Court cases playing out on two continents may reveal whether the bank’s former chairman funneled money into three condos in the Manhattan luxury tower.
For eight years, Kazakhstan’s BTA Bank has waged a legal war on three continents against former Chairman Mukhtar Ablyazov. It’s a clash that has featured death threats, a hack of Kazakh government computers and at least $4 billion in missing bank assets. Now, court cases playing out on both sides of the Atlantic could pull back the curtain on whether some of those funds wound up in properties developed by former associates of Donald J. Trump.
BTA Bank, once the Central Asian nation’s biggest lender, has accused Ablyazov of embezzling billions of dollars’ worth of mines, hotels, shopping centers and other assets in the former Soviet bloc between 2005 and 2009. Even as the lender sought to recover those holdings, Ablyazov and members of his family were funneling hundreds of millions of dollars into properties in Europe and the U.S., including three condominiums in a 46-story luxury development in lower Manhattan known as Trump SoHo, court documents allege.
Ablyazov enlisted his son-in-law, Iliyas Khrapunov, to help him conceal his assets, according to sworn statements from former associates of the fugitive financier. The previously reported purchases in Trump SoHo, developed by Bayrock Group LLC in partnership with the Trump Organization, were made by members of Khrapunov’s family, the bank has alleged in court documents. Khrapunov also worked on a separate deal with Felix Sater, a former Bayrock executive and onetime adviser to Trump.
And, in a new wrinkle, emails reviewed by Bloomberg News show that BTA Bank’s current chairman, Kenges Rakishev, the man who’s now pursuing Ablyazov, considered buying a stake in Trump SoHo in 2012.
The Trump SoHo in lower Manhattan, on April 4, 2016.
Sitting in a studio apartment in Paris a few blocks from the Louvre on a balmy October afternoon, looking relaxed in a blue blazer with brass buttons, a white shirt and jeans, Ablyazov, 54, said he didn’t steal anything from BTA Bank. He also said he knows nothing about links to Trump or his former partners. “First of all, I can account for my whereabouts during this time,” he said with a laugh. “I was in jail.”
But the purported Trump link may figure in litigation underway in London and New York. In its quest to recover assets, BTA Bank has sued Ablyazov and Khrapunov family members in both cities. As the cases unfold, the bank’s lawyers plan to show how they used a constellation of shell companies to hide and launder assets. One in particular has come into focus: Swiss Development Group SA, a Geneva-based firm allegedly used to violate British court orders freezing those assets. In three days of hearings in London in November, lawyers for Khrapunov and BTA Bank sparred over the credibility of a key witness, a Ukrainian woman who once worked with Ablyazov but, the bank says, has revealed secrets of Ablyazov’s alleged laundering.
The cases could shed light on how cash flowed between Kazakhstan and the U.S. in the past decade, a time when Trump and his partners were soliciting investments in the East. It’s a period that Robert Mueller, the special counsel investigating whether the Trump campaign colluded with Russia to interfere in the 2016 U.S. election, is looking at as he examines evidence of possible money laundering and other financial malfeasance by some former associates of the president.
Kazakh investors were drawn to the allure of the Trump brand and a country with the rule of law, according to Kate Mallinson, a partner at Prism Political Risk Management Ltd. in London and an expert on Kazakhstan. “The Kazakhs learned from Russia that a Trump property was a safe place to park your money for a while,” she said, pointing out that capital flight from the country, fueled by political uncertainty, probably reached a peak in 2012.
“If the president oversteps this line, I am warning you that I will spend my last cent to take this regime down”
The Trump Organization hasn’t been accused of any wrongdoing in connection with the BTA Bank litigation. The company’s chief legal officer, Alan Garten, said it “had nothing to do with the sale of units in Trump SoHo,” which were handled by Bayrock, and had never done any business in Kazakhstan or had any dealings with Ablyazov or Khrapunov. On Nov. 22, the Trump Organization said it sold its management and licensing agreement and the president’s name would be removed from the building.
Sater and his lawyer didn’t respond to emails seeking comment. Khrapunov, 33, declined in an October interview in Geneva to comment on his relationship with Sater or Bayrock. He said he managed his own family’s investments legally and denied that SDG was a front for his father-in-law or that he had laundered any ill-gotten gains.
“The only reason they’re going after me is that I intervened to help get Mukhtar out of prison and his wife and daughter out of Kazakhstan,” Khrapunov said. “That was the turning point after which they unleashed hell on me.”
Ablyazov also rejected the bank’s claim that he deputized Khrapunov to hide his assets. “Iliyas has nothing to do with my property,” he said.
Photographer: Getty Images (5); Khrapunov: Interpol
A boyish-faced man with a passion for chess and a knack for eluding adversaries, Ablyazov is at the center of an asset hunt that has stretched from Almaty to Moscow to London and New York. When he was in a French prison from 2013 to 2016 fighting extradition to Russia on fraud charges, he fashioned a chess set out of paper and played games against himself. As the months ticked by, he wrote a treatise on the Old Indian Defense, a chess gambit designed to lull an opponent into overconfidence and make him vulnerable to counterattacks.
It appears to have worked as well for him in the legal world as on the chessboard. Ablyazov was charged with financial crimes in Russia and Ukraine. He was convicted in absentia of embezzlement in Kazakhstan and sentenced to 20 years in prison. British courts ruled he misappropriated more than $4 billion from BTA Bank, and a U.K. judge found him in contempt for violating a freeze on his assets. In 2015, Manuel Valls, then France’s prime minister, signed an order extraditing Ablyazov to Russia, where charges are still pending.
And yet, after all that, the bank has recovered less than $500 million. A French administrative court canceled the extradition decree last December, finding that Russia sought him for “a political purpose,” leaving Ablyazov a free man in Paris.
Ablyazov, who held a majority stake in BTA Bank, said in the interview that he legally owned the properties and stakes in companies he acquired during his spell as chairman. He said he earned $200 million in 2007 from his investments and that his net worth in 2009 was $6 billion. While he held his assets in shell companies in Cyprus and other offshore havens, he said he wasn’t fleecing the bank — he was trying to keep them out of the hands of Nursultan Nazarbayev, Kazakhstan’s president since 1991.
Nazarbayev has long hated him, Ablyazov said, because he has supported opposition groups and media outlets. A theoretical physicist and former minister of energy, Ablyazov did time in Nazarbayev’s jails as a political prisoner in the early 2000s. After taking control of BTA Bank in 2005, he said he spurned demands from Nazarbayev to give him a stake in the lender as an act of tribute. Certain the government was going to nationalize the bank, Ablyazov fled for the U.K. in January 2009. But he didn’t go quietly.
“When the plane passed over Russian territory and entered European airspace, I telephoned Nazarbayev’s assistant,” Ablyazov recalled. “I told him, ‘There’s no way you can stop the plane now. I know Nazarbayev intends to seize the bank. If the president oversteps this line, I am warning you that I will spend my last cent to take this regime down.’”
Ablyazov arrives under police protection at a courthouse in Lyon, France, for a hearing in his appeal trial regarding his extradition to Russia, on Oct. 17, 2014.
It was a declaration of war, and that’s what Ablyazov got. Over the next few years, the bank filed 11 civil actions in the U.K. against Ablyazov and his associates. It hired investigative firms led by former members of the British Special Forces and the CIA to track his movements and those of his family members.
Scotland Yard warned Ablyazov in 2011 that it had information indicating his life was in danger, though police officers couldn’t identify the plotters. The next year, he slipped out of the U.K. and went underground. While in hiding in May 2013, the Kazakh government forcibly returned his wife and daughter to Almaty from Rome in an apparent attempt to pressure him to turn himself in. After an uproar over what United Nations human rights officials called an “extraordinary rendition,” Kazakhstan permitted them to return to Italy seven months later.
“The charges laid against me are false, artificial and wrong,” Ablyazov said in Paris. “This is not a commercial dispute but a political persecution.”
Nonsense, said Rakishev, the current BTA Bank chairman. Sipping coffee at a conference table in his seventh-floor office at the lender’s headquarters in Almaty, the 38-year-old financier said the case isn’t about politics — it’s about money. There’s ample evidence Ablyazov used the lender like his personal piggy bank, Rakishev said.
That’s also the government’s view. “Ablyazov through his crimes did significant damage to BTA Bank and its depositors, as well as to the state,” Kazakhstan’s Ministry of Justice said in an email. It denied accusations that Nazarbayev is hounding Ablyazov for his politics.
While at BTA Bank, Ablyazov sold billions of dollars of bonds and borrowed from banks including Credit Suisse Group AG and JPMorgan Chase & Co. Then he turned around and used a unit inside the bank called UKB6 to lend money to investment projects throughout the former Soviet bloc, according to judgments entered by U.K. courts.
The borrowers were shell companies controlled by Ablyazov, the judges concluded. They said he siphoned so much capital out of BTA Bank that by the time the global financial crisis struck in 2008, the lender was crippled. The government nationalized BTA Bank in February 2009, and a few months later it defaulted on more than $12 billion of debt. Since then, the bank has been trying to recover whatever it can.
Rakishev, who has interests in mining, energy and banking in Kazakhstan, said the biggest challenge for him is Ablyazov’s allegation of political persecution. “But my task is recovering assets,” he said. “There is a business part of this issue that is clear and understandable. If Ablyazov is sure that he earned the money correctly, then he should come to court and prove it.”
Both sides will get the chance to prove their cases in the civil proceedings in London. In three days of hearings last month, Khrapunov’s lawyers asked the court to throw out a 2015 order that froze his assets, a decision that would be a blow to the bank’s efforts to recover its money. The attorneys argued that the bank is trying to connect him with real estate assets in Russia that it already recovered from Ablyazov.
At the center of the case is Ukrainian lawyer Olena Tyschenko, who was detained in Moscow in 2013 on suspicion of laundering money for Ablyazov. She agreed to cooperate with BTA Bank in exchange for the bank not pressing Russian authorities to prosecute her. Tyschenko said Khrapunov was helping his father-in-law and had been tapped to “take over all of his business,” according to a sworn affidavit from Chris Hardman, a lawyer at Hogan Lovells representing the bank.
Khrapunov’s lawyer Charles Samek urged the court not to rely on Tyschenko’s statements. “The evidence is false,” Samek said. “It’s clear that the bank was intimately involved in her arrest and detention and in the criminal proceedings against her.”
Another BTA Bank lawyer, Stephen Smith, said the bank had cooperated with Russian prosecutors but hadn’t instigated the investigation. “The bank doesn’t have the power to put people in a Russian jail,” Smith argued.
Judge Andrew Smith is expected to rule on the matter by early next year, and a trial in the case is scheduled for 2019.
“This is not a commercial dispute but a political persecution”
Ablyazov and Khrapunov may have more ammunition. In 2014, hackers penetrated the databases of Kazakhstan’s Ministry of Justice and captured 69 gigabytes of emails and documents, including confidential communications between BTA Bank’s lawyers and government officials on how to fight Ablyazov.
The British courts have admitted the material in the so-called Kazaword hack in the pending litigation. Khrapunov and Ablyazov plan to use the documents to show the bank’s asset-recovery case is a smokescreen for Nazarbayev’s politically motivated pursuit of them, a strategy that paid off in France.
Rakishev counters that Khrapunov is behind the hack. A Kazakh news site financed by Ablyazov in the past published many of the documents. “Who is the biggest benefactor of publication?” Rakishev said. “Iliyas and Mukhtar.”
Khrapunov said he had nothing to do with the attack. But, he said, “it is a relief that the truth is finally out about the extent of Kazakhstan’s corruption and persecution of my family.”
Educated at Le Rosey, a Swiss boarding school that attracts Russian elites unfazed by the six-figure annual tuition, Khrapunov hikes in the Alps and lives in a village on the shores of Lake Geneva. With an Interpol-distributed arrest warrant from Kazakhstan hanging over him, Khrapunov, a Swiss citizen, hasn’t crossed the border in four years. Lunching on grilled fish and tomato juice at a sidewalk cafe in Geneva, he came across as an easygoing man on holiday, not the adjutant of a shadowy offshore financial empire.
Yet starting in 2011, Khrapunov turned SDG into a machine for laundering his father-in-law’s wealth, according to a sworn statement filed in court by Nicolas Bourg, a Belgian businessman who had worked at SDG. In that 2016 declaration, Bourg stated that Khrapunov directed him to set up a real estate fund as an SDG subsidiary. He said he created a series of investment entities in Luxembourg that all answered to Khrapunov, and ultimately to Ablyazov.
Khrapunov, who denied the allegations, also helped launder about $300 million for his father, Viktor Khrapunov, who’s accused of embezzling the money from Almaty when he was its mayor from 1997 to 2004, according to a lawsuit the city and BTA Bank filed in federal court in New York in 2015. Both Khrapunovs, who have been indicted for fraud and other charges by Kazakh prosecutors, say the allegations are politically motivated.
Iliyas Khrapunov first crossed paths with Sater around 2008. Sater and Bayrock founder Tevfik Arif had been hopscotching from Moscow to the Cote d’Azur hitting up oligarchs for investments in Trump-branded projects since 2004, according to a person who worked at Bayrock at the time.
With his Brooklyn accent and outer-borough savvy, Sater had a gift for schmoozing investors, the person said. He clicked with Trump, and the two met often at Trump Tower to talk business. Bayrock and the Trump Organization had projects percolating in New York, South Florida, Phoenix and Denver, and were even eyeing one in Moscow. In 2008, SDG and Bayrock joined forces to turn the Hotel du Parc on Lake Geneva into 24 “ultra-luxury” residences, according to court documents in the U.S. and a Bayrock presentation.
Khrapunov family members purchased three condominiums in Trump SoHo in 2013 for a total of $3.2 million, according to lawsuits filed by BTA Bank in federal courts in New York and California. All three units were sold by 2015, two of them at a loss, public records show.
Khrapunov did a separate deal with Sater, a Russian-born dealmaker who served time in prison for stabbing a man in the face with a margarita glass in a bar fight and later pleaded guilty to taking part in stock swindles with Russian organized-crime figures. To stay out of prison, he worked as an informant to U.S. prosecutors investigating the mob’s role on Wall Street.
By 2013, an SDG subsidiary called Triadou had invested more than $114 million in four projects in the U.S., according to a company financial report, none of them connected to Trump. That April, Triadou used a shell company to purchase a foreclosed shopping center outside Cincinnati for $30 million, court documents show. The money came from an entity called Telford that was controlled by Ablyazov, Bourg said. Sater helped manage the deal. Sater has since worked as a consultant helping BTA Bank’s asset-recovery program, according to a person familiar with the arrangement.
“This case has been a civil war played out in the courts”
In 2012, before the Khrapunovs bought the three Trump SoHo condos, Rakishev was approached about purchasing a stake in the building and perhaps even the whole tower. Ever since Trump had unveiled plans for the tower in 2006, the developers had struggled to sell its 380-plus units. On Feb. 27, 2012, Rakishev received an email from Keith Rubenstein, founder of New York real estate investment firm Somerset Partners, suggesting that Trump SoHo might be available in a “distressed sale.”
“Don’t love the location, but at the right price could be interesting,” Rubenstein wrote in an email seen by Bloomberg News. “Shall we take a look at this together?”
Rakishev liked the idea. “Can we look with detail and most important is price?” he replied.
One of Rubenstein’s associates sent Rakishev a spreadsheet that showed the development had sold less than a quarter of its units and had lost $3.6 million on its food and beverage services in 2011, according to the documents seen by Bloomberg News. Rakishev said he doesn’t recall reviewing the deal. A spokesman for Rubenstein declined to comment.
Two years later, Rakishev acquired control of BTA Bank in a series of transactions with Kazakhstan’s sovereign wealth fund. Today, the bank is little more than a holding company, and its primary business is recovering the assets allegedly taken by Ablyazov.
As for Ablyazov, he hasn’t let go of his dream of toppling Nazarbayev. He’s trying to resurrect Democratic Choice of Kazakhstan, once the country’s biggest opposition group, and he regularly posts anti-Nazarbayev jeremiads on his Facebook page.
“The main task,” he said, “is to replace the dictatorial regime in Kazakhstan and build a country on the model of America and Europe.”
Kazakhstan’s Ministry of Justice may have other ideas about Ablyazov’s future. Last month, Muratkhan Tokmadi, a wealthy businessman, said in a documentary broadcast on Kazakh television that in 2004 he murdered Erzhan Tatishev, BTA Bank’s co-owner and first chief executive officer, at the direction of Ablyazov.
Tatishev was killed by a gunshot during a wolf hunt on Kazakhstan’s southern border. For years, the shooting was believed to have been an accident. But in the documentary, Tokmadi said Ablyazov instructed him to make it “look like an accidental killing.”
Prosecutors have opened an investigation. Kazakhstan’s Ministry of Justice told Bloomberg News that Tokmadi has agreed to cooperate.
“Now they will accuse me of murder,” Ablyazov said in Paris, adding that he had never met Tokmadi.
A murder charge against Ablyazov would just be the latest twist in a saga that has already featured a cyberattack, a fugitive banker and links with Trump’s real estate empire.
“For years, this case has been a civil war played out in the courts,” said John Howell, a British financial-crime consultant who assisted BTA Bank in its efforts to uncover whether Ablyazov committed fraud. “Now, with a criminal case potentially coming in, the hunt for BTA’s assets may pick up new momentum.”
— With assistance by David Voreacos
By Edward Robinson , Hugo Miller , and Nariman Gizitdinov
Bloomberg, 11 December 2017