Paul Manafort and the Spoils of Kleptocracy: Shell Games, Shady Deals and Money Laundering
This article covers Paul Manafort’s shady business dealings and potential money laundering activities with the oligarchs Oleg Deripaska and Dmytro Firtash. It is the sixth article in a series broadly examining Paul Manafort’s work in Ukraine on behalf of pro-Kremlin oligarchs and politicians. While it is not necessary to read the earlier entries, it is recommended. There is a brief summary of the previous articles below.
Part 1 covers Paul Manafort’s early career as a Republican political consultant and lobbyist.
Part 2 explains how Manafort met the organized crime-linked Russian oligarch Oleg Deripaska and how Deripaska introduced Manafort to Ukraine.
Part 3 explians how corruption and organized crime seized control of post-Soviet independent Ukraine, and led to the Orange Revolution.
Part 4 shows how Paul Manafort helped get Viktor Yanukovych, the Kremlin’s preferred Ukrainian candidate, elected as President.
Part 5 describes Paul Manafort’s activities on behalf of Oleg Deripaska outside of Ukraine, and how Deripaska uses his wealth to spread influence abroad.
Summary of Past Articles: Paul Manafort is a Republican political consultant who has provided consulting services to foreign dictators. After working on Bob Dole’s presidential campaign with Republican Rick Davis, they formed the consulting firm Davis Manafort Partners. DMP was hired by the Russian oligarch and Putin ally, Oleg Deripaska, to represent his interests abroad. Manafort was sent to Ukraine to advise the Kremlin’s preferred presidential candidate Viktor Yanukovych after his fraudulent election victory had been overturned by the Orange Revolution. In a stunning turn around, Manafort succeeded in helping get Yanukovych elected as the Ukrainian President. In addition to Ukraine, Manafort represented pro-Kremlin interests in other post-Soviet states on behalf of Deripaska. Meanwhile, Deripaska wined and dined American and EU officials to promote his business interests.
This article is an excerpt from my book, While We Slept: Vladimir Putin, Donald Trump, and the Corruption of American Democracy, available here.
PAUL MANAFORT, OLEG DERIPASKA AND THE SHADY BLACK SEA CABLE DEAL
In addition to successfully resuscitating the political career of the pro-Russian Ukrainian presidential candidate Viktor Yanukovych, Paul Manafort engaged in a series of suspect business dealings with the oligarchs Oleg Deripaska and Dmytro Firtash, both of whom have alleged connections to the highest levels of Eurasian organized crime the details of which are covered in Part 2 and Part 3 of this series.
In certain cases, Manafort’s activities with these oligarchs fit the profile of money laundering activities. In 2019, Manafort was convicted or pled guilty to multiple financial crimes, including money laundering. At this writing, the Justice Department is suing Manafort for possessing undeclared offshore accounts.
Assisting Manafort in his business dealings in Ukraine and other post-Soviet states was his new deputy Rick Gates. Gates had previously interned at Black, Manafort and Stone was close with Rick Davis.
As Manafort’s partner Rick Davis, who had originally connected their firm Davis Manafort Partners with Deripaska, became more involved managing John McCain’s 2008 presidential campaign, Gates took over his responsibilities and worked closely with Manafort in Ukraine.
Gates, who later worked under Manafort on the 2016 Trump campaign, also played a pivotal role in Manafort’s business dealings with Deripaska.
At the same time he provided political consulting services for pro-Kremlin interest in Ukraine, Manafort also ostensibly pursued local business opportunities. In order to do so, he set up an opaque, offshore investment vehicle. On March 26th, 2007, Pericles Emerging Market Partners, L.P. was registered in the Cayman Islands.
Rick Davis, Rick Gates and Paul Manafort were listed as the initial members of the company’s investment committee. Davis, however, was at the time heavily involved with the McCain presidential campaign and was entirely unaware of the Pericles venture. As a result, Davis was cut out of the consulting fees. Upon learning about his exclusion following the conclusion of the McCain campaign, an angry Davis disassociated himself from his partnership with Manafort.
The task of managing Pericles fell to Rick Gates, who took care of day to day operations.
Konstantin Kilimnik, an alleged Russian intelligence officer who worked for Manafort in Ukraine and whose background is covered in Part 4 of the series, was involved with the company’s investment program.
In addition to Kilimnik, a member of the pro-Russian Party of Regions political party that Manafort had been advising, Alexander Balanutsa, was also involved.
Pericles was theoretically formed to make private equity investments in Ukraine, Russia and other countries within the Commonwealth of Independent States (former Soviet Union), Montenegro, and eastern and southern Europe.
Pericles was also to maintain a “strategic relationship” with Pegasus Capital Advisors, a firm Davis and Manafort had been advising since 2004.
Deripaska was to be the sole investor in Pericles and pledged to invest up to $200 million through affiliated investment vehicles.
While Pericles had been set up to make numerous investments, it only ever made one. In July of 2007, Deripaska created a company called Surf Horizon Ltd., registered in Cyprus and provided Pericles with $18,938,400. Deripaska’s ownership of Surf Horizon was disclosed in a Hong Kong stock exchange filing.
The money was used to purchase a stake in Black Sea Cable, a Ukrainian telecom company based in Odessa that reportedly controlled 45% of the city’s telecommunications infrastructure.
Manafort structured the investment in a byzantine and peculiar way. Deripaska was to send the money to a Cyprus-based shell company PEM Advisors Limited, which would then “loan” the money to yet another Cypriot legal structure known as a “special purpose vehicle” (SPV).
Transferring the money in the form of a loan would allow them to avoid Cypriot taxation. The SPV would then be transferred to yet another Manafort-owned holding company, EVO Holdings, which itself was controlled by a UK-based “controlling” company Colberg Projects LLP.
Colberg Projects was then supposed to make the actual purchase of Black Sea Cable. Whether it actually ever did so and in what form is unclear.
Manafort charged Deripaska a remarkable $7.35 million in management fees.
According to an extensive investigation conducted by investigative reporters with BuzzFeed News, Colberg Projects LLP is a part of a network of 127 UK-based shell companies registered to the same handful of London offices. When asked, no one at these offices had ever heard of Colberg or any of the other companies.
Many of the companies in the network list their annual income as the same as the year the account was due, for example £2,016 for year 2016.
Nearly a third of the companies, which have extensive links to companies and individuals in Ukraine and the former Soviet Union, face accusations of tax evasion, fraud and corruption.
The companies in the shell network share the same corporate structure. They were first established and operated by two firms based in the British Virgin Islands, Ireland & Overseas Acquisitions and Milltown Corporate Services, both of which have been linked to vast money laundering schemes involving the theft of state assets in Ukraine, Russia and Azerbaijan.
These firms were then replaced by two shell companies registered in the Seychelles, Intrahold A.G. and Monohold A.G. Lastly, the shell network was taken over by Talberg Ltd. and Uniwell Inc., two companies registered in the secretive Caribbean offshore haven Nevis.
Yet another link threading through the UK-based shell network is the shadowy figure of Ali Moulaye. Moulaye is listed on the paperwork of all 127 companies, including Colberg Projects LLP, and yet in reality he works as a dentist in Brussels, Belgium. Prior to living in Brussels, Moulaye lived in Latvia, a hotbed of money laundering coming out of the former Soviet Union.
According to BuzzFeed, court documents suggest that after the money went to Colberg Projects LLP, Manafort never actually made the purchase of Black Sea Cable. There may be a simple reason for this.
Black Sea Cable’s management was close to the Party of Regions and its assets were controlled at various times by different shell companies linked to Viktor Yanukovych.
One such entity was none other than Milltown Corporate Services, the same entity that set up Colberg Projects LLP.
Just as Colberg used Ali Moulaye as a faux company director, Milltown had its own in the person of Stan Gorin. Gorin is an insurance broker living in the Latvian capital city of Riga.
He and a fellow Latvian, Erik Vanagels, are attached to hundreds of corporations around the world from New Zealand to Panama. Vanagels has been described half-blind vagrant living in Riga’s streets.
Curiously, Stan Gorin was also at one point listed as the owner of an entity used by the CIA in 2004 to purchase a horse riding academy outside of Vilnius, Lithuania that was converted into a secret prison (AKA Black Site) used for the harsh interrogations of al-Qaeda detainees.
Other entities that owned Black Sea Cable at one time or another were the very same companies that at one point also owned Colberg Projects, Monohold A.G and Intrahold A.G.
Both companies were investigated by the Seychelles Financial Intelligence Unit in 2014 for money laundering related to the embezzlement of state resources by the Yanukovych government.
The Black Sea Cable deal gives every impression of being a money laundering scheme through which Russia, via Deripaska, provided Viktor Yanukovych and the Party of Regions with a direct cash infusion in the lead up to the 2010 presidential election.
In this alleged scenario, Deripaska’s payment to Manafort was a “loan” in name only, which Manafort would have understood that Deripaska never intended to collect. In other words, it was a bribe disguised a loan to the Yanukovych-led Party of Regions concealed through a web of opaque, offshore shell companies.
Manafort’s unjustifiable $7.35 million fee in this context could be interpreted as a simple payoff.
By structuring the payments in the form of “loans,” they managed not only to avoid Cypriot taxes, but provided Deripaska and by extension Putin with potential leverage, should they ever choose to collect on their “loan,” over an influential and well-connected Republican strategist with extensive ties to the highest levels of the American political establishment.
“Money launderers frequently will disguise payments as loans,” according to former federal prosecutor Stefan Cassella. “You can call it a loan, you can call it Mary Jane. If there’s no intent to repay it, then it’s not really a loan. It’s just a payment.”
The Black Sea Cable deal was the only investment ever made by Pericles and while there were in theory plans for further investments none ever materialized.
Regardless of whether or not Deripaska had originally intended to collect on the loan he provided to Manafort related to the Black Sea Cable purchase, events conspired to disrupt their plans.
The global financial crisis and the collapse of aluminum prices in the fall of 2008 devastated Deripaska’s various business interests. On the brink of financial ruin, Deripaska was saved by a $4.5 billion bail-out loan from the Kremlin-controlled Vnesheconombank.
The price for the bail-out appeared to be public humiliation during a staged bit of political theater. Deripaska was called to appear before Putin during a televised meeting held at a factory in the economically reeling Russian industrial city of Pikalyovo.
Putin berated the gathered industrialists as “cockroaches” and demanded that they sign a document pledging to keep the local factory open. After Deripaska signed the document, Putin snapped at him, “And give me back my pen.”
The chastised oligarch returned Putin’s pen.
He then turned around and approached his old friends, the British branch of the famous Rothschild banking family, to have their bank restructure Rusal’s $14 billion debt burden.
By the end of the year the worst was over and Deripaska had returned from the brink of disaster. Deripaska’s friend and advisor, the young financier Nathaniel “Nat” Rothschild, was rewarded for his services by getting in on the ground floor of Rusal’s IPO, which was floated on the Hong Kong stock exchange and raised $2.2 billion in January of 2010.
In addition to Nat Rothschild, cornerstone investors in the IPO included the New York-based hedge funds Paulson & Co. and BlackRock, Chinese-Malaysian billionaire Robert Kuok Hock Nien and Vnesheconombank.
During his financial troubles, Deripaska’s financial representatives contacted Manafort and asked that he liquidate Pericles and return his share of the money. Thus began the apparent deterioration of the Manafort-Deripaska relationship.
Rick Gates, who had visited Deripaska’s office twice in Moscow and was the contact for all Pericles related matters maintained that an audit of Black Sea Cable was underway but the results never arrived.
By 2011, Manafort had stopped responding to Deripaska’s entreaties. A 2014 Cayman Island court filing made on behalf of Deripaska’s investment vehicle Surf Horizon against Pericles stated, “[i]t appears that Paul Manafort and Rick Gates have simply disappeared.”
At this point we must ask ourselves the following question: why would Paul Manafort attempt to rip off his client Oleg Deripaska, a powerful Russian oligarch with connections to the highest levels of the Kremlin, the Russian intelligence services, and allegedly Eurasian organized crime?
Does it not seem more likely that Deripaska simply chose to call in his “loan” to Manafort, the majority of which found its way to shell companies linked to Yanukovych and the Party of Regions, as a way to lean on Manafort during a time in which Russia was attempting to pressure Viktor Yanukovych to end his flirtation with joining the EU?
There are no definitive answers to these questions publicly available, but the idea that Manafort intentionally ripped off Oleg Deripaska with no apparent back up plan seems highly suspect.
MANAFORT AND DMYTRO FIRTASH: ALLEGED MONEY LAUNDERING IN NEW YORK CITY REAL ESTATE
Deripaska wasn’t the only Putin-linked oligarch Manafort attempted to go into business with. In 2008 Manafort attempted to partner with the Ukrainian natural gas billionaire Dmytro Firtash in an aborted $850 million deal to purchase the Drake Hotel in New York and convert it into a 70-story luxury office and residential space that would have been called Bulgari Tower.
In a July 2008 memo, Rick Gates wrote that the planned tower would generate “over $3 billion in value as a result of the unique combination of retail, smart office space, residential, and a luxury hotel.”
Firtash’s connections to the corrupt Ukrainian natural gas trade, his ties to banks associated with Vladimir Putin, and his alleged connections to the Eurasian organized crime boss Semyon Mogilevich were covered in Part 3 of this series.
On June 9th, 2008 the real estate development company CMZ Ventures was incorporated in Delaware and listed its controllers as Paul Manafort, Arthur & Karen B. Cohen and Brad S. Zackson. CMZ (short for Cohen, Manafort, Zackson) would go on to be described in the real estate publication Commercial Observer as “one of the more bizarre development teams ever assembled in the city.”
While Manafort was new to the real estate business, both Arthur Cohen and Brad Zackson were seasoned New York developers, and both had experienced previous run-ins with law.
In 1998, Cohen was accused of defrauding and contributing to the failure of CorEast Savings Bank. In a criminal complaint he was alleged to have committed bank fraud, misapplication of bank funds, bribery, illegal loan participation, falsification of bank records and conspiracy to violate federal banking laws.
Cohen moved millions of dollars of bank loans into dodgy New York City construction projects that he clandestinely held ownership stakes in. The case was settled following a civil lawsuit. Cohen paid the federal government $4.5 million.
Zackson was a convicted felon who had worked as a real estate developer for Donald Trump’s father Fred Trump.
In 1981, Zackson was arrested on charges of criminal possession of a weapon and attempted murder after he tried to shoot a night club bouncer and was sentenced to seven years in prison.
After serving his time, Zackson became a rental broker and enjoyed success in renting out units in several of Fred Trump’s buildings. One day the elder Trump summoned him to his office in his limo and placed him in charge of the Trump Organizations Queens buildings.
Manafort had known Donald Trump since Roger Stone had brought him on as a lobbying client in the days of the lobbying firm Black, Manafort and Stone.
In 2006, Manafort purchased a Trump Tower apartment for $3,675,000 using an LLC called John Hannah. Manafort’s middle name is John and Hannah is the middle name of Rick Davis.
According to Franklin Foer, Manafort “would kibitz with his old client [Trump] when they’d run into one another on the elevator.” Also according to Foer, McCain aides suspected that Oleg Deripaska had purchased the Trump Tower apartment for Manafort and Davis, and went as far as to mention it to the Senator. The claim, however, remains in the realm of unsubstantiated rumor.
Manafort, Cohen and Zackson looked at billions of dollars worth of properties, including Manhattan House, the Helmsley Hotel and two Bahamanian islands. However, they ultimately negotiated a deal with real estate investor and developer Harry B. Macklowe to purchase the site of the Drake Hotel for $850 million. In his search to secure financing for the deal, Manafort met and discussed the deal with Deripaska on June 30th, 2008.
“When Paul met with Mr. D [Deripaska] last month he told Paul to lock in the other financing elements and then come back to him for the final piece of investment,” Rick Gates wrote in an email to Deripaska associates Anton Vishnevsky and Andrey Zagorsky on July 1st, 2008.
He continued, “[w]e need to finalize Pericles’ participation in this deal, as the final component in the financing structure, in the next two weeks to lock in the deal.” He finished by saying he was “available to come to Moscow immediately to discuss and finalize the details of the transaction.”
While Deripaska never ultimately provided any financing for the project, Manafort made more progress with Dmytro Firtash.
On November 6th, Group DF [Dmytro Firtash] Real Estate, a subsidiary of Firtash’s holding company Group DF, wrote to Manafort that Firtash was willing “to provide $112 million in equity for the project.” He continued, “Group DF has executed a deposit of $25 million into escrow for the project.”
The cash funds arrived via wire transfer and were placed into an escrow account accessible to Manafort established by First American Title Insurance Co.
The deal for the Drake Hotel site never came to pass.
By March of 2009, the deal was in trouble and Zackson even considered attempting to bring Donald Trump into the mix, writing in an email, “I have an idea to bring Trump in on the Drake. I think it solves a lot of issues right away.”
Trump was never involved in the deal, which eventually fell through.
In a subsequent lawsuit filed by former Ukrainian Prime Minister Yulia Tymoshenko, it was alleged that Manafort and Firtash had never intended for the deal to go through but rather used it as a faux investment to launder money.
Tymoshenko’s RICO lawsuit, filed in the Southern District Court of New York by former federal prosecutor Kenneth F. McCallion, alleged that the Drake funds provided by Firtash had been “skimmed” from the Gazprom and Eurasian organized crime-linked company RosUkrEnergo, which Firtash owned a large stake in allegedly as a front for Semyon Mogilevich.
The lawsuit listed Semyon Mogilevich as Firtash’s “silent partner.” Though the suit did mention Firtash’s admission to US Ambassador to Ukraine William Taylor that he had to get Mogilevich’s permission to become involved in the natural gas business, it did not provide any direct evidence of Mogilevich’s involvement in the Drake transaction.
The suit further alleged that the money Firtash sent to the U.S. was eventually filtered back to Ukraine to fund Yanukovych’s campaign for President.
“They [CMZ] had hundreds of companies and bank accounts and got wire transfers in from the Firtash people, supposedly looking at real estate stuff,” McCallion said in an interview with the New York real estate publication The Real Deal. “But it ended up being one large money laundering operation.”
Referring to the fact that the deal never went through, McCallion stated, “It’s not strange if you’re basically in the money laundering business — that’s the way to do it… You don’t really want to close on deals, [because] then your money is tied up in brick-and-mortar. Whereas if you’re just collecting money for a deal, you can keep moving it around.”
Tymoshenko’s lawsuit was ultimately dismissed. New York Federal Judge Kimba Wood didn’t dispute the facts laid out in the case, but wrote, “[w]ithout specifying the particular contribution of each defendant to the money-laundering scheme, plaintiffs fail to establish the requisite directness of relationship between each defendant’s conduct and the harm suffered by Tymoshenko.”
Tymoshenko’s RICO case was not the only legal complaint filed against CMZ. Former CMZ employee Scott Snizek filed a whistleblower report with the New York State Department of Labor’s Fraud Unit accusing the company of “ not filing employee or tax documents or paying employees.”
The U.S. Attorney in Manhattan conducted an inquiry into CMZ before passing the case on to federal prosecutors.
In 2009, Oleg Deripaska was caught up in a money laundering investigation being conducted by Spanish authorities. Deripaska was believed to be the co-owner with Mikhail Chernoy and the Uzbek-born Russian billionaire Iskander Makhmudov of Vera Metallurgica, a Valencia-based company Spanish authorities suspected of being involved in an international money laundering scheme.
Makhmudov has been linked by Spanish prosecutors to organized crime.
In May of 2010, the Spanish National Court Judge Fernando Andreu arrived in Moscow and questioned Deripaska. The investigation was handed off to Russian authorities and nothing has been heard about it since.
On November 26th, 2019, the Transborder Corruption Archive, a project run by the EU-Russia Civil Society Forum’s Expert Group on Combating Transborder Corruption, posted an “undated unsigned report” made by Spanish law enforcement.
A translation of the report states, “Michael Cherney [AKA Mikhail Chernoy] and Oleg Deripaska are directly related to the Russian organized crime group Izmailovskaya where Mr. Cherney is an absolute leader of the economic section. Mr Deripaska built his first fortunes, firstly, through one or more controlled companies that were used to meet certain criminal purposes of the organization, and secondly, designing dirty money laundering schemes.”
The report continues, “Deripaska is currently making a special effort to dissociate himself entirely from the criminal circles with which he collaborated previously. And as indicated above this is the case of Cherney and Izmailovskaya. To be exact, the main purpose of this attitude is to achieve a relevant role in the group of oligarchs closest to the Russian administration. For that he tries to play the same role as the oligarch Roman Abramovich who is attributed the role to manage the private economic interests of Vladimir Putin.”
At this writing, probes into potential money laundering linked to Deripaska are ongoing.
As recently as December of 2018, British authorities raided a storage unit owned by Terra Services, Ltd, a real estate company owned by Deripaska until he handed it over to Pavel Ezubov in January 2018. Ezubov’s name matches that of Deripaska’s cousin.
In October of 2021, the FBI raided a Washington, D.C. residence owned by Deripaska.
The next article in the series will explore Manafort’s lobbying activities in Europe and the United States on behalf of Ukraine’s pro-Kremlin president Viktor Yanukovych and the events leading up to the Maidan Revolution of Dignity.
Part 7 shows how Paul Manafort and the law firm Skadden Arps laundered Viktor Yanukovych’s reputation.
Part 8 reveals how Manafort assembled a public relations team to smear Viktor Yanukovych’s political opponents.
Part 9 explains how Manafort lobbied on behalf of Viktor Yanukovych in the halls of the Capitol in Washington, DC.