The Shady Bank Where This Russian NBA Owner Stashed Money

December 19, 2017

The Russian oligarch who owns the Brooklyn Nets basketball team stashed money in a bank the U.S. Treasury Department has accused of facilitating money laundering, weapons proliferation, sanctions evasion, organized crime, and financing a terror group, a report obtained by The Daily Beast reveals.

Mikhail Prokhorov, whose fortune is estimated at nearly $9 billion, ran for president of Russia against Vladimir Putin in 2012 in a stage-managed campaign sanctioned by the Kremlin.

As the sole owner of the Barclays Center sports arena in Brooklyn, he has dined with the likes of Jay-Z and former New York City Mayor Michael Bloomberg. Hes a frequent guest at the Four Seasons Hotel and is a fixture on the New York social scene.

But a 2014 confidential report written by the Central Bank of Cyprus (CBC) found that the wealthy Russian, a so-called politically exposed personfinance parlance for government officials, candidates, and their relatives who are deemed to be at a higher risk of bribery or money launderingkept 23 accounts at FBME Bank Ltd., formerly known as the Federal Bank of the Middle East.

All 23 of the Prokhorov accounts had been set up by front men, according to the CBC report, and FBME was found not to have complied with Cyprus own anti-money-laundering law in accepting the deposits.

The bank was shuttered in May of this year following a U.S. Treasury Department statement noting that it was used to facilitate a host of international financial crimes, including money laundering on behalf of sanctioned regimes and non-state actors.

Prokhorov is not being accused of any crime, and it is common for wealthy public figures to use offshore jurisdictions and anonymous companies to hide assets or avoid tax liabilities at home.

Last month, an international investigation known as the Paradise Papers showed how celebrities, politicians, political donors, even the British monarch, took advantage of a perfectly licit system to store millions in exotic island nations famed for lax transparency requirements.

But the CBC report, which was never intended for public viewing, sheds light on how the murky world of offshore deposits works and how banks seeking to secure powerhouse customers routinely flout the rules designed to safeguard against criminality.

FBME first came under scrutiny by U.S. authorities because of the amounts of money it moved through the American financial system.The Treasury Departments Financial Crimes Enforcement Network (FinCen) found that from April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that exhibited indicators of high-risk money-laundering typologies, including widespread shell company activity, short-term surge wire activity, structuring, and high-risk business customers.

In other words, it functioned as a hidden pipeline for funds to be moved around the world on behalf of those who appeared to have gone to great lengths to hide such activity.

A spokesman for Prokhorov and Onexim Group, a company with which he is closely affiliated, tells The Daily Beast, The multiple companies within Onexim Group interact with dozens of banks worldwide in the regular course of doing business. At no point did Mikhail Prokhorov ask any bank to conceal his assets in connection with his presidential run in 2012 or for any other purpose.

Prokhorov was far from the only powerful Russian to have used FBMEs services, according to the CBC. More than half the banks clientele were Russian nationals. Sixteen percent of the banks depositors were also designated as foreign politically exposed persons, or PEPs.

Among the Russian depositors at FBME, according to the report, are Vladimir Smirnov, a longtime friend and business partner of Vladimir Putin, whose companies previously have come under scrutiny in Europe for money laundering, and Aleksandr Shishkin, member of Putins United Russia party and a former member of the Russian Senate Security and Defense Committee.

FBME, Hezbollah, and Syrian WMD

Originally based in Cyprus, FBME eventually was headquartered in Tanzania until the central bank in that country withdrew its license in May of this year. This action followed years of U.S. accusations about the banks suspected unlawful behavior.

Some of its customers have even garnered media attention. As CNN reported in June, leaked documents show that FBME has also received stolen Russian taxpayer money associated with the so-called Magnitsky affair.

Specifically, there is an account belonging to Balec Trading Ventures Ltd. The company is owned by Issa al-Zeydi, a Russian national sanctioned by the U.S. Treasury Department in 2014 for his ties to the Scientific Studies and Research Center in Syria, which has manufactured and maintained Bashar al-Assads chemical-weapons stockpile.

Among FBMEs other clientele, per a 2014 U.S. Treasury Department FinCen notice, were an unnamed person who received a deposit of hundreds of thousands of dollars from a financier for Lebanese Hezbollah, a major transnational organized-crime figure who banked entirely at FBME, perpetrators of cybercrimes against U.S. victims, international narcotics traffickers, and at least one front company for Syrias Scientific Studies and Research Center, although it is unclear if this refers to al-Zeydis Balec Trading Ventures or another FBME customer.

Interestingly, Russian nationals were not identified by FinCen in that or subsequent notices. Yet the troika of Prokhorov, Smirnov, and Shishkin was actually hiding in plain sight.

The CBC report was appended as an exhibit in a lawyers declaration in a court case brought by FBME against Jacob Lew, the former U.S. Treasury secretary, in Washington, D.C. Thus details of FBMEs Putin-linked Russian clients quietly surfaced with no fanfare in a U.S. court docket.

Why Cyprus? For one thing, it is a favored destination for well-to-do Russians and their fellow travelers or business associates to hide assets anonymously. Paul Manafort, Donald Trumps former campaign director, and his associate Rick Gates, were both recently indicted, foramong other thingsopening at least 15 undeclared accounts on the Mediterranean island and funneling millions of dollars there for the alleged purpose of tax evasion (PDF).

Cyprus also happens to be where FBME kept more than 90 percent of its assets and transacted more than 90 percent of its business, according to FinCen.

FBME lost its license to operate in Cyprus in 2015 before being shuttered completely in Tanzania two years later. The bank is now in resolution, a government-imposed liquidation process, and all of its customers deposits are frozen. The CBC report does not say how much money Prokhorov, Smirnov, and Shishkin kept at FBME, or how much of that money has now been frozen.

Jay-Z and Mayor Bloombergs Dinner Partner

The CBC report says FBME knew that 23 of its accounts belonged to representatives acting on behalf of Prokhorov, but alleges that the bank hid the true ownership of them in view of the fact that Mr. Prokhorov was a [Russian] presidential candidate. The report adds that in 2013, after the Russian election that delivered Vladimir Putin back into the executive for a third term, the bank started to update is records and files.

Prokhorovs subsidiaries, most of them registered in the British Virgin Islands, are listed along with the dates the accounts were opened and their respective representatives, who alternate among the same four people. Most of the companies given as the depositors have inscrutable names such as Margow Holding Corp., Fitts Investments Ltd., and Fonsen Investments Inc.

The Daily Beast was unable to determine what, exactly, these companies own or how much money they moved in and out of FBME.

The lanky Prokhorov is much more famous stateside for what hes made no secret of owning. In 2010, he purchased 80 percent of the Brooklyn Nets basketball team, along with 45 percent of its home arena, the Barclays Center, for a staggering $223 million, an amount that, as The New York Times reported, was still less than what he paid the Russian government in taxes the previous year.

As a public face of modern Russian entrepreneurship, Prokhorov has attained a kind of celebrity status unto himself.

Prokhorov bought the rest of the Nets and the Barclays Center in 2015, then recently sold 49 percent stake in it to Chinese billionaire Joseph Tsai. He also controls the leases on Brooklyns Paramount Theater and Nassau Coliseum, making him one of the more powerful real-estate moguls in New York.

Like a lot of Russian oligarchs, Prokhorov got his start in the 1990s during the chaotic era of state liquidation and privatizationat first by selling blue jeans in the former Soviet Union. Prokhorov then built a small empire with Vladimir Potanin after the two bought the Norlisk Nickel metals company at a controversial auction managed by the bank both men controlled, the United Export Import Bank, or Oneximbank.

Prokhorov and Potanin split professionally in 2007. Since then, Prokhorovs stature in the U.S. as a high-flying Russian investor in New Yorks athletic and entertainment industries has grown considerably. He is thought of as one of the good oligarchs to come out of Putins Russia, where all billionaires must still to some extent toe the Kremlin line. Those who dont risk losing their fortunes or, in extreme circumstances, their freedom.

As a public face of modern Russian entrepreneurship, Prokhorov has attained a kind of celebrity status unto himself. Hes been photographed dining with Mayor Bloomberg and Jay-Z, with whom he even appeared in a giant billboard above Madison Square Garden in 2010, following his purchase of the majority of the Nets, in which the Brooklyn-born rapper also was a partial owner. Blueprint for greatness, ran the caption.

The Russian Spy

Not that all of Prokhorovs American press clippings have been quite so flattering. One of his employees was arrested in California in March on allegations that he spied for Russia.

Igor Sushchin, the security director for Renaissance Capital, an Onexim Group holding, was charged by the U.S. Justice Department with being an officer of Russias Federal Security Service, or FSB, the successor agency of the KGB, which was involved in the hacking of half a billion Yahoo email accounts. (The FSB also was identified by the U.S. intelligence community as one of two Russian intelligence organs responsible for hacking the correspondence of the Democratic National Committee and former Hillary Clinton campaign chairman John Podesta.)

Sushchins employment with Renaissance Capital ended March 16, 2017, a day after the U.S. unsealed his indictment. In a press release, the Justice Department stated that Sushchin was embedded as a purported employee and head of information security at a Russian investment bank, without naming Renaissance Capital.

A representative for the investment firm subsequently told the Russian daily Kommersant that the company does not know of any charges of criminal violations related to the work activity of Igor Sushchin within the framework of the company but said that it was willing to cooperate with U.S. authorities.

Putins Cooperative Partner

Vladimir Smirnov has known Vladimir Putin since the early 1990s ,when the latter worked for the mayors office in St. Petersburg and was implicated in a host of financial scandals related to foreign investment in the Russian city. These included a notorious barter exchange fraud involving the importation of food from Europe and the export of Russian resources such as wood, oil, and scrap metal. All of the signed contracts for this exchange were suspect and the outgoing Russian goods were undervalued. Smirnov, through his company Nevsky Dom, received one of the contracts.

Smirnov is cited in the CBC report as one of a number of clients whose business activities were vaguely described as Management consultants or Investment and Holding, with no reference to the telling biographical details. He was singled out in the report as an FBME customer with a high risk of money laundering or terrorist financing who ought to have been subjected to enhanced vetting procedures. The bank also failed to to take adequate measures to establish the source of wealth of the [politically exposed person], the CBC found, in reference to Smirnov, whose wife, Larisa Drozdova, also held an account at the FBME and thus should have been designated a high-risk customer.

Just how high-risk this couple is can be seen in Smirnovs rather dubious past as a former business partner of Putins. In 1992, they registered the St. Petersburg Real Estate Holding Company, better known by its German acronym SPAG. Putin sat on the companys advisory board all the way through to its investigation by the German Federal Intelligence Agency for money launderingincluding, allegedly, on behalf of the Cali drug cartel in Colombia.

Smirnov also had a professional association with the Russian mob, specifically Vladimir Kumarin, the head of the Tambov organized-crime family and a man so powerful in St. Petersburg he was colloquially known as the Night Governor. (He later changed his surname to Barsukov and, in 2009, was convicted of fraud and money laundering in a Moscow court and sentenced to 14 years in jail.) Smirnov and Kumarin co-owned the St. Petersburg Fuel Company, which, as Putin biographer and former New York Times Moscow correspondent Steven Lee Myers noted, received the exclusive right to supply gasoline to the cityagain, under Putins auspices.

The impressive U.S. government resources we brought to bear to combat terrorist finance now need to turn to Russia.
Daniel Fried

But it is Smirnovs later roles that really underscore his closeness to Putin.

He is listed as the head of the Ozero Cooperative, a lakeshore community of dachas established in 1997, among whose founding members are Putin himself, Vladimir Yakunin, who was until recently the head of Russias state rail monopoly Russian Railways, and Nikolay Shamalov, Putins brother-in-law. All members of the cooperative maintained a common bank account for their properties, according to Karen Darwisha, author of Putins Kleptocracy: Who Owns Russia?

Since Putin became leader of Russia, Smirnov has worked in the Presidential Property Management Department and then as the director general of Tenex, Russias state exporter of nuclear-related materials and technology. Tenex has, among other things, helped Iran build its Bushehr nuclear reactor.

The Daily Beast tried repeatedly but unsuccessfully to locate Vladimir Smirnov for comment on this story.

The Senator

As a member of the Defense and Security Committee of Russian of the parliaments upper chamber, the Federation Council, Aleksandr Shishkin voted for the annexation of Crimea in 2014. He also was listed by Forbes Russia as the countrys 46th richest man in 2008, with a fortune estimated at $2.3 billion.

The CBC report claims that FBME had not bothered to run Shishkins name through public databases to check for negative information, or if he was a politically exposed person, before agreeing to open an account on his behalf. Like half of the banks customers, the senator also provided inaccurate information about his cash turnover, according to the report. (The same applies to Smirnov and Drozdova, according to the report.)

Shishkin did not respond to The Daily Beasts request for comment.

A U.S. National-Security Issue

While Queen Elizabeths investments in Bermuda and the Cayman Islands and Bonos partial ownership of a shopping mall in Lithuania cause minor tabloid controversies in the West, politically exposed persons from countries with hostile governments can pose immediate threats to the U.S.

We are seeing a pattern of Russian dark money used for bad purposes, says Daniel Fried, the former U.S. coordinator of sanctions policy under the Obama administration. Russian disinformation and cyberhacking are being used for political manipulation; and semi-disguised Russian business arrangements have touched senior members of the Trump presidential campaign and, now, administration.

Because of the Countering Americas Adversaries Through Sanctions Act, which President Donald Trump reluctantly signed into law in August, FBMEs roster of Russian depositors will almost certainly draw scrutiny on Capitol Hill.

As stated in that legislation, the Secretary of the Treasury, in consultation with the Director of National Intelligence and the Secretary of State, is duty-bound to report to Congress within 180 days of the laws enactment on senior foreign political figures and oligarchs in Russia, among them the most significant… as determined by their closeness to the Russian regime and their net worth.

And of that all-star list of politicos and oligarchs, their relationship to President Vladimir Putin or other members of the Russian ruling elite must also be established.

According to Fried, it looks like Prokhorov, Smirnov, and Shishkin all qualify for inclusion in such a report, given their biographies, and especially given the Treasury Departments role in getting FBME shuttered in the first place.

The U.S. and the Europeans need to get serious about Russian money flows and other forms of masked influence, Fried told The Daily Beast. The impressive U.S. government resources we brought to bear to combat terrorist finance now need to turn to Russia.

Read more: https://www.thedailybeast.com/the-shady-bank-where-this-russian-nba-owner-stashed-money