Saturday, June 3, 2023

How an oligarch used shell companies and Wall Street ties to invest in America

In July 2012, a shell company registered in the British Virgin Islands wired $20 million to an investment vehicle in the Cayman Islands, which was controlled by a large US hedge fund firm.

The wire transfer was the culmination of months of work by a small army of operators and supporters in the United States, Europe and the Caribbean. It was a covert operation, intended, at least in part, to hide the source of the funds: Roman Abramovich.

For two decades, the Russian oligarch has relied on this twisted investment strategy — deploying a string of shell companies, sending money through a small Austrian bank and tapping the connections of major Wall Street firms — to major US hedges. Keeping billions of dollars quietly with the fund and private equity firm, according to people with knowledge of the transaction.

The key was that every lawyer, corporate director, hedge fund manager and investment advisor involved in the process could honestly say that he was not working directly for Mr. Abramovich. In some cases, participants did not even know whose money they were helping to manage.

Wealthy foreign investors such as Mr. Abramovich have long been able to transfer money to US funds using such covert, roundabout setups, taking advantage of a lightly regulated investment industry and Wall Street’s knowledge of the origins of wealth. Would like to ask some questions.

Now, as the United States and other countries impose sanctions on people close to Russian President Vladimir V. Putin, hunting these fates could face significant challenges.

Last week, the Internal Revenue Service asked Congress for more resources as it helped oversee the Biden administration’s sanctions program with a new Justice Department kleptocracy task force. And on Capitol Hill, lawmakers are pushing a bill, known as the Enablers Act, that would require investment advisors to identify and scrutinize their clients more carefully.

Mr. Abramovich has an estimated fortune of $13 billion, derived from his purchase of an oil company owned by the Russian government, which he largely sold back to the state. This month, European and Canadian authorities imposed sanctions on him and sealed his assets, including the famous Chelsea football club in London. The US has not imposed any sanctions on them.

Mr. Abramovich’s assets in the United States include multimillion-dollar real estate, such as a pair of luxury residences near Aspen, Colo. But he also invested large sums of money with financial institutions. His relationship with Mr Putin and the source of his wealth has long made him a controversial figure.

Abramovich’s many US investments were facilitated by a smaller firm, Concorde Management, led by Michael Matlin, who was not authorized to speak publicly, according to people with knowledge of the transaction.

Mr Matlin declined to comment beyond issuing a statement, which described Concorde as “a consulting firm that provides independent third-party research, due diligence and investment monitoring.”

Abramovich’s spokesman did not respond to emails and text messages requesting comment.

Founded in 1999, Concorde did not directly manage any of Mr. Abramovich’s money. According to people with knowledge of the matter, it acted like an investment advisory and due diligence firm, giving directors of shell companies in the Caribbean tax haven recommendations about potential investments in marquee American investment firms.

Big Wall Street banks such as Credit Suisse, Goldman Sachs and Morgan Stanley often hire executives from Concorde to hedge funds, according to people familiar with those meetings.

Over the years, Concorde arranged more than 100 investments in various hedge funds and private equity firms, mostly for Mr. Abramovich, according to an internal document prepared by a Wall Street firm. They included funds managed by Millennium Management, BlackRock, Sarissa Capital Management, Carlyle Group, DE Shaw and Bear Stearns, according to people with knowledge of the case and the document.

The Concorde kept a low profile. It had no website. It is not registered with US regulators. One of the few times it came out publicly was in 2020, when Concorde applied for and received a $265,000 Paycheck Protection Program loan during the pandemic. (Concorde repaid the loan, a spokesperson said.)

Concorde’s secrecy alarmed some on Wall Street.

As BuzzFeed News reports, in 2015 and 2016, investigators from State Street, a financial services firm, filed “suspicious activity reports” in which Concorde accused the US government of transactions involving some of Mr. Abramovich’s Caribbean shell companies. alerted. State Street declined to comment.

US financial institutions are required to file such reports to help the US government combat money laundering and other financial crimes, although the reports themselves are not evidence of any wrongdoing.

But for the most part, American financiers weren’t interested in — or discovered — the source of the funds as directed by Concorde. As long as the routine background check didn’t show red flags, it was fine.

Paulson & Company, a hedge fund run by John Paulson, received investments from a company representing Concorde, according to a person with knowledge of the investment. Mr Paulson said in an email that he had “no information” about Concorde’s investors.

Concorde also operated tens of millions of dollars in Highland Capital, a Texas hedge fund, from two shell companies. Hyland hired a unit of the nation’s largest bank, JPMorgan Chase, to make sure the companies were legitimate and that the investments were under anti-money-laundering rules, according to federal court records in an unrelated bankruptcy case. complies.

JPMorgan approved the investment. Court records show that Hyland never learned the final source of the money.

Large hedge funds may have accepted the money, even if they realize it belongs to Mr. Abramovich. At that time, the oligarchy was not subject to restrictions.

The way a hedge fund obtained Mr Abramovich’s money in the summer of 2012 shows the challenges facing US and European authorities hoping to track the assets of him and other oligarchs. We do.

The manager of the fund, which oversaw billions of dollars but was not a big name on Wall Street, provided a detailed account of his involvement on the condition that neither he nor his firm be named.

In 2012, Gerald McGinley, a New York-based wealth manager for Credit Suisse, said of a wealthy family that he contacted the fund manager. Mr McGinley said Concorde was representing the family and was interested in investing tens of millions of dollars with the hedge fund.

The fund manager said that Credit Suisse had told him that in order to receive the investment, he would have to set up a special financial vehicle in an offshore jurisdiction so that investments would not be subject to US taxes. The hedge fund would receive a small percentage of the total investment as a fee, and Credit Suisse would receive 20 percent of that fee.

Along with one of Mr. McGinley’s associates at Credit Suisse, the fund manager traveled to Concorde’s offices in a dilapidated building in the New York City suburb of Tarrytown. Thick metal doors hid their offices from the building’s other occupants. Inside, the walls were devoid of artwork or decorations.

The fund manager did not know who was Concorde’s client, and did not ask.

Mr McGinley, who now works at Swiss bank UBS, did not respond to questions about his work with Concorde. A Credit Suisse spokeswoman declined to comment.

After initially meeting with the fund manager, Concorde executives referred him to Highwater, a firm based in Grand Cayman that specialized in providing “corporate governance services” to investment managers.

According to an email between the fund manager and a Highwater executive, for $15,000 per year, plus other fees, Highwater will provide an employee to sit on the board of the financial vehicle that the fund manager needs to accept money from the wealthy family. was expected to launch. by The New York Times.

The fund manager also brought in Boris Vanfetter, who ran a small US consulting firm, Constellation, as another board member. Mr OneFater said in an interview that he did not remember whose money the Cayman vehicle was handling. “You are asking for ancient history,” he said. “I can’t remember the name of Mr. Abramovich.”

The fund manager hired Maurant, an offshore law firm, to do the paperwork for the Cayman vehicle. Maurant’s managing partner did not respond to requests for comment.

They also hired Globeop Financial Services, which provides administration services to hedge funds, to ensure that the Cayman entity was complying with anti-money-laundering laws and that any was not doing business with, which was placed under US government sanctions. copy of the contract.

“We comply with all laws in all jurisdictions in which we do business,” said Emma Lorre, spokeswoman for SS&C Technologies, a fintech company based in Windsor, Conn., which now owns Globeop.

Highwater executive John Lewis said in an email to The Times that his firm received four referrals from Concorde from 2011 to 2014 and has not worked with the firm since.

“We didn’t know any connection to Russian money or Roman Abramovich,” said Mr. Lewis. He added that Globeop did not identify “anything unusual, high risk, or politically exposed individuals with respect to any investors.”

The Cayman Fund opened for business in July 2012 when $20 million was received by wire transfer. It was expected that tens of millions more would come, although the additional funds never showed up. The Cayman Fund was run as an independent entity, using the same investment strategy – buying and selling exchange-traded funds – employed by the fund manager’s main US hedge fund.

The $20 million was wired from an entity called Kethorpe Holdings, which was registered in the British Virgin Islands.

Documents linked to the wire transfer showed that the money came from Katherine Privitbank in Vienna. It reached Grand Cayman after passing through another Austrian bank, Raiffeisen, and then JPMorgan. (JP Morgan was acting as a correspondent bank, essentially acting as an intermediary for banks with smaller international networks.)

A spokeswoman for Katherine declined to comment. A JPMorgan spokesperson declined to comment. Representatives for Raiffeisen did not respond to requests for comment.

The fund manager noticed that some documents were signed by a lawyer named Natalia Bychenkova. The Russian-sounding name led him to conclude that he was probably wielding money for the Russian oligarch. But the fund manager didn’t mind, as GlobeOp verified that Caythorpe complies with Know Your Customer and anti-money laundering regulations and laws.

He did not know who controlled Cathorpe, and he did not ask.

In early 2014, after Russia invaded the Ukrainian territory of Crimea, markets plunged. The fund manager made a bearish bet on the direction of the stock market and his fund was crushed when the stocks went up.

The next year, Kethorpe withdrew his money from the Cayman Fund. Kethorpe was liquidated in 2017.

The fund manager said he didn’t realize until this month that he was investing money for Mr. Abramovich.

Susan C. Beacheo And Kitty Bennett Contributed to research. Maureen Farrell Contributed to reporting.

World Nation News Desk
World Nation News Desk
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