Tuesday, August 1, 2017

Coming Clean: The Great Russian Dirty-Money Caper That Wasn't

One of U.K. police’s biggest money-laundering cases collapses; Cops returned $22 million seized in hunt for ‘Russian’ gang.


By Suzi Ring and Patrick Gower
Bloomberg
August 1, 2017

The story coming out of the City of London Police that afternoon was startling.

In the heart of the City, Europe’s financial capital, officers had arrested a broker at the U.K. offices of Archer-Daniels Midland Co. who authorities believed was laundering money for a Russian gang.

Even more tantalizing: it would later come out that at least one of the trading firms said to be involved appeared to have distant links to Russian President Vladimir Putin.

But what seemed like a small victory in Britain’s long struggle against dirty money soon turned into a year-long ordeal of misread clues, unsubstantiated allegations and, ultimately, embarrassing reversals.

The story of how this case came together -- and then blew apart -- is a tale for these byzantine financial times. Like countries around the world, Britain is struggling to combat a global wave of money laundering. Six weeks after the March 2016 arrest, then-Prime Minister David Cameron held a much-watched summit to showcase the U.K. as a leader in tackling corruption. Despite efforts by authorities and banks, an estimated 90 billion pounds ($119 billion) of dirty money courses every year through the U.K. alone.

Even successes in Britain’s fight have come with a catch. Authorities fined Deutsche Bank AG 163 million pounds, only after the bank informed them that it had helped customers transfer about $10 billion of suspicious funds out of Russia through London over a three-year period. It took a 2014 study by the Organized Crime and Corruption Reporting Project to prompt an investigation into an estimated $20 billion moved out of Russia through Europe tied to a network dubbed the Global Laundromat.

Record Seizure


The City of London case in question winds from several obscure trading firms, to the commodities giant ADM, to the Intercontinental Exchange Inc., which operates more than a dozen exchanges and marketplaces, including the venerable New York Stock Exchange.

Authorities seized $22 million -- supposedly one of the biggest hauls of suspect money in City of London police history -- only to realize belatedly they’d done so illegally.

This story is based on court filings, documents and interviews with people involved in the case who asked not to be identified because the investigation has ended and some of the details haven’t been public.

It begins in May 2015, when ICE notified British authorities of potential suspicious trading in the market for oil futures. The activity involved a trading firm registered in the British Virgin Islands, Bunnvale Ltd., and two Russian oil-trading firms that the exchange knew little about -- an immediate red flag for investigators.

‘Innocent Explanations’


Bunnvale was consistently making money on trades with the two firms, according to the ICE report, which was seen by Bloomberg News. While such behavior often arises in front running or money laundering cases, there were potentially “innocent explanations,” ICE noted.

One firm, Merida Oil Traders Ltd., has links to Vladimir Kogan, a businessman once known as Putin’s banker due to his stake in a lender where Putin held personal savings, according to people familiar with the firm. The other, Intoil SA, has links to the Russian billionaire Sergei Kislov. Spokesmen for Kogan and Kislov declined to comment.

An ADM broker seemed to be in the middle of it, ICE told the U.K. Financial Conduct Authority.

And with that, the wheels were in motion. The FCA handed the case to the City of London Police, which opened an investigation in February 2016. One month later, plainclothes police arrested Dzmitry Niadzvetski as he walked into ADM’s office building overlooking the River Thames just after dawn.

Case Unravels


Almost from the start, it began to fall apart. Niadzvetski, who authorities said was Russian, turned out to be British and Belarusian. Police took the unusual step of forcing ADM to write checks to cover $22 million in frozen accounts. Three of the four firms sued, claiming the police had acted illegally. Questions arose about information given by one of the detectives involved to a judge authorizing the seizure.

Through it all, the City of London Police never revealed the identity of the alleged Russian gang. Nor did authorities say what, if any, crimes had been committed.

Finally, after a year of false clues and dry leads, the case was quietly closed.

Niadzvetski said his experience shows “how things can so easily be misjudged.” He added that the case led to “my career and personal reputation being tainted and destroyed by nothing more than spurious ‘circumstantial’ allegations based on erroneous data handling.”

Jasvinder Nakhwal, a lawyer representing Bunnvale and sister company Ticom Management LLC, called police behavior in the case “highly regrettable.” The case seemed to hinge on the firms’ nationalities rather than on hard evidence, the Peters & Peters partner said.

‘Grateful For Clarity’


“It is difficult to understand why the police used an unlawful mechanism to seize our clients’ funds, other than as a means by which to avoid judicial scrutiny of allegations that appear to have been founded more on the fact that the companies are largely Russian than on any evidence,” Nakhwal said.

Spokesmen for ADM and ICE declined to comment, as did a lawyer for Intoil. A lawyer for Merida didn’t respond to requests for comment.

The City of London Police declined to comment beyond confirming the investigation has been dropped. In April, after a court ordered the money be returned, a spokeswoman for the agency said they were “aware this was a test case with no existing legal precedent to follow,” adding that they were “grateful to the court for clarity in this matter.”

The enormity of questionable money flowing through London and the bungled attempt to seize $22 million point to larger problems with authorities tasked with tackling laundering.

“We’ve got hundreds of billions of pounds being laundered through U.K. banks or their subsidiaries around the world and hundreds of millions of pounds worth of property in London being held through suspect funds,” said Murray Worthy, a senior campaigner who works on money-laundering issues for Global Witness, a nonprofit London-based group. He praised new measures designed to combat money laundering but said the U.K., and the City, still have a long way to go.

“So while we’ve seen some very good progress, we’re still a very long way from stopping the U.K. playing that role,” Worthy said.


Article Link To Bloomberg: