THE STORY JUST KEEPS ON GIVING - Jahangir Hajiyev was running out of money, and the board in Guernsey need to act!

That was the urgent subject before the board of a company based in the tax haven of Guernsey in September 2015.

For years, Hajiyev, then chairman of the International Bank of Azerbaijan, had used a chain of trusts and shell companies stretching from Cyprus to the Channel Islands to move tens of millions of dollars out of the state-owned lender, according to allegations in U.K. court filings.

The scheme financed a life of luxury for a man who investigators said earned a salary of $70,650 in 2008:

1. four mansions in the English countryside,
2. a $42.5 million Gulfstream jet,
3. a $13 million golf club outside London and a villa in Sardinia.

Hajiyev’s wife, Zamira, ensconced in adjoining Knightsbridge townhouses, splurged on $20 million of diamonds, designer handbags and other baubles at nearby Harrods. Even as the couple burned through cash, they borrowed millions more.

When the directors of Lumea 2014 PTC jumped on a conference call that September, they grappled with a new reality.

The company was cratering and its creditors, including a Swiss bank, were circling, according to internal minutes of its board meetings seen by Bloomberg News.

That wasn’t good because Lumea, which had consolidated control of Hajiyev’s assets, was the cog that kept his wealth machine spinning, the records show.

Dialing in to deal with the crisis was a cast of professionals Hajiyev had hired to run his operation.

There were Lumea’s four directors —

• the head of a multifamily office in London,
• the managing director of a global trust company in Guernsey and
• two attorneys affiliated with Dentons, the world’s biggest law firm —
• as well as an Azerbaijani banker.

Their discussion ranged from dwindling cash balances to maneuvers involving shell companies in Luxembourg to making grants to Harvard’s John F. Kennedy School of Government, according to the minutes.

Striking a reassuring note, Francois Chateau, a senior partner at Dentons, said Hajiyev, who resigned from the bank that March, was

• “in the middle of reorganizing his personal wealth and finances, which has restricted cash flows.”

The process “should be completed within the next 60 days, when liquidity issues should be resolved,” he advised the board.

That turned out to be wishful thinking. Within three months, Hajiyev would be charged in Azerbaijan with plundering the bank he’d led since 2001. He proclaimed his innocence but was sentenced to 15 years in prison. Any hope for a fresh infusion of cash to replenish the coffers was gone.

Hajiyev’s fortune — believed by law enforcement officials to have once exceeded $100 million — has become the focus of a groundbreaking money-laundering case.

The U.K.’s National Crime Agency obtained court orders in 2018 freezing some of his assets and requiring Zamira to explain the origins of the family’s wealth.

The authorities have said they hope the case will be a blueprint for curbing the estimated 100 billion pounds ($128 billion) in dirty money that worms its way into Britain every year, often from economically deprived countries.

One of the keys to doing that is cracking down on so-called professional enablers, who are required under U.K. regulations to carry out know-your-customer checks of clients and report suspicious activity to the authorities.

A politically connected chairman of a state-owned bank in a notoriously corrupt country, whose spending far outstripped his earnings, should have raised red flags with those hired to manage his finances. One look at the International Bank of Azerbaijan’s annual reports and prospectuses would have shown that compensation for its five-member management board, plus senior executives, totaled about $1 million a year during Hajiyev’s tenure in the 2010s. In 2018, a British judge said it was “very unlikely” that Hajiyev “would have generated sufficient income” to fund even one of his many properties.

The trove of documents reviewed by Bloomberg provides a rare look at the inner workings of two dozen shell companies that moved Hajiyev’s illicit wealth around the world. The minutes of about 30 meetings from 2011 through 2016 reveal that the banker owned more luxury assets than previously reported, including a vineyard in Sardinia and three mansions in developments in Surrey popular with Russian oligarchs. The records demonstrate how Hajiyev’s advisers handled the day-to-day operation of these financial vehicles and scrambled to keep them afloat after his legal troubles turned off the tap.

A multifamily office called Werner Capital played an instrumental role in steering Hajiyev’s fortune into high-end British properties, Bloomberg reported in July.

Led by Tomas Mateos Werner, once a private banker at HSBC Holdings Plc, the firm didn’t register with the U.K.’s Financial Conduct Authority, which regulates firms that manage client assets, even though it catered to wealthy people in the Russian-speaking world.

The FCA declined to comment on whether Werner should have.

The new information shows that Chateau, a former Dentons global vice chairman, and Philip Enoch, a consultant for the firm’s U.K. arm, also played important roles advising Hajiyev’s offshore operations.

• “Business is supposed to provide a first line of defense against money laundering, and yet time and time again we see firms facilitating it instead,” said Duncan Hames, director of policy at Transparency International UK, the British arm of the global anti-corruption organization.
• “Faced with suspicious activity, senior partners in a global law firm should not be disregarding red flags and continuing to offer services.”

Lucy Fellows, a Dentons spokeswoman, said the firm doesn’t comment about current or former clients.

• “We are committed to strict compliance with all laws, regulations and professional standards of the jurisdictions in which we operate, which includes compliance with anti-money-laundering policies and standards,” Fellows said in an email. She added that Hajiyev isn’t currently a client and that neither Chateau nor Enoch had anything further to say.

The private banking units of EFG International AG in Zurich and South Africa’s Investec Ltd. also appear in documents in relation to the Hajiyevs providing loans and other financial services.

A spokesman for EFG declined to comment, as did Tomas Werner.

An Investec spokesman said the bank doesn’t comment on clients but will immediately review and potentially end a relationship with a customer if “adverse information” comes to light. They and their firms have a right to work with all manner of clients, and there’s nothing inherently wrong with setting up or managing offshore trusts.

But British lawmakers who support tougher anti-money-laundering measures say the new disclosures raise questions about the work that professionals do for clients with suspicious sources of wealth. “We have to make financial advisers, lawyers, bankers, accountants and other enablers culpable for facilitating money laundering and other financial crimes,” said Margaret Hodge, a Labour Party Member of Parliament and former government minister. “Nothing ever lands on the advisers who create these structures.”

Hajiyev’s ties to his advisers go back 15 years.

In 2005, he paid 4.5 million euros ($5 million) for a villa in the billionaires’ playground of Costa Smeralda near the northern tip of Sardinia, according to corporate filings in Italy. The 11-room Villa Carruba is perched on the side of a hill with panoramic views of the Tyrrhenian Sea. A nightclub called Billionaire, where pizzas can cost as much as 50 euros, is just down the road. It’s a short boat ride across the bay to the mansion where former Italian Prime Minister Silvio Berlusconi held his “bunga bunga” parties. After a wave of Russian oligarchs bought villas in the area in the early 2000s, an Orthodox church was established to satisfy their spiritual needs.

Hajiyev bought his villa through an Italian shell company, Rufus S.R.L., according to an assessment of his wealth prepared by Werner Capital and corporate filings in Italy.

His daughter, Leyla Mahmudova, is listed as an administrator on a registration record filed in 2017. Rufus, in turn, was owned by a Luxembourg-domiciled company named Tiara S.A. No mortgage was recorded on the filings.

The villa filings reveal Hajiyev’s relationship to a key figure in the money flows between Azerbaijan and the West – Khagani Bashirov, who’s listed as Tiara’s administrator.

Bashirov also showed up as a director, for 18 days, of the Sardinian winery, Tenuta Masone Mannu, that Hajiyev bought in 2014 for about 5 million euros, according to Rufus filings.

Bashirov also served as a director of the U.K. company that owned Hajiyev’s private jet and was a shareholder with Zamira in an enterprise that owned an apartment in London where she lived when she first moved there around 2005, company records show.

A 59-year-old Azeri businessman and former government official, Bashirov also holds a French passport and maintains a residence in Luxembourg and company offices in London.

He was arrested in Azerbaijan in 2010 for failing to repay $109 million in loans from International Bank of Azerbaijan, then released after five months, according to a 2011 report by Radio Free Europe’s Azeri service introduced into court records.

Bashirov is also linked to companies that have moved tens of millions of dollars out of Azerbaijan, records show. The Organized Crime and Corruption Reporting Project has traced some of these entities to the Azeri Laundromat, an alleged $2.9 billion money-laundering operation that also involved the International Bank of Azerbaijan when Hajiyev was its chairman. A receptionist at a consulting firm Bashirov founded in Azerbaijan said he was out of the country, and he couldn’t be reached for comment at the London addresses where his U.K. companies are based or at a residence in Luxembourg he has listed on filings there.

Investec raised concerns about Bashirov’s connections with Hajiyev.

At the September 2015 Lumea board meeting, Ryan Dekker, managing director of the Guernsey office of Trident Trust, said the bank was “voicing concerns” about Bashirov’s dealings with Hajiyev.

Dekker, whose firm provides financial services to the wealthy, said Investec wanted to know more about the relationship. Chateau said Bashirov and Hajiyev had known each other for at least five years, the lawyer said, according to the minutes. He had “structured some vehicles” for Hajiyev and “acted as his nominee from time to time.” Chateau added that Hajiyev was now “unwinding this relationship and structuring the assets in his own name.”

Trident said it doesn’t comment on client matters but has always complied with Guernsey’s anti-money-laundering and compliance requirements.

Chateau, 63, leads Dentons’s global practice for the luxury, fashion and beauty industries from his base in New York. He also advises wealthy families and acts as a trustee for their interests, according to the firm’s website. He joined Dentons in 2013 after it merged with Salans, a Paris-based law firm where he was chairman and Enoch was a partner. It isn’t clear if Chateau started working with Hajiyev before Lumea was set up in May 2014, but Salans had an office in Baku. In 2011, Salans worked on plans to privatize the International Bank of Azerbaijan when Hajiyev was chairman, according to a 2016 report by PwC.

The Lumea minutes show that from 2014 through 2016, even as Hajiyev was being prosecuted for financial crimes, the directors were preoccupied with developing and flipping mansions in two of the world’s most exclusive luxury-housing estates.

Hajiyev had bought

• three properties in St. George’s Hill,
• a 960-acre (388-hectare) gated enclave in Surrey,
• where houses cost an average of about 6 million pounds.

With its manicured lawns, golf course and round-the-clock security, the development has been popular with Russian billionaires, including Oleg Deripaska, a target of U.S. sanctions, and Boris Berezovsky, a onetime ally-turned-enemy of President Vladimir Putin who committed suicide in 2013.

These were investment properties for the Hajiyevs, and each was placed inside its own shell company, with names like Astra and Lumen, the documents show.

After spending more than 10 million pounds buying the houses, Hajiyev’s companies borrowed millions more from EFG to raze them and build even grander residences.

One was the Warreners, a five-bedroom, Regency-style mansion with an indoor swimming pool and an elevator that lowered cars from the driveway to an underground garage.

In 2011, Werner Capital arranged for EFG to provide one Hajiyev company with a 4.6 million-pound mortgage to refinance and develop the property.

The two-year loan cost 140,000 pounds in fees and monthly interest of about 17,250 pounds, according to the minutes. Hajiyev personally guaranteed the debt.

Tomas Werner and his brother Daniel were more than property developers. As early as 2010, Hajiyev authorized Tomas Werner to manage his money, and the following year Werner Capital prepared a net-worth statement detailing his assets for EFG’s private bank.

Their firm offered to provide clients, primarily in the Russian-speaking world, with “complex, cross-border corporate governance structures” to protect their assets from “political upheaval, changes in legislation or unwarranted claims,” according to an old version of Werner Capital’s website. It also helped clients settle in the U.K., obtain residency visas and gain access to private schools for their children. Daniel Werner declined to comment.

The Werners managed every aspect of the redevelopments, from hiring builders to commissioning interior designers and security consultants, even getting the water mains and electricity connected.

They spent 210,000 pounds on “stone and ceramic works” for the Warreners and 54,000 pounds on “furniture from Italy,” the minutes show. The spending continued until Hajiyev left the bank in March 2015. A month earlier, Zamira had used credit cards issued by her husband’s bank to spend more than 140,000 pounds at Harrods on merchandise from Gucci, Fendi and Christian Dior.

By February 2016, the mood among Lumea’s directors had darkened. Bankers at EFG were running out of patience, the minutes show. Unpaid bills and stalled building projects meant that its 13 million pounds in loans were in jeopardy. Three days before that month’s meeting the Swiss bank had directed Lumea to sell one of Hajiyev’s mansions, Robin Hill, to one of its own clients for 4.5 million pounds — 2 million pounds less than the purchase price. But that wasn’t enough. EFG was also demanding that all creditors be paid and 1 million pounds be placed on secured deposit with the bank.

Trident Trust’s Dekker informed the board that if the shell companies failed to pay their debts, EFG was threatening to seize control of all the properties, the documents show. That “would result in the likely fire sale of the developments to meet the bank’s outstanding secured facility,” Dekker said. “This would not be in the interests of the beneficiaries.”

It’s unclear from the documents how much the advisers received in compensation. But with insolvency looming, some restructured their fees. At a meeting on April 15, 2016, Tomas Werner said he was owed about 200,000 pounds that he was willing to forgo in lieu of a monthly retainer of 7,200 pounds for the next 90 days. Trident also started billing on a monthly basis, charging almost 30,000 pounds for its services in March 2016, the minutes show. As for Dentons, it was owed 24,300 pounds that month.

By June of that year, Hajiyev’s finances had deteriorated so much that the directors decided to hold off paying an estate fee of 6,888 pounds to the St. George’s Hill residents’ association. Meanwhile, Zamira had hired her own lawyer to chase Lumea’s directors for her “distributions” from the proceeds of the Robin Hill sale. In the past, they had approved a $2.3 million payment from Lumea to Zamira to settle her credit-card balances, the minutes show.

Now they were rebuffing her demands, arguing that any such disbursement would trigger EFG’s takeover of the trust’s assets.

Zamira had stopped responding to their texts and emails and no longer accepted their calls. In an apparent fit of pique, the directors noted: “It was clear to the board that Mrs. Hajiyeva has a very limited understanding of trusts, her role as protector of those trusts, her entitlement as beneficiary and the consequences of unraveling the current arrangements.”

By 2018, Zamira had become the target of a new type of legal action designed to root out dirty money.

That February and April, the National Crime Agency obtained two Unexplained Wealth Orders directing her to disclose how she and her husband could afford to buy the adjoining townhouses on Walton Street for 11.5 million pounds and an 18-hole golf course and club outside London. British authorities didn’t accuse the Hajiyevs of any crimes, but Azerbaijani prosecutors charged Zamira with fraud and sought her extradition from the U.K. In September, a judge declined to send her back because there was a risk she wouldn’t receive a fair trial in a case with political implications.

Zamira argued that the NCA didn’t have grounds to target her. She asked an appeals court to throw out the orders.

On Feb. 5, a three-judge appellate panel rejected her claim and noted that Werner Capital’s tally of Hajiyev’s fortune

• “posed more questions as to the source of his wealth than it answered,”

highlighting $20 million he claimed to have earned while he was a student. Zamira has appealed the decision to the U.K. Supreme Court. If the nation’s highest court declines to accept the case she will have to show the properties were purchased with legitimate funds or the NCA could move to seize the assets. Her lawyer declined to comment.

While Unexplained Wealth Orders have passed a legal test, lawmakers must take other steps to attack the scourge of illicit finance, said Andrew Mitchell, a Conservative MP and former minister, speaking broadly about the problem. These include beefing up law enforcement agencies and bringing more transparency to the offshore world. Working with his Labour counterpart Hodge, Mitchell has backed new laws to stop the “ultimate beneficial owners” of crooked enterprises from hiding behind anonymously held shell companies. A bill that would require overseas owners of British properties to publicly disclose their holdings is winding its way through Parliament.

As useful as these measures might be, they won’t be enough to make a lasting difference unless professionals on the front lines take more responsibility for their actions, Mitchell said.

In October, Transparency International UK reported that hundreds of billions of pounds in corrupt wealth had moved through 86 banks and financial institutions, 81 law firms, 62 accounting firms and thousands of companies in Britain and its overseas territories in the past 30 years.

“Money launderers are always one step ahead of us,” Mitchell said. “If the enablers don’t take their responsibilities seriously, then we should throw the book at them.”

—With Stephanie Bodoni, Zulfugar Agayev, Jonathan Browning and Eddie Spence

 

https://www.bloomberg.com/news/features/2020-03-05/crooked-banker-tapped-professionals-to-manage-web-of-dirty-money