Financial war between the US-Russia – UK, Cyprus, Latvia stuck in the middle

Russian oligarchs “monitored”

 Russian businesspeople under US authorities’ microscope will be on tenterhooks in the coming period

American authorities are seemingly preparing a merciless attack against Russia and oligarchs associated with the Russian president, Vladimir Putin. As reflected in Assistant Secretary of Finance Sigal Mandelker’s recently published report, the US has decided to proceed with additional sanctions against Russian businessmen.

Moscow considers US intentions for stricter measures against it, a financial war. A report, dated August 6, published under the title “Report to Congress Pursuant to Section 243 of Countering America’s Adversaries Through Sanctions Act of 2017 Regarding Interagency Efforts in the United States to Combat Illicit Finance Relating to the Russian Federation”, includes a special chapter on Cyprus. It is worth noting that part of the report is classified as confidential. In the publicized section, it is highlighted that Cyprus continues to host a large volume of suspicious Russian capital and investment. It however underlines that there have been some signs of progress after US pressure as well as the sanctions it imposed on Russian oligarchs.

 Deripaska and Vekselberg

The report refers to the cases of Oleg Deripaska and Victor Vekselberg who were, among others, included in the black list of sanctions issued by the US; this development led the Cypriot authorities to the decision to freeze the bank accounts of the two. Deripaska holds a Republic of Cyprus passport, while Vekselberg is a main shareholder in Bank of Cyprus, the largest bank on the island. As the American report notes, the Central Bank of Cyprus issued a circular to the banks guiding them on how to deal with the risks resulting from shell-companies. The US report not only targets Cyprus, but also the United Kingdom which is being used to launder Russian oligarchs’ money. Latvia has also been targeted and forced to proceed to fully ban shell-companies.

Last August, the Wall Street Journal published an interesting article of Cypriot interest. The article was centred on the story of British Benedict Worsley who was employed in Cyprus by the head of the Russian National Bank Trust (NBT), Ilya Yorov, who tried to hide the bank’s “bad” loans from the Russian authorities. Worsley helped the bank to lend money to a Cypriot shell company. Subsequently, the money was returned to NBT via a labyrinth of companies, which he had created, a process that continued until NBT’s collapse.

The most interesting point of the report is the reference to the FBI and FinCen’s (US Financial Crimes Enforcement Network) joint processing of 4 million transactions through international transfers, that took place in four Balkan and Cypriot banks. This information came out after the Panama Papers were leaked.

At this point it is worth noting the scandal that has just broken out involving Denmark’s biggest bank, Danske Bank, which appears to implicate Cyprus and Estonia. Specifically, it appears that suspicious transactions totalling some €200b were carried out in Estonia through a Danske Bank branch. The transactions appear to have taken place over 2007-2015. An internal audit into the bank’s foreign client portfolio showed that a few billion euros were transferred to Estonia via Cyprus. According to the Moody’s rating agency’s “Credit Outlook” bulletin, the sum of €18b came from the Cypriot banking system.

Publications on Shchukin

In light of these developments, any media reports involving Cyprus clearly cannot go unnoticed.

The Press has often been preoccupied lately with cases of Russian oligarchs that are linked to Cyprus regardless of whether their names have been included in American black lists or not. One such case is the Russian oligarch Alexander Shchukin.

Shchukin has been going through a number of different legal adventures. For the past 18 months he has been serving a house arrest sentence in Russia. The Times of London have reported that Shchukin and his relatives have transferred an estimated half a billion euros to the UK from Russia through offshore companies registered in Cyprus, while he maintains assets in Cyprus and London.

American news portal Report News Today, in a recent report, concentrated on the UK House of Commons’ investigation into Russian corruption. The Foreign Affairs Committee submitted a number of suggestions to the British Prime-Minister a few weeks ago, suggesting taking up strict measures against Russian corruption, following the completion of their research. As the publication says, Shchukin’s son-in-law Ildar Uzbekov is a director in many companies in the UK and participates in the board of directors of Byankee Holdings, which is registered in Cyprus, along with his spouse, Shchukin’s daughter, Elena. According to the same report, Uzbekov and his partner Dmitry Tsvetkov managed to transfer an unspecified, but very large sum of money to the UK from Russia via Cyprus. In fact, a former employee at the British Foreign Affairs Ministry, the report says, told the High Court of the UK in 2014, that the two men were planning to transfer €1b to London for investment purposes.

Furthermore, as Russian media reported, the Court of Arbitration in the Kemerovo region ruled against Business-Investment JSC, owned by Shchukin. The case concerned a contested 1.5b RUB issued in promissory notes from two coalmines to Shchukin. The court doubted the authenticity of the promissory notes that Shchukin presented. The directors of the two coalmines denied signing the specific documents nor were they visible in their accounting records. As Rossiyskaya Gazeta wrote, in the framework of the judicial procedure there was a need for a special investigation in order to date the signatures that were featured in the contested documents by experts of the Ministry of Justice in Russia. However, the process ended without a result, since it was found that the documents had been tampered with, to prevent them from being dated.