The Ablyazov Affair: ‘Fraud on an Epic Scale’

With the ninth anniversary of his flight from the authorities in his homeland of Kazakhstan fast approaching, the raft of transnational court cases involving fugitive embezzler Mukhtar Ablyazov show no sign of abating. In a saga which stretches from an institutional aversion to tackling kleptocracy in the United Kingdom, to U.S President Donald Trump’s shady business partners, the murky world of Mukhtar Ablyazov even led his family to make a pit stop in the Central African Republic to pick up diplomatic passports. Yet despite having judgments against him totaling $4.9 billion in the British courts alone, almost six years since he fled from the U.K. to avoid three concurrent 22-month sentences for contempt of court, Ablyazov remains a free man, living the high life in France whilst bemoaning his plight to be a simple case of “political persecution.”

The venues for the latest rounds of litigation against Ablyazov include proceedings in London, Lyon, Astana, Los Angeles, and New York. In the U.K., a case brought by JSC BTA Bank accuses Ablyazov’s son-in-law, Ilyas Khrapunov of orchestrating a “conspiracy… in breach of court orders” to prevent the enforcement of freezing orders against Ablyazov. In France, the fallout from the hacking of a magistrate’s phone and a decision taken by France’s highest administrative court, the Conseil d’Etat, in December 2016 to overturn an extradition order against Ablyazov continues to rumble on. In New York, the Khrapunovs stand accused of laundering money by flipping Trump Soho condos, a subject likely to come up in the Mueller probe. In Kazakhstan, meanwhile, where Ablyazov was recently sentenced in absentia to 20 years in prison for embezzlement and abuse of authority, in October 2017 the Prosecutor General’s office reopened a case which implicates Ablyazov in the murder of a wealthy opponent.

So who is this criminal mastermind, a man alleged to have ordered the assassination of his erstwhile business partner and found guilty of committing “fraud on an epic scale”?

A Country Boy Turned Kleptocrat

Born in 1963 in southern Kazakhstan to a family of limited means, Mukhtar Ablyazov graduated from the Moscow Engineering and Physics Institute during perestroika, a time when the achievements of the Soviet Union were being radically reassessed. With the winds of change that would result in the rise of the oligarchs raking across the USSR, Ablyazov abandoned a career in nuclear physics to embrace the new Wild West capitalism. Only weeks after legislation allowing private enterprises in Kazakhstan was passed, Ablyazov registered a company selling fax machines, photocopiers, and computers in December 1992. Launching a plethora of businesses in quick succession, he set about luring elites into investing in his Astana Holding Bank, one of the first institutions in the country to gain a private banking license. In 1998, together with a consortium of investors, Ablyazov acquired a loan to buy Bank Turan Alem — later to become known as BTA Bank — in a privatization auction for a cut-price fee of $72 million.

At around the same time, Ablyazov was appointed as head of the state-owned Kazakhstan Electricity Grid Operating Company (KEGOC) and named minister for energy, industry, and trade in Kazakhstan. Within a year, KECOG revenues were down by 12 percent and expenditure up by 53 percent, a pattern repeated in 1999 when he was named CEO of Air Kazakhstan, swiftly asset-stripping the company into bankruptcy. Having had the temerity to form a party of opposition to President Nursultan Nazarbayev, in 2002 Ablyazov was sentenced to jail, purportedly for abuse of government office. He re-emerged a year later having sworn to abstain from political adventures.

Having retained his interests in BTA through a beneficial ownership arrangement, in 2005 Ablyazov became chairman of the bank following the death of his predecessor, Yerzhan Tatishev, in what was ruled at the time to have been a freak hunting accident. Recanting his original statement, in November 2017, Muratkhan Tokhmadiyev, the man who admitted at the time to shooting Ablyazov’s erstwhile business partner told a court in Almaty: “Each time I met [Ablyazov] he argued that Yerzhan could not at any instant keep or sustain his word… He proposed to deal with the problem through the physical elimination of Yerzhan. This would happen during a hunting trip and look like an accidental death. And so it happened.”

As chairman of BTA, Ablyazov was now free to start funneling money out of what was the largest retail bank in Kazakhstan. This was largely done by issuing loans to finance real estate deals throughout the former Soviet Union, loans which were passed through a web of shell companies. Operating as a bank within a bank from a separate high security section of BTA’s head office, between 2005 and 2009 at least $8 billion worth of loans were approved, largely to mailbox entities with no collateral, based in tax havens in which Ablyazov held a significant but almost exclusively anonymous ownership interest. Following the financial crash and Ablyazov’s flight from his homeland to claim asylum in the U.K., an audit by the Kazakh authorities discovered this huge black hole. In total, over a thousand companies worldwide in which Mukhtar Ablyazov held a beneficial interest have been identified so far, ranging from an oceanarium to the fancifully named Facebook Trading Limited.

A Shell Within a Shell

To obfuscate the whereabouts of assets, many of these offshore entities worked on a lend and borrow basis, shuffling capital on to a third party from where it could no longer be recovered. An example of this would be the $118 million of BTA collateral channeled through a company called Starwood Contracts Limited in the Seychelles, whose beneficial owner was Somerset Projects IHC, based in the British Virgin Islands, which held its bank accounts in Latvia. Starwood then received 99 percent of the shares in Archeston Solutions Inc, based in the British Virgin Islands, which in turn controlled 99 percent of a concern called Business Engineering in Moscow, which owned another enterprise called Central Engineering in Moscow. Starwood and Somerset then loaned Jollawood Trading in Cyprus $25 million, who then credited the funds to Central Engineering.

If that sounds impenetrable, it’s because it’s supposed to be.

In a more straightforward example, $1 billion was transferred from BTA to a trio of companies in the guise of loans for new drilling equipment with which to explore the Mertviy Kultuk oilfield in the Caspian Sea. With the type of rig specified in the loan agreement not having been invented, the oilfield remains untapped to this day.

In September 2005, Eastbridge Capital, an investment holding company nominally owned by Alexander Udovenko, was formed in London. When Hogan Lovells, a law firm representing BTA, asked to see Eastbridge’s computer records, they were told that the company — the hub through which Ablyazov shifted his assets around the world — had been sold “for a pound” and its records lost forever. Yet when investigators followed Ablyazov’s brother-in-law, Salim Shalabayev, to a storage unit in north London in January 2011, a search warrant enabled them to uncover a cache of 25 boxes of documentation and a hard drive detailing the exploits of many of Ablyazov’s shell companies. Wanted in Russia for his part in a $730 million fraud, Udovenko had already long since disappeared. His whereabouts remain unknown to this day. Eastbridge Capital would later resurface in Cyprus under the name Euroguard Assets Limited.

Roman Borisovich from the anti-kleptocracy NGO ClampK spoke to The Diplomat about Ablyazov’s shell companies and the fact that among the purported beneficial owners of these were a dead alcoholic and a down-and-out former soldier who knew nothing of the concern in question. “Clearly, he didn’t set them all up,” Borisovich says. “This was his accountants and lawyers, and they would know where the key elements are. Sometimes these companies are created because you want them to be a chain of ownership, so five companies could be set up just for the purpose of one owning another. That’s how things work… so there’s virtually no way of linking an individual to a company. As for the [beneficial owners], it’s easily done. These documents — especially with homeless people — they sell, lose or people steal their passports and then, the next thing you know, they become owners. They open up all sorts of companies. This happens quite a lot.”

“Cynicism, Opportunism, and Deviousness”

Although Ablyazov was granted asylum in the U.K., settling into opulent Carlton House on Billionaire’s Row in Highgate – one of four U.K. properties he was later found to be the owner of – his troubles followed him in the form of lawsuits brought against him by BTA Bank. It was his duplicitous dealings in British real estate, in fact, which led Ablyazov to perjure himself, with Justice Nigel Teare finding that he had “acted in contempt of court” in attempting to conceal these assets.

Sentenced to 22 months in prison, Ablyazov was soon on the run again, this time from British justice. Despite an arrest warrant having been issued and his mugshot being placed on airport watch lists, he managed to slip away to France. Civil contempt is not an extraditable offense in the U.K.

In his absence, between November 2012 and March 2013, British courts passed $4.2 billion in judgments against Ablyazov, with Lord Justice Maurice Kay observing that: “It is difficult to imagine a party to commercial litigation who has acted with more cynicism, opportunism, and deviousness towards court orders than Mr. Ablyazov.” Only a small fraction of the $4.9 billion in judgments passed against Ablyazov by the British courts have been physically recovered.

Among numerous British institutions to suffer at the hands of Ablyazov, the  Royal Bank of Scotland (RBS) — which was subsequently bailed out by British taxpayers — suffered losses of more than $1.8 billion. Charles van der Leeuw, the author of a book on Ablyazov and the Kazakh kleptocrats, told The Diplomat, “RBS inherited the foolish investment into BTA at the time Ablyazov was running it from its takeover of assets belonging to ABN AMRO.”

“These assets were, and still are, risk-bearing,” he said, “meaning that default can turn them into liabilities. No one can tell me that ABN AMRO was unaware of that when it acquired them. No one can tell me either that RBS was unaware of that when it took them over from ABN AMRO. It is hard to prove a kickback in the process, but given the ease with which RBS and other funders accepted their haircut, it definitely fails to pass the smell test. If BTA lays claims to funds disappeared through Ablyazov’s network, it should endeavor to lay claims on RBS and others, holding them co-responsible for the thefts.”

An area where assets were successfully recovered came in the form of Ablyazov’s four properties in and around London. After years of court battles, the proceeds from the sale of these assets were the first funds that BTA was to see. With research released by Transparency International in March 2017 identifying 40,000 properties in London alone worth a total of almost $6 billion that were purchased by individuals with “suspicious wealth,” this success is rare in itself.

“Our research suggests the U.K. is home to billions of pounds in corrupt assets,” Duncan Hames, Director of Policy at Transparency International UK, told The Diplomat. “We acknowledge the challenges of prosecuting transnational corruption cases but expect the U.K. authorities to play a full part in investigating any aspect of global money laundering cases with a U.K. connection.”

Naomi Hirst, a senior campaigner at Global Witness, said, “It’s been 18 months since the Panama Papers, and back then it looked as if the government did actually take notice and recognize the scale of the problem and the U.K.’s role in that.”

“Subsequent to the Panama Papers,” she said, “the International Anti-Corruption Summit was hosted here by David Cameron… At the summit, the government promised to bring in a register which would reveal the real owners of overseas companies that own properties here… In the 18 months that have passed, we’re another set of leaks on, but really we’ve seen no meaningful action from the U.K. government.”

Fugitive on the French Riviera

After hightailing it out of the U.K., Ablyazov went into hiding, moving between luxury villas in the south of France. Shortly after this, in late 2012, the name Yelena Tyshchenko began appearing on legal documents pertaining to Ablyazov’s case. A Ukrainian lawyer, Tyshchenko was spending an increasing amount of time at the headquarters of Eastbridge Capital in Tower 42 in London’s Old Broad Street. Tyshchenko was finalizing her separation from her husband at the time; the man named in his petition for divorce was none other than Mukhtar Ablyazov.

In mid-July 2013, following swiftly dismissed procedural motions brought by Ablyazov in the High Court in London, investigators hired by BTA trailed Tyshchenko to a villa in Nice, where she changed into a skimpy outfit before driving to a second property near Cannes. After 17 months of intense searching, Tyshchenko had led the gumshoes straight to Ablyazov — by this juncture the subject of an Interpol Red Notice — who was spotted through the curtains laying flowers on a bed in preparation for his mistress’ arrival. For the next two weeks, investigators — one decked in a bikini and another repeatedly trudging back and forth over a crossing near the main villa — staked out Ablyazov. On July 31, French Special Forces stormed the premises. Ablyazov would spend the next three years in detention.

Arrested in a Moscow hotel a month later for “swindling” and money laundering, Tyshchenko went on to turn evidence against her former lover in exchange for amnesty from prosecution. Within a year, Tyshchenko had been appointed as head of a government anti-corruption task force in Ukraine, though she was soon fired for failing to disclose her real estate dealings in the U.K. and France.

For the next three years, for much of which he was incarcerated in Fleury-Mérogis prison, Ablyazov continued to protest his innocence. “Everything is untrue. Everything has been fabricated in Kazakhstan,” he told a court in Aix-en-Provence; “I’m convinced I am being persecuted for political reasons.” Speaking on behalf of the French state, Advocate-General Solange Legras told the court that Ablyazov should be seen as a “criminal on a grand scale… When you have so much money, you can buy everything, but you cannot buy the French justice system.”

In January 2014, the court approved an extradition request by Russia, where Ablyazov is wanted for fraud totalling $4.5 billion. This decision having been upheld by the courts of appeal, an extradition order was signed by then-Prime Minister Manuel Valls in 2015. On December 9, 2016, though, the Conseil d’Etat overturned all previous verdicts on the grounds that the extradition request had been made for political reasons. “France must refrain from extraditing an individual to a country where there are serious grounds for believing that he or she would be in danger of being subjected to torture,” UN Special Rapporteur on Torture Nils Melzer had argued just days before the ruling.

In a written interview, a representative of BTA Bank described the court’s decision as “completely unexpected,” expressing their “surprise and disappointment.” Although the logic behind this judicial reversal remains mystifying, an expert on the situation who spoke on condition of anonymity cited wider geopolitical concerns and a low point in Franco-Russian relations as the key factors behind the decision.

The Silk Road to Soho

It is through their nefarious real estate deals that Ablyazov and his associates have become embroiled in legal battles in the United States. During his time as chairman, BTA joined forces on investment projects with the Silk Road Group, a company implicated in alleged financial fraud as revealed in the Panama Papers. The Silk Road Group entered into an agreement with the Trump Organization to license the Trump brand for two luxury developments in Tbilisi and Batumi, Georgia, a deal which was only canceled when Donald Trump became president. The relationship between the two parties may be subject to former Federal Bureau of Investigations (FBI) director Robert Mueller’s investigation into possible collusion between the Trump campaign and Russia. With Trump’s lawyer stating that the “real-estate deal would be outside the scope of legitimate inquiry,” Trump himself has been even more forthright.

Another subject under investigation is the Bayrock Group, which the Trump Organization partnered with for projects in Arizona, Florida, and New York. Ablyazov’s in-laws, former mayor of Almaty Viktor Khrapunov, his TV anchorwoman wife Leila, and their son Ilyas, became involved with Bayrock during the company’s development of the Trump Soho project in Manhattan. Court documents tie Trump associate Felix Sater — who served time for stabbing a man in bar brawl and Mafia-linked stock fraud — to the Khrapunovs, who flipped three condos in the development. The Khrapunovs are currently the subject of civil suits in New York and Los Angeles. In 2016, Nicolas Bourg, former director of Luxembourg based investment company, Triadou SPV S.A. testified that the business belonged to the Khrapunovs, who instructed him to siphon funds out of the United States after the lawsuit was filed. Bourg went on to attest that the Khrapunovs and Ablyazov commingled investments, using shell companies to obfuscate the nature of their real estate deals in the United States and beyond.

Back in 2005, Donald Trump granted Bayrock the exclusive rights to construct a Trump International Hotel and Tower in Moscow, a venture in which he’d receive a significant stake. In direct contradiction to Trump’s recent claims, emails uncovered by investigators show that Sater and Trump Organization lawyer Michael Cohen were actively pursuing a hotel deal in Moscow during the election campaign. Unsurprisingly, Trump has attempted to distance himself from any wrongdoing. “If he were sitting in this room right now, I really wouldn’t know what he looks like,” Trump said of Sater in 2013, despite a plethora of photographs showing the pair together.

“Our boy can become President of the USA and we can engineer it,” Sater enthused in emails to Michael Cohen. “I will get all of Putin’s team to buy in on this, I will manage this process. I will get Putin on this program and we will get Donald elected.”

Playing at Politics

Almost inevitably, this tangled tale leads full circle back to London, where a suit seeking a freezing order on the assets of Ilyas Khrapunov for acting as a proxy for his father-in-law has been in motion since June 2017, though it is not set to go to trial until January 2019. That Khrapunov acted as a conscientious accomplice to Ablyazov’s embezzlement schemes, there is, according to a representative of BTA Bank, “no grounds for doubt… the Commercial Court of England and Wales issued a decision obliging Ilyas Khrapunov to provide all data under a previously imposed disclosure order… information about his assets and the assets that he manages on behalf of Mukhtar Ablyazov, but he refused to do so. Moreover, the court ordered Ilyas Khrapunov to pay the legal expenses incurred by the Bank.” Currently challenging the jurisdiction of both British and American courts over him in an attempt to stymie the legal process, Ilyas Khrapunov is also the subject of an extradition request from Ukraine in Switzerland.

For Ablyazov, meanwhile, continuing to present himself as an opposition figure and the cases against him as politically motivated has played well. “Ablyazov is neither the first nor the last in using the label of ‘political victim,’” a representative of BTA Bank told The Diplomat. “Posing as a ‘political victim,’ he certainly hopes for protection from the law, primarily in Western jurisdictions. Ablyazov simply has no other choice but to stick to this single line of defense.”

British Member of the European Parliament Julie Ward is among the signatories of a letter to Interpol calling cases against Ablyazov “politically motivated.” In a statement, a parliamentary assistant to the MEP said that “Ablyazov refused to disclose his assets to the London court citing the risk of his associates’ persecution by the Nazarbayev regime. He was therefore charged with ‘contempt of court’ and, as a result, he was sentenced to 22 months incarceration. After being warned of risks of kidnapping or assassination several times by various sources, including the British police, he was forced to leave the U.K.”

While putting a new spin on Ablyazov’s claim that he was forced to use offshore secrecy, this argument belies both the case in point and the timeline of events. Firstly, the judgement of contempt of court related to “lies” told by Ablyazov in a “sham” designed to deceive the court into believing that he was not the sole beneficial owner of real estate in the U.K., according to Justice Teare. Secondly, while it is true that Ablyazov did receive a so-called Osman warning from the Metropolitan Police notifying him of an assassination and kidnapping threat, this was served on January 29, 2011. Over a year would pass before he fled the country.

Today, from his villa in France, Ablyazov continues to bemoan his “persecution” through NGOs such as the Open Dialog Foundation, whose activities, a report from a conference held in the European Parliament in November 2017 found, are funded by companies “flagged and sanctioned by the West.” The real losers in this case, however, are those hardest hit by Ablyazov’s activities: Kazakh pensioners who saw their retirement funds disappear and some 30,000 homebuyers in Almaty who invested in properties which were never built. In these opaque cases, BTA Bank says, $1.4 billion has been recovered to date. Current estimates as to the total amount embezzled by Mukhtar Ablyazov stand at in excess of $10 billion.