tal areas,” Sergey Perov, Kazakhstan’s chief of Anti-Corruption Investigations and head of the inquiry into the Khrapunovs, told The Diplomat. “He also demand­ed bribes from entre­pre­neurs for issu­ing decrees of pri­va­ti­za­tion, which were paid in the form of cash and real estate. We’ve uncov­ered 28 sep­a­rate episodes of crim­i­nal activity.

The schemes used by the Khrapunovs were sim­ple, yet auda­cious,” Perov said. “The most com­mon went like this: Mayor Khrapunov instruct­ed his sub­or­di­nates to con­duct a fic­ti­tious ten­der for the sale of an asset to a pre­de­ter­mined com­pa­ny, the ulti­mate own­er of which was his wife, Leila. After that, the Khrapunovs resold the object at its real val­ue to a third par­ty. For exam­ple, one piece of gov­ern­ment land was bought and resold a day lat­er at 45 times the price it was acquired for. He’s not a moral man; he even pri­va­tized a kinder­garten and a hos­pi­tal for vet­er­ans of the Second World War.”

As laid out by the plain­tiffs in a California court case, Kindergarten No. 186 serves as an exam­ple of how the Khrapunovs alleged­ly con­duct­ed their business:

On or about April 16, 2001, Viktor used his posi­tion as may­or to cause pub­lic land and a build­ing in Almaty known as Kindergarten No. 186 to be auc­tioned and ulti­mate­ly sold to Leila’s com­pa­ny, KRI, for approx­i­mate­ly $347,000… Under the laws of Kazakhstan, poten­tial buy­ers of state-owned prop­er­ty are oblig­at­ed to state how they intend to invest in and devel­op the prop­er­ty. In an attempt to make KRI’s bid appear legit­i­mate and to ensure they won, KRI fraud­u­lent­ly rep­re­sent­ed that they would invest more mon­ey than their com­peti­tors (based on inside infor­ma­tion about the com­peti­tors’ bids) in Kindergarten No. 186 and build a health cen­ter… Instead, Leila caused KRI to sell Kindergarten No. 186 to Karasha [a shell com­pa­ny] and three days lat­er, Leila caused Karasha to sell Kindergarten No. 186 direct­ly to her. The invest­ment promise KRI used to win the bid was not passed on in the sub­se­quent pur­chase agree­ments… [The asset] was then sold to an unre­lat­ed third par­ty in a trans­ac­tion that val­ued Kindergarten No. 186 at approx­i­mate­ly $4.1 million.

It’s Good to be Swiss

Founded at the time the fam­i­ly fled from Kazakhstan, the Swiss Development Group (SDG) — com­pa­ny slo­gan: “It’s Good to be Swiss” — was estab­lished as a hub of finan­cial oper­a­tions for the Khrapunovs in Geneva. Among SDG’s projects were a high-end beach resort on the shores of Lake Geneva, a mall in the city cen­ter, and a lux­u­ry ski resort, while the fam­i­ly also snapped up a string of oth­er prop­er­ties in Switzerland and else­where. As ear­ly as 2010, La Tribune de Genève ran a sto­ry rais­ing sus­pi­cions that $10 mil­lion in cap­i­tal raised for these ven­tures had been ille­gal­ly fun­neled out of Almaty.

Currently Switzerland isn’t at the top when it comes to the fight against mon­ey laun­der­ing,” Martin Hilti, exec­u­tive direc­tor of Transparency International Switzerland told The Diplomat. “We have sev­er­al loop­holes, one being the scope of our anti-mon­ey laun­der­ing act, which is lim­it­ed to finan­cial inter­me­di­aries and doesn’t take into account oth­er risky activ­i­ties, such as the buy­ing and sell­ing of real estate.” 

Hilti con­tin­ued: “We pub­lished a report last autumn look­ing at the risk of mon­ey laun­der­ing in the Swiss real estate sec­tor. It’s pret­ty easy to buy Swiss real estate with dirty mon­ey because of the loop­holes. The main actors, such as notaries and estate agents nor­mal­ly don’t have any duty of due dili­gence or report­ing. The banks have these duties, but are too far away from the busi­ness to detect mon­ey laundering.”

In 2010, the Swiss busi­ness mag­a­zine Bilan pub­lished an arti­cle nam­ing the Khrapunovs among the wealth­i­est fam­i­lies in the coun­try. By ear­ly 2012, how­ev­er, with Viktor Khrapunov’s name added to the Interpol Red List, Swiss author­i­ties began to take ten­ta­tive steps toward freez­ing the family’s assets. 

Meanwhile, in the Netherlands —  where Kazakh author­i­ties iden­ti­fied 15 enti­ties that alleged­ly bear the hall­marks of Khrapunov shells — in May 2017, Ilyas Khrapunov’s lawyers sought an injunc­tion against the broad­cast­er Zembla, which was prepar­ing to air a doc­u­men­tary exam­in­ing the ties between klep­to­crats and U.S. President Donald Trump. 

We approached Ilyas Khrapunov, and as soon as we told him the scope of the research and the issues we’d like to dis­cuss with him, we got an email from his PR guy in Geneva,” Sander Rietveld, an inves­tiga­tive jour­nal­ist and the cre­ator of the doc­u­men­tary, The Dubious Friends of Donald Trump, told The Diplomat. “They warned us not to cross legal lines, but we were very trans­par­ent with him. We didn’t hear from them for a cou­ple of weeks, and then days before the doc­u­men­tary was set to air, we were served with an injunc­tion. It was Ilyas suing us. 

His main argu­ment,” Rietveld said, “was that the research was slop­py and we were accus­ing him of mon­ey laun­der­ing with­out any grounds. The judge basi­cal­ly said that the research had been con­duct­ed in the cor­rect man­ner, so there was no rea­son to block the pro­gram. It gave the doc­u­men­tary more pub­lic­i­ty; it def­i­nite­ly back­fired on them.

It’s hard to search for the ulti­mate ben­e­fi­cial own­ers of enti­ties in the Netherlands,” Rietveld said. “It’s not infor­ma­tion that the gov­ern­ment or the Chamber of Commerce pro­vides in a trans­par­ent way. For exam­ple, Leila Khrapunova used to have this Dutch shell com­pa­ny, Helvetic Capital B.V., which was 50 per­cent own­er of Kazbay B.V. and the oth­er own­er was Bayrock B.V. which was a shell com­pa­ny of Felix Sater and Tevfik Arif, the own­ers of Bayrock in New York.” 

From Europe to the White House via Kazakhstan

It was SDG’s search for part­ners that led them across the Atlantic to Trump’s busi­ness part­ners, con­nect­ing the Khrapunovs to the inner sanc­tum of the cur­rent U.S. admin­is­tra­tion. In 2008, the Bayrock Group announced that it was part­ner­ing with SDG to con­vert the Hotel Du Parc in Montreux into “ultra-lux­u­ry” pri­vate res­i­dences. The chief oper­at­ing offi­cer of Bayrock at the time, Felix Sater, would lat­er become the dom­i­nant force behind the com­pa­ny, whose offices were sit­u­at­ed in Manhattan’s Trump Tower. Paying the Trump Organization a licence fee for the use of its name, Bayrock repeat­ed­ly part­nered with the Trump Organization in try­ing to engi­neer a deal for a Trump Tower in Moscow. In 2006, Sater per­son­al­ly showed two of Donald Trump’s chil­dren, Ivanka Trump and Donald Trump Jr., around the city, intro­duc­ing them to movers and shak­ers. Daniel Ridloff also worked for Bayrock before briefly join­ing the Trump Organization’s acqui­si­tions and finance arm in 2010. Articles list him as the vice pres­i­dent of the Swiss Development Group Investment Fund — a thin­ly-veiled SDG off­shoot — infor­ma­tion which he has since delet­ed from his LinkedIn profile.

Bayrock sub­se­quent­ly part­nered with the Trump Organization in a failed project in Arizona financed by the FL Group of Iceland. Despite the under­tak­ing going nowhere, Ernest Mennes, the own­er of Camelback Plaza Development, who had entered into an arrange­ment with them, sued Bayrock in 2007, accus­ing Sater of threat­en­ing to “elec­tri­cal­ly shock [his] tes­ti­cles, cut off [his] legs, and leave [him] dead in the trunk of his car.” The case was set­tled and Mennes barred from mak­ing any fur­ther comment.

The son of a Russian syn­di­cate crime boss linked to Semyon Mogilevich, a long-term res­i­dent of the FBI’s top 10 most want­ed list, Felix Sater served time in the ear­ly 1990s for stab­bing a man in the face and neck with the stub of a mar­gari­ta glass in a bar brawl. Upon his release, he turned to fraud, arti­fi­cial­ly inflat­ing share prices with false infor­ma­tion. Striking a deal to turn infor­mant on the Russian mob, he is also said to have turned evi­dence on Osama Bin Laden’s network.

After leav­ing Bayrock in 2008, Sater was brought into the Trump Organization as a senior advis­er to Donald Trump. “If he was sit­ting in the room right now, I real­ly wouldn’t know what he looked like,” Trump said of Sater in a Florida court video depo­si­tion in 2013. 

Our boy can become President of the USA and we can engi­neer it,” Sater enthused in emails to Trump’s per­son­al lawyer at the time, Michael Cohen. “I will get all of Putin’s team to buy in on this… we will get Donald elected.”

Sater alleged­ly act­ed as the Khrapunovs’ U.S. inter­me­di­ary on $40 mil­lion of real estate and invest­ment deals. Court doc­u­ments state that he received SWIFT codes for bank trans­fers, $5 mil­lion of which was trans­ferred from a now sanc­tioned Cyprus-based LLC to California-based Elvira Kudryashova, the Khrapunovs’ daugh­ter, to pur­chase three con­dos in Trump SoHo, a project devel­oped by Bayrock in part­ner­ship with the Trump Organization. The units were pur­chased by three shell com­pa­nies estab­lished in April 2013 and dis­solved short­ly after they were sold. Financing to the tune of $50 mil­lion for Trump SoHo and three oth­er Bayrock projects flowed from the FL Group, an Icelandic pri­vate equi­ty com­pa­ny named in the Panama Papers with sig­nif­i­cant ties to dirty mon­ey from the CIS.

The law firm Bracewell and Giuliani was hired by Bayrock to cre­ate off­shore com­pa­nies to min­i­mize tax­es. Now attor­ney to Donald Trump, for­mer New York Mayor Rudolph Giuliani’s firm had an office in Kazakhstan, with Giuliani rais­ing funds there for his failed 2008 pres­i­den­tial bid. It was on the advice of Bracewell and Giuliani regard­ing tax struc­tures that in 2007, the Khrapunovs togeth­er with the Bayrock Group set up KazBay B.V. in the Netherlands.

In 2016, Nicolas Bourg, for­mer direc­tor of Triadou SPV S. A. tes­ti­fied that the Khrapunovs had ordered him to move mon­ey out of the United States after a California law­suit was filed against them. “Triadou is a shell enti­ty for SDG and has no cor­po­rate pres­ence sep­a­rate from SDG,” he said in the New York Southern District Court. “Monthly meet­ings occurred in Geneva between myself, Ilyas Khrapunov, Peter Sztyk (an advi­sor of Ilyas), and, at times, my long­time busi­ness part­ner, Laurent Foucher. The agen­da at each meet­ing was to dis­cuss the invest­ments of the Ablyazov-Khrapunov fam­i­ly mon­ey (i.e., not only mon­ey invest­ed through SDG or Triadou.) At these meet­ings, I fre­quent­ly received direc­tions from Ilyas regard­ing var­i­ous busi­ness ven­tures, includ­ing Triadou and oth­ers that the Ablyazov-Khrapunov fam­i­ly mon­ey was involved in.”

Bourg went on to tes­ti­fy that the Khrapunovs com­min­gled funds in their U.S. deal­ings with Mukhtar Ablyazov, a klep­to­crat and for­mer ener­gy min­is­ter of Kazakhstan. Subject to asset-freez­ing orders amount­ing to $4.9 bil­lion in the British courts alone, Ablyazov stands accused of hav­ing embez­zled up to $10 bil­lion, large­ly from BTA, the Kazakh bank he once chaired. Ilyas Khrapunov is mar­ried to Ablyazov’s daugh­ter, Madina, and court judg­ments hold him respon­si­ble for a swathe of his father-in-law’s finan­cial affairs.

One of mul­ti­ple Bayrock projects part­ly financed by the FL Group was a Florida devel­op­ment which end­ed in ignominy with con­do buy­ers suing for $7.8 mil­lion. Former Bayrock part­ner Jody Kriss filed a suit which named Sater, alleg­ing that Bayrock was “sub­stan­tial­ly and covert­ly mob-owned and oper­at­ed.” After eight years in the U.S. courts, in February 2018 the case was the sub­ject of a sealed settlement.

Felix Sater was involved in laun­der­ing mon­ey for the Khrapunovs,” James S. Henry, an inves­tiga­tive reporter, lawyer, and expert on tax eva­sion told The Diplomat. “That start­ed rough­ly when Viktor Khrapunov left Almaty and fled to Geneva and con­tin­ued on prob­a­bly even as late as 2015. Sater is up to his eye­balls in finan­cial chi­canery. The fact that they cut him all these deals,” Henry says “allowed him to move onto a life of finan­cial fraud and to raise mon­ey from banks and reg­u­lar investors as well as from peo­ple like the FL Group with­out let­ting any­one know that he was a twice-con­vict­ed felon.

The FL Group had a $2 bil­lion plan that they’d talked about [with Bayrock]. A lot of this nev­er got fund­ed, but Bayrock received about $50 mil­lion in equi­ty. It’s hard to account for why they were invest­ing there,” Henry con­tends. “I spent a lot of time in Iceland work­ing on the Panama Papers. The ques­tion was, who was the FL Group and why were they invest­ing in Bayrock? The FL Group was this pri­vate equi­ty firm with upstream ties to peo­ple who had inter­ests in Russia. The Iceland Central Bank nev­er real­ly audit­ed the con­nec­tions, so when the banks failed in 2008, there was no infor­ma­tion avail­able on who had accounts in the pri­vate bank­ing arms of key banks. There were sev­er­al of them which had big invest­ments in the FL Group. There was also this strange moment in fall of 2008 when Putin showed up just as Iceland was going into finan­cial cri­sis and offered a very gen­er­ous loan to Iceland to bail them out. They actu­al­ly dis­patched a whole team to Moscow to check this out. For about six weeks, they were nego­ti­at­ing an alter­na­tive to the IMF. Why was Putin bail­ing out Iceland? Well, there were some big Russians who had mon­ey in the banks and I think we still don’t know much about what their names were. 

There were sto­ries about Alfabank being an investor, as well as Alisher Usmanov, whose wife intro­duced Putin to his girl­friend. Usmanov is an oli­garch who in September 2008 was on the verge of get­ting a huge loan from one of the Icelandic banks,” Henry says. “It was a very odd trans­ac­tion for this oli­garch to be get­ting. I think in terms of con­spir­a­cies, the FL Group is a smol­der­ing fire that just can’t be put out. Overall, though, giv­en what’s hap­pened in court cas­es in Europe and the U.S., it’s hard to make any of these juris­dic­tions look like a win­ner when it comes to pros­e­cu­tions. It’s an exam­ple of how weak the inter­na­tion­al instru­ments are when it comes to track­ing down these kinds of finan­cial crimes.”

As of January 2018, Triadou’s lawyers have issued a motion to stay with regards to Sater, indi­cat­ing that he is now ready to coop­er­ate with dis­cov­ery requests. In March 2018, Viktor and Ilyas lost a New York court case for vio­lat­ing a con­fi­den­tial­i­ty order. “The court not­ed that Ilyas Khrapunov has played games with the court in the past and cit­ed, as one exam­ple, the fact that the Khrapunovs request­ed to appear at the evi­den­tiary hear­ing by phone but lat­er retract­ed that offer, claim­ing that it would vio­late Swiss law to tes­ti­fy at the hear­ing while resid­ing in Switzerland,” wrote U.S. Magistrate Katharine Parker.  The court ordered the Khrapunovs to pay BTA Bank and the City of Almaty’s legal fees, not­ing that their defense that they had not leaked evi­dence was “not cred­i­ble.”

Aristocratic Acquaintances

Meanwhile, in the U.K., a sto­ry about how this all ties to the British aris­toc­ra­cy con­tin­ues to fly under the radar. Formed as a pri­vate com­pa­ny in 2010, New World Oil and Gas (NWOG) went pub­lic in 2011 using the exchange unreg­u­lat­ed fund regime, part of Jersey’s race to the bot­tom in terms of reg­u­la­tion. The found­ing direc­tor of NWOG, Ilyas Khrapunov’s advi­sor Peter Sztyk, was mar­ried to Mukhtar Ablyazov’s alleged mis­tress, Bota Jardemalie, at the time of the company’s incor­po­ra­tion. Jardemalie is want­ed by Kazakhstan for her part in embez­zle­ment from BTA Bank. 

In August 2013, after NWOG had dis­ap­point­ing drilling results, a com­pa­ny called Niel Petroleum, whose direc­tor and largest share­hold­er were the Khrapunovs’ erst­while busi­ness part­ners Nicolas Bourg and Laurent Foucher, offered to buy out NWOG. The dri­ving force behind numer­ous dubi­ous projects across Central Africa, the Niel Group is named as an “Ablyazov-Khrapunov con­trolled enti­ty” on legal doc­u­ments. Sztyk was even­tu­al­ly forced off the board of NWOG after being out­ed as a mon­ey laun­der­er by Bourg in 2016. 

Control over the reg­u­la­tion of NWOG on the London Stock Exchange was del­e­gat­ed to Beaumont Cornish, mean­ing that the com­pli­ance offi­cer for NWOG, until it was effec­tive­ly thrown off the stock exchange in late 2016, was Felicity Geidt. The sis­ter of the Queen’s for­mer per­son­al sec­re­tary, Felicity Geidt has been FCA reg­u­lat­ed for a series of over­sights since 2001.

Having been first appoint­ed to the roy­al house­hold when the Duke of York left the Royal Navy, Christopher Geidt rose through the pri­vate office to become the Queen’s pri­vate sec­re­tary before being oust­ed in July 2017. This is the same Duke of York, of course, that Mukhtar Ablyazov once threat­ened to call as a wit­ness in his defense. For his loy­al ser­vice, Geidt has since been ele­vat­ed to the House of Lords, becom­ing part of the legislature.

Another piece in this series of opaque con­nec­tions saw Robert Hankes appoint­ed to work as a project man­ag­er for NWOG in 2011. His broth­er, Sir Claude Hankes — the man brought in by the Iraqi gov­ern­ment to con­duct an inves­ti­ga­tion into the UN oil-for-food scan­dal — is an extreme­ly close friend of the Duke of Edinburgh. Sir Claude Hankes is the only hon­orary fel­low and life mem­ber of the St. George’s House Council at the House of Windsor. 

The Wheels of Justice

So, is time run­ning out for the Khrapunovs or will their con­nec­tions save them? In the lat­est legal episode under British juris­dic­tion, on March 21, 2018, the U.K. Supreme Court dis­missed Ilyas’ appeal against a pre­vi­ous rul­ing with regards to breach­es of freez­ing orders on his father-in-law’s assets and con­tempt of court. Finding that his actions con­sti­tut­ed “the tort of con­spir­a­cy,” the judges also dis­missed Ilyas’ argu­ment that the British courts lacked juris­dic­tion over him. 

That Ilyas Khrapunov act­ed as an accom­plice to Ablyazov’s embez­zle­ment schemes, the ongo­ing U.K. law­suit has left “no grounds for doubt,” accord­ing to a rep­re­sen­ta­tive of BTA Bank. “[…T]he Commercial Court of England and Wales issued a deci­sion oblig­ing Ilyas Khrapunov to pro­vide all data under a pre­vi­ous­ly imposed dis­clo­sure order… infor­ma­tion about his assets and the assets that he man­ages on behalf of Mukhtar Ablyazov, but he refused to do so,” the rep­re­sen­ta­tive told The Diplomat.

Back in Switzerland, Ilyas and his wife hold diplo­mat­ic posts rep­re­sent­ing the Central African Republic at the U.N. Mission in Geneva as a means to trav­el freely, but the mis­sion, locat­ed in an oth­er­wise res­i­den­tial block on the out­skirts, appears rarely if ever to be staffed. At 3 Mont Blanc, a pres­ti­gious prop­er­ty in the city cen­ter, once a key Khrapunov asset, with the SDG long since hav­ing been sold off and in liq­ui­da­tion as of January 2018, the company’s plaque has been removed. Similarly, anoth­er shell, Swiss TV S.A., has dis­ap­peared from Rue Philippe-Plantamour. 

Henri Della Casa, spokesman at the Public Prosecutor’s Office of Geneva, would only con­firm that “Proceedings against the Khrapunovs by the Prosecutor’s Office in Geneva on sus­pi­cion of mon­ey laun­der­ing are still ongo­ing. Due to the inves­ti­ga­tion, the Public Ministry will not com­ment fur­ther at this stage.” At the time of writ­ing, the Federal Office of Justice in Switzerland had yet to respond to a request for an update as regards an extra­di­tion request made by Ukraine for Ilyas Khrapunov, although a source who spoke on con­di­tion of anonymi­ty told The Diplomat it had been “kicked into the long grass.” 

For the Kazakh author­i­ties, though, hav­ing failed with this route in the past, it’s no longer about extra­di­tion. “Currently, we’re not des­per­ate­ly look­ing to [extra­dite them],” Perov, the head of the Kazakh inquiry into the Khrapunovs, told The Diplomat. “We have sol­id proof that they fun­neled stolen funds abroad, main­ly to Switzerland and then began to laun­der it. All the evi­dence we’ve col­lect­ed was trans­mit­ted to the Swiss author­i­ties and the City of Almaty has ini­ti­at­ed civ­il pro­ceed­ings against the Khrapunovs in the U.S. We’re ready to pass our evi­dence to any coun­try which might decide to pros­e­cute them.”

The Khrapunovs con­tin­ue to claim that cas­es against them are the result of polit­i­cal per­se­cu­tion. At the time of going to press, Khrapunov fam­i­ly lawyers had not respond­ed to requests for comment.

By Stephen M. Bland

Stephen M. Bland is a free­lance jour­nal­ist and author spe­cial­iz­ing on Central Asia and the Caucasus.

The Case of the Khrapunovs

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