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EBRD CORRUPTION – MI5 TRIES TO EXCHANGE BRIBES TO RUSSIAN BANKERS FOR ESPIONAGE AGAINST RUSSIAN OFFICIALS

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By John Helmer, Moscow

The European Bank for Reconstruction and Development (EBRD), the government-owned bank established in London in 1991 to finance market boosting projects in the former Soviet Union, has been secretly aiding UK and US intelligence services in espionage targeted at Russia. The US is a 10% shareholder in the bank, the UK holds an 8.7% stake; Russia, 4%.

The disclosure appears in the records of a trial this month at the Central Criminal Court in London of Andrei Ryjenko (Рыженко, usually Anglicized as Ryzhenko),  a senior banker at the EBRD who is a dual Russian-British citizen.  Early in June, Ryjenko was convicted of taking and then laundering $3.5 million in concealed bribes for helping applications to the EBRD for loans and equity investments from two Russian oil and gas companies win approval for a total of $275 million. MI5, according to testimony in open court, offered Ryjenko the opportunity to keep his money and avoid prosecution if he agreed to spy for the British against Russian foreign intelligence service (SVR) agents who, MI5 told Ryjenko, were under cover in London. Ryjenko refused for several months. He was then arrested and subsequently tried. On June 20, Ryjenko was sentenced to six years in jail.

Treason against Russia was one crime Ryjenko refused to undertake, the Old Bailey testimony reveals.  Also revealed, and for the first time, is EBRD’s role in operating the scheme of lures and inducements MI5 proposed for Ryjenko,  and other Russian nationals at the bank.  “Honey traps,”  comments a London banking veteran, “are generally illegal. Otherwise, the honey wouldn’t be so sweet, or entrapment worth plotting. It looks like Ryjenko trapped himself. It also looks like the bank was happy to make its money baiting the trap for MI5.”   

The EBRD spokesman, Anthony Williams, was asked to clarify the court testimony that the EBRD cooperates with MI5 to permit EBRD executives and EBRD records to be used in espionage operations against EBRD shareholders. “This refers to claims made during the trial”, Williams said on Monday, “that were not deemed credible by the court and which are rejected by the EBRD. EBRD does not cooperate with MI5 and other British and US intelligence agencies.”

Williams was unable to produce statements by the presiding judge, dismissing the MI5 evidence.  “I can only repeat: The EBRD does not cooperate with such intelligence services.”

Russia, with a $1.2 billion contribution to the EBRD’s $30 billion in share capital, has been the biggest beneficiary of its loan and investment outlays, with a total of about €24.7 billion for more than 800 projects over 23 years. All new funds and re-financing were stopped in 2014 when the EBRD board voted to impose capital sanctions on Russia in line with US and European Union (EU) sanctions for the war in Ukraine.  The Russian portfolio has since been cut by €4.6 billion, 40% of what it had been.   

The Russian government has called this move a shot in the bank’s own foot, chopping its profit line and lowering loan standards to favour Turkey and Ukraine instead. The Russian Economy Ministry,  which supervises Russia’s stake in the bank, has declared [2]the sanctions a violation of the EBRD’s charter.  This allows an EBRD board vote to suspend financing “where a member might be implementing policies which are inconsistent with Article 1 of this Agreement, or in exceptional circumstances”; the vote to strike at a member must add up to 75% of the shareholdings. Click to read [3] the small print.

Press reports [4]suggest the vote for continuing the sanctions came to 96% of the shareholders; only Mongolia, Armenia, Kyrgyzstan and Belarus voted against.  Since the EBRD imposed sanctions, its Russian portfolio has fallen in value from €8.1 billion to €3.5 billion.

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Left: Russian Economy Minister  Maxim Oreshkin, at the EBRD annual meeting in May. Right: EBRD President, Sir Suma Chakrabarti, a former British Government official.  Oreshkin told Chakrabarti at the EBRD session:  “although the formally reported figures look positive, they conceal a whole series of negative trends and management assumptions. Maintaining the current approach to operations will make the Bank’s position unsustainable in the coming years.” He accused Chakrabarti of feathering his own nest, lifting staff costs and management charges to a level far above the agreed threshold. The EBRD’s 2016 income result  of  €642 million was the worst in years, Oreshkin, added; and would be far worse if the bank’s accountants hadn’t  puffed out the figure with “over €200 million… from the one-off effects of options and hedging operations, and of the revaluation of the existing portfolio.” “Almost a third of the Bank income has been generated in Russia,” Oreshkin reported. “It is good management practice to demonstrate performance without including what are termed ‘discontinued operations’, since it is clear that the absence of operations in Russia in the coming years will result in that indicator falling to zero.” For the full Oreshkin statement, click to read [6].

In his statement to the EBRD board last month, Oreshkin accused the bank of concealing plummeting profitability and poor financial performance. “The deterioration of the situation and the need to resort to questionable management practices,” Oreshkin told a board meeting, “is [sic], in large part, related to the adoption of the ‘political guidance’ that fully suspended new investments in the Russian Federation from July 2014.”

Oreshkin threatened to sue the bank. “Having exhausted other ways of resolving the issue and to protect the interests of the Russian Federation as an EBRD shareholder and country of operations, Russia has no option but to take steps to identify a legal solution to the situation.”

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Left: Ministry of Economy, Moscow; right: EBRD headquarters, London.

To date, the Russian government has not made public its reaction to the UK court evidence that the EBRD management allows espionage operations. However, in Oreshkin’s speech to the EBRD last month he issued a broad hint that spying, like sanctions, are a breach by the EBRD of its charter: “Articles 32.2 and 32.3 deal[ing] with the international character of the Bank and with the inadmissibility of all attempts to exert influence over its management in the interests of individual shareholders/groups of shareholders, extending beyond the clearly defined limits of the EBRD’s mandate.”

The provisions Oreshkin cited [3]  require that “the Bank, its President, Vice‑President(s), officers and staff shall in their decisions take into account only considerations relevant to the Bank’s purpose, functions and operations, as set out in this Agreement. Such considerations shall be weighed impartially in order to achieve and carry out the purpose and functions of the Bank… The President, Vice‑President(s), officers and staff of the Bank, in the discharge of their offices, shall owe their duty entirely to the Bank and to no other authority. Each member of the Bank shall respect the international character of this duty and shall refrain from all attempts to influence any of them in the discharge of their duties.”

Anglo-American press coverage of the Ryjenko trial has omitted to report the testimony on MI5 involvement. [8] The Financial Times and other newspapers and agencies reported the case as one of individual greed. “Judge Nicholas Cooke QC [right] told [Ryjenko],” according [9] to one of the papers,    “that he had engaged in ‘morally contemptible’ behaviour and ‘you lost your moral compass at some point in your life.’ The EBRD bank, the judge said was ‘taxpayer funded’  and was set up to bring ‘honest and beneficial capitalist investment to former communist countries’. However the judge said he accepted Mr Ryjenko had been ‘motivated by greed’  and using the money to fund his family. This type of corruption ‘strikes at the confidence of ordinary people in the banking industry,’ the judge added.”

The New York Times repeated [10] the EBRD press release that “the Bank did not suffer any loss as a result of his actions.”  The paper did not report the multi-million profit booked by EBRD for both of the transactions in which Ryjenko’s culpability was condemned.

Private Eye, the London investigative magazine, reported this profit at more than $40 million. The magazine’s “City Slicker” reporter, Michael Gillard, was the only member of the press to attend Ryjenko’s trial, take verbatim notes, and publish them.  

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Source: http://www.private-eye.co.uk/columnists [12]

According to Gillard, “the trial painted an unimpressive picture of EBRD. MI5 was said to have monitored the activities of Russia’s seriously corrupt top director at the bank, Elena Kotova, for links with a suspected Russian spy. Kotova was sacked and would be prosecuted if in Britain. She cannot be extradited from Russia, where she now writes novels.”

“Large fees were paid by those seeking EBRD funding, but only commissions above $5m needed to be disclosed to the bank. Former EBRD staffers and directors of companies that received EBRD money were richly rewarded for access to the bank that liked to say ‘yes’.”

“Ryjenko met an MI5 officer at a café near EBRD in February 2010. He said he was told the security services were interested in information on a Russian foreign intelligence officer operating in the UK under diplomatic cover as a member of the Russian Trade Federation. The Russian agent had been introduced to Ryjenko by Kotova. ‘I realised I was under surveillance,’ Ryjenko claimed. The MI5 officer said to call if Ryjenko needed help. Two weeks later he certainly did: Ryjenko was arrested as he arrived at the bank. Who blew the whistle was not made clear. Citibank? MI5? Ryjenko suspected Kotova and MI5.”

“Judge Cooke told the jury: ‘This is not a public inquiry into EBRD and how it was conducting its business.’ However, the fallout from the Ryjenkjo/Sanderson trial is unlikely to burnish a bank best known perhaps for the marble and gold taps enjoyed by its extravagant first president, Jacques Attali (now a key advisor to French president Emmanuel Macron) until he was forced to resign in 1993. Extravagance and EBRD still go together, it seems.”

“This is patently not the case,” Williams responded to courtroom interpretations that Judge Cooke was implying the bank’s culture has allowed or encouraged the corrupt practices of which Ryjenko was convicted.

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Left: Anthony Williams, head of press for EBRD [14].  Centre: Enery Quinones, formerly head of compliance for EBRD, left her job at the bank in mid-2014. Williams now claims she retired, but this was not what the EBRD press release said [15]when Quinones was replaced.  Right: Andrei Ryjenko. 

Just how murky the EBRD’s dealings are throughout the former Soviet Union has been the focus of investigation [16]    since 2006, when the ERBD’s due diligence for a  loan to Oleg Deripaska carefully ignored [17] court rulings.  A year later, EBRD bankers, Enery Quinones, EBRD’s compliance head, avoided [18] London court evidence in order to lend to the Tajikistan aluminium industry, a Deripaska-dominated business at the time.  

The secret case of EBRD’s loan to the Kosh-Agach cobalt mine project in 2010 became an object of investigation here [19]. The following year, when the charges of Kotova’s corruption as the Russian director on the board  became public knowledge in 2011, EBRD tried concealing her name;  Kotova’s identity was first published in the Russian press. She was also the EBRD board director for Tajikistan and Belarus, but EBRD’s loans to those countries have not been re-examined. Click to read [20] about Kotova. 

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Left: Kotova; right: Mark Mendelsohn, the US government prosecutor engaged by EBRD to investigate Kotova.  Kotova’s own version [22] in English of what happened to her at the EBRD was that she was framed by a foreign security service in cahoots with the EBRD management and control shareholders.     Mary Dejevsky, the Independent’s reporter, concluded Kotova was “either naïve or innocent”. Gillard assumed she was “seriously corrupt…and would be prosecuted if in Britain.” An official statement by the UK prosecutor in Kotova’s case said [23]a year ago  after reaching an asset forfeiture deal with her:  “The NCA’s [National Crime Authority]  successful investigation against Ms Kotova demonstrates that the UK is not a safe place for anyone to hide the proceeds of their high end financial crime.”.  Kotova’s website can be read here [24]

According to a current mission statement posted on the EBRD website [25],  the EBRD’s Office of the Chief Compliance Officer promotes good governance and ensures that the highest standards of integrity are applied to all the EBRD’s activities in accordance with international best practice.” The testimony in the Ryjenko trial reveals that separated from these standards, the EBRD allowed MI5 to recruit staff as double agents against their national governments.

In the dock at the Old Bailey, Ryjenko was recorded by Private Eye as saying Kotova had corrupt motives in telling him to follow “certain instructions on projects to be passed on so that she could remain anonymous”. Kotova’s version, published after Ryjenko has been arrested in 2010 but long before he testified this month, was that it was her official duty as Russia’s director on the bank board to lobby for approval of EBRD financing of Russian projects, and that the other directors representing their national shareholders were doing the same thing.  According to Ryjenko, MI5 started its approaches to him in November 2009. MI5’s target, he testified, was a Russian spy who had been introduced to him by Kotova. What Kotova’s motive was in introducing Ryjenko to the Russian foreign intelligence service (SVR) isn’t reported in the Private Eye version. This claims that a search of Kotova’s office undertaken as “part of the Ryjenko investigation suggested she shared “bribes related to EBRD loan and investment deals “with five Russian EBRD officials”. They have not been named or prosecuted.

Counting Kotova and Ryjenko, that makes a total of 7 bad Russian apples in the otherwise clean EBRD barrel as of 2009-2010. Before then, however, cases of Russian EBRD staff collecting  commissions on loans they helped steer have been uncovered. The use of sisters to operate cut-out companies to receive the money, as Tatjana Sanderson, Ryjenko’s sister, is charged with doing, was not uncommon. In other cases, the EBRD staff man waited for his reward until he had left the EBRD.  “Such backhanders”, say due diligence experts in London, “are a common feature of commercial banking in the City. The EBRD isn’t exceptional.”

In its press releases on the Ryjenko case, the bank claims the credit for the initial tip-off to the City of London Police in 2010 which led to Ryjenko’s arrest. Williams, EBRD spokesman then and still, says: “the case [against Ryjenko] that concluded this week is the only one of its kind in the Bank’s 26 year history.”

In an earlier public release from Jonathan Charles, managing director of all EBRD communications, [26]  the claim was a little different: “We note the conviction of Andrey Ryjenko. We discovered his activities in 2010 and informed the police. His detection showed that our own systems worked well. Following on from his detection, we have also strengthened our own processes still further. This is the only such case involving a former staff member in the EBRD’s history. The Bank did not suffer any loss as a result of his actions. We are confident in the robustness of our systems.” Charles was hired by EBRD in November 2010. He had been a reporter on Russia and broadcaster for the state British Broadcasting Corporation networks.

Ryjenko’s testimony is that MI5 were already investigating him, as well as Kotova months before EBRD claims to have made its “discovery” and called the police. Why, since EBRD’s “systems” proved to be so “robust”,  did it take the UK authorities seven years – repeat seven years – to bring the case against Ryjenko to trial was unexplained in court this month. Did MI5 keep trying to turn Ryjenko, and did the British share their evidence with their US counterparts, the Federal Bureau of Investigation (FBI) and the Central Intelligence Agency (CIA)?

The evidence for how closely the police and intelligence agencies were working together on the EBRD operation can be found in the US prosecution’s papers in the case of Dmitrij Harder, a US-based, dual Russian-German national whose dealings with Ryjenko produced success fees which he shared with Ryjenko.  They had first met in 1998, more than a decade earlier, after what Private Eye transcribed from the UK court testimony as “a Russian deal gone sour involving Dresdner Bank and EBRD.”

The US indictment against Harder doesn’t appear in US court records until January 6, 2015 – five years after Ryjenko was warned by MI5 and then arrested by the London police. For the full US indictment, read this [27].  For the court docket showing the proceedings, click [28].  A revised indictment was introduced in the US court almost a year later, on December 15, 2015; open here [29].  

In the US indictments, the prosecutors charged Harder but didn’t name Ryjenko. Harder, it was alleged, paid: “approximately $3.5 million in bribe payments for the benefit of a foreign official to corruptly influence the foreign official’s actions on applications for financing submitted to the European Bank for Reconstruction and Development (“EBRD”) by the clients of defendant HARDER and the Chestnut Group, and to corruptly influence the foreign official to direct business to defendant HARDER and the Chestnut Group, and others.” Also: “the ‘EBRD Official’ was a Russian and United Kingdom national residing in or around London, England, and was a senior banker working in the Natural Resources Group at the EBRD. As a senior banker, EBRD Official served as an Operations Leader in the Natural Resources Group and was responsible for leading the review of applications submitted to the EBRD for project financing, including loans and equity investments. EBRD Official thus had the authority to influence the process for approving project financing, and setting the terms and conditions for that financing.”

Between 2007 and 2008, four applications for EBRD loans for Russian gas project financings were handled by Ryjenko and promoted by Harder, but only two were approved. These have been identified as Irkutsk Oil and Vostok Energy. The first payout was $85 million to Irkutsk Oil on April 29, 2008.  This was part loan and part equity investment [30]for a 8.15% stake in the company.  The US indictment says Irkutsk Oil first applied to Harder in August 2007 “to assist it in raising financing for a natural gas development project in Russia”. Harder then started negotiations with EBRD, which took another nine months to agree. US prosecutors claim Harder was corrupt from the beginning because his Chestnut consulting company  was “relatively small [in] size, [at] distant location from the EBRD, and [with] unproven track record as a financial advisor.”

Irkutsk Oil was not charged by the US prosecutors with making a corrupt approach to Harder, or paying him unlawful success fees. The EBRD announced at the time that the deal “increased transparency (covenanted PWYP, audited IFRS accounts, reporting on implementation of ESAP), improvements in environmental and corporate governance practices to align the company with best international practices; [and] potential demonstration effect to other oil and gas companies in Russia of the benefits from gas flaring reduction (before new legislation comes into force in the region).”

In 2009, after what is now adjudicated [31]as the corruptly influenced deal, EBRD gave Irkutsk Oil’s chief executive, Marina Sedykh, a prize for “outstanding achievements in industry”.   The bank continued investigating the corruption, it claims now. But in 2012 it again patted itself on the back, and awarded Irkutsk Oil a prize for  “Excellence in Environmental and Social Performance”. The [bank’s prize] jury particularly noted [32] the Company’s work on gas re-injection and social partnerships with the Russian government and community organizations.” 

For his role in assisting Irkutsk Oil, Harder collected a $1.7 million success fee (2%). He passed on $753,302 to Ryjenko (44%).  In March 2009, the same company got another $90 million from EBRD. This time Harder collected a bigger commission — $2.9 million (3.2%), while Ryjenko got a small share,  $310,121 (11%).  Ryjenko’s payoff went via his sister’s Citibank account in Jersey. According to the US court papers, “while EBRD Official’s Sister [Tatjana Sanderson] purportedly received these payments as a result of providing consulting and other business services to the Chestnut Group, in reality, EBRD Official’s Sister provided no such services.”

In another transaction in 2009 with Company B, according to the US court documents — Vostok Energy according to Russian press reporting and the London court papers — the EBRD agreed to provide $40 million in equity investment and $60 million in loan money.  The EBRD valued the company at $571 million, and accepted 7% in shares for its investment. The bank’s press release [33] touted the deal. “By supporting a private player in the highly consolidated oil and gas industry in Russia, the EBRD is boosting competition in this sector, while promoting environmentally sound development of oil and gas resources,” said Kevin Bortz, EBRD Director for Natural Resources.” 

Bortz became a director on the company board until he resigned [34]in 2011 after EBRD sold its shares at a profit. 

In January 2011, Vostok Energy revealed in a $50 million bond prospectus [35] that sometime between 2009 and 2011 the EBRD “had commenced an internal investigation in relation to Chestnut [Harder’s firm] and, as part of this investigation, EBRD asked the Issuer to engage an independent consultant to review and report on the Issuer’s engagement of Chestnut. The EBRD approved the engagement of Ashurst LLP for this purpose.” The Ashurst lawyers cleared Vostok Energy of any culpability in its dealings with Harder. The EBRD told Vostok Energy “that, unless new information comes to light, it does not intend to investigate further the matter insofar as it relates to the Issuer.” 

Ashurst also drafted the prospectus. That reveals EBRD’s terms for its financing of Vostok Energy included a lucrative starting interest rate of 9% over Libor, plus control of the company’s business.  Subsequently, Vostok Energy’s value began to collapse. In 2013 Roman Abramovich bought the company for his son, paying $77.5 million in cash, plus $42.5 million in extra shares, and agreed [36] to take all of Vostok’s debt to the EBRD.   The original UK listed entity was wound up.

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Left: Arkady and Roman Abramovich. Right: Dmitrij Harder.

For his part in Vostok’s deal with EBRD, Harder took $5 million; Ryjenko, $2,478,580.89. The money again went to  Ryjenko’s sister with “false paperwork to make it appear that EBRD Official’sSister had provided services to the Chestnut Group for these payments, when in fact no such services were provided.”

A press release issued by the US Department of Justice when Harder [38] was indicted in January 2015,  announced [39]: “’This is a great example of the FBI’s ability to successfully coordinate with our international law enforcement partners to tackle corruption,’ said Special Agent in Charge [Edward] Hanko [right].  ‘Bribery – foreign or domestic – cripples the notion of fair competition in the marketplace.’”

In the subsequent press release [40], after Harder was convicted on a guilty plea in April 2016, the Department of Justice named Ryjenko and his sister, and identified the assistance of the City of London police.  “The City of London Police’s Overseas Anti Corruption Unit and the Criminal Division’s Office of International Affairs provided assistance.  Germany, Jersey and Guernsey also provided assistance in this matter.” There is no mention by the US government officials of assistance from the EBRD. 

The City of London police say they heard from the EBRD,  but only after someone else had provided  information [41]

“The City of London Police’s OACU [Overseas Anti-Corruption Unit] was contacted on 15 February 2010 by the Chief Compliance Officer of the EBRD [Quinones]. The EBRD had received an anonymous tip that Ryjenko had been receiving corrupt payments and that these had been deposited into two offshore bank accounts. The EBRD conducted an internal investigation based on invoices provided by the source which corroborated the corrupt arrangement between Ryjenko and Harder. It was following this internal investigation that the Compliance Officer contacted OACU.  Officers from the City of London Police executed search warrants at two addresses on 26 February 2010, during which items were seized as evidence including computers and banking documents.  Ryjenko was arrested on the same day.”

In other words, the EBRD didn’t act until it was told by an anonymous tipster, according to the London police; by MI5, according to the court testimony.  No findings were made by the court about what EBRD would have done, or would not have done, if in addition to clearing Vostok Energy of  paying a corrupt fee, MI5 had cleared Ryjenko of receiving a corrupt payment. 

Williams responds:  “It is an unpalatable truth that corruption is widespread throughout the regions where the EBRD invests to deliver effective market economies.  Cases of corruption in the EBRD’s own operations remain extremely rare. Rigorous due diligence aims to ensure that we do not work with unsuitable partners in the first place. We invest in about 400 projects a year – many more than that get nowhere near the approval stage – precisely for reasons of integrity. We nevertheless do choose work with some partners where we see opportunities to enhance business integrity.  If corruption emerges – we respond decisively and effectively — as we did in the case we are discussing today.”

In the London court, evidence was accepted, according to the Private Eye report,  that “large fees were paid by those seeking EBRD funding, but only commissions above $5m needed to be disclosed to the bank. Former EBRD staffers and directors of companies that received EBRD money were richly rewarded for access to the bank that liked to say ‘yes’.”

Williams acknowledges this was the case, but he says there has been a rule change since 2011. “As a result of recommendations undertaken following the start of the investigation, the practice of requiring all potential EBRD clients to disclose all commission payments – typically to mainstream law firms or accountants — regardless of the amount was adopted.”

Harder, who had initially pleaded not guilty [42], changed his plea to guilty in April 2016, and was scheduled for sentencing in July of that year.  This was postponed, and over the year that has followed, Harder’s cooperation was required by US and UK prosecutors for the trial of Ryjenko. Harder’s sentencing is now scheduled for June 28, this week.