27 Jan 2020
Cypriot police are nearing the end of their probe into the allegedly fraudulent recapitalization of an insurance company that collapsed in 2018, leaving more than 200,000 drivers mainly in Bulgaria without coverage, and unpaid claims of 44.8 million euros.
But an investigation by OCCRP and its Bulgarian member center, Bivol, shows that Cyprus-based Olympic Insurance Company Limited fell into the hands of suspected crime bosses long before it failed.
Hiding behind two Cypriot lawyers who acted as proxies, alleged Bulgarian gangsters gained control of Olympic almost a decade before a Spanish businessman took over the company and cannibalized it with the help of an associate who was a convicted cocaine dealer.
Olympic’s demise raised questions at the time about due diligence procedures at Cyprus’ Insurance Company Control Service (ICCS), which oversees the sector. National legislation requires the ICCS to appraise the reputation and financial soundness of potential insurance company owners. Many accused the ICCS of failing to properly vet Diego Gonzalez Alonso, the Spanish national who took over the company in 2016 when it was facing financial collapse.
“If [the] office had done its research, it would have found that the man buying the firm had a suspect business reputation that had been highlighted by other EU countries,” wrote the Cyprus Mail’s editorial board in August 2018. “Who would buy a small insurance company teetering on the verge of bankruptcy?”
OCCRP’s investigation shows that Alonso not only bought the heavily indebted firm, but then funneled at least 2 million euros out of Olympic and into his own companies.
Authorities in Cyprus also failed to notice signs that — long before Alonso entered the picture — Olympic was controlled behind the scenes by a criminal organization in Bulgaria that used two companies from that country as fronts: Intergroup and Security Insurance Company (SIC).
Cypriot police would not confirm if they looked into ties between Olympic and Intergroup, which a leaked U.S. diplomatic cable from 2005 claimed ran schemes in Bulgaria including financial fraud, extortion, drug dealing, and prostitution.
“The investigation of the case is at an advanced stage,” police said in a brief emailed response to questions.
Although police did not respond to questions about whether Alonso is likely to face charges, their investigation was triggered by a “written complaint” from the ICCS in 2018, which alleged that the Spanish businessman had used “non-existent” assets to recapitalize Olympic.
Alonso had swooped in with promises of investment backed by corporate bonds and holdings in a bank he claimed to own in the East African island nation of Comoros. But auditors say these were vastly inflated in value, if they existed at all. They also questioned the value of property holdings in the Dominican Republic that he used to back his recapitalization plan, while a court found Brazilian government bonds he listed were fake.
By the time ICCS noticed irregularities at Olympic, it was too late; the company had already been gutted. Olympic’s collapse has been attributed to a pattern of supervisory failure in Cyprus’ financial system.
“The Cyprus consumer and taxpayer have already paid too much due to lapses in regulation, across both banking and insurance,” said Alexis Pantazis, executive director of the insurance company Hellas Direct, which is based in neighboring Greece.
“Regulators have to pick up their game and keep pace with modern-day trends, communicating openly with their respective counter-parties across borders.”
The ICCS declined to answer questions submitted by reporters.
Olympic Insurance’s financial trouble started in 2013, when Cyprus was rocked by a financial crisis, partly caused by lax banking supervision. The country’s two largest banks failed, losing about 8 billion euros of customers’ deposits. The International Monetary Fund and European financial institutions agreed to a rescue plan, but they refused to bail out undercapitalized banks, citing their histories of money laundering.
By December 2015, Olympic was about to collapse after posting 12 million euros in losses, leaving it 5.7 million euros in the red.
Alonso’s recapitalization plan — to be implemented in part via corporate bonds issued by his Luxembourg-based holding company Hispakol S.A. — seemed like a godsend. But if his promises seemed too good to be true, that’s because they were.
It took the ICCS months after approving Alonso’s bid to become suspicious about how Olympic was supposedly recapitalized, and to instruct auditors to examine the fresh assets he said he had injected.
In their report, submitted to ICCS in late 2017, the auditors said there was “uncertainty” about the real estate in the Dominican Republic that Alonso said was worth 26.3 million euros, as well as 150 million euros in Brazilian government bonds and corporate bonds.
Later, auditors also questioned the existence of 11.9 million euros Olympic said it held in Black Eagle Securities Bank, which claims to be registered in Comoros. Olympic’s financial statements note that Black Eagle had purchased Alonso’s New York Securities Bank (NYSB), which was also said to be registered in the East African island nation.
However, the Central Bank of Comoros told OCCRP that neither Black Eagle nor NYSB had a banking license in the country.
By Atanas Tchobanov and Stelios Orphanides, OCCRP, 24 January 2020
Read more at OCCRP
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