Swedbank’s High-Risk Secrets
21 Nov 2019

Russian oligarch Mikhail Abyzov built a complex network of offshore companies that were used to move a fortune out of Russia, according to a Swedbank internal draft report obtained by OCCRP and its Swedish partner, national public TV channel Sveriges Television (SVT).

Today he’s charged with defrauding the Russian government and investors of US$60 million, money laundering, and running a criminal organization.

The web of 70 offshore companies in the British Virgin Islands, Cyprus, Singapore, and Belize had accounts in Swedbank Estonia, where a client manager once responsible for monitoring the transactions helped move suspicious funds, according to the internal report.

Some of the companies were used to transfer shares from energy deals while Abyzov was a government minister. Another was used to buy a luxury villa in Tuscany.

From 2011 to 2016, money going into Swedbank accounts of Abyzov-linked companies totaled around $860 million; $770 million flowed out.

Building an Empire

Abyzov, 47, came of age in the ruins of the Soviet Union. He entered the prestigious Faculty of Mechanics and Mathematics at the Moscow State University in 1989, but left before earning a degree to devote himself to business, Russian press has reported. As a junior, he founded his first company, Intershops, to trade in Turkish consumer goods and office equipment.

In 1991, he earned more than $500,000 as a Russian commodity broker, according to the Russian-language news outlet Meduza. A year later, he and a classmate began importing brandy, cigarettes and the marinated, red-pepper spread known as lecho from Bulgaria. The company’s revenue reached several million dollars.

Soon, Abyzov moved on to the big money. In 1995, according to press reports, he founded ORTEK, a Russian fuel and energy company that quickly reached $100 million in revenue. When the Siberian region of Novosibirsk couldn’t cover its energy costs, Abyzov reportedly struck a deal with the regional governor in 1996, supplying fuel in exchange for a 19.5 percent stake in Novosibirskenergo, a company that controlled five thermal power plants. It is now named the Siberian Energy Company, or SIBEKO, and plays a central role in the current allegations against Abyzov.

Indeed, the Novosibirsk assets became the center of Abyzov’s fast-growing business empire and catapulted him onto the Forbes list of the wealthiest Russians. In 2012, at the peak of his business career, the magazine estimated his net worth at $1.3 billion. That same year, politics beckoned. Abyzov was appointed as Minister for Open Government Affairs in Dmitry Medvedev’s first cabinet.

An internal investigation of Swedbank’s Estonian subsidiary, obtained by OCCRP in collaboration with SVT, shows Abyzov started to move a vast number of his business accounts to Swedbank a little earlier, in 2011. Auditors identified 70 companies directly related to Abyzov.

A Norwegian anti-money laundering expert, Erling Grimstad, who wrote the report, faulted the bank for its handling of Abyzov and other high-risk, non-resident clients, referred to by the acronym HRNR.

Grimstad said a number of bank employees – including client managers, members of a committee tasked with handling high-risk customers, and the bank’s management team – failed to comply with basic “Know Your Client” principles and “protected some of the HRNR customers from the Russian authorities, including tax authorities.”

The employees hid the companies’ ultimate beneficial owners from the bank registration, a practice that “leads to risks of failure to identify sanctioned individuals,” Grimstad wrote.

The report itself has been a subject of dispute between the Swedish prosecutor’s office and Swedbank, one of Sweden’s largest banks. Until September the bank blocked authorities from interviewing Grimstad, claiming attorney-client privilege.

Skirting the Law

More than half of the 70 companies linked to Abyzov once owned or continue to own shares in Russia’s energy, food, health resort and computer technology sectors. Some of the companies were operational while he was a government minister, violating Russian laws that bar state employees from conducting private business.

Abyzov was also required to declare any offshore companies where he was the beneficial owner. However, these declarations are not available to the public so it is unclear if he claimed the 70 foreign companies. Russia changed the law in 2017, banning offshore companies for government employees altogether.

Russian companies sometimes use offshore corporations to reduce tax liability, shield operations from public view, or take advantage of more predictable judicial systems in other countries, according to Ilia Shumanov, deputy director of Transparency International Russia.

“In this case, part of the offshore transactions could take place with the aim of withdrawing assets abroad, with the possibility of anonymous ownership and management of offshore structures by a public official,” Shumanov said.

“Mikhail Abyzov, holding the post of minister, did not have the right to engage in entrepreneurial activity in person or through proxies, including offshore companies,” said Shumanov. “Given the complex structure of his companies, it can be assumed that it was he who was behind the consolidation of all these assets in offshore jurisdictions, and that the initiative for key intra-corporate deals could come from him,” he added.

By Holger Roonemaa, Alesya Marohovskaya and Irina Dolinina, OCCRP, 20 November 2019

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