Editor’s Note: Part II of this in-depth, technical piece by a former IRS investigator raises more questions than it answers. But WhoWhatWhy believes this is a very useful service, particularly in relation to a complex topic of considerable public import — one that may be a key component for special counsel Robert Mueller’s ongoing Trump-Russia investigation. We hope in the coming weeks to explore many more of these questions in greater depth. And we welcome reader comments.
Martin J. Sheil is a retired branch chief of the IRS Criminal Investigation division.
See Part 1 here.
On March 10, 2017, US Rep. Maxine Waters (D-CA), the ranking Democratic member on the House Committee on Financial Service, wrote a letter to US Rep. Jeb Hensarling (R-TX), the committee’s Republican chairman. In it, she requested that the committee conduct a formal assessment of the Department of Justice (DOJ) investigation into Deutsche Bank’s Russian money laundering schemes.
This assessment would include a review of Attorney General Jeff Sessions’s role in continuing the investigation. It would also involve determining the nature of Russian money laundering, including who participated in the arrangement, and whether violations of US law — beyond failure to maintain anti-money-laundering (AML) controls — may have occurred.
Waters made note of the various civil fines issued against Deutsche (covered in Part I). She called attention to the media reports that indicate the DOJ is investigating the matter, but then went on to express concern with the “integrity of this criminal probe and whether senior bank officials will be held accountable given the president’s ongoing conflicts of interest with Deutsche Bank.”
The letter further goes on to note that “the suspicious ties between President (Donald) Trump’s inner circle and the Russian government … raise concerns that the Department may fail to implicate those who benefitted from Deutsche Bank’s trading scheme.”
Waters’s letter also reminds the chairman of Trump and his companies’ estimated $360 million in outstanding loans from Deutsche Bank. It raises the question of whether the president’s conflict of interest with Deutsche bank will undermine the independence and impartiality of the DOJ’s ongoing investigation and diminish the likelihood that Deutsche Bank and its senior leadership will be brought to justice.
Rep. Hensarling has not moved forward on Rep. Waters’s request. Nor has he granted requests to provide the committee with Financial Crimes Enforcement Network (FinCEN) financial documents relative to Donald Trump.
Does Waters have a point? Does Donald Trump have a conflict of interest with Deutsche Bank with regard to any potential criminal investigation brought by the DOJ?
Enter Donald Trump, Real Estate Developer
Donald Trump’s relationship with Deutsche Bank began in 1998 when he negotiated, and received, a loan for $125 million for construction of the Trump skyscraper located at 40 Wall St. At this point in his rocky financial history, six separate corporate bankruptcies related to Trump had been declared, and no other financial institution would grant the brash real estate mogul any credit. Deutsche took over Bankers Trust in 1998 and the only way to meet its ambitious earnings goals was to be aggressive under its new management. Still, Trump had to be grateful to his new lender. Through the years, he sought more loans from Deutsche.
It should be noted that Trump sued Deutsche Bank in 2008 when it called in a big loan that Trump had personally guaranteed to the tune of $40 million. Ultimately, they settled and the relationship continued. As the New York Times pointed out in an article, “Mr. Trump’s business has made the bank money.” Not long after the nastiness of the 2008 countersuits, Trump’s business with Deutsche moved from the bank’s commercial real estate lending division to its private wealth division, where executives were more willing to deal with him.
Trump’s wealth manager at Deutsche, Rosemary Vrablic, specializes in real estate and is close enough to Trump and his family — both Ivanka Trump and Jared Kushner are clients — that she was invited to attend the inauguration last year. In the past six years, the Deutsche Bank private wealth unit helped finance three of Trump’s properties, including a golf resort near Miami (Doral), a new hotel in Washington DC and Trump Tower in Chicago, all of which include personal guarantees by Trump. He and his organization currently owe Deutsche Bank over $300 million.
Trump’s 2017 Financial Disclosure form reflected two Deutsche Asset & Wealth Management accounts. Management A/C 1 is a brokerage account that lists 71 assets (stocks) and Management A/C 2 is a bond account that lists 44 separate assets or bonds managed by Deutsche for Trump. The value of these assets is difficult to ascertain since they are only listed in a range, but a conservative estimate would be a minimum of $100,000, and a maximum of $10 million. This form does not address any possible use of tax shelters, nor does it indicate the ownership and/or use of any offshore bank accounts. Income tax returns would be required to determine the above — and the president has refused to disclose any tax returns to date.
The form also does not educate the reader as to whether any of the massive loans provided to Trump by Deutsche have been sold or transferred to another financial institution, e.g. Vneshekonombank (VEB), as rumored in media reports in early December, 2017. Trump’s Disclosure form for the year 2017 may shed light on this question. This form will likely be filed in the next month or so.
Favored Russian Oligarchs & Banks
Deutsche Bank was not just getting aggressive in the US in the first part of the new century. It was also becoming one of the largest foreign lenders in the world, including to companies and individuals located in Russia. For example, Deutsche was easily the biggest Western lender to the Sochi Winter Olympics in 2014. Besides the Olympics, Deutsche extended financing to some of the biggest companies in Russia, usually involving the energy sector. A 2014 CNNMoney article noted that the second largest hedge fund in the United States, Renaissance Technology (referenced in Part I), was “doubling down” in Russia, betting that tension between Ukraine and Russia regarding Crimea wouldn’t escalate to dangerous levels.
One favored recipient of Deutsche largesse was a giant telecommunications company called VimpelCom (VIP), recently rebranded as VEON. It is listed on the NYSE and remains one of the most valuable parts of the Alfa Group, an investment company whose principal partner is billionaire Mikhail M. Fridman, a known associate of Vladimir Putin. Robert Mercer’s RenTec purchased 866,100 shares of VIP, in a class of stocks known as Sponsored American Depository Receipts (ADR), according to a report dated Oct. 2, 2016. Headquartered in Amsterdam, VEON is the sixth-largest mobile network operator in the world with 214 million subscribers.
VIP agreed to a deferred prosecution agreement with the Department of Justice on February 22, 2016. This case, prosecuted in the Southern District of New York (SDNY) under the direction of Preet Bharara and Andrew Weissman, centered on $114 million in bribes paid by VIP to government officials in Uzbekistan in violation of the Foreign Corrupt Practices Act (FCPA). It has been characterized as the largest case ever brought under the DOJ’s Kleptocracy Asset Recovery Initiative. Justice filed asset forfeiture motions in this case totaling $850 million — $300 million in property and $550 million in Swiss bank accounts.
The Alfa Group had a correspondent bank relationship with a small bank called Krainiy Sever, which has been linked to the Prevezon forfeiture case by SDNY. This involved the laundering of the so-called Magnitsky funds associated with Hermitage and Bill Browder.
The well-known Steele dossier makes mention of Mikhail Fridman. It also identifies Oleg Govorun as a former employee of Alfa. Govorun was described by the dossier, in an unverified observation, as a “key intermediary” in the Putin-Alfa relationship. The dossier goes on to make unconfirmed allegations that Govorun delivered illicit cash directly to Putin throughout the 1990s while Govorun was an Alfa executive. Finally, the Steele dossier goes on to describe Govorun as a “driver” and “bag carrier” used by Fridman and Pyotr Aven (another Alfa exec) to deliver large amounts of illicit cash to Putin in the early 90s, who was at that time the Deputy Mayor of St. Petersburg.
Fridman, besides being one of the richest individuals in the world and a close associate of Putin, has a son and daughter — both of whom have attended Yale University. Fridman has visited the White House twice, once in May 2010 and again in May 2011. Each time, he was accompanied by well-known Washington DC lobbyist Richard Burt. In 2012, Fridman formed a $1 billion real estate partnership with New York magnate Jack Rosen for the announced purpose of investing in distressed properties along the US East Coast. Rosen is head of the American Jewish Congress.
In 2008, many Russian companies and oligarchs suffered enormously from the effects of the worldwide financial recession, particularly those who were overleveraged. According to a 2008 New York Times article, companies belonging to two of Russia’s richest men were among the first recipients of a $50 billion bailout program channeled through the state development bank Vneshekonombank (VEB), intended to repay a syndicate of Western banks. VEB’s chairman at the time was Vladimir Putin.
The largest loan to come to light at the time was $4.5 billion to Rusal, an aluminum and mining company owned and run by billionaire Oleg V. Deripaska — reputedly Russia’s richest man at the time, and a long-time business associate of Paul Manafort. Manafort became campaign chairman of Trump’s presidential campaign, and was later indicted by Special Counsel Robert Mueller. It is noted that some $30 million of Manafort transactions with Deutsche Bank are reportedly under scrutiny by Mueller’s team.
In terms of Deutsche, Deripaska was compelled to refinance his holding in an Austrian construction company called Strabag, with a $500 million loan from an Austrian bank to stave off a possible seizure of the stake by his creditor, Deutsche Bank.
Separately, Fridman, the principal partner in Alfa Group, was granted a $2 billion letter of credit from VEB, which ultimately prevented Deutsche Bank from attempting to seize a 44 percent stake in VimpelCom.
It should be noted, and will be referenced again in Part III, that Deutsche and VEB developed a “cooperation agreement,” something that can certainly come in handy when dealing with oligarchs. VEB has developed correspondent banking relationships with over 500 banks globally.
VTB Bank Connects
The New York Times noted that Deutsche Bank had ties to VTB, at the time the second-largest bank in Russia — a nation facing sanctions from both the US and the EU. In 2005, VTB signed a cooperation agreement with the Central Bank of Syria, wherein President Assad maintains significant capital.
VTB’s investment banking arm, VTB Capital, was created by hiring dozens of bankers from Deutsche Bank’s Moscow office — the same office responsible for “the mirror trades” referenced in Part I and central to the ongoing DOJ money laundering investigation.
According to an article by the Guardian, Deutsche’s Moscow branch hired Andrei Kostyn in 2006. He was the son of Andrey Kostyn, head of VTB — Russia’s state bank. Kostyn Jr. generated much of the bank’s Moscow profits until his death in a 2011 snowmobile crash.
When Project Square, the Deutsche internal audit relative to the mirror trades, uncovered thousands of questionable transactions emanating from its Moscow office, an executive decision was made in 2015 to close down the bulk of the Moscow office and transfer some of its business activity to VTB.
Deutsche Bank conducted the first-ever IPO of a Russian bank when it carried out the VTB public offering in London in 2007. CEO Josef Ackerman has proudly noted that Deutsche was a major market maker for VTB. Executives at Deutsche did not deny that a good relationship with Anatoliy Chubais — architect of privatization and minister in Boris Yeltsin’s cabinet — played a role in this successful partnership.
Yuri Soloviev was the first deputy chairman of the Russian subsidiary of Deutsche Bank in 2008, when he was recruited by Andrey Kostin to become a first deputy president and chairman of the management board of VTB. The Panama Papers have traced Soloviev as being an officer of an offshore company registered in the British Virgin Islands called Quillas Equities. It is an intermediary of another offshore shell company called Ryon Ltd., which is further associated with an additional 305 shell companies located in Panama, Seychelles and Switzerland.
VTB is the only Russian bank to have a licensed subsidiary in Cyprus — Russian Commercial Bank (RCB). Russian money in Cyprus, according to an article in the Cyprus Mail, is split into two categories: that belonging to the Russian government and the ruling elite of the country (which was primarily kept at RCB), and that of the plutocrats, who had taken it out of the country so that the regime could not get its hands on it.
A Financial Times article reported that the Panama Papers showed Sergei Roldugin, a cellist and long-time friend of Putin, presided over a $2 billion offshore network, much of which went through VTB. The bank denied the report’s key allegation that RCB gave Sandalwood Continental, a company tied to Roldugin, more than $800 million in unsecured loans and sweetheart deals on interest payment swaps from 2008 to 2013.
Bloomberg News noted in October 2015 that some portion of the $10 billion in mirror trades manipulated by Deutsche’s Moscow office involved monies associated with Putin associates and childhood friends Arkady and Boris Rotenberg.
The Rotenberg brothers are known to have a long association with Ukrainian oligarch Dmitry Firtash, who in turn has long-time ties to Paul Manafort. Firtash is a member of the board of directors of Strategic Communications Laboratory Group (SCL Holding company), parent to Cambridge Analytica — in which Robert Mercer is a major investor. Perhaps it was merely coincidence that Firtash became a member of the SCL board while wealthy British real estate magnate Victor Tchenguiz became majority shareholder of SCL. Apparently the authorities did not believe Tchenguiz’s association with the now-defunct Icelandic bank Haupthings was a coincidence, but that is another story for another time.
It should also be noted that disgraced former NSA director Mike Flynn was a paid consultant to SCL during 2016. Also, the Wall Street Journal published an article on Dec. 15, 2017, reporting that Special Counsel Mueller has requested Deutsche Bank gather all information regarding any Flynn transactions through Deutsche.
Sometime in 2014, Hellenic Bank authorities in Cyprus began forwarding inquiries to Deutsche Bank with regard to unusual financial transactions involving an entity called Ergoinvest LLP. Even Russian bank authorities started reviewing Ergoinvest transactions, finding them unusual. Ergoinvest LLP was found to be owned by shadowy companies registered in the island of Dominica, according to the UK registry. The Panama Papers reveal Ergoinvest LLP to be a BVI-registered company administered in Cyprus. Ergoinvest LLP is tied to a company in Cyprus called Manwin Business Consultants — also called Manwin Management — which is run by a Constantinos Koudellaris. The Panama Papers associate 86 separate business entities with Manwin and another 38 business entities with Koudellaris. Manwin’s business address is Office 103, 124 Strovolos Ave., 2042 Nicosia, Cyprus.
Ergoinvest LLP shut down after media reports surfaced associating it with the Deutsche Bank mirror trades. Four months later Ergoinvest LP was born as an English company with two anonymous partners domiciled in the Marshall Islands called Dexberg Inc. and Montbridge Inc. which in turn control 150 Scottish Limited Partners (SLPs) registered and addressed in Glascow’s West End and south side. Dexberg is the general partner for another SLP called Fortline Industrial. But this Dexberg appears to be registered in Dominica, according to its stamp.
The Panama Papers and the International Consortium of Investigative Journalists database do track an association between Ergoinvest LP and Montbridge Inc. They also document an association between Ergoinvest LP and an entity called Cascado AG, which has an association with International Offshore Services Group located in Dublin, Ireland. Cascado is also associated with another 149 entities (shell corporations) all located at 50th St., Global Plaza Tower, 19th Floor, Suite 11, Panama City, Republic of Panama.
That must be a large suite!
Josef Ackerman, CEO of Deutsche Bank from 2002 to 2012, was elected chairman of the board for the Bank of Cyprus (BOC) in November 2014. This occurred following a proposal by the major shareholder of BOC, Wilbur Ross — currently Secretary of Commerce under President Trump. Ross was vice chairman at the time, sharing the duties with Vladimir Strzhalkovsky, who is referred to in Russian media as a former KGB officer and Putin ally.
The second-largest shareholder of BOC at this time was Viktor Vekselberg, another Russian oligarch and head of a large Russian conglomerate called Renova Corp. Josef Ackerman is on the board of Renova. Vekselberg served on the board of directors of Rosneft and is considered close with Vladimir Putin. Further, Vekselberg is business partners with a Russian oligarch with American citizenship named Len Blavatnik, as well as with Mikhail Fridman — referenced above — in a large Russian conglomerate called AAR. Vekselberg sold his Aluminum company to Oleg Deripaska, who turned it into Rusal, a major Russian conglomerate referenced earlier.
Bank of Cyprus (BOC) is a bank notorious for money laundering and was referenced by FinCEN to the US Senate Intelligence committee, with regard to Paul Manafort’s financial transactions with Russian oligarch Oleg Deripaska. Media reports have associated Manafort with 15 separate BOC accounts. The bulk of these accounts were reportedly opened at the Cyprus Popular Bank, which was ultimately taken over by the BOC. The bank now claims that it has no accounts associated with Manafort.
This is indicative of the failure of anti-money-laundering controls in the banking systems of Russia, the UK, Israel, Cyprus and much of the EU, until recently.
Ackerman acknowledged in a June 2016 interview, “Money laundering has been the business model of Cyprus, and it is a difficult struggle.”
This article notes the above association between Wilbur Ross and Josef Ackerman, but it should be noted that Ackerman also had close ties with Russia. Ackerman served on Russia’s Foreign Investment Advisory Council and its “consultative committee” to form an “International Financial Center” in Moscow. He also strongly endorsed Putin’s idea of a “free trade zone” between Russia and the EU. Putin addressed this committee and Ackerman at a meeting held in Moscow in September 2011.
“Deutsche Bank is our long-standing partner and has been working in Russia since 1881 … It would take ages to describe everything that Deutsche Bank is doing in Russia,” Putin said at the time.
Finally, another large shareholder of the BOC is Dmitry Rybolovlev — the Russian plutocrat best known for buying Donald Trump’s Palm Beach mansion in 2008 for $95 million, after Trump had bought it in 2005 for $41 million. This tidy markup over fair market value of at least $40 million occurred in 2008, shortly before Trump entered into a nasty legal dispute with Deutsche over financing for Trump Tower Chicago, wherein Trump ended up losing his $40 million equity stake. Rybolovlev was also noted in the media as an associate of Robert Mercer — co-CEO of the highly profitable Hedge Fund Renaissance Technology (RenTec) and major political contributor to Trump, and Republican candidates and PACs, in the 2016 elections.
RenTec was closely associated with Deutsche’s promotion of dubious tax shelters called “basket options,” to radically reduce RenTec’s tax exposure, landing it in hot water with the IRS. RenTec was directed by Robert Mercer, who became a major investor in Cambridge Analytica — a data gathering firm which employed Steve Bannon and Kellyanne Conway, two of Trump’s most trusted campaign advocates. Rybolovlev’s yacht was documented parked next to Mercer’s during the campaign. Rybolovlev’s jet was also noted as arriving within hours of Trump’s during the campaign at airports in Concord, NC, and Las Vegas.
Dmitry Rybolovlev is referenced in the Panama Papers as having an active offshore package of accounts and shell companies, in addition to his equity interest in Bank of Cyprus. These interests can be charted as such:
In 2015, Bank of Cyprus announced it was off-loading the BOC’s Russian business, including loan exposures, to Artem Avetisyan for 7 million euros. The core assets had been purchased just seven years prior in 2008, for 450 million euros. Deutsche Bank’s London office advised BOC on this curious deal. Avetisyan was a 40-year-old head of the “New Business” division of the autonomous non-commercial organization, “Agency of Strategic Initiatives,” originally established by Vladimir Putin.
Trump’s 2017 financial disclosure form does not make mention of the above companies. We can conclude that either these companies were inactive and/or insolvent, or they were omitted. If they were active, then they should have been reported both on the disclosure form, and on Trump’s 2016 personal income tax return.
If Trump actively used Cypriot banks to support these companies, then Foreign Bank Account Records (FBARs) would have had to have been filled out and forwarded to FinCEN, and the foreign bank account activity would be required to be reported to IRS on Schedule B of the filed income tax returns. Form 8938 Statement of Specified Foreign Financial Assets should also have been filed with the Form 1040 with the IRS if in fact Trump held foreign bank accounts with substantial balances.
These are all questions for a Deutsche Bank wealth manager to answer should a prosecutor be motivated to ask them.
Recent media reports note that FBME, formerly known as the Federal Bank of the Middle East, had access to the US financial system through correspondent accounts at banks, including Deutsche Bank’s US unit. FBME was based in Tanzania, but conducted 90 percent of its business in Cyprus. The Treasury Department said that FBME was able to run nearly $390 million in suspicious transactions through correspondent banks during a one-year period in 2013 and 2014. Further, the transactions exhibited “high-risk money laundering typologies.”
The above media reports suggest FBME provided money-laundering services for Friends of Putin (FOP), Syrian-associated arms dealers and Russian organized crime. Further reports have noted a confidential report written by the Central Bank of Cyprus that documents 23 separate accounts maintained at FBME, by Russian oligarch and Brooklyn Nets owner Mikhail Prokhorov. Another FOP maintaining FBME accounts is Aleksandr Shiskin — a member of Putin’s United Russia party and a former member of the Russia Senate Security and Defense Committee.
FinCEN shut down FBME in 2015. A Deutsche Bank spokesman advised Bloomberg that “we severed our relationship with FBME in 2014.”
FBME has also been associated with the laundering of some portion of the so-called Magnitsky funds associated with Hermitage Capital and Bill Browder. This is significant since the Magnitsky money-laundering activities are emblematic of the problem that money laundering has presented to Russian authorities since the fall of the Berlin wall. This is indicative of the failure of anti-money-laundering controls in the banking systems of Russia, the UK, Israel, Cyprus and much of the EU, until recently.
The Magnitsky money laundering modus operandi used by various Russian oligarchs, with some variations, can be summarized as follows:
- Transfer illicit funds multiple times among multiple Russian banks, concealing the original source of funds through the use of shell companies;
- Move funds into a larger Russian bank in order to again move to banks in Moldova or Latvia;
- Move funds into shell accounts in the UK, Cyprus, Israel and Switzerland;
- Move funds offshore to the British Virgin Islands, Belize, Seychelles — then back again, in different shell company accounts;
- Purchase luxury yachts and ownership interests in professional soccer, hockey and/or basketball teams;
- Invest funds through shell companies into commercial real estate and/or luxury residences in UK and the US.
While there are many variations on the above-noted model, one common thread is the use of friendly banks to move money, in a discreet fashion, to different parts of the world, for a fee.
In the final installment, we’ll detail how Trump’s son-in-law and White House adviser Jared Kushner is linked to Deutsche Bank, as well as his curious memory lapses regarding the infamous Trump Tower meeting.
See here for Part 3.
Martin J. Sheil can be reached at email@example.com via an encrypted Proton email address.
Related front page panorama photo credit: Adapted by WhoWhatWhy from logo (frank99 / Wikimedia), Moscow (niklasbeller_photography / Flickr – CC BY-NC 2.0) and Donald Trump (The White House).
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