A New Bank of Crooks and Criminals

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The Cyprus-based FBME bank, permanently blocked in April by a US court from access to the US banking system and thus basically shut down, has among its depositors arguably the biggest collection of financial outlaws the world has seen in decades.

It is as if every illicit international operation on the globe from the Russian Mafia, allegedly backed by Russian President Vladimir Putin, to Indonesian, Japanese and Thai money launderers to Somali pirates to phishing scams to international drug syndicates and manufacturers of sarin nerve gas for Syrian President Bashir Assad decided that the bank, a branch of the Tanzanian FBME Bank Ltd, was the place to store ill-gotten gains. There are suspicions that Hezbollah, the Shi’ite organization labeled a terrorist group, has routed its financial operations through shell entities found in the bank’s 6,500 accounts.

The bank is owned and operated by a Lebanese family including Ayoub-Farid M, Fadi M and Michel Norbert Saab, a son. The tangle of interests enmeshed with FBME demonstrates how difficult it is to uncover and trace illegal interests, even as strict financial disclosure laws are coming into force through most of the world in response to US pressure. Innocent depositors are also seemingly caught up in the mess.

The bank has been guided through the US Treasury-ordered self-liquidation in New York, Washington, Paris, Cyprus and Tanzania by law firms Quinn Emanuel Urqhardt and Sullivan and Hogan Lovells International LLP, which allegedly represent a wide range of FBME bank depositors.

One source told Asia Sentinel that it is likely that some of the depositors in FBME will never show up to reclaim their holdings because doing so would bring them to the attention of the international law enforcement community. Some observers are calling the scandal bigger than the Panama Papers, the leak of thousands of documents belonging to the Panamanian law firm Mossack Fonseca, containing personal financial information on tax dodge schemes by wealthy individuals and public officials.

"The case is complex," said Floris Alexander, a Dutchman who heads Legal Floris LLC, which represents more than 1,300 depositors seeking to recover their money from FBME. "The cross-border activities of the bank and the involvement of two central banks with different agendas make it difficult to come to a swift conclusion. Businesses have been forced to stop operating and individuals fear to lose their life savings. It could have stopped earlier, but the vision of the authorities and the owners of the bank are too far apart."

As Asia Sentinel reported on April 10, hundreds of millions of dollars disappeared out of Indonesia’s Bank Century in 2008 and 2009 as the Indonesian government struggled to save it. With US$732 million (at then-prevailing exchange rates) pouring into Bank Century, at least US$350 million was pouring out overseas. According to a report by money-laundering expert Peter Barrie Brown, enormous amounts went into and out of FBME and Saab Financial (Jersey) Ltd., a dissolved company whose successor and alter ego is known as Financial (Bermuda) Ltd. It is also in liquidation.

There are allegations that money has continued to be laundered under the new owners of Bank Century, the Japanese financial conglomerate J Trust, which bought the renamed bank in 2014. J Trust has denied the allegations and threatened a defamation action against Asia Sentinel.

In his report, which is in the New York federal courts, Brown said, “The number of separate reasons for being suspicious are so many in total that I rate the whole arrangement and its operation to be the greatest collection of suspicious circumstances I have ever encountered in real life.”

The Destruction of Hermitage Capital

However, the most notorious flow of funds is believed to be from Russian interests* which, according to one source – who declined to be named because, he said, “I don’t want Russian thugs to come to my door and kill me” – allegedly deposited and laundered as much as US$500 million through FBME. The bank started life in 1953 as Federal Bank of the Middle East, an international commercial bank offering banking services and products to corporate and individual clients.

The money that the interests allegedly transferred through FBME came through Altem Investment Ltd and Zibar Management Ltd. The original source was said to be Hermitage Capital Management, once the largest holder of Russian securities and the brainchild of an American named William Browder. US government lawyers alleged the money was tax payments stolen fraudulently from Hermitage by three well-connected Russian businessmen with ties to the Russian government’s tax department.

In an interview with Asia Sentinel, Browder said some of the stolen money was traced to Sergei Roldugin, a cellist and godfather to the children of Russian President Vladimir Putin. Asked if Putin was the ultimate force behind the theft of Hermitage’s assets, Browder said the connections make it likely.

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Credit: The Atlantic

Although the US charged that Prevezon Holdings had stolen US$230 million from Hermitage, laundering it through a tangle of companies from Russia into Moldovan, Latvian and Cypriot banks via wire transfers routed through US banks, the US ultimately settled for a fraction of that amount, US$5.4 million. Prevezon settled without admitting to the charges.The incredibly complex web of transactions out of Hermitage and allegedly into Prevezon is illustrated here in a graphic crafted by US government lawyers seeking to corner the Russian concern.

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Click image to enlarge One of Browder’s lawyers who complained to Russian authorities that Hermitage had been defrauded was Sergei Magnitsky, who was promptly arrested and jailed, dying in a Russian prison at age 37. His case became an international scandal and led to the passage of what is commonly called the Magnitsky Act by the US Congress, barring the Russian officials believed to be involved in his death from entering the US or using its banking system, which in effect froze all of their funds. That is because the entire international electronic financial system is largely routed through the US SWIFT payment system. Russia followed that up by blocking hundreds of families from adopting Russian orphans.[/nextpage]

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Death on the street

Another businessman named Alexander Perpilichny fled Russia in 2010, to hand Swiss prosecutors details of the alleged involvement of senior Russian officials in the Hermitage theft, only also to end up dead, collapsing on a London street as he jogged. Although two autopsies turned up nothing, Perepilchiny’s insurance company ordered tests that detected a toxin from a Chinese plant called Gelseminium, which causes cardiac arrest, in his stomach. That form of poison is closely identified with Russian intelligence authorities.

Browder has continued to fight for the funds he insists were stolen from him, to no avail. The Prevezon funds allegedly traveled through a series of front companies including Nomirex Trading UK, Balec Trading Ltd. Quartell Trading Ltd., of the UK, Baikonur Worldwide Ltd., Arivust Holdings of Cyprus and Tredwell Marketing Ltd., a BVI concern alleged to be linked to Michael Norbert Saab. The graphic below, also prepared by US government lawyers, shows the path which runs from the Central Bank of the Russian Federation eventually into Quartel, Baikonur, Nomirex and others.

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Click image to enlargeArvest is headed by Vladien Stepanov, the ex-husband of Olga Stepanov, the head of the Moscow Tax Office. It is that tax office that is alleged to have been responsible for the trumped-up tax charges that allowed the government to seize the Hermitage assets.

The Office of Foreign Assets Control, an agency of the US Department of Treasury, or OFAC has placed sanctions on several of the depositors and transferees, including the Syrian Scientific Research Center – which is believed to have manufactured sarin nerve gas for Syrian President Assad, as well as Balec Trading, a front for the research center into which Prevezon funds flowed. Others sanctioned by the US are Piruseti Enterprises and Frumineti Investments Ltd., which also received funds from Prevezon. (United Nations inspectors after an alleged 2013 sarin attack on civilians by Syria removed what was said to be all chemical weapons from Syrian depots as a result of an agreement struck by US President Barack Obama.)

The Russians are coming

The Prevezon interests, however, are hardly the only Russians with funds in FBME. Much of the information comes from an explosive – and confidential – 63-page report prepared in 2013 by the international accounting firm of Ernst and Young and made available to Asia Sentinel. It indicates that Balec Ventures Inc., which in turn was linked to the Syrian Scientific Research Center, was also linked to the Hermitage theft through Quartell Trading Ltd., which is registered in the British Virgin Islands, and the UK-registered Nomirex Trading Ltd. All were involved as “intermediary offshore companies” in moving the funds out of Russia.

According to a CNN report on June 20, bank records and a contract show that a Russian mafia front called the Klyuev Group, consisting of high-level Russian businessmen who were involved in the Hermitage theft, agreed to pay Balec US$3 million, allegedly for high-end furniture. Balec is headed by Issa al-Zaydi, who was sanctioned by the Americans for his connection to the Syrian gas factory and was listed as one of FBME’s highest-level clients.

Individuals said to be connected to the Russian Mafia hold accounts for Altem Investment Ltd., and Zibar Mgt. Ltd. Another was said to be Joseph Karam, identified as a “financial advisor for a major transnational organized crime figure who banked entirely at FBME Cyprus (and who) maintained a relationship with the owners of FBME.”

Karam was said to be close to Oleg Deripaska, a Russian billionaire who in turn is said be a member of Putin’s inner circle. Deripaska did business in the previous decade with Paul Manafort, formerly President Donald Trump’s campaign manager. Deripaska has offered to testify before congressional committees in exchange for immunity but has been turned down. There is no indication that anyone connected to Trump has had anything to do with the Hermitage scandal, Browder said.

The Russians also seem to have enjoyed extensive relationships with Lawrence Mafuru, the special administrator of FBME Bank Tanzania, who is currently under indictment for fraud related to FBME. He is so famous among Russian launderers that he has allegedly earned the nickname “Mr. Ten Percent.”

Another depositor is oligarch Mikhail Dmitrievitch Prokhorov, a Russian billionaire who ran Norilsk Nickel, the world’s largest producer of nickel, among other Russian businesses. Said to be Russia’s third-richest individual, he has since bought the Brooklyn Nets basketball team. The rapper Jay Z is a minority shareholder in the team.

Other depositors include Teodoro Obang, the president of Equatorial Guinea, and his son, who deposited US$70 million in 2011. Another is Isabella dos Santos, the daughter of Angolan President Jose Eduardo dos Santos, who is said to be the richest woman in Africa.

Thousands of suspicious reports

As Asia Sentinel reported on April 18, hundreds of so-called SARS or Suspicious Activity Reports have been issued by other banks over FBME’s transactions, disclosing transactions that the institution knows or suspects to involve possible illegal activity. The US Financial Crimes Enforcement Network, or FinCEN, the US Treasury Department’s lead financial money-laundering combatant, reported at least 4,500 suspicious wire transfers to FBME through US accounts that were suspected of laundering as much as US$875 million between 2006 and 2013.

According to the ruling, FinCEN considered “shell company activities accounting for hundreds of millions of dollars between 2006 [and] 2014.” FBME is accused of maintaining accounts for the head of an international drug trafficking network as well as a Syrian proliferator of weapons of mass destruction and the former owners of Bank J Trust before it changed its name.

The Tanzanian head office of FBME, under the administration of Lawrence Mafuru, has continued to fight the ruling banning it from US global transactions. In an appeal brief filed in the US earlier this month, the bank’s lawyers stated that the bank was railroaded with evidence and allegations it did not have a chance to review, saying in a brief earlier this month that FinCEN has “frozen the bank out of the US financial system through an unfair, unlawful process.”

The Saab family seems to have even put the Tanzanian government of President John Magufuli at risk with the US government in the Tanzanian Central Bank’s quest to control FBME’s future liquidation through Mafuru and the Tanzanian Deposit Insurance Corporation, adding to problems the Tanzanians already have with Acacia Mining Plc and Barrick Gold Corporation. The Saabs are alleged to have ties to the Tanzanian mining industry and FBME Tanzania was marketed actively to local concerns.[/nextpage]

*Corrected on 7 July 2017 to reflect new information