What Is a Company Formation Agent?
Hidden assets, money laundering, tax dodging, and the firms that help make it all possible. Here’s how formation agents can facilitate abuse of the global financial system.
Children of the two most powerful officials in Azerbaijan – President Ilham Aliyev and Minister of Emergencies Kamaladdin Heydarov – used dozens of offshore companies as cover for investments in luxury properties, businesses, and high-end hotels across Europe and Middle East.
Their secrets were hidden in the files of Pilatus Bank, a controversial private bank in Malta that’s being investigated for laundering money for its clients. The network used accounts at the bank to stash profits and funnel millions of dollars into new investments, according to three sources with knowledge of the transactions who can’t be identified because of fear of retaliation. Their revelations were corroborated by public records obtained by reporters.
The previously unreported assets include one of the biggest conglomerates in Azerbaijan, a five-star hotel and more than three dozen other luxury properties in Dubai, French porcelain and linen factories, a villa in southern Spain, and a hotel development in the Republic of Georgia.
The newly revealed holdings underscore the extent to which the Aliyev family and its allies have profited personally from their dominance of Azerbaijan. The Aliyevs have run the oil-rich Caucasus state since its independence from the Soviet Union. Human rights groups and other independent observers accuse the undemocratic regime of regular abuses, including imprisoning journalists and opposition leaders.
Maltese journalist Daphne Caruana Galizia had begun reporting on the Azerbaijani ruling families and their Pilatus accounts before her death. She was murdered by a car bomb last October.
This follow-up investigation is the result of a collaboration of 18 news organizations, including the Organized Crime and Corruption Reporting Project (OCCRP), the Guardian, Reuters, Le Monde, and the New York Times. Led by France’s Forbidden Stories, the Daphne Project was created to continue the Maltese journalist’s work.
Leyla and Arzu Aliyeva, the two daughters of the Azerbaijani President, were the bank’s largest clients and the ultimate beneficial owners of a number of the opaque offshore companies, according to the three sources.
Tale and Nijat Heydarov, the sons of the country’s emergency minister, were the beneficial owners of other companies in the network, according to the same sources.
Kamaladdin Heydarov is a long-serving Azerbaijani official with close ties to the first family. A leaked 2010 US diplomatic cable describes him as having accrued “massive wealth” during his tenure as chairman of the state customs agency — “an agency that is notoriously corrupt, even by Azerbaijani standards.” The family is said to “own more businesses than any other Azerbaijani family,” which is perhaps why Heydarov is known in the country as “the Minister of Everything Significant.”
Lawyers for the Heydarov brothers said: “Our clients are the beneficial owners of companies which hold accounts at Pilatus Bank in Malta, which have entirely legitimate and lawful business.” The structure was set up “to hold European property and assets,” and their ownership was in many cases in the public domain. They also denied the characterization of the family in the diplomatic cables, calling it “not a reliable source.”
The Aliyev daughters did not respond to a request for comment.
The first public revelations about Pilatus and its Azerbaijani clients came from Maria Efimova, a former employee of the bank.
In early 2017, Caruana Galizia met Efimova, a Russian national, about a year after she had been fired from the bank. Efimova had sued Pilatus for failing to pay her salary, and the bank responded by reporting her to the police for misappropriation of funds.
She told the reporter that Aliyev’s eldest daughter Leyla had transferred over €1 million from a Pilatus account held by her Dubai-registered company, Sahra FZCO, to an offshore company owned by the wife of Joseph Muscat, Malta’s Prime Minister.
Once published, the story immediately turned into a major corruption scandal. A local television station filmed Ali Sadr, the bank’s owner, and Antoniella Gauci, its risk manager, leaving the building in the middle of the same night. Ali Sadr was carrying bags of documents.
A few hours later, at about 4 am, a mysterious private jet took off from Malta International Airport, made a stop in Baku, Azerbaijan, and then proceeded to Dubai.
The Maltese prime minister vociferously rejected Caruana Galizia’s reporting, and the jet operator said that no one had been on board. But three days later, the reporter broke another story stating that the bank’s main client was Heydarov, Azerbaijan’s Minister for Emergency Situations.
Caruana Galizia was killed less than six months later. (No evidence has arisen linking her murder to Heydarov or his sons.) After her murder, Efimova, who said she feared for her life, fled the country. She was arrested in Greece in relation to the accusations Pilatus had made against her, but a court recently ruled that she will not be extradited back to Malta.
The purpose of Aliyeva’s alleged payments to Muscat’s wife are unclear. The prime minister had made several low-key trips to Baku where he had meetings with President Aliyev that did not follow normal protocol for meetings with foreign leaders. He has also publicly praised Azerbaijan’s notoriously rigged elections.
While OCCRP and partners were not able to independently confirm Caruana Galizia’s reporting about the payment, and Efimova was not able to provide the document she claims to have seen, her assertion that the bank served the Azerbaijani ruling elite, including the president’s daughters, appears confirmed.
Independently, the Maltese government was looking at suspicious Pilatus Bank transactions.
A report by the country’s Financial Intelligence Analysis Unit found that the vast majority of the bank’s 150 clients were politically exposed companies or persons from Azerbaijan. It also found many of the bank’s activities were suspicious. For example, the bank did not collect “enough evidence of the source of fortune” from its politically exposed clients. “Many of the bank’s transfers were done internally, from one account to another, with no obvious commercial interest,” the report read.
Earlier last month, Seyed Ali Sadr Hasheminejad, the bank’s Iranian owner, was charged with money laundering and evading sanctions.
Following his arrest, Malta’s banking regulator froze all of the bank’s assets, including those held on behalf of clients.
Sahra FZCO — the company whose transaction sparked the scandal with the Prime Minister’s wife — appears to have been among the bank’s first clients. The beneficial owners of the company, which was incorporated in Dubai’s Jabel Ali free zone in 2004, are President Aliyev’s daughters, according to the three sources with knowledge of the company’s transactions.
Sahra FZCO opened an account in Pilatus in August 2015. It was used to receive payments from the Aliyev family’s real estate projects in Dubai, according to the three sources.
Property records show that Sahra FZCO owns land and a luxury resort on Palm Jumeirah, the man-made island in the shape of a palm tree off the coast of Dubai. The Sofitel Palm Resort & Spa on the east crescent features 361 rooms and suites and 182 residences. According to its advertising materials, it offers guests Polynesian design with a French flair, stunning views over Dubai, and an exclusive half-kilometer-long beach.
AccorHotels, a French multinational hotel group, operates the facility. The company refused to divulge its partner in the hotel without their agreement.
Sahra FZCO also appears to own another AccorHotels property in Dubai, the Mercure Barsha.
But the Aliyevs’ Dubai holdings don’t end here.
Sahra FZCO also shows up as the owner of 16 villas on the Jumeirah Islands, a picturesque, self-contained community of 50 islands. The villas, worth an estimated $30 million, are grouped on a small artificial island surrounded by lakes, water features, and greenery. Each has its own swimming pool and garden.
Leyla and Arzu Aliyeva and their brother Heydar are also listed by name as owners of 17 other luxury properties on the Dubai Palm Jumeirah worth over $100 million.
There is also a Palm Fronds property listed under “Ilhama Aliyeva,” who uses the same Dubai P.O. box number as Arzu and Leyla Aliyeva. That luxury property is worth about $6 million.
It is not clear when the family bought the Dubai properties or where the money came from. But, according to the three sources, the family had been using their Maltese accounts to collect the profits from their Dubai assets.
Dubai property data from 2014 to 2016 obtained by OCCRP also show that Nijat and Tale Heydarov, the emergency minister’s sons, also own nine luxury properties on the Dubai Palm Jumeirah Island worth about $33 million.
Sahra FZCO owns something even more valuable that the property in Dubai. According to the three sources, it also controls a majority stake in Gilan Holding, one of Azerbaijan’s largest conglomerates, with major assets in such sectors as textile and food production, agriculture, construction, manufacturing of construction materials, banking, insurance, transport, tourism and professional sports teams. The three sources’ claims were corroborated by records independently obtained by reporters.
The Aliyev daughters’ stake in Gilan has never been revealed before. Along with the family’s other known businesses in telecommunications, mining, banking, hotels and construction, it shows that they own vast swathes of the economy of the country they control.
The only previously available documentation about the ownership structure of Gilan Holding seemed to show that it was founded in 2005 and owned by the Heydarov family.
By 2005 — the year that Azerbaijani records show the Heydarovs founded Gilan — Kamaladdin Heydarov was already a prominent public official.
Lawyers for the family dispute this, saying that Heydarov had started IRS, a company that would become Gilan, as far back as 1987. They said it was passed to his sons and some “senior executives” when he entered politics in 1995. (His eldest son was 10 years old at the time).
OCCRP found a company called IRS registered in 1989, but reporters found no evidence in public records or the business press at the time that it had been a major conglomerate before Heydarov became a government official.
A 2013 audit of a bank owned by Gilan Holding found that the group was ultimately owned by two companies: Sahra FZCO, with a 51 percent share, and Shams al Sahra FZCO, with 49 percent. Both companies are registered in the secretive Dubai free zone of Jabel Ali. According to the audit, they are owned by Heydarov’s sons, Nijat and Tale.
The document has since been removed from the bank’s web site and replaced with a report that contains no information about its beneficial ownership.
But now — given the new revelations about the Aliyev daughters’ majority stake in Gilan Holding — it appears that the Heydarovs may have either been posing as the Aliyev family’s proxies, or have transferred or sold control of the company to the first family. The Aliyevs have used other proxies before to try to keep the true extent of their vast empire secret from the Azerbaijani public.
The country has shut down public disclosure of shareholder information and most of its large holding companies don’t publish annual reports or other financial details.
It is not just the Aliyevs who have used Pilatus to invest tens of millions of dollars in Europe and operated a network of secretive companies.
Following leads from the bank’s documents, reporters found that the Heydarov brothers are the beneficial owners of Heritage Collection, a company that controls three French artisanal businesses famous for their craftsmanship and traditional know-how.
Hiding behind the opaque ownership afforded by this company, the Heydarovs acquired JL Coquet, a porcelain maker that supplies dishware for some of the most elite French restaurants; Porthault, a producer of luxury linens; and Leblon Delienne, a company that specializes in producing cartoon character figurines.
Philippe Nguyen, director of Heritage Collection at the time, described the company’s strategic plan in a 2014 management report: “Its ambition is to bring together the best know-how” and “acquire 15 companies, each among the best in its sector.”
But even the company’s managers and employees were not aware of its real owners.
The manager of one factory said to Le Monde: “It’s incredible, it’s been three years now that my questions have gone unanswered. I had imagined everything: Shareholders from the Gulf, Uzbekistan. Not Azerbaijan. Why the secrecy?”
The French companies, which employ 180 people, were bought in 2014 and 2015, when they were on the brink of bankruptcy. Heritage is seemingly a French holding, but in fact it is owned by a Luxembourg company, which was bought by a Maltese company, which in turn is owned by two New Zealand trusts.
The transactions in Luxembourg have raised red flags at French banks that dealt with the transactions, prompting them to alert the French anti-money laundering authority.
According to sources familiar with the transactions, the Heydarovs have also used the bank to invest €3.9 million in a luxury property in Marbella, a popular seaside resort in the south of Spain, and €2.5 million in the grand Soviet-era Meshakhte sanatorium in the spa town of Tskaltubo in western Georgia, where they plan to build a four-star hotel.
The sources also said the Heydarov family owns other corporate structures through proxies. Reporters have found that these companies own nearly €40 million in properties in the United Kingdom and Spain. Reporters were not able to independently confirm direct ownership through records.
Editors’ disclosure: Khadija Ismayilova, an OCCRP reporter who contributed to this story, was jailed for 18 months by the Azerbaijani government in 2015-2016.
Additional reporting by Anuska Delic, Karina Shedrofsky, Anne Michel, Lejla Camdzic, and Chris Benevento.