New Zealand: the Shell Company Incorporation Franchises (III)

In our previous post in this series, we rounded up some of the career highlights of a company agent, Philip Burwell, and his brand, International Offshore Services (IOS), formerly very active in New Zealand via its franchisee, The Company Net. We noted that the big giveaway of the IOS network was the names of the stooge company directors, amongst them, Inta Bilder, Voldemar Spatz, and Eric Vanagels.

Also in our previous post, we repeated a claim that companies apparently incorporated by IOS had turned up repeatedly in documented fraud allegations worth $10Bn, and agreed that a more realistic total figure would be a hazy large multiple of that: $100Bn, say. So it’s a jolt to see that a fair chunk of the apparent IOS/Burwell network is still going strong right now, in still-active New Zealand companies. Given the pedigree of the stooges, this is not at all a good thing.

For instance, 62 companies whose founding director was Inta Bilder are still registered in NZ; 17 companies, whose founding director was Erik Vanagels, also survive. That looks like an oversight by the NZ Registrar of Companies. If one agrees that all the Bilder, Spatz and Vanagels companies should indeed have been struck off, these survivors should go too. If one doesn’t agree, then the NZ Registrar had no business striking off the thousands of related companies that he did strike off. It’s a striking inconsistency.

Those surviving companies’ agent is no longer The Company Net. When it withdrew, in terror, from offshore registrations, around May 2011, it handed on its shrinking but still substantial portfolio to another NZ agent, Equity Trust International.

Let’s look at who’s directing those 62 surviving Inta Bilder companies, and the 17 Erik Vanagels survivors, and see where it leads us.

It breaks down like this:

Inta Bilder still directs 20 companies. His “residential” address, Stacijas Laukums 2, Ak555, Riga, LV-1050, Latvia, given on the director consent forms at the New Zealand registry, here, for instance, is a fake: as Graham Stack points out, it’s a mail box address. Voldemar Spatz’s “residential” address on the New Zealand Register is the same mail box.

Erik Vanagels still directs 4 companies.

One ex Vanagels company is now directed by a Russian, Andrey Razuvaev.

All but one of the remaining live Bilder, Vanagels and Spatz companies, and a few more that have crept in, in the time since 2011, are now directed by three Cypriots: 34 by Manti Effrosyni, 20 by Anastasia Koumidou, and 18 by Petr Zika.

So the total’s grown a bit: that’s nearly 100 companies, operating undisturbed since incorporation a number of years ago. As we see, the Latvian connection, which we explored in the previous post, is now complemented by a Cypriot connection.

The location may have shifted to Cyprus, but the companies still have a mighty strong whiff of IOS and Burwell about them. In particular, in the ICIJ database leaked from the British Virgin Islands, Petr Zika is purportedly a director of the Burwell/IOS vehicle Ireland and Overseas Acquisitions, as is Voldemar Spatz.

That naturally makes one ask: when this shift of focus to Cyprus took place, was the network just moving around a bit, in response to some disturbance of the network in Latvia, perhaps? The Latvian police have been sniffing around it for quite a while now:

The Latvian Financial Police confirmed to us that both Gorins and Vanagels appeared as “paper” directors in a criminal case related to tax fraud which was launched in Latvia in 2008.

I wonder if they ever got anywhere with that. As of December 2012, that investigation was still running (or walking, or crawling), and there’s no sign of it in more recent news. For the moment, that’s a dead end; it’s time to look at the most important component of any money laundering channel: not shell companies, but banks.

We go back to Graham Stack’s deep dive into the IOS Latvian proxies for one shortlist of Latvian banks:

Our investigation has allowed us to reveal at least 10 cases in which Latvian banks were used to transfer between tens of millions and as much as one billion dollars. Several banks were involved in these transactions – the Parex Bank (before it was taken over by the state), the Trasta Commercial Bank, the Baltic International Bank, the Rietumu Bank, the Regional Investment Bank and the Multibanka Bank. The latest questionable transactions occurred quite recently – in 2010.

We can get another list of Latvian banks, with some overlap, from the Baltic Centre for Investigative Journalism, digging into the Magnitsky case, where Latvian IOS stooges come to the fore again:

43 million dollars were deposited in the Latvian bank “Privatbank” by the British firm “Technomark Business”. The director of this firm is the Latvian citizen Juris Vitmanis and the owner is the Cyprus firm “Fynel Ltd.”, founded by the afore-mentioned Stanislavs Gorins of Latvia. The directors of “Fynel Ltd.” are also Latvian residents: Vitmanis, Vanagels, Daniels Bangers, and Martins Rauda.

…

Hermitage Capital representatives expressed hope to Re:Baltica that Baltic authorities would investigate the Magnitsky matter. The fund requested the Latvian General Prosecutor and the Latvian bank supervisor Financial Capital and Market Commission (FCMC) to freeze relevant accounts(.doc) at Aizkraukle Bank, Baltic International Bank, Baltic Trust Bank, Rietumu Bank, Trasta Kommercbanka and Paritatas Bank.

A couple of clarifications: Paritatas Bank and Paritate Bank are variants of old names for the Latvian Privatbank. This Latvian Privatbank in turn is a subsidiary of the big Ukrainian Privatbank.

Next question: how many of these banks have branches in Cyprus? The consolidated shortlist, from the above two excerpts, does indeed give us some hits for Cyprus branches: Trasta Comercbanka, Privatbank, and ABLV (the new name of Aizkraukle bank).

Meanwhile, Hermitage Capital were already well aware of the Cyprus connection by July 2012, when they passed on a dossier to the Cyprus attorney general, triggering a slightly unenthusiastic investigation:

Cyprus has opened an investigation into evidence that stolen Russian tax money linked to the murder of Sergei Magnitsky was laundered through its banks.

Mokas, its anti-money-laundering unit, in an email to EUobserver on Thursday (13 December), said: “At this point … in Cyprus there is an open investigation on this matter.” It noted: “Mokas is conducting the investigation, which functions within the office of the attorney general.”

It added that the probe already began some time ago.

But it went ahead with some reluctance.

Magnitsky, a 37-year-old Russian accountant, was killed in jail in 2009 after he exposed a huge tax embezzlement by a criminal gang – “the Klyuev group” – involving high ranking officials in the Russian interior ministry and its internal intelligence service, the FSB.

…

But Cyprus in October said it must check with Moscow to see if the money was really stolen before it could move ahead.

The Magnitsky probe is unwelcome on many fronts.

No-questions-asked banking services for Russian clients are an important source of income for Cyprus, where Russians have stashed up to $26 billion, according to the German intelligence service, the BND.

I wonder what “Moscow” said, this time. In the past, “Moscow” have had some quite surprising things to say about Magnitsky:

Magnitsky was a lawyer for U.S.-born British investor William Browder when he alleged in 2008 that organized criminals colluded with corrupt Interior Ministry officials to claim a fraudulent $230 million tax rebate after illegally seizing subsidiaries of Browder’s Hermitage Capital investment company.

He subsequently was arrested on tax evasion charges and died in prison in November 2009 of untreated pancreatitis at age 37.

His death prompted widespread criticism from human rights activists and the presidential human rights council found in 2011 that he had been beaten and deliberately denied medical treatment.

Announcing his verdict Thursday, Judge Igor Alisov said “Magnitsky masterminded a massive tax evasion scheme in a … conspiracy with a group of people,” according to the ITAR-Tass news agency.

…but at any rate the judge didn’t deny there was a crime, even if his notion of the perpetrator might look perverse to Western eyes, in a disconcerting turn-it-upside-down-and-make-your-silly-head-spin sort of a way.

So maybe the Cypriot authorities did get the requested clearance to proceed from Russia. I wonder if they ever got anywhere. In December 2012, that Cypriot investigation was still running (or walking, or crawling), but there’s no sign of it in more recent news.

Hermitage, meanwhile, have yet another list of Cypriot banks:

…papers, including copies of financial transfers – seen by this website – show that $31 million of the tax money was moved out of Russia using five Cypriot banks: Alpha Bank, Cyprus Popular Bank, FBME Bank, Privatbank International and Komercbanka.

They also show that Dmitry Klyuev, the alleged ringleader, owns a Cypriot-based firm called Fungamico, has an account at the Bank of Cyprus and visited Cyprus with his associates at the time the money went missing.

A couple of banks from our shortlist, Privatbank and Komercbanka, appear here one more time. If they turned out to be the banks at which companies managed by Petr Zika, Anastasia Koumidou and Manti Effrosyni had accounts, it wouldn’t be a big surprise. But Hermitage offer other candidates too, and anyway, one suspects it could be a long, long time before the Cyprus authorities get round to taking a look.

Perhaps this Cyprus channel never amounted to all that much, though. A putative Cyprus moneylaundering channel via Latvia wouldn’t have functioned very well, once Cyprus fell into financial crisis, last year:

The conclusion of the new Cypriot bailout plan leaves many Russian depositors out of pocket — a $4 billion haircut according to some estimates, with an announcement from Russia’s government Monday that they’ll be getting no aid from Moscow — but also leaves a great number of Russians busily looking for a new safe haven for their money.

Many of these will be legitimate investors and depositors who simply prefer to leave their cash in jurisdictions where the courts are less corrupt and the tax authorities less predatory. After all, while Russia has a low flat tax rate of 15 percent, it also has an IRS-equivalent notorious for leaking information about individuals’ incomes to kidnappers and disgruntled spouses alike.

Most of the approximately $32 billion of Russian money in Cyprus was essentially legitimate, Much of it was simply passing through, business funds enjoying a generously low corporate tax rate – 10 percent to Russia’s 20 — before flowing back into Russia as ‘foreign investment,’ something which explains why tiny Cyprus was Russia’s largest investor.

However, a reasonable proportion was dirty money being parked there or moving on to more desirable locations such as London and New York after receiving another laundering. Cyprus was especially infamous for its ‘sandwiches,’ a moniker for Cypriot companies serving as shells for Russian money, and which were then in turn owned by other shell companies in jurisdictions such as Andorra and Belize (these multiple layers designed, as one might imagine, to muddy ownership to the point of total obscurity).

For many of the gangsters and underworld financiers who treated Nicosia as another stop on their laundry routes (typically the money was prewashed by moving it through banks in countries such as Ukraine, Moldova, Latvia and Israel first), new havens are an urgent necessity.

Sticking with the old channel in Latvia might have been another option. It turns out not to have been terribly risky to keep the Latvian channel going. The Latvian FCMC did indeed investigate the complaint made by Hermitage Capital. The outcome is impressive, though not in a good way:

June 19, 2013

Following a probe into six Latvian banks, Latvia’s financial markets regulator, the Financial and Capital Market Commission, has imposed a fine of 100 thousand Lats (around $191,000) the maximum fine possible on one Latvian bank for its role in laundering the $230 million stolen from the Russian government directly connected to the Magnitsky case.

The probe was based on a complaint filed by Hermitage Capital Management with the Latvian authorities in July 2012 naming six banks (Aizkraukles Bank, Baltic International Bank, Baltic Trust Bank, PrivatBank, Rietumu Bank and Trasta Komercbank) that received funds directly or indirectly from the $230 million illegal tax refund exposed by the late Sergei Magnitsky.

The name of the sanctioned bank has not been disclosed by the regulator.

The aim of the probe was “to clarify whether the banks had complied with regulatory requirements for anti-money laundering and combating terrorist financing,” said the Financial and Capital Market Commission.

With power to levy a maximum penalty of only $191,000, it was crippled at birth, that Latvian Financial and Capital Market Commission. I suppose that skips the whole weary process of regulator-castration, evident in the US and UK, and elsewhere, over many years now.

The upshot: in Latvia, if you launder some significant chunk of $230Mn, you stand one chance in six of landing a $191,000 fine, and a five-sixth chance of an implicit official endorsement of your absurdly porous AML procedures. As a cost of doing business, that’s competitive with London!

In the absence of firm evidence, one might guess that, for the moment, for moneylaundering purposes, it isn’t necessarily Cyprus that is “the new Latvia”; perhaps the new Latvia is just…Latvia.

Meanwhile, those 100 dodgy companies incorporated in New Zealand have cruised on unperturbed for years now, making whatever mischief they make: some of that mischief will come out, in the end. Perhaps the NZ Registrar of Companies, or his Corporate Risk Profiling Team, would care to take a look at those companies’ pedigrees, draw some conclusions about the risks, and take action. If deregistration was the right thing to do in 2011, what’s changed?

The New Zealand Companies Bill would make it impossible for the entire board of an NZ company to be resident offshore. Dodgy agents really like offshore directors: being offshore makes their stooge directors feel that bit safer, and discourages enforcement agencies (if that is ever necessary). Sadly, the New Zealand Companies Bill has been languishing since its second reading, in mid 2013. That reform initiative may still be running (or walking, or crawling), but, apart from a brush-off by the minister when a progress report was requested in the NZ Parliament, there’s no sign of it in more recent news.

Just like the Cypriot Attorney General and the Latvian Financial Police, the New Zealand Government has gone pretty quiet. It’s election year in NZ, which is a better pretext for delay than “timorousness”, “lobbying”, “backsliding” or “capture”.

In future posts, we will explore yet more shell company franchises, in New Zealand and elsewhere.