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END OF STRING FOR RUSSIAN YO-YO LOAN FRAUD — ILYA YUROV CONVICTED IN LONDON COURT OF STEALING $1.1 BILLION FROM NATIONAL BANK TRUST

by John Helmer, Moscow
  @bears_with [1]

The English read detective stories for the pleasure of unravelling the crime,  proving that even if there are perfect crimes, in the majority of cases the perpetrators don’t get away with them because the detectives are usually cleverer. That’s fiction.

In real life,  Russian crimes are different. In the majority of cases, including less than perfect crimes involving vast sums of money, the majority of the perps get away with them; live richly  in the UK, Tuscany, or on the Cote d’Azur; and enjoy promotional publicity in the Financial Times. In the cases of Mikhail Khodorkovsky and William Browder they have become so famous for their lying, it’s a devil of a job for the truth to prevail against their fictions [2].

In the minority of Russian cases, the judgements of the High Court in London are thrillers, though complicated in the reading. In the majority of these judgements, the guilty are convicted, and the innocent vindicated.  But that’s a majority of a minority. A rarity in the library of true Russian crimes.

There have been many Russian yo-yo loan schemes since commercial banking began in Moscow just under thirty years ago. The modus operandi is that the controlling shareholder arranges for his bank to make large loans to offshore companies he invents and controls; passes the money from these fronts on to other fronts,  and then into his pockets. His plan from the start is not to repay the loans; the borrowing fronts have no security for their loans when the bank demands repayment, and there’s no cash. That’s the big crime.

The scheme requires dozens of fake entities, thousands of transactions, more than a handful of banks, and accomplices to manage the operations. Because they are in the know, they have to be paid well. They, too,  grow rich.  They commit the smaller crimes and compound the big one. Even if the big criminal is caught, and his underlings at the Russian end sent to prison until they inculpate their bosses, the offshore managers and fixers – those who keep the yo-yo revolving and the string from breaking – usually get away.

In the case of National Bank Trust versus Ilya Yurov (lead image), his partners and their wives, the High Court published its whodunit last week. The story can be followed from the start in 2015 in this archive [3];  Khodorkovsky makes several crooked cameo appearances. A British national named Benedict Worsley, the most important of Yurov’s managers,  changed sides when the yo-yo turned into a boomerang. To save himself, he agreed to take more money from the bank to assemble the evidence in the court case against the defendants. In the new court judgement, he reportedly switched sides again before the trial opened on October 1, 2018.  Neither side wanted to call him to testify because they all agreed he was a liar. The Worsley tale can be followed here [4]. In the High Court judgement, Worsley is named 733 times. “It would appear that he was something of a fantasist and prone to exaggerate,” the judge ruled, “and that he was prepared to act dishonestly…”

The text of the judgement in the National Bank Trust case was issued by Justice Simon Bryan on January 23. It runs for 570 pages; by whodunit standards, long. Read it in full here [5].  When the case started, Bryan was a relatively new appointee to the High Court bench [6]. He had been involved in Russian litigation before. As a practising Queen’s Counsel in 2006-2010, Bryan was the barrister for Russian shipping executive Tagir Izmailov in the High Court trial of corruption allegations by Sovcomflot [7].  Bryan succeeded in winning vindication, costs and indemnity for Izmailov, and the judgement [8]that Sovcomflot’s chief executive Sergei Frank had been dishonest. 

Left: Benedict Worsley in the disguise of himself he arranged with the Wall Street Journal [9] . The real picture of Worsley,  at least 20 years out of date because Worsley is now 52,  can be found here [10].   Right: High Court Justice Simon Bryan.

The judge has accepted expert accounting and witness evidence that the loan fraud scheme stole $1.1 billion from National Bank Trust. He has ruled that Yurov, his shareholding partners Sergei Belyaev and Nikolai Fetisov, and their respective wives stole the money and enriched themselves. His conclusion: “In the above circumstances the Bank’s claims against the Defendants succeed in the respects identified herein.”

This frees the bank, and behind it the Russian Deposit Insurance Agency (DIA) and the Central Bank of Russia (CBR), to confiscate and sell off the defendants’ assets.

Paradoxically, the High Court judgement, issued on the basis of Russian law, does not expose them to criminal prosecution in Russia. In a ruling by Chief Magistrate Emma Arbuthnot in September 2018, an application by Russian prosecutors for the extradition of Yurov to face trial on bank fraud charges was denied. Yurov should be safe in England, Arbuthnot decided, because of his links to Khodorkovsky,  and also to Igor Sechin, the Rosneft chief executive. “I cannot see how [Yurov] could not be prejudiced… there is a real risk he will suffer a flagrant denial of justice. His would be a very high-profile prosecution of particular interest to the [Russian state] and these are very exceptional circumstances.” For that story, click [11].

Justice Bryan’s detailed analysis of the thieving and lying by Yurov and his associates creates a problem for the British Home Office in deciding what is to be done with them now.

Yurov’s scheme when he controlled National Bank Trust was so extensive, a chart of the bank’s cash as it flowed from entity to entity,  prepared by forensic accountants,  was too large to fit across a large desk-top computer screen.

By 2014, the network was so complicated, it was getting too costly for Yurov and his partners, plus Worsley as their advisor, to depend on Christodoulos Vassiliades (right), their Cyprus lawyer, to run for them. So Worsley persuaded them to trust him to set up a cheaper office he ran by himself in Cyprus. Teos, he called it.  

This, according to Justice Bryan, “was intended
to save money by bringing much of the
administrative work previously done by
Vassiliades ‘in-house’ at a lower cost. As Mr Fetisov noted in his witness statement, Vassiliades were charging in the region of €3-4 million per year and the new structure would ‘eliminate the need for Vassiliades’.  It is apparent from the documentation that in late May 2013, Mr Worsley had a detailed meeting with Mr Fetisov in relation to the budget for the Cypriot operations and costs savings, which he summarised in an email to Mr Yurov. By June 2014, Mr Worsley was informing Mr Yurov and Mr Fetisov that by closing down the Moscow office and ‘firing all other Moscow employees’ he had reduced the projected costs for 2015 down to €2.2 million.” 

Teos was also Worsley’s idea for moving all management of the stealing scheme out of Russia entirely. The reason for a “more opaque and labyrinthine offshore network”, the judge  concluded, was to avoid “the increasing scrutiny from the CBR.”

In 2015, when the investigation of the Yurov schemes was starting in Moscow, Vassliades and Worsley tried to stonewall questions; read how they did that then [12].  The Bryan judgement now documents what Vassiliades did, wrote down, didn’t know, and meant others to know, whether true or false, a total of 77 times. This is an exceptional record of how Cypriots have run offshore schemes for Russians.

On the conduct of the well-known auditors, KPMG and Deloitte, which produced audited accounts for National Bank Trust between 2008 and 2014, Bryan judged these accounts to be “false and misleading.” He also concluded: “there is also no doubt that the Bank’s auditors (KPMG and Deloitte) were deliberately misled”. Worsley was one of those identified by Bryan as responsible for the deception.

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CLICK ON IMAGE TO ENLARGE
Source: https://drive.google.com/ [5]

The Bank’s case, summarized in last week’s court papers, “is that the money received by the Shareholders’ companies was in large part swiftly transferred away to a myriad of further companies, also beneficially owned and controlled by the Shareholders, in what were said to be deliberately complex chains of fake or artificial transactions, often involving sham and/or back-dated documents, before ultimately being used for purposes such as making interest payments or repaying principal on other ‘loans’ from the Bank as well as (in certain instances) for the personal benefit and enrichment of the Shareholders themselves. Much of the money lent to the Shareholders’ network has simply disappeared. Whilst the Shareholders had previously indicated an intention to prove that all funds were ‘returned’ to the Bank, Mr Yurov and Mr Fetisov’s accountancy expert has not been able to do so set against the backdrop of the complexity of the web of transactions and transfers that took place over a ten-year period.”

Defending himself, “Mr Yurov’s response to the Bank’s case was not to dissociate himself from the allegations of the deliberate manipulation of the balance sheet by secret, uncommercial and artificial related-party lending, but rather to accept and aver that it had happened and that he knew of and had been involved in it, but to argue that it was in fact honest, legitimate and in the best interests of the Bank. A similar line of defence is advanced on Mr Fetisov’s behalf.”

Yurov told the court the elaborate pyramid of loans to offshore companies was “balance sheet management – which the Bank says is no more or less than a euphemism for the deliberate falsification of the Bank’s balance sheet to create the misleading impression that existing debt was being serviced when in truth it was bad and the Bank was in a dire financial position. Mr Yurov’s case before, and at, trial was that such ‘balance sheet management’ was carried out in good faith and in the best interests of the Bank and was common practice in Russian banks at the time.”

“At the trial before me, none of the Defendants has adduced expert evidence (for example from their Russian law expert, Mr Gerbutov) to the effect that the ‘balance sheet management’ was lawful. I have also heard evidence, on behalf of the Bank, from Ms Olga Podstrekha, the Deputy Head of Banking Supervision at the CBR who states that the CBR were unaware of such ‘balance sheet management’ which she regarded as ‘fraudulent and dishonest’.”

“Mr Yurov was cross-examined across four days,” Bryan has written. “By the conclusion of his evidence I was in no doubt whatsoever that Mr Yurov was a dishonest and untruthful witness, and that his dishonesty in the witness box (often when seeking to distance himself from conduct which was itself self-evidently either dishonest, dishonourable or not in the best interest of the Bank) was equally reflective of his approach to business dealings and his relationship with the Bank, including a willingness to deceive.”

It’s rare for High Court judges to use common terms when a complicated legal one can substitute. For example, it’s not unusual for British judges to call Russians dishonest – Boris Berezovsky was judged [13]to be that; Sergei Frank [14] of Sovcomflot also. But Bryan goes the whole hog with Yurov. Judging him to be a liar. Altogether, Bryan uses the lie term 47 times in the course of his judgement. Yurov is judged a liar 21 times; Belyaev, 6; Fetisov, 4; all three of them collectively, 15; Worsley once. This is something of a record in recent British jurisprudence.

Bryan uses the term truth 116 times in his ruling, but not once does he apply it to Yurov, Belyaev, or Fetisov. On one occasion, the judge said, there was “an opportunity for Mr Yurov to tell the CBR [Central Bank of Russia] the truth about ownership of off-balance sheet companies by the Shareholders but it is clear he did not do so, and instead told a blatant lie.” “Each of the Shareholders lied to hide the truth.”

Bryan also cited from the papers and trial testimony his judgement that as liars go, Yurov was a very bad one. The example he gives is of two cruises in the Mediterranean, in the summers of 2010 and 2011,  of the motor yacht Trident. Worsley arranged the charters; he, Yurov, Belyaev and Fetisov, with their women, were on board.  The cost was paid by the bank but hidden through offshore companies.

Left: MV Trident chartered in 2010, according to the yacht broker Superyachts [15]. Right: MV Kogo, chartered in 2011.

According to Bryan, “the two yacht charters were enjoyed exclusively by the Shareholders, their wives and Mr Worsley at the Bank’s expense of (more than) €1.1 million for two weeks. When it was put to Mr Yurov that, as all the evidence suggested, these were in fact personal holidays of the Shareholders at the expense of the Bank Mr Yurov stated that they were in fact planned corporate events; but that on both occasions the supposed corporate invitees had cancelled at the last minute, leaving the Shareholders with no choice but to go ahead with their cruise around the Mediterranean without them. This is a simply incredible suggestion which was obviously untrue. For this to happen once would appear unfortunate (if true), but for it to happen twice (and with the Shareholders not having learned lessons from the first trip to ensure that clients were invited and were attending) defies belief.”

The Oxney Court country estate in Kent identified in court as bought by Yurov with the proceeds of his bank theft, but put in his wife’s name to safeguard it from recovery claims; for more detail of the property, click [16].   British and American real estate assets like these were bought by all three partners to qualify themselves or their wives and families for investor visas, and ultimately British or US passports. Although Yurov has been protected from extradition to Russia, if the UK National Crime Authority will read the Bryan judgement, it may conclude that Yurov, Belyaev, Fetisov and their wives qualify to become the first Russians targeted for Unexplained Wealth Orders. About those, read more [17].