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OTKRITIE BANK AND THE TRUST BANK FRAUD — HOW TO TOAST MARSHALLOWS WITHOUT BURNING ANYTHING

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By John Helmer, Moscow

Otkritie Bank has received Rb157 billion from the Central Bank of Russia (CBR) and the Deposit Insurance Agency (DIA) to rescue Trust Bank from bankruptcy. It is the second largest bailout in Russian bank history for what may be the longest lasting and most expensive bank fraud by its shareholders. But thus far the CBR, DIA and Otkritie have pursued in Moscow only a fraction of the money that has been lost, while the money trail leads to Cyprus, and to offshore entities operated from Cyprus. “Inexplicably”, observes an international bank regulator specializing in money laundering by Russian banks, “they won’t do the obvious — pursue the perpetrators of the Trust Bank fraud offshore where all the money went.”

National Bank Trust (NBT, aka Trust Bank) was the creation of Mikhail Khodorkovsky’s Menatep Bank group. Originally called Menatep St. Petersburg, it changed its name and owners of record in 2004, following Khodorkosvky’s arrest in 2003, and his subsequent conviction. The identified controlling shareholders were Ilya Yurov, Nikolai Fetisov and Sergei Belyaev. Russian and international bankers familiar with their operations believe these were consistently lossmaking; as a consequence, says one international banker, their international credit lines were gradually cut off. Three international accounting firms, KPMG, Deloitte Touche and Ernst & Young annually approved Trust Bank’s accounts without discovering what the bankers knew and without reporting anything amiss.

According to the Central Bank of Russia (CBR) and Moscow prosecutors, Yurov and his associates are suspected of defrauding the bank of $118 million as well as more than Rb7 billion ($138 million) between 2012 and 2014. Criminal charges citing these amounts were brought last April, almost six months after CBR announced it was putting the bank in administration by the DIA. DIA followed by announcing Trust Bank was being handed over to Otkritie. For details of this story, read this [1].

Reuben AganbegyanLast week a spokesman for Otkritie and for Reuben Aganbegyan (right), chief executive of Otkritie and chairman of the reorganized Trust Bank board, said they have launched civil recovery cases in the Moscow Arbitrazh Court over the past four months. “Our pending claims for recovery of corporate loans total RUB 39bn and $166m. All these claims are against companies that we suspect of having been involved in siphoning capital away from Trust Bank. If any other transactions that took place prior to the change of management at Trust Bank qualify as shady or as those aimed at asset stripping, they will also be challenged in court.”

In August Otkritie announced [2] a partial settlement of one of its claims against a Cyprus entity.

Otkritie lists fifteen court cases under way this month in Moscow. Of the companies named as borrowers and owing the reported Rb39 billion and $166 million, not one is registered in Russia. Almost all the borrowers identified as defendants in the court actions are registered in Cyprus. One, identifying Black Coast Development & Management Limited, a Cyprus-registered entity, also names as co-defendant the private Austrian bank, Bank Winter & Co. of Vienna [3].

MOSCOW COURT RECOVERY CASES LAUNCHED BY OTKRITIE BANK AND CURRENT AS OF NOVEMBER 2015

Erinskay Investment Limited http://kad.arbitr.ru/Card/7b402ad0-316a-4b81-995c-bed7e3ef271a [4]
Бэймор Инвестментс Лимитед http://kad.arbitr.ru/Card/bfb773ff-37f1-43cc-a439-33bd1012304f [5]
Калвер Бэй Холдингс Лимитед http://kad.arbitr.ru/Card/a553141e-27b3-4704-be0f-96a9566aec4d [6]
НРТ Холдинг Лимитед http://kad.arbitr.ru/Card/52ca4920-e3d3-48fd-a5b9-f026c6a2daa6 [7]
Мурия Трейдинг Лимитед http://kad.arbitr.ru/Card/fa92022e-0dae-4f0d-adb1-6097c2c416c4 [8]
Сиберианкд Тимбер Энтерпрайзис Лимитед http://kad.arbitr.ru/Card/a62c92c1-e480-4a81-a553-bd99e710fb8d [9]
Беленфилд Трейд Лимитед http://kad.arbitr.ru/Card/481e351c-5b7d-4956-905c-3c36eadc6e9e [10]
TIB Investments Limited http://kad.arbitr.ru/Card/c85b7da2-602b-4f83-85df-95d0a4d35013 [11]
Бэймор Инвестментс Лимитед http://kad.arbitr.ru/Card/1361db47-ce0d-41d9-b6ff-28334b386513 [12]
Эринскей Инвестментс Лимитед http://kad.arbitr.ru/Card/1206a8ff-00fd-488c-b395-2ffac87b1f47 [13]
ЛБ Коллекшн Сервисез Лимитед http://kad.arbitr.ru/Card/2ca60b60-69d3-42b1-8496-c0a52cfeb75b [14]
Вейв Проперти Девелопмент энд менеджмент http://kad.arbitr.ru/Card/ea094064-c735-4239-a446-d0be6272b923 [15]
Эденбури Трейдинг Лимитед http://kad.arbitr.ru/Card/523ee9bc-b27b-4cb4-a140-681fb66c0fc3
Банк Винтер энд Ко АГ и Блэк коуст девелопмент энд менеджмент Лимитед http://kad.arbitr.ru/Card/028c82f1-26ce-43dc-bcf4-ec7b64bd8e67 [16]
Оттеруэй холдинг корпорэйшн лимитед http://kad.arbitr.ru/Card/e911bc88-5b61-4605-b3e6-bbd091388c82 [17]

Source: Otkritie Bank

Cyprus sources have revealed that the Trust Bank loan fraud involved the creation of dozens of offshore companies, registered and operated by a common Cyprus management company associated with a well-known local law firm. These entities were in turn instructed by Trust Bank officials in Moscow, including the former shareholders. For details of this part of the story, read this [18].

Aganbegyan [19], whose responsibilities now straddle both Otkritie and Trust, was asked if the offshore companies have a common address, a common operating director or signatory. His spokesman replied: “we are not disclosing details that may influence the judicial proceedings.”

So far Otkritie is not pursuing judicial proceedings outside the Moscow Arbitrazh Court. Except for the one case against Winter Bank, it has launched no proceedings against the Swiss and Cyprus banks, also identified as account holders offshore for the loan money now claimed as owing or stolen. Aganbegyan was asked to explain the reason for litigating in a Russian court when, even if successful, Otkritie will be unable to enforce payment orders outside Russia. He won’t answer the question.

Aganbegyan holds [20] a 7.96% shareholding in Otkritie. The largest shareholder is Vadim Belyaev (below, left) with 28.61%; he is no relation to Sergei Belyaev, the ousted Trust Bank shareholder. LUKoil and its control shareholders Vagit Alekperov and Leonid Fedun (centre), hold between them 26.96% , resulting from the merger last year of their Petrocommerz Bank with Otkritie. Alexander Nesis, who folded his Nomos bank into Otkritie in 2013, holds 4.91%, while Alexander Mamut (right) keeps 6.67%.

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There is a large discrepancy between the bottom-line on the prosecutors’ criminal charge sheet and on the bank’s civil claim sheet. Lawyers of Otkritie report calculating that Rb32 billion and $48 million more than the amount prosecutors allege to have been stolen should be repaid. At the old, pre-crash exchange rate, when the money was taken, this was about $1 billion; at the current rate of exchange, $540 million.

But this amount has been calculated from checks of the accounts for just two years before the CBR took over Trust in December 2014. What of the decade before that, following Yurov’s takeover of the bank from Khodorkovsky? Otkritie says: “We do not have any data for the period from 2004 to 2014.” Sources in Moscow and Cyprus say they believe the scheme of embezzlement through related-party loans between Trust in Moscow and offshore companies in Cyprus started from 2009, after the bank received an initial CBR bailout loan during the crisis of 2008-2009. (A Russian academic study [21] of CBR bailout lending to the domestic banks in that period has found there was widespread conversion of CBR rouble loans into “foreign currency hoarding” and “holdings of market securities” in offshore bank accounts.)

The Moscow court papers and Otkritie’s spokesman also confirm that the current commercial court claims are limited to money loaned out of Trust Bank “before December 2014, when the financial rehabilitation procedure was instituted placing the bank under temporary administration”; and after 2012. “If they do not know what happened before 2013,” according to a Moscow bank analyst, “then it becomes obvious they are treading very soft on Yurov, hard on his staff. Why do that? ”

Aganbegyan is coy in his reply. Asked the identities of the companies he is already suing, he replied last week: “We prefer not to disclose those details as long as the cases are pending in courts. We believe, however, that they may be linked to former shareholders of Trust Bank.” What remedies and recovery are being pursued against Yurov, Fetisov and Belyaev? “We are suing the actual borrowers who received the loans that we suspect were granted with the aim of stripping Trust Bank of its assets. It is up to the law enforcement authorities to establish whether the former shareholders were involved in those transactions. We are cooperating fully with them and providing them with all necessary information.”

Sergei Belyaev continues [22] to be a shareholder of Trust Bank in Kiev, with a 28% stake. Yurov and Fetisov sold their combined 72% stake in April [23]. How is, or how was, this Ukrainian unit related to Trust in Moscow? Otkritie said last Friday that Trust of Ukraine was “a special project of the former shareholders of Trust [Russia].” At the time this spring when Otkritie formally took over Trust, Otkritie adds that Trust Ukraine wasn’t one of the assets or liabilities acquired.

In Kiev a spokesman for Trust Ukraine refused to say if there had been loans or capital transfers between the two banks between 2007 and 2014, when they were run by Yurov and his associates and were related parties. As of July this year, Trust Ukraine reported capital equivalent to $28 million.

A Cyprus lawyer and expert on tracing and recovering funds stolen in Russia and moved through Cyprus fronts said that for litigation to be effective Moscow court action will have to be combined with action in the Cyprus courts. “Filing actions against Cyprus companies might be necessary in Cyprus if the offshore companies were being managed from Cyprus. Cyprus laws regarding money laundering are now extremely strict, and Cyprus takes cases of money laundering through the country extremely seriously. The law provides for mandatory reporting of suspicious transactions to the Unit for Combating Money Laundering, MOKAS, and the obligation to take the appropriate preventive measures — e.g. identification of customers, record keeping, mandatory reporting — applies to all persons who are engaged in the business, including lawyers and accountants. They are liable for their actions in cases when money laundering has taken place in companies administered by them, but not reported to the authorities.”

In Moscow the CBR was asked whether it has sought the assistance of counterpart central banks in Cyprus, Austria and Switzerland for tracing the funds of NB Trust through companies operated by the former bank shareholders. “The Bank of Russia does not comment on operating banks,” the CBR press office responded.

To the same question asked last week, the DIA has not replied. In October DIA was asked what steps the agency had taken for the return of Trust Bank funds, either by civil or criminal court proceedings. The answer was incomplete: “In the course of the implementation of measures to prevent the bankruptcy of the Bank, the Agency sent to the law enforcement a number of messages on the facts revealed of illegal actions of the leaders of the Bank and other persons [sic]. As a result of consideration of the investigating authorities at the Russian Interior Ministry, the Acting Chairman of the [Trust Bank management] board O.O.Dikusar, a criminal case was initiated under Part. 4, Art. 159 of the Criminal Code (fraud on a large scale) in connection with the theft of securities held by the Bank worth more than 5 billion rubles.”

Dikusar and four others — Evgeny Romakov, the bank’s former treasurer, Ekaterina Krivosheeva, a senior financial officer, Marat Iskandyrov, the chief internal auditor; and Andrei Popov, the chief accountant – were arrested and imprisoned in May. On September 23 the Tverskoy district court in Moscow extended their detention until another hearing is scheduled on December 23.