A Latvian Bank’s Last Sweetheart Deal for Kremlin-Linked Clients
What's the story?
In 2019 we knew
Latvia’s largest offshore bank, ABLV, quietly spun off its corporate services division, staying in business even after the U.S. accused the bank of having “institutionalized” money laundering and European authorities froze payments there.
In 2021 we found out
The spun-off corporate services division signed deals with Kremlin-linked clients to return frozen funds. Some of them had been implicated in major corruption scandals.
Service Provider Alpha Consulting
A few weeks before he was killed, Martins Bunkus put out a warning.
A seasoned Latvian lawyer and bankruptcy administrator, Bunkus had been closely tracking the case of ABLV, a Riga-based bank known to cater to clients with opaque offshore structures, particularly from Russia.
In February 2018, the United States said ABLV had “institutionalized money laundering” and cut it off from the U.S. financial system, leading Latvian and European authorities to freeze payments at the bank to prevent it from collapsing amid a flood of withdrawals.
ABLV soon declared bankruptcy and asked to carry out a “self-liquidation,” under which it would return deposits to clients where possible and sell assets under the supervision of its own shareholders.
Anti-corruption advocates warned that the move could allow ABLV to cover up illicit activities. Bunkus pushed for an independent investigation, going so far as to hire the U.S. National Security Council’s former director for Europe and Eurasia to make his case to Latvian authorities.
But on May 30, 2018, as Bunkus drove past Riga’s military cemetery, a Volkswagen van pulled up alongside him. Eight shots were fired from a Kalashnikov rifle into his car. He died shortly after.
ABLV’s request to self-liquidate was approved less than two weeks later.
An OCCRP investigation can now show that Bunkus’ warnings were well-founded. After winning approval to self-liquidate, an ABLV spin-off went on to cut deals with dozens of politically sensitive clients to help them recover their frozen funds and represent their interests during the liquidation, leaked documents show.
The documents — part of the Pandora Papers, a massive leak from 14 offshore service providers obtained by the International Consortium of Investigative Journalists — also reveal new details about the identities of these clients, many of which were obscured behind layers of offshore structures, often with the bank’s direct knowledge.
OCCRP’s review of the deals shows a pattern of links to Russia’s political elite. Of 42 clients confirmed to have signed the agreements, nearly half had clear ties to the Kremlin.
Several of these clients had been implicated in major corruption scandals. The documents also show evidence that ABLV accounts themselves may have been used for transactions related to at least one major scandal.
Together, the documents offer a detailed picture of ABLV’s activities after its 2018 bankruptcy. They suggest that letting the bank oversee its own liquidation allowed its spun-off corporate services division to offer special deals to politically connected clients to help protect their assets.
The discovery “shows once again the need for more transparency and closer supervision of corporate service structures affiliated with and/or managed by banks,” said Antonio Greco, a researcher at Transparency International Latvia.
Gints Ivuskans/Alamy Live News
A press conference at ABLV regarding the decision to liquidate the bank.
Presented with the findings, a spokesperson for the Financial and Capital Market Commission, Latvia’s financial market regulator, said that the information was “at the attention of competent authorities of Latvia,” but could not reveal details of investigations. Latvia’s financial intelligence unit said that the risks of self-liquidation were “well known and have been for some time.”
In a statement, ABLV denied it was connected to the spun-off division and said the assumption that the bank had taken steps to protect its most high-risk clients was “unfounded and incorrect.”
“The current framework of liquidation excludes any possibility of giving … preferential treatment,” the bank told OCCRP.
ABLV did big business catering to offshore entities. By September 2016, nearly 13,000 offshore firms held accounts there, according to an audit of compliance practices published by the bank.
The bank’s clients carried out hundreds of thousands of transactions. In the year starting December 2015, for instance, they received 22.6 billion euros and paid out 23.5 billion, nearly matching Latvia’s gross domestic product of around 25 billion euros the same year.
In a February 2018 notice, the U.S. Treasury’s Financial Crimes Enforcement Network, also known as FinCEN, accused ABLV of moving a “substantial amount of funds from a Russia-based bank in a manner consistent with an illicit transfer of assets.”
It also said that the bank had funneled billions of dollars through ABLV shell company accounts on behalf of Ukrainian Serhiy Kurchenko, a billionaire on his country’s most-wanted list for alleged embezzlement and appropriation of property.
Other charges included facilitating money laundering by a politically exposed Azerbaijani using a shell company account, as well as conducting transactions for parties connected to North Korea while the rogue nation was under U.S. and United Nations sanctions.
FinCEN said ABLV “used bribery” to influence Latvian officials and that it “proactively pushes money laundering and regulatory circumvention schemes to its client base” while ensuring fraudulent documentation “is of the highest quality.”
ABLV challenged the allegations.
“ABLV does not dispute that, for much of its history, its business model involved relatively high-risk customers resident in high-risk jurisdictions. But at the time of FinCEN’s Notice, [February 2018] ABLV was well on its way with a sustained and well-resourced effort to lower its risk profile,” the bank’s U.S.-based attorneys wrote in April 2018.
After FinCEN issued its notice in February 2018, ABLV Corporate Services rebranded itself as Vincit Advisory — a reference to ABLV’s Latin motto, “Labor Omnia Vincit,” or “Labor Conquers All” — and set up an office next door to the bank’s headquarters.
Though technically separate, ABLV and Vincit were closely linked. Vincit’s chief executive officer was Vadims Reinfelds, who previously served as deputy chief executive officer of ABLV and since 1997 had worked for ABLV’s controlling shareholders Olegs Fils and Ernests Bernis, both of whom were also initial owners of Vincit Advisory. (ABLV said in its statement to OCCRP that Vincit Advisory was not affiliated with the bank.)
In July 2018, about five months after the notice, ownership of Vincit Advisory was transferred to a newly created company, Vincit Management SIA, owned by Reinfelds.
The Pandora Papers show that by then Vincit had already made deals with select clients to help unfreeze their deposits or to secure compensation for any lost funds.
In the agreements, Vincit committed to “do everything necessary and possible in order to fully represent interests” of these offshore clients, in exchange for a symbolic 3,000-euro fee. Given that Vincit was an ABLV spin-off, this commitment amounted effectively to the bank’s bosses giving the depositors full support for their claims.
It is not clear exactly how many such agreements were signed, but the leaked documents confirm that Vincit signed them with at least 42 of ABLV’s clients. The agreements viewed by OCCRP revealed that at least 20 of these clients had clear links to the Kremlin.
Reinfelds — whose stake in Vincit was frozen by Latvian police in February this year, according to Latvian company records — told OCCRP that Vincit’s affiliates were “limited to providing accounting, advisory and information technology services.”
“Taking into account that the majority of ABLV Bank clients were foreign citizens and businesses, many of them in 2018 engaged Latvian lawyers and advisors,” he said.
It is also not clear how much, if any, of the deposits covered by the agreements was actually returned. According to the bank’s liquidators, ABLV has so far paid 565 million euros out of a total 2.5 billion euros in frozen deposits, most of that in small sums under an arrangement that covered deposits for up to 100,000 euros.
But under the deals signed with Vincit, a select group of clients would, at least in theory, stand to regain much more.
Offshore Companies, Kremlin Ties
The Pandora Papers show that these clients enjoyed a wide range of connections to Russia’s political elite.
Bertima Corporation, Paros Holding Corp. Tesey Commerce Ltd. Altika Corporation, Riobi Group Ltd, Mizelin Commerce Ltd, Maginta Holding Inc, and Lumiks Invest Inc.
that contracted with Vincit were owned by Uzbek and Afghan partners of the commodity trader Gunvor, half of which was owned by Putin associate Gennady Tymchenko until he sold his stake in 2014 after the U.S sanctioned him over Russia’s invasion of Ukraine.
The leaked documents show that those eight offshores collectively controlled Aria Petroleum, a U.K.-Cyprus oil trader that partnered with Gunvor in an operation to supply jet fuel to U.S. forces in northern Afghanistan starting in 2012. Aria shipped hundreds of millions of dollars of fuel via Riga and Uzbekistan’s state-controlled railway system to the Hairaton Oil Terminal on the Afghan border.
Gunvor spokesperson Seth Pietras declined to comment.
Vincit also signed asset-return agreements with two Bahamas-registered shell companies, SISI Inc. and SFOC Inc, that were ultimately owned by two top Russian space program officials, Oleg Volkov and Nikolay Cherlenyak. A third space program official, Vassily Ikomasov, served as director of SISI and SFOC.
Following a corruption probe into embezzlement from the space program using fictitious contracts, Volkov and Cherlenyak reportedly fled Russia in December 2017. Ikomasov is also under investigation. The next year, the head of Russia’s audit chamber acknowledged that the national space agency, Roscosmos, had “big problems” with corruption, with “several billion basically stolen.”
The leaked papers show how Volkov and Cherlenyak sought to hide their ownership of the offshores. According to emails, the two men set up a Belize foundation in 2015 to replace them as individual owners, “so that they won’t show as founders,” the corporate service providers wrote in an email.
Vincit’s clients also included two offshores — Izotop International Ltd and West and East Alliance Ltd — controlled by Akif Gilalov, owner of Russian retail and real estate developer Zar Holding. Izotop International was a holding for Gilalov’s Russian metals business.
Juris Gulbis, a representative of Akif Gilalov, said: “We are not aware of Vincit agreements.” He added that the offshores mentioned “were delinquent with no financial activity or use for Mr Gilalov.”
The documents show that Gilalov transferred the offshores to two of his managers in 2017 after his ownership was exposed in the Panama Papers.
Gilalov’s ties to the Kremlin are well-established. In September 2019, Putin published a Kremlin order to top officials to support Gilalov’s project Russian Fairs, which promotes Russian artisanal craft and food producers through outdoor markets.
U.S. martial arts actor Steven Seagal — an enthusiastic Putin supporter — initially held 20 percent of Russian Fairs and was decreed a Russian citizen almost simultaneously with the company’s founding in November 2016. Gilalov bought out Seagal’s stake five months later.
Gulbis said that Gilalov “does not have close ties” to the Kremlin and that it was “in the interest of the state to promote local handicrafts.”
Two other offshores whose assets Vincit tried to return appear to be involved in one of the biggest corruption scandals to ever hit Russia’s power sector.
The companies, Nortoholme Investment Ltd. and Elmex Holdings S.A., were both owned by Member of Parliament Sergey Vainshtein and his relatives and associates.
Vainshtein and his partners had owned 90 percent of the Chelyabinsk regional power supply company Chelyabenergosbyt, which serves over 1.4 million households and heavy industry plants across the South Urals.
In 2016, he sold a controlling stake in the company to four companies tied to Marina Sechina, the former wife of Putin’s close associate Igor Sechin. Elmex retained a 20-percent minority stake.
After the sale, the country’s largest power distributor, Mezhregionsoyuzenergo (MRSEN) — which had partnered with Sechina three years earlier — took control of Chelyabenergosbyt.
The company was bankrupt within two years, allegedly because funds were siphoned off as part of a complex scheme involving promissory notes, a kind of loan agreement that does not require the involvement of a bank. In March this year, Russia’s Ministry of Internal Affairs accused MRSEN-controlled power supply companies of using the scheme to send millions of dollars abroad via offshores.
The Pandora Papers show that in 2016 Elmex and Nortoholme held millions of dollars in promissory notes issued that year by a MRSEN unit called AO Finenergoinvest, which was accused of involvement in the fraud.
Both offshores tried to cash the notes, but the files do not show if the payment was made.
Vainshtein denied to OCCRP that he had any connection to Chelyabenergosbyt, Elmex, or Nortoholme.
Seychelles Shell Games
All of these offshores were incorporated by Alpha Consulting, a Russian-owned offshore service provider based in the Seychelles. Alpha Consulting had close ties to ABLV: It had accounts at the bank and since 2011 had acted as one of ABLV’s agents, which could involve “the registration and servicing of companies and the opening of bank accounts” according to an agents agreement found in the Pandora Papers. Alpha officers regularly attended ABLV’s annual bash for its partners in Jurmala, Latvia’s beach resort town.
The consultancy itself banked at ABLV via its own shell companies, AC Business Experts LP and ALC Corporate Services Ltd, which were used to invoice Alpha customers until February 2018.
After the FinCEN notice, Vincit offered Alpha Consulting the same deal that it had for many of Alpha’s clients and committed to work to return its frozen assets.
Alpha Consulting has allegedly played an active role in other scandals, according to Dylan Kennedy, director of the financial due diligence company Intelpool.
The company’s employees have “been named in connection with setting up and presenting on behalf of shell companies that have reportedly facilitated the world’s largest money laundering schemes,” said Kennedy. “The extent of potential harm and misery caused to victims of such crimes is unfathomable.”
Victoria Valkovskaya, managing director of Alpha Consulting, said “we did not open any accounts for our clients” at ABLV. She said linking the company to money laundering was a “wild accusation” that “makes the false assumption that service providers are responsible for the business activities of companies that are created.”
The Pandora Papers show that some companies set up by Alpha were linked to criminals and backed by the Kremlin. For instance, Alpha incorporated the offshores Always Efficient LLP and Canton Business Corp for the BTC-e cryptocurrency trading platform, which was operated by Kremlin-supported money launderer Alexander Vinnik.
Vinnik is also reported to have handled funds for the Fancy Bear hacking group allegedly run by the Russian military to meddle in the 2016 U.S. presidential race.
Only in August 2018 — 13 months after Vinnik had been indicted in the U.S. for money laundering and detained in Greece — did Alpha decide that “we can no longer service this company,” according to a leaked email. Putin personally lobbied for Vinnik’s release in talks with Greek prime minister Aleksis Tsipras, according to RIA Novosti.
Vincit worked to unfreeze Alpha Consulting’s assets, despite the fact that the company Alpha Consulting ultimately played a significant role in ABLV’s downfall.
Alpha’s Valkovskaya said the company “had nothing to do with ABLV’s downfall” and described the claim as “unfounded”. She said Alpha has a clean reputation, abides by all rules, and had nothing to do with “the ABLV scandal”. Alpha “always followed the law and reported any suspicious activities to the Seychelles Financial Intelligence Unit,” she said.
According to FBI documents provided to Latvia’s banking regulator and viewed by OCCRP, two Alpha-administered companies — A.D.A. Flour Miling and A.D.A Agroinvest — had provided North Korea access to the U.S. banking system via their ABLV accounts.
The FBI documents said that A.D.A. Flour Miling handled $175,000 from a Chinese front company for North Korea in 2015 through its ABLV account.
This sanctions-busting allegation contributed prominently to the FinCEN notice against ABLV in 2018.
NOTE: This article was updated on October 15, 2021, to more accurately reflect the role of Alpha Consulting as an agent for ABLV and to include additional comments from Alpha’s managing director.