Ex-chair of Kazakh bank hides beneficial ownership, faces laundering conspiracy claims

The former chairman of a Kazakh bank went to considerable lengths to conceal his beneficial ownership of an offshore company, including the use of verbal agreements, a London High Court judgment has shown.

The revelations of Mukhtar Ablyazov, published in the judgment, demonstrate from the horse’s mouth the near-impossible obstacles that money laundering reporting officers (MLROs) may face when conducting due diligence on persons determined to avoid a paper trail. Ablyazov also faces claims in the New York District Court of conspiracy to embezzle funds and launder stolen money.
The recent High Court judgment is the latest twist in a long dispute between BTA Bank and Ablyazov involving alleged stolen money and how it was moved around the world. According to a previous August 2014 High Court judgment, BTA Bank had obtained judgment for $4.6 million against Ablyazov and others, after it was alleged he had treated the bank as if it were his own source of funds. The judgment said further proceedings were underway.

Ablyazov has dismissed these claims as an attempt by Nursultan Nazarbayev, Kazakhstan’s president, to take control of his assets to support a politically motivated campaign designed to eliminate Ablyazov as a political opponent.

In a witness statement delivered to the London High Court, Ablyazov outlined the techniques he had used to stop a paper trail from leading to his beneficial ownership of an offshore company holding London property, the court judgment showed. But the case established that Ablyazov was the beneficial owner of the relevant company.

Secret methods

Ablyazov said in a witness statement, cited in the judgment, that most of his assets were held through nominee arrangements. Typically, an asset was recorded as held by a company situated offshore, for example, Cyprus. That company’s shares were owned by a further company or companies owned in one or more other jurisdictions, he said.

“The shares in those companies are owned by a further company or companies located in one or more other jurisdictions, for example, the Cayman Islands and the Seychelles. The shares in those companies are in turn registered in the name of an individual in whom I repose my trust and confidence, Mr X, and with whom I have a mere oral agreement,” he said.

“That means that, if the Kazakhstan government instructs someone to follow the ‘paper trail’ underlying the assets, that trail will hopefully never reach me. Indeed, if all goes to plan, the chain of nominee companies will provide sufficient protection, particularly in jurisdictions where there is no requirement to disclose shareholder identity, so that the trail will not even reach Mr X,” he said.

“Even if it does, though, there can be no connection established between myself and Mr X because our agreement is often a purely verbal one, and Mr X is lawful to me,” he said.

The court found for the bank that Ablyazov was the beneficial owner of the asset in dispute. This case concerned offshore companies. Even in the European Union it can be impossible to discover the true beneficial owner, as the Fourth Money Laundering Directive has acknowledged.

“There may be cases where no natural person is identifiable who ultimately owns or exerts control over a legal entity,” recital 13 of the directive says.

As the High Court judgment just published demonstrates, even if an MLRO’s due diligence finds a natural person at the end of the paper trail, that person may not be the true beneficial owner but rather a nominee who has agreed verbally to purport be the beneficial owner.
Ablyazov has now explained exactly how this can be done.

Laundering claims

There is more to come. Separately, in the New York District Court, Ablyazov faces claims of conspiracy to embezzle billions of dollars from BTA Bank and to launder the stolen funds around the world through shell companies and sham transactions, which include investment in New York City real estate projects through a special purpose vehicle.

According to a related December 2016 London High Court judgment, Ilyas Khrapunov, Ablyazov’s son-in-law, is alleged to have conspired with Ablyazov to hide his assets from the bank or to dissipate them.

Published 28-Nov-2017 by Alex Davidson and Helen Parry

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