A Blomberg’s article “Dirty Money Spotlights Role of Family Offices as Enablers” identifies a Guernsey trust company in the web of structures involving Jahangir Hajiyev and his wife, Zamira who is subject to the UKs first UWO
THE Blomberg’s story provides the following facts and observations:
Introduction
1. Jahangir Hajiyev was convicted of looting millions of dollars from a bank in Azerbaijan. Lawyers, investment advisers and a family office in London helped him spend his money.
2. The signs were there. Jahangir Hajiyev, chairman of the biggest bank in Azerbaijan, and his wife, Zamira, appeared to be living on dirty money.
3. Between 2003 and 2015, the couple spent a fortune in the U.K.
a. They dished out 11.5 million pounds ($14.3 million) for a townhouse in the ritzy London neighborhood of Knightsbridge and
b. another 10.5 million pounds on a golf course and club near Ascot, the famed horse racing locale.
c. They bought a new Gulfstream jet for $42.5 million.
d. Meanwhile, Zamira, wielding 35 credit cards, went wild in Harrods. In one week alone, she dropped about 725,000 pounds in the department store on jewelry, designer clothes and other merchandise.
4. The catch was that Hajiyev’s annual salary at state-owned International Bank of Azerbaijan was $70,650 in 2008, and his wife earned no significant income herself.
5. Trident Trust and multi-family office Werner Capital helped set up entities in Guernsey and Britain to acquire and hold the golf club in a structure that masked the Hajiyevs’ ownership.
a. Werner Capital was Founded in 2008 by Tomas Mateos Werner, a former Deutsche Bank AG and HSBC Holdings Plc executive. Three offshore entities based in Panama, Cyprus and the British Virgin Islands were listed as members of Werner Capital’s limited liability partnership. Tomas was soon joined by his sister Margarita Mateos Werner, 51, a Spanish lawyer, and his brother Daniel, 47, who had studied business in Spain.
b. Trident Trust, a sprawling financial-services company with operations in the U.S., Hong Kong and several International Finance Centres.
2. It’s unclear what due diligence Werner Capital or Trident Trust did before accepting the Hajiyevs as clients. Tomas Werner, citing confidentiality, declined to comment about his firm’s relationship with the couple.
a. In emails to Bloomberg News, he said his firm has never been supervised by the FCA and there was “no basis” for the NCA’s statement that the corporate structure used to hold the golf course is indicative of money laundering.
b. “It was set up following advice by a top-tier British law firm and had, to the best of our knowledge, nothing to do with money laundering,” Werner said.
3. Executives at Trident Trust’s offices in London and Guernsey didn’t respond to requests for an interview. Neither firm has been accused of wrongdoing.
4. As for Zamira, her lawyers wouldn’t comment about the case. But in a sworn statement provided to the UK court last year, she said
a. the Azerbaijan government’s charges against her were untrue.
b. her husband had accumulated his wealth legitimately and was “very well off” since the early 1990s.
c. “He also had a substantial portfolio of shares in the bank, and was always very proud that the bank was doing so well,”
Unexplained Wealth Order [uwo]
1. Under the terms of a new legal tool called an unexplained wealth order, she must disclose the origins of her family’s fortune.
2. Prosecutors suspect the money was obtained illegally because her husband is serving a 15-year prison sentence in Azerbaijan for looting his bank. Authorities there are trying to extradite Zamira back to Baku to face fraud charges.
3. The NCA’s civil action is pulling back the curtain on some of the ways suspicious wealth worms its way into Britain, which has long been an attractive place for oligarchs and despots to park ill-gotten riches.
4. It’s one of several recent efforts aimed at cracking down on illicit finance.
The Hajiyeva case
1. The Hajiyeva case is a crucial test of the U.K.’s push to curb the flow of dirty money.
2. Jahangir Hajiyev, 57, made his way to the top of Azerbaijan’s ministry of foreign economic relations in the chaotic years that followed the oil-rich country’s independence from the Soviet Union in the 1990s. It was a period marked by rampant corruption and cronyism as the new ruling elite jockeyed for power amid a wave of lucrative privatizations. Armed with an MBA from the University of Texas, Hajiyev flourished, and by the middle of the decade he was a department head at the ministry, a plum job as Azerbaijan opened up its vast crude reserves to foreign investors for the first time.
3. In 1995, he joined the International Bank of Azerbaijan as chairman of the credit committee, the part of the bank responsible for approving loan applications.
a. Within six years, he was chairman of the biggest lender in the South Caucasus, a major cog in the Azerbaijani economy.
b. And he became an ambassador for his country’s economic opening, promoting the promise of frontier markets at World Economic Forum events and in meetings with Western ministers and bankers.
4. Hajiyev bought his first property in London in 2003,
a. house in Knightsbridge purchased for 2.5 million pounds via a shell company domiciled in the British Virgin Islands. Although his IBA salary that year was less than $36,000, he didn’t take out a mortgage.
5. Azerbaijan remained a rough place. Transparency International ranked it the 137th most corrupt state out of 159 in its 2005 Corruption Perceptions Index.
6. That February, Zamira was kidnapped and held in “atrocious conditions,” she told the U.K. court in 2018.
7. News reports in Azerbaijan said she’d been seized by rogue police officials. Freed after 28 days in an armed raid by law enforcement officers, Zamira fled to London, where her daughter was in private school.
a. “I was not well when I arrived, and I was in a very fragile physical and mental state,” she told the court.
8. Court records show
a. she moved into a 3.2 million-pound flat on a sought-after Belgravia square that Jahangir bought, his second London property.
b. Zamira joined Harrods’ loyalty rewards plan in 2006 using credit cards issued by her husband’s bank. She spent more than 15,000 pounds at the store on merchandise from Louis Vuitton and other items over the next 90 days.
c. Subsequent purchases weren’t so frivolous.
9. In December 2009, Jahangir used a shell company in the British Virgin Islands called Vicksburg Global to upgrade Zamira’s residence to the townhouse in Knightsbridge.
10. Barclays’ private-banking arm in Switzerland provided the Hajiyevs with a 7.5 million-pound mortgage to buy the house, which was paid off in full a few years later, according to court records.
11. London law firm Mishcon de Reya LLP represented Vicksburg and handled the paperwork.
a. Mishcon de Reya said in an email that it complied with all of its regulatory obligations.
b. Barclays declined to comment.
12. The house, a cream-colored Georgian residence with Ionic columns and ornate iron grill work framing the windows, wasn’t far from Werner Capital, which would go on to play a key role helping Zamira build a comfortable new life in Britain.
Guernsey
1. In 2013, Tomas and Daniel Werner helped set up a more complicated investment:
a. the Mill Ride Golf & Country Club, a 170-acre course nestled in the verdant Berkshire countryside.
2. A firm called MRGC 2013 was incorporated in the U.K. on Aug. 1, 2013, company filings show.
a. Daniel was its sole director and
b. Tomas its only shareholder.
3. At the end of that month, Tomas transferred ownership of MRGC 2013 to Natura Ltd., which had been founded in Guernsey about a week earlier.
a. Natura was, in turn, owned by an entity named Western House Nominees.
b. Both it and Natura shared an address with still another outfit, Trident Trust Company (Guernsey), according to Nicola Bartlett, a financial investigator with the NCA.
c. Three executives at Trident Trust Company (Guernsey) were also listed as directors of Natura.
4. On Sept. 9 of that year [2013],
a. Natura purchased Mill Ride Golf Club for 10.5 million pounds with no mortgage.
b. Herbert Smith Freehills, a law firm based in London, handled the title transfer.
5. A spokesman for the firm didn’t reply to requests for comment.
6. With the property wrapped in so many corporate layers, there was virtually no way to see who truly owned it.
Azerbaijani Laundromat 2012-14
1. By 2014, Jahangir was running into serious trouble back home.
2. A decade-long expansion was ending as oil prices plummeted from near a record high of $107 a barrel in June 2014 to $53 by the end of that year. As the economy sputtered, IBA’s balance sheet strained under a mountain of debt.
3. The authorities began arresting borrowers defaulting on their loans. Jahangir, citing ill health, resigned as chairman in March 2015.
4. Nine months later he was arrested and charged with embezzlement.
5. The bank was then swept up in a corruption scandal dubbed the Azerbaijani Laundromat.
6. From 2012 to 2014, a group of well-connected Azeri business and political figures ran a $2.9 billion scheme to bribe European lawmakers, launder dirty money, splurge on luxury goods and line their pockets, according to an investigation by the Organized Crime and Corruption Reporting Project.
7. The perpetrators covered their tracks by setting up shell companies in the U.K. to handle transactions. A lot of money also passed through Danske Bank’s branch office in Estonia.
8. Almost half of the $2.9 billion originated in an account at IBA, according to the report.
Jahangir 2016 TRAIL
1. At his trial in 2016 and in subsequent hearings, Jahangir said he didn’t embezzle money from the bank and was being persecuted by his enemies. He said the bank made loans for legitimate infrastructure projects.
2. In October 2016, he was convicted of financial crimes by a court in Baku, sentenced to 15 years in prison and ordered to pay “International Bank of Azerbaijan’s [IBA] $39 million in restitution.
3. After Jahangir was arrested, Zamira stopped her spending binge at Harrods. She started selling pieces from Cartier, Boucheron and Van Cleef & Arpels via Christie’s auction house, court papers show. By June 2016, she’d raised 1.5 million pounds.
4. The opaque offshore structures the couple used to hold their assets were becoming more transparent thanks to the U.K.’s crackdown on money laundering.
5. In April 2016, the government implemented a law requiring British companies to publicly disclose their ultimate owners no matter how many shell companies were involved.
a. That year, MRGC 2013 submitted a six-page filing with U.K. Companies House showing Zamira Hajiyeva effectively controlled at least 75% of the firm through a trust.
b. Yet Zamira’s status as MRGC 2013’s “Person of Significant Control” didn’t last long.
c. On the same day the law went into effect, she was replaced by Andreas Georghiou, head of a Cyprus law firm, according to court records. By then Daniel Werner was no longer a director of MRGC 2013, and by 2017 Trident Trust was out, too.
d. In time, Georghiou would transfer control to his niece, Elena Georghiou. The Georghious didn’t respond to requests for comment.
6. Sizing up these maneuvers, NCA investigator Bartlett determined that the money used to purchase Mill Ride Golf Club most likely stemmed from Jahangir’s crimes.
a. “Similarly, I also believe the manner in which the property has also been obtained and subsequently handled is highly unusual, secretive and complex, and, absent further and credible explanation, is indicative of money laundering,” she told the court in 2018.
7. Tomas Werner disputed that conclusion in an email to Bloomberg News.
a. “Werner did not advise on the set-up of the structure nor has ever been involved in money laundering, in this or other contexts,” he wrote.
8. But it wasn’t just the golf course.
NCA UWO February 2018
9. The NCA suspected the couple was also spending dirty money on the Knightsbridge townhouse and the Gulfstream jet.
10. On Feb. 27, 2018, the agency directed Zamira to reveal the source of her money.
11. In October, Justice Michael Supperstone rejected her request to throw out the order. Zamira appealed, and that matter is pending.
Extradition June 2018
12. Zamira’s bigger worry is being sent back to Azerbaijan to face a similar fate as her husband.
13. During an extradition hearing in June, she sat in the glass-enclosed dock and listened as the Azerbaijani government’s lawyer called her a member of an organized-crime group and said her conduct in the U.K. amounted to money laundering.
14. Zamira’s attorney called those allegations false and said Azerbaijan was persecuting her.
15. As she awaits a decision in her Knightsbridge home, the life of luxury she enjoyed for so many years seems to be slipping away.
Late 2018 – Zamira hasn’t let the NCA’s action stop her from trying to hock her valuables.
1. Last fall (2018), her daughter, Leyla Mahmudova, asked Christie’s to value a new batch of jewelry, according to the NCA.
2. The haul included a Boucheron sapphire necklace worth 100,000 pounds and a Van Cleef & Arpels pearl necklace valued at 20,000 pounds—substantially less than the 250,000 pounds Jahangir paid for it 10 years earlier in St. Moritz, Switzerland.
3. The NCA promptly impounded the pieces.
4. Christie’s declined to comment, as did Leyla Mahmudova’s lawyer.
THE ENABLERS and SOW questions
6. Authorities are pushing for greater transparency by requiring companies in the U.K., and soon its territories, to disclose their true owners. And they’re trying to stop lawyers, accountants and other practitioners from helping unscrupulous clients.
a. “Professional enablers are increasingly facilitating crimes with their expertise,” said Rachael Herbert, head of threat response at the National Economic Crime Centre, a multi-agency group that combats money laundering.
b. “These crimes are large-scale, complex and international, and we are not going to arrest our way out of this issue. We have to make the U.K. as undesirable an environment for laundering the proceeds of crime as we can, and that means looking at all the entities and their enabling functions in these cases.”
7. London has become such a notorious magnet for dirty money that activists give “kleptocracy tours” of its affluent neighbourhoods.
8. Investment firms in the U.K. that offer advice and manage assets are typically regulated by the Financial Conduct Authority.
9. They must comply with money-laundering regulations to ensure they don’t unwittingly provide services to criminals. That includes “enhanced due diligence” for customers who held political positions, especially in countries with a record of corruption.
10. Even so, the gap between their spending and income apparently didn’t stop a raft of enablers—lawyers, accountants, investment advisers and other professionals—from helping the couple steer their wealth into assets in the U.K. from a web of offshore companies, according to court papers and corporate filings.
11. Among them were fiduciary-services firm Trident Trust and multi-family office Werner Capital.
Trident Trust and multi-family office Werner Capital
12. Trident Trust and multi-family office Werner Capital helped set up entities in the Channel Islands and Britain to acquire and hold the golf club in a structure that masked the Hajiyevs’ ownership, according to the U.K.’s National Crime Agency, which is investigating the couple’s financial dealings. It told a London court the setup was “indicative of money laundering.”
13. Werner Capital, based in London, is one of a new breed of hybrid investment firms catering to the ultra-rich as strict regulations drive banks to dump high-risk clients.
14. Founded in 2008 by Tomas Mateos Werner, a former Deutsche Bank AG and HSBC Holdings Plc executive, it had a website
a. that pitched its prowess at establishing “complex, cross-border corporate governance structures” to help clients protect their assets in countries with “political upheaval, changes in legislation or unwarranted claims.”
b. It offered a panoply of other services, from helping families buy mansions to securing residency visas and getting children into top British schools.
c. “It’s like a Swiss Army knife for the wealthy,” said Ben Cowdock, a senior research officer at Transparency International UK, the British arm of the global anti-corruption group. “It does everything.”
15. Now Werner Capital and other professional enablers have come under scrutiny as part of the NCA’s groundbreaking case against Zamira Hajiyeva.
BACK STORY
1. While Zamira’s case made a big splash, the U.K. won’t reduce the inflow of dirty money until professional enablers become more rigorous in turning away suspicious clients, said Margaret Hodge, a Labour Party Member of Parliament who last year sponsored legislation to disclose the ultimate owners of shell companies.
2. Lawyers, accountants, real estate agents and multi-family offices are all required to run anti-money-laundering checks on their customers. Many do.
3. In 2017, Natura, the entity that held Mill Ride Golf Club on behalf of the Hajiyevs, asked Savills, a London-based real estate firm, to market and sell the property for 14.5 million pounds. After conducting due diligence, Savills declined to take on the job, according to NCA investigator Bartlett. Savills declined to comment.
4. Industry groups, not regulators, are largely responsible for monitoring the conduct of their members. So in 2018, the government created an agency called the Office for Professional Body Anti-Money Laundering Supervision to press these groups to ensure members fulfill their responsibilities.
5. In March, it found that 80% of the 22 legal and accounting industry organizations on its watch lacked adequate policies to supervise their members’ practices. About a quarter of the groups undertook no oversight of illicit finance at all.
6. “These groups haven’t delivered a consistent standard of supervision,” Alison Barker, the agency’s director of specialist supervision, said in an interview.
7. If they don’t shape up, she said, the government could take over direct supervision of their members.
8. Some of the bigger professional groups are getting the message. In May, the Solicitors Regulatory Authority, which oversees 145,000 practicing lawyers in England and Wales, put 26 law firms on disciplinary review for potentially breaching money-laundering regulations.
9. Regulators across Europe are expanding the types of practitioners who must carry out checks on their clients. Under new rules that come into effect in January, the European Union will require art dealers and auction houses to run checks on customers and report suspicious transactions to authorities. The Netherlands has even started leaning on designer furniture stores and car dealerships to perform the same kind of know-your-customer reviews as financial professionals.
10. Last December, the Financial Action Task Force gave the U.K. high marks for its efforts. But it said the system that banks and other firms use to report suspicious activity needs an overhaul.
a. “There remains an underreporting of suspicious transactions by higher risk sectors such as trust and company service providers, lawyers and accountants,” the report said. The U.K. Home Office has begun a project to retool the system.
11. For all the action, illicit-finance experts worry that the government’s efforts will ultimately fail to make a difference.
a. “We face a fundamental issue in the U.K., which is that we are very good at passing legislation and, frankly, quite poor at executing it,” said Thomas Keatinge, director of the London-based Centre for Financial Crime and Security Studies.
“Professional enablers are increasingly facilitating crimes with their expertise.”
1. As for Werner Capital, it has undergone a makeover in recent months. In July, the company rebranded itself as a single-family office focused on “seeking returns with a positive social and environmental impact.” Its website is scrubbed of references to visas, British schools and protecting clients’ assets. Instead, it showcases a Kazakhstan company headed by Tomas that recycles paper and cardboard.
2. A new venture led by Daniel called Werner Homes aims “to introduce wood and modern methods of construction to the U.K. housing market.” That business is so new the website is still being developed.
3. Gone, too, is the office suite in a townhouse just around the corner from Zamira’s Knightsbridge home. Werner Capital’s new digs are in a decidedly less glitzy office park in London’s East End.
4. Incorporated in 2008 as a “boutique investment and wealth-management firm,” Werner Capital was one of scores of outfits popping up in London catering to rich overseas clients looking to move money into the U.K. Tomas Werner, 53, epitomized the globetrotting nature of the family-office business. The German-Spanish businessman earned an MBA from Columbia University in New York and a law degree from the University of the Balearic Islands in Spain. His banking career had taken him from Zurich to Frankfurt to London.
5. Three offshore entities based in Panama, Cyprus and the British Virgin Islands were listed as members of Werner Capital’s limited liability partnership. Tomas was soon joined by his sister Margarita Mateos Werner, 51, a Spanish lawyer, and his brother Daniel, 47, who had studied business in Spain.
6. The family-office model dates back centuries to when royal stewards handled the fortunes of monarchs. In the Gilded Age, oil baron John D. Rockefeller used a family office to manage his wealth, and in the 1980s it started handling the fortunes of other rich clans. These days multi-family offices not only steer investments for the ultra-rich, they also offer concierge services such as securing places at the best private schools, hiring jets and helicopters, maintaining yachts and getting choice tickets to sporting events. They will even walk your Pomeranians.
7. In 2011, Werner Capital produced a net-worth statement on Jahangir for EFG International AG, a Zurich-based private bank. It itemized Jahangir’s $72.6 million in assets, including $4.5 million held in an account at another Swiss bank, Bordier & Cie, a couple of residences in Azerbaijan and a villa in Sardinia worth $15 million.
8. Also on the list was a 1.5-acre parcel of land called Warreners in St. George’s Hill, an enclave southwest of London that has long attracted rock stars such as Ringo Starr and, more recently, wealthy Russians. It was valued at 3.7 million pounds. After a five-bedroom, Regency-style mansion was built on the lot, Werner Capital showcased its many features, including an indoor lap pool and an elevator that lowered cars from the driveway into an underground garage, on a promotional video on its website.
MONEY LAUDERING IN EUROPE
1. The Hajiyeva case is unfolding at a time when money-laundering scandals have engulfed some of Europe’s biggest banks and exposed the vulnerability of the continent’s financial system to criminals. Authorities in Europe and the U.S. are pursuing inquiries into Denmark’s Danske Bank A/S, which said last year that it handled more than 200 billion euros ($223 billion) in potentially suspicious transactions largely originating with clients in Russia and former Soviet states. Sweden’s Swedbank AB and Deutsche Bank have also been investigated.
2. Both lenders have said they’re cooperating with authorities.
3. For all the attention on lenders, experts say it’s imperative to hold professionals accountable for suspicious transactions before they hit the financial system.
a. “Banks are easy targets for regulators because they have so much data and can be heavily fined,” said John Howell, an adviser to the British government on measures to combat illicit finance.
b. “By the time a transaction hits the banks, the crime may well have already occurred, so you have to lean on the professional gatekeepers because they are involved at the beginning.”
4. That’s easier said than done. The U.K. has long taken a light-touch approach to financial regulation. Prosecutors there didn’t start focusing on major money-laundering cases until 2014, according to the Financial Action Task Force, a Paris-based organization that sets guidelines for the U.K., the U.S. and other nations.
5. London has become such a notorious magnet for dirty money that activists give “kleptocracy tours” of its affluent neighborhoods.
6. For years, criminals washed their cash in the U.K. using the same modus operandi time and again—lots of shell companies in lots of jurisdictions.
a. “It’s almost as if there is an offshore fraudsters’ manual,” Mark Thompson, chief operating officer of the Serious Fraud Office, testified at a parliamentary hearing in March.
7. After years of lobbying by anti-corruption groups and their allies in Parliament, authorities are now moving on several fronts.
8. In October, officials formed the National Economic Crime Centre to pool the expertise of officers and lawyers from the NCA, the Serious Fraud Office, the Crown Prosecution Service and four other law enforcement bodies.
9. In May, the NCA slapped an unnamed person suspected of involvement in serious crime with unexplained wealth orders tied to three residential properties worth 80 million pounds that are held by offshore companies.
10. And this fall, Parliament is expected to consider a bill that would identify owners of overseas shell companies that hold land in the U.K. in a publicly accessible register.
The above is sourced from https://www.bloomberg.com/news/features/2019-07-30/dirty-money-spotlights-role-of-family-offices-as-enablers
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